10-Q

U. S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                     

Commission file number 0-26016

PALMETTO BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

South Carolina	74-2235055
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
306 East North Street, Greenville, South Carolina	29601
(Address of principal executive offices)	(Zip Code)

(800) 725–2265

(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at July 23, 2012
Common stock, $0.01 par value	12,752,040

PALMETTO BANCSHARES, INC. AND SUBSIDIARY

Table of Contents

			Page
PART I - FINANCIAL INFORMATION				3
	Item 1.	Financial Statements		3
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		40
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk		95
	Item 4.	Controls and Procedures		96
PART II - OTHER INFORMATION				97
	Item 1.	Legal Proceedings		97
	Item 1A.	Risk Factors		97
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		97
	Item 3.	Defaults Upon Senior Securities		97
	Item 4.	Mine Safety Disclosures		97
	Item 5.	Other Information		97
	Item 6.	Exhibits		97
SIGNATURES				98

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

PALMETTO BANCSHARES, INC. AND SUBSIDIARY

Consolidated Balance Sheets

(dollars in thousands, except per share data)

	June 30,			December 31,
	2012			2011
	(unaudited)
Assets
Cash and cash equivalents
Cash and due from banks	$	152,363		$	102,952
Total cash and cash equivalents		152,363			102,952
Federal Home Loan Bank (“FHLB”) stock, at cost		2,184			3,502
Investment securities available for sale, at fair value		247,400			260,992
Mortgage loans held for sale		3,789			3,648
Other loans held for sale		14,446			14,178
Loans, gross		723,986			773,558
Less: allowance for loan losses		(18,278	)		(25,596	)
Loans, net		705,708			747,962
Premises and equipment, net		24,974			25,804
Accrued interest receivable		3,902			5,196
Foreclosed real estate		14,683			27,663
Other		11,511			11,255
Total assets	$	1,180,960		$	1,203,152
Liabilities and shareholders’ equity
Liabilities
Deposits
Noninterest-bearing	$	178,669		$	155,406
Interest-bearing		884,008			908,775
Total deposits		1,062,677			1,064,181
Retail repurchase agreements		18,260			23,858
Accrued interest payable		517			554
Other		9,734			11,077
Total liabilities		1,091,188			1,099,670
Shareholders’ equity
Preferred stock - par value $0.01 per share; authorized 2,500,000 shares; none issued and outstanding		—			—
Common stock - par value $0.01 per share; authorized 75,000,000 shares; 12,752,040 and 12,726,388 issued and outstanding at June 30, 2012 and December 31, 2011, respectively		127			127
Capital surplus		142,845			142,233
Accumulated deficit		(44,244	)		(36,508	)
Accumulated other comprehensive loss, net of tax		(8,956	)		(2,370	)
Total shareholders’ equity		89,772			103,482
Total liabilities and shareholders’ equity	$	1,180,960		$	1,203,152

See Notes to Consolidated Financial Statements

3

PALMETTO BANCSHARES, INC. AND SUBSIDIARY

Consolidated Statements of Income (Loss)

(dollars in thousands, except per share data) (unaudited)

	For the three months ended June 30,
	2012			2011
Interest income
Interest earned on cash and cash equivalents	$	72		$	112
Dividends received on FHLB stock		13			13
Interest earned on investment securities available for sale
State and municipal (nontaxable)		669			918
Collateralized mortgage obligations (taxable)		387			772
Other mortgage-backed (taxable)		207			219
SBA loan-backed (taxable)		49			—
Interest and fees earned on loans		10,025			11,111
Total interest income		11,422			13,145
Interest expense
Interest paid on deposits		1,339			2,524
Interest paid on retail repurchase agreements		—			8
Interest paid on FHLB borrowings		—			23
Total interest expense		1,339			2,555
Net interest income		10,083			10,590
Provision for loan losses		8,450			7,400
Net interest income after provision for loan losses		1,633			3,190
Noninterest income
Service charges on deposit accounts, net		1,669			1,875
Fees for trust, investment management and brokerage services		870			842
Mortgage-banking		832			241
Automatic teller machine		248			256
Bankcard services		57			49
Investment securities gains, net		9,859			56
Other		428			439
Total noninterest income		13,963			3,758
Noninterest expense
Salaries and other personnel		5,335			5,998
Occupancy		1,064			1,146
Furniture and equipment		834			930
Professional services		424			553
FDIC deposit insurance assessment		446			702
Marketing		374			520
Loan workout		158			453
Foreclosed real estate writedowns and expenses		6,966			1,504
Loss on other loans held for sale		2,406			3,797
Other		1,227			2,105
Total noninterest expense		19,234			17,708
Net loss before provision (benefit) for income taxes		(3,638	)		(10,760	)
Provision (benefit) for income taxes		3,511			(1,191	)
Net loss	$	(7,149	)	$	(9,569	)
Common and per share data
Net loss - basic	$	(0.57	)	$	(0.76	)
Net loss - diluted		(0.57	)		(0.76	)
Cash dividends		—			—
Book value		7.04			8.51
Weighted average common shares outstanding - basic		12,638,160			12,616,887
Weighted average common shares outstanding - diluted		12,638,160			12,616,887

See Notes to Consolidated Financial Statements

4

PALMETTO BANCSHARES, INC. AND SUBSIDIARY

Consolidated Statements of Income (Loss)

(dollars in thousands, except per share data) (unaudited)

	For the six months ended June 30,
	2012			2011
Interest income
Interest earned on cash and cash equivalents	$	123		$	217
Dividends received on FHLB stock		25			27
Interest earned on investment securities available for sale
U.S. Treasury and federal agencies (taxable)		—			6
State and municipal (nontaxable)		1,584			1,463
Collateralized mortgage obligations (taxable)		896			1,327
Other mortgage-backed (taxable)		419			419
SBA loan-backed (taxable)		49			—
Interest and fees earned on loans		20,351			22,383
Total interest income		23,447			25,842
Interest expense
Interest paid on deposits		2,732			5,200
Interest paid on retail repurchase agreements		1			19
Interest paid on FHLB borrowings		—			72
Total interest expense		2,733			5,291
Net interest income		20,714			20,551
Provision for loan losses		11,150			12,900
Net interest income after provision for loan losses		9,564			7,651
Noninterest income
Service charges on deposit accounts, net		3,343			3,637
Fees for trust, investment management and brokerage services		1,589			1,533
Mortgage-banking		1,633			617
Automatic teller machine		489			488
Bankcard services		119			125
Investment securities gains, net		9,859			56
Other		861			874
Total noninterest income		17,893			7,330
Noninterest expense
Salaries and other personnel		10,943			12,252
Occupancy		2,328			2,329
Furniture and equipment		1,725			1,915
Professional services		890			1,063
FDIC deposit insurance assessment		1,097			1,660
Marketing		562			934
Loan workout		387			471
Foreclosed real estate writedowns and expenses		8,334			2,337
Loss on other loans held for sale		2,534			4,948
Other		2,365			3,860
Total noninterest expense		31,165			31,769
Net loss before provision (benefit) for income taxes		(3,708	)		(16,788	)
Provision (benefit) for income taxes		4,028			(1,139	)
Net loss	$	(7,736	)	$	(15,649	)
Common and per share data
Net loss - basic	$	(0.61	)	$	(1.25	)
Net loss - diluted		(0.61	)		(1.25	)
Cash dividends		—			—
Book value		7.04			8.51
Weighted average common shares outstanding - basic		12,637,990			12,490,833
Weighted average common shares outstanding - diluted		12,637,990			12,490,833

See Notes to Consolidated Financial Statements

5

PALMETTO BANCSHARES, INC. AND SUBSIDIARY

Consolidated Statements of Comprehensive Income (Loss)

(in thousands) (unaudited)

	For the three months ended June 30,						For the six months ended June 30,
	2012			2011			2012			2011
Net loss	$	(7,149	)	$	(9,569	)	$	(7,736	)	$	(15,649	)
Other comprehensive income (loss), before tax
Investment securities available for sale
Change in net unrealized gains		606			3,194			(754	)		3,055
Reclassification adjustment included in net loss		(9,859	)		(56	)		(9,859	)		(56	)
Change in net unrealized gains on investment securities available for sale		(9,253	)		3,138			(10,613	)		2,999
Other comprehensive income (loss), before tax		(9,253	)		3,138			(10,613	)		2,999
(Provision) benefit for income taxes related to items of other comprehensive income (loss)		(3,511	)		1,191			(4,026	)		1,139
Other comprehensive income (loss), net of tax		(5,742	)		1,947			(6,587	)		1,860
Comprehensive loss	$	(12,891	)	$	(7,622	)	$	(14,323	)	$	(13,789	)

See Notes to Consolidated Financial Statements

6

PALMETTO BANCSHARES, INC. AND SUBSIDIARY

Consolidated Statements of Changes in Shareholders’ Equity

(dollars in thousands) (unaudited)

	Shares of common stock			Common stock			Capital surplus		Accumulated deficit			Accumulated other comprehensive loss, net			Total
Balance at December 31, 2010		47,409,078		$	474		$	133,112	$	(13,108	)	$	(6,579	)	$	113,899
Net loss										(15,649	)					(15,649	)
Other comprehensive income, net of tax													1,860			1,860
Compensation expense related to stock options granted under equity award plans								55								55
Common stock issued related to restricted stock granted under equity award plans, net of forfeitures		427,114			1			247								248
Common stock issued pursuant to Follow-On Offering		3,070,030			31			7,920								7,951
One-for-four reverse stock split, as of June 28, 2011		(38,179,331	)		(379	)		379								—
Balance at June 30, 2011		12,726,891		$	127		$	141,713	$	(28,757	)	$	(4,719	)	$	108,364
Balance at December 31, 2011		12,726,388		$	127		$	142,233	$	(36,508	)	$	(2,370	)	$	103,482
Net loss										(7,736	)					(7,736	)
Other comprehensive loss, net of tax													(6,587	)		(6,587	)
Compensation expense related to stock options granted under equity award plans								250								250
Common stock issued related to restricted stock granted under equity award plans, net of forfeitures		25,633						362								362
One-for-four reverse stock split, as of June 28, 2011, adjustment		19
Balance at June 30, 2012		12,752,040		$	127		$	142,845	$	(44,244	)	$	(8,957	)	$	89,771

See Notes to Consolidated Financial Statements

7

PALMETTO BANCSHARES, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

(in thousands) (unaudited)

	For the six months ended June 30,
	2012			2011
Operating Activities
Net loss	$	(7,736	)	$	(15,649	)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation		1,330			1,191
Amortization of unearned discounts / premiums on investment securities available for sale, net		2,586			2,615
(Increase) decrease in income tax refunds receivable		(510	)		7,436
Provision for loan losses		11,150			12,900
Gain on sales of mortgage loans held for sale, net		(1,074	)		(452	)
Loss on other loans held for sale		2,534			4,948
Writedowns, gains and losses on sales of foreclosed real estate, net		8,077			1,671
Loss on prepayment of FHLB advances		—			412
Investment securities gains, net		(9,859	)		(56	)
Originations of mortgage loans held for sale		(35,459	)		(16,913	)
Proceeds from sale of mortgage loans held for sale		36,392			21,369
Compensation expense on equity-based awards		612			303
(Increase) decrease in interest receivable and other assets, net		5,576			(1,604	)
Decrease in interest payable and other liabilities, net		(1,380	)		(822	)
Net cash provided by operating activities		12,239			17,349
Investing Activities
Proceeds from sales of investment securities available for sale		151,864			2,390
Proceeds from maturities of investment securities available for sale		2,700			39,590
Purchases of investment securities available for sale		(175,555	)		(125,462	)
Repayments on mortgage-backed investment securities available for sale		31,242			21,880
Proceeds from redemption of FHLB stock		1,318			1,600
Proceeds from sale of other loans held for sale		13,718			6,528
Repayments on other loans held for sale		70			2,392
Decreases in loans, net		10,353			7,042
Proceeds on sale of foreclosed real estate		9,064			8,457
Purchases of premises and equipment, net		(500	)		(689	)
Net cash provided by (used for) investing activities		44,274			(36,272	)
Financing Activities
Increase (decrease) in transaction, money market, and savings deposit accounts, net		15,028			(7,816	)
Decrease in time deposit accounts, net		(16,532	)		(39,002	)
Increase (decrease) in retail repurchase agreements, net		(5,598	)		3,988
Repayment of FHLB borrowings		—			(35,412	)
Proceeds from issuance of common stock, net		—			7,951
Net cash used for financing activities		(7,102	)		(70,291	)
Net change in cash and due from banks		49,411			(89,214	)
Cash and due from banks at beginning of period		102,952			223,017
Cash and due from banks at end of period	$	152,363		$	133,803
Supplemental cash flow disclosures
Cash paid and received during the period for:
Cash paid for interest expense	$	2,770		$	5,633
Income tax (refunds received) paid, net		510			(7,436	)
Significant noncash activities
Change in net unrealized gains on investment securities available for sale, net of tax		(6,586	)		1,860
Loans transferred from gross loans to other loans held for sale		19,722			1,224
Loans transferred from gross loans to foreclosed real estate, at fair value		2,347			1,466
Loans transferred from other loans held for sale to gross loans, at fair value		1,318			—
Loans transferred from other loans held for sale to foreclosed real estate, at fair value		1,814			3,946

See Notes to Consolidated Financial Statements

8

PALMETTO BANCSHARES, INC. AND SUBSIDIARY

Notes To Consolidated Financial Statements

1. Summary of Significant Accounting Policies

Nature of Operations

Palmetto Bancshares, Inc. is a bank holding company organized in 1982 under the laws of South Carolina and is headquartered in Greenville, South Carolina. Through the Company’s wholly-owned subsidiary, The Palmetto Bank (the “Bank”), which began operations in 1906, the Bank specializes in providing personalized community banking services to individuals and small to mid-size businesses including retail banking (including mortgage loans, indirect automobile loans and credit cards), commercial banking (including business banking, Small Business Administration loans, treasury management and merchant services) and wealth management (including trust, brokerage, financial planning and insurance services) throughout our primary market area of northwest South Carolina (commonly referred to as “the Upstate”).

Principles of Consolidation / Basis of Presentation

The accompanying Consolidated Financial Statements include the accounts of Palmetto Bancshares, Inc., the Bank and other subsidiaries of the Bank (also collectively referred to as the “Company,” “we,” “us” or “our”). In management’s opinion, all significant intercompany accounts and transactions have been eliminated in consolidation, and all adjustments necessary for a fair presentation of the financial condition and results of operations for the periods presented have been included. Any such adjustments are of a normal and recurring nature. Assets held by the Company in a fiduciary or agency capacity for clients are not included in the Company’s Consolidated Financial Statements because those items do not represent assets of the Company. The accounting and financial reporting policies of the Company conform, in all material respects, to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within the financial services industry.

The Consolidated Financial Statements as of and for the three and six months ended June 30, 2012 and 2011 contained in this Quarterly Report on Form 10-Q have not been audited by our independent registered public accounting firm. The Consolidated Financial Statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (the “SEC”). Accordingly, the Consolidated Financial Statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Consolidated Financial Statements and notes thereto for the year ended December 31, 2011 included in our Annual Report on Form 10-K filed with the SEC on March 2, 2012 (collectively, the “2011 Annual Report on Form 10-K”).

Subsequent Events

Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet including the estimates inherent in the process of preparing financial statements. Unrecognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. The Company has reviewed events occurring through the issuance date of the Consolidated Financial Statements and no subsequent events have occurred requiring accrual or disclosure in these financial statements other than any included herein.

Business Segments

Operating segments are components of an enterprise about which separate financial information is available and are evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. Public enterprises are required to report a measure of segment profit or loss, certain specific revenue and expense items for each segment, segment assets and information about the way that the operating segments were determined, among other items.

The Company considers business segments by analyzing distinguishable components that are engaged in providing individual products, services or groups of related products or services and that are subject to risks and returns that are different from those of other business segments. When determining whether products and services are related, the Company considers the nature of the

9

products or services, the nature of the production processes, the type or class of client for which the products or services are designed and the methods used to distribute the products or provide the services.

For the past several years, we have been realigning our organizational structure and more specifically delineating our businesses. However, at this time, we do not yet have in place a reporting structure to separately report and evaluate our various lines of business. Accordingly, at June 30, 2012, the Company had one reportable operating segment, banking.

Use of Estimates

In preparing our Consolidated Financial Statements, the Company’s management makes estimates and assumptions that impact the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the Consolidated Financial Statements for the periods presented. Actual results could differ from these estimates and assumptions. Therefore, the results of operations for the three and six months ended June 30, 2012 are not necessarily indicative of the results of operations that may be expected in future periods or for the year ended December 31, 2012.

Reclassifications

Certain amounts previously presented in our Consolidated Financial Statements for prior periods have been reclassified to conform to current classifications. All such reclassifications had no impact on the prior periods’ net loss, comprehensive loss or shareholders’ equity as previously reported.

Reverse Stock Split

On June 28, 2011 (the “Effective Date”), the Company completed a one-for-four reverse stock split of its common stock. In connection with the reverse stock split, every four shares of issued and outstanding common stock of the Company at the Effective Date were exchanged for one share of newly issued common stock of the Company. Fractional shares were rounded up to the next whole share. Other than the number of issued and outstanding shares of common stock disclosed in the Consolidated Statements of Changes in Shareholders’ Equity, all prior period share amounts have been retroactively restated to reflect the reverse stock split. For additional information related to the reverse stock split, see Note 12, Shareholders’ Equity.

Risk and Uncertainties

In the normal course of business, the Company encounters two significant types of overall risk: economic and regulatory. There are three main components of economic risk: credit risk, market risk and concentration of credit risk. Credit risk is the risk of default on the Company’s loan portfolio resulting from borrowers’ inability or unwillingness to make contractually required payments or default on repayment of investment securities. Market risk primarily includes interest rate risk. The Company is exposed to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at different speeds, or different bases, than its interest-earning assets. Market risk also reflects the risk of declines in the valuation of loans held for sale, the value of the collateral underlying loans and the value of real estate held by the Company. Concentration of credit risk refers to the risk that, if the Company extends a significant portion of its total outstanding credit to borrowers in a specific geographical area or industry or on the security of a specific form of collateral, the Company may experience disproportionately high levels of defaults and losses if those borrowers, or the value of such type of collateral, are adversely impacted by economic or other factors that are particularly applicable to such borrowers or collateral. Concentration of credit risk is also similarly applicable to the investment securities portfolio.

The Company and the Bank are subject to the regulations of various government agencies. These regulations can and do change significantly from period to period. In addition, the Company and the Bank undergo periodic examinations by regulatory agencies which may subject us to changes with respect to asset and liability valuations, amount of required allowance for loan losses, capital levels or operating restrictions.

Recently Adopted / Issued Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board (the “FASB”) issued ASU 2011-11 Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”) which is intended to enhance disclosures resulting in improved information being available to users of financial information about financial instruments and derivative instruments that are

10

subject to offsetting (“netting”) in statements of financial position whether the statements are prepared using GAAP or International Financial Reporting Standards. ASU 2011-11 requires disclosure of both gross information and net information about instruments and transactions eligible for offset or subject to an agreement similar to a master netting agreement. In addition to the quantitative disclosures, reporting entities also are required to provide a description of rights of setoff associated with recognized assets and recognized liabilities subject to enforceable master netting arrangements or similar agreements. ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods. The required disclosures should be provided retrospectively for all comparative periods presented. The Company is evaluating the impact that the adoption of ASU 2011-11 will have on its financial position, results of operations and cash flows.

Other accounting standards that have been recently issued by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

2. Cash and Cash Equivalents

Required Reserve Balances

The Federal Reserve Act requires each depository institution to maintain reserves against certain liabilities as prescribed by regulations of the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Bank reports these liabilities to the Federal Reserve on a weekly basis. Weekly reporting institutions maintain reserves on these liabilities with a 30-day lag. For the maintenance period ended on July 11, 2012, based on reported liabilities from May 29, 2012 through June 11, 2012, the Federal Reserve required the Bank to maintain reserves of $14.7 million. After taking into consideration the Company’s levels of vault cash and clearing balance requirements, reserves of $5.8 million were required to be maintained with the Federal Reserve.

Concentrations and Restrictions

In an effort to manage counterparty risk, the Company generally does not sell federal funds to other financial institutions. Federal funds are essentially uncollateralized overnight loans. The Company regularly evaluates the risk associated with the counterparties to these potential transactions to ensure that it would not be exposed to any significant risks with regard to cash and cash equivalent balances if it were to sell federal funds.

Restricted cash and cash equivalents pledged as collateral relative to merchant credit card agreements totaled $703 thousand at both June 30, 2012 and December 31, 2011.

3. Investment Securities Available for Sale

During the second quarter 2012, the Bank realized gains of approximately $9.9 million on the sale of $142.0 million in book value of investment securities. A portion of the proceeds from these sales were reinvested in investment securities during the second quarter 2012, with the remaining proceeds to be reinvested in investment securities during the third quarter 2012.

The following tables summarize the amortized cost, gross unrealized gains and losses included in accumulated other comprehensive income, and fair values of investment securities available for sale at the dates indicated (in thousands). At June 30, 2012 and December 31, 2011, the Company did not have any investment securities classified as trading or held-to-maturity.

11

	June 30, 2012
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
State and municipal	$	13,162	$	405	$	(14	)	$	13,553
Collateralized mortgage obligations		142,900		425		(598	)		142,727
Other mortgage-backed (federal agencies)		57,047		164		(54	)		57,157
SBA loan-backed (federal agency)		34,143		28		(208	)		33,963
Total investment securities available for sale	$	247,252	$	1,022	$	(874	)	$	247,400
	December 31, 2011
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
State and municipal	$	113,079	$	7,886	$	—		$	120,965
Collateralized mortgage obligations		117,129		2,210		(390	)		118,949
Other mortgage-backed (federal agencies)		20,022		1,056		—			21,078
Total investment securities available for sale	$	250,230	$	11,152	$	(390	)	$	260,992

The following tables summarize the number of securities in each category of investment securities available for sale, the fair value, and the gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at the dates indicated (dollars in thousands).

	June 30, 2012
	Less than 12 months						12 months or longer						Total
	#		Fair value		Gross unrealized losses		#		Fair value		Gross unrealized losses		#		Fair value		Gross unrealized losses
State and municipal		1	$	1,080	$	14		—	$	—	$	—		1	$	1,080	$	14
Collateralized mortgage obligations		14		64,713		401		12		17,894		197		26		82,607		598
Other mortgage-backed (federal agencies)		1		5,402		54		—		—		—		1		5,402		54
SBA loan-backed (federal agency)		5		24,785		208		—		—		—		5		24,785		208
Total investment securities available for sale		21	$	95,980	$	677		12	$	17,894	$	197		33	$	113,874	$	874
	December 31, 2011
	Less than 12 months						12 months or longer						Total
	#		Fair value		Gross unrealized losses		#		Fair value		Gross unrealized losses		#		Fair value		Gross unrealized losses
Collateralized mortgage obligations		9	$	23,024	$	192		7	$	16,773	$	198		16	$	39,797	$	390
Total investment securities available for sale		9	$	23,024	$	192		7	$	16,773	$	198		16	$	39,797	$	390

Other-Than-Temporary Impairment

Based on its other-than-temporary impairment analysis at June 30, 2012, the Company concluded that gross unrealized losses detailed in the preceding table were not other-than-temporarily impaired as of that date.

Ratings

The following table summarizes Moody’s ratings, by segment, of investment securities available for sale based on fair value, at June 30, 2012. An “Aaa” rating is based not only on the credit of the issuer, but may also include consideration of the structure of the securities and the credit quality of the collateral.

	State and municipal			Collateralized mortgage obligations			Other mortgage-backed (federal  agencies)			SBA loan-backed (federal  agency)
Aaa		—	%		100	%		100	%		100	%
Aa1-A1		74			—			—			—
Baa2		14			—			—			—
Not rated		12			—			—			—
Total		100	%		100	%		100	%		100	%

12

The following table summarizes Standard and Poor’s ratings, by segment, of investment securities available for sale based on fair value, at June 30, 2012.

	State and municipal			Collateralized mortgage obligations			Other mortgage-backed (federal agencies)			SBA loan-backed (federal  agency)
Aa-A+		42	%		100	%		100	%		100	%
Not rated		58			—			—			—
Total		100	%		100	%		100	%		100	%

All state and municipal securities were rated by either Moody’s or Standard and Poor’s.

Maturities

The following table summarizes the amortized cost and estimated fair value of investment securities available for sale at June 30, 2012 by contractual maturity (in thousands). Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Collateralized mortgage obligations, other mortgage-backed securities and SBA loan-backed securities are shown separately since they are not due at a single maturity date.

	Amortized cost		Fair value
Due in one year or less	$	4,787	$	4,859
Due after one year through five years		7,281		7,614
Due after five years through ten years		1,094		1,080
Due after ten years		—		—
State and municipal		13,162		13,553
Collateralized mortgage obligations		142,900		142,727
Other mortgage-backed (federal agencies)		57,047		57,157
SBA loan-backed (federal agency)		34,143		33,963
Total investment securities available for sale	$	247,252	$	247,400

The weighted average duration of investment securities available for sale was 4.9 years, based on expected prepayment activity, at June 30, 2012. Since 95% of the portfolio, based on fair value, consists of collateralized mortgage obligations, other mortgage-backed securities and SBA loan-backed securities, the expected remaining maturity may differ from contractual maturity because borrowers generally have the right to prepay obligations before the underlying loans mature.

Pledged

Investment securities were pledged as collateral for the following purposes at the dates indicated (in thousands).

	June 30, 2012		December 31, 2011
Public funds deposits	$	112,671	$	119,123
Federal Reserve line of credit		2,971		5,510
FHLB advances		—		15,887
Total	$	115,642	$	140,520

Realized Gains and Losses

The following table summarizes the gross realized gains and losses on investment securities available for sale for the periods indicated (in thousands).

	For the three months ended June 30,					For the six months ended June 30,
	2012			2011		2012			2011
Realized gains	$	9,863		$	56	$	9,863		$	56
Realized losses		(4	)		—		(4	)		—
Net realized gains	$	9,859		$	56	$	9,859		$	56

4. Loans

During the second quarter 2012, through the Bank’s normal problem loan resolution efforts and through a bulk loan sale, the Bank entered into contracts to sell selected classified loans with carrying values at March 31, 2012, before any allowance for loan losses, of $33.4 million, $21.7 million of which were included in gross loans at March 31, 2012 and closed during the second quarter 2012. In the aggregate, contracts to sell selected classified loans included in gross loans at March 31, 2012 resulted in charge-offs of $11.7 million. For disclosure related to the sale of other loans held for sale, see Note 5, Other Loans Held for Sale and Valuation Allowance.

13

In addition to the loan sales noted above, during the second quarter 2012 the Company transferred $7.5 million of gross loans to other loans held for sale in connection with the sale of its Rock Hill and Blacksburg branches, which closed on July 1, 2012. For disclosure related to the sale of these two branches see Note 21, Subsequent Event.

In the tables below, loan classes are based on Federal Deposit Insurance Corporation (“FDIC”) code and portfolio segments are an aggregation of those classes based on the methodology used by the Company to develop and document its allowance for loan losses. FDIC classification codes are based on the underlying loan collateral.

The tabular disclosures in this Note include amounts related to other loans held for sale, which are reported separately from the Company’s gross loan portfolio on the Consolidated Balance Sheets and are subject to different accounting and reporting requirements. Inclusion of other loans held for sale with the related disclosures for loans held for investment provides a more accurate and relevant picture of the Company’s loan exposures based on the characteristics of other loans held for sale.

Composition

The following table summarizes gross loans and other loans held for sale, categorized by portfolio segment, at the dates indicated (dollars in thousands).

	June 30, 2012						December 31, 2011
	Total			% of total			Total			% of total
Commercial real estate	$	451,764			61.2	%	$	492,754			62.6	%
Single-family residential		175,335			23.7			185,504			23.5
Commercial and industrial		49,763			6.7			49,381			6.3
Consumer		52,044			7.1			52,771			6.7
Other		9,526			1.3			7,326			0.9
Total loans	$	738,432			100.0	%	$	787,736			100.0	%
Less: other loans held for sale		(14,446	)					(14,178	)
Loans, gross	$	723,986					$	773,558

Loans included in the preceding table are net of unearned income, charge-offs, and unamortized deferred fees and costs on originated loans. Net unearned income, net deferred fees and costs, and discounts and premiums totaled $226 thousand at June 30, 2012 compared to $21 thousand at December 31, 2011.

The following table summarizes other loans held for sale, categorized by portfolio segment, at the dates indicated (dollars in thousands).

	June 30, 2012					December 31, 2011
	Total		% of total			Total		% of total
Commercial real estate	$	10,176		70.4	%	$	14,178		100.0	%
Single-family residential		2,298		15.9			—		—
Commercial and industrial		910		6.3			—		—
Consumer		228		1.6			—		—
Other		834		5.8			—		—
Total loans	$	14,446		100.0	%	$	14,178		100.0	%

Pledged

To borrow from the FHLB, members must pledge collateral. Acceptable collateral includes, among other types of collateral, a variety of residential, multifamily, home equity lines and second mortgages, and qualifying commercial loans. At June 30, 2012 and December 31, 2011, $198.2 million and $251.4 million of gross loans, respectively, were pledged to collateralize FHLB advances of which $75.5 million and $66.7 million, respectively, were available as lendable collateral. The Company may borrow from the FHLB for terms up to three years at amounts of up to 15% of the Company’s total assets, subject to availability of collateral.

14

At June 30, 2012 and December 31, 2011, $3.6 million and $5.4 million, respectively, of loans were pledged as collateral to cover the various Federal Reserve System services that are available for use by the Company.

Concentrations

The following table summarizes loans secured by commercial real estate, categorized by FDIC code, at June 30, 2012 (dollars in thousands).

	Commercial real estate included in gross loans		Commercial real estate  included in other loans held for sale		Total commercial real estate loans		% of gross loans and other loans held for sale			% of Bank’s total regulatory capital
Secured by commercial real estate
Construction, land development, and other land loans	$	66,998	$	2,691	$	69,689		9.5	%		64.1	%
Multifamily residential		12,694		—		12,694		1.7			11.7
Nonfarm nonresidential		361,896		7,485		369,381		50.0			339.7
Total loans secured by commercial real estate	$	441,588	$	10,176	$	451,764		61.2	%		415.5	%

The following table further categorizes loans secured by commercial real estate at June 30, 2012 (dollars in thousands).

	Commercial real estate included in gross loans		Commercial real estate included in other loans held for sale		Total commercial real estate loans		% of gross loans and other loans held for sale			% of Bank’s total regulatory capital
Development commercial real estate loans Secured by:
Land - unimproved (commercial or residential)	$	22,377	$	2,691	$	25,068		3.4	%		23.0	%
Land development - commercial		10,734		—		10,734		1.5			9.9
Land development - residential		14,851		—		14,851		2.0			13.7
Commercial construction:
Retail		3,972		—		3,972		0.5			3.6
Office		230		—		230		—			0.2
Industrial and warehouse		842		—		842		0.1			0.8
Miscellaneous commercial		1,934		—		1,934		0.3			1.8
Total development commercial real estate loans		54,940		2,691		57,631		7.8			53.0
Existing and other commercial real estate loans Secured by:
Hotel / motel		67,116		4,825		71,941		9.7			66.2
Retail		20,202		127		20,329		2.8			18.7
Office		20,128		197		20,325		2.8			18.7
Multifamily		12,694		—		12,694		1.7			11.7
Industrial and warehouse		9,111		560		9,671		1.3			8.9
Healthcare		16,124		—		16,124		2.2			14.8
Miscellaneous commercial		102,966		1,576		104,542		14.2			96.1
Residential construction - speculative		299		—		299		—			0.3
Total existing and other commercial real estate loans		248,640		7,285		255,925		34.7			235.4
Commercial real estate owner occupied and residential loans
Secured by:
Commercial - owner occupied		126,248		200		126,448		17.1			116.3
Commercial construction - owner occupied		6,468		—		6,468		0.9			5.9
Residential construction - contract		5,292		—		5,292		0.7			4.9
Total commercial real estate owner occupied and residential loans		138,008		200		138,208		18.7			127.1
Total loans secured by commercial real estate	$	441,588	$	10,176	$	451,764		61.2	%		415.5	%

Asset Quality

Credit Quality Indicators. The Company regularly monitors the credit quality of its loan portfolio. Credit quality refers to the current and expected ability of borrowers to repay their obligations according to the contractual terms of their loans. Credit quality is evaluated through assignment of individual loan grades as well as past due and performing status analysis. Credit quality indicators allow the Company to assess the inherent loss on certain individual loans and pools of loans.

15

The following table summarizes the Company’s internal credit quality indicators on gross loans and other loans held for sale, by class, at June 30, 2012 (in thousands).

	Construction, land development and other land loans		Multifamily residential		Nonfarm nonresidential		Commercial real estate in other loans held for sale		Total commercial real estate
Grade 1	$	—	$	—	$	—	$	—	$	—
Grade 2		—		—		427		—		427
Grade 3		10,357		2,868		83,081		915		97,221
Grade 4		15,294		1,229		132,331		2,286		151,140
Grade W		6,810		989		66,026		—		73,825
Grade 5		3,755		7,363		27,830		—		38,948
Grade 6		10,095		245		47,116		4,825		62,281
Grade 7		3,766		—		5,085		2,113		10,964
Not risk rated*		16,921		—		—		37		16,958
	$	66,998	$	12,694	$	361,896	$	10,176	$	451,764
Less: Commercial real estate included in other loans held for sale										(10,176	)
Total									$	441,588

* Consumer real estate loans of $16.9 million, included within construction, land development, and other land loans, are not risk rated, in accordance with our policy.

	Commercial and industrial		Commercial and industrial in other loans held for sale		Total commercial and industrial
Grade 1	$	2,782	$	25	$	2,807
Grade 2		214		—		214
Grade 3		10,522		566		11,088
Grade 4		21,213		319		21,532
Grade W		8,513		—		8,513
Grade 5		699		—		699
Grade 6		4,249		—		4,249
Grade 7		568		—		568
Not graded		93		—		93
Total	$	48,853	$	910	$	49,763

	Single-family residential revolving, open end loans		Single-family residential closed end, first lien		Single-family residential closed end, junior lien		Total single-family residential loans		Single-family residential loans in other loans held for  sale		Total single-family residential loans
Performing	$	58,083	$	103,401	$	5,559	$	167,043	$	2,298	$	169,341
Nonperforming		891		4,786		317		5,994		—		5,994
Total	$	58,974	$	108,187	$	5,876	$	173,037	$	2,298	$	175,335

	Credit cards		Consumer-other		Total consumer		Consumer loans in other loans held for sale		Total consumer
Performing	$	20	$	51,424	$	51,444	$	228	$	51,672
Nonperforming		32		340		372		—		372
Total	$	52	$	51,764	$	51,816	$	228	$	52,044

	Other		Other loans in other loans held for sale		Total other
Performing	$	8,682	$	834	$	9,516
Nonperforming		10		—		10
Total	$	8,692	$	834	$	9,526

16

The following table summarizes the Company’s internal credit quality indicators on gross loans and other loans held for sale, by class, at December 31, 2011 (in thousands).

	Construction, land development and other land loans		Multifamily residential		Nonfarm nonresidential		Commercial real estate in other loans held for sale		Total commercial real estate
Grade 1	$	—	$	—	$	—	$	—	$	—
Grade 2		—		—		457		—		457
Grade 3		8,295		3,252		100,265		—		111,812
Grade 4		13,601		945		126,961		—		141,507
Grade W		9,075		4,233		51,889		—		65,197
Grade 5		3,671		7,550		27,235		—		38,456
Grade 6		21,511		1,956		61,907		8,800		94,174
Grade 7		10,624		—		3,991		5,378		19,993
Not risk rated*		20,836		9		313		—		21,158
	$	87,613	$	17,945	$	373,018	$	14,178	$	492,754
Less: Commercial real estate included in other loans held for sale										(14,178	)
Total									$	478,576

*-Consumer real estate loans of $20.8 million, included within construction, land development, and other land loans, are not risk rated, in accordance with our policy.

	Commercial and industrial
Grade 1	$	2,966
Grade 2		459
Grade 3		11,380
Grade 4		22,253
Grade W		5,292
Grade 5		1,489
Grade 6		4,929
Grade 7		596
Not graded		17
Total	$	49,381

	Single-family residential revolving, open end loans		Single-family residential closed end, first lien		Single-family residential closed end, junior lien		Total single-family residential loans
Performing	$	58,128	$	111,623	$	6,482	$	176,233
Nonperforming		843		7,957		471		9,271
Total	$	58,971	$	119,580	$	6,953	$	185,504

	Credit cards		Consumer-other		Total Consumer
Performing	$	179	$	52,103	$	52,282
Nonperforming		16		473		489
Total	$	195	$	52,576	$	52,771

	Other
Performing	$	7,326
Nonperforming		—
Total	$	7,326

17

The following table summarizes delinquencies, by class, at June 30, 2012 (in thousands).

	30-89 days past due			Greater than 90 days past due on nonaccrual			Total past due			Current			Total loans
Construction, land development and other land loans	$	424		$	12,645		$	13,069		$	56,621		$	69,690
Multifamily residential		—			—			—			12,694			12,694
Nonfarm nonresidential		1,082			4,070			5,152			364,228			369,380
Total commercial real estate		1,506			16,715			18,221			433,543			451,764
Single-family real estate, revolving, open end loans		734			891			1,625			58,352			59,977
Single-family real estate, closed end, first lien		1,048			4,786			5,834			103,637			109,471
Single-family real estate, closed end, junior lien		62			317			379			5,508			5,887
Total single-family residential		1,844			5,994			7,838			167,497			175,335
Commercial and industrial		288			1,085			1,373			48,390			49,763
Credit cards		—			32			32			20			52
All other consumer		560			340			900			51,092			51,992
Total consumer		560			372			932			51,112			52,044
Farmland		—			10			10			4,019			4,029
Obligations of states and political subdivisions of the U.S.		—			—			—			861			861
Other		—			—			—			4,636			4,636
Total		4,198			24,176			28,374			710,058			738,432
Less: other loans held for sale		(40	)		(2,113	)		(2,153	)		(12,293	)		(14,446	)
Total gross loans	$	4,158		$	22,063		$	26,221		$	697,765		$	723,986

Additional interest income of $437 thousand and $850 thousand would have been reported during the three and six months ended June 30, 2012, respectively, had loans classified as nonaccrual during the period performed in accordance with their current contractual terms. As a result, the Company’s earnings did not include this interest income.

18

The following table summarizes delinquencies, by class, at December 31, 2011 (in thousands).

	30-89 days past due		Greater than 90 days past due on nonaccrual			Total past due			Current			Total loans
Construction, land development and other land loans	$	94	$	27,085		$	27,179		$	64,975		$	92,154
Multifamily residential		—		—			—			17,945			17,945
Nonfarm nonresidential		574		14,870			15,444			367,211			382,655
Total commercial real estate		668		41,955			42,623			450,131			492,754
Single-family real estate, revolving, open end loans		379		843			1,222			57,749			58,971
Single-family real estate, closed end, first lien		2,633		7,957			10,590			108,990			119,580
Single-family real estate, closed end, junior lien		145		471			616			6,337			6,953
Total single-family residential		3,157		9,271			12,428			173,076			185,504
Commercial and industrial		314		1,313			1,627			47,754			49,381
Credit cards		—		16			16			179			195
All other consumer		760		473			1,233			51,343			52,576
Total consumer		760		489			1,249			51,522			52,771
Farmland		—		—			—			3,513			3,513
Obligations of states and political subdivisions of the U.S.		—		—			—			903			903
Other		2		—			2			2,908			2,910
Total		4,901		53,028			57,929			729,807			787,736
Less: other loans held for sale		—		(5,812	)		(5,812	)		(8,366	)		(14,178	)
Total gross loans	$	4,901	$	47,216		$	52,117		$	721,441		$	773,558

Troubled Debt Restructurings. The following table summarizes the carrying balance of troubled debt restructurings at the dates indicated (in thousands).

	June 30, 2012						December 31, 2011
	Performing		Nonperforming		Total		Performing		Nonperforming		Total
Other loans held for sale	$	4,825	$	—	$	4,825	$	8,366	$	—	$	8,366
Loans, gross		29,618		70		29,688		37,461		9,276		46,737
Total troubled debt restructurings	$	34,443	$	70	$	34,513	$	45,827	$	9,276	$	55,103

Loans classified as troubled debt restructurings may be removed from this status after a period of time if the restructured agreement specifies an interest rate equal to or greater than the rate that the borrower was willing to accept at the time of the restructuring for a new loan with comparable risk and the loan is not impaired based on the terms specified by the restructured agreement. The following table summarizes troubled debt restructurings removed from this classification during the periods indicated (dollars in thousands).

	For the three  months ended June 30,				For the six  months ended June 30,
	2012		2011		2012		2011
Carrying balance	$	3,665	$	—	$	5,887	$	876
Count		16		—		18		1

19

The following table summarizes, by class, loans that were modified resulting in troubled debt restructurings during the periods indicated (dollars in thousands).

	For the three months ended June 30, 2012						For the six months ended June 30, 2012
	Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment		Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment
Construction, land development and other land loans		—	$	—	$	—		1	$	4,089	$	4,089
Nonfarm nonresidential		1		243		243		6		1,811		1,811
Total commercial real estate		1		243		243		7		5,900		5,900
Single-family real estate, closed end, first lien		1		70		70		1		70		70
Commercial and industrial		1		206		206		2		421		416
Total loans		3	$	519	$	519		10	$	6,391	$	6,386
Less: other loans held for sale		—		—		—		—		—		—
Loans, gross		3	$	519	$	519		10	$	6,391	$	6,386

The following table summarizes, by type of concession, loans that were modified resulting in troubled debt restructurings during the periods indicated (dollars in thousands).

	For the three months ended June 30, 2012						For the six months ended June 30, 2012
	Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment		Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment
Term concession		3	$	519	$	519		4	$	4,608	$	4,608
Rate and term concessions		—		—		—		6		1,783		1,778
Total loans		3	$	519	$	519		10	$	6,391	$	6,386
Less: other loans held for sale		—		—		—		—		—		—
Loans, gross		3	$	519	$	519		10	$	6,391	$	6,386

The following table summarizes, by class, loans modified resulting in troubled debt restructurings within the previous 12-month period for which there was a payment default during the periods indicated (dollars in thousands).

	For the three months ended June 30, 2012				For the six months  ended June 30, 2012
	Number of contracts		Recorded investment		Number of contracts		Recorded investment
Construction, land development and other land loans		1	$	488		1	$	488
Nonfarm nonresidential		2		406		5		1,545
Total commercial real estate		3		894		6		2,033
Single-family real estate, closed end, first lien		—		—		1		46
Total loans		3	$	894		7	$	2,079
Less: other loans held for sale		—		—		—		—
Loans, gross		3	$	894		7	$	2,079

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Impaired Loans. The following table summarizes the composition of impaired loans, including other loans held for sale, at the dates indicated (in thousands). All loans that have been modified resulting in troubled debt restructurings are impaired loans.

	June 30, 2012
	Performing troubled debt restructured loans		Nonperforming troubled debt restructured loans		Nonperforming other loans		Performing other loans		Total
Other loans held for sale	$	4,825	$	—	$	2,113	$	—	$	6,938
Loans, gross		29,618		70		9,529		5,817		45,034
Total impaired loans	$	34,443	$	70	$	11,642	$	5,817	$	51,972

	December 31, 2011
	Performing troubled debt restructured loans		Nonperforming troubled debt restructured loans		Nonperforming other loans		Total
Other loans held for sale	$	8,366	$	—	$	5,812	$	14,178
Loans, gross		37,461		9,276		23,054		69,791
Total impaired loans	$	45,827	$	9,276	$	28,866	$	83,969

The following table summarizes the composition of and information relative to impaired loans, by class, at June 30, 2012 (in thousands).

	Gross loans						Other loans held for sale				Total loans
	Recorded investment		Unpaid principal balance		Related allowance		Recorded investment		Unpaid principal balance		Recorded investment		Unpaid principal balance		Related allowance
With no related allowance recorded:
Construction, land development and other land loans	$	9,753	$	26,701			$	2,113	$	9,072	$	11,866	$	35,773
Multifamily residential		—		—				—		—		—		—
Nonfarm nonresidential		8,263		12,691				4,825		6,603		13,088		19,294
Total commercial real estate		18,016		39,392				6,938		15,675		24,954		55,067
Single-family real estate, revolving, open end loans		—		—				—		—		—		—
Single-family real estate, closed end, first lien		982		3,407				—		—		982		3,407
Single-family real estate, closed end, junior lien		10		27				—		—		10		27
Total single-family residential		992		3,434				—		—		992		3,434
Commercial and industrial		753		1,179				—		—		753		1,179
Total impaired loans with no related allowance recorded	$	19,761	$	44,005			$	6,938	$	15,675	$	26,699	$	59,680
With an allowance recorded:
Construction, land development and other land loans	$	5,835	$	5,835	$	321					$	5,835	$	5,835	$	321
Multifamily residential		245		245		7						245		245		7
Nonfarm nonresidential		16,203		16,583		2,759						16,203		16,583		2,759
Total commercial real estate		22,283		22,663		3,087						22,283		22,663		3,087
Single-family real estate, revolving, open end loans		—		—		—						—		—		—
Single-family real estate, closed end, first lien		2,033		4,340		108						2,033		4,340		108
Single-family real estate, closed end, junior lien		151		151		50						151		151		50
Total single-family residential		2,184		4,491		158						2,184		4,491		158
Commercial and industrial		765		765		45						765		765		45
All other consumer		41		41		5						41		41		5
Total impaired loans with an allowance recorded	$	25,273	$	27,960	$	3,295					$	25,273	$	27,960	$	3,295
Total:
Construction, land development and other land loans	$	15,588	$	32,536	$	321	$	2,113	$	9,072	$	17,701	$	41,608	$	321
Multifamily residential		245		245		7		—		—		245		245		7
Nonfarm nonresidential		24,466		29,274		2,759		4,825		6,603		29,291		35,877		2,759
Total commercial real estate		40,299		62,055		3,087		6,938		15,675		47,237		77,730		3,087
Single-family real estate, revolving, open end loans		—		—		—		—		—		—		—		—
Single-family real estate, closed end, first lien		3,015		7,747		108		—		—		3,015		7,747		108
Single-family real estate, closed end, junior lien		161		178		50		—		—		161		178		50
Total single-family residential		3,176		7,925		158		—		—		3,176		7,925		158
Commercial and industrial		1,518		1,944		45		—		—		1,518		1,944		45
All other consumer		41		41		5		—		—		41		41		5
Total impaired loans	$	45,034	$	71,965	$	3,295	$	6,938	$	15,675	$	51,972	$	87,640	$	3,295

Interest income recognized on impaired loans during the three and six months ended June 30, 2012 was $464 thousand and $921 thousand, respectively. The average balance of total impaired loans was $69.1 million and $74.5 million for the same periods.

21

The following table summarizes the composition of and information relative to impaired loans, by class, at December 31, 2011 (in thousands).

	Gross loans						Other loans held for sale				Total loans
	Recorded investment		Unpaid principal balance		Related allowance		Recorded investment		Unpaid principal balance		Recorded investment		Unpaid principal balance		Related allowance
With no related allowance recorded:
Construction, land development and other land loans	$	16,845	$	36,735			$	4,541	$	16,799	$	21,386	$	53,534
Multifamily residential		—		—				—		—		—		—
Nonfarm nonresidential		16,047		22,188				9,637		13,831		25,684		36,019
Total commercial real estate		32,892		58,923				14,178		30,630		47,070		89,553
Single-family real estate, revolving, open end loans		—		—				—		—		—		—
Single-family real estate, closed end, first lien		2,742		6,928				—		—		2,742		6,928
Single-family real estate, closed end, junior lien		—		—				—		—		—		—
Total single-family residential		2,742		6,928				—		—		2,742		6,928
Commercial and industrial		886		1,312				—		—		886		1,312
Total impaired loans with no related allowance recorded	$	36,520	$	67,163			$	14,178	$	30,630	$	50,698	$	97,793
With an allowance recorded:
Construction, land development and other land loans	$	9,702	$	11,624	$	3,301					$	9,702	$	11,624	$	3,301
Multifamily residential		247		247		9						247		247		9
Nonfarm nonresidential		20,784		20,784		2,886						20,784		20,784		2,886
Total commercial real estate		30,733		32,655		6,196						30,733		32,655		6,196
Single-family real estate, revolving, open end loans		—		—		—						—		—		—
Single-family real estate, closed end, first lien		1,689		1,689		161						1,689		1,689		161
Single-family real estate, closed end, junior lien		183		183		54						183		183		54
Total single-family residential		1,872		1,872		215						1,872		1,872		215
Commercial and industrial		622		691		88						622		691		88
All other consumer		44		44		6						44		44		6
Total impaired loans with an allowance recorded	$	33,271	$	35,262	$	6,505					$	33,271	$	35,262	$	6,505
Total:
Construction, land development and other land loans	$	26,547	$	48,359	$	3,301	$	4,541	$	16,799	$	31,088	$	65,158	$	3,301
Multifamily residential		247		247		9		—		—		247		247		9
Nonfarm nonresidential		36,831		42,972		2,886		9,637		13,831		46,468		56,803		2,886
Total commercial real estate		63,625		91,578		6,196		14,178		30,630		77,803		122,208		6,196
Single-family real estate, revolving, open end loans		—		—		—		—		—		—		—		—
Single-family real estate, closed end, first lien		4,431		8,617		161		—		—		4,431		8,617		161
Single-family real estate, closed end, junior lien		183		183		54		—		—		183		183		54
Total single-family residential		4,614		8,800		215		—		—		4,614		8,800		215
Commercial and industrial		1,508		2,003		88		—		—		1,508		2,003		88
All other consumer		44		44		6		—		—		44		44		6
Total impaired loans	$	69,791	$	102,425	$	6,505	$	14,178	$	30,630	$	83,969	$	133,055	$	6,505

Allowance for Loan Losses

The following table summarizes the allowance for loan losses and recorded investment in gross loans, by portfolio segment, at and for the periods indicated (in thousands).

	At and for the six months ended June 30, 2012													At and for  the year ended December 31, 2011
	Commercial		Single-family		Commercial and
	real estate		residential		industrial			Consumer		Other		Total		Total
Allowance for loan losses:
Allowance for loan losses, beginning of period	$	18,026	$	4,488	$	1,862		$	1,209	$	11	$	25,596	$	26,934
Provision for loan losses		9,643		1,649		(334	)		114		78		11,150		20,500
Loan charge-offs		15,221		2,903		302			359		319		19,104		22,832
Loan recoveries		104		74		108			106		244		636		994
Net loans charged-off		15,117		2,829		194			253		75		18,468		21,838
Allowance for loan losses, end of period	$	12,552	$	3,308	$	1,334		$	1,070	$	14	$	18,278	$	25,596
Individually evaluated for impairment	$	3,087	$	158	$	45		$	5	$	—	$	3,295	$	6,505
Collectively evaluated for impairment		9,465		3,150		1,289			1,065		14		14,983		19,091
Allowance for loan losses, end of period	$	12,552	$	3,308	$	1,334		$	1,070	$	14	$	18,278	$	25,596
Gross loans, end of period:
Individually evaluated for impairment	$	40,299	$	3,176	$	1,518		$	41	$	—	$	45,034	$	69,791
Collectively evaluated for impairment		401,289		169,861		47,335			51,775		8,692		678,952		703,767
Total gross loans	$	441,588	$	173,037	$	48,853		$	51,816	$	8,692	$	723,986	$	773,558

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5. Other Loans Held for Sale and Valuation Allowance

Other loans held for sale are carried at the lower of cost or fair value less estimated costs to sell. The following table summarizes activity within other loans held for sale and the related valuation allowance at and for the three months ended June 30, 2012 (in thousands).

	Other loans held for sale, gross		Valuation allowance on other loans held for sale
Balance at March 31, 2012	$	17,258	$	2,555
Additions:
Gross loans transferred to other loans held for sale related to branch sales		7,508		—
Other gross loans transferred to other loans held for sale		9,739		—
Writedowns on other loans held for sale included in valuation allowance, net		—		97
Total additions		17,247		97
Reductions:
Proceeds from sales of other loans held for sale		14,592		874
Transfers to foreclosed real estate		1,336		—
Other loans held for sale transferred to gross loans		—		—
Direct writedowns on other loans held for sale		2,309		—
Net paydowns		44		—
Total reductions		18,281		874
Balance at June 30, 2012	$	16,224	$	1,778

Writedowns on other loans held for sale during the second quarter 2012 totaled $2.4 million of which $2.2 million were the result of sales of other loans held for sale during the period.

The following table summarizes activity within other loans held for sale and the related valuation allowance at and for the six months ended June 30, 2012 (in thousands).

	Other loans held for sale, gross		Valuation allowance on other loans held for sale
Balance at December 31, 2011	$	16,739	$	2,561
Additions:
Gross loans transferred to other loans held for sale related to branch sales		7,508		—
Other gross loans transferred to other loans held for sale		12,214		—
Writedowns on other loans held for sale included in valuation allowance, net		—		100
Total additions		19,722		100
Reductions:
Proceeds from sales of other loans held for sale		14,592		874
Transfers to foreclosed real estate		1,814		—
Other loans held for sale transferred to gross loans		1,327		9
Direct writedowns on other loans held for sale		2,434		—
Net paydowns		70		—
Total reductions		20,237		883
Balance at June 30, 2012	$	16,224	$	1,778

Other loans held for sale at June 30, 2012 include $7.5 million of loans associated with the branch sales that were consummated on July 1, 2012 and three commercial real estate loans with a net carrying value of $6.9 million that are continuing to be marketed for sale.

6. Premises and Equipment, net

The following table summarizes premises and equipment balances, net at the dates indicated (in thousands).

	June 30, 2012			December 31, 2011
Land	$	5,581		$	5,591
Buildings		19,523			19,497
Leasehold improvements		4,309			4,644
Furniture and equipment		12,355			12,147
Software		4,307			4,210
Bank automobiles		94			95
Capital lease asset		1,378			1,378
Premises and equipment, gross		47,547			47,562
Accumulated depreciation		(22,573	)		(21,758	)
Premises and equipment, net	$	24,974		$	25,804

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At June 30, 2012, the Bank provided commercial and consumer banking through 27 branches, of which six were leased and 21 were owned. At June 30, 2012, the Bank also had six limited service branches located in retirement centers in the Upstate. Additionally, the Bank maintains a separate leased brokerage office location in Greenville County.

For disclosure related to premises and equipment regarding the sale of two branches subsequent to June 30, 2012, see Note 21, Subsequent Event.

Depreciation expense for the three months ended June 30, 2012 and 2011 was $549 thousand and $593 thousand, respectively. Depreciation expense for the six months ended June 30, 2012 and 2011 was $1.3 million and $1.2 million, respectively.

7. Long-Lived Assets Held for Sale

The Company is currently marketing for sale two vacant Bank-owned branch facilities (one of which was the result of a branch consolidation on March 30, 2012) and a vacant parcel of land with a total aggregate net book value of $920 thousand at June 30, 2012 which are included in Other assets in the Consolidated Balance Sheets.

At June 30, 2012, long-lived assets held for sale includes certain Bank-related assets associated with the two branches that were sold on July 1, 2012. For disclosure related to the sale of these branches subsequent to June 30, 2012, see Note 21, Subsequent Event.

8. Mortgage-Banking Activities

Mortgage loans serviced for the benefit of others amounted to $393.4 million and $397.5 million at June 30, 2012 and December 31, 2011, respectively, and are excluded from the Consolidated Balance Sheets.

The book value of mortgage-servicing rights was $2.5 million at June 30, 2012 and $2.6 million at December 31, 2011. Mortgage-servicing rights are included in Other assets in the Consolidated Balance Sheets. The estimated fair value of mortgage-servicing rights was $3.0 million at June 30, 2012 and $3.2 million at December 31, 2011.

Mortgage-Servicing Rights Activity

The following table summarizes the changes in mortgage-servicing rights at the dates and for the periods indicated (in thousands).

	For the three months ended June 30,						For the six months ended June 30,
	2012			2011			2012			2011
Mortgage-servicing rights portfolio, net of valuation allowance, beginning of period	$	2,563		$	2,854		$	2,586		$	2,896
Capitalized mortgage-servicing rights		179			56			363			226
Mortgage-servicing rights portfolio amortization and impairment		(201	)		(163	)		(408	)		(375	)
Mortgage-servicing rights portfolio, net of valuation allowance, end of period	$	2,541		$	2,747		$	2,541		$	2,747

Valuation Allowance

The following table summarizes the activity in the valuation allowance for impairment of the mortgage-servicing rights portfolio for the periods indicated (in thousands).

	For the three months ended June 30,					For the six months ended June 30,
	2012		2011			2012		2011
Valuation allowance, beginning of period	$	38	$	41		$	39	$	39
Additions charged to (reduction credited from) operations		2		(3	)		1		(1	)
Valuation allowance, end of period	$	40	$	38		$	40	$	38

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9. Foreclosed Real Estate and Repossessed Personal Property

Composition

The following table summarizes foreclosed real estate and repossessed personal property at the dates indicated (in thousands). Repossessed personal property is included in Other assets in the Consolidated Balance Sheets.

	June 30, 2012		December 31, 2011
Foreclosed real estate	$	14,683	$	27,663
Repossessed personal property		62		161
Total foreclosed real estate and repossessed personal property	$	14,745	$	27,824

Foreclosed real estate includes one property comprised of 61 undeveloped residential lots with a net book value of $7.1 million.

Foreclosed Real Estate Activity

The following table summarizes the changes in the foreclosed real estate portfolio at the dates and for the periods indicated (in thousands). Foreclosed real estate is net of participations sold of $357 thousand and $5.4 million at June 30, 2012 and December 31, 2011, respectively.

	At and for the three months ended June 30,						At and for the six months ended June 30,
	2012			2011			2012			2011
Foreclosed real estate, beginning of period	$	26,701		$	16,244		$	27,663		$	19,983
Plus: New foreclosed real estate		1,885			1,648			4,161			5,412
Less: Proceeds from sale of foreclosed real estate		(7,142	)		(1,469	)		(9,064	)		(8,457	)
Plus: Gain on sale of foreclosed real estate		302			5			318			86
Less: Writedowns and losses charged to expense		(7,063	)		(1,161	)		(8,395	)		(1,757	)
Foreclosed real estate, end of period	$	14,683		$	15,267		$	14,683		$	15,267

During the second quarter 2012, the Company sold foreclosed real estate properties with a carrying value at March 31, 2012 of $9.0 million for proceeds of $7.1 million resulting in writedowns net of any gains on sale totaling $1.9 million. In addition, writedowns of $4.9 million were recorded during the second quarter 2012 as a result of the receipt of updated appraisals on properties in the portfolio at June 30, 2012 and sales contracts expected to close in the third quarter 2012.

Subsequent to June 30, 2012, two properties with an aggregate net carrying amount of $934 thousand were sold resulting in net gains of $98 thousand. At July 23, 2012, four additional properties with an aggregate net carrying amount of $2.0 million at June 30, 2012 were under contract for sale to close in the third and fourth quarters 2012 at an anticipated $114 thousand gain.

10. Deposits

Composition

The following table summarizes the composition of deposits at the dates indicated (in thousands).

	June 30, 2012		December 31, 2011
Transaction deposits	$	486,013	$	460,766
Money market deposits		128,527		145,649
Savings deposits		66,020		59,117
Time deposits $100,000 and greater		196,444		198,202
Time deposits less than $100,000		185,673		200,447
Total deposits	$	1,062,677	$	1,064,181

At June 30, 2012 and December 31, 2011, $469 thousand and $621 thousand, respectively, of overdrawn transaction deposit accounts were reclassified to loans. The Company had no brokered deposits at June 30, 2012 or December 31, 2011.

As more fully discussed in Note 21, Subsequent Event, deposits associated with the two branches sold on July 1, 2012 totaled $41.1 million (including time deposits of $22.8 million) at June 30, 2012.

25

Interest Expense on Deposit Accounts

The following table summarizes interest expense on deposits for the periods indicated (in thousands).

	For the three months ended June 30,				For the six months ended June 30,
	2012		2011		2012		2011
Transaction deposit accounts	$	9	$	34	$	20	$	83
Money market deposit accounts		13		52		32		133
Savings deposit accounts		2		11		4		27
Time deposit accounts		1,315		2,427		2,676		4,957
Total interest expense on deposits	$	1,339	$	2,524	$	2,732	$	5,200

11. Borrowings

Correspondent Bank Lines of Credit

At June 30, 2012, the Company had access to two secured and one unsecured line of credit from correspondent banks. The following table summarizes the Company’s line of credit funding utilization and availability at the dates indicated (in thousands).

	June 30, 2012		December 31, 2011
Correspondent bank line of credit accomodations	$	35,000	$	35,000
Utilized correspondent bank line of credit accomodations		—		—
Available correspondent bank line of credit accomodations	$	35,000	$	35,000

FHLB Borrowings

As disclosed in Note 3, Investment Securities Available for Sale, and Note 4, Loans, the Company pledges investment securities and loans to collateralize FHLB advances. Additionally, the Company may pledge cash and cash equivalents. The amount that can be borrowed is based on the balance of the type of asset pledged as collateral multiplied by lendable collateral value percentages, as calculated by the FHLB. The Company can borrow up to 15% of total assets from the FHLB.

The Company is a member of the FHLB of Atlanta, which is one of 12 regional FHLBs that administer home financing credit for depository institutions. As an FHLB member, and to be eligible to borrow, the Company is required to purchase and maintain stock in the FHLB. No ready market exists for FHLB stock, and this stock has no quoted market value. Purchases and redemptions are normally transacted each quarter to adjust the Company’s investment to an amount based on the FHLB requirements, which are generally based on the amount of borrowings the Company has outstanding with the FHLB. Requests for redemptions of FHLB stock are met at the discretion of the FHLB. The carrying value of this stock was $2.2 million at June 30, 2012 and $3.5 million at December 31, 2011.

During the second quarter 2012, the FHLB redeemed $1.3 million of excess FHLB stock from the Company at book value.

The following table summarizes FHLB borrowed funds utilization and availability at the dates indicated (in thousands).

	June 30, 2012		December 31, 2011
Available lendable loan collateral value pledged to serve against FHLB advances	$	75,501	$	66,690
Available lendable investment security collateral value pledged to serve against FHLB advances		—		15,410
Excess		75,501		82,100

At both June 30, 2012 and December 31, 2011, the Company had no outstanding advances from the FHLB.

Federal Reserve Discount Window

At June 30, 2012 and December 31, 2011, $6.6 million and $10.9 million of loans and securities, respectively, were pledged as collateral to cover the various Federal Reserve System services that are available for use by the Company. During the second quarter 2012, the Company was notified by the Federal Reserve that any future borrowings from the Federal Reserve Discount Window would be reinstated at the primary credit rate. Primary credit is available through the Discount Window to generally sound depository

26

institutions on a very short-term basis, typically overnight, at a rate above the Federal Open Market Committee target rate for federal funds. The Company’s maximum maturity for potential borrowings is overnight. From the first quarter 2010 through the second quarter 2012, the Company was only able to borrow from the Federal Reserve Discount Window at the secondary credit rate and such borrowings could only be used as a backup source of funding on a very short-term basis or to facilitate an orderly resolution of operational issues. The Company has not drawn on this availability since its initial establishment in 2009 other than to periodically test its ability to access such lines. The Federal Reserve has the discretion to deny approval of borrowing requests.

12. Shareholders’ Equity

Common Shares

At June 30, 2012, the Company had 75,000,000 authorized shares of common stock of which 12,752,040 shares were issued and outstanding. As disclosed in Note 15, Equity Based Compensation, as of July 23, 2012 the Company has reserved a total of 428,125 shares for future issuance under various equity incentive plans. During the three months ended March 31, 2012, the Company awarded a total of 17,613 shares of restricted stock to directors as payment of their annual retainer. During the three months ended June 30, 2012, the Company awarded a total of 8,020 shares of restricted stock to certain employees (employees are commonly referred to by the Company as “teammates”) in recognition of performance.

Authorized Preferred Shares

The Company has authorized preferred stock of 2,500,000 shares with such preferences, limitations and relative rights within legal limits of the class, or one or more series within the class, as are set by the Board of Directors. To date, the Company has not issued any preferred shares.

Cash Dividends

The Board of Directors has not declared or paid a dividend on the Company’s common stock since the first quarter 2009. Currently, the Company must obtain prior approval from the Federal Reserve Bank of Richmond to pay a dividend to its shareholders. Dividends from the Bank are the Company’s primary source of funds for payment of dividends to its common shareholders. Under the terms of a Consent Order the Bank entered into with the FDIC and the State Board of Financial Institutions (the “State Board”) in June 2010 (the “Consent Order”), the Bank is currently prohibited from paying dividends to the Company without the prior consent of these regulatory agencies.

13. Income Taxes

For the three and six months ended June 30, 2012, the Company realized federal taxable net operating losses of $14.1 million and $11.9 million, respectively. As of June 30, 2012, the Company had remaining federal net operating loss carryforwards totaling $21.9 million. If not utilized to offset future taxable income, $4.8 million of the net operating loss carryforwards will expire in 2030, $5.2 million will expire in 2031, and $11.9 million will expire in 2032.

As of June 30, 2012, net deferred tax assets, without regard to any valuation allowance, of $33.7 million are recorded in the Company’s Consolidated Balance Sheet. The net deferred tax asset is fully offset by a valuation allowance as a result of uncertainty surrounding the ultimate realization of these tax benefits. Based on the Company’s projections of future taxable income over the next three years, cumulative tax losses over the previous two years, net operating loss carryforward limitations as discussed below, and available tax planning strategies, the Company initially recorded a valuation allowance against the net deferred tax assets in December 2010. The Company’s ongoing analysis indicates that a valuation allowance against the full amount of net deferred tax assets continues to be appropriate at June 30, 2012.

