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PLMT > SEC Filings for PLMT > Form 10-Q on 2-Nov-2012All Recent SEC Filings

Show all filings for PALMETTO BANCSHARES INC



Quarterly Report

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Throughout this Quarterly Report on Form 10-Q, "the Company," "we," "us," or "our" refers to Palmetto Bancshares, Inc. and our subsidiary, The Palmetto Bank, except where the context indicates otherwise.

The following discussion and analysis presents the more significant factors impacting our financial condition as of September 30, 2012 and results of operations and cash flows for the three and nine months ended September 30, 2012. This discussion should be read in conjunction with, and is intended to supplement, all of the other Items presented in this Quarterly Report on Form 10-Q and our Consolidated Financial Statements and the notes thereto for the year ended December 31, 2011 included in our 2011 Annual Report on Form 10-K. Results for the three and nine months ended September 30, 2012 are not necessarily indicative of the results for the year ended December 31, 2012 or any future period. Percentage calculations contained herein have been calculated based on actual not rounded results.

Forward-Looking Statements

This report, including information included in or incorporated by reference into this document, contains statements which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements relate to the financial condition, results of operations, plans, objectives, future performance and business of our Company. Forward-looking statements are based on many assumptions and estimates and are not guarantees of future performance. Our actual results may differ materially from those anticipated in any forward-looking statements as they will depend on factors about which we are unsure including many factors which are beyond our control. The words "may," "would," "could," "should," "will," "expect," "anticipate," "predict," "project," "potential," "continue," "assume," "believe," "intend," "plan," "forecast," "goal" and "estimate," as well as similar expressions, are meant to identify such forward-looking statements. Potential risks and uncertainties that could cause our actual results to differ materially from those anticipated in our forward-looking statements include, but are not limited to, the following:

Expected results of operations could be adversely impacted as a result of higher credit losses, generally and specifically, because losses in the sectors of our loan portfolio secured by real estate are greater than expected due to economic factors including declining real estate values, increasing interest rates, increasing unemployment or changes in payment behavior or other factors,

Expected results of operations could be adversely impacted as a result of higher credit losses because our loans are concentrated by loan type, industry segment, borrower type or location of the borrower or collateral,

Expected results of operations could be adversely impacted if we make additional strategic decisions to sell problem loans and foreclosed assets at discounted prices to accelerate the resolution of our problem assets,

The rate of delinquencies and amounts of loans charged-off,

The adequacy of the level of our allowance for loan losses and the amount of loan loss provisions required in future periods,

Our ability to complete the sale of the remainder of our other loans held for sale at values equal to or greater than the currently recorded carrying balances avoiding additional writedowns,

Our ability to maintain appropriate levels of capital including the potential that the regulatory agencies may require higher levels of capital above the current standard regulatory-mandated minimums including the impact of the proposed capital rules under Basel III,

Our ability to comply with the Consent Order and potential regulatory actions if we fail to comply,

Results of examinations by our regulatory authorities including the possibility that the regulatory authorities may, among other things, require us to increase our allowance for loan losses or writedown assets,

Our ability to attract and retain key personnel,

Our ability to retain our existing clients including our deposit relationships,

The rate of loan growth in recent years and the lack of seasoning of a portion of our loan portfolio,

The amount of our loan portfolio collateralized by real estate and weakness in the real estate market,

Increased funding costs due to market illiquidity, increased competition for funding and / or increased regulatory requirements with regard to funding,

Changes in availability of wholesale funding sources including increases in collateral margin requirements,

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Significant increases in competitive pressure in the banking and financial services industries,

Changes in the interest rate environment which could reduce anticipated or actual margins,

Changes in political conditions and the legislative or regulatory environment including the impact of recent financial reform legislation on the banking and financial services industries,

General economic conditions, either nationally or regionally and especially in our primary markets, becoming less favorable than expected, resulting in, among other things, deterioration in credit quality,

Changes occurring in business conditions and inflation,

Changes in technology,

Changes in deposit flows,

Changes in monetary and tax policies,

Changes in accounting principles, policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the SEC and the FASB,

Potential limitations on our ability to utilize net operating loss carryforwards and net unrealized built-in losses for income tax purposes due to the change in control resulting from the Private Placement transaction,

Risks associated with income taxes including the potential for adverse adjustments and the inability to reverse valuation allowances on deferred tax assets,

Our ability to maintain effective internal control over financial reporting,

Our reliance on available secondary funding sources such as FHLB advances, Federal Reserve Discount Window borrowings, sales of investment securities and loans and lines of credit from correspondent banks to meet our liquidity needs,

Adverse changes in asset quality and resulting credit-related losses and expenses,

The value of our stock price including our continued listing on a national stock exchange and the resulting impact on our stock price as a result of such listing,

Loss of consumer confidence and economic disruptions resulting from terrorist activities or other military actions,

Changes in the securities markets and / or

Other risks and uncertainties detailed in this Quarterly Report on Form 10-Q and from time to time in our other filings with the SEC.

These risks are exacerbated by the state of local, national and international financial markets and fiscal situations, and we are unable to predict what impact these uncertain market conditions will have on us in the future. Beginning in 2008 and continuing through 2012, the capital and credit markets experienced extended volatility and disruption. During the first nine months of 2012, economic conditions, while slow by historical standards and still fluctuating on a day-to-day basis, have shown general signs of stabilization. However, as a result of U.S. government fiscal challenges, continued volatility in European sovereign and bank debt, slow improvement in domestic employment conditions and the economic and monetary policy statements by the Federal Reserve, it is difficult to predict if this stabilization is indicative of a lasting trend. Current economic reports are mixed and the outlook for the remainder of 2012 and 2013 is unclear and does not yet indicate expectations of a sustained recovery. There can be no assurance that the current level of economic activity will not continue to materially and adversely impact the U.S. economy in general, the banking industry and our business, financial condition and results of operations as well as our ability to maintain sufficient capital or other funding for liquidity and business purposes.

We have based our forward-looking statements on our current expectations about future events. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee that these expectations will be achieved. We undertake no obligation to publicly update or otherwise revise any forward-looking statements whether as a result of new information, future events or otherwise.

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Non-GAAP Financial Information

This report contains financial information determined by methods other than U.S. GAAP. This report discusses both GAAP net income (loss) and pretax operating earnings excluding credit-related items and certain special items, which are non-GAAP measures. We believe that such non-GAAP measures are useful because they enhance the ability of investors and management to evaluate and compare our operating results from period-to-period in a meaningful manner. Non-GAAP measures have inherent limitations as analytic tools, are not required to be uniformly applied and are not audited. To mitigate these factors, we have procedures in place to ensure that these non-GAAP measures are determined using the appropriate GAAP components and that these measures are properly reflected to facilitate consistent period-to-period comparisons. Although we believe these non-GAAP measures enhance investors' and management's ability to evaluate and compare our operating results from period-to-period, non-GAAP measures should not be considered in isolation or as an alternative to any measure of performance as promulgated under GAAP. Readers should consider our recording of expenses associated with credit-related items and certain special items when assessing our performance.

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