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					TH E ART OF
Palmetto Bancshares, Inc.
2007 Annual Report

     The Palmetto Bank, 2007 Recipient

     The Elizabeth O’Neill Verner Awards were                  A committee chooses the winners based

     established by the South Carolina Arts                     on the nominations and recommendations

     Commission to recognize deserving                             of people in the South Carolina arts

     members of the state’s art community.                            community—people who understand

     Named after the art pioneer                                       the importance of nurturing,

     who helped promote the preservation                               cultivating, and celebrating the arts.

     of Charleston and turn it into a                                 Each winner is awarded a bronze
     cultural showcase, the award is given annually      statue—a work of art in itself, designed by Columbia-

     to arts organizations, patrons, artists and         based artist Jean McWhorter—as a lasting symbol

     businesses that exhibit leadership and innovation   of recognition for this prestigious honor.

     in their arts contributions.

Cultural Center
Art Museum
Cultural Center
Art Museum
T H E PA L M E T T O B A N K ’ S C O M M I T M E N T

In selecting The Palmetto Bank for the Verner               • The Bank, a significant patron of the arts,

Award, the South Carolina Arts Commission                     spreads its support across many different

recognized The Bank’s efforts in three areas.                 community organizations, including

                                                              the Greenville Symphony, The Peace Center
     • During the 100th Anniversary celebration,
                                                              for the Performing Arts, Greenville County
       The Bank announced the creation
                                                              Musem of Art, Anderson County Arts
       of an endowment for The Spartanburg
                                                              Center, and the Arts Council of Greenwood
       County Museum of Art’s Permanent
                                                              County – Emerald Triangle Project.
       Collection. In addition to offering financial

       support, The Bank will lend pieces from         These major contributions—and countless others—

       its Corporate Collection for display            illustrate how The Palmetto Bank has established

       in The Museum’s new Chapman                     its name as a leader in the Palmetto state

       Cultural Center.                                art community.

     • For nearly 40 years, The Bank has been

       supporting South Carolina artists by building

       a collection of more than 100 pieces of fine

       art. This Corporate Collection, showcasing

       36 of South Carolina’s most talented artists,

       will be featured prominently in The Bank’s

       new Greenville headquarters.

     C O N S O L I D AT E D F I N A N C I A L H I G H L I G H T S
     At and for the years ended December 31,                                                     2007               2006         % Change
     Net income                                                                        $        16,015             15,241                  5.1 %
     Net income per common share:
           Basic                                                                                 2.51               2.40                   4.6
           Diluted                                                                               2.47               2.37                   4.2
     Cash dividends per common share                                                             0.77               0.73                   5.5
     Book value per common share                                                                17.17              15.76                   8.9
     Outstanding common shares                                                              6,421,765          6,367,450                   0.9
     Weighted average common shares outstanding - basic                                     6,390,858          6,353,752                   0.6
     Weighted average common shares outstanding - diluted                                   6,477,663          6,421,742                   0.9
     Trading price (December 31) (1)                                                            41.00              38.00                   7.9
     Dividend payout ratio                                                                      30.76 %            30.45                   1.0
     Assets                                                                            $    1,248,177          1,153,136                8.2 %
     Investment securities available for sale, at fair market value                            95,715            116,567              (17.9 )
     Loans                                                                                  1,049,776            947,588               10.8
     Deposits and other borrowings                                                          1,126,400          1,044,996                7.8
     Shareholders’ equity                                                                     110,256            100,376                9.8
     Assets                                                                            $    1,182,850          1,114,553                6.1 %
     Interest-earning assets                                                                1,110,284          1,042,289                6.5
     Investment securities available for sale, at fair market value                           104,757            120,395              (13.0 )
     Loans                                                                                    989,128            898,028               10.1
     Deposits and other borrowings                                                          1,067,003          1,012,741                5.4
     Shareholders’ equity                                                                     106,615             95,077               12.1
     Return on average assets                                                                     1.35 %             1.37
     Return on average shareholders’ equity                                                      15.02              16.03
     Net interest margin                                                                          4.58               4.72
     Average shareholders’ equity as a percentage of average assets                               9.01 %             8.53
     Shareholders’ equity as a percentage of total assets at year-end                             8.83               8.70
     Tier 1 risk-based capital                                                                    9.60               9.37
     Total risk-based capital                                                                    10.26              10.19
     Tier 1 leverage ratio                                                                        8.97               8.59
     Nonperforming loans as a percentage of loans excluding
           mortgage loans held for sale                                                            0.46 %             0.74
     Net loans charged-off as a percentage of average loans
           excluding mortgage loans held for sale                                                  0.21               0.17
     Full-time equivalent employees                                                                409                 400
     Banking offices                                                                                32                  32
     ATMs                                                                                           39                  38

06   (1) For discussion regarding the Company’s limited public trading market for its stock, please refer to the Company’s Annual Report
     on Form 10-K for the year ended December 31, 2007.
     (dollars in thousands, except common and per share data)
Paul W. (Bill) Stringer
President & Chief
Operating Officer
Palmetto Bancshares, Inc.
L. Leon Patterson
Chairman & Chief
Executive Officer
Palmetto Bancshares, Inc.

