UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
Commission File Number 0-26016
PALMETTO BANCSHARES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
South Carolina 74-2235055
--------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
301 Hillcrest Drive
Laurens, South Carolina
29360
--------------------------------------------
(Address of principal executive offices)
(Zip Code)
(864) 984-4551
--------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 1, 1999
----------------------------- -------------------------------
Common stock, $5.00 par value 3,107,617
<PAGE>
PALMETTO BANCSHARES, INC.
Quarterly Report on Form 10-Q
For the Quarter and Nine Months Ended September 30, 1999
INDEX Page No.
----- --------
PART I - FINANCIAL INFORMATION
- ------------------------------
Consolidated Balance Sheets at September 30, 1999 and
December 31, 1998 1
Consolidated Income Statements for the Three Months
Ended September 30, 1999 and 1998 2
Consolidated Income Statements for the Nine Months
Ended September 30, 1999 and 1998 3
Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1999 and 1998 4-5
Consolidated Statements of Changes in Shareholders' Equity
and Comprehensive Income for the Nine Months Ended
September 30, 1999 and 1998 6
Notes to Consolidated Interim Financial Statements 7 - 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 18
PART II - OTHER INFORMATION 19-20
- ---------------------------
SIGNATURES 21
- ----------
<PAGE>
PALMETTO BANCSHARES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
September 30, 1999 December 31, 1998
-----------------------------------------
Assets (unaudited)
Cash and due from banks $ 34,327 $ 27,929
Federal funds sold 1,644 110
Federal Home Loan Bank stock, at cost 1,733 1,541
Investment securities held to maturity (market values of $0
and $68,737 in 1999 and 1998, respectively) - 66,455
Investment securities available for sale (amortized cost of $124,165
and $45,551, in 1999 and 1998, respectively) 121,293 46,087
Loans held for sale 1,273 2,122
Loans 438,712 413,266
Less allowance for loan losses (6,369) (5,795)
---------------------------------------
Loans, net 432,343 407,471
Premises and equipment, net 15,697 14,347
Accrued interest 4,551 4,499
Other assets 9,997 6,839
---------------------------------------
Total assets $ 622,858 $ 577,400
=======================================
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Non-interest-bearing 87,219 83,788
Interest-bearing 445,790 415,885
---------------------------------------
Total deposits 533,009 499,673
Securities sold under agreements to repurchase 16,754 21,630
Commercial paper (Master note) 16,807 10,859
Federal funds purchased 9,100 -
Other liabilities 2,532 3,153
---------------------------------------
Total liabilities 578,202 535,315
---------------------------------------
Common stock subject to put/call option (ESOP) - 4,732
Shareholders' Equity:
Common stock-$5.00 par value. Authorized 10,000,000 shares;
3,104,117 issued and outstanding in 1999; and
3,099,695 issued and outstanding in 1998 15,520 15,498
Capital surplus 332 293
Retained earnings 30,570 25,964
Accumulated other comprehensive income (loss) (1,766) 330
Common stock subject to put/call option, 270,384 common
shares at $17.50 per share in 1998 (ESOP) - (4,732)
---------------------------------------
Total shareholders' equity 44,656 37,353
---------------------------------------
Total liabilities and shareholders' equity $ 622,858 $ 577,400
=======================================
</TABLE>
See accompanying notes to consolidated interim financial statements.
1
<PAGE>
PALMETTO BANCSHARES, INC. AND SUBSIDIARY
Consolidated Income Statements (Unaudited)
Three Months Ended September 30, 1999 and 1998
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
--------------------------------------
Interest income:
Interest and fees on loans $ 9,282 $ 8,656
Interest and dividends on investment securities available for sale:
U.S. Treasury and U.S. Government agencies 261 180
State and municipal 882 165
Mortgage-backed securities 398 100
Interest and dividends on investment securities held to maturity:
U.S. Treasury and U.S. Government agencies - 226
State and municipal - 498
Mortgage-backed securities - 340
Interest on federal funds sold 120 54
Dividends on FHLB stock 36 31
--------------------------------------
Total interest income 10,979 10,250
--------------------------------------
Interest expense:
Interest on deposits 3,807 3,833
Interest on securities sold under agreements to repurchase 153 175
Interest on federal funds purchased 20 21
Interest on commercial paper (Master note) 150 143
--------------------------------------
Total interest expense 4,130 4,172
--------------------------------------
Net interest income 6,849 6,078
Provision for loan losses 741 570
--------------------------------------
Net interest income after provision for
loan losses 6,108 5,508
Non-interest income:
Service charges on deposit accounts 1,004 867
Fees for trust services 622 335
Other income 566 463
--------------------------------------
Total non-interest income 2,192 1,665
Non-interest expense:
Salaries and other personnel 2,609 2,292
Net occupancy 523 461
Furniture and equipment 531 453
FDIC assessment 15 54
Postage and supplies 253 266
Marketing and advertising 130 105
Telephone 210 163
Other expense 1,035 900
--------------------------------------
Total non-interest expense 5,306 4,694
--------------------------------------
Income before income taxes 2,994 2,479
--------------------------------------
Income tax provision 897 755
--------------------------------------
Net income $ 2,097 $ 1,724
======================================
Decrease in fair value of ESOP stock - 75
--------------------------------------
Net income on common shares not subject to put/call $ 2,097 $ 1,799
======================================
Net income per share-basic, not subject to put/call $ 0.68 $ 0.56
Net income per share-dilutive, not subject to put/call $ 0.66 $ 0.54
Cash dividends declared per share $ 0.16 $ 0.13
</TABLE>
See accompanying notes to consolidated interim financial statements.