The private placement consummated in October 2010 (the “Private Placement”) was considered a change in control under the Internal Revenue Code and Regulations. Accordingly, the Company was required to evaluate potential limitation or deferral of our ability to carryforward pre-acquisition net operating losses and to determine the amount of net unrealized pre-acquisition built-in losses, which may be subject to similar limitation or deferral. Under the Internal Revenue Code and Regulations, net unrealized pre-acquisition built-in losses realized within 5 years of the change in control are subject to potential limitation, which for the Company is October 7, 2015.

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Through that date, the Company will continue to analyze its ability to utilize such losses to offset anticipated future taxable income as pre-acquisition built-in losses are ultimately realized. As of June 30, 2012, the Company currently estimates that future utilization of built-in losses of $53 million generated prior to October 7, 2010 will be limited to $1.1 million per year. In addition, the Company currently estimates that $8.0 million to $9.0 million of tax benefits related to the built-in losses may not ultimately be realized. However, this estimate will not be confirmed until the five-year limitation period expires in October 2015.

For the three and six months ended June 30, 2012, income tax provisions of $3.5 million and $4.0 million, respectively, were recorded to reflect an increase in the valuation allowance as a result of a decreased deferred tax liability on net unrealized gains in the Company’s investment securities portfolio.

14. Employee Benefit Plans

401(k) Plan

During the three and six months ended June 30, 2011, the Company made matching contributions to the 401(k) plan totaling $84 thousand and $182 thousand, respectively. Effective January 1, 2012, the Company suspended its regular ongoing matching of teammate contributions and replaced it with a discretionary contribution based on attaining an appropriate level of profitability.

Defined Benefit Pension Plan

Historically, the Company has offered a noncontributory, defined benefit pension plan that covered all full-time teammates having at least 12 months of continuous service and having attained age 21. In 2007, the Company notified teammates that it would cease accruing pension benefits for teammates with regard to the noncontributory, defined benefit pension plan. Although no previously accrued benefits were lost, teammates no longer accrue benefits for service subsequent to 2007.

The Company recognizes the funded status of the defined benefit postretirement plan in the Consolidated Balance Sheets. Gains and losses, prior service costs and credits, and any remaining transition amounts that had not yet been recognized through net periodic benefit cost as of December 31, 2007 are recognized in accumulated other comprehensive income, net of tax impacts, until they are amortized as a component of net periodic benefit cost.

The Company’s net accrued pension liability is included in Other liabilities in the Consolidated Balance Sheets and totaled $5.1 million and $6.1 million at June 30, 2012 and December 31, 2011, respectively.

The fair value of plan assets totaled $14.0 million and $13.7 million at June 30, 2012 and December 31, 2011, respectively.

Cost of Defined Benefit Pension Plan. The following table summarizes the net periodic expense components for the Company’s defined benefit pension plan, which is included in Salaries and other personnel expense in the Consolidated Statements of Income (Loss), for the periods indicated (in thousands).

	For the three months ended June 30,						For the six months ended June 30,
	2012			2011			2012			2011
Interest cost	$	234		$	250		$	490		$	501
Expected return on plan assets		(276	)		(296	)		(579	)		(570	)
Amortization of net actuarial loss		222			197			466			394
Net periodic pension expense	$	180		$	151		$	377		$	325

As a result of the Company’s decision to curtail the plan effective January 1, 2008, no costs relative to service costs have been necessary since that date as teammates no longer accrue benefits for services rendered.

Current and Future Expected Contributions. The Pension Protection Act of 2006 imposed a number of burdens on pension plans with an asset to liability ratio of less than 80% with additional burdens imposed if the asset to liability ratio falls below 60%. Due primarily to the utilization of a lower discount rate for determining the present value of the liabilities (provided by the IRS based on the 24 month average of bond yields), the Company’s plan was 75% funded immediately prior to making the additional contribution and, as a result, in March 2012, the Company contributed $1.0 million to the pension plan. This contribution increased the Company’s asset

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to liability ratio to meet the 80% threshold level. During January 2012, the Company made its final employer contributions for the 2011 plan year in the amount of $94 thousand. Through June 30, 2012, the Company has made employer contributions in the amount of $163 thousand for the 2012 plan year and anticipates additional employer contributions in the amount of $489 thousand will be made for the 2012 plan year during the remainder of 2012 and first quarter 2013.

Key Man Life Insurance

The Company has fully funded life insurance policies on certain former members of executive management who are now retired from the Company. Such policies are recorded in Other assets in the Consolidated Balance Sheets at the cash surrender value less applicable surrender charges. At both June 30, 2012 and December 31, 2011, the cash surrender value of such policies totaled $1.6 million.

15. Equity Based Compensation

1997 Stock Compensation Plan

Stock option awards have been granted under the Palmetto Bancshares, Inc. 1997 Stock Compensation Plan (the “1997 Plan). The 1997 Plan terminated in 2007 and no options have been granted under the 1997 Plan since then. However, the termination did not impact options previously granted under the 1997 Plan. All outstanding options expire at various dates through December 31, 2016. Of these, 12,703 stock option awards remained outstanding at June 30, 2012 with exercise prices ranging from $80.00 to $121.60 per share. All stock option awards granted have a vesting term of five years and an exercise period of ten years. The Board determined the terms of the options on the grant date. The option exercise price was at least 100% of fair value of the Company’s common stock as of the grant date. Options granted to teammates were incentive stock options, while options granted to non-teammates were nonqualified stock options.

The Company estimates the grant date fair value of stock options granted using the Black-Scholes option-pricing model. The estimated grant-date fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. The Black-Scholes option-pricing model estimates the fair value of a stock option based on inputs and assumptions such as the expected volatility of the Company’s stock price, the level of risk-free interest rates, dividend yields, and expected option term.

The following table summarizes stock option activity for the 1997 Plan for the periods indicated.

	Stock options outstanding		Weighted- average exercise price
Outstanding at December 31, 2010		30,003	$	91.72
Forfeited		—		—
Outstanding at March 31, 2011		30,003		91.72
Forfeited		—		—
Outstanding at June 30, 2011		30,003		91.72
Forfeited		1,800		106.40
Outstanding at September 30, 2011		28,203		90.79
Forfeited		9,500		85.16
Outstanding at December 31, 2011		18,703		93.65
Forfeited		6,000		93.20
Outstanding at March 31, 2012		12,703		93.86
Forfeited		—		—
Outstanding at June 30, 2012		12,703	$	93.86

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The following table summarizes information regarding stock options under the 1997 Plan that are outstanding and exercisable at June 30, 2012.

	Options outstanding and exercisable
Exercise price or range of exercise prices	Number of stock options outstanding and exercisable	Weighted- average remaining contractual life (years)	Weighted- average exercise price
$ 80.00	5,503	0.50	$80.00
$93.20 to $106.40	2,500	1.60	94.52
$109.20 to $121.60	4,700	3.54	109.73
Total	12,703	1.84	93.86

At June 30, 2012 and December 31, 2011, the fair value of the Company’s common stock did not exceed the exercise price of any options outstanding and exercisable, and, therefore, the stock options had no intrinsic value.

Compensation Expense. The compensation expense for stock options charged against pretax loss during the three and six months ended June 30, 2011 was less than $1 thousand for both periods. There was no income tax benefit recognized in the Consolidated Statements of Income (Loss) with regard to the deductible portion of this compensation expense. All compensation expense relative to grants under the 1997 Plan had been recognized as of December 31, 2011. As such, there was no compensation expense relative to grants under the 1997 Plan during the three and six months ended June 30, 2012.

2008 Restricted Stock Plan

Under the 2008 Restricted Stock Plan (the “2008 Plan”), 62,500 shares of common stock have been reserved for issuance subject to its anti-dilution provisions. Forfeitures are returned to the available pool of common stock for future issuance. Generally, the recipient will have the right to receive dividends, if any, with respect to such shares of restricted stock, to vote such shares and to enjoy all other shareholder rights, except that the Company will retain custody of the stock certificate and the recipient may not sell, transfer, pledge or otherwise dispose of the restricted stock until the forfeiture restrictions have expired. The following table summarizes restricted stock activity at the date and for the periods indicated.

	Shares of restricted stock			Weighted- average grant date fair value
Shares available for issuance under the 2008 Restricted Stock Plan		62,500
2009 Grants		(13,761	)	$	142.50
2009 Forfeitures		2,500			168.00
2010 Grants		(4,625	)		10.40
2010 Forfeitures		700			168.00
2011 Grants		(17,033	)		10.40
2011 Forfeitures		525			168.00
2012 Grants		(17,613	)		5.11
Remaining shares available for issuance at June 30, 2012		13,193

Of the 49,307 shares of restricted stock granted under the 2008 Plan, net of forfeitures, vesting conditions relative to 34,578 shares had been met as of June 30, 2012.

During the first quarter 2012, 17,613 shares of restricted stock with a total fair value of $90 thousand were granted to the non-management members of the Board of Directors of the Company as compensation for their annual Board retainers. Prior to 2011, restricted stock granted to directors under the 2008 Plan generally had a five-year vesting period. Beginning in 2011, with the exception of annual retainer grants that vest immediately, restricted stock granted to directors under the 2008 Plan generally had a three-year vesting period designed to coincide with director service terms. Beginning in 2012, restricted stock awards to directors upon initial appointment and reelection to the Board will continue to be granted with vesting periods to coincide with director service terms but have been changed to require a director to purchase shares of the Company’s common stock on the open market to be eligible to receive a matching grant of restricted stock awards. The matching grants at initial appointment and reelection are capped at an economic value of $10 thousand.

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Restricted stock awards to teammates under the 2008 Plan are generally subject to a five year vesting period.

Compensation Expense. The value of the restricted stock awarded is established as the fair value of the stock at the time of the grant. The Company measures compensation expense for restricted stock awards at fair value and recognizes compensation expense over the service period for grants that have time / service-based vesting provisions. The following table summarizes compensation expense charged against pretax loss for the periods indicated for the 2008 Plan (in thousands).

	For the three months ended June 30,				For the six months ended June 30,
	2012		2011		2012		2011
Compensation expense	$	72	$	57	$	232	$	219
Income tax benefit		—		—		—		—

Forfeitures are accounted for by eliminating compensation expense for unvested shares as forfeitures occur. At June 30, 2012, based on restricted stock awards outstanding at that time, the total pretax compensation expense related to unvested restricted stock awards granted under the 2008 Plan but not yet recognized was $512 thousand. This expense is expected to be recognized through 2016.

2011 Stock Incentive Plan

The 2011 Stock Incentive Plan (the “2011 Plan”) was approved by shareholders at the 2011 Annual Meeting of Shareholders and allows the Board to grant a total of 500,000 stock options and / or restricted stock awards to teammates and directors. The 2011 Plan requires that stock options be issued with a strike price at or above the fair market value per share of the Company’s common stock on the date of grant.

Under the 2011 Plan, the Board, at its discretion, determines the amount of equity awards to be granted, the vesting conditions, type of award and any other terms and conditions. No option will be exercisable more than 10 years after the date of grant. Generally, the recipient will have the right to receive dividends, if any, with respect to any shares of restricted stock granted, to vote such shares and to enjoy all other shareholder rights, except that the Company will retain custody of the stock certificate and the recipient may not sell, transfer, pledge or otherwise dispose of the restricted stock until the forfeiture restrictions have expired. Forfeitures of restricted stock are returned to the available pool of common stock for future issuance. The following table summarizes the 2011 Plan stock option and restricted stock activity for the periods indicated.

	Total shares			Shares of restricted stock		Weighted- average  grant date fair value		Stock options outstanding		Weighted- average exercise price
Shares available for issuance under the 2011 Plan		500,000
2011 Grants		(473,002	)		89,751	$	10.48		383,251	$	10.51
2012 Grants		(8,020	)		8,020		6.50		—		—
Remaining shares available for issuance at June 30, 2012		18,978

During the second quarter 2012, 8,020 shares of restricted stock were awarded to certain teammates in recognition of performance. These awards are subject to both future performance and service conditions and, assuming these conditions are met, will vest in from 2015 to 2017. Total compensation expense of $52 thousand associated with these awards is expected to be recognized through May 2017.

The following table summarizes information regarding stock options under the 2011 Plan that were outstanding at June 30, 2012. No options were exercisable under the 2011 Plan at June 30, 2012.

	Options outstanding
Exercise price	Number of stock options outstanding at June 30, 2012		Weighted- average remaining contractual life (years)		Weighted- average exercise price
$10.40		312,501		8.87	$	10.40
$11.00		70,750		9.03		11.00
Total		383,251		8.90		10.51

At June 30, 2012, the fair value of the Company’s common stock did not exceed the exercise price of any options outstanding and exercisable, and, therefore, the stock options had no intrinsic value.

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Compensation Expense. The Company measures compensation expense for restricted stock and stock option awards at fair value and recognizes compensation expense over the service period for grants that have time / service-based vesting provisions. The following table summarizes compensation expense for the 2011 plan charged against pretax loss for the periods indicated (in thousands).

	For the three months ended June 30,				For the six months ended June 30,
	2012		2011		2012		2011
Compensation expense	$	190	$	81	$	380	$	81
Income tax benefit		—		—		—		—

Compensation expense is adjusted to reflect awards forfeited prior to vesting. At June 30, 2012, based on awards outstanding at that time, the total pretax compensation expense related to unvested equity awards granted under the 2011 Plan but not yet recognized was $2.1 million. This expense is expected to be recognized through 2017.

16. Average Share Information

The following table summarizes the reconciliation of denominators of the basic and diluted net loss per common share computations for the periods indicated.

	For the three months ended June 30,						For the six months ended June 30,
	2012			2011			2012			2011
Weighted average common shares outstanding - basic		12,638,160			12,616,887			12,637,990			12,490,833
Dilutive impact resulting from potential common share issuances		—			—			—			—
Weighted average common shares outstanding - diluted		12,638,160			12,616,887			12,637,990			12,490,833
Per Share Data
Net loss - basic	$	(0.57	)	$	(0.76	)	$	(0.61	)	$	(1.25	)
Net loss - diluted		(0.57	)		(0.76	)		(0.61	)		(1.25	)

Basic net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of shares of common stock outstanding during the period. For diluted net loss per share, the denominator is increased to include the number of additional common shares that would have been outstanding if dilutive potential common shares had been issued. If dilutive, common stock equivalents are calculated for stock options and restricted stock shares using the treasury stock method. No potential common shares were included in the computation of the diluted loss per share amount for the three and six months ended June 30, 2012 and 2011 as inclusion would be anti-dilutive given the Company’s net loss during the respective periods. Since the Company does not have any preferred shares outstanding, there is no difference between net loss and net loss available to common shareholders for the periods presented.

17. Commitments, Guarantees and Other Contingencies

Lending Commitments and Standby Letters of Credit

Unused lending commitments to clients are not recorded in the Consolidated Balance Sheets until funds are advanced. For commercial clients, lending commitments generally take the form of unused revolving credit arrangements to finance clients’ working capital requirements. For retail clients, lending commitments are generally unused lines of credit secured by residential property. The Company routinely extends lending commitments for both floating and fixed-rate loans.

The following table summarizes the contractual amounts of the Company’s unused lending commitments relating to extension of credit with off-balance sheet risk at June 30, 2012 (in thousands).

Commitments to extend credit:
Revolving, open-end lines secured by single-family residential properties	$	52,380
Commercial real estate, construction, and land development loans secured by real estate
Single-family residential construction loan commitments		4,687
Commercial real estate, other construction loan, and land development loan commitments		31,102
Commercial and industrial loan commitments		17,433
Overdraft protection line commitments		26,947
Other		9,538
Total commitments to extend credit	$	142,087

Standby letters of credit are issued for clients in connection with contracts between clients and third parties. Letters of credit are conditional commitments issued by the Company to guarantee the performance of a client to a third party. The maximum potential amount of undiscounted future payments related to letters of credit was $2.7 million and $3.0 million at June 30, 2012 and December 31, 2011, respectively.

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The reserve for unfunded commitments at June 30, 2012 and December 31, 2011 was $196 thousand and $378 thousand, respectively, and is recorded in Other liabilities in the Consolidated Balance Sheets.

Mortgage loan commitments that we originate are for mortgage loans that are generally sold in the secondary market upon origination and are, therefore, short-term in nature. The commitments to originate mortgage loans that are intended to be sold are accounted for as freestanding derivative instruments and are recorded on the Consolidated Balance Sheets at fair value. For additional disclosure regarding these loan commitments and freestanding derivatives, see Note 18, Derivative Financial Instruments and Hedging Activities.

Loan Participations

With regard to loan participations, the Company serves as the lead bank and is therefore responsible for certain administration and other management functions as agent to the participating banks. The participation agreements include certain standard representations and warranties related to the Company’s duties to the participating banks.

Contractual Obligations

In addition to the contractual commitments and arrangements previously described, the Company enters into other contractual obligations in the ordinary course of business. The following table summarizes the contractual obligations of time deposit accounts at June 30, 2012 (in thousands).

	Less than one year		Over one through three years		Over three through five years		Over five years		Total
Time deposit accounts	$	299,292	$	77,823	$	4,943	$	59	$	382,117

As described in Note 21, Subsequent Event, on July 1, 2012 the Bank completed the sale of two branches, one of which was a leased facility under a lease agreement with a term through September 2015. While the lease has been assigned to the purchaser of the branches as of July 1, 2012, the Bank remains as a named party to the lease in the event the purchaser fails to satisfy its obligations. Future lease payments related to this facility to be made by the purchaser total $143 thousand.

There have been no other significant changes in future real property operating lease obligations as reported in our 2011 Annual Report on Form 10-K except as otherwise noted within this Quarterly Report on Form 10-Q.

Legal Proceedings

The Company is subject to actual and threatened legal proceedings and other claims arising out of the conduct of its business. Some of these suits and proceedings seek damages, fines, or penalties. These suits and proceedings are being defended by or contested on the Company’s behalf. On the basis of information presently available, the Company does not believe that existing proceedings and claims will have a material impact on its financial position or results of operations.

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18. Derivative Financial Instruments and Hedging Activities

At June 30, 2012 and December 31, 2011, the Company’s only derivative instruments related to residential mortgage lending activities. The Company originates certain residential loans with the intention of selling these loans. Between the time the Company enters into an interest rate lock commitment to originate a residential loan with a potential borrower and the time the closed loan is sold, the Company is subject to variability in market prices related to these commitments. The Company also enters into forward sale agreements of “to be issued” loans. The commitments to originate residential loans and forward sales commitments are freestanding derivative instruments and are recorded on the Consolidated Balance Sheets at fair value. They do not qualify for hedge accounting treatment. Fair value adjustments are recorded within Mortgage-banking in the Consolidated Statements of Income (Loss).

At June 30, 2012, commitments to originate conforming loans totaled $16.1 million. These derivative loan commitments had positive fair values, included within Other assets in the Consolidated Balance Sheets, totaling $436 thousand. At December 31, 2011, commitments to originate conforming loans totaled $10.7 million. At December 31, 2011, these derivative loan commitments had positive fair values, included within Other assets in the Consolidated Balance Sheets, totaling $365 thousand. The net change in derivative loan commitment fair values during the three months ended June 30, 2012 and 2011 resulted in net derivative loan commitment income of $23 thousand and net derivative loan commitment expense of $82 thousand, respectively. The net change in derivative loan commitment fair values during the six months ended June 30, 2012 and 2011 resulted in net derivative loan commitment income of $71 thousand and net derivative loan commitment expense $23 thousand, respectively.

Forward sales commitments totaled $13.4 million at June 30, 2012. These forward sales commitments had positive fair values, included within Other assets in the Consolidated Balance Sheets, totaling $293 thousand. Forward sales commitments totaled $8.0 million at December 31, 2011. At December 31, 2011, forward sales commitments had positive fair values, included within Other assets in the Consolidated Balance Sheets, totaling $116 thousand and negative fair values, included within Other liabilities in the Consolidated Balance Sheets, totaling $25 thousand. The net change in forward sales commitment fair values during the three months ended June 30, 2012 and 2011 resulted in income of $142 thousand and $11 thousand, respectively. The net change in forward sales commitment fair values during the six months ended June 30, 2012 and 2011, resulted in income of $202 thousand and expense of $64 thousand, respectively.

19. Disclosures Regarding Fair Value

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table summarizes assets and liabilities measured at fair value on a recurring basis at the dates indicated, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands).

	June 30, 2012
	Level 1		Level 2		Level 3		Total
Assets
Investment securities available for sale
State and municipal	$	—	$	13,553	$	—	$	13,553
Collateralized mortgage obligations		10,469		132,258		—		142,727
Other mortgage-backed (federal agencies)		45,098		12,059		—		57,157
SBA loan-backed (federal agency)		33,963		—		—		33,963
Derivative financial instruments		—		729		—		729
Total assets measured at fair value on a recurring basis	$	89,530	$	158,599	$	—	$	248,129
Liabilities
Derivative financial instruments	$	—	$	—	$	—	$	—
	December 31, 2011
	Level 1		Level 2		Level 3		Total
Assets
Investment securities available for sale
State and municipal	$	—	$	120,965	$	—	$	120,965
Collateralized mortgage obligations		—		118,949		—		118,949
Other mortgage-backed (federal agencies)		—		21,078		—		21,078
Derivative financial instruments		—		481		—		481
Total assets measured at fair value on a recurring basis	$	—	$	261,473	$	—	$	261,473
Liabilities
Derivative financial instruments	$	—	$	25	$	—	$	25

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Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

For financial assets measured at fair value on a nonrecurring basis that were reflected in the Consolidated Balance Sheets, the following tables summarize the level of valuation assumptions used to determine fair value of the related individual assets at the dates indicated (in thousands). There were no liabilities measured at fair value on a nonrecurring basis at June 30, 2012 and December 31, 2011.

	June 30, 2012
	Level 1		Level 2		Level 3		Total
Assets
Mortgage loans held for sale	$	—	$	3,789	$	—	$	3,789
Other loans held for sale		7,508		6,938		—		14,446
Impaired loans in gross loans		4,655		15,797		440		20,892
Foreclosed real estate and repossessed personal property		2,268		9,386		3,091		14,745
Long-lived assets held for sale		—		681		921		1,602
Total assets measured at fair value on a nonrecurring basis	$	14,431	$	36,591	$	4,452	$	55,474

	December 31, 2011
	Level 1		Level 2		Level 3		Total
Assets
Mortgage loans held for sale	$	—	$	3,648	$	—	$	3,648
Other loans held for sale		—		12,857		1,321		14,178
Impaired loans in gross loans		—		36,314		7,111		43,425
Foreclosed real estate and repossessed personal property		3,491		2,266		22,067		27,824
Long-lived assets held for sale		—		—		1,603		1,603
Total assets measured at fair value on a nonrecurring basis	$	3,491	$	55,085	$	32,102	$	90,678

Level 3 Valuation Methodologies. Following is a description of the unobservable inputs used for Level 3 fair value measurements.

Impaired Loans. At June 30, 2012 and December 31, 2011, the fair value of a majority of the total impaired loans was estimated based on the fair value of the underlying collateral, which is considered a Level 2 fair value estimate. Certain impaired loans under binding contracts to be sold at June 30, 2012 were valued based on the contracted sales price, which are considered Level 1 fair value estimates. We generally obtain third-party “as-is” appraisals on collateral securing impaired loans at the time it is classified as such if a recent appraisal has not been obtained within the most recent 12 month period. For the term that the loan remains classified as impaired, we obtain updated appraisals annually. When an appraised value is not available or the Company determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the estimated fair value of the impaired loan is classified as Level 3. Impaired loans can also be evaluated for impairment using the present value of expected future cash flows discounted at the loan’s effective interest rate. The measurement of impaired loans using future cash flows discounted at the loan’s effective interest rate rather than the market rate of interest is not a fair value measurement and is therefore excluded from fair value disclosures in the table above.

Foreclosed Real Estate and Repossessed Personal Property. Fair value is generally based on binding sales contracts, current appraisals, comparable sales and other estimates of value obtained principally from independent sources adjusted for selling costs (Level 1 and Level 2). In situations where management’s adjustments are significant to the fair value measurement in its entirety or when appraisals lack current sales comparisons, such measurements are classified as Level 3 within the valuation hierarchy.

Long-Lived Assets Held for Sale. Nonrecurring fair value adjustments on long-lived assets held for sale reflect impairment writedowns. Appraisals are used to determine impairment, and these appraisals may require significant adjustments to market-based valuation inputs due to lack of recent comparable sales or the age of the appraisal. As a result, the assets subjected to significant adjustments to market-based valuation inputs are typically classified as Level 3 due to the fact that unobservable inputs are significant to the fair value measurement.

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The following table summarizes the significant unobservable inputs used in the fair value measurements for Level 3 assets measured at fair value on a nonrecurring basis at June 30, 2012 (in thousands).

	Fair value  at June 30, 2012
			Valuation technique	Significant unobservable inputs
Assets
Impaired loans in gross loans	$	440	Internal assessment of collateral value	Adjustments to appraisals for recent comparable sales
Foreclosed real estate and repossessed personal property		3,091	Appraisals of collateral value	Adjustments to appraisal for age of comparable sales
Long-lived assets held for sale		921	Internal valuation	Appraisals and/or sales of comparable properties

Carrying Amounts and Estimated Fair Value of Financial Assets and Liabilities Not Measured at Fair Value

The following table summarizes the carrying amount and fair values for other financial instruments included in the Consolidated Balance Sheets at the dates indicated (in thousands) all of which are considered Level 3 fair value estimates. These fair value estimates are subject to fluctuation based on the amount and timing of expected cash flows as well as the choice of discount rate used in the present value calculation. The Company has used management’s best estimate of fair value based on methodologies as summarized in our 2011 Annual Report on Form 10-K. Thus, the fair values presented may not be the amounts which could be realized in an immediate sale or settlement of the instrument. In addition, any income taxes or other expenses, which would be incurred in an actual sale or settlement, are not taken into consideration in the fair values presented.

	Carrying amount		Fair value
June 30, 2012
Financial instruments - assets
Loans (1)	$	684,816	$	689,735
Financial instruments - liabilities
Deposits		1,062,677		1,065,175
December 31, 2012
Financial instruments - assets
Loans (1)	$	704,537	$	715,288
Financial instruments - liabilities
Deposits		1,064,181		1,069,792

(1) Includes Loans, net less impaired loans valued based on the fair value of underlying collateral or contracted sales price.

20. Regulatory Capital Requirements and Dividend Restrictions

Capital Requirements

The following table summarizes the Company’s and the Bank’s actual and required capital ratios at the dates indicated (dollars in thousands). The Company and the Bank were classified in the well-capitalized category at June 30, 2012 and December 31, 2011. In connection with the Consent Order, the Bank is subject to a minimum Tier 1 leverage ratio of 8.00%, which is higher than the statutory well-capitalized minimum ratio of 5.00%.

Since June 30, 2012, no conditions or events have occurred, of which the Company is aware, that have resulted in a material change in the Company’s or the Bank’s risk category other than as reported in this Quarterly Report on Form 10-Q.

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	Actual					For capital adequacy purposes					To be well capitalized under prompt corrective  action provisions
	amount		ratio			amount		ratio			amount		ratio
At June 30, 2012
Total capital to risk-weighted assets
Company	$	108,903		13.52	%	$	64,458		8.00	%		n/a		n/a
Bank		108,722		13.49			64,457		8.00		$	80,571		10.00	%
Tier 1 capital to risk-weighted assets
Company		98,728		12.25			32,229		4.00			n/a		n/a
Bank		98,547		12.23			32,229		4.00			48,343		6.00
Tier 1 leverage ratio
Company		98,728		8.16			48,414		4.00			n/a		n/a
Bank		98,547		8.14			48,414		4.00			60,517		5.00
At December 31, 2011
Total capital to risk-weighted assets
Company	$	116,864		13.49	%	$	69,280		8.00	%		n/a		n/a
Bank		115,985		13.39			69,285		8.00		$	86,607		10.00	%
Tier 1 capital to risk-weighted assets
Company		105,852		12.22			34,640		4.00			n/a		n/a
Bank		104,972		12.12			34,643		4.00			51,964		6.00
Tier 1 leverage ratio
Company		105,852		8.59			49,270		4.00			n/a		n/a
Bank		104,972		8.52			49,271		4.00			61,589		5.00

Recent Regulatory Developments

The Company and the Bank are subject to periodic examination by various regulatory agencies. Effective June 10, 2010, the Bank agreed to the issuance of a Consent Order with the FDIC and the State Board (collectively, the “Supervisory Authorities”). The Consent Order includes requirements regarding the Bank’s capital position and other requirements, including that the Bank:

• Achieve and maintain, within 120 days from the effective date of the Consent Order, Total Risk-Based capital at least equal to 10% of risk-weighted assets and Tier 1 capital at least equal to 8% of total assets;

• Determine, within 30 days of the last day of the calendar quarter, its capital ratios. If any capital measure falls below the established minimum, within 30 days provide a written plan to the Supervisory Authorities describing the means and timing by which the Bank shall increase such ratios to or in excess of the established minimums;

• Establish, within 30 days from the effective date of the Consent Order, a plan to monitor compliance with the Consent Order, which shall be monitored by the Bank’s Board of Directors;

• Develop, within 60 days from the effective date of the Consent Order, a written analysis and assessment of the Bank’s management and staffing needs;

• Notify the Supervisory Authorities in writing of the resignation or termination of any of the Bank’s directors or senior executive officers;

• Eliminate, within 10 days from the effective date of the Consent Order, by charge-off or collection, all assets or portions of assets classified “Loss” and 50% of those assets classified “Doubtful”;

• Review and update, within 60 days from the effective date of the Consent Order, its policy to ensure the adequacy of the Bank’s allowance for loan and lease losses, which must provide for a review of the Bank’s allowance for loan and lease losses at least once each calendar quarter;

• Submit, within 60 days from the effective date of the Consent Order, a written plan to reduce classified assets by certain specific percentages by defined dates and a reduction of the Bank’s risk exposure in relationships with assets in excess of $1,000,000 which are criticized as “Substandard,” “Doubtful,” or “Special Mention”;

• Revise, within 60 days from the effective date of the Consent Order, its policies and procedures for managing the Bank’s Adversely Classified Other Real Estate Owned;

• Not extend any additional credit to any borrower who has a loan or other extension of credit from the Bank that has been charged-off or classified, in whole or in part, “Loss” or “Doubtful” and is uncollected. In addition, the Bank may not extend any additional credit to any borrower who has a loan or other extension of credit from the Bank that has been criticized, in whole or in part, “Substandard” or “Special Mention” and is uncollected unless the Bank’s board of directors determines that failure to extend further credit to a particular borrower would be detrimental to the best interests of the Bank;

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• Perform, within 90 days from the effective date of the Consent Order, a risk segmentation analysis with respect to the Bank’s Concentrations of Credit and develop a written plan to systematically reduce any segment of the portfolio that is an undue concentration of credit;

• Review, within 60 days from the effective date of the Consent Order and annually thereafter, the Bank’s loan policies and procedures for adequacy and, based upon this review, make all appropriate revisions to the policies and procedures necessary to enhance the Bank’s lending functions and ensure their implementation;

• Adopt, within 60 days from the effective date of the Consent Order, an effective internal loan review and grading system to provide for the periodic review of the Bank’s loan portfolio in order to identify and categorize the Bank’s loans, and other extensions of credit which are carried on the Bank’s books as loans, on the basis of credit quality;

• Review and update, within 60 days from the effective date of the Consent Order, its written profit plan to ensure the Bank has a realistic, comprehensive budget for all categories of income and expense, which must address, at minimum, goals and strategies for improving and sustaining the earnings of the Bank, the major areas in and means by which the Bank will seek to improve the Bank’s operating performance, realistic and comprehensive budgets, a budget review process to monitor income and expenses of the Bank to compare actual figure with budgetary projections, the operating assumptions that form the basis for and adequately support major projected income and expense components of the plan, and coordination of the Bank’s loan, investment, and operating policies and budget and profit planning with the funds management policy;

• Review and update, within 60 days from the effective date of the Consent Order, its written plan addressing liquidity, contingent funding, and asset liability management;

• Eliminate, within 30 days from the effective date of the Consent Order, all violations of law and regulation or contraventions of policy set forth in the FDIC’s safety and soundness examination of the Bank in November 2009;

• Not accept, renew, or rollover any brokered deposits unless it is in compliance with the requirements of 12 C.F.R. § 337.6(b);

• Limit asset growth to 10% per annum;

• Not declare or pay any dividends or bonuses or make any distributions of interest, principal, or other sums on subordinated debentures without the prior approval of the Supervisory Authorities;

• Not offer an effective yield on deposits of more than 75 basis points over the national rates published by the FDIC weekly on its website unless otherwise specifically permitted by the FDIC. Beginning in April 2010 the Bank was notified by the FDIC that it had determined that the geographic areas in which it operates were considered high-rate areas. Accordingly, the Bank is able to offer interest rates on deposits up to 75 basis points over the prevailing interest rates in its geographic areas; and

• Furnish, by within 30 days from the effective date of the Consent Order and within 30 days of the end of each quarter thereafter, written progress reports to the Supervisory Authorities detailing the form and manner of any actions taken to secure compliance with the Consent Order.

The Bank intends to take all actions necessary to comply with the requirements of the Consent Order, and, as of the date hereof, we have submitted all documentation required to the Supervisory Authorities. We believe we are currently in compliance with all requirements of the Consider Order. However, the determination of our compliance will be made by the Supervisory Authorities, and there can be no assurance that the Supervisory Authorities will determine that the Bank is in full compliance with the provisions of the Consent Order. Failure to meet the requirements of the Consent Order could result in additional regulatory requirements, which could have a material effect on the Company’s financial condition. In addition, the Supervisory Authorities may amend the Consent Order based on the results of their ongoing examinations.

21. Subsequent Event

On July 1, 2012 the Bank consummated the sale of its Rock Hill and Blacksburg, South Carolina branches. The agreement to sell these branches was originally entered into on January 27, 2012. The branch sale is a part of Company’s plans to reduce the Bank’s branch network through sale or consolidation into existing branches, which was announced in December 2011. In connection with the consummation of the sale, the Bank sold real estate, equipment, substantially all of the loans, certain other assets, deposits and lease obligations associated with these two branches. The Company recorded a gain on sale of the branches, net of transaction costs, of $568 thousand, which will be recognized in the third quarter 2012. As part of the settlement of the sale, the Company made a cash

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payment to the purchaser on July 2, 2012 of $31.6 million, representing the excess of deposits and other liabilities assumed by the purchaser over the carrying value of loans and other assets sold, and the deposit premium received.

Land and the related building, leasehold improvements and furniture and equipment associated with the two branches being sold are included in long-lived assets held for sale at June 30, 2012. Long-lived assets held for sale are included in Other assets in the Consolidated Balance Sheets at June 30, 2012 and December 31, 2011.

The following table summarizes the primary noncash balance sheet amounts relative to the branches under contract for sale at June 30, 2012 (in thousands).

Assets
Other loans held for sale	$	7,508
Long-lived assets held for sale		681
Liabilities
Transaction deposits	$	12,641
Money market deposits		3,550
Savings deposits		2,141
Time deposits		22,763
Total deposits	$	41,095

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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 June 30, 2012 and results of operations and cash flows for the three and six months ended June 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 six months ended June 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:

• Greater than expected losses could occur 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,

• Greater than expected losses could occur 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,

• Greater than expected losses could occur if we make additional strategic decisions to sell problems 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 the remainder of our other loans held for sale at values equal to or greater than the currently recorded loan 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 standard regulatory-mandated minimums,

• 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 write-down 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,

• 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,

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• 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 including confirmation of any income tax refund claims received by the Internal Revenue Service,

• 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 Federal Home Loan Bank (“FHLB”) advances, Federal Reserve Discount Window borrowings, sales of 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 we are unable to predict what impact these uncertain market conditions will have on us in the future. Beginning in 2008 and continuing through 2011, the capital and credit markets experienced extended volatility and disruption. During the first half 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 United States (“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 Board of Governors of the Federal Reserve System, 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 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 in accordance with 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 costs and certain special items when assessing our performance.

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Selected Financial Data

The following consolidated selected financial data should be read in conjunction with Item 1. Financial Statements and Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands, except per share data) (unaudited).

	At and for the three months ended
	June 30, 2012			March 31, 2012			December 31, 2011			September 30, 2011			June 30, 2011
STATEMENTS OF INCOME (LOSS)
Interest income	$	11,422		$	12,025		$	12,761		$	13,215		$	13,145
Interest expense		1,339			1,394			1,868			2,267			2,555
Net interest income		10,083			10,631			10,893			10,948			10,590
Provision for loan losses		8,450			2,700			2,000			5,600			7,400
Net interest income after provision for loan losses		1,633			7,931			8,893			5,348			3,190
Noninterest income		13,963			3,930			3,796			4,300			3,758
Noninterest expense		19,234			11,931			15,141			16,472			17,708
Net loss before provision (benefit) for income taxes		(3,638	)		(70	)		(2,452	)		(6,824	)		(10,760	)
Provision (benefit) for income taxes		3,511			517			(170	)		(1,355	)		(1,191	)
Net loss	$	(7,149	)	$	(587	)	$	(2,282	)	$	(5,469	)	$	(9,569	)
COMMON AND PER SHARE DATA
Net loss per common share:
Basic	$	(0.57	)	$	(0.05	)	$	(0.18	)	$	(0.43	)	$	(0.76	)
Diluted		(0.57	)		(0.05	)		(0.18	)		(0.43	)		(0.76	)
Cash dividends per common share		—			—			—			—			—
Book value per common share		7.04			8.04			8.13			8.28			8.51
Outstanding common shares		12,752,040			12,744,020			12,726,388			12,726,399			12,726,891
Weighted average common shares outstanding - basic		12,638,160			12,637,819			12,618,092			12,618,092			12,616,887
Weighted average common shares outstanding - diluted		12,638,160			12,637,819			12,618,092			12,618,092			12,616,887
PERIOD-END BALANCES
Assets	$	1,180,960		$	1,214,161		$	1,203,152		$	1,248,511		$	1,271,060
Investment securities available for sale, at fair value		247,400			269,841			260,992			277,605			280,816
Total loans		742,221			779,231			791,384			817,691			821,197
Deposits and retail repurchase agreements		1,080,937			1,100,614			1,088,039			1,132,321			1,151,252
FHLB borrowings		—			—			—			—			—
Shareholders’ equity		89,772			102,400			103,482			105,369			108,364
AVERAGE BALANCES
Assets	$	1,196,597		$	1,206,452		$	1,230,344		$	1,270,576		$	1,323,812
Interest-earning assets		1,137,919			1,151,889			1,184,407			1,229,478			1,278,946
Investment securities available for sale, at fair value		250,903			262,812			270,006			279,781			280,259
Total loans		762,890			780,653			806,801			825,528			825,601
Deposits and retail repurchase agreements		1,083,126			1,088,767			1,112,828			1,150,491			1,193,740
Other short-term borrowings		25			47			20			12			11
FHLB borrowings		—			—			—			—			2,527
Shareholders’ equity		103,174			106,008			106,657			109,581			116,494
SELECT PERFORMANCE RATIOS
Return on average assets		(2.40	)%		(0.20	)%		(0.74	)%		(1.71	)%		(2.90	)%
Return on average shareholders’ equity		(27.87	)		(2.23	)		(8.49	)		(19.80	)		(32.95	)
Net interest margin		3.56			3.71			3.65			3.53			3.32
CAPITAL RATIOS
Average shareholders’ equity as a percentage of average assets		8.62	%		8.79	%		8.67	%		8.62	%		8.80	%
Shareholders’ equity as a percentage of assets		7.60			8.43			8.60			8.44			8.53
Tier 1 risk-based capital		12.25			12.31			12.22			12.26			12.83
Total risk-based capital		13.52			13.58			13.49			13.53			14.10
Tier 1 leverage		8.16			8.75			8.59			8.48			8.54
ASSET QUALITY INFORMATION
Allowance for loan losses	$	18,278		$	23,388		$	25,596		$	26,900		$	26,981
Nonaccrual loans		24,176			45,544			53,028			75,007			71,739
Nonperforming assets		38,921			72,333			80,852			89,858			87,073
Net loans charged-off		13,560			4,908			3,304			5,681			7,373
Allowance for loan losses as a percentage of gross loans		2.52	%		3.07	%		3.31	%		3.43	%		3.50	%
Nonaccrual loans as a percentage of gross loans, other loans held for sale and foreclosed assets		3.21			5.67			6.50			9.04			8.58
Nonperforming assets as a percentage of assets		3.30			5.96			6.72			7.20			6.85
Net loans charged-off as a percentage of average gross loans		7.29			2.58			1.68			2.90			3.86
OTHER DATA
Number of full service branches		27			27			29			29			29
Number of full-time equivalent employees		322.5			338.5			351.5			358.0			378.5

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Executive Summary of Second Quarter 2012 Financial Results

Context for the Three and Six Months Ended June 30, 2012 and the Company

Palmetto Bancshares, Inc. was incorporated in 1982, and its wholly-owned subsidiary, The Palmetto Bank, has been operating since 1906. Given its 105-year history, the Company has developed long-standing relationships with clients in the communities in which we operate and a recognizable name, which has resulted in a well-established branch network and loyal deposit base. As a result, the Company has historically had a lower cost of deposits than its peers due to a higher core deposit mix.

Until 2009, the Company operated under the same executive management team for more than 30 years. During that time, the Company grew to become the fifth largest banking institution headquartered in South Carolina and one of the most profitable banking franchises in the Carolinas. From 1999 to 2008, the Company averaged a return on average assets and return on average equity of 1.25% and 15.2%, respectively. Over the same time period, noninterest income as a percentage of average assets averaged 1.60%.

In 2008, the Company executed its management succession plan, and in early 2009 the Board of Directors hired a new Chief Executive Officer and Chief Operating Officer. As the impact of the recession worsened in 2009 and the Company began incurring significant credit losses, the Company’s new management team quickly developed and implemented a comprehensive Strategic Project Plan in June 2009 to address all areas of the Company with a primary emphasis on aggressively resolving the Company’s asset quality issues.

The period from 2009 through 2012 has been very challenging for the Company, the banking industry and the U.S. economy in general. In relation to the Company, the overall economic context for our financial condition and results of operations include the following:

• Ongoing financial stress in the overall U.S. economy that generally started with an economic crisis in August 2008 and has continued into 2012 for which the banking industry and the Company continue to be adversely impacted,

• Volatile equity markets,

• Significant stress on the banking industry (nationally and internationally) resulting in governmental financial assistance to many financial institutions, extensive regulatory and congressional scrutiny and new comprehensive reform legislation including yet to be determined regulations which will be adopted as a result,

• General anxiety on the part of our clients and the general public,

• Uncertainty about the future and when the economy will return to “normal” and questions about what will be the “new normal,”

• Low and uncertain interest rate environment particularly given government intervention in the financial markets and statements by the Federal Reserve that short-term rates may remain low through 2014,

• General flattening of the yield curve placing additional pressure on the banking industry’s ability to generate traditional net interest income to support current infrastructure costs,

• Downgrade of long-term U.S. Treasury obligations to AA by a major credit rating agency in August 2011,

• An increase in the number of European Union member governments seeking financial assistance and implementation of austerity measures that could limit global growth and create further headwinds limiting domestic economic improvement,

• Elevated levels of unemployment nationally and in our local markets, which have shown signs of improvement but for which uncertainty continues about whether the trend will continue to improve, and

• Depressed residential housing market and commercial real estate values.

Additional context specific to the Company includes the following:

• Fast growth from 2004 through the first quarter of 2009, growing total assets 57% during that period which resulted in the Company reaching a natural “maturity/life cycle hump.” Common challenges associated with this stage of our life cycle include:

• Stress on our infrastructure requiring investment in the number and expertise of teammates and refinement of policies and procedures,

• Required investments in technology to invest in the future and rationalization of the technology investments versus our historical investment in facilities,

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• Adapting products and services and related pricing and fees to remain relevant to our current and evolving client base and competitive in the marketplace and developing broader distribution channels for delivery of our products and services, and

• Application of a more sophisticated risk management approach including a comprehensive view of risk, processes and procedures, internal and business partner expertise and the “way we do business.”

• Executive management succession plan implemented effective July 1, 2009 and resulting organizational changes:

• Effective July 1, 2009, the Company named a new Chief Executive Officer and President of the Bank and a new Chief Operating Officer of the Company and the Bank. Subsequently, the Chief Executive Officer of the Bank also assumed the title of Chief Executive Officer of the Company on January 1, 2010, and the Chief Operating Officer assumed additional responsibilities as Chief Risk Officer of the Company and the Bank in October 2009 and as the Chief Financial Officer of the Company and the Bank from July 1, 2010 to February 2, 2011. These two executives have proven bank turnaround and operational capabilities and rapidly developed and implemented the Company’s Strategic Project Plan in June 2009 as summarized below.

• During 2009 and 2010, we realigned our organizational structure and began the process of more specifically delineating our businesses. Additional organizational changes resulted in the delineation of our Commercial banking business in August 2009 and our Wealth Management business in October 2010. In addition, the Company hired a new Chief Credit Officer in July 2009, hired a new Retail Banking Executive in October 2010, hired a new Chief Financial Officer in November 2010, hired a new Chief Information Officer in May 2011, appointed a new Commercial Banking Executive in June 2011, and appointed a new interim Wealth Management Executive in January 2012.

• Significant deterioration in asset quality during 2009 resulting in a net loss for 2009 which was the first annual net loss in the history of the Company since the Great Depression in the 1930s. Asset quality challenges, which were the primary cause of net losses incurred in those periods, have continued through 2012.

• Increased regulatory scrutiny given declining asset quality, financial results and capital position, which resulted in the Bank agreeing to the issuance of a Consent Order with its primary bank regulatory agencies in June 2010.

• Market disruption from mergers and acquisitions in our market, including through FDIC-assisted transactions, with our previous largest two competitors in terms of deposit market share being acquired by large, out-of-market banks. In addition, smaller community banks in our market have also been acquired by out-of-state banks.

• Strategic repositioning and reduction of the balance sheet to reduce commercial real estate loan concentrations and individually large and more complex loans originated during 2004 through 2008 as well as intentional reduction in the amount wholesale funding and higher priced certificates of deposit used to fund loan growth during that period. Loans (including other loans held for sale) decreased $417.9 million from March 31, 2009 (peak quarter-end loans) to June 30, 2012. Borrowings and certificates of deposits also decreased $347.8 million from June 30, 2009 (peak quarter-end borrowings and time deposits) to June 30, 2012.

In light of the above, in 2009 management and the Board of Directors reacted quickly and defined three strategic initiatives, which are continually being refined and are currently summarized as follows:

Component		Primary Emphasis	Time Horizon
Strategic Project Plan	• •	Manage through the extended recession and volatile economic environment, and Execute the Strategic Project Plan related to credit quality, earnings, liquidity and capital (the Strategic Project Plan is described in more detail below) including preparation for a potential formal agreement with the bank regulatory agencies and raising additional capital.	June 2009 – October 2010

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Component		Primary Emphasis	Time Horizon
Annual Strategic Plans	•	Strategic planning at the corporate and department level for calendar years 2010 to 2012 in the context of the uncertain economic environment and ensuring our infrastructure is appropriately-sized with respect to projected balance sheet size and revenues,	Calendar years 2010 to 2012
	•	Acceleration of overcoming the growth hump/life cycle stage of maturity resulting from fast growth reaching a high of $1.5 billion in assets,
	•	Expense reduction and positioning the Bank to return to profitability in the post-capital raise and post-recession environment, and
	•	Listing of our common stock on the NASDAQ stock Market in 2011 and expected evolution into a more national retail investor base and resulting increased scrutiny by analysts and others in the investment community.
Bank of the Future	•	Increasing the franchise value of The Palmetto Bank through our “value creation strategy,”	Two to five years
	•	Improving the “client experience” from the external perspective of prospects and clients, including refining our products, services and distribution channels to meet their expectations including significant technology upgrades planned for 2012,
	•	Adapting to the rapidly changing financial services landscape including lower earnings due to the low interest rate environment, regulatory restrictions on historical sources of income and higher compliance costs, and
	•	Preparing for growth through organic growth given banking disruption in our markets and the potential for growth through mergers and acquisitions upon exit from the Consent Order.

We believe it is critical to focus on all three strategic initiatives simultaneously to optimize long-term shareholder value. As a result, management and the Board of Directors has focused a tremendous amount of time and effort on addressing all three initiatives since 2009 with the overall objectives being: 1) to aggressively deal with our credit quality, earnings and capital issues as quickly as possible and 2) to accelerate into a much shorter time frame the “reinvention of The Palmetto Bank.” While the National Bureau of Economic Research concluded that the recession officially ended in June 2009, the impact of the recession is continuing to be felt by the banking industry and the Company. Accordingly, our focus has been and continues to be centered on managing through the impacts of the extended recession to position the Company to return to profitability and to achieve sustained positive financial results once the economy begins to recover.

We consummated a Private Placement in October 2010 and subsequent follow-on offering in January 2011 in which we received $113.9 million of gross proceeds from the sale of common stock. The Private Placement was a significant step forward in the implementation of these strategic initiatives and resulted in the Company’s and the Bank’s capital adequacy ratios exceeding the well-capitalized minimums. In addition, while financial challenges remain, the completion of the Private Placement repositioned us from a defensive posture to a more offensive posture in terms of balance sheet management, market presence, client retention and new client acquisition. The trend in our financial results has generally improved since consummation of the Private Placement.

As summarized in more detail below, we are continuing our keen focus on improving credit quality and earnings. Overall, with the completion of the Private Placement, beginning in 2011, we have been more focused on resolving problem assets, including through strategic bulk sales at discounted prices, and repositioning the balance sheet to utilize our excess cash more effectively to improve our net interest margin. This included investing in higher yielding investment securities until sustained loan growth resumes as well as paying down higher priced funding such as FHLB advances and maturing certificate of deposit accounts (“CDs”). We are also continuing to adapt our organizational structure to fit the current and future size and scope of our business activities and operations. Such efforts include hiring management personnel with specialized industry experience, appropriately sizing the number of teammates given our current balance sheet size and product volumes, selling or consolidating branches that do not fit with our strategic direction, more specifically delineating our businesses, evaluating client demographics and resulting needs and preparing “go to market” strategies with relevant products and services and marketing plans by business.

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As further discussed in Strategic Project Plan below, in light of additional negative economic developments in August 2011 and to further reduce operating expenses, in the third quarter 2011 we launched a Company-wide project to determine the strategic and tactical actions necessary to align our infrastructure and expense base with our current balance sheet size and the underlying revenue generating capacity of the franchise. This project was focused on strategic and tactical actions such as business reviews, headcount rationalization and process improvement and automation. To the extent such negative economic conditions remain and the current interest rate environment and regulatory restrictions pressure revenue growth, we continue to evaluate the strategic actions necessary to accelerate our return to profitability, which may include additional expense reductions or other initiatives.

Second Quarter 2012 Strategic Actions

During the second quarter 2012, we also made strategic decisions to sell various problem assets at discounted prices to aggressively reduce problem assets and, therefore, accelerate our return to profitability through avoidance of potential future write downs resulting from receipt of ongoing appraisals and reductions in the related carrying costs such as legal expenses, property taxes, property insurance and other costs incurred to resolve the problem assets and protect the collateral value. As a result, we entered into contracts to sell selected classified loans (which include loans classified as “substandard” or “doubtful” as defined by our Lending Policy) and foreclosed real estate with carrying values at March 31, 2012, before any allowance for loan losses, of $33.4 million and $11.8 million, respectively. Classified loan sales totaling $28.0 million were consummated during the second quarter with the remaining scheduled to close during the third quarter 2012. Foreclosed real estate sales totaling $9.0 million were consummated during the second quarter with an additional $2.8 million closed or scheduled to close during the third quarter 2012. Of the problem asset sales contracts entered into during the second quarter, $23.9 million were sold through a bulk sale while the remaining assets were sold individually through the Bank’s normal problem asset resolution efforts.

In the aggregate, contracts to sell selected problem assets entered into during the second quarter resulted in charge-offs of $11.7 million, writedowns on other loans held for sale of $2.2 million and net writedowns on foreclosed real estate totaling $2.2 million.

The decision to sell these problem assets at discounted prices was part of our previously disclosed strategic efforts to aggressively reduce problem assets and, therefore, accelerate our return to profitability through the avoidance of potential future writedowns and reduction in the related carrying costs. The sales of these problem assets are also expected to result in greater stability and predictability in future earnings through a reduction in exposure to changes in real estate values and related operating costs.

The following table summarizes the impact of these sales contracts on credit quality indicators at time of sale based on March 31, 2012 carrying values (in thousands).

	Loans, gross		Other loans held for sale		Foreclosed real estate		Total
Classified assets - Closed second quarter	$	21,742	$	6,219	$	9,000	$	36,961
Classified assets - Closing third quarter		5,424		—		2,766		8,190
Total classified assets	$	27,166	$	6,219	$	11,766	$	45,151
Nonperforming assets - Closed second quarter	$	15,220	$	4,096	$	9,000	$	28,316
Nonperforming assets - Closing third quarter		3,203		—		2,766		5,969
Total nonperforming assets	$	18,423	$	4,096	$	11,766	$	34,285
Troubled debt restructurings (included in nonperforming assets) - Closed second quarter	$	10,936	$	—	$	—	$	10,936
Troubled debt restructurings (performing) - Closed second quarter		3,192		2,123		—		5,315
Total troubled debt restructurings	$	14,128	$	2,123	$	—	$	16,251

In addition, during the second quarter 2012, the Bank realized gains of $9.9 million on the sale of $142.0 million in book value of investment securities. The sales were part of a strategic decision to realize a portion of the unrealized gains on the investment securities portfolio to offset a portion of the credit losses described above and the resulting impact on regulatory capital. The proceeds from these sales are expected to be reinvested in investment securities by the end of the third quarter 2012.

In addition to the asset sales noted above, effective July 1, 2012 the Company consummated the sale of our Rock Hill and Blacksburg branches which will further reduce our ongoing operating costs.

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Summary Financial Results and Company Response

The national and local economy and the banking industry continue to deal with the lingering effects of the most pronounced recession in decades. In South Carolina, unemployment rose significantly throughout 2009 and 2010 and continues to remain at an elevated level higher than the national average. In addition, residential and commercial real estate projects are depressed with significant deterioration in values. As a result, the impact in our geographic area and to individual borrowers was severe. In addition, our financial results in 2009 through the second quarter 2012 were significantly impacted by the following in comparison to our historical financial results:

• Provision for loan losses totaling $11.2 million in the first six months of 2012 and $20.5 million, $47.1 million and $73.4 million in 2011, 2010 and 2009, respectively, compared to $5.6 million in 2008,

• Loss on other loans held for sale totaling $2.5 million in the first six months of 2012 and $8.1 million and $7.6 million 2011 and 2010, respectively, compared to none in 2009 and 2008,

• Net loss from writedowns, expenses, operations, and sales of foreclosed real estate totaling $8.3 million in the first six months of 2012 and $7.5 million, $11.7 million and $3.2 million in 2011, 2010 and 2009, respectively, compared to $516 thousand in 2008,

• Foregone interest of $1.0 million in the first six months of 2012 and $3.0 million, $4.7 million and $3.7 million in 2011, 2010 and 2009, respectively, compared to none in 2008 on cash invested at the Federal Reserve at 25 basis points to maintain liquidity versus the average yield on our investment securities of 2.3%, 2.61%, 2.75% and 4.75%, respectively,

• Higher FDIC deposit insurance assessments totaling $1.1 million in the first six months of 2012 and $3.0 million, $4.5 million and $3.3 million in 2011, 2010 and 2009, respectively, compared to $786 thousand in 2008, due to industry-wide increases in general assessment rates, our voluntary participation in the FDIC’s Transaction Account Guarantee Program (the “TAGP”), our capital classification being below well-capitalized throughout most of 2010 and an industry-wide special assessment in 2009,

• Goodwill impairment totaling $3.7 million in 2010,

• Higher credit-related expenses for problem asset workout and other expenses to execute the Strategic Project Plan, which were not incurred prior to the third quarter of 2009,

• One-time expenses of $13 thousand in the second quarter 2012, $328 thousand in the first quarter 2012 and $343 thousand in the fourth quarter 2011 for severance and retention payments, asset impairment charges and other related costs associated primarily with the reduction in our branch network and the outsourcing of our check processing function announced in the fourth quarter 2011, and

• Full valuation allowance recorded against our net deferred tax asset beginning in December 2010 and continuing through June 2012 resulting in the elimination or deferral of tax benefits that would have otherwise been available to reduce our net losses in the first six months of 2012 and the years ended December 31, 2011 and 2010.

On an annualized basis, in total, the above events reduced the Company’s pretax annualized earnings by $42.3 million during the six months ended June 30, 2012 and $35.6 million, $72.3 million and $76.7 million during the years ended December 31, 2011, 2010 and 2009, respectively, compared to 2008. In addition, the valuation allowance recorded against the net deferred tax asset significantly limited our ability to recognize a tax benefit associated with our loss for the six months ended June 30, 2012 and the year ended December 31, 2011 and increased our net loss by $20.5 million in 2010.

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As summarized below, as a result of the execution of our Strategic Project Plan, our pretax operating earnings excluding credit-related items and certain special items (non-GAAP measure) have improved following the consummation of the Private Placement (in thousands):

	For the three months ended
	March 31, 2011			June 30, 2011			September 30, 2011			December 31, 2011			March 31, 2012			June 30, 2012
Net loss (GAAP)	$	(6,080	)	$	(9,569	)	$	(5,469	)	$	(2,282	)	$	(587	)	$	(7,149	)
Less: (Provision) benefit for income taxes		(52	)		1,191			1,355			170			(517	)		(3,511	)
Less: Credit-related items
Provision for loan losses		(5,500	)		(7,400	)		(5,600	)		(2,000	)		(2,700	)		(8,450	)
Loan workout expenses (1)		(19	)		(453	)		(436	)		(747	)		(229	)		(158	)
Foreclosed real estate writedowns and expenses		(833	)		(1,504	)		(3,029	)		(2,104	)		(1,368	)		(6,966	)
Loss on other loans held for sale		(1,151	)		(3,797	)		(2,080	)		(1,091	)		(128	)		(2,406	)
Total credit-related items		(7,503	)		(13,154	)		(11,145	)		(5,942	)		(4,425	)		(17,980	)
Less: Special items
One-time expenses (primarily branch network reduction and check processing outsourcing)		—			—			—			(343	)		(328	)		(13	)
Investment securities gains, net		—			56			—			101			—			9,859
Total special items		—			56			—			(242	)		(328	)		9,846
Income before income taxes, credit-related and special items (Non-GAAP)	$	1,475		$	2,338		$	4,321		$	3,732		$	4,683		$	4,496

(1) Prior to the second quarter 2011, a portion of these costs were included in provision for loan losses; beginning in May 2011 these costs were included in loan workout expenses.

The table above contains financial information determined by methods other than in accordance with U.S. GAAP. 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.

The credit-related costs associated with the recession are significant for banks. Beginning in the fourth quarter of 2008 and continuing into 2012, construction, acquisition and development real estate projects have slowed, guarantors are financially stressed and increasing credit losses have surfaced. During 2009 and into 2010, delinquencies over 90 days increased resulting in an increase in nonaccrual loans indicating significant credit quality deterioration and probable losses. In particular, loans secured by real estate including acquisition, construction and development projects demonstrated stress given reduced cash flows of individual borrowers, limited bank financing and credit availability and slow property sales. This deterioration manifested itself in our borrowers in several ways: decreases in cash flows from underlying properties supporting the loans (e.g., slower property sales for development type projects or lower occupancy rates or rental rates for operating properties), decreases in cash flows from the borrowers themselves, increased pressure on guarantors due to illiquid and diminished personal balance sheets resulting from investing additional personal capital in the projects and declines in fair values of real estate related assets resulting in lower cash proceeds from sales or fair values declining to the point that borrowers are no longer willing to sell the assets at such deep discounts.

These credit challenges resulted in a significant increase in the level of nonperforming assets which peaked at March 31, 2010. During the second quarter 2012, the migration of loans into nonaccrual status totaled $3.5 million compared to a quarterly average of $18.7 million over the past 13 quarters. Total loans migrating into nonaccrual status declined from $74.2 million for the year ended December 31, 2010 to $34.7 million during the year ended December 31, 2011 to $5.4 million during the six months ended June 30, 2012.

Many of our nonaccrual loans are collateral dependent real estate loans for which we are required to reduce the loans to fair value less estimated selling costs, with the fair values determined primarily based on third party appraisals of the underlying collateral. During 2009 and 2010, appraised values decreased significantly and continued to be depressed in 2011 and into 2012 even in comparison to appraisals received when the loans were originated in 2006 to 2009 and upon reappraisal since origination. As a result, our evaluation of our loan portfolio and foreclosed assets beginning in 2009 and continuing into 2012 resulted in significant credit losses.

While still at a historically elevated level, classified assets declined $44.3 million, or 29.7%, from March 31, 2012 and 60.2% from March 31, 2010 (peak quarter-end classified assets). In addition, nonperforming assets declined $33.4 million, or 46.2%, from March 31, 2012 and 72.6% from their peak at March 31, 2010. The decline during the second quarter 2012 was primarily a result of problem asset sales described above.

The decision to aggressively reduce problem assets through asset sales is part of our Strategic Project Plan designed to accelerate the Bank’s return to profitability through avoidance of potential future write downs resulting from receipt of ongoing appraisals and reductions in the related carrying and other costs incurred to resolve the problem assets and protect the collateral value. We believe the improvement in credit quality metrics resulting from these asset sales and the positive financial impact of the strategic decisions resulting from the Company-wide project initiated during the third quarter 2011 to align the Company’s infrastructure and expense base with the Company’s current balance sheet size and the underlying revenue generating capacity of the franchise, will result in continued improvement to both our operating earnings and reported earnings going forward. We currently expect to return to quarterly profitability in 2012.

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Regulatory Developments

As a result of these circumstances and the examination of the Supervisory Authorities in November 2009, the Bank agreed to the issuance of the Consent Order with the Supervisory Authorities effective on June 10, 2010. A summary of the requirements of the Consent Order and the Bank’s status on complying with the Consent Order is as follows:

Requirements of the Consent Order	Bank’s Compliance Status
Achieve and maintain, within 120 days from the effective date of the Consent Order, Total Risk-Based capital at least equal to 10% of risk-weighted assets and Tier 1 capital at least equal to 8% of total assets.	We believe we are currently in compliance with this provision of the Consent Order.
Determine, within 30 days of the last day of the calendar quarter, its capital ratios. If any capital measure falls below the established minimum, within 30 days provide a written plan to the Supervisory Authorities describing the means and timing by which the Bank shall increase such ratios to or in excess of the established minimums.	Based on current capital levels, this provision of the Consent Order has not been applicable.
Establish, within 30 days from the effective date of the Consent Order, a plan to monitor compliance with the Consent Order, which shall be monitored by the Bank’s Board of Directors.	We believe we are currently in compliance with this provision of the Consent Order.
Develop, within 60 days from the effective date of the Consent Order, a written analysis and assessment of the Bank’s management and staffing needs.	We believe we are currently in compliance with this provision of the Consent Order.
Notify the Supervisory Authorities in writing of the resignation or termination of any of the Bank’s directors or senior executive officers.	We believe we are currently in compliance with this provision of the Consent Order.
Eliminate, within 10 days from the effective date of the Consent Order, by charge-off or collection, all assets or portions of assets classified “Loss” and 50% of those assets classified “Doubtful.”	We believe we are currently in compliance with this provision of the Consent Order.
Review and update, within 60 days from the effective date of the Consent Order, its policy to ensure the adequacy of the Bank’s allowance for loan and lease losses, which must provide for a review of the Bank’s allowance for loan and lease losses at least once each calendar quarter.	We believe we are currently in compliance with this provision of the Consent Order.
Submit, within 60 days from the effective date of the Consent Order, a written plan to reduce classified assets by certain specific percentages by defined dates and a reduction of the Bank’s risk exposure in relationships with assets in excess of $1,000,000 which are criticized as “Substandard,” “Doubtful” or “Special Mention.”	We believe we are currently in compliance with this provision of the Consent Order.
Revise, within 60 days from the effective date of the Consent Order, its policies and procedures for managing the Bank’s Adversely Classified Other Real Estate Owned.	We believe we are currently in compliance with this provision of the Consent Order.

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Requirements of the Consent Order	Bank’s Compliance Status
Not extend any additional credit to any borrower who has a loan or other extension of credit from the Bank that has been charged-off or classified, in whole or in part, “Loss” or “Doubtful” and is uncollected. In addition, the Bank may not extend any additional credit to any borrower who has a loan or other extension of credit from the Bank that has been criticized, in whole or in part, “Substandard” or “Special Mention” and is uncollected, unless the Bank’s Board of Directors determines that failure to extend further credit to a particular borrower would be detrimental to the best interests of the Bank.	We believe we are currently in compliance with this provision of the Consent Order.
Perform, within 90 days from the effective date of the Consent Order, a risk segmentation analysis with respect to the Bank’s Concentrations of Credit and develop a written plan to systematically reduce any segment of the portfolio that is an undue concentration of credit.	As part of our Strategic Project Plan, we have performed a risk segmentation analysis of our concentrations of credit and developed a plan to reduce our concentration in commercial real estate. We continue to monitor our concentrations and, in particular, are continuing to work to reduce our concentrations in commercial real estate.
Review, within 60 days from the effective date of the Consent Order and annually thereafter, the Bank’s loan policies and procedures for adequacy and, based upon this review, make all appropriate revisions to the policies and procedures necessary to enhance the Bank’s lending functions and ensure their implementation.	We believe we are currently in compliance with this provision of the Consent Order.
Adopt, within 60 days from the effective date of the Consent Order, an effective internal loan review and grading system to provide for the periodic review of the Bank’s loan portfolio in order to identify and categorize the Bank’s loans, and other extensions of credit which are carried on the Bank’s books as loans, on the basis of credit quality.	We believe we are currently in compliance with this provision of the Consent Order.
Review and update, within 60 days from the effective date of the Consent Order, its written profit plan to ensure the Bank has a realistic, comprehensive budget for all categories of income and expense, which must address, at minimum, goals and strategies for improving and sustaining the earnings of the Bank, the major areas in and means by which the Bank will seek to improve the Bank’s operating performance, realistic and comprehensive budgets, a budget review process to monitor income and expenses of the Bank to compare actual figures with budgetary projections, the operating assumptions that form the basis for and adequately support major projected income and expense components of the plan and coordination of the Bank’s loan, investment and operating policies and budget and profit planning with the funds management policy.	We believe we are currently in compliance with this provision of the Consent Order.
Review and update, within 60 days from the effective date of the Consent Order, its written plan addressing liquidity, contingent funding and asset liability management.	We believe we are currently in compliance with this provision of the Consent Order.
Eliminate, within 30 days from the effective date of the Consent Order, all violations of law and regulation or contraventions of policy set forth in the FDIC’s safety and soundness examination of the Bank in November 2009.	We believe we are currently in compliance with this provision of the Consent Order.