We are pleased to bring you a report that highlights   • Net income—a record $16.0 million, up 5.1%.

another year of record achievement in financial        • Basic earnings per share—a record $2.51,

performance. This is especially meaningful at a time     up 4.6%.

that saw one of the most challenging banking           • Total assets at year-end—$1.248 billion,

environments in recent memory. In previous               up 8.2%.
                                                                                                           BASIC EARNINGS
quarterly reports we acknowledged a number             • Total loans exceeding $1 billion for the first    PER SHARE

of adverse factors besetting the financial services      time—a record $1.050 billion, up 10.8%.

industry – intense competition for deposits,           • Total deposits (including traditional deposits,

pressured net interest margins, and a declining real     retail repurchase agreements, and commercial

estate market. At year-end we find the financial         paper)—at year-end, solid growth to $1.096

sector besieged by higher credit costs, slowing loan     billion, up 6.6%.

growth, and coupled with the overall health of the     • Shareholders’ equity—an all time high of

consuming public, a possible slowdown in the US          $110 million after dividends paid, up 9.8%.

economy. The magnitude of housing related losses       • Dividend payout—a record $4.9 million,            NET INCOME
                                                                                                           IN MILLIONS
is yet undetermined and will play a significant role     up 6.1%, and the 25th year of consecutive

in determining the timing for further interest rate      dividend increases.

cuts by the Federal Reserve to stimulate economic      • Return on average assets (ROA)—1.35%,

growth. The signs tell us it is a time for caution      high performance results.

and to quote one observer, “a time to stick to ones    • Return on average shareholders’ equity

knitting,” and to be reminded of the basic              (ROE)—15.02%, another outstanding return.

fundamentals of our business. Even under these         • Stock price of Palmetto Bancshares traded

conditions, we are pleased to report a list of 10        at a record high price at year-end of $41.00

outstanding financial benchmarks achieved in 2007:       per share, up 7.9% for the year (1).
                                                                                                           IN MILLIONS

                      We are proud of our employees and of these record             our numbers continue to be superior except

                      setting results in 2007. At the core of our perfor-           for the last 5 year period when the S&P index

                      mance has been the annual setting of 5-year strategic         has outperformed our results by about 3 percentage

                      planning horizons, and a vision to be recognized              points. Total annual shareholder return, assuming

                      as South Carolina’s most trusted and respected                the reinvestment of dividends, has been about 6
                      independent provider of innovative, high quality              percentage points above the S&P 500 index at 10

                      banking, trust, and investment services.                      and 15 year intervals.
     IN MILLIONS      To achieve consistent high performance over long              At year-end, the most recent trades of Company stock

                      periods of time—and through many different                    known to management were at $41.00 per share,

                      economic cycles—has always been our goal.                     a 7.9% increase over trades known at year-end 2006.

                      We believe Palmetto Bancshares, Inc. has achieved             At a time of unusual market volatility for stocks,

                      consistently superior results in earnings per share,          and especially equity investments in the financial

                      dividends paid per share, stock price appreciation,           sector, we are pleased to see price stability for your

                      and total shareholder return not just over the past           company during this period of time. The graph

                      5 years, but over 10 and 15 year horizons.                    on the next page charts a fifteen-year comparison

                                                                                    of cumulative year-end returns for the Company,
                      The data in the accompanying chart tracks our per-
     RETURN ON                                                                      the S&P 500 Index, and the NASDAQ OTC Bank Index
     AVERAGE ASSETS   formance and compound growth rates over the past
                                                                                    assuming a year-end 2002 investment of $100 in each
                      5, 10, and 15 years. Compared to the S&P 500 index,

                                                          Yearly Stock Performance, as of December 31,       Compound Annual Growth
                                                              2007      2002      1997      1992             15 years   10 years   5 years
                         Last Known Trading Price/Share     $41.000    $28.000 $14.000 $4.667                15.59%     11.34%      7.93%
                         Dividends/Share                    $0.770     $0.450    $0.190   $0.075             16.80%     15.02%     11.34%
                         Earnings/Share (Basic)             $2.510     $1.530    $0.980   $0.353             13.96%      9.86%     10.41%
                         Book Value/Share                   $17.170    $10.680 $5.995     $3.315             11.59%     11.10%      9.96%
                                                                      Total Compounded Annual Return         16.59%     12.64%      9.58%
                                                                      S&P 500 Compounded Annual Return       10.69%      5.91%     12.82%

investment option. Our stock continues to exceed                    in Greenville, and the beginning of construction

these indexes in performance through year-end                       for your company’s new headquarters facility.

2007. These results continue to provide outstanding                 In Spartanburg, the opening of The Palmetto Bank

returns to our investors and support the achievement                Endowed Permanent Collection of the Spartanburg

of superior long-term shareholder value, a primary                  Art Museum was showcased upon the grand
goal of the company mission statement.                              opening of the new Chapman Cultural Center.