2
<PAGE>
PALMETTO BANCSHARES, INC. AND SUBSIDIARY
Consolidated Income Statements (Unaudited)
Nine Months Ended September 30, 1999 and 1998
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998
---------------------------------------
<S> <C> <C>
Interest income:
Interest and fees on loans $ 27,308 $ 25,590
Interest and dividends on investment securities available for sale:
U.S. Treasury and U.S. Government agencies 701 572
State and municipal 2,551 354
Mortgage-backed securities 1,161 165
Interest and dividends on investment securities held to maturity:
U.S. Treasury and U.S. Government agencies - 742
State and municipal - 1,469
Mortgage-backed securities - 1,102
Interest on federal funds sold 224 188
Dividends on FHLB stock 101 87
---------------------------------------
Total interest income 32,046 30,269
---------------------------------------
Interest expense:
Interest on deposits 11,159 11,363
Interest on securities sold under agreements to repurchase 427 524
Interest on federal funds purchased 100 59
Interest on commercial paper (Master note) 369 395
---------------------------------------
Total interest expense 12,055 12,341
---------------------------------------
Net interest income 19,991 17,928
Provision for loan losses 1,772 1,412
---------------------------------------
Net interest income after provision for
loan losses 18,219 16,516
Non-interest income:
Service charges on deposit accounts 2,830 2,545
Fees for trust services 1,450 1,005
Other income 1,638 1,227
---------------------------------------
Total non-interest income 5,918 4,777
Non-interest expense:
Salaries and other personnel 7,495 7,153
Net occupancy 1,407 1,297
Furniture and equipment 1,519 1,323
FDIC assessment 117 148
Postage and supplies 810 793
Marketing and advertising 545 529
Telephone 588 450
Other expense 3,023 2,568
---------------------------------------
Total non-interest expense 15,504 14,261
---------------------------------------
Income before income taxes 8,633 7,032
---------------------------------------
Income tax provision 2,629 2,148
---------------------------------------
Net income $ 6,004 $ 4,884
=======================================
Increase in fair value of ESOP stock - (950)
=======================================
Net income on common shares not subject to put/call $ 6,004 $ 3,934
=======================================
Net income per share-basic, not subject to put/call $ 1.93 $ 1.40
Net income per share-dilutive, not subject to put/call $ 1.88 $ 1.36
Cash dividends declared per share $ 0.45 $ 0.37
</TABLE>
See accompanying notes to consolidated interim financial statements.
3
<PAGE>
PALMETTO BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 1999 and 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
---------------------------------------
Cash flows from operating activities:
Net income $ 6,004 $ 4,884
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,925 2,026
Gain on sale of investment securities (30) (141)
Provision for loan losses 1,772 1,412
Origination of loans held for sale (24,658) (25,595)
Sale of loans held for sale 25,713 24,314
Gain on sale of loans (206) (217)
Change in accrued interest receivable (52) (93)
Change in other assets (2,347) (2,067)
Change in other liabilities, net 691 677
---------------------------------------
Net cash provided by operating activities 8,812 5,200
Cash flows from investing activities:
Purchase of investment securities held to maturity - (1,559)
Purchase of investment securities available for sale (40,244) (21,446)
Proceeds from maturities of investment securities held to maturity - 4,000
Proceeds from maturities of investment securities available for sale 11,865 1,030
Proceeds from sale of investment securities available for sale 10,186 8,584
Principal paydowns on mortgage-backed securities held to maturity - 6,229
Principal paydowns on mortgage-backed securities available for sale 6,020 349
Purchase of Federal Home Loan Bank stock (192) (89)
Net increase in loans (26,644) (31,571)
Purchases of premises and equipment (2,526) (2,131)
---------------------------------------
Net cash used in investing activities (41,535) (36,604)
Cash flows from financing activities:
Net increase in deposit accounts 19,184 24,663
Acquisitions of deposits, net 12,636 2,029
Net increase (decrease) in securities sold under agreements
to repurchase (4,876) 1,293
Net increase in commercial paper 5,948 1,909
Net increase in federal funds purchased 9,100 7,325
Proceeds from issuance of common stock 61 10
Retirement of common stock - (75)
Dividends paid (1,398) (1,143)
---------------------------------------
Net cash provided by financing activities 40,655 36,011
---------------------------------------
Net increase in cash and cash equivalents 7,932 4,607
---------------------------------------
Cash and cash equivalents at beginning of the period 28,039 25,927
---------------------------------------
Cash and cash equivalents at end of the period $ 35,971 $ 30,534
=======================================
</TABLE>
(Continued)
4
<PAGE>
PALMETTO BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued (Unaudited)
Nine Months Ended September 30, 1999 and 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
---------------------------------------
Supplemental Information:
Cash paid during the period for:
Interest expense $ 12,101 $ 12,411
=======================================
Income taxes 2,544 1,817
=======================================
Supplemental schedule of non-cash investing and financing transactions:
Change in unrealized gain on investment securities available
for sale (2,096) 211
=======================================
Transfer of investment securities held to maturity to available
for sale 66,455 -
=======================================
</TABLE>
See accompanying notes to consolidated interim financial statements.
5
<PAGE>
PALMETTO BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Shareholders' Equity and
Comprehensive Income (Unaudited)
Nine Months Ended September 30, 1999 and 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Common Capital Retained Comprehensive
Stock Surplus Earnings Income (Loss), Net
----- ------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 15,448 317 20,658 193
Net income 4,884
Other comprehensive income, net of tax:
Unrealized holding gains arising during period, net
of tax effect of $187
Less: reclassification adjustment for gains included
in net income, net of tax effect of $54
Net unrealized gains on securities 211
Comprehensive income
Cash dividend declared (1,143)
Issuance of 1,300 shares in connection with stock options 6 4
Retirement of 4,310 shares common stock (21) (54)
Increase in fair value of common stock subject to put/call option
===========================================================
Balance at September 30, 1998 15,433 267 24,399 404
===========================================================
Balance at December 31, 1998 15,498 293 25,964 330
Net income 6,004
Other comprehensive income, net of tax:
Unrealized holding losses arising during period, net
of tax effect of $1,301
Less: reclassification adjustment for gains included
in net income, net of tax effect of $12
Net unrealized losses on securities (2,096)
Comprehensive income
Cash dividend declared (1,398)
Issuance of 4,422 shares in connection with stock options 22 39
Expiration of put/call option on common stock subject to put/call
===========================================================
Balance at September 30, 1999 15,520 332 30,570 (1,766)
===========================================================
Common
Stock
Subject to
Put/Call
Option Total
------ -----
Balance at December 31, 1997 (3,784) 32,832
Net income 4,884
Other comprehensive income, net of tax:
Unrealized holding gains arising during period, net
of tax effect of $187 298
Less: reclassification adjustment for gains included
in net income, net of tax effect of $54 (87)
Net unrealized gains on securities
---------
Comprehensive income 5,095
---------
Cash dividend declared (1,143)
Issuance of 1,300 shares in connection with stock options 10
Retirement of 4,310 shares common stock (75)
Increase in fair value of common stock subject to put/call option (950) (950)
==========================
Balance at September 30, 1998 (4,734) 35,769
==========================
Balance at December 31, 1998 (4,732) 37,353
Net income 6,004
Other comprehensive income, net of tax:
Unrealized holding losses arising during period, net
of tax effect of $1,301 (2,078)
Less: reclassification adjustment for gains included
in net income, net of tax effect of $12 (18)
Net unrealized losses on securities
---------
Comprehensive income 3,908
---------
Cash dividend declared (1,398)
Issuance of 4,422 shares in connection with stock options 61
Expiration of put/call option on common stock subject to put/call 4,732 4,732
==========================
Balance at September 30, 1999 - 44,656
==========================
</TABLE>
See accompanying notes to consolidated interim financial statements.
