PALMETTO BANCSHARES INC - FORM 8-K - EX-99 - EXHIBIT 99.1

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8-K - FORM 8-K - PALMETTO BANCSHARES INC	plmt20140721_8k.htm
EX-99 - EXHIBIT 99.3 - PALMETTO BANCSHARES INC	ex99-3.htm
EX-99 - EXHIBIT 99.2 - PALMETTO BANCSHARES INC	ex99-2.htm

Exhibit 99.1

FOR IMMEDIATE RELEASE	For More Information Contact:
July 23, 2014	Roy D. Jones, Chief Financial Officer
	(864) 240-5104 or rjones@palmettobank.com

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

Declares Quarterly Dividend of $0.05 per Common Share

Greenville, S.C. – 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.

Net Interest Income

Net interest income declined $144 thousand to $9.8 million and the net interest margin decreased 13 basis points to 3.81% in the second quarter. The decline in net interest income and net interest margin is primarily due to lower average loan balances and yields and the reversal of $106 thousand of accrued interest income on one borrower relationship placed on nonaccrual status during the quarter.

●

The overall yield on the loan portfolio continued to decline as higher-yielding loans matured and were replaced with new loan originations at lower rates in the current low interest rate environment. Excluding the impact of the reversal of accrued interest income, loan yields declined 6 basis points.

●

The overall cost of funds declined 1 basis point to 0.05% during the second quarter due to growth in low cost transaction deposits and continued reductions in time deposits. Opportunities for further reductions are limited as a result of a decline in the balance and weighted average rate of time deposits scheduled to mature in the future.

●	The Federal Reserve continues to maintain short term interest rates near historically low levels. The sustained level of low interest rates has an overall negative impact on earning asset yields and makes improvement in our net interest income and margin challenging.

Noninterest Income

Noninterest income increased $124 thousand from the first quarter, primarily due to the following:

●

An increase in non-sufficient fund (“NSF”) and overdraft fees and Debit card and ATM income of $128 thousand and $32 thousand, respectively, as a result of increased transactions during the quarter due primarily to more calendar days and the absence of weather-related factors that depressed first quarter transaction volumes. First quarter NSF fees were also negatively impacted by the Company’s annual reset on January 1, 2014 of the NSF item counter that determines the per-item NSF fee under our tiered pricing structure.

●	Mortgage banking income increased $55 thousand from an increase in gains on sales of mortgage loans as mortgage loan sales volume increased to $14.0 million in the second quarter compared to $12.7 million in the first quarter.

●	Fees for trust and investment management and brokerage services increased $31 thousand as a result of growth in assets under management.

●	These increases were partially offset by declines in gains on sales of investment securities of $85 thousand and gains on sales of SBA loans of $70 thousand. There were no sales of investment securities or SBA loans during the second quarter.

During the first half of 2014, the Company performed an analysis of service charges on deposit accounts and other products, including a comparison of our pricing to local market competitors. As a result, we implemented selected fee increases effective July 1, 2014. The Company is also refining the features of select deposit products and plans to introduce new products effective September 1, 2014. These changes are expected to result in increased noninterest income beginning in the third quarter 2014.

Noninterest Expense

Total noninterest expense decreased $5 thousand during the second quarter, primarily due to the following:

●	Salaries and other personnel expense declined $67 thousand from lower pension plan expense and higher loan origination cost deferrals resulting from an increase in loan production during the second quarter.

●	Occupancy and equipment expense declined $97 thousand primarily due to seasonal declines in facilities costs and a reduction in property taxes and lease expense.

●	Professional services expense declined $178 thousand. The first quarter included nonrecurring expenses associated with revenue enhancement and process improvement projects expected to result in increased noninterest income and reduced expenses beginning in the third quarter 2014.

●	Other reductions in expenses included lower marketing expense of $33 thousand as a result of a reduction in advertising campaigns and corporate donations, and lower other expenses of $22 thousand.

●	These declines were partially offset by an increase in credit-related expenses of $392 thousand due to a $478 thousand writedown related to a single real estate development included in foreclosed real estate.

The Company continues its focus on strategic efficiency to address net interest margin challenges, revenue pressures on fee income and increased regulatory compliance costs. During the second quarter, the Company continued the implementation of certain process improvement projects such as reductions in courier runs from the branches, transition to part-time staffing in the branches, consolidation of telephone providers and additional automation of manual processes. The Company has additional process improvement projects that are planned for implementation later in 2014. The process improvement projects began to generate operational efficiencies and expense reductions during the second quarter and are expected to have an increased positive impact on the Company’s financial results over the remainder of 2014.