Our excellent financial performance in 2007                         The Palmetto Bank’s gift to SAM, the Spartanburg       RETURN ON AVERAGE
was underscored by many more employee activities                    Art Museum, in honor of Les and Betty McMillan,        EQUITY

and events worthy of note. As a stockholder                         longtime friends of the bank, underscores your

you are a subscriber to THE PALMETT, the quarterly                  company’s longtime commitment and support

employee news publication of The Palmetto Bank,                     for the Upstate South Carolina art community.

and through THE PALMETT we bring you highlights                     During a special ceremony with Governor Mark

of the year’s major events. We recall the ribbon                    Sanford at the State House in Columbia on May 2,

cutting for the renovated Greenwood main office                     The Palmetto Bank was awarded the 2007 Elizabeth

on Montague Street, the 50-year anniversary celebra-                O’Neill Verner Governor’s Award for the arts in

tion of The Palmetto Bank Trust Department, ground                  recognition of outstanding contributions to the arts
                                                                                                                           DEPOSITS (1)
breaking ceremonies for the new Pendleton banking                   in South Carolina. We were deeply honored to be        IN MILLIONS

office, demolition of the East North Street office                  nominated and to receive this prestigious award.

       1992      93     94     95      96     97     98      99     00      01    02   03   04    05    06    07
               Palmetto Bancshares, Inc.       NASDAQ OTC Banking Index           S&P 500
                                                                                                                           IN MILLIONS

(1) Includes traditional deposits, repurchase agreements, and commercial paper.
     This annual report is symbolic of our commitment           be missed. His mark is lasting on the achievements

     to the arts and to the enrichment of the cultural life     of The Palmetto Bank and we are very thankful

     of all the communities we serve. The Palmetto Bank’s       for his many years of service.

     corporate art collection of works from more than 30
                                                                As you review the information contained in this 2007
     South Carolina artists is a reflection of the diversity
                                                                Annual Report and Form 10-K, we believe you will see
     of contemporary talents of this great state. In the fol-
                                                                a company that reflects safety, soundness, and strength
     lowing pages of this report we feature selected works
                                                                in its numbers. The results of 2007 provide a strong
     that illustrate not only exceptional visual appeal
                                                                platform for immediate growth and a spring board
     but a spirit that captures the enduring legacy of your
                                                                to opportunity. This would not be possible without
     company and a sense of past, present, and future.
                                                                a clear roadmap to the future and loyal support from

     Many of the works from the corporate collection will       our dedicated employees and an engaged board

     be on display in a special showing at the Spartanburg      of directors. We look forward to another successful

     Art Museum beginning May 7. We invite you to enjoy         year as we leverage further a great Palmetto Brand

     these works of art from our fellow South Carolinians.      in this state. For your loyalty as a stockholder

                                                                we are also indeed grateful.
     We wish to pay special tribute to Executive Vice

     President Maxie Burns who retired at the end               Sincerely,

     of January, 2008. As head of Finance and Operations

     for the company, Maxie completed a distinguished           Leon Patterson
                                                                Chairman and Chief Executive Officer
     career in banking and 33 years with The Palmetto
                                                                Palmetto Bancshares, Inc.
     Bank. Not only has Maxie been instrumental

     to the success of your company, but he has made

     countless contributions over the years to the banking      Bill Stringer
     industry, statewide and nationally. He is truly one        President and Chief Operating Officer
                                                                Palmetto Bancshares, Inc.
     of the best bankers in South Carolina and he will

In The Palmetto Bank’s efforts to support

the artists of South Carolina, we have acquired

a body of artwork that represents some

of the finest our state has to offer. Please join

us on this tour of selected works from our

collection. It’s the art of The Palmetto Bank…

it’s the art of community banking.
One of the most respected names in South Carolina

art, Carl Blair may call our state home, but his

works are known worldwide. His landscapes—both

abstract and representational—bring together

the light, the dark, the warm, and the cool in what   Carl Blair
                                                      Valley Falls
he likes to call, visual poetry.
                                                      Oil on Canvas
*2005 Verner Award Recipient                          41"x 50"

Carl Blair
Distant Dream
Oil on Canvas
23 1/2"x 19 1/2"
(facing page)

                                                                Darell Koons
                                                                Perrine’s Winter Barn
                                                                11 1/2"x 13 1/2"

     Growing up on a farm was a major influence

     for Michigan native Darell Koons. His iconic

     images of rural scenes and barns achieve a level
                                                                                           Charlie Pate
     of detail that is nearly photo-realistic.                                             Cotton Field
                                                                                           Oil on canvas
                                                                                           144 1/8"x 51 1/8"
                                                                                           (facing page)

                                                        Charlie Pate is a native South Carolinian

                                                        who is well-known for his portraits and landscapes.

                                                        He often makes use of large-scale canvases

                                                        to convey the scope and vision in his landscapes,

                                                        two of which can be seen in The Palmetto

                                                        Bank collection.