6
<PAGE>
PALMETTO BANCSHARES, INC. AND SUBSIDIARY
Notes To Consolidated Interim Financial Statements
1. Basis of Presentation
The accompanying unaudited consolidated interim financial statements have
been prepared pursuant to the rules and regulations for reporting on Form 10-Q.
Accordingly, certain information and footnotes required by generally accepted
accounting principles for complete financial statements are not included herein.
The interim statements should be read in conjunction with the financial
statements and notes thereto included in Palmetto Bancshares, Inc.'s (the
"Company's") Annual Report on Form 10-K for the year ended December 31, 1998.
In the Company's opinion, all adjustments necessary for a fair presentation
of these interim statements have been included and are of a normal and recurring
nature. The results of operations for the three and nine-month periods ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the entire year.
Certain amounts from December 31, 1998 have been reclassified to conform to
1999 presentation. These reclassifications have no effect on shareholders'
equity or on net income as previously reported.
2. Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, The Palmetto Bank (the "Bank"), and Palmetto
Capital, Inc., a wholly-owned subsidiary of the Bank. The Bank provides a
full-range of banking services, including the taking of deposits and the making
of loans. Palmetto Capital, Inc. offers the brokerage of stocks, bonds, mutual
funds and unit investment trusts. Palmetto Capital, Inc. also offers advisory
services and variable rate annuities. In consolidation, all significant
intercompany accounts and transactions have been eliminated.
3. Summary of Significant Accounting Changes
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The statement is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000, with earlier
adoption permitted, as amended by SFAS No. 137. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. The statement requires an entity to recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The Company adopted SFAS No. 133 in its
entirety effective January 1, 1999. On January 1, 1999, the Company transferred
100% of its held-to-maturity investment securities to the available-for-sale
category at fair value as allowed by SFAS No. 133. Such transfers from the
held-to-maturity category at the date of initial adoption shall not call into
question the Company's intent to hold other debt securities to maturity in the
future. The adoption of this standard did not have a material effect on the
Company. The Company has no investments that are considered derivatives under
SFAS No. 133 and does not engage in any hedging activities.
4. Common Stock Subject to Put/Call Option
The stock in the Company's Employee Stock Ownership Plan ("ESOP") had a put
and a call feature
7
<PAGE>
because the Company's stock is not listed on a national securities exchange.
Accordingly, the shares that had been distributed from the ESOP were recorded
outside of shareholders' equity at their fair value, which is determined
annually by an independent valuation. The Company's Board of Directors had voted
to terminate the ESOP effective February 28, 1997. Per the Plan document, the
shares distributed in 1998 due to the termination of the ESOP were subject to
the put/call until June 29, 1999. Now that the put/call has expired, the current
year balance sheet and income statements are absent the put/call effect of the
ESOP. The distributed shares are now included in shareholders' equity.
PALMETTO BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
DISCUSSION OF FINANCIAL CONDITION CHANGES FROM DECEMBER 31, 1998
TO SEPTEMBER 30, 1999
General
- -------
On September 14, 1999, the Palmetto Bank opened its 27th office in
Abbeville, South Carolina. This retail location was acquired from Carolina First
and added approximately $14 million in deposits and $1.8 million in loans to the
Bank's balance sheet. The Bank plans on opening its 28th office in Greer before
year-end.
On July 7, 1999, the Bank introduced Internet banking services to its
customers. Reached through the bank's web site at www.palmettobank.com, the
bank's customers can now access accounts for multiple purposes in a virtual
banking environment - and a secure one. Customers can obtain balances, review
account histories, transfer money between accounts and even pay bills via the
Internet banking service. Investment in new technology has long been a tradition
with the Palmetto Bank and it is essential to remaining competitive and growing
a strong customer base.
Year 2000 Readiness Disclosure
- ------------------------------
Please see the Company's complete discussion of its Year 2000 readiness in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998.
The discussion here is only an update to the year-end discussion.
Since February, representatives from the marketing and operations
departments have met with employees, general and community board members, local
civic groups, customers in our retirement facilities, and even a few churches to
discuss the Bank's readiness to greet the new century. More than 21 seminars
have been held and have provided a platform for those attending to ask questions
about the bank's readiness and contingency planning. All attendees have received
Year 2000 information kits as well as other materials related to the bank's
readiness.
As of July 21, 1999, Business Resumption Contingency Plans have been
drafted, approved by the Company's board of directors and tested where possible.
Management believes that the most likely
8
<PAGE>
worst case scenario entails customers withdrawing significant amounts of cash
from deposit accounts and on lines of credit as a result of fears of a Year 2000
banking crisis that would limit their access to cash. Management is currently
anticipating and planning for this potential liquidity issue. Management
believes the second most likely worst case scenario entails temporary
interruptions of power service. Management believes the risk of this occurring
is low. The contingency plans in place include using a generator to power the
Company's Corporate Center, sending our customers to nearby branches where power
service has not been interrupted or processing transactions manually at a branch
without power. In the event such scenarios occur, the adverse impact on net
income could possibly be as much as 1% and deposits could be reduced by as much
as 3%.
