8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 8, 2006

Palmetto Bancshares, Inc. (Exact name of registrant as specified in charter)
South Carolina	0-26016		74-2235055
State or other jurisdiction of incorporation	Commission File Number	IRS Employer I.D. number
301 Hillcrest Drive, Laurens, South Carolina			29360
Address of principal executive offices			Zip Code
(864) 984-4551
Registrant's telephone number

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

[  ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[  ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02.  Results of Operations and Financial Condition.

On May 8, 2006, Palmetto Bancshares, Inc. mailed to shareholders its quarterly shareholder earnings overview disclosing the results of operations and financial condition of the Company as of and for the three months ended March 31, 2006.

For more information regarding this matter, see the shareholder earnings overview attached hereto as Exhibit 99.

Item 9.01.      Financial Statements and Exhibits

(c) Exhibits

99               Shareholder report mailed May 8, 2006

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:   May 12, 2006

EX-99.1

 

Bank Notes

PROMOTIONAL ANNOUNCEMENTS
The Palmetto Bank is proud to announce the following promotions:

H. E. (Tripp) Tuttle has been promoted to executive vice president, Palmetto Trust & Investment Group.  Tuttle joined The Palmetto Bank in 1997 and is a graduate of Presbyterian College, Cannon Graduate Trust  School and currently serves on the board of the South Carolina Trust Committee.

Matthew I. Walter has been promoted to executive vice president, Investments.  Walter joined The Palmetto Bank in 1990 and has held various investment positions including senior vice president, investment officer.  Walter received a Bachelor of Science in Finance and a Master of Business Administration from the University of South Carolina, and is a graduate of Stonier Graduate School of Banking and ABA Graduate School of Bank Investments and Financial Management.

Ana I. Miles has been promoted to senior vice president, marketing director.  She is a graduate of Keiser College, the ABA School of Bank Marketing and has 21 years of bank marketing experience.

Lauren K. Slaughter, CPA has been promoted to senior vice president, finance and accounting. A Greenville native, she is a Clemson University graduate and has seven years experience in accounting and finance.

Lynn G. Young has been promoted to vice president, commercial lender, Greenwood.  A native of Ninety-Six,  Young is a graduate of the University of South Carolina, South Carolina Bankers School and  ABA's National Commercial Lending School.

Haley H. Jeffcoat has been promoted to assistant vice president, branch manager and loan officer, Fountain Inn.  She is a graduate of Clemson University and the South Carolina Bankers School.

James T. (Jimmy) Rambo, Jr. has been promoted to assistant vice president, commercial lender, Greenwood.  A native of Laurens, Rambo received a Bachelor of Arts degree from Wofford College and a Masters of Business Administration from the University of South Carolina.

Elizabeth L. Robertson has been promoted to assistant vice president, branch manager and loan officer, Main.  A Laurens native, Robertson is a graduate of the University of South Carolina, The Palmetto Bank's management training program, and the South Carolina Bankers School.

Dawn B. Wesson has been promoted to assistant vice president, trust officer.  A native of Clinton, Wesson is a graduate of Presbyterian College and Cannon Trust School.

NEW OFFICER APPOINTMENTSJosephus J. Howard has been appointed assistant branch manager and loan officer, Clinton.  Howard received a Bachelor of Science degree and a Masters of Business Administration from the University of South Carolina.

Cynthia J. Jamison has been appointed marketing officer. A graduate of Columbia College, Jamison manages The Palmetto Bank's public and media relations, as well as corporate communications.

Sara T. Loy  has been appointed assistant branch manager and loan officer, Anderson Main. An Upstate native, Loy is a graduate of Clemson University and The Palmetto Bank's management training program.

Russell G. Swift has been named commercial lender, Anderson. A native of Anderson, he received a Bachelor of Arts degree from Wofford College and a Masters of Business Administration from Clemson

FREDDIE MAC HONORS THE PALMETTO BANK FOR QUALITY SERVICING
The Palmetto Bank's Mortgage Servicing Department recently achieved Freddie Mac's prestigious 2005 Tier One performance ranking for excellence in investor reporting and default management for two or more quarters during the year.  According to Freddie Mac, one of the nation's largest investors in residential mortgages, The Palmetto Bank was one of only 84 servicing companies nationwide to meet this standard.  Nationally, approximately 1,500 lenders service Freddie-Mac owned loans.

To Our Shareholders:

We are pleased to report on the financial condition and operating results for Palmetto Bancshares, Inc. at the end of the first quarter in 2006. We have reached yet another significant milestone in our history by providing service to our Upstate community for over 100 years.  It was only last year that Palmetto Bancshares reached a milestone by exceeding $1 billion in total assets. We continue to see strong growth in total assets over the last 12 month period with an 8% increase to $1.1 billion at March 31, 2006. Total assets under management, including bank assets, trust and investment assets, and mortgage loans serviced for others increased to $1.8 billion at March 31, an increase of $134.1 million from first quarter 2005.

We can also report improved operating results in net income and earnings per share. Net income increased by 7 percent to $3.65 million over $3.41 million in the first quarter of 2005. On a diluted basis, earnings per share were up 8 percent to $0.57 compared with $0.53 per share for the quarter ended March 31, 2005. Continued good operating earnings have led to a cash dividend payment of $0.18 per share for the first quarter 2006 and an increase of $0.02 per share over the same period for 2005. Recent trades in the $36.00 per share range continue to compare favorably with results with the broad indexes for equity investments in the first quarter of 2006.

Growth in deposits, including retail repurchase agreements and commercial paper, has been exceedingly strong in the first quarter 2006. Compared with first quarter end 2005, growth of $113.8 million or 13 percent brought total deposits to a record $984.9 million at March 31, 2006.