                  Betty K. Walker creates beautiful scenes—often

                  of the Lowcountry—through her use of watercolor.

                  A signature member of the American Watercolor

                  Society, this Clinton, South Carolina native
Betty K. Walker
Roof Tops         has won several awards for her work.
29"x 21"
Phil Garrett         Phil Garrett’s background in printmaking
Waterlilies at
Brookgreen Gardens   has lead to an impressive career in lithographs
                     and monotypes, in addition to painting.
Acrylic on canvas
40"x 60"             Garrett likes to draw from the animal and plant

                     life in nature for his works, often returning

                     to one of his favorite subjects—horses.

                                                                         William Jameson
                                                                         Falls Last Color
                                                                         Oil on linen
                                                                         24"x 30"

     William Jameson’s work revolves around

     the theme of interplay and contrast between

     light and dark. His landscapes explore this theme
                                                                                                  Rhett Thurman
     in exotic settings around the globe, in places                                               Quiet Conversation
     like Mexico, France, and Italy, but his paintings                                            2003
                                                                                                  Oil on canvas
     also frequently return to the landscapes of his native                                       24"x 36"
                                                                                                  (facing page)
     South Carolina home.
                                                              Rhett Thurman uses oils and watercolors to show

                                                              the playful effects of light on color. Southern life,

                                                              especially in her hometown of Charleston,

                                                              South Carolina, is a favorite subject for Thurman

                                                              in her warm, bold, vibrant paintings.

John T. Acorn
Vignettes #10, #16, #17
Acrylic on wood
#10: 25"x 14"             Advertisements, images, hardware, experiences…
#16: 12"x 27"
#17: 11 1/2"x 27 1/4"     memories—all provide inspiration for John T. Acorn’s

                          two- and three-dimensional paintings and sculptures.

                          His works and commissions can be seen in galleries,

                          institutions, and businesses across the Southeast,

                          including here at The Palmetto Bank.

                          *1998 Verner Award Recipient

                                                           Leo Twiggs
                                                           Living in the Spirit
                                                           28"x 30 1/2"

     Leo Twiggs explores the possibilities of batik—

     endlessly experimenting with dyes, waxes,

     and fabric. His use of the medium draws parallels

     between batik’s cracked, weathered appearance                                                 Mark Mulfinger
                                                                                                   Laurens’ Courthouse
     and the human experience of life in South Carolina.                                           1999
     *1980 Verner Award Recipient                                                                  66"x 89"
                                                                                                   (facing page)

                                                                Mark Mulfinger’s name has become synonymous

                                                                with intricately-detailed and colorful linocuts.

                                                                Two of The Palmetto Bank’s Mulfinger batiks evoke

                                                                the sense of community at our bank—

                                                                “Laurens’ Courthouse” and “Laurens’ Churches.”

Betty Jane Bramlett has long been a fixture

in the South Carolina arts community.

Serving in arts education in Spartanburg for more

than 40 years, Bramlett has three abstract works

in The Palmetto Bank collection.

*1989 Verner Award Recipient

                 Betty Jane Bramlett
                 Forest Trail
                 Mixed media
                 29"x 21"
Jeanet S. Dreskin
Vastitude VIII
1972                      A longtime Greenville, South Carolina art educator,
Polymer on linen canvas
48"x 42"                  Jeanet S. Dreskin has forged a career by exploring

                          the intersection between science, art, and nature.

                          With a background in medical drawing, Dreskin

                          went on to create her environmental Sere series

                          and the more abstract Magic Carpet paintings.

                          *2004 Verner Award Recipient

     C O R P O R AT E A N D F I N A N C I A L S TAT E M E N T S

     Palmetto Bancshares, Inc. is an independent bank                 which has been provided to all shareholders. This report

     holding company headquartered in Upstate South Carolina.         has not been reviewed or confirmed for accuracy

     Its wholly-owned subsidiary, The Palmetto Bank, offers           or relevance by the Federal Deposit Insurance Corporation.

     a broad range of financial services, including consumer          Additional copies of the Company’s Annual Report, Form
     and commercial banking, mortgage origination and servicing,      10-K, quarterly reports and other corporate publications
     and trust and investment services, through 32 retail offices     will be furnished without charge upon written request to
     in nine Upstate South Carolina counties, plus telephone
                                                                      Teresa Crabtree,
     banking and Internet banking.
                                                                      Corporate Secretary,
     The Palmetto Bank distinguishes itself from other South          Palmetto Bancshares, Inc.
     Carolina financial institutions by a strategic design which      PO Box 49
     focuses resources on legendary customer service.                 Laurens, South Carolina 29360
     By geographically focusing its operations in Upstate South
                                                                      Corporate Offices are located at
     Carolina, The Bank is able to realize the flexibility to offer
                                                                      301 Hillcrest Drive
     genuine personal service to all customers. This focus
                                                                      PO Box 49
     is the key to increasing market share and shareholder value.
                                                                      Laurens, South Carolina 29360
     As an independent financial institution—with a firm
                                                                      Independent Registered
     commitment to remaining independent—The Palmetto Bank
                                                                      Public Accounting Firm: Elliott Davis, LLC
     is positioned to provide an array of innovative products

     and services, delivered through solid, ongoing, one-on-one

     relationships with its customers.
                                                                      M I S S I O N S TAT E M E N T