Based on assessments completed to date and contingency plans in place,
management believes Year 2000 issues, including the cost of making critical
systems and equipment ready, will not have a material adverse effect on the
Company's business operation or consolidated results of operations or financial
position. Nevertheless, achieving Year 2000 readiness is subject to risks and
uncertainties, including those described above. While management believes the
possibility is remote, if the Company's internal systems, or the internal
systems of external parties (i.e., the Federal Reserve system), fail to achieve
Year 2000 readiness in a timely manner, the Company's business, consolidated
results of operations or financial condition could be adversely affected.
Assets
- ------
Liquid assets, which include cash, federal funds sold, and investments
available for sale increased by $83.1 million, or 112%, for the nine-month
period. This increase was due to the $66.5 million transfer of investment
securities held to maturity to investment securities available for sale (see
note 3 on page 7). Investment securities available for sale also increased due
to $40.2 million in purchases offset by $22.1 million in maturities and sales
and $6.0 million in principal paydowns. The increase in liquid assets was also
attributable to the $6.4 million increase in cash and due from banks and the
$1.5 million increase in federal funds sold.
Loans, net, increased by $24.9 million, or 6%, during the nine-month period
as a result of normal growth. The Company increased the allowance for loan
losses to 1.45% from 1.40% at September 30, 1999 and 1998, respectively, due to
a change in the loan mix shifting towards a higher concentration of commercial
loans which are inherently more risky.
At September 30, 1999, the Company had $1.3 million in loans held for sale
with commitments to sell these loans in October and November 1999. The mortgage
servicing rights related to the mortgage servicing department's activities were
$1.2 million at September 30, 1999, which approximates their fair value. Loans
serviced for the benefit of others amounted to $141.2 million at September 30,
1999.
Other assets increased by $3.2 million, or 46%, due to the $1.3 million
increase in the deferred tax benefit related to the unrealized loss on the
investment securities available for sale and the $1.4 million addition of
goodwill related to the Abbeville branch purchase. The remainder of the increase
is due to normal growth offset by the amortization of intangibles and various
prepaids.
9
<PAGE>
Liabilities and Shareholders' Equity
- ------------------------------------
Deposit balances increased by 7% during the nine-month period, from $499.7
million to $533.0 million. The increase was due to normal growth and the
acquisition of $14 million in deposits from the Abbeville branch purchase.
Securities sold under agreements to repurchase decreased by $4.9 million,
or 23%, and commercial paper associated with the alternative commercial sweep
accounts (master note program) increased by $5.9 million, or 55%. These changes
are the result of normal fluctuations in the accounts.
Total shareholders equity increased by $7.3 million, or 20%, for the
nine-month period as a result of comprehensive income of $3.9 million, and
expiration of the put/call on the ESOP of $4.7 million (see footnote 4 on pages
7-8), less dividends paid of $1.4 million.
Liquidity
- ---------
The liquidity ratio is an indication of a company's ability to meet its
short-term funding obligations. The Company's policy is to maintain a liquidity
ratio between 15% and 25%. At September 30, 1999, the Company's liquidity ratio
was 18.33%. Due to the possibility of significant amounts of deposits being
withdrawn from customer accounts due to customer concerns relating to the
accessibility of cash over the century date change, the Bank has been buying
excess cash from the Federal Reserve Bank since September and will continue to
do so through year-end. If needed, alternative funding sources have been
arranged through Federal Funds lines at correspondent banks, FHLB, and Federal
Reserve Discount window. At September 30, 1999, the Bank has unused short-term
lines of credit totaling approximately $35 million (which are withdrawable at
the lender's option). At September 30, 1999, unused borrowing capacity from the
FHLB totaled $48 million. Management believes that these sources are adequate to
meet its liquidity needs and to maintain the liquidity ratio within policy
guidelines.
The Company has certain cash needs, including general operating expenses
and the payment of dividends and interest on borrowings. The Company currently
has no debt outstanding and has declared $0.45 per share in dividends so far in
1999. There can be no guarantee, however, that any additional dividends will be
paid. Liquidity is provided from the Company's subsidiary, the Bank. The Company
and the Bank are subject to certain regulatory restrictions on the amount of
dividends they are permitted to pay. The Bank's current total risk-based capital
ratio is 10.71%. At September 30, 1999, the Bank had $3.2 million of excess
retained earnings available to pay out for dividends and still be considered
"well-capitalized." The Bank plans to continue its quarterly dividend payout.
10
<PAGE>
Capital Resources
- -----------------
As of September 30, 1999, the Company and the Bank were in compliance with
each of the applicable regulatory capital requirements and met or exceeded the
"well-capitalized" regulatory guidelines. The table below sets forth various
capital ratios for the Company and the Bank:
- --------------------------------- --------- ----------------- ------------------
ADEQUATELY
AS OF CAPITALIZED WELL-CAPITALIZED
9/30/99 REQUIREMENT REQUIREMENT
- --------------------------------- --------- ----------------- ------------------
Company:
Total Risk-based Capital 10.73% 8.00% 10.00%
Tier 1 Risk-based Capital 9.48 4.00 6.00
Tier 1 Leverage Ratio 7.10 4.00 5.00
Bank:
Total Risk-based Capital 10.71 8.00 10.00
Tier 1 Risk-based Capital 9.45 4.00 6.00
Tier 1 Leverage Ratio 7.08 4.00 5.00
- --------------------------------- --------- ----------------- ------------------
Because the Bank's total risk-based capital ratio is 10.71%, the Company is
defined to be "well-capitalized" under currently applicable regulatory
guidelines.
Accounting and Reporting Matters
- --------------------------------
The Financial Accounting Standards Board has not released any accounting
pronouncements that have not been adopted and that affect the Company or the
Bank.