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Requirements of the Consent Order	Bank’s Compliance Status
Not accept, renew, or rollover any brokered deposits unless it is in compliance with the requirements of 12 C.F.R. § 337.6(b).	We believe we are currently in compliance with this provision of the Consent Order. Prior to and at June 30, 2012, the Bank did not have any brokered deposits.
Limit asset growth to 10% per annum.	We believe we are currently in compliance with this provision of the Consent Order.
Not declare or pay any dividends or bonuses or make any distributions of interest, principal or other sums on subordinated debentures without the prior approval of the Supervisory Authorities.	We believe we are currently in compliance with this provision of the Consent Order.
Not offer an effective yield on deposits of more than 75 basis points over the national rates published by the FDIC weekly on its website unless otherwise specifically permitted by the FDIC.	We believe we are currently in compliance with this provision of the Consent Order.
Furnish, by within 30 days from the effective date of the Consent Order and within 30 days of the end of each quarter thereafter, written progress reports to the Supervisory Authorities detailing the form and manner of any actions taken to secure compliance with the Consent Order.	We believe we are currently in compliance with this provision of the Consent Order, and we have submitted the required progress reports to the Supervisory Authorities.

The Bank intends to take all actions necessary to comply with the requirements of the Consent Order, and as of the date hereof we have submitted all documentation required to the Supervisory Authorities. We believe we are currently in compliance with all requirements of the Consider Order. However, the determination of our compliance will be made by the Supervisory Authorities, and there can be no assurance that the Supervisory Authorities will determine that the Bank is in full compliance with the provisions of the Consent Order. Failure to meet the requirements of the Consent Order could result in additional regulatory requirements, which could have a material effect on the Company’s financial condition. In addition, the Supervisory Authorities may amend the Consent Order based on the results of their ongoing examinations.

Strategic Project Plan

In response to the challenging economic environment and our negative financial results and in preparation for a potential formal agreement from the banking regulatory agencies, in June 2009 the Board of Directors and management adopted and began executing a proactive and aggressive Strategic Project Plan (the “Plan”) to address the issues related to credit quality, liquidity, earnings and capital. Execution of the Plan is being overseen by the Regulatory Oversight and Risk Management Committee of the Board of Directors, and we utilized external expertise to assist with its initial implementation.

Since June 2009, we have been, and continue to be, keenly focused on executing the Plan, which was updated to also reflect the requirements of the Consent Order. As an extension of this Plan, in the third quarter 2011, the Company launched a Company-wide project to determine the strategic and tactical actions necessary to align the Company’s infrastructure and expense base with the Company’s current balance sheet size and the underlying revenue generating capacity of the franchise. This project was focused on strategic and tactical actions such as business reviews, headcount rationalization and process improvement and automation.

In December 2011, we announced plans to reduce the branch network of the Bank by four branches through sale or consolidation into existing branches. In January 2012, the Bank entered into an agreement to sell the Rock Hill and Blacksburg branches. The sale resulted in a gain, net of transaction costs, of $568 thousand that will be recognized in the third quarter 2012. Under terms of the transaction, which closed on July 1, 2012, the acquirer purchased the real estate, equipment, substantially all of the loans and certain other assets, and assumed the deposits and lease obligations associated with these two branches. The Bank also consolidated the North Harper branch into the West Main branch in Laurens and the South Main branch into the Montague branch in Greenwood on March 30, 2012. These branch consolidations will result in larger branches in Laurens and Greenwood, and we believe these consolidations will create synergies to more effectively and efficiently serve our clients in those markets. In addition, the exit from the Rock Hill market positions us to focus on and invest in our core markets in the Upstate. Nevertheless, we may experience increased runoff of loan and deposit balances from accounts associated with these branches as a result of our decision to consolidate these branch locations.

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Primarily as a result of the actions related to the branch network, outsourcing of certain operational functions and attrition during 2011 for which the positions were not replaced, we experienced an overall 23% reduction in headcount from the peak of 420 at December 31, 2008 to June 30, 2012. Also, in addition to reductions in compensation and benefits previously communicated in our annual proxy statements, we executed a number of additional actions to reduce our compensation and benefits expense in 2012. The branch, headcount and compensation and benefit reductions are part of the Company’s proactive strategic plans to align further its infrastructure and expense base with its current balance sheet size, scope of business activities and underlying revenue generating capacity.

Additionally, sales of problem assets, including the sales during the second quarter 2012, are part of our strategic efforts to aggressively reduce problem assets and, therefore, accelerate our return to profitability through avoidance of potential future write downs resulting from receipt of ongoing appraisals and reductions in the related carrying costs such as legal expenses, property taxes, property insurance and other costs incurred to resolve the problem assets and protect the collateral value. The sales of these problem assets are also expected to result in greater stability and predictability in future earnings through a reduction in exposure to changes in real estate values and related operating costs.

We cannot predict the ongoing impact of the recession given its length and severity. However, it is our expectation that our hard work, the eventual improvement in the economy and the real estate markets will help our clients and us weather this storm and return to profitability.

Credit Quality. Given the negative asset quality trends within our loan portfolio, which began in 2008, accelerated during 2009 and 2010, we have worked aggressively to identify and quantify potential losses and execute plans to reduce problem assets. While asset quality measures remain at historically sub-par levels, such measures have generally improved in 2011 and 2012. Actions taken and being taken with regard to our credit quality plan include, among other things:

• We obtained detailed loan reviews of our loan portfolio in 2009 through 2012. The loan reviews were performed by management as well as by an independent loan review firm that reported their results directly to the Board of Directors,

• For identified problem loans, we prepared written borrower-specific workout plans to determine how best to resolve the loans which could include restructuring the loans, requesting additional collateral, demanding payment from guarantors, sale of the loans or foreclosure and sale of the collateral,

• We increased our monitoring of borrower and industry sector concentrations and are limiting additional credit exposure to these concentrations,

• In July 2009, we hired a new Chief Credit Officer and re-evaluated our lending policies and procedures and credit administration function and implemented significant enhancements. Among other changes, we reorganized our credit administration function, hired additional internal resources and external consulting assistance and reorganized our line of business roles and responsibilities including separate designation of a commercial banking business with more direct oversight and clearer accountability,

• In 2010 and 2011, we hired additional personnel with expertise in problem asset workout and disposition for our Special Assets department,

• We are actively marketing problem assets for sale and have made strategic decisions to sell selected problem assets at discounts, including the bulk sale of problem assets during the second quarter 2012,

• In addition to the loans included in other loans held for sale related to the sale of our Rock Hill and Blacksburg branches, we are continuing our efforts to market and sell the remaining other loans held for sale, which consist of three loans with a net carrying value of $6.9 million.

Credit quality indicators generally showed continued stabilization during the first six months of 2012 as we experienced more stabilized loan migrations to nonaccrual status, lower loss severity on individual problem assets and a significant reduction in nonperforming assets through June 30, 2012. We continue to monitor our loan portfolio and foreclosed assets very carefully and are continually working to reduce our problem assets.

Liquidity. In June 2009, we implemented a forward-looking liquidity plan and increased our liquidity monitoring. The liquidity plan includes, among other things:

• Implementing proactive client deposit retention initiatives specific to large deposit clients and our deposit clients in general,

• Executing targeted deposit growth and retention campaigns. Since June 30, 2010, our deposits have remained stable through our normal growth and retention efforts, and, therefore, we have not utilized any special campaigns. In addition, given our elevated cash position, we have reduced our deposit pricing to allow our higher priced certificates of deposit to roll off as they mature,

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• Evaluating our sources of available financing and identifying additional collateral for pledging for FHLB, Federal Reserve and other secured borrowings. We obtained a line of credit from a correspondent bank totaling $25 million in April 2011 and a $5 million secured line of credit from another correspondent bank in October 2011. Additionally, beginning in June 2011, our borrowing capacity from the FHLB was increased to 15% of total assets. During the second quarter 2012, we were notified by the Federal Reserve that any future borrowings from the Federal Reserve Discount Window will be at the primary credit rate,

• Accelerating the filing of our income tax refund claims resulting in refunds received totaling $27.7 million in 2010 and 2011, and

• During 2009 and most of 2010, maintaining cash received primarily from loan and investment security repayments in cash rather than being reinvested in other earning assets. Maintaining this cash balance reduced our interest income when compared with investing these funds at the average yield on our investment securities. Following the consummation of our Private Placement in October 2010, we redeployed, primarily through June 30, 2011, $227.0 million of this cash into investment securities and prepaid $96 million of FHLB advances. Additionally, during 2011 and into 2012, cash balances were used to fund strategic reduction in high cost time deposits. We will continue to monitor the level of cash balances in relation to our expected liquidity needs.

Capital. At June 30, 2012, as a result of the consummation of the Private Placement in October 2010, all of our capital ratios exceeded the well-capitalized regulatory minimum thresholds and the requirements of the Consent Order. In addition, to preserve our capital, we have:

• Not paid a dividend on our common stock since the first quarter 2009,

• Reduced our loan portfolio (including other loans held for sale) by $417.9 million and total assets by $221.2 million since the peak at March 31, 2009,

• Monitored the amount and pricing of time deposit renewals to manage the level of cash balances that are included in our total assets, the level of which influences the amount of leverage capital that must be maintained,

• Evaluated other capital saving alternatives such as branch and asset sales and reducing outstanding credit commitments,

• Issued unsecured convertible debt from the Company in March 2010 of $380 thousand, the proceeds of which were contributed to the Bank as a capital contribution. In October 2010, as a result of the Private Placement, these notes were converted into common stock of the Company, and

• As a condition of the Private Placement, conducted a $10.0 million follow-on common stock offering to our legacy shareholders as of October 6, 2010 and institutional investors in the Private Placement. The follow-on offering was fully subscribed resulting in the issuance of common stock for gross proceeds of $10.0 million in December 2010 and the first quarter 2011. The net proceeds of the offering were invested in the Bank.

Earnings. We have been implementing a plan that is focused on earnings improvement through a combination of revenue increases and expense reductions.

• With respect to net interest income, we implemented risk-based loan pricing and interest rate floors on renewed and new loans meeting certain criteria. At June 30, 2012, loans aggregating $188.8 million had interest rate floors of which $149.8 million had floors greater than or equal to 5%. However, as a result of continued low interest rates and competitive pressures, it is becoming more difficult to originate loans with floors in the current environment. Beginning in 2010 and continuing into 2012, we introduced loan specials intended to generate additional loan volume for residential mortgage, automobile, credit card, consumer and commercial loans. In light of the current low interest rate environment, we have also reduced the interest rates paid on our deposit accounts. Since December 2010, we used excess cash to prepay all of our FHLB advances and allowed higher priced certificates of deposit accounts at rates above current market rates to roll off the balance sheet as they matured. Certificates of deposits have decreased $224.1 million from June 30, 2009 (peak quarter-end certificates of deposits) to June 30, 2012.

• We have been revisiting our fee structures and introducing new fees to help recover costs incurred to provide services in the new reality that has evolved as a result of the economic downturn, ongoing government oversight and consumer criticism. Recent focus on the level of deposit service charges within the banking industry by the media and the U.S. Government has resulted in, and may continue to result in, legislation limiting the amount and type of fees charged to consumers by

54

the banking industry. The impact of legislation limiting opportunities for fee income is further exacerbated by the fact that historically, to attract clients and lower cost deposits, banks have provided services for free in an effort to lure deposits away from competitors and retain existing balances. Services that were initially developed as fee income opportunities, such as internet banking and bill payment service, were provided to clients free of charge. As a result, many banking organizations are changing their business strategies including revisiting their fee structures and introducing new fees. We continue to evaluate our fee structure related to all of our products and services.

• In addition to these fee structure changes, we are evaluating additional sources of noninterest income. For example, in March 2010, we introduced a new checking account, MyPal checking, and a new savings account, Smart Savings, both of which provide noninterest income from service charges and debit card transactions. We continue to evaluate and modify the features of the MyPal and Smart Savings accounts as conditions warrant with the most recent changes to these accounts being implemented in August 2011. In addition, we revised our existing deposit account fees, implemented new deposit account fees and increased our Trust fees in April and August 2011. In the fourth quarter 2011, we evaluated all of our retail and commercial deposit accounts for service charge waivers and began re-implementing service charges for a number of clients beginning in the first quarter 2012. During the first quarter 2012, we hired a dedicated lender with significant experience in the origination and sale of Small Business Administration loans to provide an additional source of revenue.

• In the second quarter 2012, we entered into contracts to sell a significant portion of our problem assets as part of our strategic efforts to aggressively reduce problem assets and, therefore, accelerate the our return to profitability through avoidance of potential future write downs resulting from receipt of ongoing appraisals and reductions in the related carrying costs such as legal expenses, property taxes, property insurance and other costs incurred to resolve the problem assets and protect the collateral value. To offset a portion of the credit losses incurred during the second quarter 2012 and the resulting impact on regulatory capital, during the second quarter 2012, we realized gains of $9.9 million on the sale of $142.0 million in book value of investment securities.

• We identified specific opportunities for noninterest expense reductions and are continuing to review other opportunities for additional reductions. As of June 30, 2012, we have performed process improvement reviews of all significant areas of the Company and have implemented a significant number of recommendations to improve our operating efficiency. In the third quarter 2011, we launched a Company-wide project to determine the additional strategic and tactical actions necessary to align our infrastructure and expense base with our current balance sheet size and the underlying revenue generating capacity of the franchise, particularly in light of the recent negative developments in the overall national economy. This project was focused on strategic and tactical actions such as business reviews, headcount rationalization and process improvement and automation. In December 2011, we announced plans to reduce the branch network of the Bank by four branches, outsource certain operational functions and otherwise reduce headcount from the peak of 420 at December 31, 2008. We expect the actions resulting from this project to have an ongoing positive impact to our annual earnings of $6.2 million compared to 2011 earnings. The positive impact of these actions was partially offset by $343 thousand of charges recorded in the fourth quarter 2011, $328 thousand of charges recorded in the first quarter 2012 and $13 thousand of charges recorded in the second quarter 2012 reflecting severance and retention, asset impairments and other costs related to these actions. The outsourcing of certain operational functions was completed during the second quarter 2012. As of March 30, 2012, two branches were consolidated with existing locations. The remaining two branches were sold on July 1, 2012, which is the completion of the final strategic action previously announced in December 2011 as part of the Plan.

• We continue to critically evaluate each of our businesses to determine their contribution to our financial performance and their relative risk / return relationship. Based on the evaluation to date, we sold two product lines during 2010. In March 2010, we sold our merchant services business and entered into a referral and services agreement with Global Direct Payments, Inc. (“Global Direct”) related to our merchant services. Similarly, in December 2010, we sold our credit card portfolio and entered into a joint marketing agreement with Elan Financial Services, Inc.

Summary

In summary, during the first six months of 2012, we continued to be impacted by the negative financial conditions of our borrowers, further deterioration in real estate values and the economy in general. However, in spite of these external challenges, we have made substantial progress with regard to the execution of the Strategic Project Plan.

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We believe that raising capital in 2010, combined with our proactive and aggressive focus on credit quality, reducing problem assets, earnings improvements and garnering increased market share due to the market disruption in our markets, will accelerate our return to profitability. As of June 30, 2012, we have substantially completed the strategic initiatives under the Plan, including significant reduction in problem assets, repositioning the balance sheet from an asset and liability management standpoint, rationalizing our branch network and headcount, refining our infrastructure, and focusing on expense reductions. As a result, beginning in the third quarter 2012 we believe our earning will be more stable and predictable going forward. Our quarterly operating earnings since consummation of the Private Placement in October 2010 have improved, and we believe that we may return to quarterly profitability during 2012. However, as disclosed in this Quarterly Report on Form 10-Q, our performance is subject to numerous risks and uncertainties, many of which are beyond our control, and we can provide no assurances regarding when or if we will return to profitability.

Overall, with the completion of the strategic initiatives summarized above, we are now transitioning our focus from addressing the significant issues of the past few years to our forward-looking value creation strategy, with particular focus on the client experience. Going forward, our strategic decisions and ongoing investments will be determined from the perspective of: are they improving the client experience and are they contributing incremental value to The Palmetto Bank franchise?

Critical Accounting Policies and Estimates

Our significant accounting policies are fundamental to understanding our financial condition and results of operations because some accounting policies require the use of estimates and assumptions that may impact the value of assets or liabilities and financial results. Accounting for these critical areas requires subjective and complex judgments and could be subject to revision as new information becomes available. Our policies governing the accounting for our allowance for loan losses and the related reserve for unfunded commitments, other loans held for sale and the related valuation allowance, mortgage-servicing rights portfolio, foreclosed real estate, the realization of our net deferred tax asset, defined benefit pension plan and the determination of fair value of financial instruments were determined to be critical. On an annual basis, management, in conjunction with our independent registered public accounting firm, discusses the critical accounting estimates with the Audit Committee of our Board of Directors. For additional information regarding our critical accounting policies and estimates, refer to our 2011 Annual Report on Form 10-K.

Financial Condition

For the past several years, we have realigned our organizational structure and began the process of more specifically delineating our businesses. However, at this time we do not yet have in place a reporting structure to separately report and evaluate our various lines of businesses. Accordingly, the discussion and analysis of our financial condition and results of operations herein is provided on a consolidated basis, with commentary on business specific implications if more granular information is available.

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Overview

PALMETTO BANCSHARES, INC. AND SUBSIDIARY

Consolidated Balance Sheets

(dollars in thousands)

	June 30, 2012			December 31, 2011			Dollar variance			Percent variance
	(unaudited)
Assets
Cash and cash equivalents
Cash and due from banks	$	152,363		$	102,952		$	49,411			48.0	%
Total cash and cash equivalents		152,363			102,952			49,411			48.0
FHLB stock, at cost		2,184			3,502			(1,318	)		(37.6	)
Investment securities available for sale, at fair value		247,400			260,992			(13,592	)		(5.2	)
Mortgage loans held for sale		3,789			3,648			141			3.9
Other loans held for sale		14,446			14,178			268			1.9
Loans, gross		723,986			773,558			(49,572	)		(6.4	)
Less: allowance for loan losses		(18,278	)		(25,596	)		7,318			(28.6	)
Loans, net		705,708			747,962			(42,254	)		(5.6	)
Premises and equipment, net		24,974			25,804			(830	)		(3.2	)
Accrued interest receivable		3,902			5,196			(1,294	)		(24.9	)
Foreclosed real estate		14,683			27,663			(12,980	)		(46.9	)
Other		11,511			11,255			256			2.3
Total assets	$	1,180,960		$	1,203,152		$	(22,192	)		(1.8	)%
Liabilities and shareholders’ equity
Liabilities
Deposits
Noninterest-bearing	$	178,669		$	155,406		$	23,263			15.0	%
Interest-bearing		884,008			908,775			(24,767	)		(2.7	)
Total deposits		1,062,677			1,064,181			(1,504	)		(0.1	)
Retail repurchase agreements		18,260			23,858			(5,598	)		(23.5	)
Accrued interest payable		517			554			(37	)		(6.7	)
Other		9,734			11,077			(1,343	)		(12.1	)
Total liabilities		1,091,188			1,099,670			(8,482	)		(0.8	)
Shareholders’ equity
Preferred stock		—			—			—			—
Common stock		127			127			—			—
Capital surplus		142,845			142,233			612			0.4
Accumulated deficit		(44,244	)		(36,508	)		(7,736	)		21.2
Accumulated other comprehensive loss, net of tax		(8,956	)		(2,370	)		(6,586	)		277.9
Total shareholders’ equity		89,772			103,482			(13,710	)		(13.2	)
Total liabilities and shareholders’ equity	$	1,180,960		$	1,203,152		$	(22,192	)		(1.8	)%

As disclosed above, in December 2011, the Company announced its plans to reduce the Bank’s branch network by four branches through sale or consolidation into existing branches. The consolidation of two of these branches was completed on March 30, 2012 and the sale of the remaining two branches was consummated on July 1, 2012.

Land and the related building, leasehold improvements and furniture and equipment associated with the two branches being sold were included in long-lived assets held for sale at June 30, 2012. Long-lived assets held for sale are included in Other assets in the Consolidated Balance Sheets. In addition, at June 30, 2012, $7.5 million of loans associated with the two branches being sold were reflected in Other loans held for sale in the Consolidated Balance Sheets.

Upon consummation of the branch sales, we made a cash payment of $31.6 million to the purchaser to consummate the sale, representing the excess of deposits transferred to the acquirer over the assets purchased and the premium paid on deposits.

Cash and Cash Equivalents

Cash and cash equivalents increased by $49.4 million at June 30, 2012 from December 31, 2011 primarily as a result of proceeds from sales of investment securities and problem assets during the second quarter 2012 that had not yet been redeployed at June 30, 2012.

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Carrying excess cash has a negative impact on our interest income since we currently only earn 25 basis points on our deposits with the Federal Reserve as compared to investing this cash in higher earning assets. Accordingly, since consummation of the Private Placement in October 2010, we began redeploying this cash by investing in investment securities, prepaying FHLB advances and not pursuing retention of higher priced certificate of deposit accounts that matured starting in the fourth quarter 2010. Redeploying our excess cash resulted in quarterly increases in our net interest margin to 3.56% in the second first quarter 2012 compared to 2.69% in the fourth quarter 2010. Our net interest margin declined during the second quarter 2012 to 3.56% primarily as a result of selling $142.0 million in investment securities with a book yield of 3.4% and reinvesting $148.8 of the proceeds into investment securities during the second quarter with a yield of 2.3% as well as a reduction in loan yields due to the continued low interest rate environment.

Concentrations and Restrictions. In an effort to manage counterparty risk, we generally do not sell federal funds to other financial institutions because they are essentially uncollateralized loans. We regularly evaluate the risk associated with the counterparties to these potential transactions to ensure that we would not be exposed to any significant risks with regard to our cash and cash equivalent balances if we were to engage in any such transactions.

Restricted cash and cash equivalents pledged as collateral relative to merchant credit card and public fund agreements totaled $703 thousand at June 30, 2012 and December 31, 2011.

Investment Activities

During the first quarter 2012, due to rising deposit balances and a reduction in loans, we invested additional excess cash balances in investment securities in order to obtain a more favorable yield while still maintaining adequate liquidity.

During the second quarter 2012, we realized gains of approximately $9.9 million on the sale of $142.0 million in book value of investment securities as part of a strategic decision to realize unrealized gains on the investment securities portfolio to offset a portion of the credit losses and the resulting impact on regulatory capital resulting from the sale of problem assets during the quarter. A portion of the proceeds from these sales were reinvested during the quarter in investment securities. We intend to reinvest an additional $23.6 million during the third quarter 2012. The following table summarizes the amortized cost, net proceeds, net realized gains and book yield of investment securities available for sale sold during the second quarter 2012 (dollars in thousands).

	Amortized cost		Net proceeds		Realized gains, net		Book yield
State and municipal	$	97,883	$	105,748	$	7,865		3.2	%
Collateralized mortgage obligations		28,913		30,169		1,256		2.9
Other mortgage-backed (federal agencies)		15,208		15,946		738		4.6
Total investment securities available for sale sold	$	142,004	$	151,863	$	9,859		3.4	%

The following table summarizes the purchase price and yields of investment securities available for sale purchased during the second quarter 2012 primarily as a result of the reinvestment of sale proceeds (dollars in thousands).

	Purchase price		Yield
State and municipal	$	1,095		2.0	%
Collateralized mortgage obligations		62,458		2.0
Other mortgage-backed (federal agencies)		50,760		3.1
SBA loan-backed (federal agency)		34,504		1.5
Total investment securities available for sale purchased	$	148,817		2.3	%

As evidenced in the tables above, the securities sold had higher yields than the securities purchased which will decrease our interest income going forward.

General. Our primary objective in managing the investment portfolio is to maintain a portfolio of high quality, highly liquid investments yielding competitive returns. We are required under federal regulations to maintain adequate liquidity to ensure safe and sound operations. We maintain investment balances based on a continuing assessment of cash flows, the level of current and expected loan production, current interest rate risk strategies and the assessment of the potential future direction of market interest rate changes. Investment securities differ in terms of default, interest rate, liquidity and expected rate of return risk.

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Composition. The following table summarizes the amortized cost and fair value composition of our investment securities available for sale portfolio at the dates indicated (dollars in thousands).

	June 30, 2012							December 31, 2011
	Amortized cost		Fair value		% of total			Amortized cost		Fair value		% of total
State and municipal	$	13,162	$	13,553		5.5	%	$	113,079	$	120,965		46.3	%
Collateralized mortgage obligations		142,900		142,727		57.7			117,129		118,949		45.6
Other mortgage-backed (federal agencies)		57,047		57,157		23.1			20,022		21,078		8.1
SBA loan-backed (federal agency)		34,143		33,963		13.7			—		—		—
Total investment securities available for sale	$	247,252	$	247,400		100.0	%	$	250,230	$	260,992		100.0	%

Average balances of investment securities available for sale were $250.9 million and $258.2 million for the three and six months ended June 30, 2012, respectively, compared to $280.3 million and $255.9 million for the three and six months ended June 30, 2011, respectively.

The fair value of the investment securities available for sale portfolio represented 20.9% of total assets at June 30, 2012 and 21.7% of total assets at December 31, 2011.

Maturities. The following table summarizes the amortized cost of investment securities available for sale at June 30, 2012 by contractual maturity (dollars in thousands). Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.

	Amortized cost		Book yield
State and municipal
In one year or less	$	4,787		3.4	%
After 1 through 5 years		7,281		3.5
After 5 through 10 years		1,094		1.9
After 10 years		—		—
Total state and municipal	$	13,162		3.4	%
Collateralized mortgage obligations		142,900		1.2
Other mortgage-backed (federal agencies)		57,047		3.0
SBA loan-backed (federal agency)		34,143		1.8
Total investment securities available for sale	$	247,252		1.8	%

The weighted average duration of investment securities available for sale was 4.9 years, based on expected prepayment activity, at June 30, 2012. Since 95% of the portfolio, based on fair value, consists of collateralized mortgage obligations, other mortgage-backed securities and SBA loan-backed securities, the expected remaining maturity may differ from contractual maturity because borrowers generally have the right to prepay obligations before the underlying loans mature.

Given the general expectation of a rising interest rate environment, we are intentionally investing in shorter-duration securities to minimize our interest rate risk if interest rates begin to rise.

Concentrations. The following table summarizes issuer concentrations of collateralized mortgage obligations whose aggregate fair values exceed 10% of shareholders’ equity at June 30, 2012 (dollars in thousands).

Issuer	Aggregate amortized cost		Aggregate fair value		Fair value as a % of shareholders’ equity
Freddie Mac	$	92,563	$	92,476		103.0	%
Fannie Mae		22,915		23,003		25.6	%
Ginnie Mae		27,422		27,248		30.4	%

The following table summarizes issuer concentrations of other mortgage-backed investment securities whose fair values exceed 10% of shareholders’ equity at June 30, 2012 (dollars in thousands).

Issuer	Aggregate amortized cost		Aggregate fair value		Fair value as a % of shareholders’ equity
Fannie Mae	$	14,747	$	14,789		16.5	%
Ginnie Mae		36,428		36,515		40.7	%

We had no investments in state and municipal investment securities issued by specific states that individually exceeded 10% of shareholders’ equity at June 30, 2012.

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Lending Activities

During the second quarter 2012, through our normal problem loan resolution efforts and through a bulk loan sale, we entered into contracts to sell selected classified loans with carrying values at March 31, 2012, before any allowance for loan losses, of $33.4 million, $28.0 million of which closed during the second quarter 2012. $20.6 million of the loans sold during the second quarter were classified as gross loans at March 31, 2012 and, at the time the decision was made to sell the loans, were transferred to other loans held for sale. In the aggregate, contracts to sell selected classified loans entered into the second quarter resulted in charge-offs of $11.7 million and writedowns on other loans held for sale of $2.2 million. For additional disclosure related to the sale of other loans held for sale, see Note 5, Other Loans Held for Sale and Valuation Allowance.

In addition to the loan sales noted above, during the second quarter 2012 we transferred $7.5 million of gross loans to other loans held for sale in connection with the sale of its Rock Hill and Blacksburg branches, which closed on July 1, 2012. For disclosure related to the sale of these two branches see Note 21, Subsequent Event.

General. Gross loans continue to be the largest component of our assets. During the second quarter 2012, gross loans declined $49.6 million as a result of transfers to other loans held for sale, repayments, foreclosures, charge-offs and sales outpacing new loan originations due to limited loan demand from credit-worthy clients. Additions to gross loans during the six months ended June 30, 2012 also included the transfer of a performing loan totaling $1.3 million into gross loans from other loans held for sale as our intention to sell this loan changed. Reductions in gross loans during the six months ended June 30, 2012 included the transfer of properties totaling $2.3 million to Foreclosed real estate, the transfer of loans totaling $19.7 million into other loans held for sale in connection with the sales of problem assets and loan charge-offs totaling $18.5 million. These reductions were offset partially by the transfer of loans from other loans held for sale totaling $1.3 million during the period.

Prior to the Private Placement in October 2010, we were focused on deleveraging the loan portfolio both to reduce concentration in commercial real estate and to shrink the balance sheet to reduce capital required to maintain our capital ratios in compliance with the Consent Order. Since the Private Placement, we have continued to focus on reducing our concentration in commercial real estate, but we have also been pursuing new loan growth to utilize our excess cash balances and to generate a higher base on which to earn interest income. Overall, the demand for new loans from credit-worthy borrowers is generally weak, although we have experienced some sporadic increase in loan origination activity during the year in certain products. However, it is too soon to know whether such origination activity is indicative of a continuing trend.

Other Loans Held for Sale. Other loans held for sale are carried at the lower of cost or fair value less estimated costs to sell. The following table summarizes activity within other loans held for sale and the related valuation allowance at and for the three months ended June 30, 2012 (in thousands).

	Other loans held for sale, gross		Valuation allowance on other loans held for sale
Balance at March 31, 2012	$	17,258	$	2,555
Additions:
Gross loans transferred to other loans held for sale related to branch sales		7,508		—
Other gross loans transferred to other loans held for sale		9,739		—
Writedowns on other loans held for sale included in valuation allowance, net		—		97
Total additions		17,247		97
Reductions:
Proceeds from sales of other loans held for sale		14,592		874
Transfers to foreclosed real estate		1,336		—
Other loans held for sale transferred to gross loans		—		—
Direct writedowns on other loans held for sale		2,309		—
Net paydowns		44		—
Total reductions		18,281		874
Balance at June 30, 2012	$	16,224	$	1,778

Writedowns on other loans held for sale during the second quarter 2012 totaled $2.4 million of which $2.2 million were the result of sales of other loans held for sale during the period.

During the second quarter 2012, we also transferred gross loans to other loans held for sale at their estimated fair value of $7.5 million in connection with the sale of our Rock Hill and Blacksburg branches, which closed on July 1, 2012.

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The following table summarizes activity within other loans held for sale and the related valuation allowance at and for the six months ended June 30, 2012 (in thousands).

	Other loans held for sale, gross		Valuation allowance on other loans held for sale
Balance at December 31, 2011	$	16,739	$	2,561
Additions:
Gross loans transferred to other loans held for sale related to branch sales		7,508		—
Other gross loans transferred to other loans held for sale		12,214		—
Writedowns on other loans held for sale included in valuation allowance, net		—		100
Total additions		19,722		100
Reductions:
Proceeds from sales of other loans held for sale		14,592		874
Transfers to foreclosed real estate		1,814		—
Other loans held for sale transferred to gross loans		1,327		9
Direct writedowns on other loans held for sale		2,434		—
Net paydowns		70		—
Total reductions		20,237		883
Balance at June 30, 2012	$	16,224	$	1,778

During the six months ended June 30, 2012, three loans held for sale with a carrying value of $1.8 million at time of transfer were transferred to foreclosed real estate and one performing loan held for sale with a carrying value of $1.3 million was transferred at recorded fair value to gross loans as our intention with respect to this loan changed based on positive changes in the repayment status of this loan subsequent to its modification.

Other loans held for sale at June 30, 2012 include $7.5 million of loans associated with the branch sales that were consummated on July 1, 2012 and three commercial real estate loans with a net carrying value of $6.9 million that are continuing to be marketed for sale.

Loan Composition. In the tables below, loan classes are based on FDIC code, and portfolio segments are an aggregation of those classes based on the methodology used by us to develop and document our allowance for loan losses. FDIC classification codes are based on the underlying loan collateral.

The following table summarizes gross loans, categorized by portfolio segment, at the dates indicated (dollars in thousands).

	June 30, 2012						December 31, 2011
	Total			% of total			Total			% of total
Commercial real estate	$	451,764			61.2	%	$	492,754			62.6	%
Single-family residential		175,335			23.7			185,504			23.5
Commercial and industrial		49,763			6.7			49,381			6.3
Consumer		52,044			7.1			52,771			6.7
Other		9,526			1.3			7,326			0.9
Total loans	$	738,432			100.0	%	$	787,736			100.0	%
Less: other loans held for sale		(14,446	)					(14,178	)
Loans, gross	$	723,986					$	773,558

Mortgage loans serviced for the benefit of others amounted to $393.4 million and $397.5 million at June 30, 2012 and December 31, 2011, respectively, and are not included in our Consolidated Balance Sheets.

The following table summarizes other loans held for sale, categorized by portfolio segment, at the dates indicated (dollars in thousands).

	June 30, 2012					December 31, 2011
	Total		% of total			Total		% of total
Commercial real estate	$	10,176		70.4	%	$	14,178		100.0	%
Single-family residential		2,298		15.9			—		—
Commercial and industrial		910		6.3			—		—
Consumer		228		1.6			—		—
Other		834		5.8			—		—
Total loans	$	14,446		100.0	%	$	14,178		100.0	%

Pledged. To borrow from the FHLB, members must pledge collateral. Acceptable collateral includes, among other types of collateral, a variety of residential, multifamily, home equity lines and second mortgages and commercial loans. At June 30, 2012 and December 31, 2011, $198.2 million and $251.4 million of gross loans, respectively, were pledged to collateralize FHLB advances and letters of credit, of which $75.5 million and $66.7 million, respectively, were available as lendable collateral.

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At June 30, 2012 and December 31, 2011, $3.6 million and $5.4 million, respectively, of loans were pledged as collateral to cover the various Federal Reserve System services that we utilize.

Concentrations. Since 2009, we have increased our monitoring of borrower and industry sector concentrations and are limiting additional credit exposure to these concentrations, in particular the segments of our loan portfolio secured by commercial real estate. In addition, our loan workout plans have and have had a particular focus on reducing our concentrations in these segments. Loan workout plans included the sale of classified loans during the second quarter 2012, which resulted in a reduction in such concentrations.

At June 30, 2012, commercial real estate loans, categorized by FDIC code, comprised 61.2% of gross loans and other loans held for sale and 415.5% of the Bank’s total regulatory capital and are primarily concentrated within nonfarm nonresidential commercial real estate.

Asset Quality. Given the negative credit quality trends that began in 2008, accelerated during 2009 and 2010, we have performed extensive analysis of our nonconsumer loan portfolio with particular focus on commercial real estate loans. The analyses included internal and external loan reviews that required detailed, written analyses for the loans reviewed and vetting of the risk rating, accrual status and collateral valuation of loans by loan officers, our senior leadership team, external consultants and an external loan review firm. Of particular significance is that these reviews have currently identified 57 individual loans that have resulted in $97.6 million (52%) of the $188.1 million of net loan charge-offs and writedowns on other loans held for sale and foreclosed assets recorded in the past 13 quarters.

In general, these loans have one or more of the following common characteristics:

• Individually larger commercial real estate loans originated in 2004 through 2008 that were larger and more complex loans than we historically originated,

• Out-of-market loans, participated loans purchased from other banks or brokered loans brought to us by loan brokers, which were generally to nonclients for whom we generally had no preexisting banking relationship, and

• Concentrated originations in commercial real estate including acquisition, development and construction loans by loan officers who did not have the level of specialized expertise necessary to more effectively underwrite and manage these types of loans.

While asset quality measures remain at historically sub-par levels, such measures have generally improved in 2011 and 2012.

In general, our entire commercial real estate loan portfolio has been negatively impacted by the challenging economic environment that began in 2008. This specific pool of loans is the primary contributor to our deteriorated asset quality, increased charge-offs and resulting net loss over the past three years. In addition, this pool of loans has exhibited a loss rate much higher than the remainder of the loan portfolio that is comprised of in-market loans to our ongoing clients that were underwritten by loan officers using our normal credit underwriting standards. Accordingly, as we evaluate the credit quality of the remaining loan portfolio, we do not currently believe that the higher loss rate incurred on this particular pool of loans is indicative of the loss rate to be incurred on the remainder of the loan portfolio.

As part of the credit quality plan, we are continuing our detailed review of the loan portfolio and are focused on executing detailed workout plans for all of our problem loans led by a team of seasoned commercial lenders and using external loan workout consulting expertise where appropriate. It is clear that some of our clients are continuing to face financial stress manifesting itself in the following ways:

• Decreased cash flows from the underlying properties supporting the loans,

• Personal cash flows from the borrowers themselves and guarantors under pressure due to illiquid and diminished personal balance sheets resulting from investing additional personal capital in the projects, and

• Declining fair values of real estate related assets, resulting in lower cash proceeds from sales or fair values declining to the point that borrowers are no longer willing to sell the assets at such deep discounts.

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We also continue to review and enhance our lending policies and procedures and credit administration function. Beginning in 2009 and continuing into 2012 we implemented several enhancements as follows:

• Construction Draws: centralized the oversight and disbursement of construction draws and review of advance requests before funds are advanced to clients,

• Loan Policy: amended our loan policy to, among other changes, adjust lending limit approval authorities, prohibit out-of-market loans to clients for which we do not have a previously existing relationship, prohibit brokered loans and update for new regulatory appraisal guidelines,

• Credit Administration: hired a new Chief Credit Officer in 2009 who brings over 25 years of credit administration, loan review and credit policy experience to the Company, formed a centralized Credit Analysis department and hired an additional Credit Administration executive. In the third quarter 2011, we reassigned a retail branch team member to centralize credit scoring / underwriting for small business loans,

• Special Assets: engaged two external workout consultants (who have since completed their engagements), reassigned a commercial lender to this department and hired experienced special assets professionals. This department is currently comprised of four people (down from a high of seven people) who have been focused exclusively on accelerated resolution of our problem assets, and

• Training: conducted additional training including external specialists in the areas of problem loan workout and negotiating skills, analysis of personal financial statements and business tax returns, cash flow analysis, perfecting security interests in collateral, appraisals, Small Business Administration programs and credit underwriting.

Nonperforming Assets. Through June 30, 2012, nonperforming assets decreased $41.9 million from December 31, 2011, or 51.9%, and $33.4 million from March 31, 2012, or 46.2%, representing a total decline of 72.6% from the peak at March 31, 2010.

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The following table summarizes nonperforming assets, by class, at the dates indicated (dollars in thousands).

	June 30, 2012			December 31, 2011
Commercial real estate
Construction, land development and other land loans	$	12,645		$	27,085
Nonfarm nonresidential		4,070			14,870
		16,715			41,955
Single-family residential
Single-family real estate, revolving, open end loans		891			843
Single-family real estate, closed end, first lien		4,786			7,957
Single-family real estate, closed end, junior lien		317			471
		5,994			9,271
Commercial and industrial		1,085			1,313
Credit cards		32			16
All other consumer		340			473
Farmland		10			—
Total nonaccrual loans		24,176			53,028
Foreclosed real estate		14,683			27,663
Repossessed personal property		62			161
Total foreclosed real estate and repossessed personal property		14,745			27,824
Total nonperforming assets	$	38,921		$	80,852
Less: nonaccrual other loans held for sale		(2,113	)		(5,812	)
Adjusted nonperforming assets	$	36,808		$	75,040
Troubled debt restructurings included in nonaccrual loans above	$	70		$	9,276
Loans*		738,432			787,736
Total assets		1,180,960			1,203,152
Total nonaccrual loans as a percentage of:
loans* and foreclosed real estate and personal property		3.21	%		6.50	%
total assets		2.05			4.41
Total nonperforming assets as a percentage of:
loans* and foreclosed real estate and personal property		5.17	%		9.91	%
total assets		3.30			6.72

* includes gross loans and other loans held for sale

A loan is to be reported as a nonaccrual loan if it is maintained on a cash basis because of deterioration in the financial condition of the borrower, payment in full of principal or interest is not expected or principal or interest has been in default for a period of 90 days or more unless the asset is both well secured and in the process of collection. In most cases, loans are automatically placed in nonaccrual status when the loan payment becomes 90 days delinquent and no acceptable arrangement has been made between with the borrower. Loans may also be placed in nonaccrual status if we determine that some factor other than delinquency (such as imminent foreclosure or bankruptcy proceedings) causes us to believe that more than a normal amount of risk exists with regard to collectability. When the loan is placed in nonaccrual status, accrued interest income is reversed based on the effective date of nonaccrual status. Thereafter, any cash payments received on the nonaccrual loan are applied as a principal reduction until the entire amortized cost has been recovered. Any additional amounts received are reflected in interest income.

When the probability of future collectability on a nonaccrual loan declines, we may take additional collection measures including commencing foreclosure. Specific steps must be taken when commencing foreclosure action on loans secured by real estate, which takes time based on state-specific legal requirements.

During the second quarter 2012, the migration of loans into nonaccrual status totaled $3.5 million compared to a quarterly average of $18.7 million over the past 13 quarters. The migration of loans into nonaccrual status during the second quarter included one loan with a carrying balance of $2.0 million that is under contract for sale to close in the third quarter 2012.

Total loans migrating into nonaccrual status declined from $74.2 million for the year ended December 31, 2010 to $34.7 million during the year ended December 31, 2011 to $5.4 million during the six months ended June 30, 2012. We believe this general trend in reduced loans migrating into nonaccrual status is an indication of improving credit quality in our overall loan portfolio and a leading indicator of reduced credit losses going forward.

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Six loans with a balance greater than $1 million comprised approximately 38% of our nonaccrual loans at June 30, 2012, of which two loans having a carrying balance totaling $3.3 million are under contract for sale and expected to close in the third quarter 2012. The following table summarizes the composition of these loans by collateral type (dollars in thousands).

	Total nonaccrual loans > $1 million		% of total nonaccrual loans
Residential / residential lots / golf course development	$	7,168		30	%
Real estate for commercial use		2,000		8
Total nonaccrual loans > $1 million secured by commercial real estate	$	9,168		38	%

Additionally, four of these loans (77% of our nonaccrual loans at June 30, 2012) were purchased participations and out-of-market loans.

Additional interest income of $437 thousand and $850 thousand would have been reported during the three and six months ended June 30, 2012, respectively, had loans classified as nonaccrual during the period performed in accordance with their current contractual terms. As a result, our earnings did not include this interest income.

The following table summarizes the Foreclosed real estate portfolio, by FDIC classification code, at June 30, 2012 (in thousands).

Construction, land development, and other land	$	13,285
Single-family residential		167
Nonfarm nonresidential		1,231
Total foreclosed real estate	$	14,683

Two properties greater than $1 million comprised approximately 56% of our foreclosed real estate portfolio at June 30, 2012. Of these properties, 86% were residential lots and 14% were warehouse and industrial properties.

Foreclosed real estate at June 30, 2012 includes one asset in the amount of $7.1 million which consists of undeveloped residential lots in one particular community located in Upstate South Carolina. The Company is developing a marketing plan to sell these lots. Due to the number of lots owned, recent changes in ownership of related developments and the current depressed state of the residential housing market, absent a bulk sale of the lots, we expect the resolution of this asset to occur over several years.

Foreclosed real estate properties are being actively marketed with the primary objective of liquidating the collateral at a level that most accurately approximates fair value and allows recovery of as much of the unpaid principal balance as possible in a reasonable period of time. We generally obtain third-party “as-is” appraisals on foreclosed real estate at the time it is classified as such, if a recent appraisal has not been obtained within the most recent 12 month period. Loan charge-offs are recorded prior to or upon foreclosure to writedown the loans to fair value less estimated costs to sell. Until the time of disposition, we normally obtain updated appraisals annually. For some assets, additional writedowns have been taken based on receipt of updated third party appraisals for which appraised values continue to decline, although the rate of decline appears to be slowing and recent appraisals indicate signs of stabilizing values. Based on currently available valuation information, the carrying value of these assets is believed to be representative of their fair value less estimated costs to sell, although there can be no assurance that the ultimate proceeds from the sale of these assets will be equal to or greater than the carrying values particularly in the uncertain current economic environment.

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The following table summarizes changes in the foreclosed real estate portfolio at the dates and for the periods indicated (in thousands).

	At and for the three months ended June 30,						At and for the six months ended June 30,
	2012			2011			2012			2011
Foreclosed real estate, beginning of period	$	26,701		$	16,244		$	27,663		$	19,983
Plus: New foreclosed real estate		1,885			1,648			4,161			5,412
Less: Proceeds from sale of foreclosed real estate		(7,142	)		(1,469	)		(9,064	)		(8,457	)
Plus: Gain on sale of foreclosed real estate		302			5			318			86
Less: Writedowns and losses charged to expense		(7,063	)		(1,161	)		(8,395	)		(1,757	)
Foreclosed real estate, end of period	$	14,683		$	15,267		$	14,683		$	15,267

During the second quarter 2012, the Company sold foreclosed real estate properties with a carrying value at March 31, 2012 of $9.0 million for proceeds of $7.1 million resulting in writedowns net of any gains on sale totaling $1.9 million. In addition, writedowns of $4.9 million were recorded during the second quarter 2012 as a result of the receipt of updated appraisals on properties in the portfolio at June 30, 2012 and sales contracts expected to close in the third quarter 2012.

Subsequent to June 30, 2012, two properties with an aggregate net carrying amount of $934 thousand were sold resulting in net gains of $98 thousand. At July 23, 2012, four additional properties with an aggregate net carrying amount of $2.0 million at June 30, 2012 were under contract for sale to close in the third and fourth quarters 2012 at an anticipated $114 thousand gain.

We are actively addressing the elevated level of nonperforming assets and will continue aggressively working to resolve these issues as quickly as possible. However, given the nature of the projects related to such assets and the distressed real estate values, immediate resolution in all cases is not expected. Therefore, it is reasonable to expect that some elevated level of problem assets and associated costs may continue for future periods when compared to historical periods. The carrying values of these assets may require additional adjustment for further declines in estimated fair values.

Troubled Debt Restructurings. Troubled debt restructurings are loans that have undergone concessionary adjustments and were restructured from their original contractual terms due to financial difficulty of the borrower (for example, a reduction in the contractual interest rate below that at which the borrower could obtain new credit from another lender). As part of our proactive actions to resolve problem loans and the resulting determination of our individual loan workout plans, we may restructure loans to assist borrowers facing cash flow challenges in the current economic environment to facilitate ultimate repayment of the loan. Total troubled debt restructurings totaled $34.5 million and $55.1 million at June 30, 2012 and December 31, 2011, respectively.

Historically, we have not split loans into two legally separate loans (commonly referred to as an A/B loan structure). However, in 2010 and 2011 we restructured certain loans as A/B loan structures, and at June 30, 2012, we had four loans that had been legally split into separate loans. Cumulative net charge-offs of $2.7 million have been recorded on these loans, none which was charged-off in the three and six month periods ended June 30, 2012, respectively. All of the A loans are currently performing in accordance with their terms. The aggregate balances of the A and B loans at June 30, 2012 were $7.3 million and $5.6 million, respectively. At June 30, 2012, the A and B loans for two of the four loans were accounted for as troubled debt restructures, neither of which were classified as held for sale.

Seven individual loans greater than $1 million comprised $26.8 million (78%) of our troubled debt restructurings, including those classified as other loans held for sale, at June 30, 2012. One of these loans experienced a term concession, three experienced rate and term concessions and three experienced a reduction in required principal. At June 30, 2012, all of the troubled debt restructurings individually greater than $1 million were performing as expected under the restructured terms.

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Troubled debt restructurings may be removed from this status if both of the following conditions exist: (i) the restructuring agreement specifies an interest rate equal to or greater than the rate that the client was willing to accept at the time of the restructuring for a new loan with comparable risk and (ii) the loan is not impaired based on the terms specified by the restructuring agreement. The following table summarizes troubled debt restructurings removed from this classification for the periods indicated (in thousands).

	For the three months ended June 30,				For the six months ended June 30,
	2012		2011		2012		2011
Carrying balance	$	3,665	$	—	$	5,887	$	876
Count		16		—		18		1

Potential Problem Loans. Potential problem loans consist of commercial loans and consumer loans within the commercial relationships that are not already classified as nonaccrual for which questions exist as to the current sound worth and paying capacity of the client or of the collateral pledged, if any, that have a well-defined weakness or weaknesses that jeopardize the liquidation of the loan and are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. We monitor these loans closely and review performance on a regular basis. As of June 30, 2012, total potential problem loans (loans classified as substandard and doubtful) totaled $67.1 million, of which $4.8 million were classified as other loans held for sale. As of June 30, 2012, total potential problem loans have decreased 54.5% from the peak of $147.5 million at June 30, 2010.

Allowance for Loan Losses. The allowance for loan losses represents an amount that we believe will be adequate to absorb probable losses inherent in our loan portfolio as of the balance sheet date. Assessing the adequacy of the allowance for loan losses is a process that requires considerable judgment. Our judgment in determining the adequacy of the allowance is based on evaluations of the collectability of loans including consideration of factors such as the balance of impaired loans, the quality, mix, and size of our overall loan portfolio, economic conditions that may impact the overall loan portfolio or an individual borrower’s ability to repay, the amount and quality of collateral securing the loans, our historical loan loss experience and borrower and collateral specific considerations for loans individually evaluated for impairment.

The allowance for loan losses decreased to $18.3 million, or 2.52% of gross loans, at June 30, 2012, compared to $25.6 million, or 3.31% of gross loans, at December 31, 2011. The decreasing coverage percentage as compared to December 31, 2011 was primarily a function of a decrease in all categories of problem assets, including classified loans, nonaccrual loans, impaired loans, and troubled debt restructured loans, as well as a decrease in total loans held for investment. We have been actively deleveraging our commercial real estate portfolio since 2009.

Credit quality indicators generally showed continued stabilization in 2011 and into 2012 as we experienced reduced migration of loans to nonaccrual status and lower loss severity on individual problem assets. In addition, the classified loan sales completed in the second quarter 2012 significantly reduced the level of problem assets. If these credit quality indicators continue to stabilize and/or improve, we may further reduce our allowance for loan losses in future periods based on our assessment of the inherent risk in the loan portfolio at those future reporting dates.

While it appears that appraised values on commercial real estate may be starting to stabilize, we believe it is too soon to conclude that values have bottomed out. Given our relatively heavy concentration in commercial real estate loans, including individually large loans, we continue to maintain an allowance for loan losses at an elevated level compared to historical levels.

The June 30, 2012 allowance for loan losses and, therefore, indirectly, the provision for loan losses for the three and six months ended June 30, 2012, was determined based on the following specific factors, though not intended to be an all-inclusive list:

• The impact of the ongoing depressed overall economic environment including within our geographic market,

• The cumulative impact of the extended duration of this economic environment on our borrowers, in particular commercial real estate loans for which we have a heavy concentration,

• The level of real estate development loans, in which the majority of our losses have occurred, although such loans have decreased 73.9% since June 30, 2009 (peak quarter-end real estate development loans),

• The asset quality metrics of our loan portfolio included a higher than historical level of nonperforming assets at June 30, 2012 which, while still at an elevated level, decreased 72.6% from the peak at March 31, 2010,

• The trend in our criticized and classified loans which, while still at an elevated level, decreased 22.4% and 30.45%, respectively, from December 31, 2011 and 20.7% and 26.4%, respectively, from March 31, 2012 and have declined in each of the last nine quarters,

• The trend and elevated level of the historical loan loss rates within our loan portfolio,

• The results of our internal and external loan reviews, and

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• Our individual impaired loan analysis which identified:

• Continued stress on borrowers given increasing lack of liquidity, limited bank financing and credit availability, and

• Depressed appraised values and market assumptions used to value real estate dependent loans.

The following table summarizes activity within our allowance for loan losses, by portfolio segment, at the dates and for the periods indicated (dollars in thousands). Loans charged-off and recovered are charged or credited to the allowance for loan losses at the time realized.

	At and for the three months ended June 30,						At and for the six months ended June 30,						At and for the year ended December 31,
	2012			2011			2012			2011			2011
Allowance for loan losses, beginning of period	$	23,388		$	26,954		$	25,596		$	26,934		$	26,934
Provision for loan losses		8,450			7,400			11,150			12,900			20,500
Loans charged-off
Commercial real estate		11,470			6,296			15,221			10,441			16,532
Single-family residential		1,880			461			2,903			1,317			3,070
Commercial and industrial		228			474			302			909			1,572
Consumer		118			124			359			294			810
Other		158			210			319			393			848
Total loans charged-off		13,854			7,565			19,104			13,354			22,832
Recoveries
Commercial real estate		25			1			104			36			101
Single-family residential		29			2			74			52			56
Commercial and industrial		89			16			108			46			115
Consumer		45			40			106			96			146
Other		106			133			244			271			576
Total loans recovered		294			192			636			501			994
Net loans charged-off		13,560			7,373			18,468			12,853			21,838
Allowance for loan losses, end of period	$	18,278		$	26,981		$	18,278		$	26,981		$	25,596
Average gross loans	$	748,500		$	765,727		$	761,007		$	772,507		$	775,358
Total gross loans		723,986			770,841			723,986			770,841			773,558
Nonaccrual loans (1)		24,176			71,739			24,176			71,739			53,028
Net loans charged-off as a percentage of average gross loans		7.29	%		3.86	%		4.88	%		3.36	%		2.82	%
Allowance for loan losses as a percentage of total gross loans		2.52			3.50			2.52			3.50			3.31
Allowance for loan losses as a percentage of nonaccrual loans		75.60			37.61			75.60			37.61			48.27

(1) Includes $2.1 million, $5.8 million and $13.3 million of loans classified as other loans held for sale at June 30, 2012, December 31, 2011 and June 30, 2011, respectively.

In addition to loans charged-off in their entirety in the ordinary course of business, included within charge-offs for the three months ended June 30, 2012 and 2011 were $10.7 million and $6.8 million in gross loans charged-off, respectively, representing partial charge-offs on loans individually evaluated for impairment. Included within charge-offs for the six months ended June 30, 2012 and 2011 were $14.9 million and $11.1 million in gross loans charged-off, respectively, representing partial charge-offs on loans individually evaluated for impairment. Included within charge-offs for the year ended December 31, 2011 were $15.1 million in gross loans charged-off representing partial charge-offs on loans individually evaluated for impairment. The determination was made to take partial charge-offs on certain collateral dependent loans based on the status of the underlying real estate projects or our expectation that these loans would be foreclosed on and we would take possession of the collateral. The loan charge-offs were recorded to reduce the loans to the fair value of the underlying collateral less estimated costs to sell which are generally based on third party appraisals.

We analyze certain individual loans within the portfolio and make allocations to the allowance for loan losses based on each individual loan’s specific factors and other circumstances that impact the collectability of the loan. The population of loans evaluated for potential impairment includes all troubled debt restructurings, all loans with Bank-funded interest reserves and significant individual loans classified as doubtful or in nonaccrual status. At June 30, 2012, we had two loan relationships totaling $4.6 million with a Bank-funded interest reserve. Based on their performance, these loans are not considered impaired.

In situations where a loan is determined to be impaired because it is probable that all principal and interest due according to the terms of the loan agreement will not be collected as scheduled, the loan is excluded from the general reserve calculation described below and is evaluated individually for impairment. The impairment analysis is based on the determination of the most probable source of repayment which is typically liquidation of the underlying collateral but may also include discounted future cash flows or, in rare cases, the market value of the loan itself.

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At June 30, 2012 and December 31, 2011, impaired loans totaled $52.0 million and $84.0 million, respectively, of which $34.5 million and $55.1 million, respectively, were considered troubled debt restructurings.

At June 30, 2012, $30.7 million of our loans evaluated individually for impairment including other loans held for sale were valued based on collateral value and $21.3 million were valued based on discounted future cash flows.

Generally for larger impaired loans valued based on the value of the collateral, current appraisals performed by approved third party appraisers are the basis for estimating the current fair value of the collateral. However, in situations where a current appraisal is not available, we use the best available information (including recent appraisals for similar properties, communications with qualified real estate professionals, information contained in reputable trade publications and other observable market data) to estimate the current fair value. The estimated costs to sell the property are then deducted from the appraised value to arrive at the net realizable value of the loan used to calculate the loan’s specific reserve.

We calculate our general allowance by applying our historical loss factors to each sector of the loan portfolio. For consistency of comparison on a quarterly basis, we utilize a five-year look-back period when computing historical loss rates. However, given the increase in charge-offs beginning in 2009 and continuing into 2012, we have also used a three-year look-back period for computing historical loss rates as another reference point in determining the allowance for loan losses.

We adjust these historical loss percentages for qualitative environmental factors derived from macroeconomic indicators and other factors. Qualitative factors we considered in the determination of the June 30, 2012 allowance for loan losses include pervasive factors that generally impact clients across the loan portfolio (such as unemployment and changes in the consumer price index) and factors that have specific implications to particular loan portfolios (such as residential home sales or commercial development). Factors evaluated may include changes in delinquent, nonaccrual and troubled debt restructured loan trends, trends in risk ratings and net loans charged-off, concentrations of credit, competition and legal and regulatory requirements, trends in the nature and volume of the loan portfolio, national and local economic and business conditions, collateral valuations, the experience and depth of lending management, lending policies and procedures, underwriting standards and practices, the quality of loan review systems and degree of oversight by the Board of Directors, peer comparisons and other external factors. The general reserve calculated using the historical loss rates and qualitative factors is then combined with the specific allowance on loans individually evaluated for impairment to determine the total allowance for loan losses.

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The following table summarizes the allowance for loan losses and recorded investment in gross loans, by portfolio segment, at and for the periods indicated (in thousands).

	At and for the six months ended June 30, 2012													At and for the year ended
	Commercial		Single-family		Commercial and									December 31, 2011
	real estate		residential		industrial			Consumer		Other		Total		Total
Allowance for loan losses:
Allowance for loan losses, beginning of period	$	18,026	$	4,488	$	1,862		$	1,209	$	11	$	25,596	$	26,934
Provision for loan losses		9,643		1,649		(334	)		114		78		11,150		20,500
Loan charge-offs		15,221		2,903		302			359		319		19,104		22,832
Loan recoveries		104		74		108			106		244		636		994
Net loans charged-off		15,117		2,829		194			253		75		18,468		21,838
Allowance for loan losses, end of period	$	12,552	$	3,308	$	1,334		$	1,070	$	14	$	18,278	$	25,596
Individually evaluated for impairment	$	3,087	$	158	$	45		$	5	$	—	$	3,295	$	6,505
Collectively evaluated for impairment		9,465		3,150		1,289			1,065		14		14,983		19,091
Allowance for loan losses, end of period	$	12,552	$	3,308	$	1,334		$	1,070	$	14	$	18,278	$	25,596
Gross loans, end of period:
Individually evaluated for impairment	$	40,299	$	3,176	$	1,518		$	41	$	—	$	45,034	$	69,791
Collectively evaluated for impairment		401,289		169,861		47,335			51,775		8,692		678,952		703,767
Total gross loans	$	441,588	$	173,037	$	48,853		$	51,816	$	8,692	$	723,986	$	773,558

Portions of the allowance for loan losses may be allocated for specific loans or portfolio segments. However, the entire allowance for loan losses is available for any loan that, in our judgment, should be charged-off. While we utilize the best judgment and information available to us, the ultimate adequacy of the allowance for loan losses depends on a variety of factors beyond our control including the performance of our loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.

In addition to our portfolio review process, various regulatory agencies periodically review our allowance for loan losses. These agencies may require us to recognize additions to the allowance for loan losses based on their judgments and information available to them at the time of their examinations. While we use available information to recognize inherent losses on loans, future adjustments to the allowance for loan losses may be necessary based on changes in economic conditions and other factors and the impact of such changes and other factors on our clients.

We believe that the allowance for loan losses at June 30, 2012 is appropriate and adequate to cover probable inherent losses in the loan portfolio. However, underlying assumptions may be impacted in future periods by changes in economic conditions, the impact of regulatory examinations and the discovery of information with respect to clients that was not known to us at the time of the issuance of our Consolidated Financial Statements. Therefore, our assumptions may or may not prove valid.

In general, the improving trend in certain credit quality statistics related to our loan portfolio over recent quarters continued during the second quarter 2012, many of which were positively impacted by the sale of selected classified loans during the quarter. During the second quarter 2012, the migration of loans into nonaccrual status totaled $3.5 million (including one loan with a carrying balance of $2.0 million that is under contract for sale and scheduled to close in the third quarter 2012) compared to a quarterly average of $18.7 million over the past 13 quarters. Total loans migrating into nonaccrual status declined from $74.2 million for the year ended December 31, 2010 to $34.7 million during the year ended December 31, 2011 to $5.4 million during the six months ended June 30, 2012. Nonaccrual loans of $24.2 million at June 30, 2012 represent a 78.6% reduction from the peak at March 31, 2010. In addition, the loss severity on individual problem loans has decreased as we obtain annual appraisals. To the extent such improvement in credit quality continues, we may further reduce our allowance for loan losses in future periods based on our assessment of the inherent risk in the loan portfolio at those future reporting dates. A reduction in the allowance for loan losses would likely result in a lower provision for loan losses being recorded in future periods. Conversely, there can be no assurance that loan losses in future periods will not exceed the current allowance for loan losses amount or that future increases in the allowance for loan losses will not be required. Additionally, no assurance can be given that our ongoing evaluation of the loan portfolio, in light of changing economic conditions and other relevant factors, will not require significant future additions to the allowance for loan losses, thus adversely impacting our business, financial condition, results of operations and cash flows.

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Premises and Equipment, net and Long-Lived Assets Held for Sale

Premises and equipment, net decreased by $830 thousand (3.2%) during the six months ended June 30, 2012, while long-lived assets held for sale remained unchanged during the same period.

As of June 30, 2012, we provided commercial and consumer banking through 27 branches. On July 1, 2012, we completed the sale of two branches, reducing our number of branch locations to 25. For additional disclosure regarding the impact of this sale, see Overview. Additionally, the Bank maintains a separate leased brokerage office location in Greenville County.

The Company is currently marketing for sale two vacant bank-owned branch facilities, one of which was the result of a branch consolidated on March 30, 2012, and a vacant parcel of land with a total aggregate net book value of $920 thousand at June 30, 2012 which are included in Other assets in the Consolidated Balance Sheets.

At June 30, 2012, we also had 29 ATMs and six limited service branches located in retirement centers in the Upstate. During the first quarter 2012, we removed four ATMs, two from nonbranch locations for which transaction volumes and related fees did not provide an appropriate return on investment and two from the consolidated South Main and North Harper branches. One of these ATMs was redeployed to a branch that did not previously offer an ATM and another was redeployed to a branch location as an upgrade to an existing ATM. The ATM network was further decreased by two on July 1, 2012 as a result of the two sold branches. Of the 29 automatic teller machines at June 30, 2012, two were remote nonbranch locations.

Deferred Tax Asset, net

For the three and six months ended June 30, 2012, we realized federal taxable net operating losses of $14.1 million and $11.9 million, respectively. As of June 30, 2012, the Company had remaining federal net operating loss carryforwards totaling $21.9 million. If not utilized to offset future taxable income, $4.8 million of the net operating loss carryforwards will expire in 2030, $5.2 million will expire in 2031, and $11.9 million will expire in 2032.

As of June 30, 2012, net deferred tax assets, without regard to any valuation allowance, of $33.7 million are recorded in our Consolidated Balance Sheet. The net deferred tax asset is fully offset by a valuation allowance as a result of uncertainty surrounding the ultimate realization of these tax benefits. Based on our projections of future taxable income over the next three years, cumulative tax losses over the previous two years, net operating loss carryforward limitations as discussed below, and available tax planning strategies, we initially recorded a valuation allowance against the net deferred tax assets in December 2010. Our ongoing analysis indicates that a valuation allowance against the full amount of net deferred tax assets continues to be appropriate at June 30, 2012.

The Private Placement was considered a change in control under the Internal Revenue Code and Regulations. Accordingly, we were was required to evaluate potential limitation or deferral of our ability to carryforward pre-acquisition net operating losses and to determine the amount of net unrealized pre-acquisition built-in losses, which may be subject to similar limitation or deferral. Under the Internal Revenue Code and Regulations, net unrealized pre-acquisition built-in losses realized within 5 years of the change in control are subject to potential limitation, which for us is October 7, 2015. Through that date, we will continue to analyze our ability to utilize such losses to offset anticipated future taxable income as pre-acquisition built-in losses are ultimately realized. As of June 30, 2012, we currently estimate that future utilization of built-in losses of $53 million generated prior to October 7, 2010 will be limited to $1.1 million per year. In addition, we currently estimate that $8.0 million to $9.0 million of tax benefits related to the built-in losses may not ultimately be realized. However, this estimate will not be confirmed until the five-year limitation period expires in October 2015.

For the three and six months ended June 30, 2012, income tax provisions of $3.5 million and $4.0 million, respectively, were recorded to reflect an increase in the valuation allowance as a result of a decreased deferred tax liability on net unrealized gains in our investment securities portfolio.