In support of deposit gathering The Palmetto Bank has invested in a number of new programs with the purchase of Connections, a marketing database system; a sales training support program, the implementation of a monthly incentives payment system and additional marketing efforts directed to the reintroduction of several existing deposit products. We are confident that the launch of these new programs and marketing initiatives in our 100th year will ensure continued growth in core deposits for years to come.

Loan growth slowed somewhat in the first quarter due primarily to continued increases in short term interest rates by the Federal Reserve. Further increases by the Federal Reserve will be measured against the overall rate of expansion in the economy and any perceived inflationary expectations. Economic activity in the Upstate continues sound and we can expect loan demand in the coming months to reflect continued growth of the local economy.

Credit quality continues to be sound and well managed. Charge-off experience has been excellent as well as delinquencies of loans in recent months. At March 31, 2006 net loans charged-off as a percentage of average loans was .11 percent compared with ..20 percent for the same period in 2005. Credit quality continues to reflect the necessity of a strong and positive credit culture to bottom line results.

As we celebrate the 100th year in our history and growth, we are mindful of the lessons and experiences of the past. Yet, we are comfortable in the knowledge that we have assembled a staff of dedicated employees who individually and collectively understand a responsibility to shareholders, to customers, to each fellow employee and to our communities. The exceptional performance of the first quarter is a direct result of the outstanding abilities and efforts of our employees and their desire to achieve superior long term shareholder value for the company. As shareholders, we are always mindful of your concerns, and we appreciate your loyal and continued support. It was a great occasion to see many of you at the recent annual meeting. There are many events planned in the celebration of this special year for the company. We hope you feel the spirit of this special time with us.

Sincerely,

L. Leon Patterson
Chairman and Chief Executive Officer

Consolidated Balance Sheets
(in thousands, except common share data)
				March 31,
				2006		2005
				(unaudited)
ASSETS
Cash and due from banks				$	46,762	36,504
Federal funds sold				29,436		1,394
	Total cash and cash equivalents			76,198		37,898
Federal Home Loan Bank (FHLB) stock, at cost				3,184		4,331
Investment securities available for sale, at fair market value				124,920		138,385
Mortgage loans held for sale				2,846		5,335
Loans				860,958		802,948
	Less allowance for loan losses			(8,727)		(7,838)
		Loans, net		852,231		795,110
Premises and equipment, net				23,103		22,384
Accrued interest receivable				5,054		4,452
Other assets				17,569		14,709
			Total assets	$	1,105,105	1,022,604
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
	Noninterest-bearing			$	137,060	124,251
	Interest-bearing			812,000		706,922
		Total deposits		949,060		831,173
Retail repurchase agreements				17,725		20,981
Commercial paper (Master notes)				18,146		18,993
Federal funds purchased				-		13,320
FHLB borrowings				23,000		52,000
Other liabilities				5,615		4,038
		Total liabilities		1,013,546		940,505
Shareholders' Equity
Common stock - par value $5.00 per share;  authorized 10,000,000
	shares; issued and outstanding 6,350,635 and 6,313,535 at
	March 31, 2006 and 2005, respectively.			31,753		31,567
Capital surplus				877		555
Retained earnings				60,039		50,324
Accumulated other comprehensive income (loss), net of tax				(1,110)		(347)
		Total shareholders' equity		91,559		82,099
			Total liabilities and shareholders' equity	$	1,105,105	1,022,604
ASSETS UNDER MANAGEMENT
	Palmetto Bancshares, Inc. less trust deposits			$	1,062,653	1,009,623
	Trust			284,947		252,732
	Investment			156,907		145,929
	Mortgage loans serviced for others			309,968		272,084
		Total assets under management		$	1,814,475	1,680,368

Consolidated Statements of Income
(in thousands, except share data)
					For the three months ended March 31,
					2006		2005
					(unaudited)
Interest income
	Interest and fees on loans				$	16,453	12,891
	Interest and dividends on investment securities available for sale				1,249		1,334
	Interest on federal funds sold				189		21
	Dividends and interest on FHLB balances				57		43
			Total interest income		17,948		14,289
Interest expense
	Interest on deposits including retail repurchase agreements				5,408		3,088
	Interest on securities sold under agreements to repurchase and
		reverse repurchase agreements			-		-
	Interest on federal funds purchased				2		25
	Interest on FHLB advances				305		297
	Interest on commercial paper (Master notes)				138		66
			Total interest expense		5,853		3,476
				Net interest income	12,095		10,813
Provision for loan losses					525		600
				Net interest income after provision for loan losses	11,570		10,213
Noninterest income
	Service charges on deposit accounts				2,058		1,847
	Fees for trust and brokerage services				781		803
	Mortgage banking income				222		282
	Investment securities gains				2		54
	Other				919		779
			Total noninterest income		3,982		3,765
Noninterest expense
	Salaries and other personnel				5,775		4,964
	Occupancy				692		600
	Furniture and equipment				1,006		885
	Postage and supplies				456		262
	Marketing and advertising				389		317
	Telephone				213		183
	Professional services				221		181
	Other				1,393		1,458
			Total noninterest expense		10,145		8,850
				Net income before income taxes	5,407		5,128
Provision for income taxes					1,757		1,717
				Net income	$	3,650	3,411
Share Data
	Net income - basic				$	0.58	0.54
	Net income - diluted				0.57		0.53
	Cash dividends				0.18		0.16
	Book value				14.42		13.00
	Weighted average common shares outstanding - basic				6,343,247		6,309,527
	Weighted average common shares outstanding - diluted				6,444,002		6,407,359