Credit Quality

Nonperforming assets increased $1.2 million from the first quarter to $22.7 million at June 30, 2014 primarily as a result of one commercial real estate relationship totaling $4.3 million that was placed on nonaccrual status during the second quarter. The loans comprising this relationship are adequately secured and the Company expects to recover the full amount owed upon potential foreclosure and liquidation of the collateral. Excluding this relationship, nonperforming assets would have declined $3.1 million as a result of continued problem asset resolutions.

●	Net charge-offs were $647 thousand (0.34% of average loans, annualized) during the second quarter compared to $242 thousand during the first quarter (0.13% of average loans, annualized).

●	Past due loans were 0.38% of loans outstanding at June 30, 2014 compared to 0.81% at March 31, 2014 and have remained below 1.00% for six consecutive quarters.

●	The amount of the Company’s allowance for loan losses was reduced given the continued overall improvement in credit quality and reduced risk profile of the loan portfolio. The allowance for loan losses coverage ratio was 2.07% at June 30, 2014 compared to 2.15% at March 31, 2014.

Balance Sheet and Capital

Total assets decreased $7.7 million from March 31, 2014 to $1.1 billion at June 30, 2014 primarily due to a decline in cash used to repay a maturing Federal Home Loan Bank advance during the second quarter.

●

During the second quarter, gross loans declined $2.8 million as loan repayments outpaced loan origination activity. While the economic softening that began during the first quarter continued during the second quarter, total loan origination volume increased during the second quarter. The overall economic environment remains sluggish and the level of competition for lending relationships is increasing. As a result, loan demand is uneven and the pricing on new loan originations remains extremely competitive. The Company’s pipeline for potential new loan originations increased in June and July.

●

Investment securities available for sale increased $845 thousand during the second quarter to $209.6 million. At June 30, 2014, an after-tax net unrealized loss on the investment securities portfolio of $1.0 million was recorded in accumulated other comprehensive loss, a decline from the after-tax net unrealized loss of $2.1 million at March 31, 2014. The Company continues to evaluate the interest rate sensitivity of its investment securities portfolio in anticipation of rising interest rates. At June 30, 2014, the estimated decrease in fair value resulting from an instantaneous 100 basis point increase in interest rates was 3.58%.

●	Noninterest bearing deposits increased $7.7 million while time deposits decreased $6.1 million, demonstrating the Company’s continued ability to both attract low cost deposits and achieve further strategic reductions in higher-cost time deposits.

●	The decrease in cash was primarily due to the repayment of a $10.0 million FHLB advance that matured in April 2014. The remaining $10.0 million FHLB advance that was outstanding at June 30, 2014 was repaid upon maturity in July 2014.

●

The Company remains focused on executing several strategies to continue growing core deposits through increasing balances in existing accounts as well as growth in the number of households. These strategies include proactively retaining clients, attracting new clients, hiring teammates with specialized deposit product knowledge, and enhancing existing deposit products. Growth in deposits is expected to be used primarily to fund future loan growth.

●	The Company’s banking subsidiary, The Palmetto Bank, met all regulatory required minimum capital ratios and continued to be categorized as “well-capitalized” at June 30, 2014.

●	In July 2014, the Company declared a quarterly cash dividend of $0.05 per common share, reflecting expectations of sustained profitability and continued strength in capital levels. This is the Company’s first dividend declaration since the first quarter 2009.

“We continue to demonstrate our ability to produce solid financial results in this challenging economic environment. We are pleased with our Retail loan production and are encouraged by the strength of our Commercial lending pipeline as we head into the second half of 2014,” continued Erwin. “We are also pleased to reinstate a quarterly dividend for our shareholders as part of our “value creation strategy” to increase the value of The Palmetto Bank franchise”.

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.

# # #

Addendum to News Release – Forward-Looking Statements

Certain statements in this News Release contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements relating to future plans and expectations, and are thus prospective. Such forward-looking statements are identified by words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “targets,” and “projects,” as well as similar expressions. Forward-looking statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Factors which could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements include, but are not limited to: (1) the strength of the United States economy in general and the strength of the local economies in which the Company conducts its operations which could result in, among other things, a deterioration in the credit quality or a reduced demand for credit, including the resultant effect on our loan portfolio and allowance for loan losses and the rate of delinquencies and amounts of charge-offs, or adverse changes in asset quality in our loan portfolio, which may result in increased credit risk-related losses and expenses; (2) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate conditions) and the impact of such conditions on the Company, and the timing and amount of future capital raising activities by the Company, if any; and (3) actions taken by banking regulatory agencies related to the banking industry in general and the Company or the Bank specifically. The assumptions underlying the forward-looking statements could prove to be inaccurate. Therefore, we can give no assurance that the results contemplated in the forward-looking statements will be realized. The inclusion of this forward-looking information should not be construed as a representation by our Company or any person that the future events, plans, or expectations contemplated by our Company will be achieved. Additional factors that could cause our results to differ materially from those described in the forward-looking statements can be found in our reports (such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K) filed with the U.S. Securities and Exchange Commission (the “SEC”) and available at the SEC’s Internet site (http://www.sec.gov), including the “Risk Factors” included therein. All subsequent written and oral forward-looking statements concerning the Company or any person acting on its behalf is expressly qualified in its entirety by the cautionary statements above. We do not undertake any obligation to update any forward-looking statement to reflect changes in circumstances or events that occur after the date the forward-looking statements are made.