Analysis of our ability to realize deferred tax assets requires us to apply significant judgment and is inherently subjective because it requires the future occurrence of circumstances that cannot be predicted with certainty. While we recorded a valuation allowance against our net deferred tax asset for financial reporting purposes at June 30, 2012 and December 31, 2011, the net operating losses and net realized built-in losses are able to be carried forward for income tax purposes up to twenty years. Thus, to the extent we return to profitability and generate sufficient taxable income in the future, we will be able to utilize some of the net operating losses and net realized built-in losses to offset a portion of future taxable income and reverse a portion of the valuation allowance for financial reporting purposes. The determination of how much of the net operating losses we will be able to utilize and, therefore, how much of the valuation allowance that may be reversed and the timing of such a reversal is based on our future results of operations and the amount and timing of actual loan charge-offs and asset writedowns.

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Deposit Activities

Deposit accounts have historically been our primary source of funds and a competitive strength. These accounts also provide a client base for the sale of additional financial products and services and the recognition of fee income through service charges. We set annual targets for deposit accounts in an effort to increase the number of products per banking relationship and households we service as well as to manage the composition of our deposit funding. Deposits are attractive sources of funding because of their stability and generally low cost as compared with other funding sources.

The following table summarizes our composition of deposits at the dates indicated (dollars in thousands).

	June 30, 2012					December 31, 2011
	Total		% of total			Total		% of total
Noninterest-bearing transaction deposit accounts	$	178,669		16.8	%	$	155,406		14.6	%
Interest-bearing transaction deposit accounts		307,344		28.9			305,360		28.7
Transaction deposit accounts		486,013		45.7			460,766		43.3
Money market deposit accounts		128,527		12.1			145,649		13.7
Savings deposit accounts		66,020		6.2			59,117		5.5
Time deposit accounts		382,117		36.0			398,649		37.5
Total deposits	$	1,062,677		100.0	%	$	1,064,181		100.0	%

Deposits associated with the two branches sold on July 1, 2012 totaled $41.1 million at June 30, 2012 (including time deposits of $22.8 million).

In March 2010, we introduced a new checking account, MyPal checking, and a new savings account, Smart Savings. These accounts combine traditional banking and nonbanking features and are expected to be a source of both additional deposits and noninterest income resulting primarily from service charges or debit card transactions.

The MyPal checking account includes a monthly fee that may be reduced to zero based on monthly debit card usage, a competitive interest rate, free checks, free identity theft protection and safety deposit box rental for a period of time and comes with a membership rewards program that provides purchase discounts to the accountholders for items such as airfare, car rental and hotel and savings at a variety of national and local retailers and entertainment companies.

The Smart Savings account is an interest-bearing savings account that can be linked to any of our checking accounts and results in $1 being transferred from the account holder’s checking account to the Smart Saving account each time the account holder uses their debit card. We match $0.10 per each $1 transfer with a maximum match of $250 per account per year.

We continue to evaluate the benefits and features of the MyPal and Smart Savings products and most recently revised the terms of the MyPal account effective August 1, 2011. We also revised and eliminated certain existing fees and implemented new fees based on an analysis of our fee structure in relation to our costs and competitor fees with various implementation dates generally between October 1, 2010 and March 1, 2011.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd Frank Act”) places limits on interchange transaction fees that banks receive from merchants via card networks like Visa, Inc. and MasterCard, Inc. when a client uses a debit card. In June 2011, the Federal Reserve approved a final debit card interchange rule in accordance with the Dodd Frank Act. The final rule caps an issuer’s base fee at 21 cents per transaction and allows an additional 5 basis point charge per transaction to provide coverage for fraud losses. Though the rule technically does not apply to institutions with less than $10 billion in assets such as the Bank, there is concern that the price controls may harm community banks, which could be pressured by the marketplace to lower their own interchange rates. The Federal Reserve also adopted requirements for issuers to include two unaffiliated networks for debit card transactions – one signature-based and one PIN-based. The effective date for the final rules on the pricing and routing restrictions was October 1, 2011. While we have not experienced a significant impact, the results of these final rules may impact our interchange income from debit card transactions in the future.

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In addition to the potential negative impact on our interchange fees, the Dodd Frank Act also includes a number of other changes that are expected to reduce our revenues and increase expenses. For example, in November 2010, the FDIC issued final guidance related to automated overdraft programs. In response to this guidance and the overall expected decline in earnings from this and other regulatory changes under the Dodd-Frank Act, we evaluated our deposit account overdraft program and made several changes in 2011. Changes included a cap of $192 in overdraft fees per day (which corresponds to six overdraft transactions), implementation of a $1 deminimus amount for clients to avoid overdraft fees, a reduction in the courtesy overdraft amount on our MyPal account from $100 to $50 and a reduction of the number of free foreign ATM transactions on our MyPal account from five per month to three per month. We will continue to monitor the impact of the Dodd-Frank Act on our earnings, and additional product and fee changes may be implemented.

As a result of the cash received in the Private Placement in October 2010 and general lack of loan growth, we have not pursued retention of maturing higher priced time deposit accounts since the fourth quarter 2010. As these time deposits matured, some were renewed with the Bank but at much lower rates and others were withdrawn from the Bank. Accordingly, the maturity of these time deposits has resulted in a significant improvement in our cost of funds paid on deposits. While the amount and weighted average cost of maturing time deposits in 2012 is currently less than 2011 maturities, we expect these maturities to continue to have a positive impact on our cost of deposit funding in 2012 as these time deposits run-off or are replaced at lower rates.

At June 30, 2012, deposit accounts as a percentage of liabilities were 97.4% compared with 96.8% at December 31, 2011. Interest-bearing deposits decreased $24.8 million during the six months ended June, 2012 primarily due to higher priced time deposit accounts not being retained at maturity as part of our balance sheet management efforts. Noninterest-bearing deposits increased $23.3 million during the same period primarily as a result of focused efforts to grow core deposits, seasonal increases in balances, clients taking advantage of the added benefit of unlimited FDIC coverage given the low interest rate environment and the migration of new clients as a result market disruption. Deposit accounts continue to be our primary source of funding, and, as part of our liquidity plan, we are proactively pursuing core deposit retention initiatives with our deposit clients. We are also pursuing strategies to increase our transaction deposit accounts in proportion to our total deposits.

The Dodd Frank Act also permanently raised the current standard maximum deposit insurance amount to $250 thousand. The FDIC insurance coverage limit applies per depositor, per insured depository institution for each account ownership category. In addition, the FDIC provides unlimited deposit insurance coverage for noninterest-bearing transaction accounts (typically business checking accounts) and certain funds swept into noninterest-bearing savings accounts. As a result of the Dodd Frank Act, all institutions were required to provide full deposit insurance on noninterest-bearing transaction accounts until December 31, 2012. There is not a separate assessment for this coverage as there was for the Transaction Account Guarantee Program.

The table set forth below summarizes the average balances of interest-bearing deposits by type and the weighted average rates paid thereon for the periods indicated (dollars in thousands).

	For the three months ended June 30,														For the six months ended June 30,
	2012							2011							2012							2011
	Average balance		Interest expense		Weighted average rate paid			Average balance		Interest expense		Weighted average rate paid			Average balance		Interest expense		Weighted average rate paid			Average balance		Interest expense		Weighted average rate paid
Transaction deposit accounts	$	305,968	$	9		0.01	%	$	295,636	$	34		0.05	%	$	306,801	$	20		0.01	%	$	295,707	$	83		0.06	%
Money market deposit accounts		133,393		13		0.04			145,525		52		0.14			139,169		32		0.05			143,792		133		0.19
Savings deposit accounts		64,869		2		0.01			56,550		11		0.08			63,187		4		0.01			54,176		27		0.10
Time deposit accounts		379,533		1,315		1.39			515,208		2,427		1.89			387,300		2,676		1.39			520,103		4,957		1.92
Total interest-bearing deposits	$	883,763	$	1,339		0.61	%	$	1,012,919	$	2,524		1.00	%	$	896,457	$	2,732		0.61	%	$	1,013,778	$	5,200		1.03	%

Borrowing Activities

Borrowings as a percentage of total liabilities decreased from 2.2% at December 31, 2011 to 1.7% at June 30, 2012. This decrease was due primarily to a decrease in retail repurchase agreements between the periods which constituted 100% of our borrowings at June 30, 2012 and December 31, 2011.

Retail Repurchase Agreements. We offer retail repurchase agreements as an alternative investment tool to conventional savings deposits. In connection with the agreements, the client buys an interest in a pool of U.S. government or agency securities. Funds are swept daily between the client and the Bank. Retail repurchase agreements are not insured deposits.

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Wholesale Funding. Wholesale funding options include lines of credit from correspondent banks, FHLB advances, and the Federal Reserve Discount Window. Such funding generally provides us with the ability to access the type of funding needed, at the time and amount needed, at market rates. This provides us with the flexibility to tailor borrowings to our specific needs. Interest rates on such borrowings vary from time to time in response to general economic conditions and, in the case FHLB advances, may be fixed or floating rate.

Correspondent Bank Lines of Credit. At June 30, 2012, we had access to two secured and one unsecured line of credit from correspondent banks. The following table summarizes our line of credit funding utilization and availability at the dates indicated (in thousands).

	June 30, 2012		December 31, 2011
Correspondent bank line of credit accomodations	$	35,000	$	35,000
Utilized correspondent bank line of credit accomodations		—		—
Available correspondent bank line of credit accomodations	$	35,000	$	35,000

These correspondent bank lines of credit funding sources may be canceled at any time at the correspondent bank’s discretion.

FHLB Borrowings. We pledge investment securities and loans to collateralize FHLB advances. Additionally, we may pledge cash and cash equivalents. The amount that can be borrowed is based on the balance of the type of asset pledged as collateral multiplied by lendable collateral value percentages as calculated by the FHLB. We may borrow from the FHLB for terms up to three years and at amounts of up to 15% of our total assets, subject to availability of collateral.

The following table summarizes FHLB borrowed funds utilization and availability at the dates indicated (in thousands).

	June 30, 2012		December 31, 2011
Available lendable loan collateral value pledged to serve against FHLB advances	$	75,501	$	66,690
Available lendable investment security collateral value pledged to serve against FHLB advances		—		15,410
Excess	$	75,501	$	82,100

At both June 30, 2012 and December 31, 2011, the Company had no outstanding advances from the FHLB.

Federal Reserve Discount Window. We have established a borrowing relationship with the Federal Reserve through its Discount Window. Through the Discount Window, primary credit is available to generally sound depository institutions on a very short-term basis, typically overnight, at a rate above the Federal Open Market Committee target rate for federal funds. Our maximum maturity for potential borrowings is overnight. From the first quarter 2010 through May 2012, the Company was only able to borrow from the Federal Reserve Discount Window at the secondary credit rate and such borrowings could only be used as a backup source of funding on a very short-term basis or to facilitate an orderly resolution of operational issues. As of June 30, 2012, we may borrow under the Federal Reserve primary credit facility.

Capital

At June 30, 2012, all of our capital ratios exceeded the well-capitalized regulatory minimum thresholds as well as the minimum capital ratios established in the Consent Order.

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The following table summarizes capital key performance indicators at the dates and for the periods indicated (dollars in thousands, except per share data).

	At and for the three months ended June 30,						At and for the six months ended June 30,
	2012			2011			2012			2011
Total shareholders’ equity	$	89,772		$	108,364		$	89,772		$	108,364
Average shareholders’ equity		103,174			116,494			105,158			118,258
Shareholders’ equity as a percentage of assets		7.60	%		8.53	%		7.60	%		8.53	%
Average shareholders’ equity as a percentage of average assets		8.62			8.80			8.70			8.94
Cash dividends per common share	$	—		$	—		$	—		$	—
Book value per common share		7.04			8.51			7.04			8.51
Dividend payout ratio		n/a			n/a			n/a			n/a

Dividends. In an effort to retain capital during this period of economic uncertainty, the Board of Directors reduced the quarterly dividend on our common stock for the first quarter 2009 and has not declared or paid a quarterly dividend since that date. The Board of Directors believes that suspension of the dividend was prudent to protect our capital base. Currently, we must obtain prior approval from the Federal Reserve Bank of Richmond to pay a dividend to our shareholders. Dividends from the Bank are the Company’s primary source of funds for payment of dividends to its common shareholders. However, under the terms of the Consent Order, the Bank is currently prohibited from paying dividends to the Company without the prior consent of its regulatory agencies. Our Board of Directors will continue to evaluate dividend payment opportunities on a quarterly basis. There can be no assurance as to when and if future dividends will be reinstated, and at what level, because they are dependent on our financial condition, results of operations and / or cash flows as well as capital and dividend regulations of the FDIC and others.

Basel III. Internationally, both the Basel Committee and the Financial Stability Board have committed to raise capital standards and liquidity buffers within the banking system through Basel III. On June 8, 2012, the Federal Reserve approved three notices of proposed rulemaking (“NPRs”) to, among other things, implement the Basel III minimum capital requirements and capital conservation buffer. The three NPRs are expected to be published jointly by the Federal Reserve, the FDIC and the Office of the Comptroller of the Currency after each agency has completed its approval process. The Federal Reserve has suggested a 90 day comment period for the NPRs. For additional disclosure regarding Basel III and other proposed capital requirements, see our 2011 Annual Report on Form 10-K.

Regulatory Capital and Other Requirements. The Company and the Bank are required to meet regulatory capital requirements that include several measures of capital. Under current regulatory capital requirements, accumulated other comprehensive income (loss) amounts do not increase or decrease regulatory capital and are not included in the calculation of risk-based capital and leverage ratios.

Due to the Consent Order, we may not accept brokered deposits unless the FDIC grants a waiver. Although we currently do not utilize brokered deposits as a funding source, if we were to seek to begin using such a funding source, there is no assurance that the FDIC will grant us the approval when requested. These restrictions could have a substantial negative impact on our liquidity. Additionally, we would normally be restricted from offering an effective yield on deposits of more than 75 basis points over the national rates published by the FDIC weekly on their website. However, we were notified by the FDIC on April 1, 2010 that they had determined that the geographic areas in which we operate were considered high-rate areas. Accordingly, we are able to offer interest rates on deposits up to 75 basis points over the prevailing interest rates in our geographic areas.

The balance of gross deferred income taxes at June 30, 2012 represented deferred tax assets and liabilities arising from temporary differences between the financial reporting and income tax bases of various items as of that date. As of December 31, 2010, we determined that it was not more likely than not that the net deferred tax asset could be supported as realizable given our financial results for the year and change in control resulting from the Private Placement that was consummated in October 2010. Based on this determination, as described in more detail in Financial Condition, Deferred Tax Asset, net, we recorded a valuation allowance for financial reporting purposes at December 31, 2010. Based on our evaluation of the deferred tax asset at June 30, 2012, we maintained a valuation allowance to fully offset our deferred tax asset at June 30, 2012. Additionally, for regulatory capital purposes, deferred tax assets are limited to the assets which can be realized through (i) carryback to prior years or (ii) taxable income in the next twelve months. At June 30, 2012, our entire net deferred tax asset was excluded from Tier 1 and total capital based on these criteria. We will continue to evaluate the realizability of our deferred tax asset on a quarterly basis for both financial reporting and regulatory capital purposes. This evaluation may result in the inclusion of some of the deferred tax asset in regulatory capital in future periods and in an amount that may differ from the amount recognized in capital under GAAP.

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Since June 30, 2012, no conditions or events have occurred, of which we are aware, that have resulted in a material change in the Company’s or the Bank’s regulatory capital category other than as reported in this Quarterly Report on Form 10-Q.

For additional disclosure regarding the Company’s and the Bank’s actual and required regulatory capital requirements and ratios, see Item 1. Financial Statements, Note 20, Regulatory Capital Requirements and Dividend Restrictions.

Equity. At June 30, 2012, we had authorized common stock and preferred stock of 75,000,000 and 2,500,000 shares, respectively. Authorized but unissued common shares totaled 62,247,960 at July 23, 2012. To date, we have not issued any shares of preferred stock.

NASDAQ Listing. On August 18, 2011, shares of our common stock began trading on the NASDAQ Capital Market under the symbol “PLMT.”

Derivative Activities

For disclosure regarding our derivative financial instruments and hedging activities, see Item 1. Financial Statements, Note 18, Derivative Financial Instruments and Hedging Activities.

Liquidity

General

Liquidity measures our ability to meet current and future cash flow needs as they become due. The liquidity of a financial institution reflects its ability to accommodate possible outflows in deposit accounts, meet loan requests and commitments, maintain reserve requirements, pay operating expenses, provide funds for dividends and debt service, manage operations on an ongoing basis, capitalize on new business opportunities and take advantage of interest rate market opportunities. The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure, its ability to liquidate assets and its access to alternative sources of funds. We seek to ensure our funding needs are met by maintaining a level of liquid funds through proactive balance sheet management.

Asset liquidity is provided by liquid assets that are readily convertible into cash, are pledgeable or that will mature in the near future. Our liquid assets may include cash, interest-bearing deposits in banks, investment securities available for sale and federal funds sold. Liability liquidity is provided by access to funding sources including deposits and borrowed funds. We may also issue equity securities, although our common stock has only recently been listed on NASDAQ. To date, no preferred stock has been issued, and there can be no guarantees that a market would exist for such common or preferred shares at terms acceptable to us. Each of our sources of liquidity is subject to various factors beyond our control.

Liquidity resources and balances at June 30, 2012, as disclosed herein, are an accurate depiction of our activity during the period and, except as noted, have not materially changed since that date.

In June 2009, we implemented a forward-looking liquidity plan and increased our liquidity monitoring. See Executive Summary of Second Quarter 2012 Financial Results, Strategic Project Plan for disclosure regarding the liquidity plan.

Overall, we have repositioned the balance sheet to utilize our excess cash more effectively. This includes investing in higher yielding investment securities until sustained loan growth resumes as well as paying down higher priced funding such as maturing CDs. In spite of these measures, cash and cash equivalents increased from December 31, 2011 to June 30, 2012. At June 30, 2012, the Company continued to maintain elevated cash levels pending the consummation of the sale of the two branches which closed on July 1, 2012 and use of cash to fund loan originations. In conjunction with the sale, on July 2, 2012, the Company made a cash payment of $31.6 million to the purchaser to effect the sale, representing the excess of deposits transferred to the acquirer over the assets purchased and the premium paid on deposits.

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On March 30, 2012, we consolidated the North Harper branch into the West Main branch in Laurens and the South Main branch into the Montague branch in Greenwood. These branch consolidations resulted in larger branches in Laurens and Greenwood, and we believe these consolidations will create synergies to more effectively and efficiently serve our clients in those markets. In addition, the exit from the Rock Hill market positions us to focus on and invest in our core markets in the Upstate. Nevertheless, we may experience increased run-off of loan and deposit balances from accounts associated with these branches as a result of our decision to consolidate these locations.

Cash Flow Needs

In the normal course of business, we enter into various transactions some of which, in accordance with GAAP, are not recorded in our Consolidated Balance Sheets. These transactions may involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the Consolidated Balance Sheets, if any.

Our nonmortgage lending commitments and standby letters of credit do not meet the criteria to be accounted for at fair value since our commitment letters contain material adverse change clauses. Accordingly, we account for these instruments in a manner similar to our loans.

We use the same credit policies in making and monitoring commitments as used for loan underwriting. Therefore, in general, the methodology to determine the reserve for unfunded commitments is inherently similar to that used to determine the general reserve component of the allowance for loan losses. However, commitments have fixed expiration dates, and most of our commitments to extend credit have adverse change clauses that allow us to cancel the commitments based on various factors including deterioration in the creditworthiness of the borrower. Accordingly, many of our loan commitments are expected to expire without being drawn upon and, therefore, the total commitment amounts do not necessarily represent potential credit exposure. The reserve for unfunded commitments at June 30, 2012 was $196 thousand and is recorded in Other liabilities in the Consolidated Balance Sheets.

For disclosure regarding our commitments, guarantees and other contingencies, see Item 1. Financial Statements, Note 17, Commitments, Guarantees and Other Contingencies.

Dividend Obligations. The holders of the Company’s common stock are entitled to receive dividends, when and if declared by the Company’s Board of Directors, out of funds legally available for such dividends. The Company is a legal entity separate and distinct from the Bank and depends on the payment of dividends from the Bank. The Company and the Bank are subject to regulatory policies and requirements relating to the payment of dividends including requirements to maintain adequate capital above regulatory minimums. The appropriate federal regulatory authorities are authorized to determine under certain circumstances that the payment of dividends by a bank holding company or a bank would be an unsafe or unsound practice and to prohibit payment of those dividends. The appropriate federal regulatory authorities have indicated that banking organizations should generally pay dividends only out of current income. In addition, as a South Carolina chartered bank, the Bank is subject to legal limitations on the amount of dividends it is permitted to pay.

In an effort to retain capital during this period of economic uncertainty, the Board of Directors reduced the quarterly dividend for the first quarter of 2009. Subsequent to the first quarter 2009, the Board of Directors suspended the quarterly common stock dividend. The Board of Directors believes that suspension of the dividend was prudent to protect our capital base. In addition, payment of a dividend on our common stock requires prior notification to and nonobjection from the applicable banking regulators. Our Board of Directors will continue to evaluate dividend payment opportunities on a quarterly basis. There can be no assurance as to when and if future dividends will be reinstated, and at what level, because they are dependent on our financial condition, results of operations and / or cash flows as well as capital and dividend regulations from the FDIC and others.

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Second Quarter 2012 Earnings Review

Overview

PALMETTO BANCSHARES, INC. AND SUBSIDIARY

Consolidated Statements of Income (Loss)

(dollars in thousands, except per share data) (unaudited)

	For the three months ended June 30,						Dollar			Percent
	2012			2011			variance			variance
Interest income
Interest earned on cash and cash equivalents	$	72		$	112		$	(40	)		(35.7	)%
Dividends received on FHLB stock		13			13			—			—
Interest earned on investment securities available for sale		1,312			1,909			(597	)		(31.3	)
Interest and fees earned on loans (1)		10,025			11,111			(1,086	)		(9.8	)
Total interest income		11,422			13,145			(1,723	)		(13.1	)
Interest expense
Interest paid on deposits		1,339			2,524			(1,185	)		(46.9	)
Interest paid on retail repurchase agreements		—			8			(8	)		(100.0	)
Interest paid on FHLB borrowings		—			23			(23	)		(100.0	)
Total interest expense		1,339			2,555			(1,216	)		(47.6	)
Net interest income		10,083			10,590			(507	)		(4.8	)
Provision for loan losses		8,450			7,400			1,050			14.2
Net interest income after provision for loan losses		1,633			3,190			(1,557	)		(48.8	)
Noninterest income
Service charges on deposit accounts, net		1,669			1,875			(206	)		(11.0	)
Fees for trust, investment management and brokerage services		870			842			28			3.3
Mortgage-banking		832			241			591			245.2
Automatic teller machine		248			256			(8	)		(3.1	)
Bankcard services		57			49			8			16.3
Investment securities gains, net		9,859			56			9,803			17,505.4
Other		428			439			(11	)		(2.5	)
Total noninterest income		13,963			3,758			10,205			271.6
Noninterest expense
Salaries and other personnel (1)		5,335			5,998			(663	)		(11.1	)
Occupancy		1,064			1,146			(82	)		(7.2	)
Furniture and equipment		834			930			(96	)		(10.3	)
Professional services		424			553			(129	)		(23.3	)
FDIC deposit insurance assessment		446			702			(256	)		(36.5	)
Marketing		374			520			(146	)		(28.1	)
Loan workout		158			453			(295	)		(65.1	)
Foreclosed real estate writedowns and expenses		6,966			1,504			5,462			363.2
Loss on other loans held for sale		2,406			3,797			(1,391	)		(36.6	)
Other		1,227			2,105			(878	)		(41.7	)
Total noninterest expense		19,234			17,708			1,526			8.6
Net loss before provision (benefit) for income taxes		(3,638	)		(10,760	)		7,122			(66.2	)
Provision (benefit) for income taxes		3,511			(1,191	)		4,702			(394.8	)
Net loss	$	(7,149	)	$	(9,569	)	$	2,420			(25.3	)%
Common and per share data
Net loss - basic	$	(0.57	)	$	(0.76	)	$	(0.19	)		(25.4	)%
Net loss - diluted		(0.57	)		(0.76	)		(0.19	)		(25.4	)
Cash dividends		—			—			—			—
Book value		7.04			8.51			(1.47	)		(17.3	)
Weighted average common shares outstanding - basic		12,638,160			12,616,887
Weighted average common shares outstanding - diluted		12,638,160			12,616,887

(1) Beginning in 2011, we conformed the classification of deferred loan origination costs to standard industry practice. All prior period amounts have been adjusted to reflect this reclassification. The reclassification impacted interest and fees earned on loans and salaries and other personnel expense. The reclassification did not have any impact on net loss for any period.

Summary

Historically, our earnings were driven primarily by our net interest margin which allowed for a higher expense base related primarily to personnel and facilities. However, given the narrowing of our net interest margin due to the reduction of 525 basis points in interest rates by the Federal Reserve in 2007 and 2008, a prolonged period of low rates and a general flattening of the yield curve, we have become much more focused on increasing our noninterest income and managing expenses.

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One of the components of our Strategic Project Plan is an earnings plan that is focused on earnings improvement through a combination of revenue increases and expense reductions. See Executive Summary of Second Quarter 2012 Financial Results, Strategic Project Plan, Earnings for a summary of actions taken with regard to the earnings component of the Strategic Project Plan.

To further accelerate efforts to improve our earnings, we engaged external strategic consulting firms in 2010 and 2011 that specialize in the assessment of banking products and services, revenue enhancements and efficiency reviews across substantially all areas of the Company. The use of such consultants declined significantly in 2011, and we do not currently anticipate the use of such consultants in 2012.

In addition, to increase our market share and improve earnings, we implemented tailored “go-to-market” strategies for each of our businesses including products and services, marketing plans, teammate expertise and training. We believe we are also attracting new clients given the significant disruption occurring in our markets from the acquisition of local banks by out-of-state institutions.

We are continuing our keen focus on improving credit quality and earnings. Overall, we have repositioned the balance sheet to utilize our excess cash more effectively and improve our net interest margin. This includes investing in higher yielding investment securities until sustained loan growth resumes as well as paying down higher priced funding such as FHLB advances and maturing CDs. We are continuing to adapt our organizational structure to fit the current and future size and scope of our business activities and operations. Such efforts include hiring management personnel with specialized industry experience, appropriately sizing the number of teammates given our current balance sheet size and product volumes, more specifically delineating our businesses, evaluating client demographics and resulting needs and preparing “go-to-market” strategies with relevant products and services and marketing plans by business.

We believe that raising capital in 2010, combined with our proactive and aggressive focus on credit quality and earnings improvements and garnering increased market share due to the market disruption in our markets, will accelerate our return to profitability. As of June 30, 2012, we have substantially completed the strategic initiatives under the Plan, including significant reduction in problem assets, repositioning the balance sheet from an asset and liability management standpoint, rationalizing our branch network and headcount, refining our infrastructure, and focusing on expense reductions. As a result, beginning in the third quarter 2012 we believe our earnings will be more stable and predictable going forward. However, as disclosed in this Quarterly Report on Form 10-Q, our performance is subject to numerous risks and uncertainties, many of which are beyond our control, and we can provide no assurances regarding when or if we will return to profitability.

Net Interest Income

General. Net interest income is the difference between interest income earned on interest-earning assets, primarily loans and investment securities, and interest expense paid on interest-bearing deposits and other interest-bearing liabilities. This measure represents the largest component of income for us. The net interest margin measures how effectively we manage the difference between the interest income earned on interest-earning assets and the interest expense paid for funds to support those assets. Changes in interest rates earned on interest-earning assets and interest rates paid on interest-bearing liabilities, the rate of growth of the interest-earning assets and interest-bearing liabilities base, the ratio of interest-earning assets to interest-bearing liabilities and the management of interest rate sensitivity factor into fluctuations within net interest income.

During the second half of 2008 and continuing into 2012, the financial markets experienced significant volatility resulting from the continued fallout of the global economic downturn. A multitude of government initiatives, along with interest rate cuts and other monetary policy initiatives by the Federal Reserve, have been designed to improve liquidity for the distressed financial markets, stimulate the economy and stabilize the banking system. The relationship between declining interest-earning asset yields and more slowly declining interest-bearing liability costs has caused, and may continue to cause, net interest margin compression as compared to historical results. Net interest margin compression would also be impacted by potential credit quality deterioration of assets and a change in the mix of interest-earning assets and interest-bearing liabilities toward lower spread products.

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Net interest income totaled $10.1 million for the three months ended June 30, 2012 compared with $10.6 million for the three months ended June 30, 2011. Overall, net interest income for the three months ended June 30, 2012 was impacted by the following:

• Reduction in interest rates by the Federal Reserve by 525 basis points throughout 2007 and 2008 and a general flattening of the yield curve and a continuation of this low rate environment into 2012. In response, taking into consideration the yields earned and rates paid, we have refined the type of loan and deposit products we prefer to pursue and are exercising more discipline in our loan and deposit pricing. We have also implemented interest rate floors on loans although recent competitive pressures are making the presence of such floors more difficult. At June 30, 2012, loans aggregating $188.8 million had interest rate floors of which $149.8 million had floors greater than or equal to 5%.

• Very competitive loan pricing for a limited number of credit-worthy clients, which has resulted in lower interest rates on loan originations, although these rates are still in excess of alternative uses of funds for investment securities of similar duration.

• Foregone interest on nonaccrual loans for the three months ended June 30, 2012 totaling $437 thousand.

• Maintaining historically high levels of cash as a result of loan and security repayments, deposit growth and funds received in the Private Placement and related follow-on offerings. Maintaining this cash balance has reduced our interest income by $485 thousand for the three months ended June 30, 2012 when compared with investing these funds at the average yield of 2.09% on our investment securities since we are retaining a higher level of cash instead of reinvesting this cash in higher yielding assets. Given the consummation of our Private Placement in October 2010, we deployed a portion of our excess cash into investment securities and also prepaid all of our FHLB advances.

• Reduction of $38.0 million in gross loans and other loans held for sale during the second quarter 2012 as repayments, foreclosures, charge-offs and sales outpaced new loan originations due to limited loan demand from credit-worthy clients. We are actively pursuing new loan originations and are keenly focused on generating additional loan growth going forward to borrowers with satisfactory credit and financial strength.

Average Balance Sheets and Net Interest Income / Margin Analysis. The following table summarizes our average balance sheets and changes in net interest income / margin for the periods indicated (dollars in thousands). Our yields on interest-earning assets and rates paid on interest-bearing liabilities shown in the table are derived by dividing interest income and expense by the average balances of interest-earning assets or interest-bearing liabilities, respectively. The following table does not include a tax-equivalent adjustment to net interest income for interest-earning assets earning tax-exempt income to a comparable yield on a taxable basis.

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	For the three months ended June 30,
	2012								2011
	Average balance			Income/ expense		Yield/ rate			Average balance			Income/ expense		Yield/ rate
Assets
Interest-earning assets
Cash and cash equivalents	$	121,440		$	72		0.24	%	$	167,170		$	112		0.27	%
FHLB stock		2,686			13		1.95			5,916			13		0.88
Investment securities available for sale, taxable (1)		168,269			643		1.53			165,284			991		2.40
Investment securities available for sale, nontaxable (1)		82,634			669		3.24			114,975			918		3.19
Total investment securities available for sale		250,903			1,312		2.09			280,259			1,909		2.72
Loans (2)		762,890			10,025		5.29			825,601			11,111		5.40
Total interest-earning assets		1,137,919			11,422		4.03			1,278,946			13,145		4.12
Noninterest-earning assets
Cash and cash equivalents		9,531								11,460
Allowance for loan losses		(20,749	)							(25,971	)
Premises and equipment, net		24,925								27,957
Accrued interest receivable		4,232								4,778
Foreclosed real estate		22,458								15,948
Other		18,281								10,694
Total noninterest-earning assets		58,678								44,866
Total assets	$	1,196,597							$	1,323,812
Liabilities and Shareholders’ Equity
Liabilities
Interest-bearing liabilities
Transaction deposit accounts	$	305,968		$	9		0.01	%	$	295,636		$	34		0.05	%
Money market deposit accounts		133,393			13		0.04			145,525			52		0.14
Savings deposit accounts		64,869			2		0.01			56,550			11		0.08
Time deposit accounts		379,533			1,315		1.39			515,208			2,427		1.89
Total interest-bearing deposits		883,763			1,339		0.61			1,012,919			2,524		1.00
Retail repurchase agreements		22,499			—		—			24,910			8		0.13
Other short-term borrowings		25			—		—			11			—		—
FHLB borrowings		—			—		—			2,527			23		3.65
Total interest-bearing liabilities		906,287			1,339		0.59			1,040,367			2,555		0.99
Noninterest-bearing liabilities
Noninterest-bearing deposits		176,864								155,911
Accrued interest payable		584								1,172
Other		9,688								9,868
Total noninterest-bearing liabilities		187,136								166,951
Total liabilities		1,093,423								1,207,318
Shareholders’ equity		103,174								116,494
Total liabilities and shareholders’ equity	$	1,196,597							$	1,323,812
NET INTEREST INCOME / NET INTEREST MARGIN				$	10,083		3.56	%				$	10,590		3.32	%

(1) The average balances for investment securities include the applicable unrealized gain or loss recorded for available for sale securities.

(2) Calculated including mortgage and other loans held for sale, excluding the allowance for loan losses. Nonaccrual loans are included in average balances for yield computations. The impact of foregone interest income as a result of loans on nonaccrual was not considered in the above analysis. All loans and deposits are domestic.

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Federal Reserve Rate Influences. The Federal Reserve influences the general market rates of interest earned on interest-earning assets and interest paid on interest-bearing liabilities. The Federal Reserve has not changed the targeted federal funds interest rate since December 2008. However, since 2009, the Federal Reserve has been active in purchasing U.S. Government bonds in an attempt to manage the level of market interest rates and in 2011 began a program designed to reduce long-term interest rates resulting in a flattening of the yield curve. In March 2012, the Federal Reserve announced that the target fed funds rate would likely be held at current levels through late 2014.

Rate / Volume Analysis. The following rate / volume analysis summarizes the dollar amount of changes in interest income and interest expense attributable to changes in volume and the amount attributable to changes in rate when comparing the periods indicated (in thousands). The impact of the combination of rate and volume change has been allocated between the rate change and volume change. The comparison between the periods includes an additional change factor that captures the impact of the difference in the number of days within each period which has also been allocated between the rate change and volume change.

	For the three months ended June 30, 2012 compared with the three months ended June 30, 2011
	Change in volume			Change in rate			Total change
Assets
Interest-earning assets
Cash and cash equivalents	$	(29	)	$	(11	)	$	(40	)
Investment securities available for sale		(185	)		(412	)		(597	)
Loans		(852	)		(234	)		(1,086	)
Total interest income	$	(1,066	)	$	(657	)	$	(1,723	)
Liabilities and Shareholders’ Equity
Interest-bearing liabilities
Transaction deposit accounts	$	1		$	(26	)	$	(25	)
Money market deposit accounts		(4	)		(35	)		(39	)
Savings deposit accounts		3			(12	)		(9	)
Time deposit accounts		(557	)		(555	)		(1,112	)
Total interest paid on deposits		(557	)		(628	)		(1,185	)
Retail repurchase agreements		(1	)		(7	)		(8	)
FHLB borrowings		(23	)		—			(23	)
Total interest expense	$	(581	)	$	(635	)	$	(1,216	)
Net interest income	$	(485	)	$	(22	)	$	(507	)

Provision for Loan Losses

Provision for loan losses increased from $7.4 million during the three months ended June 30, 2011 to $8.5 million for the three months ended June 30, 2012. Although the provision for loan losses was positively impacted by a decrease in specific reserves required on loans individually evaluated for impairment, a net reduction in the loan portfolio, an increasing proportion of commercial loans that have been recently originated under our improved underwriting standards, a reduction in our problem loans and generally improving economic conditions, we recorded an increased provision for loan losses during the second quarter 2012 as a result of increased losses taken as a result of the classified loan sales recorded during the second quarter 2012. The level of the provision for loan losses may continue to remain volatile in 2012 and will be heavily influenced by the level of nonaccrual loans and troubled debt restructurings as well as real estate collateral values. See also Financial Condition, Lending Activities for discussion regarding our accounting policies related to, factors impacting and methodology for analyzing the adequacy of our allowance for loan losses and, therefore, our provision for loan losses.

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Noninterest Income

General. The following table summarizes the components of noninterest income for the periods indicated (in thousands).

	For the three months ended June 30,
	2012		2011
Service charges on deposit accounts, net	$	1,669	$	1,875
Fees for trust, investment management and brokerage services		870		842
Mortgage-banking		832		241
Automatic teller machine		248		256
Bankcard services		57		49
Investment securities gains, net		9,859		56
Other		428		439
Total noninterest income	$	13,963	$	3,758

Service Charges on Deposit Accounts, Net. Service charges on deposit accounts, net comprise a significant component of noninterest income and totaled 1.4% of average transaction deposit balances for the three months ended June 30, 2012 compared to 1.7% for the three months ended June 30, 2011. The decrease in service charges on deposit accounts of $206 thousand resulted from a reduction in the number of NSF items presented for payment and changes to our NSF fee structure designed to address restrictions imposed by legislative actions.

In response to competition to retain deposits, institutions in the financial services industry have increasingly been providing services for free in an effort to lure deposits away from competitors and retain existing balances. Services that were initially developed as fee income opportunities, such as internet banking and bill payment service, are now provided to clients free of charge. Consequently, opportunities to earn income from service charges for such services have become more limited. In addition, recent focus on the level of deposit service charges within the banking industry by the media and the U.S. Government may result in future legislation limiting the amount and type of service charges within the banking industry.

The November 2009 amendment to Regulation E of the Electronic Fund Transfer Act prohibits financial institutions from charging consumers fees for paying overdrafts on automated teller machine and one-time debit card transactions unless a consumer consents to the overdraft service for those types of transactions. To continue to have overdraft services available to those clients who desired to have this service, we were proactive in encouraging our deposit clients to opt-in to overdraft protection. However, not all of our clients who have previously utilized overdraft features have opted-in to overdraft protection. In addition, in June 2011 the Federal Reserve approved a final debit card interchange rule in accordance with the Dodd-Frank Act. The final rule, which went into effect on October 1, 2011, caps an issuer’s base fee at 21 cents per transaction and allows an additional 5 basis point charge per transaction to help cover fraud losses. Though the rule technically does not apply to institutions with less than $10 billion in assets, such as the Bank, there is concern that the price controls may harm community banks which could be pressured by the marketplace to lower their own interchange rates.

In the fourth quarter 2011, we evaluated all of our retail and commercial deposit accounts for service charge waivers and began re-implementing service charges for a number of clients beginning in the first quarter 2012.

Fees for Trust, Investment Management and Brokerage Services. Fees for trust, investment management and brokerage services represent income associated with wealth management and advisory services. The increase in this category during the second quarter 2012 compared with the second quarter 2011 was the result of a $61 thousand increase in trust and insurance fees offset by a decline in brokerage service fees of $33 thousand.

The increase is trust fees was impacted by modifications to our fee structure implemented effective April 1, 2011 for new clients and effective August 1, 2011 for existing clients as well as an increase in average assets under management over the periods presented. The average market value of assets under management increased from $257.3 million during the second quarter 2011 to $267.9 million during the second quarter 2012. The market value of assets under management is impacted by market value changes in client balances as well as new business generated offset by accounts that transferred or settled during the year.

Brokerage income decreased during the three months ended June 30, 2012 when compared with the same period of 2011 primarily as a result of change in the mix and type of accounts under management during the year. The market value of brokerage assets under management increased slightly from $181.8 million at June 30, 2011 to $183.9 million at June 30, 2012. The positive impact of asset growth was offset during 2011 by the negative impact of market value changes in client balances as well as accounts that transferred between the periods compared.

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Mortgage-Banking. Generally, most of the residential mortgage loans that we originate are sold in the secondary market. Normally we retain the servicing rights to maintain the client relationships related to servicing the loans. Mortgage loans serviced for the benefit of others amounted to $393.4 million and $397.5 million at June 30, 2012 and December 31, 2011, respectively, and are not included in our Consolidated Balance Sheets.

The following table summarizes the components of mortgage-banking income for the periods indicated (dollars in thousands).

	For the three months ended June 30,
	2012			2011
Mortgage-servicing fees	$	250		$	262
Gain on sale of mortgage loans held for sale		510			152
Mortgage-servicing rights portfolio amortization and impairment		(201	)		(163	)
Derivative loan commitment income (expense)		23			(82	)
Forward sales commitment income		142			11
Other		108			61
Total mortgage-banking income	$	832		$	241
Mortgage-servicing fees as a percentage of average mortgage loans serviced for the benefit of others		0.26	%		0.25	%

Mortgage-banking income increased $591 thousand (245.2%) from the three months ended June 30, 2011 to the three months ended June 30, 2012. Gains on sales of mortgage loans increased approximately $358 thousand (235.5%) while the expense associated with amortization and impairment of mortgage-servicing rights increased $38 thousand (23.3%) from the three months ended June 30, 2011 to the three months ended June 30, 2012. The increased gain on sale of mortgage loans was the result of higher volumes of loans sold and overall improved pricing on loan sales during the three months ended June 30, 2012. Mortgage loans held for sale originated during the three months ended June 30, 2012 and 2011 totaled $18.3 million and $5.5 million, respectively, while proceeds from sales over the same periods were $17.8 million and $5.1 million, respectively.

Derivative loan commitment income increased $105 thousand during the three months ended June 30, 2012 over the same period of 2011 while forward sales commitment income increased $131 thousand over the same period. Derivative loan commitment income and forward sales commitment income fluctuates based on the change in interest rates between the time we enter into the commitment to originate / sell the loans and the valuation date.

Automatic Teller Machine. Automatic teller machine income decreased $8 thousand (3.1%) from the three months ended June 30, 2011 to the three months ended June 30, 2012. As part of our Plan, we evaluated the number, locations and functionality of our ATM fleet. In the third quarter 2011, we reduced our ATM fleet from 37 units to 32 units, with the five ATMs that were terminated being remote ATMs for which transaction volumes and related fees did not adequately cover lease and maintenance expenses. All of the five ATMs that were terminated were redeployed as replacements of older model ATMs located at certain branches. During the first quarter 2012, we removed four ATMs, two from nonbranch locations for which transaction volumes and related fees did not provide an appropriate return on investment and two from the consolidated South Main and North Harper branches. One of these ATMs was redeployed to a branch that did not previously offer an ATM and another was redeployed to a branch location as an upgrade to an existing ATM. The decision to reduce our ATM fleet was driven in part by the significant cost of upgrading the ATMs to meet the requirements of the Americans with Disabilities Act by the required deadline in March 2012. We further reduced our ATM fleet by two as a result of the branch sales that were closed on July 1, 2012. As part of our focus on the client experience, we are currently in the process of upgrading two ATMs to accept deposits.

Bankcard Services. Bankcard services income increased $8 thousand (16.3%) from the three months ended June 30, 2011 to the three months ended June 30, 2012. In connection with our ongoing strategic review of our business, we sold our credit card portfolio and entered into a joint marketing agreement in December 2010 with Elan Financial Services, Inc. In connection with the joint marketing agreement, we receive a referral fee from Elan for each new credit card account we refer in addition to a share of the interest and interchange income on such accounts.

Investment Securities Gains, Net. During the second quarter 2012, we realized gains of approximately $9.9 million on the sale of $142.0 million in book value of investment securities. The sales were part of a strategic decision to realize a portion of the unrealized gains on the investment securities portfolio to offset a portion of the credit losses resulting primarily from the sale of problem assets to various counterparties and the resulting impact on regulatory capital. The proceeds from these sales were reinvested in investment securities.

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Other. Other noninterest income is primarily comprised of debit card income net of related expense. Other noninterest income declined $11 thousand over the three months ended June 30, 2011 as a result of slight declines in various miscellaneous consumer fees collected over the periods.

Noninterest Expense

General. The earnings component of our Strategic Project Plan includes keen focus on expense management. As part of our earnings plan to improve our overall financial performance, we identified specific noninterest expense reductions realized in 2009 through 2012 and are continuing to review other opportunities for additional reductions. Examples of reductions realized include:

• Freezing most teammate salaries effective May 1, 2009 to February 28, 2011 with the salary freeze re-implemented effective March 1, 2012,

• Eliminating the officer cash incentive plan awards under the corporate incentive plan for 2009, 2010 and 2011,

• Reducing our Saturday banking hours in September 2009 by reducing closing time from 2:00 p.m. to noon as well as changing six branches from having office hours on Saturdays to drive-thru only in October 2011,

• Reducing marketing expenses and corporate contributions to not-for-profit organizations,

• Reducing and eliminating officer perquisites in 2010 through 2012,

• Outsourcing certain operational functions, and

• Renegotiating business partner contracts for price reductions and consolidating business partners for volume pricing.

With the assistance from a third party consulting firm, we also reviewed our retail banking network in 2010 and implemented process improvements and other recommendations that we believe are resulting in reduced expenses. With assistance from the same consulting firm, in 2010 and 2011 we performed a comprehensive review of our lending process that we believe is similarly resulting in efficiency improvements and cost savings. Savings have also been realized from more fully leveraging existing technology, implementing more advanced technology and other process improvements. To date, these expense reductions have been more than offset by the higher level of credit-related costs incurred due to legal, consulting and carrying costs related to our higher level of nonperforming assets.

Additionally, in the third quarter 2011, we launched a Company-wide project to determine the strategic and tactical actions necessary to align our infrastructure and expense base with our current balance sheet size and the underlying revenue generating capacity of the franchise particularly in light of the recent negative developments in the overall national economy. This project was focused on strategic and tactical actions such as business reviews, headcount rationalization and process improvement and automation. In December 2011, we announced our plans to reduce our branch network by four branches through sale or consolidation into existing branches. In addition to the branch reductions, we also took a number of additional steps in 2012 to accelerate our return to profitability such as:

• Outsourcing of our check processing function in the second quarter 2012 to a third party provider that will result in a higher level of expertise and reduced risk, enhanced statement rendering capability and improved efficiency,

• Increased internal audit co-sourcing which will allow us to take advantage of increased expertise and reduced costs,

• Reinstitution of a Company-wide salary freeze effective March 1, 2012,

• Suspension of the Company’s ongoing regular 401(k) match which has been replaced with a discretionary match that may be paid upon our reaching an appropriate level of profitability,

• Replacing Company-provided perquisites for certain members of management with a lower annual allowance, and

• Reduction of Telephone Banking hours on weekdays to better align staffing levels with peak call times.

As a result of these actions and attrition during 2011 and the first half of 2012 for which the positions were not replaced, full-time equivalent teammates (or employees) (“FTE”) decreased from a peak of 420 at December 31, 2008 to 322.5 at June 30, 2012. We expect the actions resulting from this project to have an ongoing positive impact to our annual earnings of $6.2 million as compared to 2011 earnings. The positive impact of these actions was partially offset by charges of $13 thousand in the second quarter 2012, $328 thousand in the first quarter 2012 and $343 thousand in the fourth quarter 2011 reflecting severance and retention, asset impairments and other costs related to these actions.

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Additionally, during the second quarter 2012, we accepted bids to sell selected problem assets to various counterparties. The decision to sell these problem assets at discounted prices was part of our previously disclosed strategic efforts to aggressively reduce problem assets and, therefore, accelerate our return to profitability through avoidance of potential future write downs resulting from receipt of ongoing appraisals and reductions in the related carrying costs such as legal expenses, property taxes, property insurance and other costs incurred to resolve the problem assets and protect the collateral value. The sales of these problem assets are also expected to result in greater stability and predictability in future earnings through a reduction in exposure to changes in real estate values and related operating costs.

The following table summarizes the components of noninterest expense for the periods indicated (in thousands).

	For the three months ended June 30,
	2012		2011
Salaries and other personnel	$	5,335	$	5,998
Occupancy		1,064		1,146
Furniture and equipment		834		930
Professional services		424		553
FDIC deposit insurance assessment		446		702
Marketing		374		520
Loan workout		158		453
Foreclosed real estate writedowns and expenses		6,966		1,504
Loss on other loans held for sale		2,406		3,797
Other		1,227		2,105
Total noninterest expense	$	19,234	$	17,708

Salaries and Other Personnel. Salaries and other personnel expense decreased $663 thousand (11.1%) for the three months ended June 30, 2012 as compared to the three months ended June 30, 2011 as a result of decreased salaries resulting from a decline in FTEs from 378.5 at June 30, 2011 to 322.5 at June 30, 2012 and reductions in medical insurance premiums, 401(k) match expense, incentive plan awards and the use of contract labor. While total FTEs declined, certain positions that became open were replaced with higher paid teammates as part of our plan to recruit personnel with specific industry expertise and experience. In connection with the execution of our Strategic Project Plan, we have been evaluating the proper alignment of roles and responsibilities within the Company. As a result of FTE reductions associated with branch reduction actions and certain other strategic actions announced in December 2011, we accrued $63 thousand in severance and retention expense in the fourth quarter 2011 and an additional $50 thousand and $8 thousand in the first and second quarters 2012, respectively. The final severance and retention payments associated with the initiatives were made upon consummation of the branch sale on July 1, 2012.

Notwithstanding our actions to reduce Salaries and other personnel expense, we continue working to ensure our overall compensation structure remains competitive with the industry as we continue to compete for talent.

Occupancy and Furniture and Equipment. Occupancy and furniture and equipment expenses decreased $82 thousand (7.2%) and $96 thousand (10.3%), respectively, during the three months ended June 30, 2012 as compared to the three months ended June 30, 2011 primarily as a result of the expense savings associated with the reduction in branches and automatic teller machines over the periods noted.

Professional Services. Professional services expense decreased $129 thousand (23.3%) during the three months ended June 30, 2012 as compared to the three months ended June 30, 2011 primarily as a result of a decrease in the level of expenses associated with non-loan related legal fees, management consultants and teammate recruitment services.

FDIC Deposit Insurance Assessment. FDIC insurance premiums decreased $256 thousand (36.5%) during the three months ended June 30, 2012 as compared to the three months ended June 30, 2011. This decline is attributed to a decline in our assessment base, which is computed by reducing average total assets by average tangible equity, and an improved risk category resulting from our most recent regulatory examination which took effect during the second quarter 2012.

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Taking into account the changes to the deposit insurance assessment regulations that went into effect in the second quarter 2011, improvements in our risk category and current projections of our assessment base for the remainder of 2012, we project that our FDIC insurance premiums will be reduced by approximately $1.1 million for the full year 2012 when compared with 2011.

Marketing. Marketing expense decreased $146 thousand (28.1%) during the three months ended June 30, 2012 as compared to the three months ended June 30, 2011 primarily due to a focus during the second quarter 2011 on advertising campaigns designed to both increase brand awareness and promote certain lending programs as well as an overall branding campaign given the competitive disruption in our markets and targeted direct mail campaigns to increase debit card activity and home equity line usage. Although advertising campaigns were utilized during the second quarter 2012 to promote our Wealth Management and certain lending programs, our marketing focused less on our branding campaign during the second quarter 2012 as it did in the same quarter 2011.

Loan Workout. Loan workout expenses include costs to resolve problem loans such as legal fees, property taxes and operating expenses associated with collateral securing these loans. While it had no net earnings impact, in the second quarter 2011 we began to report certain loan workout costs associated with problem loans in noninterest expense. Previously, the majority of these costs was reported as charge-offs and, accordingly, recognized in the Provision for loan losses financial statement line item. Accordingly, the second quarter 2012 includes $158 thousand of loan workout expenses compared to $453 thousand in the second quarter 2011. Given the sale of problem assets in the second quarter 2012, we expect our loan workout expenses to be reduced going forward.

Foreclosed Real Estate Writedowns and Expenses. Foreclosed real estate writedowns and expenses increased $5.5 million (363.2%) during the three months ended June 30, 2012 as compared to the three months ended June 30, 2011. The carrying value of these assets is written down to fair value less estimated selling costs based on currently available valuation information primarily from third party appraisals. During the second quarter 2012, writedowns on properties sold or contracted for settlement in the third quarter 2012 resulted in writedowns of $2.2 million. Additional writedowns totaling $4.5 million were charged to expense relative to properties that we continue to market for sale.

The decision to sell problem assets at discounted prices was part of our previously disclosed strategic efforts to aggressively reduce problem assets and, therefore, accelerate our return to profitability through avoidance of potential future write downs resulting from receipt of ongoing appraisals and reductions in the related carrying costs such as legal expenses, property taxes, property insurance and other costs incurred to resolve the problem assets and protect the collateral value. Transfers into foreclosed real estate during the second quarter 2012 totaled $1.9 million.

During 2011, one asset in the amount of $7.1 million was transferred into Foreclosed real estate. This asset consists of undeveloped residential lots in one particular community located in the Upstate of South Carolina. We are currently developing a marketing plan to sell these lots. Due to the number of lots owned and the current depressed state of the residential housing market, absent a bulk sale of the lots, we expect the resolution of this asset to occur over several years. Other than this one addition to Foreclosed real estate, through June 30, 2012, we have sold most of the more significant assets and the assets that involved higher operating costs (e.g., assisted living facilities and golf courses). Given the sale of problem assets in the second quarter 2012, we expect our foreclosed real estate writedowns and expenses to be reduced going forward.

Loss on Other Loans Held for Sale. Loss on other loans held for sale decreased $1.4 million (36.6%) to $2.4 million during the three months ended June 30, 2012 as compared to the three months ended June 30, 2011. Loss on other loans held for sale represents writedowns and losses on sales of loans classified as held for sale during the three months ended June 30, 2012 and 2011. During the three months ended June 30, 2012, we recorded writedowns and losses of $2.2 million in connection with the problem asset sales entered into during the second quarter 2012.

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Other. Other noninterest expense decreased $878 thousand (41.7%) during the three months ended June 30, 2012 as compared to the three months ended June 30, 2011. Included in this financial statement line item and contributing to this decrease were the following:

• During the second quarter 2011, as part of our overall balance sheet management efforts to utilize our excess cash and reduce our overall borrowing cost, we prepaid $5.0 million of FHLB advances resulting in a prepayment penalty of $276 thousand.

• A recovery of provision for unfunded commitments of $43 thousand during the second quarter 2012 compared to a provision of $118 thousand during the second quarter 2011.

• A reduction of $73 thousand in long lived assets held for sale.

• A decline in telecommunication expenses totaling $69 thousand as a result of more efficient utilization of our existing communications infrastructure.

• A reduction in bankcard related expenses totaling $143 thousand resulting from the expiration of the Interim Servicing Agreement in September 2011 associated with the sale of our credit card portfolio in December 2010.

• A decline in operating expenses (such as insurance, postage, printing, office supplies, convention expenses, automobile mileage reimbursements and bank membership expenses) totaling $114 thousand.

Provision (Benefit) for Income Taxes

Provision for income taxes was $3.5 million for the three months ended June 30, 2012 compared to an income tax benefit of $1.2 million for the three months ended June 30, 2011. The 2012 and 2011 income tax provision and benefit resulted from fluctuations in the valuation allowance required against the net deferred income tax asset that resulted from changes in deferred tax positions associated with investment securities available for sale. We determined that based on projections of future taxable income, available tax planning strategies and limitations on our ability to utilize net operating loss carryforwards and unrealized built-in losses, a valuation allowance on our net deferred tax asset remained necessary at June 30, 2012. Additional provisions or benefits may result to the extent of changes in deferred tax liabilities which require adjustments to the valuation allowance to maintain a full allowance against the net deferred tax asset.

Analysis of our ability to realize deferred tax assets requires us to apply significant judgment and is inherently subjective because it requires the future occurrence of circumstances that cannot be predicted with certainty. While we recorded a valuation allowance against our net deferred tax asset for financial reporting purposes at June 30, 2012 and December 31, 2011, the portion related to net operating losses and net realized built-in losses can be carried forward for income tax purposes up to twenty years. Thus, to the extent we return to profitability and generate sufficient taxable income in the future, we will be able to utilize some of the net operating losses to offset a portion of future taxable income and reverse a portion of the valuation allowance for financial reporting purposes. The determination of how much of the net operating losses and net realized built-in losses we will be able to utilize and, therefore, how much of the valuation allowance that may be reversed and the timing is based on our future results of operations and the amount and timing of actual loan charge-offs and asset writedowns. Portions of the net deferred tax asset related to unrealized built-in losses and net operating losses generated prior to the Private Placement are subject to an annual limitation under Internal Revenue Service regulations. As disclosed in Item 1. Financial Statements, Note 13, Income Taxes, such amounts may eventually expire unutilized.

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Year-to-Date 2012 Earnings Review

Overview

PALMETTO BANCSHARES, INC. AND SUBSIDIARY

Consolidated Statements of Income (Loss)

(dollars in thousands, except per share data) (unaudited)

	For the six months ended June 30,						Dollar variance			Percent variance
	2012			2011
Interest income
Interest earned on cash and cash equivalents	$	123		$	217		$	(94	)		(43.3	)%
Dividends received on FHLB stock		25			27			(2	)		(7.4	)
Interest earned on investment securities available for sale		2,948			3,215			(267	)		(8.3	)
Interest and fees earned on loans (1)		20,351			22,383			(2,032	)		(9.1	)
Total interest income		23,447			25,842			(2,395	)		(9.3	)
Interest expense
Interest paid on deposits		2,732			5,200			(2,468	)		(47.5	)
Interest paid on retail repurchase agreements		1			19			(18	)		(94.7	)
Interest paid on FHLB borrowings		—			72			(72	)		(100.0	)
Total interest expense		2,733			5,291			(2,558	)		(48.3	)
Net interest income		20,714			20,551			163			0.8
Provision for loan losses		11,150			12,900			(1,750	)		(13.6	)
Net interest income after provision for loan losses		9,564			7,651			1,913			25.0
Noninterest income
Service charges on deposit accounts, net		3,343			3,637			(294	)		(8.1	)
Fees for trust, investment management and brokerage services		1,589			1,533			56			3.7
Mortgage-banking		1,633			617			1,016			164.7
Automatic teller machine		489			488			1			0.2
Bankcard services		119			125			(6	)		(4.8	)
Investment securities gains, net		9,859			56			9,803			17,505.4
Other		861			874			(13	)		(1.5	)
Total noninterest income		17,893			7,330			10,563			144.1
Noninterest expense
Salaries and other personnel (1)		10,943			12,252			(1,309	)		(10.7	)
Occupancy		2,328			2,329			(1	)		(0.0	)
Furniture and equipment		1,725			1,915			(190	)		(9.9	)
Professional services		890			1,063			(173	)		(16.3	)
FDIC deposit insurance assessment		1,097			1,660			(563	)		(33.9	)
Marketing		562			934			(372	)		(39.8	)
Loan workout		387			471			(84	)		(17.8	)
Foreclosed real estate writedowns and expenses		8,334			2,337			5,997			256.6
Loss on other loans held for sale		2,534			4,948			(2,414	)		(48.8	)
Other		2,365			3,860			(1,495	)		(38.7	)
Total noninterest expense		31,165			31,769			(604	)		(1.9	)
Net loss before provision (benefit) for income taxes		(3,708	)		(16,788	)		13,080			(77.9	)
Provision (benefit) for income taxes		4,028			(1,139	)		5,167			(453.6	)
Net loss	$	(7,736	)	$	(15,649	)	$	7,913			(50.6	)%
Common and per share data
Net loss - basic	$	(0.61	)	$	(1.25	)	$	(0.64	)		(51.1	)%
Net loss - diluted		(0.61	)		(1.25	)		(0.64	)		(51.1	)
Cash dividends		—			—			—			—
Book value		7.04			8.51			(1.47	)		(17.3	)
Weighted average common shares outstanding - basic		12,637,990			12,490,833
Weighted average common shares outstanding - diluted		12,637,990			12,490,833

(1) Beginning in 2011, we conformed the classification of deferred loan origination costs to standard industry practice. All prior period amounts have been adjusted to reflect this reclassification. The reclassification impacted interest and fees earned on loans and salaries and other personnel expense. The reclassification did not have any impact on net loss for any period.

Net Interest Income

General. Net interest income totaled $20.7 million for the six months ended June 30, 2012 compared with $20.6 million for the six months ended June 30, 2011. In addition to the general impacts on net interest income during the period as previously discussed in Second Quarter 2012 Earnings Review, Net Interest Income, General, net interest income for the six months ended June 30, 2012 was impacted by the following:

• Foregone interest on nonaccrual loans for the six months ended June 30, 2012 totaling $850 thousand.

• Maintaining historically high levels of cash reduced our interest income by $1.0 million for the six months ended June 30, 2012 when compared with investing these funds at the average yield of 2.28% on our investment securities since we are retaining a higher level of cash instead of reinvesting this cash in higher yielding assets.

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• Reduction of $49.3 million in gross loans and other loans held for sale during the second quarter 2012.

Average Balance Sheets and Net Interest Income / Margin Analysis. The following table summarizes our average balance sheets and changes in net interest income / margin for the periods indicated (dollars in thousands). Our yields on interest-earning assets and rates paid on interest-bearing liabilities shown in the table are derived by dividing interest income and expense by the average balances of interest-earning assets or interest-bearing liabilities, respectively. The following table does not include a tax-equivalent adjustment to net interest income for interest-earning assets earning tax-exempt income to a comparable yield on a taxable basis.

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	For the six months ended June 30,
	2012								2011
	Average balance			Income/ expense		Yield/ rate			Average balance			Income/ expense		Yield/ rate
Assets
Interest-earning assets
Cash and cash equivalents	$	113,848		$	123		0.22	%	$	175,756		$	217		0.25	%
FHLB stock		3,109			25		1.62			6,348			27		0.86
Investment securities available for sale, taxable (1)		156,065			1,364		1.75			165,473			1,752		2.12
Investment securities available for sale, nontaxable (1)		102,171			1,584		3.10			90,380			1,463		3.24
Total investment securities available for sale		258,236			2,948		2.28			255,853			3,215		2.51
Loans (2)		775,975			20,351		5.27			836,181			22,383		5.40
Total interest-earning assets		1,151,168			23,447		4.09			1,274,138			25,842		4.09
Noninterest-earning assets
Cash and cash equivalents		10,060								12,293
Allowance for loan losses		(22,845	)							(26,135	)
Premises and equipment, net		25,403								28,111
Accrued interest receivable		4,602								4,667
Foreclosed real estate		24,875								16,871
Other		14,836								13,309
Total noninterest-earning assets		56,931								49,116
Total assets	$	1,208,099							$	1,323,254
Liabilities and Shareholders’ Equity
Liabilities
Interest-bearing liabilities
Transaction deposit accounts	$	306,801		$	20		0.01	%	$	295,707		$	83		0.06	%
Money market deposit accounts		139,169			32		0.05			143,792			133		0.19
Savings deposit accounts		63,187			4		0.01			54,176			27		0.10
Time deposit accounts		387,300			2,676		1.39			520,103			4,957		1.92
Total interest-bearing deposits		896,457			2,732		0.61			1,013,778			5,200		1.03
Retail repurchase agreements		24,026			1		0.01			24,115			19		0.16
Other short-term borrowings		36			—		—			6			—		—
FHLB borrowings		—			—		—			4,088			72		3.55
Total interest-bearing liabilities		920,519			2,733		0.60			1,041,987			5,291		1.02
Noninterest-bearing liabilities
Noninterest-bearing deposits		171,415								151,314
Accrued interest payable		600								1,188
Other		10,407								10,507
Total noninterest-bearing liabilities		182,422								163,009
Total liabilities		1,102,941								1,204,996
Shareholders’ equity		105,158								118,258
Total liabilities and shareholders’ equity	$	1,208,099							$	1,323,254
NET INTEREST INCOME / NET INTEREST MARGIN				$	20,714		3.62	%				$	20,551		3.25	%

(1) The average balances for investment securities include the applicable unrealized gain or loss recorded for available for sale securities.

(2) Calculated including mortgage and other loans held for sale, excluding the allowance for loan losses. Nonaccrual loans are included in average balances for yield computations. The impact of foregone interest income as a result of loans on nonaccrual was not considered in the above analysis. All loans and deposits are domestic.

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Rate / Volume Analysis. The following rate / volume analysis summarizes the dollar amount of changes in interest income and interest expense attributable to changes in volume and the amount attributable to changes in rate when comparing the periods indicated (in thousands). The impact of the combination of rate and volume change has been allocated between the rate change and volume change. The comparison between the periods includes an additional change factor that captures the impact of the difference in the number of days within each period which has also been allocated between the rate change and volume change.

	For the six months ended June 30, 2012 compared with the six months ended June 30, 2011
	Change in volume			Change in rate			Total change
Assets
Interest-earning assets
Cash and cash equivalents	$	(69	)	$	(25	)	$	(94	)
FHLB stock		3			(5	)		(2	)
Investment securities available for sale		31			(298	)		(267	)
Loans		(1,541	)		(491	)		(2,032	)
Total interest income	$	(1,576	)	$	(819	)	$	(2,395	)
Liabilities and Shareholders’ Equity
Interest-bearing liabilities
Transaction deposit accounts	$	3		$	(66	)	$	(63	)
Money market deposit accounts		(4	)		(97	)		(101	)
Savings deposit accounts		5			(28	)		(23	)
Time deposit accounts		(1,094	)		(1,187	)		(2,281	)
Total interest paid on deposits		(1,090	)		(1,378	)		(2,468	)
Retail repurchase agreements		—			(18	)		(18	)
FHLB borrowings		(72	)		—			(72	)
Total interest expense	$	(1,162	)	$	(1,396	)	$	(2,558	)
Net interest income	$	(414	)	$	577		$	163

Provision for Loan Losses

Provision for loan losses decreased from $12.9 million during the six months ended June 30, 2011 to $11.2 million for the six months ended June 30, 2012. See Second Quarter 2012 Earnings Review, Provision for Loan Losses for additional disclosures. See also Financial Condition, Lending Activities, included elsewhere in this item, for discussion regarding our accounting policies related to, factors impacting and methodology for analyzing the adequacy of our allowance for loan losses and, therefore, our provision for loan losses.

