Palmetto Bank makes growth plans

By Dick Hughes  

JANUARY 5, 2012 1:59 p.m. (0)

With the economy and banking income slow to recover, Palmetto Bank is getting smaller to dig out of its post-recession hole and put itself in a position to get bigger when times get better.

The Greenville-based bank is unloading fringe branches, consolidating others, cutting staffing and outsourcing some back office functions. Its employment level will be reduced to where it was 12 years ago.

The bank said the economies annually will add about $6.1 million to its bottom line, although that will be offset by a one-time charge of $1.1 million in the last quarter of 2011 and the first of this year.

“If we sit back and wait for the market to return so then we can deal with other aspects of our company, it is going to be tough,” said Sam Erwin, chief executive officer, in an interview.

“We don’t know when that day is going to be. The expense strategy assumes there won’t be growth and tries to figure out how to run this bank in that environment.”

Palmetto has lost money every quarter since the second quarter of 2009 when it booked its first loss since the Great Depression.  It lost a total of $121 million in 2009, 2010 and the first nine months of 2011. The bank expects profits to return this year.

Erwin said the bank is “laying the ground work for a more consistent earnings outlook. You do that first and foremost at this moment by dealing with your expense structure.”

To cut costs and focus resources on its core nine Upstate counties, Palmetto is closing four branches, reducing its branch network to 25 offices.

It put offices in Rock Hill and Blacksburg on the market and is consolidating its North Harper branch into the West End branch in Laurens and the South Main branch into the Montague branch in Greenwood.

The Rock Hill office opened in the spring of 2008. It was Palmetto’s newest branch and its entrée into the York County market in the so-called Textile Corridor of Interstate 77 from Charleston. Palmetto has had the Blacksburg office in Cherokee County for several years.

If a buyer is not found for the two offices, they will be closed and consolidated with Palmetto’s Gaffney branch, also in Cherokee.

In addition, Erwin said, Palmetto is outsourcing check-processing, which always has been done inside.

With attrition from 2011, retirements and layoffs “here and there where positions are no longer required,” he said, Palmetto’s staffing level will be reduced by 20 percent from a high of 420 the end of 2008 to 333 by June.  That will put Palmetto’s headcount around where it was in 1999-2000 when its total assets were half today’s $1.2 billion.

In addition, Erwin said, reductions in compensation and benefits across the board will “ensure we can be efficient as possible in 2012.” He said these changes were “communicated to our employees some time ago.”

“While important, these steps were not as significant in size in terms of expense savings as the other steps we have taken and already disclosed.”

FIG Partners, which produces a well-read newsletter on financial institutions, cited the steps Palmetto is taking to cut overhead to improve efficiency as a “good example” of what banks should do to improve profits when net loan growth is slow and interest margins are thin.

On the revenue side, Erwin and Chairman Leon Patterson told shareholders in letter that Palmetto’s pre-tax earnings have improved for three consecutive quarters, the loan portfolio has grown two consecutive quarters and loan quality had stabilized and improved “significantly over the past year.”

Erwin said in the interview that over the last 30 months Palmetto significantly reduced its level of troubled loans, particularly in real estate development where it had a heavy concentration, through “dispositions, write-offs and write-downs.”

“Certainly, we are trying – and successfully – to be more focused now on consumer loans, certain types of mortgage loans, more focused on loans other than speculative real estate,” he said. “We are making loans.”

Erwin said when the news is so bad for so long the natural tendency is to “just freeze” and wait for things to improve.

“Whether it is dealing with our problem loans or our expense structure, we decided to take an approach that is more like the larger banks dealing with these challenges. We believe doing so gives us a brighter future. If we do not, our future will be directed for us.”