     The financial information included in the 2007 Annual            As an independent Upstate financial institution, our mission
     Report is presented in a summary format to provide informa-      is to achieve superior long-term shareholder value, exercise

28   tion regarding the performance of Palmetto Bancshares, Inc.      exemplary corporate citizenship, and create an environment

     in a manner that is meaningful and useful to shareholders.       which promotes and rewards employee development and

     Our independent auditor’s report, complete set of financial      the consistent delivery of quality service to our customers.

     statements, and full disclosure of all financial information

     are included in the Company’s Annual Report on Form 10-K,

At and for the years ended December 31,                                      2007            2006       2005        2004        2003
Interest income                                                    $        83,637          76,446     62,783      51,029      49,663
Interest expense                                                            32,758          27,297     17,279      11,177      10,923
     Net interest income                                                    50,879          49,149     45,504      39,852      38,740
Provision for loan losses                                                      988           1,625      2,400       2,150       3,600
     Net interest income after provision for loan losses                    49,891          47,524     43,104      37,702      35,140
Noninterest income                                                          16,868          17,278     16,383      15,709      15,647
Noninterest expense                                                         42,345          41,599     38,765      35,731      34,889
     Net income before provision for income taxes                           24,414          23,203     20,722      17,680      15,898
Provision for income taxes                                                   8,399           7,962      6,942       5,569       5,005
     Net income                                                    $        16,015          15,241     13,780      12,111      10,893
Net income per common share:
     Basic                                                      $             2.51        2.40            2.18        1.93        1.73
     Diluted                                                                  2.47        2.37            2.15        1.90        1.70
Cash dividends per common share                                               0.77        0.73            0.66        0.58        0.51
Book value per common share                                                  17.17       15.76           14.05       12.82       11.49
Outstanding common shares                                                6,421,765   6,367,450       6,331,335   6,297,285   6,263,210
Weighted average common shares outstanding - basic                       6,390,858   6,353,752       6,317,110   6,272,594   6,301,024
Weighted average common shares outstanding - diluted                     6,477,663   6,421,742       6,417,358   6,378,787   6,395,170
Trading price (December 31) (1)                                 $            41.00       38.00           35.00       32.00       30.00
Dividend payout ratio                                                        30.76 %     30.45           30.27       30.07       29.49
Assets                                                          $        1,248,177      1,153,136    1,075,015    993,102     895,377
Investment securities available for sale, at fair market value              95,715        116,567      125,988    143,733     128,930
Loans                                                                    1,049,776        947,588      871,002    779,108     699,612
Deposits and other borrowings                                            1,126,400      1,044,996      978,926    906,895     819,443
Shareholders’ equity                                                       110,256        100,376       88,941     80,762      71,989
Assets                                                          $        1,182,850      1,114,553    1,043,897    932,672     855,813
Interest-earning assets                                                  1,110,284      1,042,289      977,679    872,253     799,462
Investment securities available for sale, at fair market value             104,757        120,395      132,709    134,854     113,648
Loans                                                                      989,128        898,028      833,353    730,430     670,707
Deposits and other borrowings                                            1,067,003      1,012,741      952,623    851,680     780,742
Shareholders’ equity                                                       106,615         95,077       85,790     76,566      70,745
Return on average assets                                                       1.35 %         1.37       1.32        1.30        1.27
Return on average shareholders’ equity                                        15.02          16.03      16.06       15.82       15.40
Net interest margin                                                            4.58           4.72       4.65        4.57        4.85
Average shareholders’ equity as a percentage of average assets                 9.01 %         8.53       8.22        8.21        8.27
Shareholders’ equity as a percentage of total assets at year-end               8.83           8.70       8.27        8.13        8.04
Tier 1 risk-based capital                                                      9.60           9.37       9.36        9.43        9.22
Total risk-based capital                                                      10.26          10.19      10.28       10.38       10.25
Tier 1 leverage ratio                                                          8.97           8.59       8.08        7.76        7.58

(1) For discussion regarding the Company’s limited public trading market for its stock,
please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.
(dollars in thousands, except common and per share data)
     S E L E C T E D F I N A N C I A L D ATA

     At and for the years ended December 31,                  2007     2006   2005   2004   2003
     Nonperforming loans as a percentage of loans excluding
          mortgage loans held for sale                        0.46 %   0.74   1.14   0.30   0.55
     Net loans charged-off as a percentage of average loans
          excluding mortgage loans held for sale              0.21     0.17   0.19   0.27   0.38