Noninterest Income

General. The following table summarizes the components of noninterest income for the periods indicated (in thousands).

	For the six months ended June 30,
	2012		2011
Service charges on deposit accounts, net	$	3,343	$	3,637
Fees for trust, investment management and brokerage services		1,589		1,533
Mortgage-banking		1,633		617
Automatic teller machine		489		488
Bankcard services		119		125
Investment securities gains, net		9,859		56
Other		861		874
Total noninterest income	$	17,893	$	7,330

Service Charges on Deposit Accounts, Net. Service charges on deposit accounts, net comprise a significant component of noninterest income totaling 1.4% of average transaction deposit balances for the six months ended June 30, 2012 compared to 1.6% for the six months ended June 30, 2011. The decrease in service charges on deposit accounts of $294 thousand resulted from a reduction in the number of NSF items presented for payment and changes to our NSF fee structure designed to address restrictions imposed by legislative actions. See Second Quarter 2012 Earnings Review, Noninterest Income, Service Changes on Deposit Accounts, Net for additional disclosures.

Fees for Trust, Investment Management and Brokerage Services. Fees for trust, investment management and brokerage services represent income associated with wealth management and advisory services. The increase in this category during the six months ended June 30, 2012 compared with the same period of 2011 was the result of an $80 thousand increase in trust and insurance fees offset by a decline in brokerage service fees of $24 thousand. The increase is trust fees was impacted by modifications to our fee structure implemented effective April 1, 2011 for new clients and effective August 1, 2011 for existing clients as well as an increase in average assets under management over the periods presented. The average market value of assets under management increased from $249.5 million during the six months ended June 30, 2011 to $266.6 million during the six months ended June 30, 2012. See Second Quarter 2012 Earnings Review, Noninterest Income, Fees for Trust, Investment Management and Brokerage Services for additional disclosures.

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Mortgage-Banking. Generally, most of the residential mortgage loans that we originate are sold in the secondary market. Normally we retain the servicing rights to maintain the client relationships related to servicing the loans. Mortgage loans serviced for the benefit of others amounted to $393.4 million and $397.5 million at June 30, 2012 and December 31, 2011, respectively, and are not included in our Consolidated Balance Sheets.

The following table summarizes the components of mortgage-banking income for the periods indicated (dollars in thousands).

	For the six months ended June 30,
	2012			2011
Mortgage-servicing fees	$	496		$	520
Gain on sale of mortgage loans held for sale		1,074			452
Mortgage-servicing rights portfolio amortization and impairment		(408	)		(375	)
Derivative loan commitment income (expense)		71			(23	)
Forward sales commitment income (expense)		202			(64	)
Other		198			107
Total mortgage-banking income	$	1,633		$	617
Mortgage-servicing fees as a percentage of average mortgage loans serviced for the benefit of others		0.26	%		0.25	%

Mortgage-banking income increased $1.0 million (164.7%) from the six months ended June 30, 2011 to the six months ended June 30, 2012. Gains on sales of mortgage loans increased approximately $622 thousand (137.6%) while the expense associated with amortization and impairment of mortgage-servicing rights increased $33 thousand (8.8%) from the six months ended June 30, 2011 to the six months ended June 30, 2012. The increased gain on sale of mortgage loans was the result of higher volumes of loans sold and overall improved pricing on loan sales during the six months ended June 30, 2012. Mortgage loans held for sale originated during the six months ended June 30, 2012 and 2011 totaled $35.5 million and $16.9 million, respectively, while proceeds from sales over the same periods were $36.4 million and $21.4 million, respectively.

Derivative loan commitment income increased $94 thousand during the six months ended June 30, 2012 over the same period of 2011 while forward sales commitment income increased $266 thousand over the same period and is a function of the level of unfunded mortgage loan commitments and the level of interest rates at the end of the period. See Second Quarter 2012 Earnings Review, Noninterest Income, Mortgage-Banking for additional disclosures.

Automatic Teller Machine. Automatic teller machine income increased $1 thousand from the six months ended June 30, 2011 to the six months ended June 30, 2012. See Second Quarter 2012 Earnings Review, Noninterest Income, Automatic Teller Machine for additional disclosures.

Bankcard Services. Bankcard services income decreased $6 thousand (4.8%) from the six months ended June 30, 2011 to the six months ended June 30, 2012. See Second Quarter 2012 Earnings Review, Noninterest Income, Bankcard Services for additional disclosures.

Investment Securities Gains, Net. Investment securities gains, net increased $9.8 million from the six months ended June 30, 2011 to the six months ended June 30, 2012. See Second Quarter 2012 Earnings Review, Noninterest Income, Investment Securities Gains, Net for additional disclosures.

Other. Other noninterest income is primarily comprised of debit card income net of related expense. Other noninterest income declined $13 thousand over the six months ended June 30, 2011 as a result of slight declines in various miscellaneous consumer fees collected over the periods.

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Noninterest Expense

General. The following table summarizes the components of noninterest expense for the periods indicated (in thousands).

	For the six months ended June 30,
	2012		2011
Salaries and other personnel	$	10,943	$	12,252
Occupancy		2,328		2,329
Furniture and equipment		1,725		1,915
Professional services		890		1,063
FDIC deposit insurance assessment		1,097		1,660
Marketing		562		934
Loan workout		387		471
Foreclosed real estate writedowns and expenses		8,334		2,337
Loss on other loans held for sale		2,534		4,948
Other		2,365		3,860
Total noninterest expense	$	31,165	$	31,769

Salaries and Other Personnel. Salaries and other personnel expense decreased $1.3 million (10.7%) for the six months ended June 30, 2012 as compared to the six months ended June 30, 2011. See Second Quarter 2012 Earnings Review, Noninterest Expense, Salaries and Other Personnel for additional disclosures.

Occupancy and Furniture and Equipment. Occupancy and furniture and equipment expenses decreased $1 thousand and $190 thousand, respectively during the six months ended June 30, 2012 as compared to the six months ended June 30, 2011. The decline in occupancy expense was the result of lower operating costs which were offset almost completely by costs associated with the branch consolidations on March 30, 2012. The decrease in furniture and equipment expense was primarily a result of expense savings associated with the reduction in branches and automatic teller machines over the periods noted.

Professional Services. Professional services expense decreased $173 thousand (16.3%) during the six months ended June 30, 2012 as compared to the six months ended June 30, 2011. See Second Quarter 2012 Earnings Review, Noninterest Expense, Professional Services for additional disclosures.

FDIC Deposit Insurance Assessment. FDIC insurance premiums decreased $563 thousand (33.9%) during the six months ended June 30, 2012 as compared to the six months ended June 30, 2011. See Second Quarter 2012 Earnings Review, Noninterest Expense, FDIC Deposit Insurance Assessment for additional disclosures.

Marketing. Marketing expense decreased $372 thousand (39.8%) during the six months ended June 30, 2012 as compared to the six months ended June 30, 2011. See Second Quarter 2012 Earnings Review, Noninterest Expense, Marketing for additional disclosures.

Loan Workout. Loan workout expenses include costs to resolve problem loans such as legal fees, property taxes and operating expenses associated with collateral securing these loans. While it had no net earnings impact, in the second quarter 2011 we began to report certain loan workout costs associated with problem loans in noninterest expense. Previously, the majority of these costs was reported as charge-offs and, accordingly, recognized in the Provision for loan losses financial statement line item. Accordingly, the results for the six months ended June 30, 2012 included $387 thousand of loan workout expenses compared to $471 thousand for the six months ended June 30, 2011. Given the sale of problem assets in the second quarter 2012, we expect our loan workout expenses to be reduced going forward.

Foreclosed Real Estate Writedowns and Expenses. Foreclosed real estate writedowns and expenses totaled $8.3 million during the six months ended June 30, 2012 compared to $2.3 million during the six months ended June 30, 2011. During the six months ended June 30, 2012, writedowns on properties resulted in a provision charged to expense of $8.1 million. See Second Quarter 2012 Earnings Review, Noninterest Expense, Foreclosed Real Estate Writedowns and Expenses for disclosures regarding activity impacting foreclosed real estate writedowns and expenses during the second quarter 2012.

Loss on Other Loans Held for Sale. Loss on other loans held for sale decreased $2.4 million (48.8%) to $2.5 million during the six months ended June 30, 2012 as compared to the six months ended June 30, 2011. Writedowns are recorded to reduce the value of these assets to fair value which was based on updated appraisals or contracts received during the period, less estimated costs to sell, or internal valuations, as applicable. See Second Quarter 2012 Earnings Review, Noninterest Expense, Loss on Other Loans Held for Sale for disclosures regarding activity impacting loss on other loans held for sale during the second quarter 2012.

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Other. Other noninterest expense decreased $1.5 million (438.7%) during the six months ended June 30, 2012 as compared to the six months ended June 30, 2011. Included in this financial statement line item and contributing to this decrease were the following:

• During the six months ended June 30, 2011, as part of our overall balance sheet management efforts to utilize our excess cash and reduce our overall borrowing cost, we prepaid $35.0 million of FHLB advances resulting in a prepayment penalty of $412 thousand.

• A recovery of provision for unfunded commitments of $182 thousand during the six months ended June 30, 2012 compared to a provision of $169 thousand during the six months ended June 30, 2011.

• A reduction of $57 thousand in writedowns on long lived assets held for sale.

• A reduction in telecommunication expenses totaling $167 thousand as a result of more efficient utilization of our existing communications infrastructure.

• A reduction in bankcard related expenses totaling $194 thousand resulting from the expiration of the Interim Servicing Agreement in September 2011 associated with the sale of our credit card portfolio in December 2010.

• A reduction in operating expenses (such as insurance, postage, printing, office supplies, convention expenses, automobile mileage reimbursements and bank membership expenses) totaling $194 thousand.

Provision (Benefit) for Income Taxes

Provision for income taxes was $4.0 million for the six months ended June 30, 2012 compared to an income tax benefit of $1.1 million for the six months ended June 30, 2011. See Second Quarter 2012 Earnings Review, Noninterest Expense Provision (Benefit) for Income Taxes for additional disclosures.

Recently Issued / Adopted Authoritative Pronouncements

For disclosure regarding recently issued and recently adopted authoritative pronouncements and their expected impact on our business, financial condition, results of operations, and cash flows, See Item 1. Financial Statements, Note 1, Summary of Significant Accounting Policies.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As of June 30, 2012, the following table summarizes the forecasted impact on net interest income using a base case scenario given upward and downward movements in interest rates of 100, 200 and 300 basis points based on forecasted assumptions of prepayment speeds, nominal interest rates and loan and deposit repricing rates. Estimates are based on current economic conditions, historical interest rate cycles and other factors deemed to be relevant. However, underlying assumptions may be impacted in future periods which were not known to us at the time of the issuance of the Consolidated Financial Statements. Therefore, our assumptions may or may not prove valid. No assurance can be given that changing economic conditions and other relevant factors impacting our net interest income will not cause actual occurrences to differ from underlying assumptions.

Interest rate scenario (1)	Percentage change in net interest income from base
Up 300 basis points		13.34	%
Up 200 basis points		8.98
Up 100 basis points		3.87
Base
Down 100 basis points		(6.75	)
Down 200 basis points		(7.64	)
Down 300 basis points		n/a

(1) The rising 100, 200 and 300 basis point and falling 100 and 200 basis point interest rate scenarios assume an immediate and parallel change in interest rates along the entire yield curve.

There are material limitations with the model presented above, which include, but are not limited to:

• It presents the balance sheet in a static position. When assets and liabilities mature or reprice, they do not necessarily keep the same characteristics.

• The computation of prospective impacts of hypothetical interest rate changes are based on numerous assumptions and should not be relied upon as indicative of actual results.

• The computations do not contemplate any additional actions we could undertake in response to changes in interest rates.

95

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An evaluation of our disclosure controls and procedures (as defined in Sections 13(a)-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934) was carried out under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer and several other members of senior management as of June 30, 2012, the last day of the period covered by this Quarterly Report. The Company’s Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2012 in ensuring that the information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934 is (i) accumulated and communicated to management (including the Company’s Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

Second Quarter Internal Control Changes

During the second quarter 2012, we did not make any changes in our internal controls over financial reporting that have materially affected or are reasonably likely to materially affect those controls.

96

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

See Part I – Financial Information, Item 1. Financial Statements, Note 17, Commitments, Guarantees and Other Contingencies, contained herein for disclosures required by this item.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2011 which could materially affect our business, financial condition, results of operations or cash flows. The risks described in the Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known or currently deemed to be immaterial also may materially and adversely affect our business, financial condition, results of operations or cash flows.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

None

Item 5. Other Information

None

Item 6. Exhibits

3.1^	Articles of Amendment to the Amended and Restated Articles of Incorporation filed on May 22, 2012 in the office of the Secretary of State of South Carolina
31.1^	Samuel L. Erwin’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2^	Roy D. Jones’ Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32^	Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101^*	The following materials from Palmetto Bancshares, Inc’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, formatted in XBRL; (i) Consolidated Balance Sheets at June 30, 2012 and December 31, 2011, (ii) Consolidated Statements of Income (Loss) for the three months ended June 30, 2012 and 2011, (iii) Consolidated Statements of Income (Loss) for the six months ended June 30, 2012 and 2011, (iv) Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2012 and 2011, (v) Consolidated Statements of Changes in Shareholders’ Equity for the six months ended June 30, 2012 and 2011, (vi) Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011, and (vii) Notes to Consolidated Financial Statements*.

^ Filed with this Quarterly Report on Form 10-Q.

* Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

Copies of exhibits are available upon written request to Corporate Secretary, Palmetto Bancshares, Inc., 306 East North Street, Greenville, South Carolina 29601.

97

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/    SAMUEL L. ERWIN        

Samuel L. Erwin

Chief Executive Officer

Palmetto Bancshares, Inc.

(Principal Executive Officer)

/s/    Roy D. Jones        

Roy D. Jones

Chief Financial Officer

Palmetto Bancshares, Inc.

(Principal Financial Officer and Principal Accounting Officer)

Date: August 2, 2012

98

EXHIBIT INDEX

Exhibit No.	Description
3.1	Articles of Amendment to the Amended and Restated Articles of Incorporation filed on May 22, 2012 in the office of the Secretary of State of South Carolina
31.1	Samuel L. Erwin’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Roy D. Jones’ Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	Interactive Data File

99

EX-3.1

EXHIBIT 3.1

STATE OF SOUTH CAROLINA

SECRETARY OF STATE

ARTICLES OF AMENDMENT

Pursuant to Section 33-10-106 of the 1976 South Carolina Code, as amended, the undersigned corporation adopts the following Articles of Amendment to its Amended and Restated Articles of Incorporation:

1. The name of the corporation is Palmetto Bancshares, Inc.

2. Date of Incorporation: May 13, 1982.

3. Agent’s Name and Address: The address of the registered office of the Corporation is located at 2 Office Park Court, Columbia, South Carolina 29223, and the agent at such address is CT Corporation.

4. On May 17, 2012, the Corporation’s shareholders approved an amendment to the Corporation’s Amended and Restated Articles of Incorporation to delete Article Ten in its entirety and replace with language below:

Article Ten

“The Corporation is authorized, without shareholder approval, to purchase, directly or indirectly, its own shares in such amounts and under such terms as may be authorized from time to time by the Board of Directors.”

5. The manner, if not set forth in the amendment, in which any exchange, reclassification, or cancellation of issued shares provided for in the Amendment shall be effected, is as follows: (if not applicable, insert “not applicable” or “NA”).

N/A.

6. Complete either a or b, whichever is applicable.

a. x Amendment(s) adopted by shareholder action.

At the date of adoption of the Amendment, the number of outstanding shares of each voting group entitled to vote separately on the Amendment, and the vote of such shares was:

For the approval of an amendment to the Corporation’s Amended and Restated Articles of Incorporation to amend and replace Article Ten with language noted above:

Voting Group	Number of Outstanding Shares		Number of Votes Entitled to be Cast		Number of Votes Represented at the meeting		Number of Undisputed** Shares Voted For / Against
Common		12,744,020		12,744,020		11,351,099		10,527,118 / 558,719	*

* Excludes 3,506 shares which were abstained and 261,756 shares which were broker non-votes.

** NOTE: Pursuant to Section 33-10-106(6)(i), the corporation can alternatively state the total number of undisputed shares cast for the amendment by each voting group together with a statement that the number cast for the amendment by each voting group was sufficient for approval by that voting group.

b. ¨The Amendment(s) was duly adopted by the incorporator or board of directors without shareholder approval pursuant to §33-6-102(d), 33-10-102 and 33-10-105 of the 1976 South Carolina Code as amended, and shareholder action was not required.

7. Unless a delayed date is specified, the effective date of these Articles of Amendment shall be the date of acceptance for filing by the Secretary of State (See §33-1-230(b)): N/A.

DATE: May 17, 2012	PALMETTO BANCSHARES, INC.
	By:	/s/ Lee S. Dixon
	Name:	Lee S. Dixon
	Title	Chief Operating Officer

FILING INSTRUCTIONS

1. Two copies of this form, the original and either a duplicate original or a conformed copy, must be filed.

2. If the space in this form is insufficient, please attach additional sheets containing a reference to the appropriate paragraph in this form.

3. Filing fees and taxes payable to the Secretary of State at time of filing application.

Filing Fee	$	10.00
Filing tax		100.00
Total	$	110.00

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Samuel L. Erwin, Chief Executive Officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Palmetto Bancshares, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Samuel L. Erwin

Samuel L. Erwin

Chief Executive Officer

Palmetto Bancshares, Inc.

(Principal Executive Officer)

Dated: August 2, 2012

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Roy D. Jones, Chief Financial Officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Palmetto Bancshares, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Roy D. Jones

Roy D. Jones

Chief Financial Officer

Palmetto Bancshares, Inc.

(Principal Financial Officer and Principal Accounting Officer)

Dated: August 2, 2012

EX-32

EXHIBIT 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

The undersigned certify that the Quarterly Report on Form 10-Q for the three months ended June 30, 2012, which accompanies this certification, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and that the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of Palmetto Bancshares, Inc. at the dates and for the periods indicated. The foregoing certification is made pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and no purchaser or seller of securities or any other person shall be entitled to rely upon the foregoing certification for any purpose. The undersigned expressly disclaims any obligation to update the foregoing certification except as required by law.

/s/ Samuel L. Erwin

Samuel L. Erwin

Chief Executive Officer

Palmetto Bancshares, Inc.

(Principal Executive Officer)

/s/ Roy D. Jones

Roy D. Jones

Chief Financial Officer

Palmetto Bancshares, Inc.

(Principal Financial Officer and Principal Accounting Officer)

Dated: August 2, 2012

XML

Equity Based Compensation (Tables)

6 Months Ended

Jun. 30, 2012

Equity Based Compensation [Abstract]

Summary of Stock option activity for the periods indicated

	Stock options outstanding		Weighted- average exercise price
Outstanding at December 31, 2010		30,003	$	91.72
Forfeited		—		—
Outstanding at March 31, 2011		30,003		91.72
Forfeited		—		—
Outstanding at June 30, 2011		30,003		91.72
Forfeited		1,800		106.40
Outstanding at September 30, 2011		28,203		90.79
Forfeited		9,500		85.16
Outstanding at December 31, 2011		18,703		93.65
Forfeited		6,000		93.20
Outstanding at March 31, 2012		12,703		93.86
Forfeited		—		—
Outstanding at June 30, 2012		12,703	$	93.86

Summary of Information regarding Stock option under plan that are outstanding and exercisable

	Options outstanding and exercisable
Exercise price or range of exercise prices	Number of stock options outstanding and exercisable	Weighted- average remaining contractual life (years)	Weighted- average exercise price
$ 80.00	5,503	0.50	$80.00
$93.20 to $106.40	2,500	1.60	94.52
$109.20 to $121.60	4,700	3.54	109.73
Total	12,703	1.84	93.86

Summary of shares available for issuance under restricted stock plan

	Shares of restricted stock			Weighted- average grant date fair value
Shares available for issuance under the 2008 Restricted Stock Plan		62,500
2009 Grants		(13,761	)	$	142.50
2009 Forfeitures		2,500			168.00
2010 Grants		(4,625	)		10.40
2010 Forfeitures		700			168.00
2011 Grants		(17,033	)		10.40
2011 Forfeitures		525			168.00
2012 Grants		(17,613	)		5.11
Remaining shares available for issuance at June 30, 2012		13,193

Summary of compensation expense charged against pretax loss under restricted stock award

	For the three months ended June 30,				For the six months ended June 30,
	2012		2011		2012		2011
Compensation expense	$	72	$	57	$	232	$	219
Income tax benefit		—		—		—		—

Summary of stock options and restricted stock activity

	Total shares			Shares of restricted stock		Weighted- average  grant date fair value		Stock options outstanding		Weighted- average exercise price
Shares available for issuance under the 2011 Plan		500,000
2011 Grants		(473,002	)		89,751	$	10.48		383,251	$	10.51
2012 Grants		(8,020	)		8,020		6.50		—		—
Remaining shares available for issuance at June 30, 2012		18,978

Summary of stock options outstanding

	Options outstanding
Exercise price	Number of stock options outstanding at June 30, 2012		Weighted- average remaining contractual life (years)		Weighted- average exercise price
$10.40		312,501		8.87	$	10.40
$11.00		70,750		9.03		11.00
Total		383,251		8.90		10.51

Summary of compensation expense charged against pretax loss under restricted stock and stock options award

	For the three months ended June 30,				For the six months ended June 30,
	2012		2011		2012		2011
Compensation expense	$	190	$	81	$	380	$	81
Income tax benefit		—		—		—		—

XML

Subsequent Event (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011
Assets
Other loans held for sale	$ 14,446	$ 17,258	$ 14,178
Liabilities
Total deposits	1,062,677		1,064,181
Branches Under Contract For Sale [Member]
Assets
Other loans held for sale	7,508
Long-lived assets held for sale	681
Liabilities
Transaction deposits	12,641
Money market deposits	3,550
Savings deposits	2,141
Time deposits	22,763
Total deposits	$ 41,095

XML

Loans (Details 1) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011
Summary of other Loans held for sale
Other loans held for sale	$ 14,446	$ 17,258	$ 14,178
Percentage of loans receivable held for sale net	100.00%		100.00%
Commercial real estate [Member]
Summary of other Loans held for sale
Other loans held for sale	10,176		14,703
Percentage of loans receivable held for sale net	70.40%		100.00%
Single-family residential [Member]
Summary of other Loans held for sale
Other loans held for sale	2,298
Percentage of loans receivable held for sale net	15.90%
Commercial and industrial [Member]
Summary of other Loans held for sale
Other loans held for sale	910
Percentage of loans receivable held for sale net	6.30%
Consumer [Member]
Summary of other Loans held for sale
Other loans held for sale	228
Percentage of loans receivable held for sale net	1.60%
Other [Member]
Summary of other Loans held for sale
Other loans held for sale	$ 834
Percentage of loans receivable held for sale net	5.80%

XML

Investment Securities Available for Sale (Details 2)	Jun. 30, 2012
State and municipal [Member]
Moodys Ratings of investment securities available for sale
Available for securities fair value moodys credit rating	100.00%
Collateralized mortgage obligations [Member]
Moodys Ratings of investment securities available for sale
Available for securities fair value moodys credit rating	100.00%
Other mortgage-backed [Member]
Moodys Ratings of investment securities available for sale
Available for securities fair value moodys credit rating	100.00%
SBA loan-backed (federal agency) [Member]
Moodys Ratings of investment securities available for sale
Available for securities fair value moodys credit rating	100.00%
Moody's, Aaa Rating [Member] | Collateralized mortgage obligations [Member]
Moodys Ratings of investment securities available for sale
Available for securities fair value moodys credit rating	100.00%
Moody's, Aaa Rating [Member] | Other mortgage-backed [Member]
Moodys Ratings of investment securities available for sale
Available for securities fair value moodys credit rating	100.00%
Moody's, Aaa Rating [Member] | SBA loan-backed (federal agency) [Member]
Moodys Ratings of investment securities available for sale
Available for securities fair value moodys credit rating	100.00%
Moodys Aa1 - A1 Rating [Member] | State and municipal [Member]
Moodys Ratings of investment securities available for sale
Available for securities fair value moodys credit rating	74.00%
Moody's, Baa2 Rating [Member] | State and municipal [Member]
Moodys Ratings of investment securities available for sale
Available for securities fair value moodys credit rating	14.00%
Not Rated [Member] | State and municipal [Member]
Moodys Ratings of investment securities available for sale
Available for securities fair value moodys credit rating	12.00%

XML

Other Loans Held for Sale and Valuation Allowance (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2012	Jun. 30, 2011
Summarize activity within other loans held for sale and the related valuation allowance
Other loans held for sale, Beginning Balance	$ 17,258	$ 14,178
Valuation allowance, beginning of period	2,555	2,561
Additions:
Gross loans transferred to other loans held for sale related to branch sales	7,508	7,508
Other gross loans transferred to other loans held for sale	9,739	12,214
Writedowns on other loans held for sale included in valuation allowance, net	97	100
Total additions, Other loans held for sale	17,247	19,722
Total additions, Valuation allowance on other loans held for sale	97	100
Reductions:
Proceeds from sale of other loans held for sale	14,250	13,718	6,528
Proceeds resulting from sales and settlement of other loans held for sale, Valuation allowance	874	874
Transfers to foreclosed real estate	1,336	1,814
Other loans held for sale transferred to gross loans		1,327
Other loans held for sale transferred to gross loans, Valuation allowance		9
Direct writedowns on other loans held for sale	2,651	2,776
Net paydowns	44	70
Total reductions, Other loans held for sale	18,281	20,237
Total reductions, Valuation allowance on other loans held for sale	874	883
Other loans held for sale, Ending Balance	14,446	14,446
Valuation allowance, end of period	$ 1,778	$ 1,778

XML

Loans (Details 2) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Summary of loans secured by commercial real estate
Commercial real estate included in gross loans	$ 441,588	$ 478,576
Commercial real estate included in commercial loans held for sale	14,446	14,178
Loans, gross	723,986	773,558
Commercial [Member]
Summary of loans secured by commercial real estate
Commercial real estate included in gross loans	441,588
Commercial real estate included in commercial loans held for sale	10,176
Loans, gross	451,764
Percentage of gross loans and commercial loans held for sale	61.20%
Percentage of regulatory capital	415.50%
Construction, land development, and other land loans [Member]
Summary of loans secured by commercial real estate
Loans, gross	66,998	87,613
Construction, land development, and other land loans [Member] | Commercial [Member]
Summary of loans secured by commercial real estate
Commercial real estate included in gross loans	66,998
Commercial real estate included in commercial loans held for sale	2,691
Loans, gross	69,689
Percentage of gross loans and commercial loans held for sale	9.50%
Percentage of regulatory capital	64.10%
Multifamily residential [Member]
Summary of loans secured by commercial real estate
Loans, gross	12,694	17,945
Multifamily residential [Member] | Commercial [Member]
Summary of loans secured by commercial real estate
Commercial real estate included in gross loans	12,694
Loans, gross	12,694
Percentage of gross loans and commercial loans held for sale	1.70%
Percentage of regulatory capital	11.70%
Nonfarm nonresidential [Member]
Summary of loans secured by commercial real estate
Loans, gross	361,896	373,018
Nonfarm nonresidential [Member] | Commercial [Member]
Summary of loans secured by commercial real estate
Commercial real estate included in gross loans	361,896
Commercial real estate included in commercial loans held for sale	7,485
Loans, gross	$ 369,381
Percentage of gross loans and commercial loans held for sale	50.00%
Percentage of regulatory capital	339.70%

XML

Foreclosed Real Estate and Repossessed Personal Property (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2010
Summary of foreclosed real estate and repossessed personal property
Foreclosed real estate	$ 14,683	$ 26,701	$ 27,663	$ 15,267	$ 16,244	$ 19,983
Repossessed personal property	62		161
Total foreclosed real estate and repossessed personal property	$ 14,745		$ 27,824

XML

Derivative Financial Instruments and Hedging Activities (Details) (USD $)										3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended
	Jun. 30, 2012 Loan Origination Commitments [Member]	Jun. 30, 2011 Loan Origination Commitments [Member]	Jun. 30, 2012 Forward Sales Commitment [Member]	Dec. 31, 2011 Forward Sales Commitment [Member]	Jun. 30, 2012 Other Assets [Member] Loan Origination Commitments [Member]	Jun. 30, 2011 Other Assets [Member] Loan Origination Commitments [Member]	Jun. 30, 2012 Other Assets [Member] Forward Sales Commitment [Member]	Dec. 31, 2011 Other Assets [Member] Forward Sales Commitment [Member]	Dec. 31, 2011 Other Liabilities [Member] Forward Sales Commitment [Member]	Jun. 30, 2012 Sales [Member] Loan Origination Commitments [Member]	Jun. 30, 2011 Sales [Member] Loan Origination Commitments [Member]	Jun. 30, 2012 Sales [Member] Loan Origination Commitments [Member]	Jun. 30, 2011 Sales [Member] Loan Origination Commitments [Member]	Jun. 30, 2012 Sales [Member] Forward Sales Commitment [Member]	Jun. 30, 2011 Sales [Member] Forward Sales Commitment [Member]	Jun. 30, 2012 Sales [Member] Forward Sales Commitment [Member]	Jun. 30, 2011 Sales [Member] Forward Sales Commitment [Member]
Derivative Financial Instruments And Hedging Activities (Textual) [Abstract]
Commitments to originate conforming loans	$ 16,100,000	$ 10,700,000	$ 13,400,000	$ 8,000,000
Other assets in the Consolidated Balance Sheets					436,000	365,000	293,000	116,000
Other liabilities in the Consolidated Balance Sheets									25,000
Net change in forward sales commitment fair values										$ 23,000	$ 82,000	$ 71,000	$ 23,000	$ 142,000	$ 11,000	$ 202,000	$ 64,000

XML

Investment Securities Available for Sale (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Available-for-sale Securities, Balance Sheet, Reported Amounts
Amortized cost	$ 247,252	$ 250,230
Gross unrealized gains	1,022	11,152
Gross unrealized losses	(874)	390
Fair value	247,400	260,992
State and municipal [Member]
Available-for-sale Securities, Balance Sheet, Reported Amounts
Amortized cost	13,162	113,079
Gross unrealized gains	405	7,886
Gross unrealized losses	(14)
Fair value	13,553	120,965
Collateralized mortgage obligations [Member]
Available-for-sale Securities, Balance Sheet, Reported Amounts
Amortized cost	142,900	117,129
Gross unrealized gains	425	2,210
Gross unrealized losses	(598)	390
Fair value	142,727	118,949
Other mortgage-backed [Member]
Available-for-sale Securities, Balance Sheet, Reported Amounts
Amortized cost	57,047	20,022
Gross unrealized gains	164	1,056
Gross unrealized losses	(54)
Fair value	57,157	21,078
SBA loan-backed (federal agency) [Member]
Available-for-sale Securities, Balance Sheet, Reported Amounts
Amortized cost	34,143
Gross unrealized gains	28
Gross unrealized losses	(208)
Fair value	$ 33,963

XML

Premises and Equipment, net (Tables)

6 Months Ended

Jun. 30, 2012

Premises and Equipment, net [Abstract]

Summary of premises and equipment balances

	June 30, 2012			December 31, 2011
Land	$	5,581		$	5,591
Buildings		19,523			19,497
Leasehold improvements		4,309			4,644
Furniture and equipment		12,355			12,147
Software		4,307			4,210
Bank automobiles		94			95
Capital lease asset		1,378			1,378
Premises and equipment, gross		47,547			47,562
Accumulated depreciation		(22,573	)		(21,758	)
Premises and equipment, net	$	24,974		$	25,804

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Foreclosed Real Estate and Repossessed Personal Property (Details 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Reconciliation of carrying amount of foreclosed real estate
Foreclosed real estate, beginning of period	$ 26,701	$ 16,244	$ 27,663	$ 19,983
Plus: New foreclosed real estate	1,885	1,648	4,161	5,412
Less: Proceeds from sale of foreclosed real estate	(7,142)	(1,469)	9,064	8,457
Plus: Gain and losses on sale of foreclosed real estate	318	86	318	86
Less: Writedowns charged to expense	(7,063)	(1,161)	(8,395)	(1,757)
Foreclosed real estate, end of period	$ 14,683	$ 15,267	$ 14,683	$ 15,267

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Premises and Equipment, net (Details Textual) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012 Branches	Jun. 30, 2011	Jun. 30, 2012 Branches	Jun. 30, 2011
Premises and Equipment, net (Textual) [Abstract]
Number of commercial and consumer banking branches	27		27
Number of leased branches	6		6
Number of owned branches	21		21
Number Of Limited Service Branches	6		6
Number of branches to be sold	2		2
Depreciation expense	$ 549	$ 593	$ 1,330	$ 1,191

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Employee Benefit Plans (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Net periodic benefit cost for defined benefit plans
Interest cost	$ 234	$ 250	$ 490	$ 501
Expected return on plan assets	(276)	(296)	(579)	(570)
Amortization of net actuarial loss	222	197	466	394
Net periodic pension expense	$ 180	$ 151	$ 377	$ 325

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Loans (Details 4) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Financing receivable internally assigned credit quality indicators
Gross Loans	$ 723,986	$ 773,558
Less: other loans held for sale	(14,446)	(14,178)
Commercial real estate included in gross loans	441,588	478,576
Construction, land development, and other land loans [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	66,998	87,613
Multifamily residential [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	12,694	17,945
Nonfarm nonresidential [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	361,896	373,018
Total Commercial real estate [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	451,764	492,754
Less: other loans held for sale	(10,176)	14,178
Commercial real estate included in gross loans	441,588
Grade 1 [Member] | Total Commercial real estate [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans
Grade 2 [Member] | Nonfarm nonresidential [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	427	457
Grade 2 [Member] | Total Commercial real estate [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	427	457
Grade 3 [Member] | Construction, land development, and other land loans [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	10,357	8,295
Grade 3 [Member] | Multifamily residential [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	2,868	3,252
Grade 3 [Member] | Nonfarm nonresidential [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	83,081	100,265
Grade 3 [Member] | Total Commercial real estate [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	97,221	111,812
Less: other loans held for sale	915
Grade 4 [Member] | Construction, land development, and other land loans [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	15,294	13,601
Grade 4 [Member] | Multifamily residential [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	1,229	945
Grade 4 [Member] | Nonfarm nonresidential [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	132,407	126,961
Grade 4 [Member] | Total Commercial real estate [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	151,216	141,507
Less: other loans held for sale	2,286
Grade W [Member] | Construction, land development, and other land loans [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	6,810	9,075
Grade W [Member] | Multifamily residential [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	989	4,233
Grade W [Member] | Nonfarm nonresidential [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	66,026	51,889
Grade W [Member] | Total Commercial real estate [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	73,825	65,197
Grade 5 [Member] | Construction, land development, and other land loans [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	3,755	3,671
Grade 5 [Member] | Multifamily residential [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	7,368	7,550
Grade 5 [Member] | Nonfarm nonresidential [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	27,830	27,235
Grade 5 [Member] | Total Commercial real estate [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	38,953	38,456
Grade 6 [Member] | Construction, land development, and other land loans [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	10,095	21,511
Grade 6 [Member] | Multifamily residential [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	245	1,956
Grade 6 [Member] | Nonfarm nonresidential [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	47,116	61,907
Grade 6 [Member] | Total Commercial real estate [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	62,281	94,174
Less: other loans held for sale	4,825	8,800
Grade 7 [Member] | Construction, land development, and other land loans [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	3,766	10,624
Grade 7 [Member] | Nonfarm nonresidential [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	5,085	3,991
Grade 7 [Member] | Total Commercial real estate [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	10,964	19,993
Less: other loans held for sale	2,113	5,378
Not Risk Rated [Member] | Construction, land development, and other land loans [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	16,921	20,836
Not Risk Rated [Member] | Multifamily residential [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	(5)	9
Not Risk Rated [Member] | Nonfarm nonresidential [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	(76)	313
Not Risk Rated [Member] | Total Commercial real estate [Member]
Financing receivable internally assigned credit quality indicators
Gross Loans	16,877	21,158
Less: other loans held for sale	$ 37

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Disclosures Regarding Fair Value (Details Textual) (USD $) In Thousands, unless otherwise specified					6 Months Ended
	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2012 Nonrecurring [Member]	Dec. 31, 2011 Nonrecurring [Member]	Jun. 30, 2012 Level 3 [Member]
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Measured liabilities	$ 1,091,188	$ 1,099,670	$ 0	$ 0
Impaired loans period					12 months

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Mortgage-Banking Activities (Details 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Summary of activity in valuation allowance for impairment of mortgage-servicing rights
Valuation allowance, beginning of period	$ 38	$ 41	$ 39	$ 39
Additions charged to (reduction credited from) operations	2	(3)	(1)	(1)
Valuation allowance, end of period	$ 40	$ 38	$ 40	$ 38

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Borrowings (Details Textual) (USD $)	3 Months Ended	6 Months Ended
	Jun. 30, 2012 Bank	Jun. 30, 2012 CreditFacility Bank	Jun. 30, 2011	Dec. 31, 2011
Borrowings (Textual) [Abstract]
Number of secured line of credit facility		2
Number of unsecured line of credit facility		1
Total assets borrow from the FHLB	15.00%	15.00%
Number of regional FHLB's	12	12
Quoted market value	$ 0	$ 0
Carrying value of stock	2,184,000	2,184,000		3,502,000
Redeemed excess FHLB stock at book value	1,300,000	1,318,000	1,600,000
Outstanding advances from the FHLB	0	0		0
Loans and securities pledged	$ 6,600,000	$ 6,600,000		$ 10,900,000

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Deposits (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Summary of composition of deposits
Total deposits	$ 1,062,677	$ 1,064,181
Composition [Member]
Summary of composition of deposits
Transaction deposits	486,013	460,766
Money market deposits	128,527	145,649
Savings deposits	66,020	59,117
Time deposits $100,000 and greater	196,444	198,202
Time deposits less than $100,000	185,673	200,447
Total deposits	$ 1,062,677	$ 1,064,181

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Shareholders' Equity (Details)	3 Months Ended
	Jun. 30, 2012	Mar. 31, 2012	Jul. 23, 2012	Dec. 31, 2011
Shareholders' Equity (Textual) [Abstract]
Common stock, shares authorized	75,000,000			75,000,000
Common stock, shares issued	12,752,040			12,726,388
Common stock, future issuance			428,125
Restricted stock awarded	8,020	17,613
Preferred stock, shares authorized	2,500,000			2,500,000
Preferred stock, shares issued

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Mortgage Banking Activities (Details Textual) (USD $) In Millions, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Mortgage-banking activities (Textual) [Abstract]
Mortgage loans serviced for benefit of others	$ 393.4	$ 397.5
Book value of mortgage-servicing rights	2.5	2.6
Estimated fair value of mortgage-servicing rights	$ 3.0	$ 3.2

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Other Loans Held for Sale and Valuation Allowance (Details Textual) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2012 Loans
Other loans held for sale and valuation allowance (Textual) [Abstract]
Proceeds from sale of other loans held for sale	$ 2.5
Writedowns on other loans held for sale	2.7
Other loans held for sale	7.5
Number of loans held for sale	3
Carrying value of commercial real estate loans	$ 6.9

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Derivative Financial Instruments and Hedging Activities

6 Months Ended

Jun. 30, 2012

Derivative Financial Instruments and Hedging Activities [Abstract]

Derivative Financial Instruments and Hedging Activities

18. Derivative Financial Instruments and Hedging Activities

At June 30, 2012 and December 31, 2011, the Company’s only derivative instruments related to residential mortgage lending activities. The Company originates certain residential loans with the intention of selling these loans. Between the time the Company enters into an interest rate lock commitment to originate a residential loan with a potential borrower and the time the closed loan is sold, the Company is subject to variability in market prices related to these commitments. The Company also enters into forward sale agreements of “to be issued” loans. The commitments to originate residential loans and forward sales commitments are freestanding derivative instruments and are recorded on the Consolidated Balance Sheets at fair value. They do not qualify for hedge accounting treatment. Fair value adjustments are recorded within Mortgage-banking in the Consolidated Statements of Income (Loss).

At June 30, 2012, commitments to originate conforming loans totaled $16.1 million. These derivative loan commitments had positive fair values, included within Other assets in the Consolidated Balance Sheets, totaling $436 thousand. At December 31, 2011, commitments to originate conforming loans totaled $10.7 million. At December 31, 2011, these derivative loan commitments had positive fair values, included within Other assets in the Consolidated Balance Sheets, totaling $365 thousand. The net change in derivative loan commitment fair values during the three months ended June 30, 2012 and 2011 resulted in net derivative loan commitment income of $23 thousand and net derivative loan commitment expense of $82 thousand, respectively. The net change in derivative loan commitment fair values during the six months ended June 30, 2012 and 2011 resulted in net derivative loan commitment income of $71 thousand and net derivative loan commitment expense $23 thousand, respectively.

Forward sales commitments totaled $13.4 million at June 30, 2012. These forward sales commitments had positive fair values, included within Other assets in the Consolidated Balance Sheets, totaling $293 thousand. Forward sales commitments totaled $8.0 million at December 31, 2011. At December 31, 2011, forward sales commitments had positive fair values, included within Other assets in the Consolidated Balance Sheets, totaling $116 thousand and negative fair values, included within Other liabilities in the Consolidated Balance Sheets, totaling $25 thousand. The net change in forward sales commitment fair values during the three months ended June 30, 2012 and 2011 resulted in income of $142 thousand and $11 thousand, respectively. The net change in forward sales commitment fair values during the six months ended June 30, 2012 and 2011, resulted in income of $202 thousand and expense of $64 thousand, respectively.

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Investment Securities Available for Sale (Details 4) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Amortized Cost
Due in one year or less	$ 4,787
Due after one year through five years	7,281
Due after five years through ten years	1,094
Due after ten years
Investment securities available for sale, amortized cost	247,252	250,230
Fair value
Due in one year or less	4,859
Due after one year through five years	7,614
Due after five years through ten years	1,080
Due after ten years
Investment securities for sale, fair value	247,400	260,992
Collateralized mortgage obligations [Member]
Amortized Cost
Investment securities available for sale, amortized cost	142,900	117,129
Fair value
Investment securities for sale, fair value	142,727	118,949
Other mortgage-backed [Member]
Amortized Cost
Investment securities available for sale, amortized cost	57,047	20,022
Fair value
Investment securities for sale, fair value	57,157	21,078
SBA loan-backed (federal agency) [Member]
Amortized Cost
Investment securities available for sale, amortized cost	34,143
Fair value
Investment securities for sale, fair value	33,963
State and municipal [Member]
Amortized Cost
Investment securities available for sale, amortized cost	13,162	113,079
Fair value
Investment securities for sale, fair value	$ 13,553	$ 120,965

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Disclosures Regarding Fair Value (Tables)

6 Months Ended

Jun. 30, 2012

Disclosures Regarding Fair Value [Abstract]

Assets and Liabilities Measured at Fair Value on a Recurring Basis

	June 30, 2012
	Level 1		Level 2		Level 3		Total
Assets
Investment securities available for sale
State and municipal	$	—	$	13,553	$	—	$	13,553
Collateralized mortgage obligations		10,469		132,258		—		142,727
Other mortgage-backed (federal agencies)		45,098		12,059		—		57,157
SBA loan-backed (federal agency)		33,963		—		—		33,963
Derivative financial instruments		—		729		—		729
Total assets measured at fair value on a recurring basis	$	89,530	$	158,599	$	—	$	248,129
Liabilities
Derivative financial instruments	$	—	$	—	$	—	$	—
	December 31, 2011
	Level 1		Level 2		Level 3		Total
Assets
Investment securities available for sale
State and municipal	$	—	$	120,965	$	—	$	120,965
Collateralized mortgage obligations		—		118,949		—		118,949
Other mortgage-backed (federal agencies)		—		21,078		—		21,078
Derivative financial instruments		—		481		—		481
Total assets measured at fair value on a recurring basis	$	—	$	261,473	$	—	$	261,473
Liabilities
Derivative financial instruments	$	—	$	25	$	—	$	25

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

	June 30, 2012
	Level 1		Level 2		Level 3		Total
Assets
Mortgage loans held for sale	$	—	$	3,789	$	—	$	3,789
Other loans held for sale		7,508		6,938		—		14,446
Impaired loans in gross loans		4,655		15,797		440		20,892
Foreclosed real estate and repossessed personal property		2,268		9,386		3,091		14,745
Long-lived assets held for sale		—		681		921		1,602
Total assets measured at fair value on a nonrecurring basis	$	14,431	$	36,591	$	4,452	$	55,474

	December 31, 2011
	Level 1		Level 2		Level 3		Total
Assets
Mortgage loans held for sale	$	—	$	3,648	$	—	$	3,648
Other loans held for sale		—		12,857		1,321		14,178
Impaired loans in gross loans		—		36,314		7,111		43,425
Foreclosed real estate and repossessed personal property		3,491		2,266		22,067		27,824
Long-lived assets held for sale		—		—		1,603		1,603
Total assets measured at fair value on a nonrecurring basis	$	3,491	$	55,085	$	32,102	$	90,678

Summary of significant unobservable inputs used in the fair value measurements for Level 3 assets measured at fair value on a nonrecurring basis

	Fair value  at June 30, 2012
			Valuation technique	Significant unobservable inputs
Assets
Impaired loans in gross loans	$	440	Internal assessment of collateral value	Adjustments to appraisals for recent comparable sales
Foreclosed real estate and repossessed personal property		3,091	Appraisals of collateral value	Adjustments to appraisal for age of comparable sales
Long-lived assets held for sale		921	Internal valuation	Appraisals and/or sales of comparable properties

Foreclosed real estate and repossessed personal property

	Carrying amount		Fair value
June 30, 2012
Financial instruments - assets
Loans (1)	$	684,816	$	689,735
Financial instruments - liabilities
Deposits		1,062,677		1,065,175
December 31, 2012
Financial instruments - assets
Loans (1)	$	704,537	$	715,288
Financial instruments - liabilities
Deposits		1,064,181		1,069,792

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Mortgage-Banking Activities (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Summary of changes in mortgage-servicing rights
Mortgage-servicing rights portfolio, net of valuation allowance, beginning of period	$ 2,563	$ 2,854	$ 2,586	$ 2,896
Capitalized mortgage-servicing rights	179	56	363	226
Mortgage-servicing rights portfolio amortization and impairment	201	163	408	375
Mortgage-servicing rights portfolio, net of valuation allowance, end of period	$ 2,541	$ 2,747	$ 2,541	$ 2,747

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Equity Based Compensation (Details 6) (Restricted stock and stock options [Member], 2011 Plan [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Restricted stock and stock options [Member] | 2011 Plan [Member]
Summary of compensation expense charged against pretax loss under restricted stock and stock options award
Compensation expense	$ 190	$ 81	$ 380	$ 81
Income tax benefit

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Borrowings (Tables)

6 Months Ended

Jun. 30, 2012

Borrowings [Abstract]

Summary of the Company's line of credit funding utilization and availability

	June 30, 2012		December 31, 2011
Correspondent bank line of credit accomodations	$	35,000	$	35,000
Utilized correspondent bank line of credit accomodations		—		—
Available correspondent bank line of credit accomodations	$	35,000	$	35,000

Summary of FHLB borrowed funds utilization and availability

	June 30, 2012		December 31, 2011
Available lendable loan collateral value pledged to serve against FHLB advances	$	75,501	$	66,690
Available lendable investment security collateral value pledged to serve against FHLB advances		—		15,410
Excess		75,501		82,100

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Investment Securities Available for Sale (Details Textual) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2012
Investment Securities Available for Sale (Textual) [Abstract]
Investment securities	$ 9.9
Sale of investment securities	$ 142.0
Weighted average life of investment securities available for sale	4 years 10 months 24 days
Percentage of weighted average life of investment securities	95.00%

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Loans (Details 14) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment	$ 26,699	$ 50,698
Impaired loans with no related allowance recorded, Unpaid Principal Balance	59,680	97,793
Impaired loans with an allowance recorded, Recorded investment	25,273	33,271
Impaired loans with an allowance recorded, Unpaid Principal Balance	27,960	35,262
Impaired loans with an allowance recorded, Related allowance	3,295	6,505
Recorded investment	51,972	83,969
Unpaid principal balance	87,640	133,055
Loans gross [Member]
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment	19,761	36,520
Impaired loans with no related allowance recorded, Unpaid Principal Balance	44,005	67,163
Impaired loans with an allowance recorded, Recorded investment	25,273	33,271
Impaired loans with an allowance recorded, Unpaid Principal Balance	27,960	35,262
Impaired loans with an allowance recorded, Related allowance	3,295	6,505
Recorded investment	45,034	69,791
Unpaid principal balance	71,965	102,425
Other Loans Held For Sale [Member]
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment	6,938	14,178
Impaired loans with no related allowance recorded, Unpaid Principal Balance	15,675	30,630
Recorded investment	6,938	14,178
Unpaid principal balance	15,675	30,630
Construction, land development, and other land loans [Member]
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment	11,866	21,386
Impaired loans with no related allowance recorded, Unpaid Principal Balance	35,773	53,534
Impaired loans with an allowance recorded, Recorded investment	5,385	9,702
Impaired loans with an allowance recorded, Unpaid Principal Balance	5,835	11,624
Impaired loans with an allowance recorded, Related allowance	321	3,301
Recorded investment	17,701	31,088
Unpaid principal balance	41,608	65,158
Construction, land development, and other land loans [Member] | Loans gross [Member]
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment	9,753	16,845
Impaired loans with no related allowance recorded, Unpaid Principal Balance	26,701	36,735
Impaired loans with an allowance recorded, Recorded investment	5,835	9,702
Impaired loans with an allowance recorded, Unpaid Principal Balance	5,835	11,624
Impaired loans with an allowance recorded, Related allowance	321	3,301
Recorded investment	15,588	26,547
Unpaid principal balance	32,536	48,359
Construction, land development, and other land loans [Member] | Other Loans Held For Sale [Member]
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment	2,113	4,541
Impaired loans with no related allowance recorded, Unpaid Principal Balance	9,072	16,799
Recorded investment	2,113	4,541
Unpaid principal balance	9,072	16,799
Multifamily residential [Member]
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment
Impaired loans with no related allowance recorded, Unpaid Principal Balance
Impaired loans with an allowance recorded, Recorded investment	245	247
Impaired loans with an allowance recorded, Unpaid Principal Balance	245	247
Impaired loans with an allowance recorded, Related allowance	7	9
Recorded investment	245	247
Unpaid principal balance	245	247
Multifamily residential [Member] | Loans gross [Member]
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment
Impaired loans with no related allowance recorded, Unpaid Principal Balance
Impaired loans with an allowance recorded, Recorded investment	245	247
Impaired loans with an allowance recorded, Unpaid Principal Balance	245	247
Impaired loans with an allowance recorded, Related allowance	7	9
Recorded investment	245	247
Unpaid principal balance	245	247
Multifamily residential [Member] | Other Loans Held For Sale [Member]
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment
Impaired loans with no related allowance recorded, Unpaid Principal Balance
Recorded investment
Unpaid principal balance
Nonfarm nonresidential [Member]
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment	13,088	25,684
Impaired loans with no related allowance recorded, Unpaid Principal Balance	19,294	36,019
Impaired loans with an allowance recorded, Recorded investment	16,203	20,784
Impaired loans with an allowance recorded, Unpaid Principal Balance	16,583	20,784
Impaired loans with an allowance recorded, Related allowance	2,759	2,886
Recorded investment	29,291	46,468
Unpaid principal balance	35,877	56,803
Nonfarm nonresidential [Member] | Loans gross [Member]
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment	8,263	16,047
Impaired loans with no related allowance recorded, Unpaid Principal Balance	12,691	22,188
Impaired loans with an allowance recorded, Recorded investment	16,203	20,784
Impaired loans with an allowance recorded, Unpaid Principal Balance	16,583	20,784
Impaired loans with an allowance recorded, Related allowance	2,759	2,886
Recorded investment	24,466	36,831
Unpaid principal balance	29,274	42,972
Nonfarm nonresidential [Member] | Other Loans Held For Sale [Member]
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment	4,825	9,637
Impaired loans with no related allowance recorded, Unpaid Principal Balance	6,603	13,831
Recorded investment	4,825	9,637
Unpaid principal balance	6,603	13,831
Total Commercial real estate [Member]
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment	24,954	47,070
Impaired loans with no related allowance recorded, Unpaid Principal Balance	55,067	89,553
Impaired loans with an allowance recorded, Recorded investment	22,283	30,733
Impaired loans with an allowance recorded, Unpaid Principal Balance	22,663	32,655
Impaired loans with an allowance recorded, Related allowance	3,087	6,196
Recorded investment	47,237	77,803
Unpaid principal balance	77,730	122,208
Total Commercial real estate [Member] | Loans gross [Member]
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment	18,016	32,892
Impaired loans with no related allowance recorded, Unpaid Principal Balance	39,392	58,923
Impaired loans with an allowance recorded, Recorded investment	22,283	30,733
Impaired loans with an allowance recorded, Unpaid Principal Balance	22,663	32,655
Impaired loans with an allowance recorded, Related allowance	3,087	6,196
Recorded investment	40,299	63,625
Unpaid principal balance	62,055	91,578
Total Commercial real estate [Member] | Other Loans Held For Sale [Member]
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment	6,938	14,178
Impaired loans with no related allowance recorded, Unpaid Principal Balance	15,675	30,630
Recorded investment	6,938	14,178
Unpaid principal balance	15,675	30,630
Single Family Residential Revolving Open End Loans [Member]
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment
Impaired loans with no related allowance recorded, Unpaid Principal Balance
Impaired loans with an allowance recorded, Recorded investment
Impaired loans with an allowance recorded, Unpaid Principal Balance
Impaired loans with an allowance recorded, Related allowance
Recorded investment
Unpaid principal balance
Single Family Residential Revolving Open End Loans [Member] | Loans gross [Member]
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment
Impaired loans with no related allowance recorded, Unpaid Principal Balance
Impaired loans with an allowance recorded, Recorded investment
Impaired loans with an allowance recorded, Unpaid Principal Balance
Impaired loans with an allowance recorded, Related allowance
Recorded investment
Unpaid principal balance
Single Family Residential Revolving Open End Loans [Member] | Other Loans Held For Sale [Member]
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment
Impaired loans with no related allowance recorded, Unpaid Principal Balance
Recorded investment
Unpaid principal balance
Single Family Residential Closed End First Lien [Member]
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment	982	2,742
Impaired loans with no related allowance recorded, Unpaid Principal Balance	3,407	6,928
Impaired loans with an allowance recorded, Recorded investment	2,033	1,689
Impaired loans with an allowance recorded, Unpaid Principal Balance	4,340	1,689
Impaired loans with an allowance recorded, Related allowance	108	161
Recorded investment	3,015	4,431
Unpaid principal balance	7,747	8,617
Single Family Residential Closed End First Lien [Member] | Loans gross [Member]
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment	982	2,742
Impaired loans with no related allowance recorded, Unpaid Principal Balance	3,407	6,928
Impaired loans with an allowance recorded, Recorded investment	2,033	1,689
Impaired loans with an allowance recorded, Unpaid Principal Balance	4,340	1,689
Impaired loans with an allowance recorded, Related allowance	108	161
Recorded investment	3,015	4,431
Unpaid principal balance	7,747	8,617
Single Family Residential Closed End First Lien [Member] | Other Loans Held For Sale [Member]
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment
Impaired loans with no related allowance recorded, Unpaid Principal Balance
Recorded investment
Unpaid principal balance
Single Family Residential Closed End Junior Lien [Member]
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment	10
Impaired loans with no related allowance recorded, Unpaid Principal Balance	27
Impaired loans with an allowance recorded, Recorded investment	151	183
Impaired loans with an allowance recorded, Unpaid Principal Balance	151	183
Impaired loans with an allowance recorded, Related allowance	50	54
Recorded investment	161	183
Unpaid principal balance	178	183
Single Family Residential Closed End Junior Lien [Member] | Loans gross [Member]
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment	10
Impaired loans with no related allowance recorded, Unpaid Principal Balance	27
Impaired loans with an allowance recorded, Recorded investment	151	183
Impaired loans with an allowance recorded, Unpaid Principal Balance	151	183
Impaired loans with an allowance recorded, Related allowance	50	54
Recorded investment	161	183
Unpaid principal balance	178	183
Single Family Residential Closed End Junior Lien [Member] | Other Loans Held For Sale [Member]
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment
Impaired loans with no related allowance recorded, Unpaid Principal Balance
Recorded investment
Unpaid principal balance
Total Single Family Residential Loans [Member]
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment	992	2,742
Impaired loans with no related allowance recorded, Unpaid Principal Balance	3,434	6,928
Impaired loans with an allowance recorded, Recorded investment	2,184	1,872
Impaired loans with an allowance recorded, Unpaid Principal Balance	4,491	1,872
Impaired loans with an allowance recorded, Related allowance	158	215
Recorded investment	3,176	4,614
Unpaid principal balance	7,925	8,800
Total Single Family Residential Loans [Member] | Loans gross [Member]
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment	992	2,742
Impaired loans with no related allowance recorded, Unpaid Principal Balance	3,434	6,928
Impaired loans with an allowance recorded, Recorded investment	2,184	1,872
Impaired loans with an allowance recorded, Unpaid Principal Balance	4,491	1,872
Impaired loans with an allowance recorded, Related allowance	158	215
Recorded investment	3,176	4,614
Unpaid principal balance	7,925	8,800
Total Single Family Residential Loans [Member] | Other Loans Held For Sale [Member]
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment
Impaired loans with no related allowance recorded, Unpaid Principal Balance
Recorded investment
Unpaid principal balance
Commercial and Industrial [Member]
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment	753	886
Impaired loans with no related allowance recorded, Unpaid Principal Balance	1,179	1,312
Impaired loans with an allowance recorded, Recorded investment	765	622
Impaired loans with an allowance recorded, Unpaid Principal Balance	765	691
Impaired loans with an allowance recorded, Related allowance	45	88
Recorded investment	1,518	1,508
Unpaid principal balance	1,944	2,003
Commercial and Industrial [Member] | Loans gross [Member]
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment	753	886
Impaired loans with no related allowance recorded, Unpaid Principal Balance	1,179	1,312
Impaired loans with an allowance recorded, Recorded investment	765	622
Impaired loans with an allowance recorded, Unpaid Principal Balance	765	691
Impaired loans with an allowance recorded, Related allowance	45	88
Recorded investment	1,518	1,508
Unpaid principal balance	1,944	2,003
Commercial and Industrial [Member] | Other Loans Held For Sale [Member]
Summary of composition of impaired loans by class
Impaired loans with no related allowance recorded, Recorded investment
Impaired loans with no related allowance recorded, Unpaid Principal Balance
Recorded investment
Unpaid principal balance
Consumer-other [Member]
Summary of composition of impaired loans by class
Impaired loans with an allowance recorded, Recorded investment	41	44
Impaired loans with an allowance recorded, Unpaid Principal Balance	41	44
Impaired loans with an allowance recorded, Related allowance	5	6
Recorded investment	41	44
Unpaid principal balance	41	44
Consumer-other [Member] | Loans gross [Member]
Summary of composition of impaired loans by class
Impaired loans with an allowance recorded, Recorded investment	41	44
Impaired loans with an allowance recorded, Unpaid Principal Balance	41	44
Impaired loans with an allowance recorded, Related allowance	5	6
Recorded investment	41	44
Unpaid principal balance	41	44
Consumer-other [Member] | Other Loans Held For Sale [Member]
Summary of composition of impaired loans by class
Recorded investment
Unpaid principal balance

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Regulatory Capital Requirements and Dividend Restrictions (Details Textual) (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 10, 2010	Jun. 30, 2012 The Palmetto Bank [Member]	Dec. 31, 2011 The Palmetto Bank [Member]	Jun. 10, 2010 The Palmetto Bank [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Tier 1 leverage ratio			8.14%	8.52%	8.00%
Statutory well-capitalized minimum ratio			5.00%	5.00%	5.00%
Regulatory capital requirements and dividend restrictions (Textual) [Abstract]
Maximum number of days for maintaining risk based capital	120 days
Total risk-based capital to risk-weighted assets		10.00%
Tier 1 capital to total assets		8.00%
Maximum number of days to determine capital ratios	30 days
Maximum number of days to provide written plan to authorities	30 days
Maximum number of days to establish a plan to monitor compliance with consent order	30 days
Maximum number of days to get a written analysis and assessment of the Bank's management and staffing needs	60 days
Maximum number of days to eliminate by charge off or collection all assets or portions of assets classified as loss	10 days
Assets classified as doubtful		50.00%
Maximum number of days to review and update policy	60 days
Maximum number of days to reduce classified assets by specific percentage	60 days
Assets classified as substandard doubtful or special mention		$ 1,000,000
Maximum number of days for revising policies and procedures for managing adversely classified other real estate owned	60 days
Maximum number of days to perform risk segmentation analysis	90 days
Maximum number of days to review loan policy and procedures	60 days
Maximum number of days to adopt effective loan review and grading system	60 days
Maximum number of days to review and adopt written profit plan	60 days
Maximum number of days to review and update written plan addressing liquidity contingent funding and asset liability management	60 days
Maximum number of days to eliminate violations of law and regulation	30 days
Asset growth rate		10.00%
Yield on deposits		0.75%
Maximum number of days to furnish written progress reports	30 days

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Loans (Details 8) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Summary of carrying balance of troubled debt restructurings
Total troubled debt restructurings	$ 34,513	$ 55,103
Other loans held for sale [Member]
Summary of carrying balance of troubled debt restructurings
Total troubled debt restructurings	4,825	8,366
Loans gross [Member]
Summary of carrying balance of troubled debt restructurings
Total troubled debt restructurings	29,668	46,737
Performing [Member]
Summary of carrying balance of troubled debt restructurings
Total troubled debt restructurings	34,443	45,827
Performing [Member] | Other loans held for sale [Member]
Summary of carrying balance of troubled debt restructurings
Total troubled debt restructurings	4,825	8,366
Performing [Member] | Loans gross [Member]
Summary of carrying balance of troubled debt restructurings
Total troubled debt restructurings	29,618	37,461
Nonperforming [Member]
Summary of carrying balance of troubled debt restructurings
Total troubled debt restructurings	70	9,276
Nonperforming [Member] | Loans gross [Member]
Summary of carrying balance of troubled debt restructurings
Total troubled debt restructurings	$ 70	$ 9,276

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Investment Securities Available for Sale (Details 1) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012 Security	Dec. 31, 2011 Security
Reconciliation of Available-For-Sale Securities in a Continuous Unrealized Loss Position
Less than 12 months, Number of securities	21	9
Less than 12 months, Fair value	$ 95,980	$ 23,024
Less than 12 months, Gross unrealized losses	677	192
12 months or longer, Number of securities	12	7
12 months or longer, Fair value	17,894	16,773
12 months or longer, Gross unrealized losses	197	198
Total number of securities	33	16
Total Fair value	113,874	39,797
Total Gross unrealized losses	874	390
State and municipal [Member]
Reconciliation of Available-For-Sale Securities in a Continuous Unrealized Loss Position
Less than 12 months, Number of securities	1
Less than 12 months, Fair value	1,080
Less than 12 months, Gross unrealized losses	14
Total number of securities	1
Total Fair value	1,080
Total Gross unrealized losses	14
Collateralized mortgage obligations [Member]
Reconciliation of Available-For-Sale Securities in a Continuous Unrealized Loss Position
Less than 12 months, Number of securities	14	9
Less than 12 months, Fair value	64,713	23,024
Less than 12 months, Gross unrealized losses	401	192
12 months or longer, Number of securities	12	7
12 months or longer, Fair value	17,894	16,773
12 months or longer, Gross unrealized losses	197	198
Total number of securities	26	16
Total Fair value	82,607	39,797
Total Gross unrealized losses	598	390
Other mortgage-backed [Member]
Reconciliation of Available-For-Sale Securities in a Continuous Unrealized Loss Position
Less than 12 months, Number of securities	1
Less than 12 months, Fair value	5,402
Less than 12 months, Gross unrealized losses	54
Total number of securities	1
Total Fair value	5,402
Total Gross unrealized losses	54
SBA loan-backed (federal agency) [Member]
Reconciliation of Available-For-Sale Securities in a Continuous Unrealized Loss Position
Less than 12 months, Number of securities	5
Less than 12 months, Fair value	24,785
Less than 12 months, Gross unrealized losses	208
Total number of securities	5
Total Fair value	24,785
Total Gross unrealized losses	$ 208

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Cash and Cash Equivalents

6 Months Ended

Jun. 30, 2012

Cash and Cash Equivalents [Abstract]

Cash and Cash Equivalents

2. Cash and Cash Equivalents

Required Reserve Balances

The Federal Reserve Act requires each depository institution to maintain reserves against certain liabilities as prescribed by regulations of the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Bank reports these liabilities to the Federal Reserve on a weekly basis. Weekly reporting institutions maintain reserves on these liabilities with a 30-day lag. For the maintenance period ended on July 11, 2012, based on reported liabilities from May 29, 2012 through June 11, 2012, the Federal Reserve required the Bank to maintain reserves of $14.7 million. After taking into consideration the Company’s levels of vault cash and clearing balance requirements, reserves of $5.8 million were required to be maintained with the Federal Reserve.

Concentrations and Restrictions

In an effort to manage counterparty risk, the Company generally does not sell federal funds to other financial institutions. Federal funds are essentially uncollateralized overnight loans. The Company regularly evaluates the risk associated with the counterparties to these potential transactions to ensure that it would not be exposed to any significant risks with regard to cash and cash equivalent balances if it were to sell federal funds.

Restricted cash and cash equivalents pledged as collateral relative to merchant credit card agreements totaled $703 thousand at both June 30, 2012 and December 31, 2011.