11
<PAGE>
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
Net income for the three months ended September 30, 1999 was $2.1
million, an increase of 22% from the $1.7 million reported for the same period
in 1998. Net income per common share-basic was $0.68 for the 1999 period as
compared with $0.56 for the comparable period in 1998. Net income per common
share-dilutive was $0.66 for the 1999 period as compared with $0.54 for the
comparable period in 1998.
Net Interest Income
- -------------------
The largest component of the Company's net income is the Bank's net
interest income, defined as the difference between gross interest and fees on
earning assets, primarily loans and investment securities, and interest paid on
deposits and borrowed funds. Net interest income is affected by the interest
rates earned or paid and by volume changes in loans, securities, deposits and
borrowed funds.
For the three-month period ended September 30, 1999, net interest income
was $6.8 million, which represented a 13% increase from the same period in 1998.
This increase was the result of increases in the volume of earning assets as
well as an increased average rate. Earning assets averaged $556.9 million and
$501.9 million during the third quarters of 1999 and 1998, respectively. The
increases in volume were due to the growth of loans compared to third
quarter-end 1998. The average tax-equivalent net interest margin for the 1999
period was 5.03%, compared to 4.99% for the same period in 1998.
Interest and fees on loans increased 7%, from $8.7 million to $9.3 million,
for the 1999 three-month period compared to the corresponding period in 1998 due
to increased volume offset by decreased rates. Interest and dividends on
investment securities remained constant for the 1999 three-month period compared
to the corresponding period in 1998 due to increased volume offset by decreased
rates. Interest income on federal funds sold increased $66,000 due to increased
average volume of federal funds sold for the quarter compared to the same period
last year. The yield on average earning assets, which includes loans, federal
funds sold and investment securities, decreased from 8.10% for the three months
ended September 30, 1998 to 7.82% for the three months ended September 30, 1999.
Total interest expense decreased by 1%, from $4.2 million to $4.1 million,
due to a decrease in the average cost of interest-bearing liabilities from 3.87%
for the quarter ended September 30, 1998 to 3.49% for the quarter ended
September 30, 1999.
Market Risk
- -----------
Market risk is the risk of loss from adverse changes in market prices and
rates. The Company's market risk arises principally from interest rate risk
inherent in its lending, deposit and borrowing activities. Management actively
monitors and manages its inherent rate risk exposure. Although the Company
manages other risks, such as credit quality and liquidity risk, in the normal
course of business, management considers interest rate risk to be its most
significant market risk and believes that this risk could potentially have the
largest material effect on the Company's financial condition and results of
12
<PAGE>
operations. Other types of market risks, such as foreign currency exchange rate
risk and commodity price risk, do not arise in the normal course of the
Company's business activities.
The Company's profitability is affected by fluctuations in interest rates.
Management's goal is to maintain a reasonable balance between exposure to
interest rate fluctuations and earnings. A sudden and substantial increase in
interest rates may adversely impact the Company's earnings to the extent that
the interest rates on interest-earning assets and interest-bearing liabilities
do not change at the same speed, to the same extent or on the same basis. The
Company monitors the impact of changes in interest rates on its net interest
income using several tools.
The Bank's goal is to minimize interest rate risk between interest
bearing assets and liabilities at various maturities through its Asset-Liability
Management ("ALM"). ALM involves managing the mix and pricing of assets and
liabilities in the face of uncertain interest rates and an uncertain economic
outlook. It seeks to achieve steady growth of net interest income with an
acceptable amount of interest rate risk exposure and sufficient liquidity. The
process provides a framework for determining, in conjunction with the profit
planning process, which elements of the Company's profitability factors can be
controlled by management. Understanding the current position and implications of
past decisions is necessary in providing direction for the future financial
management of the Company. The Company uses an asset-liability model to
determine the appropriate strategy for current conditions.
Interest sensitivity management is part of the asset-liability management
process. Interest sensitivity gap ("GAP") is the difference between total rate
sensitive assets and rate sensitive liabilities in a given time period. The
Company's current GAP analysis reflects that in periods of increasing interest
rates, rate sensitive assets will reprice slower than rate sensitive
liabilities. The Company's GAP analysis also shows that at the interest
repricing of one year, the Company's net interest margin would be adversely
impacted. This analysis, however, does not take into account the dynamics of the
marketplace. GAP is a static measurement that assumes that if the prime rate
increases by 100 basis points, all assets and liabilities that are due to
reprice will increase by 100 basis points at the next opportunity. However, the
Company is actually able to experience a benefit from rising rates in the short
term because deposit rates generally do not follow the national money market,
but are instead controlled by the local market. Loans do follow the money
market, so when rates increase they reprice immediately, but the Company is able
to manage the deposit side. The Company generally does not raise deposit rates
as fast or as much as loan rates. The Company also has the ability to manage its
funding costs by choosing alternative sources of funds.
The Company's current GAP position would also be interpreted to mean that
in periods of declining interest rates, the Company's net interest margin would
benefit. However, competitive pressures in the local market may not allow the
Company to lower rates on deposits, but may force the Company to lower rates on
loans.
Because the Company's management feels that GAP analysis is a static
measurement, it manages its interest income through its asset/liability
strategies which focus on a net interest income model based on management's
projections. The Company has a targeted net interest income range of plus or
minus twenty percent based on a 300 basis point shock over twelve months. The
asset/liability committee meets weekly to address interest pricing issues, and
this model is reviewed monthly. Management will continue to monitor its
liability sensitive position in times of higher interest rates which might
adversely affect its net interest margin. The Company does not feel that the
market risk to the Company has changed significantly since December 31, 1998.
13
<PAGE>
Provision for Loan Losses
- -------------------------
The provision for loan losses increased to $741,000 from $570,000 for the
three months ended September 30, 1999 and 1998, respectively, due to a change in
the loan mix shifting towards a higher concentration of commercial loans which
are inherently more risky. The provision is adjusted each month to reflect loan
volume growth and allow for loan charge-offs, recoveries and other factors which
impact management's assessment of the adequacy of the allowance for loan losses.
