Palmetto Bank records rare loss

by Dick Hughes

After weathering more than a year of recession with continuing, though diminishing, profits, the Palmetto Bank has suffered its first loss in decades, perhaps not since the Great Depression.

 Palmetto Bancshares, the holding company of the 102-year-old bank, lost $17.9 million in the second quarter after recording profits throughout the downturn months of 2008 and the first three of this year.

 The bank said while historical records before World War II are not readily accessible, “to our knowledge, if we had an annual loss, it would date back to the Great Depression in the 1930s.”

Palmetto, which moved corporate headquarters from Laurens to Greenville this spring, is the third largest independent community bank headquartered in the state. It has 29 branches in the Upstate and 415 full-time equivalent employees.

 The quarterly deficit was driven mainly by setting aside $30 million for loan losses, the bank reported.

 “We obviously have some asset quality issues, but we have also developed, and have begun executing, a strong plan to get us through this,” said Sam Erwin, chief executive officer and president.

While it saw its loan losses increase, costs rise and interest margin shrink in the first 15 months of the recession, Palmetto stayed profitable. In the first quarter of 2009, the bank recorded a profit of $2 million, down from $3.6 million in the same period a year ago. It finished 2008 with a profit of $13.6 million, down 15 percent from 2007.

 Palmetto has taken several steps to raise capital and conserve cash as a buffer against further deterioration of the economy and to improve its position for possible acquisitions once the banking industry shakes out the weak from the strong.

In a preliminary proxy statement filed with the Securities and Exchange Commission, the company scheduled a special meeting of shareholders in September to ask again for approval to allow the board to sell up to 2.5 million preferred shares.

A proposal to issue 1 million shares of preferred stock was rejected by shareholders May 19; but in asking them to reconsider and allow issuing 2.5 million, Board Chairman Leon Patterson noted the severity of the recession and the board’s need to be able to act “with greater speed and flexibility with respect to potential future transactions.”

 The board also is having second thoughts about its decision last year not to ask for government assistance under the Troubled Asset Relief Program, a decision it publicly trumpeted.

The bank took an initial step by submitting an application to secure capital through Treasury’s Capital Assistance Program, a latter day version of TARP to boost the balance sheets of banks that may need additional capital to stay vibrant.

 There’s an unresolved catch, however, for a bank like Palmetto that, while public, is traded privately and not on a national stock exchange. Treasury has yet to set terms for a bank such as Palmetto, and the company’s board said it does not know “whether our application for participation in the CAP will be approved” or even if the bank will accept the money if it is.

To conserve cash, the board reduced its dividend from 20 cents to 6 cents for the first quarter and eliminated it entirely for the second quarter. It is the first time in the bank’s history it has not paid a dividend.

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