At December 31,                                                                   2007            2006
Cash and cash equivalents
    Cash and due from banks                                                $      41,769         43,084
    Federal funds sold                                                            10,463          3,582
         Total cash and cash equivalents                                          52,232         46,666
Federal Home Loan Bank (FHLB) stock, at cost                                       2,617         2,599
Investment securities available for sale, at fair market value                    95,715       116,567
Mortgage loans held for sale                                                       5,006         1,675
Loans                                                                          1,044,770       945,913
    Less allowance for loan losses                                                ( 7,418 )     ( 8,527 )
          Loans, net                                                           1,037,352       937,386
Premises and equipment, net                                                       25,133         24,494
Goodwill                                                                           3,691          3,691
Core deposit intangibles                                                              79            127
Accrued interest receivable                                                        6,655          6,421
Other assets                                                                      19,697         13,510
          Total assets                                                     $   1,248,177      1,153,136
     Noninterest-bearing                                                   $     135,111       133,623
     Interest-bearing                                                            923,683       859,958
            Total deposits                                                     1,058,794       993,581
Retail repurchase agreements                                                      11,280         14,427
Commercial paper (Master notes)                                                   26,326         20,988
Other short-term borrowings                                                       30,000          6,000
Long-term borrowings                                                                   -         10,000
Accrued interest payable                                                           2,042          1,584
Other liabilities                                                                  9,479          6,180
          Total liabilities                                                    1,137,921      1,052,760
Shareholders’ Equity
Common Stock - par value $5.00 per share; authorized 10,000,000 shares;
    issued and outstanding, 6,421,765 and 6,367,450 at December 31, 2007
    and 2006, respectively                                                        32,109         31,837
Capital surplus                                                                     1,664         1,102
Retained earnings                                                                 79,221         68,132
Accumulated other comprehensive loss, net of tax                                  ( 2,738 )        ( 695)
          Total shareholders’ equity                                             110,256        100,376
               Total liabilities and shareholders’ equity                  $   1,248,177      1,153,136

(dollars in thousands)
     C O N S O L I D AT E D S TAT E M E N T S O F I N C O M E

     For the years ended December 31,                                        2007        2006        2005
     Interest and fees on loans                                       $     78,412      70,339      57,380
     Interest on investment securities available for sale:
          Government-sponsored enterprises (taxable)                         1,390       1,963         834
          State and municipal (nontaxable)                                   1,800       1,936       2,263
          Mortgage-backed securities (taxable)                               1,202         953       1,890
     Interest on federal funds sold                                            678       1,071         251
     Dividends on FHLB stock                                                   155         184         165
          Total interest income                                             83,637      76,446      62,783
     Interest on deposits                                                   30,232      24,980      14,392
     Interest on retail repurchase agreements                                  539         731         493
     Interest on commercial paper                                            1,110         867         439
     Interest on other short-term borrowings                                   704         143       1,071
     Interest on long-term borrowings                                          173         576         884
          Total interest expense                                            32,758      27,297      17,279
                Net interest income                                         50,879      49,149      45,504
     Provision for loan losses                                                 988       1,625       2,400
                Net interest income after provision for loan losses         49,891      47,524      43,104
     Service charges on deposit accounts                                     8,050       8,086       8,045
     Fees for trust and brokerage services                                   3,115       3,231       2,856
     Mortgage - banking income                                               1,286       1,168       1,271
     Investment securities gains                                                 -          34          82
     Other                                                                   4,417       4,759       4,129
          Total noninterest income                                          16,868      17,278      16,383
     Salaries and other personnel                                           25,548      23,591      21,890
     Occupancy                                                               1,548       1,537       1,428
     Premises, furniture, and equipment leases and rentals                   1,278       1,332       1,212
     Premises, furniture, and equipment depreciation                         1,950       2,033       2,003
     Other furniture and equipment                                           1,878       1,873       1,630
     Loss on disposition of premises, furniture, and equipment                 346           9           9
     Marketing                                                               1,131       1,436       1,118
     Amortization of core deposit intangibles                                   48          48         144
     Other                                                                   8,618       9,740       9,331
          Total noninterest expense                                         42,345      41,599      38,765
                Net income before provision for income taxes                24,414      23,203      20,722
     Provision for income taxes                                              8,399       7,962       6,942
                NET INCOME                                            $     16,015      15,241      13,780
32   Net income - basic                                               $        2.51        2.40        2.18
     Net income - diluted                                                      2.47        2.37        2.15
     Cash dividends                                                            0.77        0.73        0.66
     Book value                                                               17.17       15.76       14.05
     Weighted average common shares outstanding - basic                   6,390,858   6,353,752   6,317,110
     Weighted average common shares outstanding - diluted                 6,477,663   6,421,742   6,417,358
     (dollars in thousands, except common and per share data)