Management's objective is to maintain the allowance for loan losses at an
adequate level to cover probable inherent losses in the portfolio. Additions to
the allowance for loan losses are based on management's evaluation of the loan
portfolio under current economic conditions, past loan loss experience, and such
other factors, which in management's judgment, deserve recognition in estimating
loan losses. Loans are charged off when, in the opinion of management, they are
deemed to be uncollectible. Recognized losses are charged against the allowance,
and subsequent recoveries are added to the allowance. Loans over 90 days
delinquent and on non-accrual amounted to approximately $1,915,000 and
$1,917,000 at September 30, 1999 and 1998, respectively. The annualized net
charge-off ratio has increased from 0.34% at September 30, 1998 to 0.38% at
September 30, 1999. While management uses the best information available to make
evaluations, future adjustments to the allowance may be necessary if economic
conditions differ substantially from the assumptions used in making the
evaluation. The allowance for loan losses is subject to periodic evaluation by
various regulatory authorities and may be subject to adjustment, based upon
information that is available to them at the time of their examination.
Non-interest Income
- -------------------
Total non-interest income increased by $527,000, or 32%, for the three
months ended September 30, 1999, as compared to the same period in 1998. The
largest portion of this increase can be attributed to fees for trust services,
which increased by $287,000 or 86% due to a new fee structure, new business and
increased assets under management. At September 30, 1999, assets under
management amounted to $203.5 million compared to $182.0 million at September
30, 1998, a 12% increase.
Another contributor to the increase is other income, which increased by
$103,000, or 22%, during the 1999 period compared to the same period in 1998 due
primarily to the fact that the Bank is charging $1.00 per non-customer ATM
transaction. The Bank began charging this fee in June 1998.
Non-interest Expense
- --------------------
Total non-interest expense increased by $612,000, or 13%, during the 1999
three-month period compared to the same period in 1998. The largest contributor
to non-interest expense was salaries and other personnel expense, which
increased $317,000 or 14% due to normal raises, and new employees related to
growth and branch acquisitions. The number of full-time equivalent employees was
322 and 303 at September 30, 1999 and 1998, respectively.
The second biggest contributor is other expense, which increased
$135,000, or 15%, due to increased expenses related to outside management
consultants, credit card processing, armored car couriers and miscellaneous loan
expense. These increases were due to increased fees and activity in these areas.
14
<PAGE>
Income Taxes
- ------------
The Company incurred income tax expense of $897,000 for the 1999
three-month period compared to $755,000 for the same period in 1998 due to the
increase in taxable income. This expense is based on an expected annual
effective tax rate of approximately 30% for both periods.
Net Income Per Share
- --------------------
The following table illustrates a reconciliation of the numerators and
denominators of the basic and diluted per-share computations for net income for
the three-months ended September 30, 1999 and 1998 (dollars in thousands except
per share numbers):
<TABLE>
<CAPTION>
Income Shares Per-Share
1999 (Numerator) (Denominator) Amount
---- ---------------------------------------------
Basic EPS:
----------
<S> <C> <C> <C>
Income available to common stockholders $2,097 3,104,117 $0.68
--------------------------------------------
Effect of Dilutive Securities: Stock Options -- 93,943 --
Diluted EPS:
----------
Income available to common stockholders
plus assumed conversions $2,097 3,198,060 $0.66
============================================
Income Shares Per-Share
1998 (Numerator) (Denominator) Amount
---- ---------------------------------------------
Basic EPS:
----------
Income available to common stockholders $1,724 3,089,396 $0.56
--------------------------------------------
Effect of Dilutive Securities: Stock Options -- 80,616 --
Diluted EPS:
----------
Income available to common stockholders
plus assumed conversions $1,724 3,170,012 $0.54
============================================
</TABLE>
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
Net income for the nine months ended September 30, 1999 was $6.0 million,
an increase of 23% from the $4.9 million reported for the same period in 1998.
Net income per common share-basic was $1.93 for the 1999 period as compared with
$1.40 for the comparable period in 1998. Net income per common share-dilutive
was $1.88 for the 1999 period as compared with $1.36 for the comparable period
in 1998. The reason that net income per share-basic increased 38% in 1999 versus
1998 even though net income increased only 23% is because there is no adjustment
to net income for the ESOP valuation in 1999 because the put/call on the ESOP
stock expired in 1999.
15
<PAGE>
Net Interest Income
- -------------------
The largest component of the Company'vs net income is the Bank's net
interest income, defined as the difference between gross interest and fees on
earnings assets, primarily loans and investment securities, and interest paid on
deposits and borrowed funds. Net interest income is affected by the interest
rates earned or paid and by volume changes in loans, securities, deposits, and
borrowed funds.
For the nine-month period ended September 30, 1999, net interest income
was $19.9 million, which represented an 12% increase from the same period in
1998. This increase was the result of increases in the volume of earning assets.
Earning assets averaged $544.7 million and $491.7 million during the first nine
months of 1999 and 1998, respectively. The increases in volume were due to the
growth of loans and investments compared to 1998. The average tax equivalent net
interest margin for the 1999 period was 5.13%, compared to 5.05% for the same
period in 1998.
Interest and fees on loans increased 7% due to increased volume and fees
offset by decreased rates. Interest income on investment securities remained
unchanged at $4.4 million during the 1999 period compared to the corresponding
period in 1998 due to increased volume offset by decreased rates. The weighted
average rate (tax equivalent) on the investment securities portfolio was 6.75%
and 6.99%, at September 30, 1999 and 1998, respectively. Interest income on
federal funds sold increased due to an increased average volume of federal funds
sold compared to the first nine months of last year. The yield on average
earning assets, which includes federal funds sold, loans and investment
securities, decreased from 8.23% for the nine months ended September 30, 1998 to
7.87% for the nine months ended September 30, 1999.
Total interest expense decreased by 2% during the 1999 period due to
decreased rates on deposits at September 30, 1999, compared to September 30,
1998. Average total interest-bearing liabilities, increased by 9% from September
30, 1999 to September 30, 1998. The average rate paid on interest bearing
liabilities decreased from 3.91% during the nine-month period in 1998, to 3.52%
during the 1999 period.