Palmetto Bancshares, Inc. and Subsidiary

Consolidated Balance Sheets

(dollars in thousands, except per share data)

(unaudited)

	June 30, 2014			March 31, 2014			December 31, 2013			September 30, 2013			June 30, 2013			June 30, 2014 vs. 2013 % Change

Cash and cash equivalents	$	60,104		$	65,942		$	38,178		$	55,743		$	62,668			(4.1	)%
Investment securities available for sale, at fair value		209,617			208,772			214,383			227,079			246,501			(15.0	)
Trading account assets		5,381			5,247			5,118			5,027			-		n/m
Mortgage loans held for sale		4,874			2,474			1,722			1,865			2,934			66.1

Loans, gross		753,049			755,878			767,513			756,814			741,355			1.6
Less: allowance for loan losses		(15,596	)		(16,243	)		(16,485	)		(16,706	)		(17,218	)		(9.4	)
Loans, net		737,453			739,635			751,028			740,108			724,137			1.8

Foreclosed real estate		7,335			7,490			7,502			7,928			8,296			(11.6	)
Deferred tax asset, net		18,875			20,546			22,087			22,197			1,273		n/m
Bank-owned life insurance		11,767			11,691			11,617			1,571			1,571		n/m
Other assets		36,259			37,610			38,594			38,379			37,842			(4.2	)
Total assets	$	1,091,665		$	1,099,407		$	1,090,229		$	1,099,897		$	1,085,222			0.6	%


Noninterest bearing deposits	$	199,169		$	191,474		$	178,075		$	187,150		$	188,197			5.8	%
Interest bearing deposits		729,084			736,559			729,285			757,662			770,644			(5.4	)
Total deposits		928,253			928,033			907,360			944,812			958,841			(3.2	)

Retail repurchase agreements		17,867			17,319			18,175			24,640			18,312			(2.4	)
FHLB advances		10,000			20,000			35,000			-			-		n/m
Other liabilities		5,291			7,103			5,877			9,499			8,953			(40.9	)
Total liabilities		961,411			972,455			966,412			978,951			986,106			(2.5	)

Shareholders' equity		130,254			126,952			123,817			120,946			99,116			31.4

Total liabilities and shareholders' equity	$	1,091,665		$	1,099,407		$	1,090,229		$	1,099,897		$	1,085,222			0.6	%

Quarterly Average Balances
Loans⁽¹⁾	$	755,199		$	764,526		$	766,454		$	749,201		$	740,643			2.0	%
Investment securities		207,575			212,186			220,412			243,955			258,200			(19.6	)
Trading account assets		5,314			5,178			5,067			652			-		n/m
Total assets		1,099,617			1,094,578			1,096,881			1,080,900			1,086,965			1.2
Noninterest-bearing deposits		200,933			186,852			188,603			188,477			185,199			8.5
Interest-bearing deposits		733,452			726,707			751,974			763,746			774,525			(5.3	)
Retail repurchase agreements		18,383			18,269			22,638			19,521			16,789			9.5
FHLB advances and other borrowings		13,193			31,276			2,271			24			9		n/m
Shareholders' equity		128,612			125,664			123,299			100,795			101,613			26.6

Other Data and Ratios
% of loans past due		0.38	%		0.81	%		0.42	%		0.63	%		0.40	%		(5.0	)%
Nonperforming loans	$	15,269		$	14,035		$	15,108		$	14,735		$	16,752			(8.9	)
Nonperforming assets		22,693			21,538			22,654			22,706			25,081			(9.5	)
90-days past due and still accruing interest		731			-			-			1,723			-		n/m
ALL as % of loans held for investment		2.07	%		2.15	%		2.15	%		2.21	%		2.32	%		(10.8	)
Net charge-offs (quarterly)	$	647		$	242		$	2,021		$	1,157		$	922			(29.8	)
Net charge-offs to average loans (annualized)		0.34	%		0.13	%		1.05	%		0.61	%		0.50	%		(31.3	)