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Loans (Details 9) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012 Contract	Jun. 30, 2012 Loans	Jun. 30, 2011 Loans
Troubled debt restructuring removed from the classification
Carrying balance		$ 5,887	$ 876
Count	10	18	1

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Regulatory Capital Requirements and Dividend Restrictions (Tables)

6 Months Ended

Jun. 30, 2012

Regulatory Capital Requirements and Dividend Restrictions [Abstract]

Summary of actual and required capital ratios

	Actual					For capital adequacy purposes					To be well capitalized under prompt corrective  action provisions
	amount		ratio			amount		ratio			amount		ratio
At June 30, 2012
Total capital to risk-weighted assets
Company	$	108,903		13.52	%	$	64,458		8.00	%		n/a		n/a
Bank		108,722		13.49			64,457		8.00		$	80,571		10.00	%
Tier 1 capital to risk-weighted assets
Company		98,728		12.25			32,229		4.00			n/a		n/a
Bank		98,547		12.23			32,229		4.00			48,343		6.00
Tier 1 leverage ratio
Company		98,728		8.16			48,414		4.00			n/a		n/a
Bank		98,547		8.14			48,414		4.00			60,517		5.00
At December 31, 2011
Total capital to risk-weighted assets
Company	$	116,864		13.49	%	$	69,280		8.00	%		n/a		n/a
Bank		115,985		13.39			69,285		8.00		$	86,607		10.00	%
Tier 1 capital to risk-weighted assets
Company		105,852		12.22			34,640		4.00			n/a		n/a
Bank		104,972		12.12			34,643		4.00			51,964		6.00
Tier 1 leverage ratio
Company		105,852		8.59			49,270		4.00			n/a		n/a
Bank		104,972		8.52			49,271		4.00			61,589		5.00

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2012

Summary of Significant Accounting Policies [Abstract]

Nature of Operations

Palmetto Bancshares, Inc. is a bank holding company organized in 1982 under the laws of South Carolina and is headquartered in Greenville, South Carolina. Through the Company’s wholly-owned subsidiary, The Palmetto Bank (the “Bank”), which began operations in 1906, the Bank specializes in providing personalized community banking services to individuals and small to mid-size businesses including retail banking (including mortgage loans, indirect automobile loans and credit cards), commercial banking (including business banking, Small Business Administration loans, treasury management and merchant services) and wealth management (including trust, brokerage, financial planning and insurance services) throughout our primary market area of northwest South Carolina (commonly referred to as “the Upstate”).

Principles of Consolidation / Basis of Presentation

Principles of Consolidation / Basis of Presentation

The accompanying Consolidated Financial Statements include the accounts of Palmetto Bancshares, Inc., the Bank and other subsidiaries of the Bank (also collectively referred to as the “Company,” “we,” “us” or “our”). In management’s opinion, all significant intercompany accounts and transactions have been eliminated in consolidation, and all adjustments necessary for a fair presentation of the financial condition and results of operations for the periods presented have been included. Any such adjustments are of a normal and recurring nature. Assets held by the Company in a fiduciary or agency capacity for clients are not included in the Company’s Consolidated Financial Statements because those items do not represent assets of the Company. The accounting and financial reporting policies of the Company conform, in all material respects, to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within the financial services industry.

The Consolidated Financial Statements as of and for the three and six months ended June 30, 2012 and 2011 contained in this Quarterly Report on Form 10-Q have not been audited by our independent registered public accounting firm. The Consolidated Financial Statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (the “SEC”). Accordingly, the Consolidated Financial Statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Consolidated Financial Statements and notes thereto for the year ended December 31, 2011 included in our Annual Report on Form 10-K filed with the SEC on March 2, 2012 (collectively, the “2011 Annual Report on Form 10-K”).

Subsequent Events

Subsequent Events

Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet including the estimates inherent in the process of preparing financial statements. Unrecognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. The Company has reviewed events occurring through the issuance date of the Consolidated Financial Statements and no subsequent events have occurred requiring accrual or disclosure in these financial statements other than any included herein.

Business Segments

Business Segments

Operating segments are components of an enterprise about which separate financial information is available and are evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. Public enterprises are required to report a measure of segment profit or loss, certain specific revenue and expense items for each segment, segment assets and information about the way that the operating segments were determined, among other items.

The Company considers business segments by analyzing distinguishable components that are engaged in providing individual products, services or groups of related products or services and that are subject to risks and returns that are different from those of other business segments. When determining whether products and services are related, the Company considers the nature of the products or services, the nature of the production processes, the type or class of client for which the products or services are designed and the methods used to distribute the products or provide the services.

For the past several years, we have been realigning our organizational structure and more specifically delineating our businesses. However, at this time, we do not yet have in place a reporting structure to separately report and evaluate our various lines of business. Accordingly, at June 30, 2012, the Company had one reportable operating segment, banking.

Use of Estimates

Use of Estimates

In preparing our Consolidated Financial Statements, the Company’s management makes estimates and assumptions that impact the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the Consolidated Financial Statements for the periods presented. Actual results could differ from these estimates and assumptions. Therefore, the results of operations for the three and six months ended June 30, 2012 are not necessarily indicative of the results of operations that may be expected in future periods or for the year ended December 31, 2012.

Reclassifications

Reclassifications

Certain amounts previously presented in our Consolidated Financial Statements for prior periods have been reclassified to conform to current classifications. All such reclassifications had no impact on the prior periods’ net loss, comprehensive loss or shareholders’ equity as previously reported.

Reverse Stock Split

Reverse Stock Split

On June 28, 2011 (the “Effective Date”), the Company completed a one-for-four reverse stock split of its common stock. In connection with the reverse stock split, every four shares of issued and outstanding common stock of the Company at the Effective Date were exchanged for one share of newly issued common stock of the Company. Fractional shares were rounded up to the next whole share. Other than the number of issued and outstanding shares of common stock disclosed in the Consolidated Statements of Changes in Shareholders’ Equity, all prior period share amounts have been retroactively restated to reflect the reverse stock split. For additional information related to the reverse stock split, see Note 12, Shareholders’ Equity.

Risk and Uncertainties

Risk and Uncertainties

In the normal course of business, the Company encounters two significant types of overall risk: economic and regulatory. There are three main components of economic risk: credit risk, market risk and concentration of credit risk. Credit risk is the risk of default on the Company’s loan portfolio resulting from borrowers’ inability or unwillingness to make contractually required payments or default on repayment of investment securities. Market risk primarily includes interest rate risk. The Company is exposed to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at different speeds, or different bases, than its interest-earning assets. Market risk also reflects the risk of declines in the valuation of loans held for sale, the value of the collateral underlying loans and the value of real estate held by the Company. Concentration of credit risk refers to the risk that, if the Company extends a significant portion of its total outstanding credit to borrowers in a specific geographical area or industry or on the security of a specific form of collateral, the Company may experience disproportionately high levels of defaults and losses if those borrowers, or the value of such type of collateral, are adversely impacted by economic or other factors that are particularly applicable to such borrowers or collateral. Concentration of credit risk is also similarly applicable to the investment securities portfolio.

The Company and the Bank are subject to the regulations of various government agencies. These regulations can and do change significantly from period to period. In addition, the Company and the Bank undergo periodic examinations by regulatory agencies which may subject us to changes with respect to asset and liability valuations, amount of required allowance for loan losses, capital levels or operating restrictions.

Recently Adopted / Issued Accounting Pronouncements

Recently Adopted / Issued Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board (the “FASB”) issued ASU 2011-11 Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”) which is intended to enhance disclosures resulting in improved information being available to users of financial information about financial instruments and derivative instruments that are subject to offsetting (“netting”) in statements of financial position whether the statements are prepared using GAAP or International Financial Reporting Standards. ASU 2011-11 requires disclosure of both gross information and net information about instruments and transactions eligible for offset or subject to an agreement similar to a master netting agreement. In addition to the quantitative disclosures, reporting entities also are required to provide a description of rights of setoff associated with recognized assets and recognized liabilities subject to enforceable master netting arrangements or similar agreements. ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods. The required disclosures should be provided retrospectively for all comparative periods presented. The Company is evaluating the impact that the adoption of ASU 2011-11 will have on its financial position, results of operations and cash flows.

Other accounting standards that have been recently issued by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

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Subsequent Event

6 Months Ended

Jun. 30, 2012

Subsequent Event [Abstract]

Subsequent Event

21. Subsequent Event

On July 1, 2012 the Bank consummated the sale of its Rock Hill and Blacksburg, South Carolina branches. The agreement to sell these branches was originally entered into on January 27, 2012. The branch sale is a part of Company’s plans to reduce the Bank’s branch network through sale or consolidation into existing branches, which was announced in December 2011. In connection with the consummation of the sale, the Bank sold real estate, equipment, substantially all of the loans, certain other assets, deposits and lease obligations associated with these two branches. The Company recorded a gain on sale of the branches, net of transaction costs, of $568 thousand, which will be recognized in the third quarter 2012. As part of the settlement of the sale, the Company made a cash payment to the purchaser on July 2, 2012 of $31.6 million, representing the excess of deposits and other liabilities assumed by the purchaser over the carrying value of loans and other assets sold, and the deposit premium received.

Land and the related building, leasehold improvements and furniture and equipment associated with the two branches being sold are included in long-lived assets held for sale at June 30, 2012. Long-lived assets held for sale are included in Other assets in the Consolidated Balance Sheets at June 30, 2012 and December 31, 2011.

The following table summarizes the primary noncash balance sheet amounts relative to the branches under contract for sale at June 30, 2012 (in thousands).

Assets
Other loans held for sale	$	7,508
Long-lived assets held for sale		681
Liabilities
Transaction deposits	$	12,641
Money market deposits		3,550
Savings deposits		2,141
Time deposits		22,763
Total deposits	$	41,095

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Average Share Information (Details Textual)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Average Share Information (Textual) [Abstract]
Potential common shares included in computation of diluted loss per share	0	0	0	0

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Loans (Details 3) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Summary of loans secured by commercial real estate by category
Commercial real estate included in gross loans	$ 441,588	$ 478,576
Commercial real estate included in commercial loans held for sale	14,446	14,178
Gross Loans	723,986	773,558
Development Commercial Real Estate Loans [Member]
Summary of loans secured by commercial real estate by category
Commercial real estate included in gross loans	54,940
Commercial real estate included in commercial loans held for sale	2,691
Gross Loans	57,631
Percentage of gross loans and commercial loans held for sale	7.80%
Percentage of regulatory capital	53.00%
Existing and Other Commercial Real Estate Loans [Member]
Summary of loans secured by commercial real estate by category
Commercial real estate included in gross loans	248,640
Commercial real estate included in commercial loans held for sale	7,285
Gross Loans	255,925
Percentage of gross loans and commercial loans held for sale	34.70%
Percentage of regulatory capital	235.40%
Commercial Real Estate Owner Occupied and Residential Loans [Member]
Summary of loans secured by commercial real estate by category
Commercial real estate included in gross loans	138,008
Commercial real estate included in commercial loans held for sale	200
Gross Loans	138,208
Percentage of gross loans and commercial loans held for sale	18.70%
Percentage of regulatory capital	127.10%
Land - unimproved (commercial or residential) [Member] | Development Commercial Real Estate Loans [Member]
Summary of loans secured by commercial real estate by category
Commercial real estate included in gross loans	22,377
Commercial real estate included in commercial loans held for sale	2,691
Gross Loans	25,068
Percentage of gross loans and commercial loans held for sale	3.40%
Percentage of regulatory capital	23.00%
Land development - commercial [Member] | Development Commercial Real Estate Loans [Member]
Summary of loans secured by commercial real estate by category
Commercial real estate included in gross loans	10,734
Gross Loans	10,734
Percentage of gross loans and commercial loans held for sale	1.50%
Percentage of regulatory capital	9.90%
Land development - residential [Member] | Development Commercial Real Estate Loans [Member]
Summary of loans secured by commercial real estate by category
Commercial real estate included in gross loans	14,851
Gross Loans	14,851
Percentage of gross loans and commercial loans held for sale	2.00%
Percentage of regulatory capital	13.70%
Retail [Member] | Development Commercial Real Estate Loans [Member]
Summary of loans secured by commercial real estate by category
Commercial real estate included in gross loans	3,972
Gross Loans	3,972
Percentage of gross loans and commercial loans held for sale	0.50%
Percentage of regulatory capital	3.60%
Retail [Member] | Existing and Other Commercial Real Estate Loans [Member]
Summary of loans secured by commercial real estate by category
Commercial real estate included in gross loans	20,202
Commercial real estate included in commercial loans held for sale	127
Gross Loans	20,329
Percentage of gross loans and commercial loans held for sale	2.80%
Percentage of regulatory capital	18.70%
Office [Member] | Development Commercial Real Estate Loans [Member]
Summary of loans secured by commercial real estate by category
Commercial real estate included in gross loans	230
Gross Loans	230
Percentage of regulatory capital	0.20%
Office [Member] | Existing and Other Commercial Real Estate Loans [Member]
Summary of loans secured by commercial real estate by category
Commercial real estate included in gross loans	20,128
Commercial real estate included in commercial loans held for sale	197
Gross Loans	20,325
Percentage of gross loans and commercial loans held for sale	2.80%
Percentage of regulatory capital	18.70%
Multifamily [Member] | Development Commercial Real Estate Loans [Member]
Summary of loans secured by commercial real estate by category
Commercial real estate included in gross loans
Commercial real estate included in commercial loans held for sale
Gross Loans
Percentage of gross loans and commercial loans held for sale
Percentage of regulatory capital
Multifamily [Member] | Existing and Other Commercial Real Estate Loans [Member]
Summary of loans secured by commercial real estate by category
Commercial real estate included in gross loans	12,694
Gross Loans	12,694
Percentage of gross loans and commercial loans held for sale	1.70%
Percentage of regulatory capital	11.70%
Industrial and Warehouse [Member] | Development Commercial Real Estate Loans [Member]
Summary of loans secured by commercial real estate by category
Commercial real estate included in gross loans	842
Gross Loans	842
Percentage of gross loans and commercial loans held for sale	0.10%
Percentage of regulatory capital	0.80%
Industrial and Warehouse [Member] | Existing and Other Commercial Real Estate Loans [Member]
Summary of loans secured by commercial real estate by category
Commercial real estate included in gross loans	9,111
Commercial real estate included in commercial loans held for sale	560
Gross Loans	9,671
Percentage of gross loans and commercial loans held for sale	1.30%
Percentage of regulatory capital	8.90%
Health Care [Member] | Existing and Other Commercial Real Estate Loans [Member]
Summary of loans secured by commercial real estate by category
Commercial real estate included in gross loans	16,124
Gross Loans	16,124
Percentage of gross loans and commercial loans held for sale	2.20%
Percentage of regulatory capital	14.80%
Miscellaneous Commercial [Member] | Development Commercial Real Estate Loans [Member]
Summary of loans secured by commercial real estate by category
Commercial real estate included in gross loans	1,934
Gross Loans	1,934
Percentage of gross loans and commercial loans held for sale	0.30%
Percentage of regulatory capital	1.80%
Miscellaneous Commercial [Member] | Existing and Other Commercial Real Estate Loans [Member]
Summary of loans secured by commercial real estate by category
Commercial real estate included in gross loans	102,966
Commercial real estate included in commercial loans held for sale	1,576
Gross Loans	104,542
Percentage of gross loans and commercial loans held for sale	14.20%
Percentage of regulatory capital	96.10%
Hotel / motel [Member] | Existing and Other Commercial Real Estate Loans [Member]
Summary of loans secured by commercial real estate by category
Commercial real estate included in gross loans	67,116
Commercial real estate included in commercial loans held for sale	4,825
Gross Loans	71,941
Percentage of gross loans and commercial loans held for sale	9.70%
Percentage of regulatory capital	66.20%
Commercial - owner occupied [Member] | Commercial Real Estate Owner Occupied and Residential Loans [Member]
Summary of loans secured by commercial real estate by category
Commercial real estate included in gross loans	126,248
Commercial real estate included in commercial loans held for sale	200
Gross Loans	126,448
Percentage of gross loans and commercial loans held for sale	17.10%
Percentage of regulatory capital	116.30%
Residential Construction - speculative [Member] | Existing and Other Commercial Real Estate Loans [Member]
Summary of loans secured by commercial real estate by category
Commercial real estate included in gross loans	299
Gross Loans	299
Percentage of regulatory capital	0.30%
Commercial Construction - owner occupied [Member] | Commercial Real Estate Owner Occupied and Residential Loans [Member]
Summary of loans secured by commercial real estate by category
Commercial real estate included in gross loans	6,468
Gross Loans	6,468
Percentage of gross loans and commercial loans held for sale	0.90%
Percentage of regulatory capital	5.90%
Residential Construction - contract [Member] | Commercial Real Estate Owner Occupied and Residential Loans [Member]
Summary of loans secured by commercial real estate by category
Commercial real estate included in gross loans	5,292
Gross Loans	5,292
Percentage of gross loans and commercial loans held for sale	0.70%
Percentage of regulatory capital	4.90%
Total Commercial real estate [Member]
Summary of loans secured by commercial real estate by category
Commercial real estate included in gross loans	441,588
Commercial real estate included in commercial loans held for sale	10,176	(14,178)
Gross Loans	$ 451,764	$ 492,754
Percentage of gross loans and commercial loans held for sale	61.20%
Percentage of regulatory capital	415.50%

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Subsequent Event (Tables)

6 Months Ended

Jun. 30, 2012

Subsequent Event [Abstract]

Summary of non cash amounts recognized in balance sheet

Assets
Other loans held for sale	$	7,508
Long-lived assets held for sale		681
Liabilities
Transaction deposits	$	12,641
Money market deposits		3,550
Savings deposits		2,141
Time deposits		22,763
Total deposits	$	41,095

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Investment Securities Available for Sale (Tables)

6 Months Ended

Jun. 30, 2012

Investment Securities Available for Sale [Abstract]

Reconciliation of Available-for-sale Securities

	June 30, 2012
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
State and municipal	$	13,162	$	405	$	(14	)	$	13,553
Collateralized mortgage obligations		142,900		425		(598	)		142,727
Other mortgage-backed (federal agencies)		57,047		164		(54	)		57,157
SBA loan-backed (federal agency)		34,143		28		(208	)		33,963
Total investment securities available for sale	$	247,252	$	1,022	$	(874	)	$	247,400
	December 31, 2011
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
State and municipal	$	113,079	$	7,886	$	—		$	120,965
Collateralized mortgage obligations		117,129		2,210		(390	)		118,949
Other mortgage-backed (federal agencies)		20,022		1,056		—			21,078
Total investment securities available for sale	$	250,230	$	11,152	$	(390	)	$	260,992

Reconciliation of Available-For-Sale Securities in a Continuous Unrealized Loss Position

	June 30, 2012
	Less than 12 months						12 months or longer						Total
	#		Fair value		Gross unrealized losses		#		Fair value		Gross unrealized losses		#		Fair value		Gross unrealized losses
State and municipal		1	$	1,080	$	14		—	$	—	$	—		1	$	1,080	$	14
Collateralized mortgage obligations		14		64,713		401		12		17,894		197		26		82,607		598
Other mortgage-backed (federal agencies)		1		5,402		54		—		—		—		1		5,402		54
SBA loan-backed (federal agency)		5		24,785		208		—		—		—		5		24,785		208
Total investment securities available for sale		21	$	95,980	$	677		12	$	17,894	$	197		33	$	113,874	$	874
	December 31, 2011
	Less than 12 months						12 months or longer						Total
	#		Fair value		Gross unrealized losses		#		Fair value		Gross unrealized losses		#		Fair value		Gross unrealized losses
Collateralized mortgage obligations		9	$	23,024	$	192		7	$	16,773	$	198		16	$	39,797	$	390
Total investment securities available for sale		9	$	23,024	$	192		7	$	16,773	$	198		16	$	39,797	$	390

Summary of ratings by segment of investment securities available for sale

	State and municipal			Collateralized mortgage obligations			Other mortgage-backed (federal  agencies)			SBA loan-backed (federal  agency)
Aaa		—	%		100	%		100	%		100	%
Aa1-A1		74			—			—			—
Baa2		14			—			—			—
Not rated		12			—			—			—
Total		100	%		100	%		100	%		100	%

Summary of ratings by Standards Poors of investment securities available for sale

	State and municipal			Collateralized mortgage obligations			Other mortgage-backed (federal agencies)			SBA loan-backed (federal  agency)
Aa-A+		42	%		100	%		100	%		100	%
Not rated		58			—			—			—
Total		100	%		100	%		100	%		100	%

Summary of amortized cost and estimated fair value of investment securities available for sale

	Amortized cost		Fair value
Due in one year or less	$	4,787	$	4,859
Due after one year through five years		7,281		7,614
Due after five years through ten years		1,094		1,080
Due after ten years		—		—
State and municipal		13,162		13,553
Collateralized mortgage obligations		142,900		142,727
Other mortgage-backed (federal agencies)		57,047		57,157
SBA loan-backed (federal agency)		34,143		33,963
Total investment securities available for sale	$	247,252	$	247,400

Summary of credit quality of loans

	June 30, 2012		December 31, 2011
Public funds deposits	$	112,671	$	119,123
Federal Reserve line of credit		2,971		5,510
FHLB advances		—		15,887
Total	$	115,642	$	140,520

Gross realized gains and losses on investment securities available for sale

	For the three months ended June 30,					For the six months ended June 30,
	2012			2011		2012			2011
Realized gains	$	9,863		$	56	$	9,863		$	56
Realized losses		(4	)		—		(4	)		—
Net realized gains	$	9,859		$	56	$	9,859		$	56

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Loans (Tables)

6 Months Ended

Jun. 30, 2012

Loans [Abstract]

Summary of gross loans and commercial loans

	June 30, 2012						December 31, 2011
	Total			% of total			Total			% of total
Commercial real estate	$	451,764			61.2	%	$	492,754			62.6	%
Single-family residential		175,335			23.7			185,504			23.5
Commercial and industrial		49,763			6.7			49,381			6.3
Consumer		52,044			7.1			52,771			6.7
Other		9,526			1.3			7,326			0.9
Total loans	$	738,432			100.0	%	$	787,736			100.0	%
Less: other loans held for sale		(14,446	)					(14,178	)
Loans, gross	$	723,986					$	773,558

Summary of other Loans held for sale

	June 30, 2012					December 31, 2011
	Total		% of total			Total		% of total
Commercial real estate	$	10,176		70.4	%	$	14,178		100.0	%
Single-family residential		2,298		15.9			—		—
Commercial and industrial		910		6.3			—		—
Consumer		228		1.6			—		—
Other		834		5.8			—		—
Total loans	$	14,446		100.0	%	$	14,178		100.0	%

Summary of loans secured by commercial real estate

	Commercial real estate included in gross loans		Commercial real estate  included in other loans held for sale		Total commercial real estate loans		% of gross loans and other loans held for sale			% of Bank’s total regulatory capital
Secured by commercial real estate
Construction, land development, and other land loans	$	66,998	$	2,691	$	69,689		9.5	%		64.1	%
Multifamily residential		12,694		—		12,694		1.7			11.7
Nonfarm nonresidential		361,896		7,485		369,381		50.0			339.7
Total loans secured by commercial real estate	$	441,588	$	10,176	$	451,764		61.2	%		415.5	%

Summary of loans secured by commercial real estate by category

	Commercial real estate included in gross loans		Commercial real estate included in other loans held for sale		Total commercial real estate loans		% of gross loans and other loans held for sale			% of Bank’s total regulatory capital
Development commercial real estate loans Secured by:
Land - unimproved (commercial or residential)	$	22,377	$	2,691	$	25,068		3.4	%		23.0	%
Land development - commercial		10,734		—		10,734		1.5			9.9
Land development - residential		14,851		—		14,851		2.0			13.7
Commercial construction:
Retail		3,972		—		3,972		0.5			3.6
Office		230		—		230		—			0.2
Industrial and warehouse		842		—		842		0.1			0.8
Miscellaneous commercial		1,934		—		1,934		0.3			1.8
Total development commercial real estate loans		54,940		2,691		57,631		7.8			53.0
Existing and other commercial real estate loans Secured by:
Hotel / motel		67,116		4,825		71,941		9.7			66.2
Retail		20,202		127		20,329		2.8			18.7
Office		20,128		197		20,325		2.8			18.7
Multifamily		12,694		—		12,694		1.7			11.7
Industrial and warehouse		9,111		560		9,671		1.3			8.9
Healthcare		16,124		—		16,124		2.2			14.8
Miscellaneous commercial		102,966		1,576		104,542		14.2			96.1
Residential construction - speculative		299		—		299		—			0.3
Total existing and other commercial real estate loans		248,640		7,285		255,925		34.7			235.4
Commercial real estate owner occupied and residential loans
Secured by:
Commercial - owner occupied		126,248		200		126,448		17.1			116.3
Commercial construction - owner occupied		6,468		—		6,468		0.9			5.9
Residential construction - contract		5,292		—		5,292		0.7			4.9
Total commercial real estate owner occupied and residential loans		138,008		200		138,208		18.7			127.1
Total loans secured by commercial real estate	$	441,588	$	10,176	$	451,764		61.2	%		415.5	%

Summary of Company's Internal credit quality indicators on gross loans and commercial loans held for sale

	Construction, land development and other land loans		Multifamily residential		Nonfarm nonresidential		Commercial real estate in other loans held for sale		Total commercial real estate
Grade 1	$	—	$	—	$	—	$	—	$	—
Grade 2		—		—		427		—		427
Grade 3		10,357		2,868		83,081		915		97,221
Grade 4		15,294		1,229		132,331		2,286		151,140
Grade W		6,810		989		66,026		—		73,825
Grade 5		3,755		7,363		27,830		—		38,948
Grade 6		10,095		245		47,116		4,825		62,281
Grade 7		3,766		—		5,085		2,113		10,964
Not risk rated*		16,921		—		—		37		16,958
	$	66,998	$	12,694	$	361,896	$	10,176	$	451,764
Less: Commercial real estate included in other loans held for sale										(10,176	)
Total									$	441,588

* Consumer real estate loans of $16.9 million, included within construction, land development, and other land loans, are not risk rated, in accordance with our policy.

	Construction, land development and other land loans		Multifamily residential		Nonfarm nonresidential		Commercial real estate in other loans held for sale		Total commercial real estate
Grade 1	$	—	$	—	$	—	$	—	$	—
Grade 2		—		—		457		—		457
Grade 3		8,295		3,252		100,265		—		111,812
Grade 4		13,601		945		126,961		—		141,507
Grade W		9,075		4,233		51,889		—		65,197
Grade 5		3,671		7,550		27,235		—		38,456
Grade 6		21,511		1,956		61,907		8,800		94,174
Grade 7		10,624		—		3,991		5,378		19,993
Not risk rated*		20,836		9		313		—		21,158
	$	87,613	$	17,945	$	373,018	$	14,178	$	492,754
Less: Commercial real estate included in other loans held for sale										(14,178	)
Total									$	478,576

*-Consumer real estate loans of $20.8 million, included within construction, land development, and other land loans, are not risk rated, in accordance with our policy.

Summary Of Company's Internal credit quality indicators commercial and industrial

	Commercial and industrial		Commercial and industrial in other loans held for sale		Total commercial and industrial
Grade 1	$	2,782	$	25	$	2,807
Grade 2		214		—		214
Grade 3		10,522		566		11,088
Grade 4		21,213		319		21,532
Grade W		8,513		—		8,513
Grade 5		699		—		699
Grade 6		4,249		—		4,249
Grade 7		568		—		568
Not graded		93		—		93
Total	$	48,853	$	910	$	49,763

	Commercial and industrial
Grade 1	$	2,966
Grade 2		459
Grade 3		11,380
Grade 4		22,253
Grade W		5,292
Grade 5		1,489
Grade 6		4,929
Grade 7		596
Not graded		17
Total	$	49,381

Summary Of Mortgage Loan By Credit Quality Indicator

	Single-family residential revolving, open end loans		Single-family residential closed end, first lien		Single-family residential closed end, junior lien		Total single-family residential loans		Single-family residential loans in other loans held for  sale		Total single-family residential loans
Performing	$	58,083	$	103,401	$	5,559	$	167,043	$	2,298	$	169,341
Nonperforming		891		4,786		317		5,994		—		5,994
Total	$	58,974	$	108,187	$	5,876	$	173,037	$	2,298	$	175,335

	Credit cards		Consumer-other		Total consumer		Consumer loans in other loans held for sale		Total consumer
Performing	$	20	$	51,424	$	51,444	$	228	$	51,672
Nonperforming		32		340		372		—		372
Total	$	52	$	51,764	$	51,816	$	228	$	52,044

	Other		Other loans in other loans held for sale		Total other
Performing	$	8,682	$	834	$	9,516
Nonperforming		10		—		10
Total	$	8,692	$	834	$	9,526

	Single-family residential revolving, open end loans		Single-family residential closed end, first lien		Single-family residential closed end, junior lien		Total single-family residential loans
Performing	$	58,128	$	111,623	$	6,482	$	176,233
Nonperforming		843		7,957		471		9,271
Total	$	58,971	$	119,580	$	6,953	$	185,504

	Credit cards		Consumer-other		Total Consumer
Performing	$	179	$	52,103	$	52,282
Nonperforming		16		473		489
Total	$	195	$	52,576	$	52,771

	Other
Performing	$	7,326
Nonperforming		—
Total	$	7,326

Summary of delinquencies by class

	30-89 days past due			Greater than 90 days past due on nonaccrual			Total past due			Current			Total loans
Construction, land development and other land loans	$	424		$	12,645		$	13,069		$	56,621		$	69,690
Multifamily residential		—			—			—			12,694			12,694
Nonfarm nonresidential		1,082			4,070			5,152			364,228			369,380
Total commercial real estate		1,506			16,715			18,221			433,543			451,764
Single-family real estate, revolving, open end loans		734			891			1,625			58,352			59,977
Single-family real estate, closed end, first lien		1,048			4,786			5,834			103,637			109,471
Single-family real estate, closed end, junior lien		62			317			379			5,508			5,887
Total single-family residential		1,844			5,994			7,838			167,497			175,335
Commercial and industrial		288			1,085			1,373			48,390			49,763
Credit cards		—			32			32			20			52
All other consumer		560			340			900			51,092			51,992
Total consumer		560			372			932			51,112			52,044
Farmland		—			10			10			4,019			4,029
Obligations of states and political subdivisions of the U.S.		—			—			—			861			861
Other		—			—			—			4,636			4,636
Total		4,198			24,176			28,374			710,058			738,432
Less: other loans held for sale		(40	)		(2,113	)		(2,153	)		(12,293	)		(14,446	)
Total gross loans	$	4,158		$	22,063		$	26,221		$	697,765		$	723,986

	30-89 days past due		Greater than 90 days past due on nonaccrual			Total past due			Current			Total loans
Construction, land development and other land loans	$	94	$	27,085		$	27,179		$	64,975		$	92,154
Multifamily residential		—		—			—			17,945			17,945
Nonfarm nonresidential		574		14,870			15,444			367,211			382,655
Total commercial real estate		668		41,955			42,623			450,131			492,754
Single-family real estate, revolving, open end loans		379		843			1,222			57,749			58,971
Single-family real estate, closed end, first lien		2,633		7,957			10,590			108,990			119,580
Single-family real estate, closed end, junior lien		145		471			616			6,337			6,953
Total single-family residential		3,157		9,271			12,428			173,076			185,504
Commercial and industrial		314		1,313			1,627			47,754			49,381
Credit cards		—		16			16			179			195
All other consumer		760		473			1,233			51,343			52,576
Total consumer		760		489			1,249			51,522			52,771
Farmland		—		—			—			3,513			3,513
Obligations of states and political subdivisions of the U.S.		—		—			—			903			903
Other		2		—			2			2,908			2,910
Total		4,901		53,028			57,929			729,807			787,736
Less: other loans held for sale		—		(5,812	)		(5,812	)		(8,366	)		(14,178	)
Total gross loans	$	4,901	$	47,216		$	52,117		$	721,441		$	773,558

Summary of carrying balance of troubled debt restructurings at the dates

	June 30, 2012						December 31, 2011
	Performing		Nonperforming		Total		Performing		Nonperforming		Total
Other loans held for sale	$	4,825	$	—	$	4,825	$	8,366	$	—	$	8,366
Loans, gross		29,618		70		29,688		37,461		9,276		46,737
Total troubled debt restructurings	$	34,443	$	70	$	34,513	$	45,827	$	9,276	$	55,103

Troubled debt restructuring removed from the classification

	For the three  months ended June 30,				For the six  months ended June 30,
	2012		2011		2012		2011
Carrying balance	$	3,665	$	—	$	5,887	$	876
Count		16		—		18		1

Summary of loans modified

	For the three months ended June 30, 2012						For the six months ended June 30, 2012
	Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment		Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment
Construction, land development and other land loans		—	$	—	$	—		1	$	4,089	$	4,089
Nonfarm nonresidential		1		243		243		6		1,811		1,811
Total commercial real estate		1		243		243		7		5,900		5,900
Single-family real estate, closed end, first lien		1		70		70		1		70		70
Commercial and industrial		1		206		206		2		421		416
Total loans		3	$	519	$	519		10	$	6,391	$	6,386
Less: other loans held for sale		—		—		—		—		—		—
Loans, gross		3	$	519	$	519		10	$	6,391	$	6,386

The following table summarizes, by type of concession, loans that were modified resulting in troubled debt restructurings during the periods indicated (dollars in thousands).

	For the three months ended June 30, 2012						For the six months ended June 30, 2012
	Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment		Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment
Term concession		3	$	519	$	519		4	$	4,608	$	4,608
Rate and term concessions		—		—		—		6		1,783		1,778
Total loans		3	$	519	$	519		10	$	6,391	$	6,386
Less: other loans held for sale		—		—		—		—		—		—
Loans, gross		3	$	519	$	519		10	$	6,391	$	6,386

Summary of loans troubled debt restructurings

	For the three months ended June 30, 2012				For the six months  ended June 30, 2012
	Number of contracts		Recorded investment		Number of contracts		Recorded investment
Construction, land development and other land loans		1	$	488		1	$	488
Nonfarm nonresidential		2		406		5		1,545
Total commercial real estate		3		894		6		2,033
Single-family real estate, closed end, first lien		—		—		1		46
Total loans		3	$	894		7	$	2,079
Less: other loans held for sale		—		—		—		—
Loans, gross		3	$	894		7	$	2,079

Summary of the composition of troubled debt restructuring impaired loans

	June 30, 2012
	Performing troubled debt restructured loans		Nonperforming troubled debt restructured loans		Nonperforming other loans		Performing other loans		Total
Other loans held for sale	$	4,825	$	—	$	2,113	$	—	$	6,938
Loans, gross		29,618		70		9,529		5,817		45,034
Total impaired loans	$	34,443	$	70	$	11,642	$	5,817	$	51,972

	December 31, 2011
	Performing troubled debt restructured loans		Nonperforming troubled debt restructured loans		Nonperforming other loans		Total
Other loans held for sale	$	8,366	$	—	$	5,812	$	14,178
Loans, gross		37,461		9,276		23,054		69,791
Total impaired loans	$	45,827	$	9,276	$	28,866	$	83,969

Summary of the composition of impaired loans, by class

	Gross loans						Other loans held for sale				Total loans
	Recorded investment		Unpaid principal balance		Related allowance		Recorded investment		Unpaid principal balance		Recorded investment		Unpaid principal balance		Related allowance
With no related allowance recorded:
Construction, land development and other land loans	$	9,753	$	26,701			$	2,113	$	9,072	$	11,866	$	35,773
Multifamily residential		—		—				—		—		—		—
Nonfarm nonresidential		8,263		12,691				4,825		6,603		13,088		19,294
Total commercial real estate		18,016		39,392				6,938		15,675		24,954		55,067
Single-family real estate, revolving, open end loans		—		—				—		—		—		—
Single-family real estate, closed end, first lien		982		3,407				—		—		982		3,407
Single-family real estate, closed end, junior lien		10		27				—		—		10		27
Total single-family residential		992		3,434				—		—		992		3,434
Commercial and industrial		753		1,179				—		—		753		1,179
Total impaired loans with no related allowance recorded	$	19,761	$	44,005			$	6,938	$	15,675	$	26,699	$	59,680
With an allowance recorded:
Construction, land development and other land loans	$	5,835	$	5,835	$	321					$	5,835	$	5,835	$	321
Multifamily residential		245		245		7						245		245		7
Nonfarm nonresidential		16,203		16,583		2,759						16,203		16,583		2,759
Total commercial real estate		22,283		22,663		3,087						22,283		22,663		3,087
Single-family real estate, revolving, open end loans		—		—		—						—		—		—
Single-family real estate, closed end, first lien		2,033		4,340		108						2,033		4,340		108
Single-family real estate, closed end, junior lien		151		151		50						151		151		50
Total single-family residential		2,184		4,491		158						2,184		4,491		158
Commercial and industrial		765		765		45						765		765		45
All other consumer		41		41		5						41		41		5
Total impaired loans with an allowance recorded	$	25,273	$	27,960	$	3,295					$	25,273	$	27,960	$	3,295
Total:
Construction, land development and other land loans	$	15,588	$	32,536	$	321	$	2,113	$	9,072	$	17,701	$	41,608	$	321
Multifamily residential		245		245		7		—		—		245		245		7
Nonfarm nonresidential		24,466		29,274		2,759		4,825		6,603		29,291		35,877		2,759
Total commercial real estate		40,299		62,055		3,087		6,938		15,675		47,237		77,730		3,087
Single-family real estate, revolving, open end loans		—		—		—		—		—		—		—		—
Single-family real estate, closed end, first lien		3,015		7,747		108		—		—		3,015		7,747		108
Single-family real estate, closed end, junior lien		161		178		50		—		—		161		178		50
Total single-family residential		3,176		7,925		158		—		—		3,176		7,925		158
Commercial and industrial		1,518		1,944		45		—		—		1,518		1,944		45
All other consumer		41		41		5		—		—		41		41		5
Total impaired loans	$	45,034	$	71,965	$	3,295	$	6,938	$	15,675	$	51,972	$	87,640	$	3,295

	Gross loans						Other loans held for sale				Total loans
	Recorded investment		Unpaid principal balance		Related allowance		Recorded investment		Unpaid principal balance		Recorded investment		Unpaid principal balance		Related allowance
With no related allowance recorded:
Construction, land development and other land loans	$	16,845	$	36,735			$	4,541	$	16,799	$	21,386	$	53,534
Multifamily residential		—		—				—		—		—		—
Nonfarm nonresidential		16,047		22,188				9,637		13,831		25,684		36,019
Total commercial real estate		32,892		58,923				14,178		30,630		47,070		89,553
Single-family real estate, revolving, open end loans		—		—				—		—		—		—
Single-family real estate, closed end, first lien		2,742		6,928				—		—		2,742		6,928
Single-family real estate, closed end, junior lien		—		—				—		—		—		—
Total single-family residential		2,742		6,928				—		—		2,742		6,928
Commercial and industrial		886		1,312				—		—		886		1,312
Total impaired loans with no related allowance recorded	$	36,520	$	67,163			$	14,178	$	30,630	$	50,698	$	97,793
With an allowance recorded:
Construction, land development and other land loans	$	9,702	$	11,624	$	3,301					$	9,702	$	11,624	$	3,301
Multifamily residential		247		247		9						247		247		9
Nonfarm nonresidential		20,784		20,784		2,886						20,784		20,784		2,886
Total commercial real estate		30,733		32,655		6,196						30,733		32,655		6,196
Single-family real estate, revolving, open end loans		—		—		—						—		—		—
Single-family real estate, closed end, first lien		1,689		1,689		161						1,689		1,689		161
Single-family real estate, closed end, junior lien		183		183		54						183		183		54
Total single-family residential		1,872		1,872		215						1,872		1,872		215
Commercial and industrial		622		691		88						622		691		88
All other consumer		44		44		6						44		44		6
Total impaired loans with an allowance recorded	$	33,271	$	35,262	$	6,505					$	33,271	$	35,262	$	6,505
Total:
Construction, land development and other land loans	$	26,547	$	48,359	$	3,301	$	4,541	$	16,799	$	31,088	$	65,158	$	3,301
Multifamily residential		247		247		9		—		—		247		247		9
Nonfarm nonresidential		36,831		42,972		2,886		9,637		13,831		46,468		56,803		2,886
Total commercial real estate		63,625		91,578		6,196		14,178		30,630		77,803		122,208		6,196
Single-family real estate, revolving, open end loans		—		—		—		—		—		—		—		—
Single-family real estate, closed end, first lien		4,431		8,617		161		—		—		4,431		8,617		161
Single-family real estate, closed end, junior lien		183		183		54		—		—		183		183		54
Total single-family residential		4,614		8,800		215		—		—		4,614		8,800		215
Commercial and industrial		1,508		2,003		88		—		—		1,508		2,003		88
All other consumer		44		44		6		—		—		44		44		6
Total impaired loans	$	69,791	$	102,425	$	6,505	$	14,178	$	30,630	$	83,969	$	133,055	$	6,505

Allowance for loan losses

	At and for the six months ended June 30, 2012													At and for  the year ended December 31, 2011
	Commercial		Single-family		Commercial and
	real estate		residential		industrial			Consumer		Other		Total		Total
Allowance for loan losses:
Allowance for loan losses, beginning of period	$	18,026	$	4,488	$	1,862		$	1,209	$	11	$	25,596	$	26,934
Provision for loan losses		9,643		1,649		(334	)		114		78		11,150		20,500
Loan charge-offs		15,221		2,903		302			359		319		19,104		22,832
Loan recoveries		104		74		108			106		244		636		994
Net loans charged-off		15,117		2,829		194			253		75		18,468		21,838
Allowance for loan losses, end of period	$	12,552	$	3,308	$	1,334		$	1,070	$	14	$	18,278	$	25,596
Individually evaluated for impairment	$	3,087	$	158	$	45		$	5	$	—	$	3,295	$	6,505
Collectively evaluated for impairment		9,465		3,150		1,289			1,065		14		14,983		19,091
Allowance for loan losses, end of period	$	12,552	$	3,308	$	1,334		$	1,070	$	14	$	18,278	$	25,596
Gross loans, end of period:
Individually evaluated for impairment	$	40,299	$	3,176	$	1,518		$	41	$	—	$	45,034	$	69,791
Collectively evaluated for impairment		401,289		169,861		47,335			51,775		8,692		678,952		703,767
Total gross loans	$	441,588	$	173,037	$	48,853		$	51,816	$	8,692	$	723,986	$	773,558

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2012

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

1. Summary of Significant Accounting Policies

Nature of Operations

Palmetto Bancshares, Inc. is a bank holding company organized in 1982 under the laws of South Carolina and is headquartered in Greenville, South Carolina. Through the Company’s wholly-owned subsidiary, The Palmetto Bank (the “Bank”), which began operations in 1906, the Bank specializes in providing personalized community banking services to individuals and small to mid-size businesses including retail banking (including mortgage loans, indirect automobile loans and credit cards), commercial banking (including business banking, Small Business Administration loans, treasury management and merchant services) and wealth management (including trust, brokerage, financial planning and insurance services) throughout our primary market area of northwest South Carolina (commonly referred to as “the Upstate”).

Principles of Consolidation / Basis of Presentation

The accompanying Consolidated Financial Statements include the accounts of Palmetto Bancshares, Inc., the Bank and other subsidiaries of the Bank (also collectively referred to as the “Company,” “we,” “us” or “our”). In management’s opinion, all significant intercompany accounts and transactions have been eliminated in consolidation, and all adjustments necessary for a fair presentation of the financial condition and results of operations for the periods presented have been included. Any such adjustments are of a normal and recurring nature. Assets held by the Company in a fiduciary or agency capacity for clients are not included in the Company’s Consolidated Financial Statements because those items do not represent assets of the Company. The accounting and financial reporting policies of the Company conform, in all material respects, to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within the financial services industry.

The Consolidated Financial Statements as of and for the three and six months ended June 30, 2012 and 2011 contained in this Quarterly Report on Form 10-Q have not been audited by our independent registered public accounting firm. The Consolidated Financial Statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (the “SEC”). Accordingly, the Consolidated Financial Statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Consolidated Financial Statements and notes thereto for the year ended December 31, 2011 included in our Annual Report on Form 10-K filed with the SEC on March 2, 2012 (collectively, the “2011 Annual Report on Form 10-K”).

Subsequent Events

Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet including the estimates inherent in the process of preparing financial statements. Unrecognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. The Company has reviewed events occurring through the issuance date of the Consolidated Financial Statements and no subsequent events have occurred requiring accrual or disclosure in these financial statements other than any included herein.

Business Segments

Operating segments are components of an enterprise about which separate financial information is available and are evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. Public enterprises are required to report a measure of segment profit or loss, certain specific revenue and expense items for each segment, segment assets and information about the way that the operating segments were determined, among other items.

The Company considers business segments by analyzing distinguishable components that are engaged in providing individual products, services or groups of related products or services and that are subject to risks and returns that are different from those of other business segments. When determining whether products and services are related, the Company considers the nature of the products or services, the nature of the production processes, the type or class of client for which the products or services are designed and the methods used to distribute the products or provide the services.

For the past several years, we have been realigning our organizational structure and more specifically delineating our businesses. However, at this time, we do not yet have in place a reporting structure to separately report and evaluate our various lines of business. Accordingly, at June 30, 2012, the Company had one reportable operating segment, banking.

Use of Estimates

In preparing our Consolidated Financial Statements, the Company’s management makes estimates and assumptions that impact the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the Consolidated Financial Statements for the periods presented. Actual results could differ from these estimates and assumptions. Therefore, the results of operations for the three and six months ended June 30, 2012 are not necessarily indicative of the results of operations that may be expected in future periods or for the year ended December 31, 2012.

Reclassifications

Certain amounts previously presented in our Consolidated Financial Statements for prior periods have been reclassified to conform to current classifications. All such reclassifications had no impact on the prior periods’ net loss, comprehensive loss or shareholders’ equity as previously reported.

Reverse Stock Split

On June 28, 2011 (the “Effective Date”), the Company completed a one-for-four reverse stock split of its common stock. In connection with the reverse stock split, every four shares of issued and outstanding common stock of the Company at the Effective Date were exchanged for one share of newly issued common stock of the Company. Fractional shares were rounded up to the next whole share. Other than the number of issued and outstanding shares of common stock disclosed in the Consolidated Statements of Changes in Shareholders’ Equity, all prior period share amounts have been retroactively restated to reflect the reverse stock split. For additional information related to the reverse stock split, see Note 12, Shareholders’ Equity.

Risk and Uncertainties

In the normal course of business, the Company encounters two significant types of overall risk: economic and regulatory. There are three main components of economic risk: credit risk, market risk and concentration of credit risk. Credit risk is the risk of default on the Company’s loan portfolio resulting from borrowers’ inability or unwillingness to make contractually required payments or default on repayment of investment securities. Market risk primarily includes interest rate risk. The Company is exposed to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at different speeds, or different bases, than its interest-earning assets. Market risk also reflects the risk of declines in the valuation of loans held for sale, the value of the collateral underlying loans and the value of real estate held by the Company. Concentration of credit risk refers to the risk that, if the Company extends a significant portion of its total outstanding credit to borrowers in a specific geographical area or industry or on the security of a specific form of collateral, the Company may experience disproportionately high levels of defaults and losses if those borrowers, or the value of such type of collateral, are adversely impacted by economic or other factors that are particularly applicable to such borrowers or collateral. Concentration of credit risk is also similarly applicable to the investment securities portfolio.

The Company and the Bank are subject to the regulations of various government agencies. These regulations can and do change significantly from period to period. In addition, the Company and the Bank undergo periodic examinations by regulatory agencies which may subject us to changes with respect to asset and liability valuations, amount of required allowance for loan losses, capital levels or operating restrictions.

Recently Adopted / Issued Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board (the “FASB”) issued ASU 2011-11 Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”) which is intended to enhance disclosures resulting in improved information being available to users of financial information about financial instruments and derivative instruments that are subject to offsetting (“netting”) in statements of financial position whether the statements are prepared using GAAP or International Financial Reporting Standards. ASU 2011-11 requires disclosure of both gross information and net information about instruments and transactions eligible for offset or subject to an agreement similar to a master netting agreement. In addition to the quantitative disclosures, reporting entities also are required to provide a description of rights of setoff associated with recognized assets and recognized liabilities subject to enforceable master netting arrangements or similar agreements. ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods. The required disclosures should be provided retrospectively for all comparative periods presented. The Company is evaluating the impact that the adoption of ASU 2011-11 will have on its financial position, results of operations and cash flows.

Other accounting standards that have been recently issued by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

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Other Loans Held for Sale and Valuation Allowance (Tables)

6 Months Ended

Jun. 30, 2012

Other Loans Held for Sale and Valuation Allowance [Abstract]

Summarizes activity within other loans held for sale and the related valuation allowance

	Other loans held for sale, gross		Valuation allowance on other loans held for sale
Balance at March 31, 2012	$	17,258	$	2,555
Additions:
Gross loans transferred to other loans held for sale related to branch sales		7,508		—
Other gross loans transferred to other loans held for sale		9,739		—
Writedowns on other loans held for sale included in valuation allowance, net		—		97
Total additions		17,247		97
Reductions:
Proceeds from sales of other loans held for sale		14,592		874
Transfers to foreclosed real estate		1,336		—
Other loans held for sale transferred to gross loans		—		—
Direct writedowns on other loans held for sale		2,309		—
Net paydowns		44		—
Total reductions		18,281		874
Balance at June 30, 2012	$	16,224	$	1,778

	Other loans held for sale, gross		Valuation allowance on other loans held for sale
Balance at December 31, 2011	$	16,739	$	2,561
Additions:
Gross loans transferred to other loans held for sale related to branch sales		7,508		—
Other gross loans transferred to other loans held for sale		12,214		—
Writedowns on other loans held for sale included in valuation allowance, net		—		100
Total additions		19,722		100
Reductions:
Proceeds from sales of other loans held for sale		14,592		874
Transfers to foreclosed real estate		1,814		—
Other loans held for sale transferred to gross loans		1,327		9
Direct writedowns on other loans held for sale		2,434		—
Net paydowns		70		—
Total reductions		20,237		883
Balance at June 30, 2012	$	16,224	$	1,778

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Deposits (Details Textual) (USD $)	Jun. 30, 2012 Branches	Dec. 31, 2011
Deposits (Textual) [Abstract]
Reclassified overdrawn transaction deposit	$ 469,000	$ 621,000
Brokered deposits	0	0
Number of branches under contract for sale	2
Time deposits	22,800,000
Total deposits associated with the two branches under contract for sale	$ 41,100,000

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Average Share Information (Tables)

6 Months Ended

Jun. 30, 2012

Average Share Information [Abstract]

Reconciliation of denominators of the basic and diluted net loss per common share computations for the periods indicated

	For the three months ended June 30,						For the six months ended June 30,
	2012			2011			2012			2011
Weighted average common shares outstanding - basic		12,638,160			12,616,887			12,637,990			12,490,833
Dilutive impact resulting from potential common share issuances		—			—			—			—
Weighted average common shares outstanding - diluted		12,638,160			12,616,887			12,637,990			12,490,833
Per Share Data
Net loss - basic	$	(0.57	)	$	(0.76	)	$	(0.61	)	$	(1.25	)
Net loss - diluted		(0.57	)		(0.76	)		(0.61	)		(1.25	)

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Loans (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Summary of gross loans and commercial loans
Total loans	$ 738,432	$ 787,736
Percentage of loans and leases receivable gross carrying amount	100.00%	100.00%
Less: other loans held for sale	(14,446)	(14,178)
Loans, gross	723,986	773,558
Commercial real estate [Member]
Summary of gross loans and commercial loans
Total loans	451,764	492,754
Percentage of loans and leases receivable gross carrying amount	61.20%	62.60%
Single-family residential [Member]
Summary of gross loans and commercial loans
Total loans	175,335	185,504
Percentage of loans and leases receivable gross carrying amount	23.70%	23.50%
Commercial and industrial [Member]
Summary of gross loans and commercial loans
Total loans	49,763	49,381
Percentage of loans and leases receivable gross carrying amount	6.70%	6.30%
Consumer [Member]
Summary of gross loans and commercial loans
Total loans	52,044	52,771
Percentage of loans and leases receivable gross carrying amount	7.10%	6.70%
Other [Member]
Summary of gross loans and commercial loans
Total loans	9,526	7,326
Percentage of loans and leases receivable gross carrying amount	1.30%	0.90%
Loans, gross	$ 8,692	$ 7,326

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Premises and Equipment, net (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Summary of premises and equipment balances
Premises and equipment, gross	$ 47,547	$ 47,562
Accumulated depreciation	(22,573)	(21,758)
Premises and equipment, net	24,974	25,804
Land [Member]
Summary of premises and equipment balances
Premises and equipment, gross	5,581	5,591
Building [Member]
Summary of premises and equipment balances
Premises and equipment, gross	19,523	19,497
Leasehold Improvements [Member]
Summary of premises and equipment balances
Premises and equipment, gross	4,309	4,644
Furniture And Fixtures [Member]
Summary of premises and equipment balances
Premises and equipment, gross	12,355	12,147
Software [Member]
Summary of premises and equipment balances
Premises and equipment, gross	4,307	4,210
Bank automobiles [Member]
Summary of premises and equipment balances
Premises and equipment, gross	94	95
Capital lease asset [Member]
Summary of premises and equipment balances
Premises and equipment, gross	$ 1,378	$ 1,378

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Cash and cash equivalents
Cash and due from banks	$ 152,363	$ 102,952
Total cash and cash equivalents	152,363	102,952
Federal Home Loan Bank ("FHLB") stock, at cost	2,184	3,502
Investment securities available for sale, at fair value	247,400	260,992
Mortgage loans held for sale	3,789	3,648
Other loans held for sale	14,446	14,178
Loans, gross	723,986	773,558
Less: allowance for loan losses	(18,278)	(25,596)
Loans, net	705,708	747,962
Premises and equipment, net	24,974	25,804
Accrued interest receivable	3,902	5,196
Foreclosed real estate	14,683	27,663
Other	11,511	11,255
Total assets	1,180,960	1,203,152
Deposits
Noninterest-bearing	178,669	155,406
Interest-bearing	884,008	908,775
Total deposits	1,062,677	1,064,181
Retail repurchase agreements	18,260	23,858
Accrued interest payable	517	554
Other	9,734	11,077
Total liabilities	1,091,188	1,099,670
Shareholders' equity
Preferred stock-par value $0.01 per share; authorized 2,500,000 shares; none issued and outstanding
Common stock-par value $0.01 per share; authorized 75,000,000 shares; 12,752,040 and 12,726,388 issued and outstanding at June 30, 2012 and December 31, 2011, respectively	127	127
Capital surplus	142,845	142,233
Accumulated deficit	(44,244)	(36,508)
Accumulated other comprehensive loss, net of tax	(8,956)	(2,370)
Total shareholders' equity	89,772	103,482
Total liabilities and shareholders' equity	$ 1,180,960	$ 1,203,152

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Cash and Cash Equivalents (Details Textual) (USD $)	6 Months Ended
	Jun. 30, 2012	Jul. 11, 2012	Dec. 31, 2011
Cash and Cash Equivalents (Textual) [Abstract]
Maintenance period of reserve on liabilities	30 days
Federal reserve required the Bank to maintain reserves		$ 14,700,000
Federal reserve required after certain consideration		5,800,000
Restricted cash and cash equivalents pledged	$ 703,000		$ 703,000

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Equity Based Compensation (Details 5) (USD $)	6 Months Ended
	Jun. 30, 2012
Stock options [Member]
Summary of stock options outstanding
Number of stock options outstanding and exercisable at March 31, 2012	383,251
Weighted-average remaining contractual life (years)	8 years 10 months 24 days
Weighted-average exercise price	$ 10.51
Range one [Member] | Stock options [Member]
Summary of stock options outstanding
Exercise price	$ 10.40
Number of stock options outstanding and exercisable at March 31, 2012	312,501
Weighted-average remaining contractual life (years)	8 years 10 months 13 days
Weighted-average exercise price	$ 10.40
Range two [Member] | Stock options [Member]
Summary of stock options outstanding
Exercise price	$ 11.00
Number of stock options outstanding and exercisable at March 31, 2012	70,750
Weighted-average remaining contractual life (years)	9 years 11 days
Weighted-average exercise price	$ 11.00
1997 Plan [Member] | Range one [Member]
Summary of stock options outstanding
Exercise price	$ 80.00

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Subsequent Event (Details Textual) (USD $)	6 Months Ended
	Jun. 30, 2012 Branches
Subsequent Event (Textual) [Abstract]
Reduction in branch network	2
Number of branches to be sold	2
Number of branches to be consolidated	2
Number of impacted branches	1
Expected cash payment to effect sale	$ 31,600,000
Gain on sale, net of transaction costs	$ 568,000

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Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (USD $) In Thousands, except Share data	Total	Common stock	Capital surplus	Accumulated deficit	Accumulated other comprehensive loss, net
Balance at Dec. 31, 2010	$ 113,899	$ 474	$ 133,112	$ (13,108)	$ (6,579)
Balance, shares at Dec. 31, 2010		47,409,078
Net loss	(15,649)			(15,649)
Other comprehensive loss, net of tax	1,860				1,860
Compensation expense related to stock options granted under equity award plans	55		55
Common stock issued related to restricted stock granted under equity award plans, net of forfeitures	248	1	247
Common stock issued related to restricted stock granted under equity award plans, net of forfeitures, shares		427,114
Common stock issued pursuant to Follow-On Offering	7,951	31	7,920
Common stock issued pursuant to Follow-On Offering, shares		3,070,030
One-for-four reverse stock split, as of June 28, 2011 adjustment		(379)	379
One-for-four reverse stock split, as of June 28, 2011 adjustment, shares		(38,179,331)
Balance at Jun. 30, 2011	108,364	127	141,713	(28,757)	(4,719)
Balance, shares at Jun. 30, 2011		12,726,891
Balance at Dec. 31, 2011	103,482	127	142,233	(36,508)	(2,370)
Balance, shares at Dec. 31, 2011	12,726,388	12,726,388
Net loss	(7,736)			(7,736)
Other comprehensive loss, net of tax	(6,587)				(6,586)
Compensation expense related to stock options granted under equity award plans	250		250
Common stock issued related to restricted stock granted under equity award plans, net of forfeitures	362		362
Common stock issued related to restricted stock granted under equity award plans, net of forfeitures, shares		25,633
One-for-four reverse stock split, as of June 28, 2011 adjustment, shares		19
Balance at Jun. 30, 2012	$ 89,772	$ 127	$ 142,845	$ (44,244)	$ (8,957)
Balance, shares at Jun. 30, 2012	12,752,040	12,752,040

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Equity Based Compensation (Details 3) (Restricted stock [Member], 2008 plan [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Restricted stock [Member] | 2008 plan [Member]
Summary of compensation expense charged against pretax loss under restricted stock award
Compensation expense	$ 72	$ 57	$ 232	$ 219
Income tax benefit

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Loans (Details 6) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011
Mortgage loan by credit quality indicator
Gross Loans	$ 723,986		$ 773,558
Other loans held for sale	14,446	17,258	14,178
Total Commercial and industrial	738,432		787,736
Single Family Residential Revolving Open End Loans [Member]
Mortgage loan by credit quality indicator
Gross Loans	58,974		58,971
Single Family Residential Closed End First Lien [Member]
Mortgage loan by credit quality indicator
Gross Loans	108,187		119,580
Single Family Residential Closed End Junior Lien [Member]
Mortgage loan by credit quality indicator
Gross Loans	5,876		6,953
Total Single Family Residential Loans [Member]
Mortgage loan by credit quality indicator
Gross Loans	173,037		185,504
Single-family residential [Member]
Mortgage loan by credit quality indicator
Other loans held for sale	2,298
Total Commercial and industrial	175,335		185,504
Credit cards [Member]
Mortgage loan by credit quality indicator
Gross Loans	52		195
Consumer-other [Member]
Mortgage loan by credit quality indicator
Gross Loans	51,764		52,576
Total Commercial and industrial	51,992		52,576
Total Consumer [Member]
Mortgage loan by credit quality indicator
Gross Loans	51,816		52,771
Consumer Portfolio Segment [Member]
Mortgage loan by credit quality indicator
Other loans held for sale	228
Total Commercial and industrial	52,044		52,771
Other Portfolio Segment [Member]
Mortgage loan by credit quality indicator
Gross Loans	8,692		7,326
Other loans held for sale	834
Total Commercial and industrial	9,526		7,326
Performing [Member] | Single Family Residential Revolving Open End Loans [Member]
Mortgage loan by credit quality indicator
Gross Loans	58,083		58,128
Performing [Member] | Single Family Residential Closed End First Lien [Member]
Mortgage loan by credit quality indicator
Gross Loans	103,401		111,623
Performing [Member] | Single Family Residential Closed End Junior Lien [Member]
Mortgage loan by credit quality indicator
Gross Loans	5,559		6,482
Performing [Member] | Total Single Family Residential Loans [Member]
Mortgage loan by credit quality indicator
Gross Loans	167,043		176,233
Performing [Member] | Single-family residential [Member]
Mortgage loan by credit quality indicator
Other loans held for sale	2,298
Total Commercial and industrial	169,341
Performing [Member] | Credit cards [Member]
Mortgage loan by credit quality indicator
Gross Loans	20		179
Performing [Member] | Consumer-other [Member]
Mortgage loan by credit quality indicator
Gross Loans	51,424		52,103
Performing [Member] | Total Consumer [Member]
Mortgage loan by credit quality indicator
Gross Loans	51,444		52,282
Performing [Member] | Consumer Portfolio Segment [Member]
Mortgage loan by credit quality indicator
Other loans held for sale	228
Total Commercial and industrial	51,672
Performing [Member] | Other Portfolio Segment [Member]
Mortgage loan by credit quality indicator
Gross Loans	8,682		7,326
Other loans held for sale	834
Total Commercial and industrial	9,516
Nonperforming [Member] | Single Family Residential Revolving Open End Loans [Member]
Mortgage loan by credit quality indicator
Gross Loans	891		843
Nonperforming [Member] | Single Family Residential Closed End First Lien [Member]
Mortgage loan by credit quality indicator
Gross Loans	4,786		7,957
Nonperforming [Member] | Single Family Residential Closed End Junior Lien [Member]
Mortgage loan by credit quality indicator
Gross Loans	317		471
Nonperforming [Member] | Total Single Family Residential Loans [Member]
Mortgage loan by credit quality indicator
Gross Loans	5,994		9,271
Nonperforming [Member] | Single-family residential [Member]
Mortgage loan by credit quality indicator
Total Commercial and industrial	5,994
Nonperforming [Member] | Credit cards [Member]
Mortgage loan by credit quality indicator
Gross Loans	32		16
Nonperforming [Member] | Consumer-other [Member]
Mortgage loan by credit quality indicator
Gross Loans	340		473
Nonperforming [Member] | Total Consumer [Member]
Mortgage loan by credit quality indicator
Gross Loans	372		489
Nonperforming [Member] | Consumer Portfolio Segment [Member]
Mortgage loan by credit quality indicator
Total Commercial and industrial	372
Nonperforming [Member] | Other Portfolio Segment [Member]
Mortgage loan by credit quality indicator
Gross Loans	10
Total Commercial and industrial	$ 10

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Average Share Information (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Summarizes the reconciliation of denominators of the basic and diluted net loss per common share computations for the periods indicated.
Weighted average common shares outstanding - basic	12,638,160	12,616,887	12,637,990	12,490,833
Dilutive impact resulting from potential common share issuances
Weighted average common shares outstanding - diluted	12,638,160	12,616,887	12,637,990	12,490,833
Per share data
Net loss - basic	$ (0.57)	$ (0.76)	$ (0.61)	$ (1.25)
Net loss - diluted	$ (0.57)	$ (0.76)	$ (0.61)	$ (1.25)

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Foreclosed Real Estate and Repossessed Personal Property (Tables)

6 Months Ended

Jun. 30, 2012

Foreclosed Real Estate and Repossessed Personal Property [Abstract]

Summary of foreclosed real estate and repossessed personal property

	June 30, 2012		December 31, 2011
Foreclosed real estate	$	14,683	$	27,663
Repossessed personal property		62		161
Total foreclosed real estate and repossessed personal property	$	14,745	$	27,824

Changes in the foreclosed real estate portfolio

	At and for the three months ended June 30,						At and for the six months ended June 30,
	2012			2011			2012			2011
Foreclosed real estate, beginning of period	$	26,701		$	16,244		$	27,663		$	19,983
Plus: New foreclosed real estate		1,885			1,648			4,161			5,412
Less: Proceeds from sale of foreclosed real estate		(7,142	)		(1,469	)		(9,064	)		(8,457	)
Plus: Gain on sale of foreclosed real estate		302			5			318			86
Less: Writedowns and losses charged to expense		(7,063	)		(1,161	)		(8,395	)		(1,757	)
Foreclosed real estate, end of period	$	14,683		$	15,267		$	14,683		$	15,267

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Loans (Details 12) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012 Contract
Summary of loans modified as troubled debt restructurings within the previous 12-month period
Number of contracts	7
Recorded investment	$ 2,079
Construction, land development, and other land loans [Member]
Summary of loans modified as troubled debt restructurings within the previous 12-month period
Number of contracts	1
Recorded investment	488
Nonfarm nonresidential [Member]
Summary of loans modified as troubled debt restructurings within the previous 12-month period
Number of contracts	5
Recorded investment	1,545
Other loans held for sale [Member]
Summary of loans modified as troubled debt restructurings within the previous 12-month period
Number of contracts
Recorded investment
Loans gross [Member]
Summary of loans modified as troubled debt restructurings within the previous 12-month period
Number of contracts	7
Recorded investment	2,079
Single-family real estate, closed end, [Member]
Summary of loans modified as troubled debt restructurings within the previous 12-month period
Number of contracts	1
Recorded investment	46
Total Commercial real estate [Member]
Summary of loans modified as troubled debt restructurings within the previous 12-month period
Number of contracts	6
Recorded investment	$ 2,033

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Equity Based Compensation

6 Months Ended

Jun. 30, 2012

Equity Based Compensation [Abstract]

Equity Based Compensation

15. Equity Based Compensation

1997 Stock Compensation Plan

Stock option awards have been granted under the Palmetto Bancshares, Inc. 1997 Stock Compensation Plan (the “1997 Plan). The 1997 Plan terminated in 2007 and no options have been granted under the 1997 Plan since then. However, the termination did not impact options previously granted under the 1997 Plan. All outstanding options expire at various dates through December 31, 2016. Of these, 12,703 stock option awards remained outstanding at June 30, 2012 with exercise prices ranging from $80.00 to $121.60 per share. All stock option awards granted have a vesting term of five years and an exercise period of ten years. The Board determined the terms of the options on the grant date. The option exercise price was at least 100% of fair value of the Company’s common stock as of the grant date. Options granted to teammates were incentive stock options, while options granted to non-teammates were nonqualified stock options.