The profitability of the Bank is influenced significantly by management's
ability to control the relationship between rate sensitive assets and
liabilities, and the current interest rate environment. See further discussion
under "Comparison of the Results of Operations for the Three Months Ended
September 30, 1999 and 1998" above.
Provision for Loan Losses
- -------------------------
The provision for loan losses was $1.8 million for the nine months ended
September 30, 1999 compared to $1.4 million for the nine months ended September
30, 1998, due to a change in the loan mix shifting towards a higher
concentration of commercial loans which are inherently more risky. See further
discussion under "Comparison of the Results of Operations for the Three Months
Ended September 30, 1999 and 1998" above.
16
<PAGE>
Non-interest Income
- -------------------
Total non-interest income increased by $1.1 million, or 24%, for the nine
months ended September 30, 1999, as compared to the same period in 1998. The
largest contributor to this increase is fees for trust services, which increased
$445,000, or 44%, due to a new fee structure, new business and increased assets
under management. Assets under management were $203.5 million and $182.0 million
at September 30, 1999 and 1998, respectively, representing a 12% increase.
The second largest contributor to this increase is ATM fee income, which
increased $265,000 due mostly to the $1.00 charge per non-customer transaction
the Bank began charging in June of 1998.
Non-interest Expense
- --------------------
Total non-interest expense increased by $1.2 million, or 9%, during the
1999 nine-month period over the same period in 1998. The largest component of
non-interest expense is salaries and other personnel expense, which increased
$342,000 or 5% due to normal raises, officer incentive accruals and new
employees related to growth and branch acquisitions.
The second largest component is other expense. The increase in other
expense is attributable to increased expenses related to outside management
consultants, credit card processing, armored car couriers and miscellaneous loan
expense. These increases were due to increased fees and/or increased activity in
these areas.
Income Taxes
- ------------
The Company incurred income tax expense of $2.6 million for the 1999
nine-month period compared to $2.1 million for the same period in 1998 due to
the increase in taxable income. This expense is based on an expected effective
tax rate of approximately 30%, for both periods.
Net Income Per Share
- --------------------
The table below illustrates a reconciliation of the numerators and denominators
of the basic and diluted per-share computations for net income for the
nine-months ended September 30, 1999 and 1998 (dollars in thousands except per
share numbers):
<TABLE>
<CAPTION>
Income Shares Per-Share
1999 (Numerator) (Denominator) Amount
---- ---------------------------------------------
Basic EPS:
----------
<S> <C> <C> <C>
Income available to common stockholders $6,004 3,103,511 $1.93
--------------------------------------------
Effect of Dilutive Securities: Stock Options -- 88,722 --
Diluted EPS:
----------
Income available to common stockholders
plus assumed conversions $6,004 3,192,233 $1.88
============================================
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Income Shares Per-Share
1998 (Numerator) (Denominator) Amount
---- ---------------------------------------------
Basic EPS:
----------
<S> <C> <C> <C>
Income available to common stockholders $3,934 2,814,976 $1.40
--------------------------------------------
Effect of Dilutive Securities: Stock Options -- 72,791 --
Diluted EPS:
----------
Income available to common stockholders
plus assumed conversions $3,934 2,887,767 $1.36
============================================
</TABLE>
INDUSTRY DEVELOPMENTS
Certain proposed industry-related legislation could have an effect on
both the costs of doing business and the competitive factors facing the
financial institution industry. Because of the uncertainty of the final terms
and likelihood of passage of the proposed legislation, the Company is unable to
assess the impact of any proposed legislation on its financial condition or
operations at this time.
18
<PAGE>
PALMETTO BANCSHARES, INC. AND SUBSIDIARY
Part II - Other Information
Item 1. Legal Proceedings
Palmetto Bancshares, Inc. (the Company) is not engaged in any
legal proceedings. From time to time The Palmetto Bank (the Bank) is involved in
legal proceedings incidental to its normal course of business as a bank.
Management believes none of these proceedings is likely to have a materially
adverse effect on the business of the Company or the Bank.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Description
----------- -----------
3.1.1 Articles of Incorporation filed on May 13,
1982 in the office of the Secretary of State
of South Carolina: Incorporated by reference
to Exhibit 3 to the Company's Registration
Statement on Form S-4, No. 33-19367, filed
with the Securities and Exchange Commission
on December 30, 1987
3.1.2 Articles of Amendment filed on May 5, 1988
in the office of the Secretary of State of
South Carolina: Incorporated by reference to
Exhibit 4.1.2 to the Company's Registration
Statement on Form S-8, Commission File No.
33-51212, filed with the Securities and
Exchange Commission on August 20, 1992
3.1.3 Articles of Amendment filed on January 26,
1989 in the office of the Secretary of State
of South Carolina: Incorporated by reference
to Exhibit 4.1.3 to the Company's
Registration Statement on Form S-8,
Commission File No. 33-51212, filed with the
Securities and Exchange Commission on August
20, 1992
3.1.4 Articles of Amendment filed on April 23,
1990 in the office of the Secretary of State
of South Carolina: Incorporated by reference
to Exhibit 4.1.4 to the Company's
Registration Statement on Form S-8,
Commission File No. 33-51212, filed with the
Securities and Exchange Commission on August
20, 1992
3.1.5 Articles of Amendment filed on October 16,
1996 in the office of the Secretary of State
of South Carolina: Incorporated by reference
to Exhibit 3.1.5 of the Company's quarterly
report on Form 10-Q for the fiscal quarter
ended September 30, 1996.
19
<PAGE>
3.1.6 Articles of Amendment filed on May 17, 1999
in the office of the Secretary of State of
South Carolina: Incorporated by reference to
Exhibit 3.1.6 of the Company's quarterly
report on Form 10-Q for the fiscal quarter
ended June 30, 1999.
3.2.1 By-Laws adopted April 10, 1990: Incorporated
by reference to Exhibit 3.2.1 to the
Company's Annual Report on Form 10-K, filed
with the Securities and Exchange Commission
on September 30, 1997.