ABBEVILLE COUNTY     Polly Moore          Greer               Joyce McDonald
Abbeville            Karen Morales        Michelle Arms       Cristina Ortiz
Alicia Jenkins       Charlene Queen       Lydia Beck          Ashlee Pitts
Jane Moore           Holly Thomas         Lanna Brown         Trey Werner
Debra Tedder                              Lisa Forrester      Kellie Williams
Adriann Williams     Gaffney              Jackie Garrett
                     Kellie Allen         Mirinda Mills       Travelers Rest
ANDERSON COUNTY      Angie Alley                              Monika Branham
Anderson Main        Cindy Childers       Grove Road          Marie Lail
Sherry Brock         Kenneth Edwards      Carrie Bragg        Jennifer Newton
Teresa Henderson     Amanda Gentry        Evie Harrison       Heather Raines
Janet Hinchman       Lisa Harris          Joy Lin             Brandy Turner
Barbara Hogg         Jack Ledford         Sherry Valentine    Vickie Wickware
Ronicka Kilpatrick   Jan Moss             Adrian Williams
Coleman Kirven       Beverly Norton       Gelicia Williams    Woodruff Road
Melissa Langston     Brenda Swank                             Missy Cummins
Pruitt Martin                             Haywood Road        Pamela Dujardin
Becky McCombs        GREENVILLE COUNTY    Sarah Andrews       William Marcus
Sharon Powers        East North Street    Helen Camp          Gina Nagengast
Helena Richards      Amy Baxter           Stephanie Cohens    Kim Parris
Carol Shiflet        Bob Clary            Leeann Curd         Josie Stewart
Cindy Tallent        John Currey          Kirtida Gohil       Nancy Yennie
Candace Trotter      Earle Harding        Leigh Ann Reese
Malinda Ward         Harriet Landers      Tina Royster        GREENWOOD COUNTY
                     Jennifer Montoya     Kate Stout          Hodges
North Anderson       Jim Peters           Dabney Trammell     Judy Livingston
Bobbilynn Bowman     Mary Powell                              Hugh Riley
Kristal Davis        David Ramseur        Howell Road         Kim Singletary
Gail DeVido          Kerry Ruff           Brittney Benton     Kathy White
Yolanda Freeman      Randy Traynham       Susan Couch
Susie Jones          Kathy Weathers       Carrie McAlister    Montague
Debbie Sloan         Tim Weisner          Sanita Rampergash   Matt Babb
                     Gayle Wickware       Marsha Woods        Janie Brown
Pendleton            Frank Wingate                            Connie Cannon
Susan Arflin         Christa Wood         Mauldin             Lora Cato
Cathy Campbell                            Don Davis           Norma Chapman
Natalin Mays         Fountain Inn         Karen Halloran      Marty Cobb
Stephanie Roberts    Carter Balentine     Kasi Hudson         Lauren Cook
Courtney Smith       Drew Boland          Paula Jones         Mark Fox
Sarah Snowden        Debbie Caldwell      Nicole Ramsbey      Nancy Horton
Doris Ware           Heather Chapman      Elizabeth Schmidt   Vertoria Lagroon   33
Diane Watkins        Nyletta Cota                             Jimmy Rambo
                     Tinsley Irwin        Simpsonville        Erin Rearden
CHEROKEE COUNTY      Haley Jeffcoat       Carolyn Bluford     Tracy Reynolds
Blacksburg           Ruth Marlar          Dana Chapman        Jeanie Roberts
Linda Blackstone     Kandice Mayfield     Panessa Dean        Rhonda Saxon
Nancy Cody           Alina Perry          Rachel Demmel       Tina Stockman
Mark Hood            Billie Woods         Heather Hamme       Pam Taylor
Deana McDaniel       Annie Yeargin        Shana Lee           Lynn Young
     Ninety Six            North Harper         Hillcrest             Corporate
     Patti Baske           Jamie Blackston      Patricia Adsit        Chris Carbaugh
     Meshael Brancker      Ashley Coggins       Shirley Atkinson      Teresa Crabtree
     Tina Garron           Jeri Manley          Brenda Humphrey       Andy Douglas
     Julie McCary          Sarah Partin         Christina Jones       Ryan Goldsmith
     Debra Parnell         June Robertson       Nikki Meekins         Melody Neal
                           Stephanie Tolen      Kathleen Mekdara      Leon Patterson
     South Main            Linda Walden                               Andrea Register
     Sandra Boggs                               Inman                 Bill Stringer
     Keele Goodwin         OCONEE COUNTY        Stephanie Brannon     Matt Walter
     Allison Rash          Seneca               Melinda Carver
                           Kimberly Blackwell   Teressa Coggins       Corporate Services
     LAURENS COUNTY        Lenora Blanton       Holly Foster          Mary Edge
     Church Street         Juanita Butler       Michelle Harris       Rhoda Hughes
     Linda Andrews         Cindy Davis          Rose Horton           Linda Rice
     Kim Campbell          Nina Dean            Wendi McCarty         Amy Williams
     Misty Dawkins         Thelma Quick         Tammi Zissimos
     Diane Robertson       Sarah Shipe                                Data Processing
     Adele Spencer                              Spartan Centre        April Alexander
