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 27, 2008

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 27, 2008, 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 month period ended March 31, 2008.

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 27, 2008

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 28, 2008

EX-99.1

	Bank Notes
	THE PALMETTO BANK EXPANDS TO ROCK HILL
	The Palmetto Bank has received approval to establish a branch location in Rock Hill. This will be the first office in York County for The Palmetto Bank, bringing the total number of offices across the Upstate to twenty-nine.
	This full-service banking location at 201 Oakland Avenue, Rock Hill, is expected to open in the summer.  Services will include All Day Deposit Credit, Saturday banking, and 8:00 a.m. “early-bird” hours.
	OFFICER PROMOTIONS
	Lauren S. Greer, CPA has been promoted to senior vice president, chief financial officer.
	Edward M. Simpson has been promoted to senior vice president, chief operations & technology officer.
	Derrick M. Copeland, CFE has been promoted to vice president, chief security officer.
	William B. (Will) Ferguson has been promoted to senior vice president, Mortgage Loans.
	Diane M. Watkins has been promoted to senior vice president, Pendleton/Oconee.
	Michelle R. Brewer, CRCM has been promoted to assistant vice president, BSA & compliance officer.
	Tony K. Maddox has been promoted to assistant vice president, data processing officer.
	James B. (Tripp) Martin III has been promoted to assistant vice president, branch manager and loan officer, Easley.
	Randall C. (Randy) Traynham, AAP, CTP has been promoted to assistant vice president, corporate services officer.
	OFFICER APPOINTMENTS
	Andrew T. (Drew) Boland has been promoted to commercial relationship officer, Fountain Inn.
	Philip J. Codington has been promoted to application software systems officer.
	Jeri C. Manley has been promoted to branch manager and loan officer, North Harper office.
	Lisa M. Marinelli, CPA, has been appointed to senior accounting officer, finance, Laurens.
	Elizabeth B. (Liz) Winterburn has been appointed to vice president, branch manager and loan officer,

Consolidated Balance Sheets
(dollars in thousands, except common and per share data)(unaudited)
				March 31,				March 31,
				2008				2007
Assets
Cash and cash equivalents
	Cash and due from banks			$	32,972			31,713
	Federal funds sold			974				33,840
		Total cash and cash equivalents		33,946				65,553
FHLB stock, at cost				4,788				2,527
Investment securities available for sale, at fair market value				127,150				107,072
Mortgage loans held for sale				11,804				4,211
Loans				1,072,825				954,221
	Less: allowance for loan losses			(7,488)				(8,460)
		Loans, net		1,065,337				945,761
Premises and equipment, net				26,097				25,002
Goodwill				3,691				3,691
Core deposit intangibles				68				114
Accrued interest receivable				6,518				5,960
Other				16,376				13,606
			Total assets	$	1,295,775			1,173,497
Liabilities and shareholders' equity
Liabilities
Deposits
	Noninterest-bearing			$	134,943			138,771
	Interest-bearing			920,231				878,931
		Total deposits		1,055,174				1,017,702
Retail repurchase agreements				15,798				9,905
Commercial paper (Master notes)				29,425				24,275
Other short-term borrowings				37,500				-
Long-term borrowings				35,000				10,000
Accrued interest payable				1,916				1,551
Other				8,126				6,889
		Total liabilities		1,182,939				1,070,322
Shareholders' equity
Common stock - par value $5.00 per share;  authorized 10,000,000
	shares; issued and outstanding 6,432,765 and 6,381,960
	at March 31, 2008 and 2007, respectively			32,164				31,910
Capital surplus				1,829				1,248
Retained earnings				81,481				70,680
Accumulated other comprehensive loss, net of tax				(2,638)				(663)
		Total shareholders' equity		112,836				103,175
			Total liabilities and shareholders' equity	$		1,295,775		1,173,497
SIGNIFICANT CAPITAL RATIOS
Shareholders' equity as a percentage of total assets				8.71			%	8.79
Tier 1 risk-based capital				9.55				9.47
Total risk-based capital				10.19				10.27
Tier 1 leverage ratio				8.87				8.65
SIGNIFICANT CREDIT QUALITY RATIOS
Nonaccrual loans as a percentage of total assets				0.43			%	1.03
OTHER INFORMATION
Full-time equivalent employees				413				405
Banking offices				32				32
ATMs				39				39

 