The Company estimates the grant date fair value of stock options granted using the Black-Scholes option-pricing model. The estimated grant-date fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. The Black-Scholes option-pricing model estimates the fair value of a stock option based on inputs and assumptions such as the expected volatility of the Company’s stock price, the level of risk-free interest rates, dividend yields, and expected option term.

The following table summarizes stock option activity for the 1997 Plan for the periods indicated.

	Stock options outstanding		Weighted- average exercise price
Outstanding at December 31, 2010		30,003	$	91.72
Forfeited		—		—
Outstanding at March 31, 2011		30,003		91.72
Forfeited		—		—
Outstanding at June 30, 2011		30,003		91.72
Forfeited		1,800		106.40
Outstanding at September 30, 2011		28,203		90.79
Forfeited		9,500		85.16
Outstanding at December 31, 2011		18,703		93.65
Forfeited		6,000		93.20
Outstanding at March 31, 2012		12,703		93.86
Forfeited		—		—
Outstanding at June 30, 2012		12,703	$	93.86

The following table summarizes information regarding stock options under the 1997 Plan that are outstanding and exercisable at June 30, 2012.

	Options outstanding and exercisable
Exercise price or range of exercise prices	Number of stock options outstanding and exercisable	Weighted- average remaining contractual life (years)	Weighted- average exercise price
$ 80.00	5,503	0.50	$80.00
$93.20 to $106.40	2,500	1.60	94.52
$109.20 to $121.60	4,700	3.54	109.73
Total	12,703	1.84	93.86

At June 30, 2012 and December 31, 2011, the fair value of the Company’s common stock did not exceed the exercise price of any options outstanding and exercisable, and, therefore, the stock options had no intrinsic value.

Compensation Expense. The compensation expense for stock options charged against pretax loss during the three and six months ended June 30, 2011 was less than $1 thousand for both periods. There was no income tax benefit recognized in the Consolidated Statements of Income (Loss) with regard to the deductible portion of this compensation expense. All compensation expense relative to grants under the 1997 Plan had been recognized as of December 31, 2011. As such, there was no compensation expense relative to grants under the 1997 Plan during the three and six months ended June 30, 2012.

2008 Restricted Stock Plan

Under the 2008 Restricted Stock Plan (the “2008 Plan”), 62,500 shares of common stock have been reserved for issuance subject to its anti-dilution provisions. Forfeitures are returned to the available pool of common stock for future issuance. Generally, the recipient will have the right to receive dividends, if any, with respect to such shares of restricted stock, to vote such shares and to enjoy all other shareholder rights, except that the Company will retain custody of the stock certificate and the recipient may not sell, transfer, pledge or otherwise dispose of the restricted stock until the forfeiture restrictions have expired. The following table summarizes restricted stock activity at the date and for the periods indicated.

	Shares of restricted stock			Weighted- average grant date fair value
Shares available for issuance under the 2008 Restricted Stock Plan		62,500
2009 Grants		(13,761	)	$	142.50
2009 Forfeitures		2,500			168.00
2010 Grants		(4,625	)		10.40
2010 Forfeitures		700			168.00
2011 Grants		(17,033	)		10.40
2011 Forfeitures		525			168.00
2012 Grants		(17,613	)		5.11
Remaining shares available for issuance at June 30, 2012		13,193

Of the 49,307 shares of restricted stock granted under the 2008 Plan, net of forfeitures, vesting conditions relative to 34,578 shares had been met as of June 30, 2012.

During the first quarter 2012, 17,613 shares of restricted stock with a total fair value of $90 thousand were granted to the non-management members of the Board of Directors of the Company as compensation for their annual Board retainers. Prior to 2011, restricted stock granted to directors under the 2008 Plan generally had a five-year vesting period. Beginning in 2011, with the exception of annual retainer grants that vest immediately, restricted stock granted to directors under the 2008 Plan generally had a three-year vesting period designed to coincide with director service terms. Beginning in 2012, restricted stock awards to directors upon initial appointment and reelection to the Board will continue to be granted with vesting periods to coincide with director service terms but have been changed to require a director to purchase shares of the Company’s common stock on the open market to be eligible to receive a matching grant of restricted stock awards. The matching grants at initial appointment and reelection are capped at an economic value of $10 thousand.

Restricted stock awards to teammates under the 2008 Plan are generally subject to a five year vesting period.

Compensation Expense. The value of the restricted stock awarded is established as the fair value of the stock at the time of the grant. The Company measures compensation expense for restricted stock awards at fair value and recognizes compensation expense over the service period for grants that have time / service-based vesting provisions. The following table summarizes compensation expense charged against pretax loss for the periods indicated for the 2008 Plan (in thousands).

	For the three months ended June 30,				For the six months ended June 30,
	2012		2011		2012		2011
Compensation expense	$	72	$	57	$	232	$	219
Income tax benefit		—		—		—		—

Forfeitures are accounted for by eliminating compensation expense for unvested shares as forfeitures occur. At June 30, 2012, based on restricted stock awards outstanding at that time, the total pretax compensation expense related to unvested restricted stock awards granted under the 2008 Plan but not yet recognized was $512 thousand. This expense is expected to be recognized through 2016.

2011 Stock Incentive Plan

The 2011 Stock Incentive Plan (the “2011 Plan”) was approved by shareholders at the 2011 Annual Meeting of Shareholders and allows the Board to grant a total of 500,000 stock options and / or restricted stock awards to teammates and directors. The 2011 Plan requires that stock options be issued with a strike price at or above the fair market value per share of the Company’s common stock on the date of grant.

Under the 2011 Plan, the Board, at its discretion, determines the amount of equity awards to be granted, the vesting conditions, type of award and any other terms and conditions. No option will be exercisable more than 10 years after the date of grant. Generally, the recipient will have the right to receive dividends, if any, with respect to any shares of restricted stock granted, to vote such shares and to enjoy all other shareholder rights, except that the Company will retain custody of the stock certificate and the recipient may not sell, transfer, pledge or otherwise dispose of the restricted stock until the forfeiture restrictions have expired. Forfeitures of restricted stock are returned to the available pool of common stock for future issuance. The following table summarizes the 2011 Plan stock option and restricted stock activity for the periods indicated.

	Total shares			Shares of restricted stock		Weighted- average  grant date fair value		Stock options outstanding		Weighted- average exercise price
Shares available for issuance under the 2011 Plan		500,000
2011 Grants		(473,002	)		89,751	$	10.48		383,251	$	10.51
2012 Grants		(8,020	)		8,020		6.50		—		—
Remaining shares available for issuance at June 30, 2012		18,978

During the second quarter 2012, 8,020 shares of restricted stock were awarded to certain teammates in recognition of performance. These awards are subject to both future performance and service conditions and, assuming these conditions are met, will vest in from 2015 to 2017. Total compensation expense of $52 thousand associated with these awards is expected to be recognized through May 2017.

The following table summarizes information regarding stock options under the 2011 Plan that were outstanding at June 30, 2012. No options were exercisable under the 2011 Plan at June 30, 2012.

	Options outstanding
Exercise price	Number of stock options outstanding at June 30, 2012		Weighted- average remaining contractual life (years)		Weighted- average exercise price
$10.40		312,501		8.87	$	10.40
$11.00		70,750		9.03		11.00
Total		383,251		8.90		10.51

At June 30, 2012, the fair value of the Company’s common stock did not exceed the exercise price of any options outstanding and exercisable, and, therefore, the stock options had no intrinsic value.

Compensation Expense. The Company measures compensation expense for restricted stock and stock option awards at fair value and recognizes compensation expense over the service period for grants that have time / service-based vesting provisions. The following table summarizes compensation expense for the 2011 plan charged against pretax loss for the periods indicated (in thousands).

	For the three months ended June 30,				For the six months ended June 30,
	2012		2011		2012		2011
Compensation expense	$	190	$	81	$	380	$	81
Income tax benefit		—		—		—		—

Compensation expense is adjusted to reflect awards forfeited prior to vesting. At June 30, 2012, based on awards outstanding at that time, the total pretax compensation expense related to unvested equity awards granted under the 2011 Plan but not yet recognized was $2.1 million. This expense is expected to be recognized through 2017.

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Deposits (Tables)

6 Months Ended

Jun. 30, 2012

Deposits [Abstract]

Summary of composition of deposits

	June 30, 2012		December 31, 2011
Transaction deposits	$	486,013	$	460,766
Money market deposits		128,527		145,649
Savings deposits		66,020		59,117
Time deposits $100,000 and greater		196,444		198,202
Time deposits less than $100,000		185,673		200,447
Total deposits	$	1,062,677	$	1,064,181

Summary of interest expense on deposits

	For the three months ended June 30,				For the six months ended June 30,
	2012		2011		2012		2011
Transaction deposit accounts	$	9	$	34	$	20	$	83
Money market deposit accounts		13		52		32		133
Savings deposit accounts		2		11		4		27
Time deposit accounts		1,315		2,427		2,676		4,957
Total interest expense on deposits	$	1,339	$	2,524	$	2,732	$	5,200

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Equity Based Compensation (Details Textual) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended			6 Months Ended
	Jun. 30, 2012	Mar. 31, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Jul. 23, 2012	Dec. 31, 2011	Sep. 30, 2011	Mar. 31, 2011	Dec. 31, 2010
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock, future issuance						428,125
Compensation expense related to grants	$ 0			$ 0
Equity based compensation (Textual) [Abstract]
Stock options outstanding	12,703	12,703	30,003	12,703	30,003		18,703	28,203	30,003	30,003
Exercise period of stock option awards granted				10 years
Percentage of option exercise price of fair value of common stock	100.00%			100.00%
Compensation expense for stock options charged against pretax loss			less than $1 thousand		less than $1 thousand
Number of shares for which vesting conditions had been met				34,578
Number of restricted stock granted, value		90
Cap value of matching grants				10
Number of options exercisable after date of grant				0
Duration of options exercisable after the grant date				10 years
Number of options approved to be granted				500,000
Intrinsic value of stock options	0			0
Exercise price or range of exercise prices, minimum				$ 80.00
Exercise price or range of exercise prices, maximum				$ 121.60
Non management director [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock, future issuance	62,500			62,500
Stock options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period of stock granted				5 years
Restricted stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of restricted stock granted				49,307
Restricted stock [Member] | Non management director [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of restricted stock granted		17,613
1997 Stock compensation plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Income tax benefit recognized				0
1997 Stock compensation plan [Member] | Stock options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options granted				0
2008 Restricted Stock Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Income tax benefit recognized				0
Pretax compensation expense related to unvested restricted stock awards granted				512
2008 Restricted Stock Plan [Member] | Restricted stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period of stock granted				5 years
2008 Restricted Stock Plan [Member] | Restricted stock [Member] | Director [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period of stock granted				3 years
2008 Restricted Stock Plan [Member] | Restricted stock [Member] | Team member [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period of stock granted				5 years
2011 Stock incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Income tax benefit recognized				0
Pretax compensation expense related to unvested restricted stock awards granted				2,100
Compensation expense related to grants	$ 52
2011 Stock incentive Plan [Member] | Stock options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options granted				0
2011 Stock incentive Plan [Member] | Restricted stock [Member] | Team member [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of restricted stock granted	8,020

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Commitments, Guarantees and Other Contingencies

6 Months Ended

Jun. 30, 2012

Commitments, Guarantees and Other Contingencies [Abstract]

Commitments, Guarantees and Other Contingencies

17. Commitments, Guarantees and Other Contingencies

Lending Commitments and Standby Letters of Credit

Unused lending commitments to clients are not recorded in the Consolidated Balance Sheets until funds are advanced. For commercial clients, lending commitments generally take the form of unused revolving credit arrangements to finance clients’ working capital requirements. For retail clients, lending commitments are generally unused lines of credit secured by residential property. The Company routinely extends lending commitments for both floating and fixed-rate loans.

The following table summarizes the contractual amounts of the Company’s unused lending commitments relating to extension of credit with off-balance sheet risk at June 30, 2012 (in thousands).

Commitments to extend credit:
Revolving, open-end lines secured by single-family residential properties	$	52,380
Commercial real estate, construction, and land development loans secured by real estate
Single-family residential construction loan commitments		4,687
Commercial real estate, other construction loan, and land development loan commitments		31,102
Commercial and industrial loan commitments		17,433
Overdraft protection line commitments		26,947
Other		9,538
Total commitments to extend credit	$	142,087

Standby letters of credit are issued for clients in connection with contracts between clients and third parties. Letters of credit are conditional commitments issued by the Company to guarantee the performance of a client to a third party. The maximum potential amount of undiscounted future payments related to letters of credit was $2.7 million and $3.0 million at June 30, 2012 and December 31, 2011, respectively.

The reserve for unfunded commitments at June 30, 2012 and December 31, 2011 was $196 thousand and $378 thousand, respectively, and is recorded in Other liabilities in the Consolidated Balance Sheets.

Mortgage loan commitments that we originate are for mortgage loans that are generally sold in the secondary market upon origination and are, therefore, short-term in nature. The commitments to originate mortgage loans that are intended to be sold are accounted for as freestanding derivative instruments and are recorded on the Consolidated Balance Sheets at fair value. For additional disclosure regarding these loan commitments and freestanding derivatives, see Note 18, Derivative Financial Instruments and Hedging Activities.

Loan Participations

With regard to loan participations, the Company serves as the lead bank and is therefore responsible for certain administration and other management functions as agent to the participating banks. The participation agreements include certain standard representations and warranties related to the Company’s duties to the participating banks.

Contractual Obligations

In addition to the contractual commitments and arrangements previously described, the Company enters into other contractual obligations in the ordinary course of business. The following table summarizes the contractual obligations of time deposit accounts at June 30, 2012 (in thousands).

	Less than one year		Over one through three years		Over three through five years		Over five years		Total
Time deposit accounts	$	299,292	$	77,823	$	4,943	$	59	$	382,117

As described in Note 21, Subsequent Event, on July 1, 2012 the Bank completed the sale of two branches, one of which was a leased facility under a lease agreement with a term through September 2015. While the lease has been assigned to the purchaser of the branches as of July 1, 2012, the Bank remains as a named party to the lease in the event the purchaser fails to satisfy its obligations. Future lease payments related to this facility to be made by the purchaser total $143 thousand.

There have been no other significant changes in future real property operating lease obligations as reported in our 2011 Annual Report on Form 10-K except as otherwise noted within this Quarterly Report on Form 10-Q.

Legal Proceedings

The Company is subject to actual and threatened legal proceedings and other claims arising out of the conduct of its business. Some of these suits and proceedings seek damages, fines, or penalties. These suits and proceedings are being defended by or contested on the Company’s behalf. On the basis of information presently available, the Company does not believe that existing proceedings and claims will have a material impact on its financial position or results of operations.

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Loans (Details 15) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2012	Dec. 31, 2011
Allowance for loan losses:
Provision for loan losses	$ 11,150	$ 20,500
Loan charge-offs	19,104	22,832
Loan recoveries	636	994
Net loans charged-off	18,468	21,838
Individually evaluated for impairment	3,295	6,505
Collectively evaluated for impairment	14,983	19,091
Allowance for loan losses, beginning of period	25,596	26,934
Allowance for loan losses, end of period	18,278	25,596
Gross loans, end of period:
Other loans held for sale	723,986	773,558
Loans (1) [Member]
Allowance for loan losses:
Allowance for loan losses, end of period	18,278	25,596
Gross loans, end of period:
Individually evaluated for impairment	45,034	69,791
Collectively evaluated for impairment	678,952	703,767
Total Commercial real estate [Member]
Allowance for loan losses:
Provision for loan losses	9,643
Loan charge-offs	15,221
Loan recoveries	104
Net loans charged-off	15,117
Individually evaluated for impairment	3,087
Collectively evaluated for impairment	9,465
Allowance for loan losses, beginning of period	18,026
Allowance for loan losses, end of period	12,552
Gross loans, end of period:
Other loans held for sale	451,764	492,754
Total Commercial real estate [Member] | Loans (1) [Member]
Allowance for loan losses:
Allowance for loan losses, end of period	12,552
Gross loans, end of period:
Individually evaluated for impairment	40,299
Collectively evaluated for impairment	401,289
Single family residential [Member]
Allowance for loan losses:
Provision for loan losses	1,649
Loan charge-offs	2,903
Loan recoveries	74
Net loans charged-off	2,829
Individually evaluated for impairment	158
Collectively evaluated for impairment	3,150
Allowance for loan losses, beginning of period	4,488
Allowance for loan losses, end of period	3,308
Gross loans, end of period:
Other loans held for sale	173,037
Single family residential [Member] | Loans (1) [Member]
Allowance for loan losses:
Allowance for loan losses, end of period	3,308
Gross loans, end of period:
Individually evaluated for impairment	3,176
Collectively evaluated for impairment	169,861
Commercial and Industrial [Member]
Allowance for loan losses:
Provision for loan losses	(334)
Loan charge-offs	302
Loan recoveries	108
Net loans charged-off	194
Individually evaluated for impairment	45
Collectively evaluated for impairment	1,289
Allowance for loan losses, beginning of period	1,862
Allowance for loan losses, end of period	1,334
Gross loans, end of period:
Other loans held for sale	48,853
Commercial and Industrial [Member] | Loans (1) [Member]
Allowance for loan losses:
Allowance for loan losses, end of period	1,334
Gross loans, end of period:
Individually evaluated for impairment	1,518
Collectively evaluated for impairment	47,335
Consumer [Member]
Allowance for loan losses:
Provision for loan losses	114
Loan charge-offs	359
Loan recoveries	106
Net loans charged-off	253
Individually evaluated for impairment	5
Collectively evaluated for impairment	1,065
Allowance for loan losses, beginning of period	1,209
Allowance for loan losses, end of period	1,070
Gross loans, end of period:
Other loans held for sale	51,816
Consumer [Member] | Loans (1) [Member]
Allowance for loan losses:
Allowance for loan losses, end of period	1,070
Gross loans, end of period:
Individually evaluated for impairment	41
Collectively evaluated for impairment	51,775
Other [Member]
Allowance for loan losses:
Provision for loan losses	78
Loan charge-offs	319
Loan recoveries	244
Net loans charged-off	75
Individually evaluated for impairment	0
Collectively evaluated for impairment	14
Allowance for loan losses, beginning of period	11
Allowance for loan losses, end of period	14
Gross loans, end of period:
Other loans held for sale	8,692
Other [Member] | Loans (1) [Member]
Allowance for loan losses:
Allowance for loan losses, end of period	14
Gross loans, end of period:
Individually evaluated for impairment	0
Collectively evaluated for impairment	$ 8,692

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Disclosures Regarding Fair Value (Details 3) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Carrying amount [Member]
Foreclosed real estate and repossessed personal property
Loans	$ 684,816	$ 704,537
Deposits	1,062,677	1,064,181
Fair value [Member]
Foreclosed real estate and repossessed personal property
Loans	689,735	715,288
Deposits	$ 1,065,175	$ 1,069,792

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Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Operating Activities
Net loss	$ (7,736)	$ (15,649)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation	1,330	1,191
Amortization of unearned discounts / premiums on investment securities available for sale, net	2,586	2,615
(Increase) decrease in income tax refunds receivable	(510)	7,436
Provision for loan losses	11,150	12,900
Gain on sales of mortgage loans held for sale, net	(1,074)	(452)
Loss on other loans held for sale	2,534	4,948
Writedowns, gains and losses on sales of foreclosed real estate, net	8,077	1,671
Loss on prepayment of FHLB advances		412
Investment securities gains, net	(9,859)	(56)
Originations of mortgage loans held for sale	(35,459)	(16,913)
Proceeds from sale of mortgage loans held for sale	36,392	21,369
Compensation expense on equity-based awards	612	303
(Increase) decrease in interest receivable and other assets, net	5,576	(1,604)
Decrease in interest payable and other liabilities, net	(1,380)	(822)
Net cash provided by operating activities	12,239	17,349
Investing Activities
Proceeds from sales of investment securities available for sale	151,864	2,390
Proceeds from maturities of investment securities available for sale	2,700	39,590
Purchases of investment securities available for sale	(175,555)	(125,462)
Repayments on mortgage-backed investment securities available for sale	31,242	21,880
Proceeds from redemption of FHLB stock	1,318	1,600
Proceeds from sale of other loans held for sale	13,718	6,528
Repayments on other loans held for sale	70	2,392
Decreases in loans, net	10,353	7,042
Proceeds on sale of foreclosed real estate	9,064	8,457
Purchases of premises and equipment, net	(500)	(689)
Net cash provided by (used for) investing activities	44,274	(36,272)
Financing Activities
Increase (decrease) in transaction, money market, and savings deposit accounts, net	15,028	(7,816)
Decrease in time deposit accounts, net	(16,532)	(39,002)
Increase (decrease) in retail repurchase agreements, net	(5,598)	3,988
Repayment of FHLB borrowings		(35,412)
Proceeds from issuance of common stock, net		7,951
Net cash provided by (used for) financing activities	(7,102)	(70,291)
Net change in cash and due from banks	49,411	(89,214)
Cash and due from banks at beginning of period	102,952	223,017
Cash and due from banks at end of period	152,363	133,803
Cash paid and received during the period for:
Cash paid for interest expense	2,770	5,633
Income tax (refunds received) paid, net	510	(7,436)
Significant noncash activities
Change in net unrealized gains on investment securities available for sale, net of tax	(6,586)	1,860
Loans transferred from gross loans to other loans held for sale	19,722	1,224
Loans transferred from gross loans to foreclosed real estate, at fair value	2,347	1,466
Loans transferred from other loans held for sale to gross loans, at fair value	1,318
Loans transferred from other loans held for sale to foreclosed real estate, at fair value	$ 1,814	$ 3,946

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Consolidated Balance Sheets (Parenthetical) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Consolidated Balance Sheets [Abstract]
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	2,500,000	2,500,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	75,000,000	75,000,000
Common stock, shares issued	12,752,040	12,726,388
Common stock, shares outstanding	12,752,040	12,726,388

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Deposits

6 Months Ended

Jun. 30, 2012

Deposits [Abstract]

Deposits

10. Deposits

Composition

The following table summarizes the composition of deposits at the dates indicated (in thousands).

	June 30, 2012		December 31, 2011
Transaction deposits	$	486,013	$	460,766
Money market deposits		128,527		145,649
Savings deposits		66,020		59,117
Time deposits $100,000 and greater		196,444		198,202
Time deposits less than $100,000		185,673		200,447
Total deposits	$	1,062,677	$	1,064,181

At June 30, 2012 and December 31, 2011, $469 thousand and $621 thousand, respectively, of overdrawn transaction deposit accounts were reclassified to loans. The Company had no brokered deposits at June 30, 2012 or December 31, 2011.

As more fully discussed in Note 21, Subsequent Event, deposits associated with the two branches sold on July 1, 2012 totaled $41.1 million (including time deposits of $22.8 million) at June 30, 2012.

Interest Expense on Deposit Accounts

The following table summarizes interest expense on deposits for the periods indicated (in thousands).

	For the three months ended June 30,				For the six months ended June 30,
	2012		2011		2012		2011
Transaction deposit accounts	$	9	$	34	$	20	$	83
Money market deposit accounts		13		52		32		133
Savings deposit accounts		2		11		4		27
Time deposit accounts		1,315		2,427		2,676		4,957
Total interest expense on deposits	$	1,339	$	2,524	$	2,732	$	5,200

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Commitments, Guarantees and Other Contingencies (Details Textual) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Commitments Guarantees and Other Contingencies (Textual) [Abstract]
Maximum potential commitment under letters of credit	$ 2,700,000	$ 3,000,000
Reserve for unfunded commitments	196,000	378,000
Future lease payment	$ 143,000

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Equity Based Compensation (Details 2) (Restricted stock [Member], USD $)			6 Months Ended
	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2012 2009 Grants [Member]	Jun. 30, 2012 2009 Forfeitures [Member]	Jun. 30, 2012 2010 Grants [Member]	Jun. 30, 2012 2010 Forfeitures [Member]	Jun. 30, 2012 2011 Grants [Member]	Jun. 30, 2012 2011 Forfeitures [Member]	Jun. 30, 2012 2012 Grants [Member]
Summary of shares available for issuance under restricted stock plan
Shares available for issuance under the 2008 Restricted Stock Plan	13,193	62,500
Shares of restricted stock, Grants			(13,761)		(4,625)		(17,033)		(17,613)
Shares of restricted stock, Forfeitures				2,500		700		525
Remaining shares available for issuance at June 30, 2012	13,193	62,500
Weighted-average grant date fair value, Grants			$ 142.50		$ 10.40		$ 10.40		$ 5.11
Weighted-average grant date fair value, Forfeitures				$ 168.00		$ 168.00		$ 168.00

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Equity Based Compensation (Details) (USD $)	3 Months Ended
	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2010
Summary of Stock option Activity for the periods indicated
Stock options outstanding	12,703	12,703	18,703	28,203	30,003	30,003	30,003
Stock options outstanding , Forfeited		6,000	9,500	1,800
Weighted - average exercise price, Outstanding	$ 93.86	$ 93.86	$ 93.65	$ 90.79	$ 91.72	$ 91.72	$ 91.72
Weighted - average exercise price, Forfeited		$ 93.20	$ 85.16	$ 106.40

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Document and Entity Information	6 Months Ended
	Jun. 30, 2012	Jul. 23, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	PALMETTO BANCSHARES INC
Entity Central Index Key	0000706874
Document Type	10-Q
Document Period End Date	Jun. 30, 2012
Amendment Flag	false
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		12,752,040

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Borrowings

6 Months Ended

Jun. 30, 2012

Borrowings [Abstract]

Borrowings

11. Borrowings

Correspondent Bank Lines of Credit

At June 30, 2012, the Company had access to two secured and one unsecured line of credit from correspondent banks. The following table summarizes the Company’s line of credit funding utilization and availability at the dates indicated (in thousands).

	June 30, 2012		December 31, 2011
Correspondent bank line of credit accomodations	$	35,000	$	35,000
Utilized correspondent bank line of credit accomodations		—		—
Available correspondent bank line of credit accomodations	$	35,000	$	35,000

FHLB Borrowings

As disclosed in Note 3, Investment Securities Available for Sale, and Note 4, Loans, the Company pledges investment securities and loans to collateralize FHLB advances. Additionally, the Company may pledge cash and cash equivalents. The amount that can be borrowed is based on the balance of the type of asset pledged as collateral multiplied by lendable collateral value percentages, as calculated by the FHLB. The Company can borrow up to 15% of total assets from the FHLB.

The Company is a member of the FHLB of Atlanta, which is one of 12 regional FHLBs that administer home financing credit for depository institutions. As an FHLB member, and to be eligible to borrow, the Company is required to purchase and maintain stock in the FHLB. No ready market exists for FHLB stock, and this stock has no quoted market value. Purchases and redemptions are normally transacted each quarter to adjust the Company’s investment to an amount based on the FHLB requirements, which are generally based on the amount of borrowings the Company has outstanding with the FHLB. Requests for redemptions of FHLB stock are met at the discretion of the FHLB. The carrying value of this stock was $2.2 million at June 30, 2012 and $3.5 million at December 31, 2011.

During the second quarter 2012, the FHLB redeemed $1.3 million of excess FHLB stock from the Company at book value.

The following table summarizes FHLB borrowed funds utilization and availability at the dates indicated (in thousands).

	June 30, 2012		December 31, 2011
Available lendable loan collateral value pledged to serve against FHLB advances	$	75,501	$	66,690
Available lendable investment security collateral value pledged to serve against FHLB advances		—		15,410
Excess		75,501		82,100

At both June 30, 2012 and December 31, 2011, the Company had no outstanding advances from the FHLB.

Federal Reserve Discount Window

At June 30, 2012 and December 31, 2011, $6.6 million and $10.9 million of loans and securities, respectively, were pledged as collateral to cover the various Federal Reserve System services that are available for use by the Company. During the second quarter 2012, the Company was notified by the Federal Reserve that any future borrowings from the Federal Reserve Discount Window would be reinstated at the primary credit rate. Primary credit is available through the Discount Window to generally sound depository institutions on a very short-term basis, typically overnight, at a rate above the Federal Open Market Committee target rate for federal funds. The Company’s maximum maturity for potential borrowings is overnight. From the first quarter 2010 through the second quarter 2012, the Company was only able to borrow from the Federal Reserve Discount Window at the secondary credit rate and such borrowings could only be used as a backup source of funding on a very short-term basis or to facilitate an orderly resolution of operational issues. The Company has not drawn on this availability since its initial establishment in 2009 other than to periodically test its ability to access such lines. The Federal Reserve has the discretion to deny approval of borrowing requests.

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Foreclosed Real Estate and Repossessed Personal Property (Details) (Textual) (USD $)	1 Months Ended	3 Months Ended	6 Months Ended
	Jul. 31, 2012	Jun. 30, 2012 Property ResidentialLots	Jun. 30, 2012 Property ResidentialLots	Jun. 30, 2011	Jul. 23, 2012 Property	Dec. 31, 2011
Real Estate, Write-down or Reserve [Line Items]
Proceeds from sale of other loans held for sale		$ 14,250,000	$ 13,718,000	$ 6,528,000
Writedowns, gains on sales of foreclosed real estate		2,500,000	2,500,000
Foreclosed real estate and repossessed personal property (Textual) [Abstract]
Number of undeveloped residential lots		61	61
Amount of undeveloped residential lots		7,100,000	7,100,000
Participations sold		357,000	357,000			5,400,000
Real estate auctions		9,000,000	9,000,000
Carrying amount of properties sold		934,000	934,000
Net gain on sale of property			98,000
Carrying amount of properties under contract for sale		2,000,000	2,000,000
Anticipated Gain On Sale of Properties Under Contract For Sale	114,000
Properties acquired		2	2
Additional Properties					4
Foreclosed Assets [Member]
Real Estate, Write-down or Reserve [Line Items]
Proceeds from sale of other loans held for sale			7,100,000
Writedowns, gains on sales of foreclosed real estate		1,900,000	1,900,000
Writedowns based on the receipt of updated appraisals on properties			$ 4,900,000

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Employee Benefit Plans (Details Textual) (USD $)	1 Months Ended	3 Months Ended	6 Months Ended
	Jan. 31, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Mar. 31, 2012	Dec. 31, 2011
Employee Benefit Plans (Textual) [Abstract]
Company contributions to 401(k) plan		$ 84,000		$ 182,000
Full time teammates continuous service in defined benefit pension plan			Atleast 12 Months
Attainable age for continuous servicing in defined pension plan			21 years
Loss on defined benefit pension plan			0
Other Postretirement Defined Benefit Plan, Liabilities			5,100,000			6,100,000
Fair value of plan assets			14,000,000			13,700,000
Asset to liability ratio In pension plan			less than 80%
Liability ratio			60.00%
Month average of bond yields provided by internal revenue service			24 months
Percentage of Company Contribution			75.00%
Company contribution to pension plan in addition					1,000,000
Final employer contribution of company	94,000		163,000
Anticipated employer contribution			489,000
Cash surrender value of life insurance policy			$ 1,600,000			$ 1,600,000

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Consolidated Statements of Income (Loss) (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Interest income
Interest earned on cash and cash equivalents	$ 72	$ 112	$ 123	$ 217
Dividends received on FHLB stock	13	13	25	27
Interest earned on investment securities available for sale
U.S. Treasury and federal agencies (taxable)				6
State and municipal (nontaxable)	669	918	1,584	1,463
Collateralized mortgage obligations (taxable)	387	772	896	1,327
Other mortgage-backed (taxable)	207	219	419	419
SBA loan backed (taxable)	49		49
Interest and fees earned on loans	10,025	11,111	20,351	22,383
Total interest income	11,422	13,145	23,447	25,842
Interest expense
Interest paid on deposits	1,339	2,524	2,732	5,200
Interest paid on retail repurchase agreements		8	1	19
Interest paid on FHLB borrowings		23		72
Total interest expense	1,339	2,555	2,733	5,291
Net interest income	10,083	10,590	20,714	20,551
Provision for loan losses	8,450	7,400	11,150	12,900
Net interest income after provision for loan losses	1,633	3,190	9,564	7,651
Noninterest income
Service charges on deposit accounts, net	1,669	1,875	3,343	3,637
Fees for trust, investment management and brokerage services	870	842	1,589	1,533
Mortgage-banking	832	241	1,633	617
Automatic teller machine	248	256	489	488
Bankcard services	57	49	119	125
Investment securities gains, net	9,859	56	9,859	56
Other	428	439	861	874
Total noninterest income	13,963	3,758	17,893	7,330
Noninterest expense
Salaries and other personnel	5,335	5,998	10,943	12,252
Occupancy	1,064	1,146	2,328	2,329
Furniture and equipment	834	930	1,725	1,915
Professional services	424	553	890	1,063
FDIC deposit insurance assessment	446	702	1,097	1,660
Marketing	374	520	562	934
Loan workout	158	453	387	471
Foreclosed real estate writedowns and expenses	6,966	1,504	8,334	2,337
Loss on other loans held for sale	2,406	3,797	2,534	4,948
Other	1,227	2,105	2,365	3,860
Total noninterest expense	19,234	17,708	31,165	31,769
Net loss before provision (benefit) for income taxes	(3,638)	(10,760)	(3,708)	(16,788)
Provision (benefit) for income taxes	3,511	(1,191)	4,028	(1,139)
Net loss	$ (7,149)	$ (9,569)	$ (7,736)	$ (15,649)
Common and per share data
Net loss - basic	$ (0.57)	$ (0.76)	$ (0.61)	$ (1.25)
Net loss - diluted	$ (0.57)	$ (0.76)	$ (0.61)	$ (1.25)
Cash dividends
Book value	$ 7.04	$ 8.51	$ 7.04	$ 8.51
Weighted average common shares outstanding - basic	12,638,160	12,616,887	12,637,990	12,490,833
Weighted average common shares outstanding - diluted	12,638,160	12,616,887	12,637,990	12,490,833

XML

Other Loans Held for Sale and Valuation Allowance

6 Months Ended

Jun. 30, 2012

Other Loans Held for Sale and Valuation Allowance [Abstract]

Other Loans Held for Sale and Valuation Allowance

5. Other Loans Held for Sale and Valuation Allowance

Other loans held for sale are carried at the lower of cost or fair value less estimated costs to sell. The following table summarizes activity within other loans held for sale and the related valuation allowance at and for the three months ended June 30, 2012 (in thousands).

	Other loans held for sale, gross		Valuation allowance on other loans held for sale
Balance at March 31, 2012	$	17,258	$	2,555
Additions:
Gross loans transferred to other loans held for sale related to branch sales		7,508		—
Other gross loans transferred to other loans held for sale		9,739		—
Writedowns on other loans held for sale included in valuation allowance, net		—		97
Total additions		17,247		97
Reductions:
Proceeds from sales of other loans held for sale		14,592		874
Transfers to foreclosed real estate		1,336		—
Other loans held for sale transferred to gross loans		—		—
Direct writedowns on other loans held for sale		2,309		—
Net paydowns		44		—
Total reductions		18,281		874
Balance at June 30, 2012	$	16,224	$	1,778

Writedowns on other loans held for sale during the second quarter 2012 totaled $2.4 million of which $2.2 million were the result of sales of other loans held for sale during the period.

The following table summarizes activity within other loans held for sale and the related valuation allowance at and for the six months ended June 30, 2012 (in thousands).

	Other loans held for sale, gross		Valuation allowance on other loans held for sale
Balance at December 31, 2011	$	16,739	$	2,561
Additions:
Gross loans transferred to other loans held for sale related to branch sales		7,508		—
Other gross loans transferred to other loans held for sale		12,214		—
Writedowns on other loans held for sale included in valuation allowance, net		—		100
Total additions		19,722		100
Reductions:
Proceeds from sales of other loans held for sale		14,592		874
Transfers to foreclosed real estate		1,814		—
Other loans held for sale transferred to gross loans		1,327		9
Direct writedowns on other loans held for sale		2,434		—
Net paydowns		70		—
Total reductions		20,237		883
Balance at June 30, 2012	$	16,224	$	1,778

Other loans held for sale at June 30, 2012 include $7.5 million of loans associated with the branch sales that were consummated on July 1, 2012 and three commercial real estate loans with a net carrying value of $6.9 million that are continuing to be marketed for sale.

XML

Loans

6 Months Ended

Jun. 30, 2012

Loans [Abstract]

Loans

4. Loans

During the second quarter 2012, through the Bank’s normal problem loan resolution efforts and through a bulk loan sale, the Bank entered into contracts to sell selected classified loans with carrying values at March 31, 2012, before any allowance for loan losses, of $33.4 million, $21.7 million of which were included in gross loans at March 31, 2012 and closed during the second quarter 2012. In the aggregate, contracts to sell selected classified loans included in gross loans at March 31, 2012 resulted in charge-offs of $11.7 million. For disclosure related to the sale of other loans held for sale, see Note 5, Other Loans Held for Sale and Valuation Allowance.

In addition to the loan sales noted above, during the second quarter 2012 the Company transferred $7.5 million of gross loans to other loans held for sale in connection with the sale of its Rock Hill and Blacksburg branches, which closed on July 1, 2012. For disclosure related to the sale of these two branches see Note 21, Subsequent Event.

In the tables below, loan classes are based on Federal Deposit Insurance Corporation (“FDIC”) code and portfolio segments are an aggregation of those classes based on the methodology used by the Company to develop and document its allowance for loan losses. FDIC classification codes are based on the underlying loan collateral.

The tabular disclosures in this Note include amounts related to other loans held for sale, which are reported separately from the Company’s gross loan portfolio on the Consolidated Balance Sheets and are subject to different accounting and reporting requirements. Inclusion of other loans held for sale with the related disclosures for loans held for investment provides a more accurate and relevant picture of the Company’s loan exposures based on the characteristics of other loans held for sale.

Composition

The following table summarizes gross loans and other loans held for sale, categorized by portfolio segment, at the dates indicated (dollars in thousands).

	June 30, 2012						December 31, 2011
	Total			% of total			Total			% of total
Commercial real estate	$	451,764			61.2	%	$	492,754			62.6	%
Single-family residential		175,335			23.7			185,504			23.5
Commercial and industrial		49,763			6.7			49,381			6.3
Consumer		52,044			7.1			52,771			6.7
Other		9,526			1.3			7,326			0.9
Total loans	$	738,432			100.0	%	$	787,736			100.0	%
Less: other loans held for sale		(14,446	)					(14,178	)
Loans, gross	$	723,986					$	773,558

Loans included in the preceding table are net of unearned income, charge-offs, and unamortized deferred fees and costs on originated loans. Net unearned income, net deferred fees and costs, and discounts and premiums totaled $226 thousand at June 30, 2012 compared to $21 thousand at December 31, 2011.

The following table summarizes other loans held for sale, categorized by portfolio segment, at the dates indicated (dollars in thousands).

	June 30, 2012					December 31, 2011
	Total		% of total			Total		% of total
Commercial real estate	$	10,176		70.4	%	$	14,178		100.0	%
Single-family residential		2,298		15.9			—		—
Commercial and industrial		910		6.3			—		—
Consumer		228		1.6			—		—
Other		834		5.8			—		—
Total loans	$	14,446		100.0	%	$	14,178		100.0	%

Pledged

To borrow from the FHLB, members must pledge collateral. Acceptable collateral includes, among other types of collateral, a variety of residential, multifamily, home equity lines and second mortgages, and qualifying commercial loans. At June 30, 2012 and December 31, 2011, $198.2 million and $251.4 million of gross loans, respectively, were pledged to collateralize FHLB advances of which $75.5 million and $66.7 million, respectively, were available as lendable collateral. The Company may borrow from the FHLB for terms up to three years at amounts of up to 15% of the Company’s total assets, subject to availability of collateral.

At June 30, 2012 and December 31, 2011, $3.6 million and $5.4 million, respectively, of loans were pledged as collateral to cover the various Federal Reserve System services that are available for use by the Company.

Concentrations

The following table summarizes loans secured by commercial real estate, categorized by FDIC code, at June 30, 2012 (dollars in thousands).

	Commercial real estate included in gross loans		Commercial real estate  included in other loans held for sale		Total commercial real estate loans		% of gross loans and other loans held for sale			% of Bank’s total regulatory capital
Secured by commercial real estate
Construction, land development, and other land loans	$	66,998	$	2,691	$	69,689		9.5	%		64.1	%
Multifamily residential		12,694		—		12,694		1.7			11.7
Nonfarm nonresidential		361,896		7,485		369,381		50.0			339.7
Total loans secured by commercial real estate	$	441,588	$	10,176	$	451,764		61.2	%		415.5	%

The following table further categorizes loans secured by commercial real estate at June 30, 2012 (dollars in thousands).

	Commercial real estate included in gross loans		Commercial real estate included in other loans held for sale		Total commercial real estate loans		% of gross loans and other loans held for sale			% of Bank’s total regulatory capital
Development commercial real estate loans Secured by:
Land - unimproved (commercial or residential)	$	22,377	$	2,691	$	25,068		3.4	%		23.0	%
Land development - commercial		10,734		—		10,734		1.5			9.9
Land development - residential		14,851		—		14,851		2.0			13.7
Commercial construction:
Retail		3,972		—		3,972		0.5			3.6
Office		230		—		230		—			0.2
Industrial and warehouse		842		—		842		0.1			0.8
Miscellaneous commercial		1,934		—		1,934		0.3			1.8
Total development commercial real estate loans		54,940		2,691		57,631		7.8			53.0
Existing and other commercial real estate loans Secured by:
Hotel / motel		67,116		4,825		71,941		9.7			66.2
Retail		20,202		127		20,329		2.8			18.7
Office		20,128		197		20,325		2.8			18.7
Multifamily		12,694		—		12,694		1.7			11.7
Industrial and warehouse		9,111		560		9,671		1.3			8.9
Healthcare		16,124		—		16,124		2.2			14.8
Miscellaneous commercial		102,966		1,576		104,542		14.2			96.1
Residential construction - speculative		299		—		299		—			0.3
Total existing and other commercial real estate loans		248,640		7,285		255,925		34.7			235.4
Commercial real estate owner occupied and residential loans
Secured by:
Commercial - owner occupied		126,248		200		126,448		17.1			116.3
Commercial construction - owner occupied		6,468		—		6,468		0.9			5.9
Residential construction - contract		5,292		—		5,292		0.7			4.9
Total commercial real estate owner occupied and residential loans		138,008		200		138,208		18.7			127.1
Total loans secured by commercial real estate	$	441,588	$	10,176	$	451,764		61.2	%		415.5	%

Asset Quality

Credit Quality Indicators. The Company regularly monitors the credit quality of its loan portfolio. Credit quality refers to the current and expected ability of borrowers to repay their obligations according to the contractual terms of their loans. Credit quality is evaluated through assignment of individual loan grades as well as past due and performing status analysis. Credit quality indicators allow the Company to assess the inherent loss on certain individual loans and pools of loans.

The following table summarizes the Company’s internal credit quality indicators on gross loans and other loans held for sale, by class, at June 30, 2012 (in thousands).

	Construction, land development and other land loans		Multifamily residential		Nonfarm nonresidential		Commercial real estate in other loans held for sale		Total commercial real estate
Grade 1	$	—	$	—	$	—	$	—	$	—
Grade 2		—		—		427		—		427
Grade 3		10,357		2,868		83,081		915		97,221
Grade 4		15,294		1,229		132,331		2,286		151,140
Grade W		6,810		989		66,026		—		73,825
Grade 5		3,755		7,363		27,830		—		38,948
Grade 6		10,095		245		47,116		4,825		62,281
Grade 7		3,766		—		5,085		2,113		10,964
Not risk rated*		16,921		—		—		37		16,958
	$	66,998	$	12,694	$	361,896	$	10,176	$	451,764
Less: Commercial real estate included in other loans held for sale										(10,176	)
Total									$	441,588

* Consumer real estate loans of $16.9 million, included within construction, land development, and other land loans, are not risk rated, in accordance with our policy.

	Commercial and industrial		Commercial and industrial in other loans held for sale		Total commercial and industrial
Grade 1	$	2,782	$	25	$	2,807
Grade 2		214		—		214
Grade 3		10,522		566		11,088
Grade 4		21,213		319		21,532
Grade W		8,513		—		8,513
Grade 5		699		—		699
Grade 6		4,249		—		4,249
Grade 7		568		—		568
Not graded		93		—		93
Total	$	48,853	$	910	$	49,763

	Single-family residential revolving, open end loans		Single-family residential closed end, first lien		Single-family residential closed end, junior lien		Total single-family residential loans		Single-family residential loans in other loans held for  sale		Total single-family residential loans
Performing	$	58,083	$	103,401	$	5,559	$	167,043	$	2,298	$	169,341
Nonperforming		891		4,786		317		5,994		—		5,994
Total	$	58,974	$	108,187	$	5,876	$	173,037	$	2,298	$	175,335

	Credit cards		Consumer-other		Total consumer		Consumer loans in other loans held for sale		Total consumer
Performing	$	20	$	51,424	$	51,444	$	228	$	51,672
Nonperforming		32		340		372		—		372
Total	$	52	$	51,764	$	51,816	$	228	$	52,044

	Other		Other loans in other loans held for sale		Total other
Performing	$	8,682	$	834	$	9,516
Nonperforming		10		—		10
Total	$	8,692	$	834	$	9,526

The following table summarizes the Company’s internal credit quality indicators on gross loans and other loans held for sale, by class, at December 31, 2011 (in thousands).

	Construction, land development and other land loans		Multifamily residential		Nonfarm nonresidential		Commercial real estate in other loans held for sale		Total commercial real estate
Grade 1	$	—	$	—	$	—	$	—	$	—
Grade 2		—		—		457		—		457
Grade 3		8,295		3,252		100,265		—		111,812
Grade 4		13,601		945		126,961		—		141,507
Grade W		9,075		4,233		51,889		—		65,197
Grade 5		3,671		7,550		27,235		—		38,456
Grade 6		21,511		1,956		61,907		8,800		94,174
Grade 7		10,624		—		3,991		5,378		19,993
Not risk rated*		20,836		9		313		—		21,158
	$	87,613	$	17,945	$	373,018	$	14,178	$	492,754
Less: Commercial real estate included in other loans held for sale										(14,178	)
Total									$	478,576

*-Consumer real estate loans of $20.8 million, included within construction, land development, and other land loans, are not risk rated, in accordance with our policy.

	Commercial and industrial
Grade 1	$	2,966
Grade 2		459
Grade 3		11,380
Grade 4		22,253
Grade W		5,292
Grade 5		1,489
Grade 6		4,929
Grade 7		596
Not graded		17
Total	$	49,381

	Single-family residential revolving, open end loans		Single-family residential closed end, first lien		Single-family residential closed end, junior lien		Total single-family residential loans
Performing	$	58,128	$	111,623	$	6,482	$	176,233
Nonperforming		843		7,957		471		9,271
Total	$	58,971	$	119,580	$	6,953	$	185,504

	Credit cards		Consumer-other		Total Consumer
Performing	$	179	$	52,103	$	52,282
Nonperforming		16		473		489
Total	$	195	$	52,576	$	52,771

	Other
Performing	$	7,326
Nonperforming		—
Total	$	7,326

The following table summarizes delinquencies, by class, at June 30, 2012 (in thousands).

	30-89 days past due			Greater than 90 days past due on nonaccrual			Total past due			Current			Total loans
Construction, land development and other land loans	$	424		$	12,645		$	13,069		$	56,621		$	69,690
Multifamily residential		—			—			—			12,694			12,694
Nonfarm nonresidential		1,082			4,070			5,152			364,228			369,380
Total commercial real estate		1,506			16,715			18,221			433,543			451,764
Single-family real estate, revolving, open end loans		734			891			1,625			58,352			59,977
Single-family real estate, closed end, first lien		1,048			4,786			5,834			103,637			109,471
Single-family real estate, closed end, junior lien		62			317			379			5,508			5,887
Total single-family residential		1,844			5,994			7,838			167,497			175,335
Commercial and industrial		288			1,085			1,373			48,390			49,763
Credit cards		—			32			32			20			52
All other consumer		560			340			900			51,092			51,992
Total consumer		560			372			932			51,112			52,044
Farmland		—			10			10			4,019			4,029
Obligations of states and political subdivisions of the U.S.		—			—			—			861			861
Other		—			—			—			4,636			4,636
Total		4,198			24,176			28,374			710,058			738,432
Less: other loans held for sale		(40	)		(2,113	)		(2,153	)		(12,293	)		(14,446	)
Total gross loans	$	4,158		$	22,063		$	26,221		$	697,765		$	723,986

Additional interest income of $437 thousand and $850 thousand would have been reported during the three and six months ended June 30, 2012, respectively, had loans classified as nonaccrual during the period performed in accordance with their current contractual terms. As a result, the Company’s earnings did not include this interest income.

The following table summarizes delinquencies, by class, at December 31, 2011 (in thousands).

	30-89 days past due		Greater than 90 days past due on nonaccrual			Total past due			Current			Total loans
Construction, land development and other land loans	$	94	$	27,085		$	27,179		$	64,975		$	92,154
Multifamily residential		—		—			—			17,945			17,945
Nonfarm nonresidential		574		14,870			15,444			367,211			382,655
Total commercial real estate		668		41,955			42,623			450,131			492,754
Single-family real estate, revolving, open end loans		379		843			1,222			57,749			58,971
Single-family real estate, closed end, first lien		2,633		7,957			10,590			108,990			119,580
Single-family real estate, closed end, junior lien		145		471			616			6,337			6,953
Total single-family residential		3,157		9,271			12,428			173,076			185,504
Commercial and industrial		314		1,313			1,627			47,754			49,381
Credit cards		—		16			16			179			195
All other consumer		760		473			1,233			51,343			52,576
Total consumer		760		489			1,249			51,522			52,771
Farmland		—		—			—			3,513			3,513
Obligations of states and political subdivisions of the U.S.		—		—			—			903			903
Other		2		—			2			2,908			2,910
Total		4,901		53,028			57,929			729,807			787,736
Less: other loans held for sale		—		(5,812	)		(5,812	)		(8,366	)		(14,178	)
Total gross loans	$	4,901	$	47,216		$	52,117		$	721,441		$	773,558

Troubled Debt Restructurings. The following table summarizes the carrying balance of troubled debt restructurings at the dates indicated (in thousands).

	June 30, 2012						December 31, 2011
	Performing		Nonperforming		Total		Performing		Nonperforming		Total
Other loans held for sale	$	4,825	$	—	$	4,825	$	8,366	$	—	$	8,366
Loans, gross		29,618		70		29,688		37,461		9,276		46,737
Total troubled debt restructurings	$	34,443	$	70	$	34,513	$	45,827	$	9,276	$	55,103

Loans classified as troubled debt restructurings may be removed from this status after a period of time if the restructured agreement specifies an interest rate equal to or greater than the rate that the borrower was willing to accept at the time of the restructuring for a new loan with comparable risk and the loan is not impaired based on the terms specified by the restructured agreement. The following table summarizes troubled debt restructurings removed from this classification during the periods indicated (dollars in thousands).

	For the three  months ended June 30,				For the six  months ended June 30,
	2012		2011		2012		2011
Carrying balance	$	3,665	$	—	$	5,887	$	876
Count		16		—		18		1

The following table summarizes, by class, loans that were modified resulting in troubled debt restructurings during the periods indicated (dollars in thousands).

	For the three months ended June 30, 2012						For the six months ended June 30, 2012
	Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment		Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment
Construction, land development and other land loans		—	$	—	$	—		1	$	4,089	$	4,089
Nonfarm nonresidential		1		243		243		6		1,811		1,811
Total commercial real estate		1		243		243		7		5,900		5,900
Single-family real estate, closed end, first lien		1		70		70		1		70		70
Commercial and industrial		1		206		206		2		421		416
Total loans		3	$	519	$	519		10	$	6,391	$	6,386
Less: other loans held for sale		—		—		—		—		—		—
Loans, gross		3	$	519	$	519		10	$	6,391	$	6,386

The following table summarizes, by type of concession, loans that were modified resulting in troubled debt restructurings during the periods indicated (dollars in thousands).

	For the three months ended June 30, 2012						For the six months ended June 30, 2012
	Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment		Number of contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment
Term concession		3	$	519	$	519		4	$	4,608	$	4,608
Rate and term concessions		—		—		—		6		1,783		1,778
Total loans		3	$	519	$	519		10	$	6,391	$	6,386
Less: other loans held for sale		—		—		—		—		—		—
Loans, gross		3	$	519	$	519		10	$	6,391	$	6,386

The following table summarizes, by class, loans modified resulting in troubled debt restructurings within the previous 12-month period for which there was a payment default during the periods indicated (dollars in thousands).

	For the three months ended June 30, 2012				For the six months  ended June 30, 2012
	Number of contracts		Recorded investment		Number of contracts		Recorded investment
Construction, land development and other land loans		1	$	488		1	$	488
Nonfarm nonresidential		2		406		5		1,545
Total commercial real estate		3		894		6		2,033
Single-family real estate, closed end, first lien		—		—		1		46
Total loans		3	$	894		7	$	2,079
Less: other loans held for sale		—		—		—		—
Loans, gross		3	$	894		7	$	2,079

Impaired Loans. The following table summarizes the composition of impaired loans, including other loans held for sale, at the dates indicated (in thousands). All loans that have been modified resulting in troubled debt restructurings are impaired loans.

	June 30, 2012
	Performing troubled debt restructured loans		Nonperforming troubled debt restructured loans		Nonperforming other loans		Performing other loans		Total
Other loans held for sale	$	4,825	$	—	$	2,113	$	—	$	6,938
Loans, gross		29,618		70		9,529		5,817		45,034
Total impaired loans	$	34,443	$	70	$	11,642	$	5,817	$	51,972

	December 31, 2011
	Performing troubled debt restructured loans		Nonperforming troubled debt restructured loans		Nonperforming other loans		Total
Other loans held for sale	$	8,366	$	—	$	5,812	$	14,178
Loans, gross		37,461		9,276		23,054		69,791
Total impaired loans	$	45,827	$	9,276	$	28,866	$	83,969

The following table summarizes the composition of and information relative to impaired loans, by class, at June 30, 2012 (in thousands).

	Gross loans						Other loans held for sale				Total loans
	Recorded investment		Unpaid principal balance		Related allowance		Recorded investment		Unpaid principal balance		Recorded investment		Unpaid principal balance		Related allowance
With no related allowance recorded:
Construction, land development and other land loans	$	9,753	$	26,701			$	2,113	$	9,072	$	11,866	$	35,773
Multifamily residential		—		—				—		—		—		—
Nonfarm nonresidential		8,263		12,691				4,825		6,603		13,088		19,294
Total commercial real estate		18,016		39,392				6,938		15,675		24,954		55,067
Single-family real estate, revolving, open end loans		—		—				—		—		—		—
Single-family real estate, closed end, first lien		982		3,407				—		—		982		3,407
Single-family real estate, closed end, junior lien		10		27				—		—		10		27
Total single-family residential		992		3,434				—		—		992		3,434
Commercial and industrial		753		1,179				—		—		753		1,179
Total impaired loans with no related allowance recorded	$	19,761	$	44,005			$	6,938	$	15,675	$	26,699	$	59,680
With an allowance recorded:
Construction, land development and other land loans	$	5,835	$	5,835	$	321					$	5,835	$	5,835	$	321
Multifamily residential		245		245		7						245		245		7
Nonfarm nonresidential		16,203		16,583		2,759						16,203		16,583		2,759
Total commercial real estate		22,283		22,663		3,087						22,283		22,663		3,087
Single-family real estate, revolving, open end loans		—		—		—						—		—		—
Single-family real estate, closed end, first lien		2,033		4,340		108						2,033		4,340		108
Single-family real estate, closed end, junior lien		151		151		50						151		151		50
Total single-family residential		2,184		4,491		158						2,184		4,491		158
Commercial and industrial		765		765		45						765		765		45
All other consumer		41		41		5						41		41		5
Total impaired loans with an allowance recorded	$	25,273	$	27,960	$	3,295					$	25,273	$	27,960	$	3,295
Total:
Construction, land development and other land loans	$	15,588	$	32,536	$	321	$	2,113	$	9,072	$	17,701	$	41,608	$	321
Multifamily residential		245		245		7		—		—		245		245		7
Nonfarm nonresidential		24,466		29,274		2,759		4,825		6,603		29,291		35,877		2,759
Total commercial real estate		40,299		62,055		3,087		6,938		15,675		47,237		77,730		3,087
Single-family real estate, revolving, open end loans		—		—		—		—		—		—		—		—
Single-family real estate, closed end, first lien		3,015		7,747		108		—		—		3,015		7,747		108
Single-family real estate, closed end, junior lien		161		178		50		—		—		161		178		50
Total single-family residential		3,176		7,925		158		—		—		3,176		7,925		158
Commercial and industrial		1,518		1,944		45		—		—		1,518		1,944		45
All other consumer		41		41		5		—		—		41		41		5
Total impaired loans	$	45,034	$	71,965	$	3,295	$	6,938	$	15,675	$	51,972	$	87,640	$	3,295

Interest income recognized on impaired loans during the three and six months ended June 30, 2012 was $464 thousand and $921 thousand, respectively. The average balance of total impaired loans was $69.1 million and $74.5 million for the same periods.

The following table summarizes the composition of and information relative to impaired loans, by class, at December 31, 2011 (in thousands).

	Gross loans						Other loans held for sale				Total loans
	Recorded investment		Unpaid principal balance		Related allowance		Recorded investment		Unpaid principal balance		Recorded investment		Unpaid principal balance		Related allowance
With no related allowance recorded:
Construction, land development and other land loans	$	16,845	$	36,735			$	4,541	$	16,799	$	21,386	$	53,534
Multifamily residential		—		—				—		—		—		—
Nonfarm nonresidential		16,047		22,188				9,637		13,831		25,684		36,019
Total commercial real estate		32,892		58,923				14,178		30,630		47,070		89,553
Single-family real estate, revolving, open end loans		—		—				—		—		—		—
Single-family real estate, closed end, first lien		2,742		6,928				—		—		2,742		6,928
Single-family real estate, closed end, junior lien		—		—				—		—		—		—
Total single-family residential		2,742		6,928				—		—		2,742		6,928
Commercial and industrial		886		1,312				—		—		886		1,312
Total impaired loans with no related allowance recorded	$	36,520	$	67,163			$	14,178	$	30,630	$	50,698	$	97,793
With an allowance recorded:
Construction, land development and other land loans	$	9,702	$	11,624	$	3,301					$	9,702	$	11,624	$	3,301
Multifamily residential		247		247		9						247		247		9
Nonfarm nonresidential		20,784		20,784		2,886						20,784		20,784		2,886
Total commercial real estate		30,733		32,655		6,196						30,733		32,655		6,196
Single-family real estate, revolving, open end loans		—		—		—						—		—		—
Single-family real estate, closed end, first lien		1,689		1,689		161						1,689		1,689		161
Single-family real estate, closed end, junior lien		183		183		54						183		183		54
Total single-family residential		1,872		1,872		215						1,872		1,872		215
Commercial and industrial		622		691		88						622		691		88
All other consumer		44		44		6						44		44		6
Total impaired loans with an allowance recorded	$	33,271	$	35,262	$	6,505					$	33,271	$	35,262	$	6,505
Total:
Construction, land development and other land loans	$	26,547	$	48,359	$	3,301	$	4,541	$	16,799	$	31,088	$	65,158	$	3,301
Multifamily residential		247		247		9		—		—		247		247		9
Nonfarm nonresidential		36,831		42,972		2,886		9,637		13,831		46,468		56,803		2,886
Total commercial real estate		63,625		91,578		6,196		14,178		30,630		77,803		122,208		6,196
Single-family real estate, revolving, open end loans		—		—		—		—		—		—		—		—
Single-family real estate, closed end, first lien		4,431		8,617		161		—		—		4,431		8,617		161
Single-family real estate, closed end, junior lien		183		183		54		—		—		183		183		54
Total single-family residential		4,614		8,800		215		—		—		4,614		8,800		215
Commercial and industrial		1,508		2,003		88		—		—		1,508		2,003		88
All other consumer		44		44		6		—		—		44		44		6
Total impaired loans	$	69,791	$	102,425	$	6,505	$	14,178	$	30,630	$	83,969	$	133,055	$	6,505

Allowance for Loan Losses

The following table summarizes the allowance for loan losses and recorded investment in gross loans, by portfolio segment, at and for the periods indicated (in thousands).

	At and for the six months ended June 30, 2012													At and for  the year ended December 31, 2011
	Commercial		Single-family		Commercial and
	real estate		residential		industrial			Consumer		Other		Total		Total
Allowance for loan losses:
Allowance for loan losses, beginning of period	$	18,026	$	4,488	$	1,862		$	1,209	$	11	$	25,596	$	26,934
Provision for loan losses		9,643		1,649		(334	)		114		78		11,150		20,500
Loan charge-offs		15,221		2,903		302			359		319		19,104		22,832
Loan recoveries		104		74		108			106		244		636		994
Net loans charged-off		15,117		2,829		194			253		75		18,468		21,838
Allowance for loan losses, end of period	$	12,552	$	3,308	$	1,334		$	1,070	$	14	$	18,278	$	25,596
Individually evaluated for impairment	$	3,087	$	158	$	45		$	5	$	—	$	3,295	$	6,505
Collectively evaluated for impairment		9,465		3,150		1,289			1,065		14		14,983		19,091
Allowance for loan losses, end of period	$	12,552	$	3,308	$	1,334		$	1,070	$	14	$	18,278	$	25,596
Gross loans, end of period:
Individually evaluated for impairment	$	40,299	$	3,176	$	1,518		$	41	$	—	$	45,034	$	69,791
Collectively evaluated for impairment		401,289		169,861		47,335			51,775		8,692		678,952		703,767
Total gross loans	$	441,588	$	173,037	$	48,853		$	51,816	$	8,692	$	723,986	$	773,558

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Average Share Information

6 Months Ended

Jun. 30, 2012

Average Share Information [Abstract]

Average Share Information

16. Average Share Information

The following table summarizes the reconciliation of denominators of the basic and diluted net loss per common share computations for the periods indicated.

	For the three months ended June 30,						For the six months ended June 30,
	2012			2011			2012			2011
Weighted average common shares outstanding - basic		12,638,160			12,616,887			12,637,990			12,490,833
Dilutive impact resulting from potential common share issuances		—			—			—			—
Weighted average common shares outstanding - diluted		12,638,160			12,616,887			12,637,990			12,490,833
Per Share Data
Net loss - basic	$	(0.57	)	$	(0.76	)	$	(0.61	)	$	(1.25	)
Net loss - diluted		(0.57	)		(0.76	)		(0.61	)		(1.25	)

Basic net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of shares of common stock outstanding during the period. For diluted net loss per share, the denominator is increased to include the number of additional common shares that would have been outstanding if dilutive potential common shares had been issued. If dilutive, common stock equivalents are calculated for stock options and restricted stock shares using the treasury stock method. No potential common shares were included in the computation of the diluted loss per share amount for the three and six months ended June 30, 2012 and 2011 as inclusion would be anti-dilutive given the Company’s net loss during the respective periods. Since the Company does not have any preferred shares outstanding, there is no difference between net loss and net loss available to common shareholders for the periods presented.

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Shareholders' Equity

6 Months Ended

Jun. 30, 2012

Shareholders' Equity [Abstract]

Shareholders' Equity

12. Shareholders’ Equity

Common Shares

At June 30, 2012, the Company had 75,000,000 authorized shares of common stock of which 12,752,040 shares were issued and outstanding. As disclosed in Note 15, Equity Based Compensation, as of July 23, 2012 the Company has reserved a total of 428,125 shares for future issuance under various equity incentive plans. During the three months ended March 31, 2012, the Company awarded a total of 17,613 shares of restricted stock to directors as payment of their annual retainer. During the three months ended June 30, 2012, the Company awarded a total of 8,020 shares of restricted stock to certain employees (employees are commonly referred to by the Company as “teammates”) in recognition of performance.

Authorized Preferred Shares

The Company has authorized preferred stock of 2,500,000 shares with such preferences, limitations and relative rights within legal limits of the class, or one or more series within the class, as are set by the Board of Directors. To date, the Company has not issued any preferred shares.

Cash Dividends

The Board of Directors has not declared or paid a dividend on the Company’s common stock since the first quarter 2009. Currently, the Company must obtain prior approval from the Federal Reserve Bank of Richmond to pay a dividend to its shareholders. Dividends from the Bank are the Company’s primary source of funds for payment of dividends to its common shareholders. Under the terms of a Consent Order the Bank entered into with the FDIC and the State Board of Financial Institutions (the “State Board”) in June 2010 (the “Consent Order”), the Bank is currently prohibited from paying dividends to the Company without the prior consent of these regulatory agencies.

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Borrowings (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Summary of the Company's line of credit funding utilization and availability
Correspondent bank line of credit accommodations	$ 35,000	$ 35,000
Utilized correspondent bank line of credit accommodations
Available correspondent bank line of credit accommodations	$ 35,000	$ 35,000

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Mortgage-Banking Activities

6 Months Ended

Jun. 30, 2012

Mortgage-Banking Activities [Abstract]

Mortgage-Banking Activities

8. Mortgage-Banking Activities

Mortgage loans serviced for the benefit of others amounted to $393.4 million and $397.5 million at June 30, 2012 and December 31, 2011, respectively, and are excluded from the Consolidated Balance Sheets.