3.2.2 Amendment to By-Laws dated April 12, 1994:
Incorporated by reference to Exhibit 3.2.2
to the Company's Annual Report on Form 10-K,
filed with the Securities and Exchange
Commission on September 30, 1997.
3.2.3 Amendment to By-Laws dated January 19, 1999:
Incorporated by reference to Exhibit 3.2.3
to the Company's Annual Report on Form 10-K,
filed with the Securities and Exchange
Commission on March 19, 1999.
4.1.1 Articles of Incorporation of the Registrant:
Included in Exhibits 3.1.1 -- .5
4.2 Bylaws of the Registrant: Included in
Exhibits 3.2.1 -- .2.
4.3 Specimen Certificate for Common Stock:
Incorporated by reference to Exhibit 4.3 to
the Company's Registration Statement on Form
S-8, Commission File No. 33-51212, filed
with the Securities and Exchange Commission
on August 20, 1992
4.4 Palmetto Bancshares, Inc. 1998 Stock
Compensation Plan, as amended to date.
Incorporated by reference to the Company''s
Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on March
23, 1998.
27.1* Financial Data Schedule
* Filed herewith.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended September 30, 1999.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PALMETTO BANCSHARES, INC.
By:
/s/ L. Leon Patterson
-------------------------------------
L. Leon Patterson
Chairman and Chief Executive Officer
/s/ Paul W. Stringer
-------------------------------------
Paul W. Stringer
President and Chief Operating Officer
(Chief Accounting Officer)
Date: November 2, 1999
21
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1.1 Articles of Incorporation filed on May 13,
1982 in the office of the Secretary of State
of South Carolina: Incorporated by reference
to Exhibit 3 to the Company's Registration
Statement on Form S-4, No. 33-19367, filed
with the Securities and Exchange Commission
on December 30, 1987.
3.1.2 Articles of Amendment filed on May 5, 1988
in the office of the Secretary of State of
South Carolina: Incorporated by reference to
Exhibit 4.1.2 to the Company's Registration
Statement on Form S-8, Commission File No.
33-51212, filed with the Securities and
Exchange Commission on August 20, 1992.
3.1.3 Articles of Amendment filed on January 26,
1989 in the office of the Secretary of State
of South Carolina: Incorporated by reference
to Exhibit 4.1.3 to the Company's
Registration Statement on Form S-8,
Commission File No. 33-51212, filed with the
Securities and Exchange Commission on August
20, 1992.
3.1.4 Articles of Amendment filed on April 23,
1990 in the office of the Secretary of State
of South Carolina: Incorporated by reference
to Exhibit 4.1.4 to the Company's
Registration Statement on Form S-8,
Commission File No. 33-51212, filed with the
Securities and Exchange Commission on August
20, 1992.
3.1.5 Articles of Amendment filed on October 16,
1996 in the office of the Secretary of State
of South Carolina: Incorporated by reference
to Exhibit 3.1.5 of the Company's quarterly
report on Form 10-Q for the fiscal quarter
ended September 30, 1996.
3.1.6 Articles of Amendment filed on May 17, 1999
in the office of the Secretary of State of
South Carolina: Incorporated by reference to
Exhibit 3.1.6 of the Company's quarterly
report on Form 10-Q for the fiscal quarter
ended June 30, 1999.
3.2.1 By-Laws adopted April 10, 1990: Incorporated
by reference to Exhibit 3.2.1 to the
Company's Annual Report on Form 10-K, filed
with the Securities and Exchange Commission
on September 30, 1997.
3.2.2 Amendment to By-Laws dated April 12, 1994:
Incorporated by reference to Exhibit 3.2.2
to the Company's Annual Report on Form 10-K,
filed with the Securities and Exchange
Commission on September 30, 1997
22
<PAGE>
3.2.3 Amendment to By-Laws dated January 19, 1999:
Incorporated by reference to Exhibit 3.2.3
to the Company's Annual Report on Form 10-K,
filed with the Securities and Exchange
Commission on March 19, 1999
4.1.1 Articles of Incorporation of the Registrant:
Included in Exhibits 3.1.1 -- .5
4.2 Bylaws of the Registrant: Included in
Exhibits 3.2.1 -- .2.
4.3 Specimen Certificate for Common Stock:
Incorporated by reference to Exhibit 4.3 to
the Company's Registration Statement on Form
S-8, Commission File No. 33-51212, filed
with the Securities and Exchange Commission
on August 20, 1992
4.4 Palmetto Bancshares, Inc. 1998 Stock
Compensation Plan, as amended to date.
Incorporated by reference to the Company's
Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on March
23, 1998
27.1* Financial Data Schedule
* Filed herewith.
23
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary financial information extracted from Palmetto
Bancshares, Inc. and subsidiary Consolidated Income Statements and Consolidated
Balance Sheets and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 34,327
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,644
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 121,293
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 438,712
<ALLOWANCE> (6,369)
<TOTAL-ASSETS> 622,858
<DEPOSITS> 533,009
<SHORT-TERM> 33,561
<LIABILITIES-OTHER> 2,532
<LONG-TERM> 0
0
0
<COMMON> 15,520
<OTHER-SE> 29,136
<TOTAL-LIABILITIES-AND-EQUITY> 622,858
<INTEREST-LOAN> 27,308
<INTEREST-INVEST> 4,413
<INTEREST-OTHER> 325
<INTEREST-TOTAL> 32,046
<INTEREST-DEPOSIT> 11,159
<INTEREST-EXPENSE> 12,055
<INTEREST-INCOME-NET> 19,991
<LOAN-LOSSES> 1,772
<SECURITIES-GAINS> 30
<EXPENSE-OTHER> 15,504
<INCOME-PRETAX> 8,633
<INCOME-PRE-EXTRAORDINARY> 6,004
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,004
<EPS-BASIC> 1.93
<EPS-DILUTED> 1.88
<YIELD-ACTUAL> 4.91
<LOANS-NON> 1,915
<LOANS-PAST> 9
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,795
<CHARGE-OFFS> (1,262)
<RECOVERIES> 64
<ALLOWANCE-CLOSE> 6,369
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