Outstanding common shares		12,791,621			12,792,509			12,784,605			12,783,019			12,772,344			0.2
Book value per common share	$	10.18		$	9.92		$	9.68		$	9.46		$	7.76			31.2
Closing market price per common share		14.39			14.09			12.96			13.04			13.00			10.7

Tier 1 risk-based capital (consolidated)⁽²⁾		15.29	%		14.82	%		14.24	%		14.26	%		13.67	%		11.9
Total risk-based capital (consolidated)⁽²⁾		16.54			16.08			15.49			15.52			14.93			10.8
Tier 1 leverage ratio (consolidated)⁽²⁾		11.69			11.37			11.03			10.95			10.06			16.2

Full Time Equivalent Employees - including contractors		299.8			308.0			305.0			306.0			314.0			(4.5	)

⁽¹⁾ Includes Mortgage and Other loans held for sale.

⁽²⁾ June 30, 2014 ratios are estimated and may be subject to change pending the filing of the Company's FR Y-9C with the Federal Reserve; all other periods are presented as filed.

Palmetto Bancshares, Inc. and Subsidiary

Consolidated Statements of Income

(dollars in thousands, except per share data)

(unaudited)

	For the Three Months Ended
	June 30, 2014			March 31, 2014			December 31, 2013			September 30, 2013			June 30, 2013			June 30, 2014 vs. 2013 % Change
Interest income
Interest earned on cash and cash equivalents	$	32		$	14		$	17		$	24		$	24			33.3	%
Dividends received on FHLB stock		25			14			10			8			21			19.0
Interest earned on trading account assets		45			46			33			5			-		n/m
Interest earned on investment securities available for sale		1,015			1,004			1,033			1,010			964			5.3
Interest and fees earned on loans		8,803			8,998			9,330			9,476			9,719			(9.4	)
Total interest income		9,920			10,076			10,423			10,523			10,728			(7.5	)

Interest expense
Interest expense on deposits		123			127			385			475			502			(75.5	)
Interest expense on retail repurchase agreements		1			-			1			-			1			-
Interest paid on FHLB advances		7			16			1			-			-		n/m
Total interest expense		131			143			387			475			503			(74.0	)

Net interest income		9,789			9,933			10,036			10,048			10,225			(4.3	)

Provision for loan losses		-			-			1,800			645			670			(100.0	)

Net interest income after provision for loan losses		9,789			9,933			8,236			9,403			9,555			2.4

Noninterest income
Service charges on deposit accounts, net		1,693			1,562			1,883			1,862			1,603			5.6
Fees for trust and investment management and brokerage services		177			146			151			214			905			(80.4	)
Mortgage-banking		516			461			498			375			564			(8.5	)
Debit card and automatic teller machine, net		618			586			652			648			600			3.0
Bankcard services		70			67			67			70			64			9.4
Investment securities gains (losses), net		-			85			23			(44	)		331			(100.0	)
Trading asset income, net		175			171			134			36			-		n/m
Other		241			288			167			118			170			41.8
Total noninterest income		3,490			3,366			3,575			3,279			4,237			(17.6	)

Noninterest expense
Salaries and other personnel		4,723			4,790			4,837			4,862			5,310			(11.1	)
Occupancy and equipment		2,045			2,142			2,037			2,004			1,965			4.1
Professional services		635			813			609			491			556			14.2
FDIC deposit insurance assessment		356			356			356			355			358			(0.6	)
Marketing		222			255			304			267			338			(34.3	)
Foreclosed real estate writedowns and expenses		717			313			468			173			2,280			(68.6	)
Gain on other loans held for sale		-			-			-			-			(326	)		-
Loan workout expenses		119			131			204			410			240			(50.4	)
Other		1,267			1,289			1,397			1,273			1,190			6.5
Total noninterest expense		10,084			10,089			10,212			9,835			11,911			(15.3	)

Income before provision (benefit) for income taxes		3,195			3,210			1,599			2,847			1,881			69.9

Provision (benefit) for income taxes		1,168			1,182			(224	)		(19,386	)		382			205.8

Net income	$	2,027		$	2,028		$	1,823		$	22,233		$	1,499			35.2	%

Earnings per Share and Results of Operations
Basic net income per common share	$	0.16		$	0.16		$	0.14		$	1.74		$	0.12			33.3	%
Diluted net income per common share		0.16			0.16			0.14			1.74			0.12			33.3
Weighted average shares outstanding, diluted		12,744,931			12,707,444			12,689,245			12,674,743			12,671,929			0.6
Efficiency ratio		75.9	%		75.9	%		75.0	%		73.8	%		82.4	%		(7.8	)
Return on average assets		0.74			0.75			0.66			8.16			0.55			34.4
Return on average equity		6.32			6.54			5.87			87.51			5.92			6.8