The book value of mortgage-servicing rights was $2.5 million at June 30, 2012 and $2.6 million at December 31, 2011. Mortgage-servicing rights are included in Other assets in the Consolidated Balance Sheets. The estimated fair value of mortgage-servicing rights was $3.0 million at June 30, 2012 and $3.2 million at December 31, 2011.

Mortgage-Servicing Rights Activity

The following table summarizes the changes in mortgage-servicing rights at the dates and for the periods indicated (in thousands).

	For the three months ended June 30,						For the six months ended June 30,
	2012			2011			2012			2011
Mortgage-servicing rights portfolio, net of valuation allowance, beginning of period	$	2,563		$	2,854		$	2,586		$	2,896
Capitalized mortgage-servicing rights		179			56			363			226
Mortgage-servicing rights portfolio amortization and impairment		(201	)		(163	)		(408	)		(375	)
Mortgage-servicing rights portfolio, net of valuation allowance, end of period	$	2,541		$	2,747		$	2,541		$	2,747

Valuation Allowance

The following table summarizes the activity in the valuation allowance for impairment of the mortgage-servicing rights portfolio for the periods indicated (in thousands).

	For the three months ended June 30,					For the six months ended June 30,
	2012		2011			2012		2011
Valuation allowance, beginning of period	$	38	$	41		$	39	$	39
Additions charged to (reduction credited from) operations		2		(3	)		1		(1	)
Valuation allowance, end of period	$	40	$	38		$	40	$	38

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Loans (Details 7) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Summary of delinquencies, by class
30-89 days past due	$ 4,198	$ 4,901
Greater than 90 days past due on nonaccrual	24,176	53,028
Recorded investment greater than 90 days and accruing
Total past due	28,374	57,929
Current	710,058	729,807
Total loans	738,432	787,736
Total gross loans, 30-89 days past due	4,158	4,901
Total gross loans, Greater than 90 days past due on nonaccrual	22,063	47,216
Total gross loans, Recorded investment greater than 90 days and accruing
Total gross loans, past due	26,221	52,117
Total gross loans, Current	697,765	721,441
Other loans held for sale	723,986	773,558
Total Consumer [Member]
Summary of delinquencies, by class
30-89 days past due	560	760
Greater than 90 days past due on nonaccrual	372	489
Recorded investment greater than 90 days and accruing
Total past due	932	1,249
Current	5,112	51,522
Total loans	52,044	52,771
Total Commercial real estate [Member]
Summary of delinquencies, by class
30-89 days past due	1,506	668
Greater than 90 days past due on nonaccrual	16,715	41,955
Recorded investment greater than 90 days and accruing
Total past due	18,221	42,623
Current	433,543	450,131
Total loans	451,764	492,754
Total Single Family Residential Loans [Member]
Summary of delinquencies, by class
30-89 days past due	1,844	3,157
Greater than 90 days past due on nonaccrual	5,994	9,271
Recorded investment greater than 90 days and accruing
Total past due	7,838	12,428
Current	167,497	173,076
Total loans	175,335	185,504
Other loans held for sale [Member]
Summary of delinquencies, by class
30-89 days past due	(40)
Greater than 90 days past due on nonaccrual	(2,113)	(5,812)
Recorded investment greater than 90 days and accruing
Total past due	(2,153)	(5,812)
Current	(12,293)	(8,366)
Other loans held for sale	14,446	(14,178)
Construction, land development, and other land loans [Member] | Total Commercial real estate [Member]
Summary of delinquencies, by class
30-89 days past due	424	94
Greater than 90 days past due on nonaccrual	12,645	27,085
Recorded investment greater than 90 days and accruing
Total past due	13,069	27,179
Current	56,621	64,975
Total loans	69,690	92,154
Multifamily residential [Member]
Summary of delinquencies, by class
Other loans held for sale	12,694	17,945
Multifamily residential [Member] | Total Commercial real estate [Member]
Summary of delinquencies, by class
30-89 days past due
Greater than 90 days past due on nonaccrual
Recorded investment greater than 90 days and accruing
Total past due
Current	12,694	17,945
Total loans	12,694	17,945
Nonfarm nonresidential [Member]
Summary of delinquencies, by class
Other loans held for sale	361,896	373,018
Nonfarm nonresidential [Member] | Total Commercial real estate [Member]
Summary of delinquencies, by class
30-89 days past due	1,082	574
Greater than 90 days past due on nonaccrual	4,070	14,870
Recorded investment greater than 90 days and accruing
Total past due	5,152	15,444
Current	364,228	367,211
Total loans	369,380	382,655
Single Family Residential Revolving Open End Loans [Member]
Summary of delinquencies, by class
Other loans held for sale	58,974	58,971
Single Family Residential Revolving Open End Loans [Member] | Total Single Family Residential Loans [Member]
Summary of delinquencies, by class
30-89 days past due	734	379
Greater than 90 days past due on nonaccrual	891	843
Recorded investment greater than 90 days and accruing
Total past due	1,625	1,222
Current	58,352	57,749
Total loans	59,977	58,971
Single Family Residential Closed End First Lien [Member]
Summary of delinquencies, by class
Other loans held for sale	108,187	119,580
Single Family Residential Closed End First Lien [Member] | Total Single Family Residential Loans [Member]
Summary of delinquencies, by class
30-89 days past due	1,048	2,633
Greater than 90 days past due on nonaccrual	4,786	7,957
Recorded investment greater than 90 days and accruing
Total past due	5,834	10,590
Current	103,637	108,990
Total loans	109,471	119,580
Single Family Residential Closed End Junior Lien [Member]
Summary of delinquencies, by class
Other loans held for sale	5,876	6,953
Single Family Residential Closed End Junior Lien [Member] | Total Single Family Residential Loans [Member]
Summary of delinquencies, by class
30-89 days past due	62	145
Greater than 90 days past due on nonaccrual	317	471
Recorded investment greater than 90 days and accruing
Total past due	379	616
Current	5,508	6,337
Total loans	5,887	6,953
Commercial and Industrial [Member]
Summary of delinquencies, by class
Other loans held for sale	48,853
Commercial and Industrial [Member] | Total Consumer [Member]
Summary of delinquencies, by class
30-89 days past due	288	314
Greater than 90 days past due on nonaccrual	1,085	1,313
Recorded investment greater than 90 days and accruing
Total past due	1,373	1,627
Current	48,390	47,754
Total loans	49,763	49,381
Credit cards [Member]
Summary of delinquencies, by class
Other loans held for sale	52	195
Credit cards [Member] | Total Consumer [Member]
Summary of delinquencies, by class
30-89 days past due
Greater than 90 days past due on nonaccrual	32	16
Recorded investment greater than 90 days and accruing
Total past due	32	16
Current	20	179
Total loans	52	195
Consumer-other [Member]
Summary of delinquencies, by class
30-89 days past due	560	760
Greater than 90 days past due on nonaccrual	340	473
Recorded investment greater than 90 days and accruing
Total past due	900	1,233
Current	51,092	51,343
Total loans	51,992	52,576
Other loans held for sale	51,764	52,576
Farmland [Member]
Summary of delinquencies, by class
30-89 days past due
Greater than 90 days past due on nonaccrual	10
Recorded investment greater than 90 days and accruing
Total past due	10
Current	4,019	3,513
Total loans	4,229	3,513
Obligations of states and political subdivisions of U.S [Member]
Summary of delinquencies, by class
30-89 days past due
Greater than 90 days past due on nonaccrual
Recorded investment greater than 90 days and accruing
Total past due
Current	861	903
Total loans	861	903
Other [Member]
Summary of delinquencies, by class
30-89 days past due		2
Greater than 90 days past due on nonaccrual
Recorded investment greater than 90 days and accruing
Total past due		2
Current	4,636	2,908
Total loans	4,636	2,910
Other loans held for sale	$ 8,692

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Regulatory Capital Requirements and Dividend Restrictions (Details) (USD $)	Jun. 30, 2012	Dec. 31, 2011	Jun. 10, 2010
Company [Member]
Summary of actual and required capital ratios
Total capital to risk-weighted assets, Actual amount	$ 108,903	$ 116,864
Total capital to risk-weighted assets, Actual ratio	13.52%	13.49%
Total capital to risk-weighted assets, For capital adequacy purposes amount	64,458	69,280
Total capital to risk-weighted assets, For capital adequacy purposes ratio	8.00%	8.00%
Tier 1 capital to risk-weighted assets, Actual amount	98,728	105,852
Tier 1 capital to risk-weighted assets, Actual ratio	12.25%	12.22%
Tier 1 capital to risk-weighted assets, For capital adequacy purposes amount	32,229	34,640
Tier 1 capital to risk-weighted assets, For capital adequacy purposes ratio	4.00%	4.00%
Tier 1 leverage ratio, Actual amount	98,728	105,852
Tier 1 leverage ratio, Actual ratio	8.16%	8.59%
Tier 1 leverage ratio, For capital adequacy purposes amount	48,414	49,270
Tier 1 leverage ratio, For capital adequacy purposes ratio	4.00%	4.00%
The Palmetto Bank [Member]
Summary of actual and required capital ratios
Total capital to risk-weighted assets, Actual amount	108,722	115,985
Total capital to risk-weighted assets, Actual ratio	13.49%	13.39%
Total capital to risk-weighted assets, For capital adequacy purposes amount	64,457	69,285
Total capital to risk-weighted assets, For capital adequacy purposes ratio	8.00%	8.00%
Total capital to risk-weighted assets, To be well capitalized under prompt corrective action provisions amount	80,571	86,607
Total capital to risk-weighted assets, To be well capitalized under prompt corrective action provisions ratio	10.00%	10.00%
Tier 1 capital to risk-weighted assets, Actual amount	98,547	104,972
Tier 1 capital to risk-weighted assets, Actual ratio	12.23%	12.12%
Tier 1 capital to risk-weighted assets, For capital adequacy purposes amount	32,229	34,643
Tier 1 capital to risk-weighted assets, For capital adequacy purposes ratio	4.00%	4.00%
Tier 1 capital to risk-weighted assets, To be well capitalized under prompt corrective action provisions amount	48,343	51,964
Tier 1 capital to risk-weighted assets, To be well capitalized under prompt corrective action provisions ratio	6.00%	6.00%
Tier 1 leverage ratio, Actual amount	98,547	104,972
Tier 1 leverage ratio, Actual ratio	8.14%	8.52%	8.00%
Tier 1 leverage ratio, For capital adequacy purposes amount	48,414	49,271
Tier 1 leverage ratio, For capital adequacy purposes ratio	4.00%	4.00%
Tier 1 leverage ratio, To be well capitalized under prompt corrective action provisions amount	$ 60,517	$ 61,589
Tier 1 leverage ratio, To be well capitalized under prompt corrective action provisions ratio	5.00%	5.00%	5.00%

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Premises and Equipment, net

6 Months Ended

Jun. 30, 2012

Premises and Equipment, net [Abstract]

Premises and Equipment, net

6. Premises and Equipment, net

The following table summarizes premises and equipment balances, net at the dates indicated (in thousands).

	June 30, 2012			December 31, 2011
Land	$	5,581		$	5,591
Buildings		19,523			19,497
Leasehold improvements		4,309			4,644
Furniture and equipment		12,355			12,147
Software		4,307			4,210
Bank automobiles		94			95
Capital lease asset		1,378			1,378
Premises and equipment, gross		47,547			47,562
Accumulated depreciation		(22,573	)		(21,758	)
Premises and equipment, net	$	24,974		$	25,804

At June 30, 2012, the Bank provided commercial and consumer banking through 27 branches, of which six were leased and 21 were owned. At June 30, 2012, the Bank also had six limited service branches located in retirement centers in the Upstate. Additionally, the Bank maintains a separate leased brokerage office location in Greenville County.

For disclosure related to premises and equipment regarding the sale of two branches subsequent to June 30, 2012, see Note 21, Subsequent Event.

Depreciation expense for the three months ended June 30, 2012 and 2011 was $549 thousand and $593 thousand, respectively. Depreciation expense for the six months ended June 30, 2012 and 2011 was $1.3 million and $1.2 million, respectively.

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Long-Lived Assets Held for Sale

6 Months Ended

Jun. 30, 2012

Long-Lived Assets Held for Sale [Abstract]

Long-Lived Assets Held for Sale

7. Long-Lived Assets Held for Sale

The Company is currently marketing for sale two vacant Bank-owned branch facilities (one of which was the result of a branch consolidation on March 30, 2012) and a vacant parcel of land with a total aggregate net book value of $920 thousand at June 30, 2012 which are included in Other assets in the Consolidated Balance Sheets.

At June 30, 2012, long-lived assets held for sale includes certain Bank-related assets associated with the two branches that were sold on July 1, 2012. For disclosure related to the sale of these branches subsequent to June 30, 2012, see Note 21, Subsequent Event.

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Foreclosed Real Estate and Repossessed Personal Property

6 Months Ended

Jun. 30, 2012

Foreclosed Real Estate and Repossessed Personal Property [Abstract]

Foreclosed Real Estate and Repossessed Personal Property

9. Foreclosed Real Estate and Repossessed Personal Property

Composition

The following table summarizes foreclosed real estate and repossessed personal property at the dates indicated (in thousands). Repossessed personal property is included in Other assets in the Consolidated Balance Sheets.

	June 30, 2012		December 31, 2011
Foreclosed real estate	$	14,683	$	27,663
Repossessed personal property		62		161
Total foreclosed real estate and repossessed personal property	$	14,745	$	27,824

Foreclosed real estate includes one property comprised of 61 undeveloped residential lots with a net book value of $7.1 million.

Foreclosed Real Estate Activity

The following table summarizes the changes in the foreclosed real estate portfolio at the dates and for the periods indicated (in thousands). Foreclosed real estate is net of participations sold of $357 thousand and $5.4 million at June 30, 2012 and December 31, 2011, respectively.

	At and for the three months ended June 30,						At and for the six months ended June 30,
	2012			2011			2012			2011
Foreclosed real estate, beginning of period	$	26,701		$	16,244		$	27,663		$	19,983
Plus: New foreclosed real estate		1,885			1,648			4,161			5,412
Less: Proceeds from sale of foreclosed real estate		(7,142	)		(1,469	)		(9,064	)		(8,457	)
Plus: Gain on sale of foreclosed real estate		302			5			318			86
Less: Writedowns and losses charged to expense		(7,063	)		(1,161	)		(8,395	)		(1,757	)
Foreclosed real estate, end of period	$	14,683		$	15,267		$	14,683		$	15,267

During the second quarter 2012, the Company sold foreclosed real estate properties with a carrying value at March 31, 2012 of $9.0 million for proceeds of $7.1 million resulting in writedowns net of any gains on sale totaling $1.9 million. In addition, writedowns of $4.9 million were recorded during the second quarter 2012 as a result of the receipt of updated appraisals on properties in the portfolio at June 30, 2012 and sales contracts expected to close in the third quarter 2012.

Subsequent to June 30, 2012, two properties with an aggregate net carrying amount of $934 thousand were sold resulting in net gains of $98 thousand. At July 23, 2012, four additional properties with an aggregate net carrying amount of $2.0 million at June 30, 2012 were under contract for sale to close in the third and fourth quarters 2012 at an anticipated $114 thousand gain.

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Loans (Details 11) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012 Contract	Jun. 30, 2011 Loans
Summary of loans troubled debt restructurings
Number of contracts	10	1
Pre-modification outstanding recorded investment	6,391
Post- modification outstanding recorded investment	6,386
Term concession [Member]
Summary of loans troubled debt restructurings
Number of contracts	4
Pre-modification outstanding recorded investment	4,608
Post- modification outstanding recorded investment	4,608
Rate and term concessions [Member]
Summary of loans troubled debt restructurings
Number of contracts
Pre-modification outstanding recorded investment	1,783
Post- modification outstanding recorded investment
Other loans held for sale [Member]
Summary of loans troubled debt restructurings
Number of contracts
Pre-modification outstanding recorded investment
Post- modification outstanding recorded investment
Loans gross [Member]
Summary of loans troubled debt restructurings
Number of contracts	10
Pre-modification outstanding recorded investment	6,391
Post- modification outstanding recorded investment	6,386

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Borrowings (Details 1) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Summary of FHLB borrowed funds utilization and availability
Excess	$ 75,501	$ 82,100
Loans [Member]
Summary of FHLB borrowed funds utilization and availability
Available lendable collateral value pledged to serve against FHLB advances	75,501	66,690
Investment security [Member]
Summary of FHLB borrowed funds utilization and availability
Available lendable collateral value pledged to serve against FHLB advances		$ 15,410

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Loans (Details 13) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Summary of composition of troubled debt restructuring impaired loans
Total impaired loans	$ 51,972	$ 83,969
Other Loans Held For Sale [Member]
Summary of composition of troubled debt restructuring impaired loans
Total impaired loans	6,938	14,178
Loans gross [Member]
Summary of composition of troubled debt restructuring impaired loans
Total impaired loans	45,034	69,791
Performing Troubled Debt Restructured Loans [Member]
Summary of composition of troubled debt restructuring impaired loans
Total impaired loans	34,443	45,827
Performing Troubled Debt Restructured Loans [Member] | Other Loans Held For Sale [Member]
Summary of composition of troubled debt restructuring impaired loans
Total impaired loans	4,825	8,366
Performing Troubled Debt Restructured Loans [Member] | Loans gross [Member]
Summary of composition of troubled debt restructuring impaired loans
Total impaired loans	29,618	37,461
Non Performing Troubled Debt Restructured Loans [Member]
Summary of composition of troubled debt restructuring impaired loans
Total impaired loans	70	9,276
Non Performing Troubled Debt Restructured Loans [Member] | Loans gross [Member]
Summary of composition of troubled debt restructuring impaired loans
Total impaired loans	70	9,276
Non Performing Other Loans [Member]
Summary of composition of troubled debt restructuring impaired loans
Total impaired loans	11,642	28,866
Non Performing Other Loans [Member] | Other Loans Held For Sale [Member]
Summary of composition of troubled debt restructuring impaired loans
Total impaired loans	2,113	5,812
Non Performing Other Loans [Member] | Loans gross [Member]
Summary of composition of troubled debt restructuring impaired loans
Total impaired loans	9,529	23,054
Other [Member]
Summary of composition of troubled debt restructuring impaired loans
Total impaired loans	5,817
Other [Member] | Loans gross [Member]
Summary of composition of troubled debt restructuring impaired loans
Total impaired loans	$ 5,817

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Commitments, Guarantees and Other Contingencies (Details 1) (Time deposit accounts [Member], USD $) In Thousands, unless otherwise specified	Jun. 30, 2012
Time deposit accounts [Member]
Schedule of contractual obligations of time deposit accounts
Less than one year	$ 299,292
Over one through three years	77,823
Over three through five years	4,943
Over five years	59
Total	$ 382,117

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Loans (Details 10) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012 Loans	Jun. 30, 2011 Loans
Summary of loans modified
Number of contracts	18	1
Pre-modification outstanding recorded investment	6,391
Post- modification outstanding recorded investment	6,386
Construction, land development, and other land loans [Member]
Summary of loans modified
Number of contracts	1
Pre-modification outstanding recorded investment
Post- modification outstanding recorded investment	4,089
Nonfarm nonresidential [Member]
Summary of loans modified
Number of contracts	6
Pre-modification outstanding recorded investment	1,811
Post- modification outstanding recorded investment	1,811
Single Family Residential Closed End First Lien [Member]
Summary of loans modified
Number of contracts	1
Pre-modification outstanding recorded investment	70
Post- modification outstanding recorded investment	70
Total Commercial real estate [Member]
Summary of loans modified
Number of contracts	7
Pre-modification outstanding recorded investment	5,900
Post- modification outstanding recorded investment	5,900
Commercial and Industrial [Member]
Summary of loans modified
Number of contracts	2
Pre-modification outstanding recorded investment	421
Post- modification outstanding recorded investment	416
Other Loans Held For Sale [Member]
Summary of loans modified
Number of contracts
Pre-modification outstanding recorded investment
Post- modification outstanding recorded investment
Loans gross [Member]
Summary of loans modified
Number of contracts	10
Pre-modification outstanding recorded investment	6,391
Post- modification outstanding recorded investment	6,386

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Equity Based Compensation (Details 1) (USD $)	6 Months Ended
	Jun. 30, 2012
Summary of information regarding stock option under plan that are outstanding and exercisable
Exercise price or range of exercise prices, minimum	$ 80.00
Exercise price or range of exercise prices, maximum	$ 121.60
1997 Plan [Member]
Summary of information regarding stock option under plan that are outstanding and exercisable
Number of stock options outstanding and exercisable	12,703
Weighted-average remaining contractual life (years)	1 year 10 months 2 days
Weighted-average exercise price	$ 93.86
1997 Plan [Member] | Range one [Member]
Summary of information regarding stock option under plan that are outstanding and exercisable
Exercise price or range of exercise prices	$ 80.00
Number of stock options outstanding and exercisable	5,503
Weighted-average remaining contractual life (years)	6 months
Weighted-average exercise price	$ 80.00
1997 Plan [Member] | Range two [Member]
Summary of information regarding stock option under plan that are outstanding and exercisable
Exercise price or range of exercise prices, minimum	$ 93.20
Exercise price or range of exercise prices, maximum	$ 106.40
Number of stock options outstanding and exercisable	2,500
Weighted-average remaining contractual life (years)	1 year 7 months 6 days
Weighted-average exercise price	$ 94.52
1997 Plan [Member] | Range three [Member]
Summary of information regarding stock option under plan that are outstanding and exercisable
Exercise price or range of exercise prices, minimum	$ 109.20
Exercise price or range of exercise prices, maximum	$ 121.60
Number of stock options outstanding and exercisable	4,700
Weighted-average remaining contractual life (years)	3 years 6 months 15 days
Weighted-average exercise price	$ 109.73

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Mortgage-Banking Activities (Tables)

6 Months Ended

Jun. 30, 2012

Mortgage-Banking Activities [Abstract]

Summary of changes in mortgage servicing rights

	For the three months ended June 30,						For the six months ended June 30,
	2012			2011			2012			2011
Mortgage-servicing rights portfolio, net of valuation allowance, beginning of period	$	2,563		$	2,854		$	2,586		$	2,896
Capitalized mortgage-servicing rights		179			56			363			226
Mortgage-servicing rights portfolio amortization and impairment		(201	)		(163	)		(408	)		(375	)
Mortgage-servicing rights portfolio, net of valuation allowance, end of period	$	2,541		$	2,747		$	2,541		$	2,747

Summary of activity in valuation allowance for impairment of mortgage-servicing rights

	For the three months ended June 30,					For the six months ended June 30,
	2012		2011			2012		2011
Valuation allowance, beginning of period	$	38	$	41		$	39	$	39
Additions charged to (reduction credited from) operations		2		(3	)		1		(1	)
Valuation allowance, end of period	$	40	$	38		$	40	$	38

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Investment Securities Available for Sale (Details 5) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Investment securities pledged as collateral
Public funds deposits	$ 112,671		$ 112,671		$ 119,123
Federal Reserve line of credit	2,971		2,971		5,510
FHLB advances					15,887
Total	115,642		115,642		140,520
Gross realized gains and losses on investment securities available for sale
Realized gains	9,863	56	9,863	56
Realized losses	(4)		(4)
Net realized gains	$ 9,859	$ 56	$ 9,859	$ 56

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Employee Benefit Plans

6 Months Ended

Jun. 30, 2012

Employee Benefit Plans [Abstract]

Employee Benefit Plans

14. Employee Benefit Plans

401(k) Plan

During the three and six months ended June 30, 2011, the Company made matching contributions to the 401(k) plan totaling $84 thousand and $182 thousand, respectively. Effective January 1, 2012, the Company suspended its regular ongoing matching of teammate contributions and replaced it with a discretionary contribution based on attaining an appropriate level of profitability.

Defined Benefit Pension Plan

Historically, the Company has offered a noncontributory, defined benefit pension plan that covered all full-time teammates having at least 12 months of continuous service and having attained age 21. In 2007, the Company notified teammates that it would cease accruing pension benefits for teammates with regard to the noncontributory, defined benefit pension plan. Although no previously accrued benefits were lost, teammates no longer accrue benefits for service subsequent to 2007.

The Company recognizes the funded status of the defined benefit postretirement plan in the Consolidated Balance Sheets. Gains and losses, prior service costs and credits, and any remaining transition amounts that had not yet been recognized through net periodic benefit cost as of December 31, 2007 are recognized in accumulated other comprehensive income, net of tax impacts, until they are amortized as a component of net periodic benefit cost.

The Company’s net accrued pension liability is included in Other liabilities in the Consolidated Balance Sheets and totaled $5.1 million and $6.1 million at June 30, 2012 and December 31, 2011, respectively.

The fair value of plan assets totaled $14.0 million and $13.7 million at June 30, 2012 and December 31, 2011, respectively.

Cost of Defined Benefit Pension Plan. The following table summarizes the net periodic expense components for the Company’s defined benefit pension plan, which is included in Salaries and other personnel expense in the Consolidated Statements of Income (Loss), for the periods indicated (in thousands).

	For the three months ended June 30,						For the six months ended June 30,
	2012			2011			2012			2011
Interest cost	$	234		$	250		$	490		$	501
Expected return on plan assets		(276	)		(296	)		(579	)		(570	)
Amortization of net actuarial loss		222			197			466			394
Net periodic pension expense	$	180		$	151		$	377		$	325

As a result of the Company’s decision to curtail the plan effective January 1, 2008, no costs relative to service costs have been necessary since that date as teammates no longer accrue benefits for services rendered.

Current and Future Expected Contributions. The Pension Protection Act of 2006 imposed a number of burdens on pension plans with an asset to liability ratio of less than 80% with additional burdens imposed if the asset to liability ratio falls below 60%. Due primarily to the utilization of a lower discount rate for determining the present value of the liabilities (provided by the IRS based on the 24 month average of bond yields), the Company’s plan was 75% funded immediately prior to making the additional contribution and, as a result, in March 2012, the Company contributed $1.0 million to the pension plan. This contribution increased the Company’s asset to liability ratio to meet the 80% threshold level. During January 2012, the Company made its final employer contributions for the 2011 plan year in the amount of $94 thousand. Through June 30, 2012, the Company has made employer contributions in the amount of $163 thousand for the 2012 plan year and anticipates additional employer contributions in the amount of $489 thousand will be made for the 2012 plan year during the remainder of 2012 and first quarter 2013.

Key Man Life Insurance

The Company has fully funded life insurance policies on certain former members of executive management who are now retired from the Company. Such policies are recorded in Other assets in the Consolidated Balance Sheets at the cash surrender value less applicable surrender charges. At both June 30, 2012 and December 31, 2011, the cash surrender value of such policies totaled $1.6 million.

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Disclosures Regarding Fair Value

6 Months Ended

Jun. 30, 2012

Disclosures Regarding Fair Value [Abstract]

Disclosures Regarding Fair Value

19. Disclosures Regarding Fair Value

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table summarizes assets and liabilities measured at fair value on a recurring basis at the dates indicated, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands).

	June 30, 2012
	Level 1		Level 2		Level 3		Total
Assets
Investment securities available for sale
State and municipal	$	—	$	13,553	$	—	$	13,553
Collateralized mortgage obligations		10,469		132,258		—		142,727
Other mortgage-backed (federal agencies)		45,098		12,059		—		57,157
SBA loan-backed (federal agency)		33,963		—		—		33,963
Derivative financial instruments		—		729		—		729
Total assets measured at fair value on a recurring basis	$	89,530	$	158,599	$	—	$	248,129
Liabilities
Derivative financial instruments	$	—	$	—	$	—	$	—
	December 31, 2011
	Level 1		Level 2		Level 3		Total
Assets
Investment securities available for sale
State and municipal	$	—	$	120,965	$	—	$	120,965
Collateralized mortgage obligations		—		118,949		—		118,949
Other mortgage-backed (federal agencies)		—		21,078		—		21,078
Derivative financial instruments		—		481		—		481
Total assets measured at fair value on a recurring basis	$	—	$	261,473	$	—	$	261,473
Liabilities
Derivative financial instruments	$	—	$	25	$	—	$	25

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

For financial assets measured at fair value on a nonrecurring basis that were reflected in the Consolidated Balance Sheets, the following tables summarize the level of valuation assumptions used to determine fair value of the related individual assets at the dates indicated (in thousands). There were no liabilities measured at fair value on a nonrecurring basis at June 30, 2012 and December 31, 2011.

	June 30, 2012
	Level 1		Level 2		Level 3		Total
Assets
Mortgage loans held for sale	$	—	$	3,789	$	—	$	3,789
Other loans held for sale		7,508		6,938		—		14,446
Impaired loans in gross loans		4,655		15,797		440		20,892
Foreclosed real estate and repossessed personal property		2,268		9,386		3,091		14,745
Long-lived assets held for sale		—		681		921		1,602
Total assets measured at fair value on a nonrecurring basis	$	14,431	$	36,591	$	4,452	$	55,474

	December 31, 2011
	Level 1		Level 2		Level 3		Total
Assets
Mortgage loans held for sale	$	—	$	3,648	$	—	$	3,648
Other loans held for sale		—		12,857		1,321		14,178
Impaired loans in gross loans		—		36,314		7,111		43,425
Foreclosed real estate and repossessed personal property		3,491		2,266		22,067		27,824
Long-lived assets held for sale		—		—		1,603		1,603
Total assets measured at fair value on a nonrecurring basis	$	3,491	$	55,085	$	32,102	$	90,678

Level 3 Valuation Methodologies. Following is a description of the unobservable inputs used for Level 3 fair value measurements.

Impaired Loans. At June 30, 2012 and December 31, 2011, the fair value of a majority of the total impaired loans was estimated based on the fair value of the underlying collateral, which is considered a Level 2 fair value estimate. Certain impaired loans under binding contracts to be sold at June 30, 2012 were valued based on the contracted sales price, which are considered Level 1 fair value estimates. We generally obtain third-party “as-is” appraisals on collateral securing impaired loans at the time it is classified as such if a recent appraisal has not been obtained within the most recent 12 month period. For the term that the loan remains classified as impaired, we obtain updated appraisals annually. When an appraised value is not available or the Company determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the estimated fair value of the impaired loan is classified as Level 3. Impaired loans can also be evaluated for impairment using the present value of expected future cash flows discounted at the loan’s effective interest rate. The measurement of impaired loans using future cash flows discounted at the loan’s effective interest rate rather than the market rate of interest is not a fair value measurement and is therefore excluded from fair value disclosures in the table above.

Foreclosed Real Estate and Repossessed Personal Property. Fair value is generally based on binding sales contracts, current appraisals, comparable sales and other estimates of value obtained principally from independent sources adjusted for selling costs (Level 1 and Level 2). In situations where management’s adjustments are significant to the fair value measurement in its entirety or when appraisals lack current sales comparisons, such measurements are classified as Level 3 within the valuation hierarchy.

Long-Lived Assets Held for Sale. Nonrecurring fair value adjustments on long-lived assets held for sale reflect impairment writedowns. Appraisals are used to determine impairment, and these appraisals may require significant adjustments to market-based valuation inputs due to lack of recent comparable sales or the age of the appraisal. As a result, the assets subjected to significant adjustments to market-based valuation inputs are typically classified as Level 3 due to the fact that unobservable inputs are significant to the fair value measurement.

The following table summarizes the significant unobservable inputs used in the fair value measurements for Level 3 assets measured at fair value on a nonrecurring basis at June 30, 2012 (in thousands).

	Fair value  at June 30, 2012
			Valuation technique	Significant unobservable inputs
Assets
Impaired loans in gross loans	$	440	Internal assessment of collateral value	Adjustments to appraisals for recent comparable sales
Foreclosed real estate and repossessed personal property		3,091	Appraisals of collateral value	Adjustments to appraisal for age of comparable sales
Long-lived assets held for sale		921	Internal valuation	Appraisals and/or sales of comparable properties

Carrying Amounts and Estimated Fair Value of Financial Assets and Liabilities Not Measured at Fair Value

The following table summarizes the carrying amount and fair values for other financial instruments included in the Consolidated Balance Sheets at the dates indicated (in thousands) all of which are considered Level 3 fair value estimates. These fair value estimates are subject to fluctuation based on the amount and timing of expected cash flows as well as the choice of discount rate used in the present value calculation. The Company has used management’s best estimate of fair value based on methodologies as summarized in our 2011 Annual Report on Form 10-K. Thus, the fair values presented may not be the amounts which could be realized in an immediate sale or settlement of the instrument. In addition, any income taxes or other expenses, which would be incurred in an actual sale or settlement, are not taken into consideration in the fair values presented.

	Carrying amount		Fair value
June 30, 2012
Financial instruments - assets
Loans (1)	$	684,816	$	689,735
Financial instruments - liabilities
Deposits		1,062,677		1,065,175
December 31, 2012
Financial instruments - assets
Loans (1)	$	704,537	$	715,288
Financial instruments - liabilities
Deposits		1,064,181		1,069,792

(1) Includes Loans, net less impaired loans valued based on the fair value of underlying collateral or contracted sales price.

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Equity Based Compensation (Details 4) (USD $)	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2010
Summary of stock options and restricted stock activity
Stock options outstanding	12,703	12,703	18,703	28,203	30,003	30,003	30,003
Weighted-average exercise price	$ 93.86	$ 93.86	$ 93.65	$ 90.79	$ 91.72	$ 91.72	$ 91.72
2011 Plan [Member]
Summary of stock options and restricted stock activity
Shares available for issuance under the 2011 Plan	18,978		500,000
Less: 2011 Grants	8,020		473,002
Remaining shares available for issuance at June 30, 2012	18,978		500,000
Shares of restricted stock	8,020		89,751
Weighted-average grant date fair value	$ 6.50		$ 10.48
Stock options outstanding			383,251
Weighted-average exercise price			$ 10.51

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Investment Securities Available for Sale (Details 3)	Jun. 30, 2012
State and municipal [Member]
Standard & Poor's ratings of investment securities available for sale
Available for securities fair value standard & poors credit rating	100.00%
Collateralized mortgage obligations [Member]
Standard & Poor's ratings of investment securities available for sale
Available for securities fair value standard & poors credit rating	100.00%
Other mortgage-backed [Member]
Standard & Poor's ratings of investment securities available for sale
Available for securities fair value standard & poors credit rating	100.00%
SBA loan-backed (federal agency) [Member]
Standard & Poor's ratings of investment securities available for sale
Available for securities fair value standard & poors credit rating	100.00%
Standard Poors Aa-A+ Rating [Member] | State and municipal [Member]
Standard & Poor's ratings of investment securities available for sale
Available for securities fair value standard & poors credit rating	42.00%
Standard Poors Aa-A+ Rating [Member] | Collateralized mortgage obligations [Member]
Standard & Poor's ratings of investment securities available for sale
Available for securities fair value standard & poors credit rating	100.00%
Standard Poors Aa-A+ Rating [Member] | Other mortgage-backed [Member]
Standard & Poor's ratings of investment securities available for sale
Available for securities fair value standard & poors credit rating	100.00%
Standard Poors Aa-A+ Rating [Member] | SBA loan-backed (federal agency) [Member]
Standard & Poor's ratings of investment securities available for sale
Available for securities fair value standard & poors credit rating	100.00%
Not Rated [Member] | State and municipal [Member]
Standard & Poor's ratings of investment securities available for sale
Available for securities fair value standard & poors credit rating	58.00%

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Disclosures Regarding Fair Value (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Investment securities available for sale
Available-for-sale Securities, Fair Value Disclosure	$ 247,400	$ 260,992
Recurring [Member]
Investment securities available for sale
Derivative financial instruments - assets	729	481
Total assets measured at fair value on a nonrecurring basis	248,129	261,473
Liabilities
Derivative financial instruments - liabilities		25
State and municipal [Member]
Investment securities available for sale
Available-for-sale Securities, Fair Value Disclosure	13,553	120,965
State and municipal [Member] | Recurring [Member]
Investment securities available for sale
Total assets measured at fair value on a nonrecurring basis	13,553	120,965
Collateralized mortgage obligations [Member]
Investment securities available for sale
Available-for-sale Securities, Fair Value Disclosure	142,727	118,949
Collateralized mortgage obligations [Member] | Recurring [Member]
Investment securities available for sale
Total assets measured at fair value on a nonrecurring basis	142,727	118,949
Other mortgage-backed [Member]
Investment securities available for sale
Available-for-sale Securities, Fair Value Disclosure	57,157	21,078
Other mortgage-backed [Member] | Recurring [Member]
Investment securities available for sale
Total assets measured at fair value on a nonrecurring basis	57,157	21,078
SBA loan-backed (federal agency) [Member] | Recurring [Member]
Investment securities available for sale
Available-for-sale Securities, Fair Value Disclosure	33,963
Level 1 [Member] | Recurring [Member]
Investment securities available for sale
Derivative financial instruments - assets
Available-for-sale Securities, Fair Value Disclosure	33,963
Total assets measured at fair value on a nonrecurring basis	89,530
Liabilities
Derivative financial instruments - liabilities
Level 1 [Member] | State and municipal [Member] | Recurring [Member]
Investment securities available for sale
Total assets measured at fair value on a nonrecurring basis
Level 1 [Member] | Collateralized mortgage obligations [Member] | Recurring [Member]
Investment securities available for sale
Total assets measured at fair value on a nonrecurring basis	10,469
Level 1 [Member] | Other mortgage-backed [Member] | Recurring [Member]
Investment securities available for sale
Total assets measured at fair value on a nonrecurring basis	45,098
Level 2 [Member] | Recurring [Member]
Investment securities available for sale
Derivative financial instruments - assets	729	481
Total assets measured at fair value on a nonrecurring basis	158,599	261,473
Liabilities
Derivative financial instruments - liabilities		25
Level 2 [Member] | State and municipal [Member] | Recurring [Member]
Investment securities available for sale
Total assets measured at fair value on a nonrecurring basis	13,553	120,965
Level 2 [Member] | Collateralized mortgage obligations [Member] | Recurring [Member]
Investment securities available for sale
Total assets measured at fair value on a nonrecurring basis	132,258	118,949
Level 2 [Member] | Other mortgage-backed [Member] | Recurring [Member]
Investment securities available for sale
Total assets measured at fair value on a nonrecurring basis	12,059	21,078
Level 3 [Member] | Recurring [Member]
Investment securities available for sale
Derivative financial instruments - assets
Total assets measured at fair value on a nonrecurring basis
Liabilities
Derivative financial instruments - liabilities
Level 3 [Member] | State and municipal [Member] | Recurring [Member]
Investment securities available for sale
Total assets measured at fair value on a nonrecurring basis
Level 3 [Member] | Collateralized mortgage obligations [Member] | Recurring [Member]
Investment securities available for sale
Total assets measured at fair value on a nonrecurring basis
Level 3 [Member] | Other mortgage-backed [Member] | Recurring [Member]
Investment securities available for sale
Total assets measured at fair value on a nonrecurring basis
Level 3 [Member] | SBA loan-backed (federal agency) [Member] | Recurring [Member]
Investment securities available for sale
Available-for-sale Securities, Fair Value Disclosure

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Commitments, Guarantees and Other Contingencies (Tables)

6 Months Ended

Jun. 30, 2012

Commitments, Guarantees and Other Contingencies [Abstract]

Schedule of contractual amounts of unused lending commitments to extend credit

Commitments to extend credit:
Revolving, open-end lines secured by single-family residential properties	$	52,380
Commercial real estate, construction, and land development loans secured by real estate
Single-family residential construction loan commitments		4,687
Commercial real estate, other construction loan, and land development loan commitments		31,102
Commercial and industrial loan commitments		17,433
Overdraft protection line commitments		26,947
Other		9,538
Total commitments to extend credit	$	142,087

Schedule of contractual obligations of time deposit accounts

	Less than one year		Over one through three years		Over three through five years		Over five years		Total
Time deposit accounts	$	299,292	$	77,823	$	4,943	$	59	$	382,117

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Disclosures Regarding Fair Value (Details 2) (Nonrecurring [Member], USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Dec. 31, 2011
Assets, Fair Value Disclosure [Abstract]
Impaired loans in gross loans	$ 20,892	$ 43,425
Foreclosed real estate and repossessed personal property	14,745	27,824
Long-lived assets held for sale	1,602	1,603
Level 3 [Member]
Assets, Fair Value Disclosure [Abstract]
Impaired loans in gross loans	440	7,111
Foreclosed real estate and repossessed personal property	3,091	22,067
Long-lived assets held for sale	$ 1,602	$ 1,603
Fair Value Measurements, Valuation Techniques	Appraisals/comparable sales
Fair Value Measurements, Significant unobservable inputs	Appraisals and/or Sales of Comparable Properties

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Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Consolidated Statements of Comprehensive Income (Loss) [Abstract]
Net loss	$ (7,149)	$ (9,569)	$ (7,736)	$ (15,649)
Investment securities available for sale
Change in net unrealized gains during the period	606	3,194	(754)	3,055
Reclassification adjustment included in net loss	(9,859)	(56)	(9,859)	(56)
Change in net unrealized gains on investment securities available for sale	(9,253)	3,138	(10,613)	2,999
Other comprehensive income (loss), before tax	(9,253)	3,138	(10,613)	2,999
(Provision) benefit for income taxes related to items of other comprehensive income (loss)	(3,511)	1,191	(4,026)	1,139
Other comprehensive income (loss), net of tax	(5,742)	1,947	(6,587)	1,860
Comprehensive loss	$ (12,891)	$ (7,622)	$ (14,323)	$ (13,789)

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Income Taxes (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2012
Income Taxes (Textual) [Abstract]
Future taxable income		$ 4.8
Net operating loss carryforwards expire in 2031		5.2
Net operating loss carryforwards expire in 2032		11.9
Net operating loss carryforwards, Expiration date one		2030
Net operating loss carryforwards, Expiration date two		2031
Net operating loss carryforwards, Expiration date three		2032
Net deferred tax assets	33.7	33.7
Projected future taxable income period		3 years
Projected cumulative tax losses period		2 years
Period for net unrealized pre-acquisition built-in losses		5 years
Future utilization of built-in losses	53	53
Limited future utilization of built-in losses	1.1	1.1
Expiration period for net unrealized pre-acquisition built-in losses		Oct. 07, 2015
Income tax provision	3.5	4.0
Maximum [Member]
Operating Loss Carryforwards [Line Items]
Estimated unrealized built-in losses	9.0	9.0
Minimum [Member]
Operating Loss Carryforwards [Line Items]
Estimated unrealized built-in losses	8.0	8.0
Domestic Tax Authority [Member]
Operating Loss Carryforwards [Line Items]
Federal taxable net operating losses	14.1	11.9
Federal net operating loss carryforwards	21.9	21.9
Income Taxes (Textual) [Abstract]
Net operating loss carryforwards expire in 2032	$ 21.9	$ 21.9

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Investment Securities Available for Sale

6 Months Ended

Jun. 30, 2012

Investment Securities Available for Sale [Abstract]

Investment Securities Available for Sale

3. Investment Securities Available for Sale

During the second quarter 2012, the Bank realized gains of approximately $9.9 million on the sale of $142.0 million in book value of investment securities. A portion of the proceeds from these sales were reinvested in investment securities during the second quarter 2012, with the remaining proceeds to be reinvested in investment securities during the third quarter 2012.

The following tables summarize the amortized cost, gross unrealized gains and losses included in accumulated other comprehensive income, and fair values of investment securities available for sale at the dates indicated (in thousands). At June 30, 2012 and December 31, 2011, the Company did not have any investment securities classified as trading or held-to-maturity.

	June 30, 2012
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
State and municipal	$	13,162	$	405	$	(14	)	$	13,553
Collateralized mortgage obligations		142,900		425		(598	)		142,727
Other mortgage-backed (federal agencies)		57,047		164		(54	)		57,157
SBA loan-backed (federal agency)		34,143		28		(208	)		33,963
Total investment securities available for sale	$	247,252	$	1,022	$	(874	)	$	247,400
	December 31, 2011
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
State and municipal	$	113,079	$	7,886	$	—		$	120,965
Collateralized mortgage obligations		117,129		2,210		(390	)		118,949
Other mortgage-backed (federal agencies)		20,022		1,056		—			21,078
Total investment securities available for sale	$	250,230	$	11,152	$	(390	)	$	260,992

The following tables summarize the number of securities in each category of investment securities available for sale, the fair value, and the gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at the dates indicated (dollars in thousands).

	June 30, 2012
	Less than 12 months						12 months or longer						Total
	#		Fair value		Gross unrealized losses		#		Fair value		Gross unrealized losses		#		Fair value		Gross unrealized losses
State and municipal		1	$	1,080	$	14		—	$	—	$	—		1	$	1,080	$	14
Collateralized mortgage obligations		14		64,713		401		12		17,894		197		26		82,607		598
Other mortgage-backed (federal agencies)		1		5,402		54		—		—		—		1		5,402		54
SBA loan-backed (federal agency)		5		24,785		208		—		—		—		5		24,785		208
Total investment securities available for sale		21	$	95,980	$	677		12	$	17,894	$	197		33	$	113,874	$	874
	December 31, 2011
	Less than 12 months						12 months or longer						Total
	#		Fair value		Gross unrealized losses		#		Fair value		Gross unrealized losses		#		Fair value		Gross unrealized losses
Collateralized mortgage obligations		9	$	23,024	$	192		7	$	16,773	$	198		16	$	39,797	$	390
Total investment securities available for sale		9	$	23,024	$	192		7	$	16,773	$	198		16	$	39,797	$	390

Other-Than-Temporary Impairment

Based on its other-than-temporary impairment analysis at June 30, 2012, the Company concluded that gross unrealized losses detailed in the preceding table were not other-than-temporarily impaired as of that date.

Ratings

The following table summarizes Moody’s ratings, by segment, of investment securities available for sale based on fair value, at June 30, 2012. An “Aaa” rating is based not only on the credit of the issuer, but may also include consideration of the structure of the securities and the credit quality of the collateral.

	State and municipal			Collateralized mortgage obligations			Other mortgage-backed (federal  agencies)			SBA loan-backed (federal  agency)
Aaa		—	%		100	%		100	%		100	%
Aa1-A1		74			—			—			—
Baa2		14			—			—			—
Not rated		12			—			—			—
Total		100	%		100	%		100	%		100	%

The following table summarizes Standard and Poor’s ratings, by segment, of investment securities available for sale based on fair value, at June 30, 2012.

	State and municipal			Collateralized mortgage obligations			Other mortgage-backed (federal agencies)			SBA loan-backed (federal  agency)
Aa-A+		42	%		100	%		100	%		100	%
Not rated		58			—			—			—
Total		100	%		100	%		100	%		100	%

All state and municipal securities were rated by either Moody’s or Standard and Poor’s.

Maturities

The following table summarizes the amortized cost and estimated fair value of investment securities available for sale at June 30, 2012 by contractual maturity (in thousands). Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Collateralized mortgage obligations, other mortgage-backed securities and SBA loan-backed securities are shown separately since they are not due at a single maturity date.

	Amortized cost		Fair value
Due in one year or less	$	4,787	$	4,859
Due after one year through five years		7,281		7,614
Due after five years through ten years		1,094		1,080
Due after ten years		—		—
State and municipal		13,162		13,553
Collateralized mortgage obligations		142,900		142,727
Other mortgage-backed (federal agencies)		57,047		57,157
SBA loan-backed (federal agency)		34,143		33,963
Total investment securities available for sale	$	247,252	$	247,400

The weighted average duration of investment securities available for sale was 4.9 years, based on expected prepayment activity, at June 30, 2012. Since 95% of the portfolio, based on fair value, consists of collateralized mortgage obligations, other mortgage-backed securities and SBA loan-backed securities, the expected remaining maturity may differ from contractual maturity because borrowers generally have the right to prepay obligations before the underlying loans mature.

Pledged

Investment securities were pledged as collateral for the following purposes at the dates indicated (in thousands).

	June 30, 2012		December 31, 2011
Public funds deposits	$	112,671	$	119,123
Federal Reserve line of credit		2,971		5,510
FHLB advances		—		15,887
Total	$	115,642	$	140,520

Realized Gains and Losses

The following table summarizes the gross realized gains and losses on investment securities available for sale for the periods indicated (in thousands).

	For the three months ended June 30,					For the six months ended June 30,
	2012			2011		2012			2011
Realized gains	$	9,863		$	56	$	9,863		$	56
Realized losses		(4	)		—		(4	)		—
Net realized gains	$	9,859		$	56	$	9,859		$	56

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Loans (Details 5) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011
Summary of Company's Internal credit quality indicators commercial and industrial
Commercial and industrial	$ 48,853		$ 49,381
Other loans held for sale	14,446	17,258	14,178
Total Commercial and industrial	738,432		787,736
Commercial and industrial [Member]
Summary of Company's Internal credit quality indicators commercial and industrial
Other loans held for sale	910
Total Commercial and industrial	49,763		49,381
Grade 1 [Member]
Summary of Company's Internal credit quality indicators commercial and industrial
Commercial and industrial	2,782		2,966
Grade 1 [Member] | Commercial and industrial [Member]
Summary of Company's Internal credit quality indicators commercial and industrial
Other loans held for sale	25
Total Commercial and industrial	2,807
Grade 2 [Member]
Summary of Company's Internal credit quality indicators commercial and industrial
Commercial and industrial	214		459
Grade 2 [Member] | Commercial and industrial [Member]
Summary of Company's Internal credit quality indicators commercial and industrial
Total Commercial and industrial	214
Grade 3 [Member]
Summary of Company's Internal credit quality indicators commercial and industrial
Commercial and industrial	10,522		11,380
Grade 3 [Member] | Commercial and industrial [Member]
Summary of Company's Internal credit quality indicators commercial and industrial
Other loans held for sale	566
Total Commercial and industrial	11,088
Grade 4 [Member]
Summary of Company's Internal credit quality indicators commercial and industrial
Commercial and industrial	21,213		22,253
Grade 4 [Member] | Commercial and industrial [Member]
Summary of Company's Internal credit quality indicators commercial and industrial
Other loans held for sale	319
Total Commercial and industrial	21,532
Grade W [Member]
Summary of Company's Internal credit quality indicators commercial and industrial
Commercial and industrial	8,513		5,292
Grade W [Member] | Commercial and industrial [Member]
Summary of Company's Internal credit quality indicators commercial and industrial
Total Commercial and industrial	8,513
Grade 5 [Member]
Summary of Company's Internal credit quality indicators commercial and industrial
Commercial and industrial	699		1,489
Grade 5 [Member] | Commercial and industrial [Member]
Summary of Company's Internal credit quality indicators commercial and industrial
Total Commercial and industrial	699
Grade 6 [Member]
Summary of Company's Internal credit quality indicators commercial and industrial
Commercial and industrial	4,249		4,929
Grade 6 [Member] | Commercial and industrial [Member]
Summary of Company's Internal credit quality indicators commercial and industrial
Total Commercial and industrial	4,249
Grade 7 [Member]
Summary of Company's Internal credit quality indicators commercial and industrial
Commercial and industrial	568		596
Grade 7 [Member] | Commercial and industrial [Member]
Summary of Company's Internal credit quality indicators commercial and industrial
Total Commercial and industrial	568
Not Graded [Member]
Summary of Company's Internal credit quality indicators commercial and industrial
Commercial and industrial	93		17
Not Graded [Member] | Commercial and industrial [Member]
Summary of Company's Internal credit quality indicators commercial and industrial
Total Commercial and industrial	$ 93

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Deposits (Details 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Summary of interest expense on deposits
Transaction deposit accounts	$ 9	$ 34	$ 20	$ 83
Money market deposit accounts	13	52	32	133
Savings deposit accounts	2	11	4	27
Time deposit accounts	1,315	2,427	2,676	4,957
Total interest expense on deposits	$ 1,339	$ 2,524	$ 2,732	$ 5,200

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Disclosures Regarding Fair Value (Details 1) (Nonrecurring [Member], USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Assets
Mortgage loans held for sale	$ 3,789	$ 3,648
Other loans held for sale	14,446	14,178
Impaired loans in gross loans	20,892	43,425
Foreclosed real estate and repossessed personal property	14,745	27,824
Long-lived assets held for sale	1,602	1,603
Total assets measured at fair value on a nonrecurring basis	55,474	90,678
Level 1 [Member]
Assets
Other loans held for sale	7,508
Impaired loans in gross loans	4,655
Foreclosed real estate and repossessed personal property	2,268	3,491
Total assets measured at fair value on a nonrecurring basis	14,431	3,491
Level 2 [Member]
Assets
Mortgage loans held for sale	3,789	3,648
Other loans held for sale	6,938	12,857
Impaired loans in gross loans	15,797	36,314
Foreclosed real estate and repossessed personal property	9,386	2,266
Long-lived assets held for sale	681
Total assets measured at fair value on a nonrecurring basis	36,591	55,085
Level 3 [Member]
Assets
Other loans held for sale		1,321
Impaired loans in gross loans	440	7,111
Foreclosed real estate and repossessed personal property	3,091	22,067
Long-lived assets held for sale	1,602	1,603
Total assets measured at fair value on a nonrecurring basis	$ 5,133	$ 32,102

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Loans (Details Textual) (USD $)	3 Months Ended	6 Months Ended
	Jun. 30, 2012 Branches	Jun. 30, 2012 Branches	Mar. 31, 2012	Dec. 31, 2011
Loans (Textual) [Abstract]
Carrying amount of marketed loans with bulk sales			$ 33,400,000
Amount of loans closed	28,000,000
Loan held for sale written down	2,500,000	2,500,000
Charges paid for the execution of loan held for sale		11,700,000
Amount of loan sold		20,600,000
Transferred to loans held for sale		7,500,000
Number of branches to be sold	2	2
Total of net unearned income, net deferred fees and costs and discounts and premiums	226,000	226,000		21,000
Lendable Collateral	75,500,000	75,500,000		66,700,000
Repayment period of term loan borrowed for company's total asset		3 years
Additional interest income	437,000	850,000
Interest income recognized on impaired loans	464,000	921,000
Average balance of total impaired loans	69,100,000	74,500,000
Consumer real estate loans	16,900,000	16,900,000		20,800,000
Pledge [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Term loan borrowed for company's total asset		15.00%
Federal Home Loan Bank Advances [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans were pledged to collateralize FHLB	198,200,000	198,200,000		251,400,000
Federal Reserve System Services [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans were pledged to collateralize FHLB	$ 3,600,000	$ 3,600,000		$ 5,400,000

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Regulatory Capital Requirements and Dividend Restrictions

6 Months Ended

Jun. 30, 2012

Regulatory Capital Requirements and Dividend Restrictions [Abstract]

Regulatory Capital Requirements and Dividend Restrictions

20. Regulatory Capital Requirements and Dividend Restrictions

Capital Requirements

The following table summarizes the Company’s and the Bank’s actual and required capital ratios at the dates indicated (dollars in thousands). The Company and the Bank were classified in the well-capitalized category at June 30, 2012 and December 31, 2011. In connection with the Consent Order, the Bank is subject to a minimum Tier 1 leverage ratio of 8.00%, which is higher than the statutory well-capitalized minimum ratio of 5.00%.

Since June 30, 2012, no conditions or events have occurred, of which the Company is aware, that have resulted in a material change in the Company’s or the Bank’s risk category other than as reported in this Quarterly Report on Form 10-Q.

	Actual					For capital adequacy purposes					To be well capitalized under prompt corrective  action provisions
	amount		ratio			amount		ratio			amount		ratio
At June 30, 2012
Total capital to risk-weighted assets
Company	$	108,903		13.52	%	$	64,458		8.00	%		n/a		n/a
Bank		108,722		13.49			64,457		8.00		$	80,571		10.00	%
Tier 1 capital to risk-weighted assets
Company		98,728		12.25			32,229		4.00			n/a		n/a
Bank		98,547		12.23			32,229		4.00			48,343		6.00
Tier 1 leverage ratio
Company		98,728		8.16			48,414		4.00			n/a		n/a
Bank		98,547		8.14			48,414		4.00			60,517		5.00
At December 31, 2011
Total capital to risk-weighted assets
Company	$	116,864		13.49	%	$	69,280		8.00	%		n/a		n/a
Bank		115,985		13.39			69,285		8.00		$	86,607		10.00	%
Tier 1 capital to risk-weighted assets
Company		105,852		12.22			34,640		4.00			n/a		n/a
Bank		104,972		12.12			34,643		4.00			51,964		6.00
Tier 1 leverage ratio
Company		105,852		8.59			49,270		4.00			n/a		n/a
Bank		104,972		8.52			49,271		4.00			61,589		5.00

Recent Regulatory Developments

The Company and the Bank are subject to periodic examination by various regulatory agencies. Effective June 10, 2010, the Bank agreed to the issuance of a Consent Order with the FDIC and the State Board (collectively, the “Supervisory Authorities”). The Consent Order includes requirements regarding the Bank’s capital position and other requirements, including that the Bank:

• Achieve and maintain, within 120 days from the effective date of the Consent Order, Total Risk-Based capital at least equal to 10% of risk-weighted assets and Tier 1 capital at least equal to 8% of total assets;

• Determine, within 30 days of the last day of the calendar quarter, its capital ratios. If any capital measure falls below the established minimum, within 30 days provide a written plan to the Supervisory Authorities describing the means and timing by which the Bank shall increase such ratios to or in excess of the established minimums;

• Establish, within 30 days from the effective date of the Consent Order, a plan to monitor compliance with the Consent Order, which shall be monitored by the Bank’s Board of Directors;

• Develop, within 60 days from the effective date of the Consent Order, a written analysis and assessment of the Bank’s management and staffing needs;

• Notify the Supervisory Authorities in writing of the resignation or termination of any of the Bank’s directors or senior executive officers;

• Eliminate, within 10 days from the effective date of the Consent Order, by charge-off or collection, all assets or portions of assets classified “Loss” and 50% of those assets classified “Doubtful”;

• Review and update, within 60 days from the effective date of the Consent Order, its policy to ensure the adequacy of the Bank’s allowance for loan and lease losses, which must provide for a review of the Bank’s allowance for loan and lease losses at least once each calendar quarter;

• Submit, within 60 days from the effective date of the Consent Order, a written plan to reduce classified assets by certain specific percentages by defined dates and a reduction of the Bank’s risk exposure in relationships with assets in excess of $1,000,000 which are criticized as “Substandard,” “Doubtful,” or “Special Mention”;

• Revise, within 60 days from the effective date of the Consent Order, its policies and procedures for managing the Bank’s Adversely Classified Other Real Estate Owned;

• Not extend any additional credit to any borrower who has a loan or other extension of credit from the Bank that has been charged-off or classified, in whole or in part, “Loss” or “Doubtful” and is uncollected. In addition, the Bank may not extend any additional credit to any borrower who has a loan or other extension of credit from the Bank that has been criticized, in whole or in part, “Substandard” or “Special Mention” and is uncollected unless the Bank’s board of directors determines that failure to extend further credit to a particular borrower would be detrimental to the best interests of the Bank;

• Perform, within 90 days from the effective date of the Consent Order, a risk segmentation analysis with respect to the Bank’s Concentrations of Credit and develop a written plan to systematically reduce any segment of the portfolio that is an undue concentration of credit;

• Review, within 60 days from the effective date of the Consent Order and annually thereafter, the Bank’s loan policies and procedures for adequacy and, based upon this review, make all appropriate revisions to the policies and procedures necessary to enhance the Bank’s lending functions and ensure their implementation;

• Adopt, within 60 days from the effective date of the Consent Order, an effective internal loan review and grading system to provide for the periodic review of the Bank’s loan portfolio in order to identify and categorize the Bank’s loans, and other extensions of credit which are carried on the Bank’s books as loans, on the basis of credit quality;

• Review and update, within 60 days from the effective date of the Consent Order, its written profit plan to ensure the Bank has a realistic, comprehensive budget for all categories of income and expense, which must address, at minimum, goals and strategies for improving and sustaining the earnings of the Bank, the major areas in and means by which the Bank will seek to improve the Bank’s operating performance, realistic and comprehensive budgets, a budget review process to monitor income and expenses of the Bank to compare actual figure with budgetary projections, the operating assumptions that form the basis for and adequately support major projected income and expense components of the plan, and coordination of the Bank’s loan, investment, and operating policies and budget and profit planning with the funds management policy;

• Review and update, within 60 days from the effective date of the Consent Order, its written plan addressing liquidity, contingent funding, and asset liability management;

• Eliminate, within 30 days from the effective date of the Consent Order, all violations of law and regulation or contraventions of policy set forth in the FDIC’s safety and soundness examination of the Bank in November 2009;

• Not accept, renew, or rollover any brokered deposits unless it is in compliance with the requirements of 12 C.F.R. § 337.6(b);

• Limit asset growth to 10% per annum;

• Not declare or pay any dividends or bonuses or make any distributions of interest, principal, or other sums on subordinated debentures without the prior approval of the Supervisory Authorities;

• Not offer an effective yield on deposits of more than 75 basis points over the national rates published by the FDIC weekly on its website unless otherwise specifically permitted by the FDIC. Beginning in April 2010 the Bank was notified by the FDIC that it had determined that the geographic areas in which it operates were considered high-rate areas. Accordingly, the Bank is able to offer interest rates on deposits up to 75 basis points over the prevailing interest rates in its geographic areas; and

• Furnish, by within 30 days from the effective date of the Consent Order and within 30 days of the end of each quarter thereafter, written progress reports to the Supervisory Authorities detailing the form and manner of any actions taken to secure compliance with the Consent Order.

The Bank intends to take all actions necessary to comply with the requirements of the Consent Order, and, as of the date hereof, we have submitted all documentation required to the Supervisory Authorities. We believe we are currently in compliance with all requirements of the Consider Order. However, the determination of our compliance will be made by the Supervisory Authorities, and there can be no assurance that the Supervisory Authorities will determine that the Bank is in full compliance with the provisions of the Consent Order. Failure to meet the requirements of the Consent Order could result in additional regulatory requirements, which could have a material effect on the Company’s financial condition. In addition, the Supervisory Authorities may amend the Consent Order based on the results of their ongoing examinations.

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Long-Lived Assets Held for Sale (Details Textual) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012 Branches
Long-Lived Assets Held for Sale (Textual) [Abstract]
Number of vacant bank-owned branch facilities	2
Number of branches to be sold	2
Vacant Parcel of Land [Member]
Property, Plant and Equipment [Line Items]
Land	920

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Employee Benefit Plans (Tables)

6 Months Ended

Jun. 30, 2012

Employee Benefit Plans [Abstract]

Net periodic benefit cost for defined benefit plans

	For the three months ended June 30,						For the six months ended June 30,
	2012			2011			2012			2011
Interest cost	$	234		$	250		$	490		$	501
Expected return on plan assets		(276	)		(296	)		(579	)		(570	)
Amortization of net actuarial loss		222			197			466			394
Net periodic pension expense	$	180		$	151		$	377		$	325

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Income Taxes

6 Months Ended

Jun. 30, 2012

Income Taxes [Abstract]

Income Taxes

13. Income Taxes

For the three and six months ended June 30, 2012, the Company realized federal taxable net operating losses of $14.1 million and $11.9 million, respectively. As of June 30, 2012, the Company had remaining federal net operating loss carryforwards totaling $21.9 million. If not utilized to offset future taxable income, $4.8 million of the net operating loss carryforwards will expire in 2030, $5.2 million will expire in 2031, and $11.9 million will expire in 2032.

As of June 30, 2012, net deferred tax assets, without regard to any valuation allowance, of $33.7 million are recorded in the Company’s Consolidated Balance Sheet. The net deferred tax asset is fully offset by a valuation allowance as a result of uncertainty surrounding the ultimate realization of these tax benefits. Based on the Company’s projections of future taxable income over the next three years, cumulative tax losses over the previous two years, net operating loss carryforward limitations as discussed below, and available tax planning strategies, the Company initially recorded a valuation allowance against the net deferred tax assets in December 2010. The Company’s ongoing analysis indicates that a valuation allowance against the full amount of net deferred tax assets continues to be appropriate at June 30, 2012.

The private placement consummated in October 2010 (the “Private Placement”) was considered a change in control under the Internal Revenue Code and Regulations. Accordingly, the Company was required to evaluate potential limitation or deferral of our ability to carryforward pre-acquisition net operating losses and to determine the amount of net unrealized pre-acquisition built-in losses, which may be subject to similar limitation or deferral. Under the Internal Revenue Code and Regulations, net unrealized pre-acquisition built-in losses realized within 5 years of the change in control are subject to potential limitation, which for the Company is October 7, 2015. Through that date, the Company will continue to analyze its ability to utilize such losses to offset anticipated future taxable income as pre-acquisition built-in losses are ultimately realized. As of June 30, 2012, the Company currently estimates that future utilization of built-in losses of $53 million generated prior to October 7, 2010 will be limited to $1.1 million per year. In addition, the Company currently estimates that $8.0 million to $9.0 million of tax benefits related to the built-in losses may not ultimately be realized. However, this estimate will not be confirmed until the five-year limitation period expires in October 2015.

For the three and six months ended June 30, 2012, income tax provisions of $3.5 million and $4.0 million, respectively, were recorded to reflect an increase in the valuation allowance as a result of a decreased deferred tax liability on net unrealized gains in the Company’s investment securities portfolio.

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Commitments, Guarantees and Other Contingencies (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012
Schedule of contractual amounts of unused lending commitments to extend credit
Contractual amounts of unused lending commitments	$ 142,087
Revolving, open-end lines secured by single-family residential properties [Member]
Schedule of contractual amounts of unused lending commitments to extend credit
Contractual amounts of unused lending commitments	52,380
Single family residential construction loan [Member]
Schedule of contractual amounts of unused lending commitments to extend credit
Contractual amounts of unused lending commitments	4,687
Commercial real estate, other construction loan, and land development loan commitments [Member]
Schedule of contractual amounts of unused lending commitments to extend credit
Contractual amounts of unused lending commitments	31,102
Commercial and Industrial Loans [Member]
Schedule of contractual amounts of unused lending commitments to extend credit
Contractual amounts of unused lending commitments	17,433
Overdraft Protection Line [Member]
Schedule of contractual amounts of unused lending commitments to extend credit
Contractual amounts of unused lending commitments	26,947
Other [Member]
Schedule of contractual amounts of unused lending commitments to extend credit
Contractual amounts of unused lending commitments	$ 9,538