Consolidated Statements of Income
(dollars in thousands, except common and per share data)(unaudited)
				For the three month periods ended March 31,
				2008			2007
				(unaudited)
Interest income
	Interest earned and fees on loans			$	19,051		18,766
	Interest earned on investment securities available for sale			1,090			1,171
	Interest earned on cash and due from banks			5			208
	Interest earned on federal funds sold			37			16
	Dividends paid on FHLB stock			57			37
		Total interest income		20,240			20,198
Interest expense
	Interest paid on deposits			7,116			7,227
	Interest paid on retail repurchase agreements			112			146
	Interest paid on commercial paper			144			238
	Interest paid on other short-term borrowings			251			29
	Interest paid on long-term borrowings			68			95
		Total interest expense		7,691			7,735
			Net interest income	12,549			12,463
Provision for loan losses				488			367
			Net interest income after provision for loan losses	12,061			12,096
Noninterest income
	Service charges on deposit accounts			2,167			1,908
	Fees for trust and investment management and brokerage services			756			696
	Mortgage-banking income			253			348
	Other			1,513			947
		Total noninterest income		4,689			3,899
Noninterest expense
	Salaries and other personnel			6,195			6,137
	Occupancy			421			370
	Furniture and equipment			1,328			1,277
	Marketing			332			268
	Amortization of core deposit intangibles			11			12
	Other			2,880			2,145
		Total noninterest expense		11,167			10,209
			Net income before provision for income taxes	5,583			5,786
Provision for income taxes				1,937			2,025
			Net income	$	3,646		3,761
Common share data
	Net income - basic			$	0.57		0.59
	Net income - diluted			0.56			0.58
	Cash dividends			0.20			0.19
	Book value			17.54			16.17
	Weighted average common shares outstanding - basic			6,431,172			6,378,516
	Weighted average common shares outstanding - diluted			6,519,127			6,455,805
SIGNIFICANT OPERATING RATIOS BASED ON EARNINGS
Return on average assets				1.16		%	1.32
Return on average shareholders' equity				13.01			14.94
Net interest margin				4.28			4.66
SIGNIFICANT CAPITAL RATIOS
Average shareholders' equity as a percentage of average assets				8.94		%	8.83
SIGNIFICANT CREDIT QUALITY RATIOS
Net loans charged-offs as a percentage of average loans less
	mortgage loans held for sale			0.16		%	0.19

	To Our Shareholders:
	At the time of this writing we have just concluded our annual shareholders’ meeting. I am pleased to report the re-election of five directors to our Board: John Gramling, John Hopkins, Keith Snead, Jane Sosebee, and Bill Stringer. These directors serve with great distinction and dedication on your behalf and that of our customers, employees, and the communities we serve. I am also pleased to report that approximately 80 per cent of the shares voted at the meeting were cast in favor of the 2008 Restricted Stock Plan. Your Board of Directors believes the inclusion of this Plan in total compensation management is essential to attracting, rewarding, and retaining key personnel for the Company. We were additionally pleased to report excellent operating performance for Palmetto Bancshares in 2007. Now, our attention turns to 2008, the current banking environment and the economy at the end of the first quarter of the year. A read of financial reporting since year end has been anything but boring. To the contrary, the financial sector can be viewed like a new Broadway play and we are still in the first act. The Fed has acted boldly. Interest rates have declined. The President says the economy is in a slow down, as we are, and in fact, perhaps the start of a recession. Only time will tell. So, how do we look at the end of the first quarter? We believe in excellent condition. The numbers speak for themselves. Capital is strong, as are earnings, as you will see in this report. Loan growth has been strong at the first part of the year, and credit quality remains in excellent condition. Nonperforming assets and charge offs declined from the same period last year. Profitability ratios remain strong with return on average assets at 1.16% and return on average equity at 13.01%. The dividend increase at year-end was maintained through the first quarter at $.20 per share, and the latest price traded for Palmetto Bancshares, Inc., at the time of this report, between buyers and sellers is $42.00 per share. Total assets on March 31 reached $1.3 billion, a 10% increase over the prior March 2007 level. We are pleased with how we stand at this time in the calendar year. We are in line with our projections and budget for the year.	While margin compression is one of our biggest challenges this year, we are mindful of expense management and control as one of the highest priorities. In 2007 an extensive review was conducted of retail branch profitability and productivity with a view toward the future potential of each of our 32 present locations. In late April three of these branches were consolidated into other locations that we believe can continue to provide excellent service to our customers. A fourth location is planned for consolidation in June. While we believe the consolidation of these locations is a prudent decision, we will continue to seek out opportunities for future growth that meet the test of our master strategy of growth and profitability. The recent announcement of plans to open a full service location of The Palmetto Bank in Rock Hill, York County, SC is an opportunity to extend the Palmetto brand into another area of the upstate that we believe has high growth potential for us. An opening is planned around this mid-year. As for an update on the construction of the new headquarters facility in downtown Greenville, this project continues to go well and on schedule at this time for a late November opening. The exterior structure has been completed and we now begin the interior phase of forming floor plan concepts into furnished office space. It is exciting to watch progress on our building at one of Greenville’s most visible and strategic downtown locations. As stated in our recent annual report, the financial services industry is beset by a number of challenging issues, but that is the nature of business cycles. Intense competition for deposits, interest margin compression, and extreme uncertainty in the real estate markets – all – will remain as issues to be closely watched for the remainder of this year. We are especially mindful of our directors and employees, all of the same mind, with a purpose of continuing our record of high performance banking. And, to be known as the best at our business in Upstate South Carolina is our goal. As our shareholders, we are always mindful of your concerns. Let us know what they might be. We continue to appreciate your loyalty and support as shareholders and customers. L. Leon Patterson Chairman and Chief Executive Officer