Yields and Rates
Loans ⁽¹⁾		4.68	%		4.77	%		4.83	%		5.02	%		5.26	%		(11.0	)
Investment securities available for sale		1.96			1.89			1.87			1.66			1.49			31.5
Trading account assets		3.40			3.60			2.58			3.04			-		n/m
Transaction deposits		0.01			0.01			0.01			0.01			0.01			-
Money market deposits		0.03			0.03			0.03			0.02			0.02			50.0
Savings deposits		*			0.01			0.01			0.01			0.02		n/m
Time deposits		0.23			0.22			0.64			0.75			0.77			(70.1	)
Retail repurchase agreements		0.02			*			0.02			*			0.02			-
FHLB advances and other borrowings		0.21			0.21			0.17			-			-		n/m
Net interest margin		3.81			3.94			3.86			3.83			3.92			(2.8	)

⁽¹⁾ Includes Mortgage and Other loans held for sale.

* Rounds to less than .01% for the period.

Palmetto Bancshares, Inc. and Subsidiary

Consolidated Statements of Income

(dollars in thousands, except per share data)

(unaudited)

	For the Six Months Ended June 30,						2014 vs. 2013
	2014			2013			% Change
Interest income
Interest earned on cash and cash equivalents	$	46		$	59			(22.0	)%
Dividends received on FHLB stock		39			21			85.7
Interest on trading account assets		91			-		n/m
Interest earned on investment securities available for sale		2,019			1,974			2.3
Interest and fees earned on loans		17,801			19,538			(8.9	)
Total interest income		19,996			21,592			(7.4	)

Interest expense
Interest expense on deposits		250			1,397			(82.1	)
Interest expense on retail repurchase agreements		1			1			-
Interest paid on FHLB advances		23			-		n/m
Total interest expense		274			1,398			(80.4	)

Net interest income		19,722			20,194			(2.3	)

Provision for loan losses		-			1,020			(100.0	)

Net interest income after provision for loan losses		19,722			19,174			2.9

Noninterest income
Service charges on deposit accounts, net		3,255			3,157			3.1
Fees for trust and investment management and brokerage services		323			1,674			(80.7	)
Mortgage-banking		977			1,135			(13.9	)
Debit card and automatic teller machine, net		1,204			1,100			9.5
Bankcard services		137			124			10.5
Investment securities gains, net		85			331			(74.3	)
Trading asset income, net		346			-		n/m
Other		529			461			14.8
Total noninterest income		6,856			7,982			(14.1	)

Noninterest expense
Salaries and other personnel		9,513			10,408			(8.6	)
Occupancy and equipment		4,187			3,932			6.5
Professional services		1,448			983			47.3
FDIC deposit insurance assessment		712			728			(2.2	)
Marketing		477			480			(0.6	)
Foreclosed real estate writedowns and expenses		1,030			2,732			(62.3	)
Gain on other loans held for sale		-			(326	)		(100.0	)
Loan workout expenses		250			452			(44.7	)
Other		2,556			2,897			(11.8	)
Total noninterest expense		20,173			22,286			(9.5	)

Income before provision for income taxes		6,405			4,870			31.5

Provision for income taxes		2,350			1,195			96.7

Net income	$	4,055		$	3,675			10.3	%

Earnings per Share and Results of Operations
Basic net income per common share	$	0.32		$	0.29			9.3	%
Diluted net income per common share		0.32			0.29			9.0
Weighted average shares oustanding, diluted		12,726,495			12,651,565			0.6
Efficiency ratio		75.9	%		79.1	%		(4.0	)
Return on average assets		0.75			0.67			10.8
Return on average equity		6.43			7.36			(12.6	)

Yields and Rates
Loans ⁽¹⁾		4.72	%		5.32	%		(11.3	)
Investment securities available for sale		1.92			1.49			28.9
Trading account assets		3.50			-		n/m
Transaction deposits		0.01			0.01			-
Money market deposits		0.03			0.02			50.0
Savings deposits		0.01			0.01			-
Time deposits		0.22			0.99			(77.8	)
Retail repurchase agreements		0.01			0.01			-
FHLB advances and other borrowings		0.21			-		n/m
Net interest margin		3.87			3.84			0.8

⁽¹⁾ Includes Mortgage and Other loans held for sale.

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PALMETTO BANCSHARES INC Reports