     Sue Tinney            PICKENS COUNTY       Phil Blanton          William Brettin
     Kristy Webb           Easley               Nancy Bragg           Philip Codington
     Sherry Wiles          Tammi Altman         Kimber Bright         Tal Crews
                           Marcella Belcher     Judy Connolly         Lyn Freeman
     Clinton               Stephanie Edwards    Lynne English         Scott Hughes
     Blake Davis           Hamp Johnson         Fatina Greene         Vickie Hughes
     Annette Elwood        Tripp Martin         Terry Hatten          Antonio Jenkins
     Stacey Evans          Jill Raby            Rob Hrubala           Jeff Lewis
     Sleater Scurry        Staci Tate           Nina Massey           Tony Maddox
     Mellisa Stevenson                          Becky McAbee          Annette Martin
     Kelly Watkins         SPARTANBURG COUNTY   Paula Nichols         Lee Reynolds
     Lisa Wilbanks         Boiling Springs      Tina Spake            Holly Tanner
                           Christy Butler       Lisa Summers          Josh Winfree
     Main                  Amy Crane            Deborah Westlake
     Betty Beasley         Kelly Hall           Rebecca Wood          Deposit Administration
     Heather Berryhill     Tanner Humphries     Michelle Woolbright   Elizabeth Cooley
     Michele Cooley        Kristen Lemaster                           Gail Dilleshaw
     Lisa Davis            Katy Pearson         CORPORATE SUPPORT     Priscilla Elmore
     Debbie Dennis         Laura Radino         Audit                 Barbara Golden
     Meagan Dotson                              Jean Deason           Lisa Hunter
     Sandra Dover          Dorman Centre        Brenda Garrett        Dale Magaha
     Tom Hardy             Dawn Deck            Nancy Osborne         Merial Roberts
     Jennifer Holmes       Brooke Phillips      Valerie Stevenson     Pam Simpson
     Von McCarson          Teresa Rodgers       Wendy Workman         Nicole Tavenner
34   Elizabeth Robertson                                              Tammy Taylor
     Liz Self              Duncan               Bank Cards            Kay Yeary
     Susan Smith           Amy Brock            Debbie Burke
     Robbie Strickland     Judy Cook            Jamie Cunningham      Finance
     Derrell Vaughn        Sandra Hollis        Carolyn Nelson        Eddie Freeman
     Candice Wilson        Kimberly Tidwell     Josetta Pitts         Lauren Greer
     Rucia Wilson          Vickie Tow           Natasha Suber         Amy Hudson
                           Judy Wyatt                                 Lisa Marinelli
Human Resources         Marketing            Ida King
Judy Campbell           Cynthia Jamison      Veronica Mackey
Ashley Clarke           Shannon McCabe       Gary Manley
Karen Davis             Ana Miles            David Martin
Willis Fortson          Traci Williams       Joyce Owen
Teresa Knight                                Linda Sharpton
Elizabeth Miller        Mortgage Loans       Tripp Tuttle
Brandi Murdock          Jason Blodgett       Renee Underwood
Cara Sutherland         Paulett Cohens       Dawn Wesson
Rick Thompson           Will Ferguson        Virginia Wood
                        Dwight Fortenberry   Bobbie Woods
Items Processing        Dale Gardner
Jean Campbell           Lisa Gentry          Accounts Payable/
Tomeka Craig            Randy Johnstone      Purchasing
Daniel Davis            Deana Leapard        Valerie Anderson
Angela Hill             Martin Postol        Susan Rice
Susanne McCarley        Barbara Smith
Marianne Moore          Sandy Vaughan        Special Assets
Margie Patterson                             Kathy Barnette
April Pigg              Mortgage Servicing   Derrick Burton
Monica Randolph         Doris Hamilton       Kenneth Chapman
Gene Smith              Megan Huck           Jeff Collier
Hayley Wood             Cindy Price          Len Hooks
Jenny Wooten            Debra Rhodes         Patricia Scruggs
                                             Robin Thomason
Credit Administration   Operations           Todd Wilkins
Nick Abrams             Nathacha Arango
Julie Alexander         Michelle Brewer      Indirect Lending
Sara Skelton-Bell       Derrick Copeland     Greg Abrams
Jinx Brewer             Corri Garrett        Dianne Power
Sheila Bryson           Willie Johnson       Scott Tollison
Allison Burns           Andy Lancaster
Leslie Burns            Earl Martin          Telephone Banking
Marlene Centonzo        Ed Simpson           Teresa Armstrong
Lauretta Cross                               Peggy Basche
Lucy Crowder            Palmetto Trust and   Ashley Crews
Marie Dickson           Investment Group     Karen Crouch
Mike Ellison            Buster Beacham       Patty Davenport
Amanda Garretson        Elizabeth Blanton    Lynn Finley
Chris Gary              Veronica Butler      Martha Gilchrest
John Hanson             Michelle Clark       Jane-Marie Hazlett
Dianne Hughes           George Clayton       Margaret Stripes
Nikki Johnson           Anne Dover           Sharon Woods
John Lindley            Patricia Edwards     Amy Wyn              35
Sheri Martin            Tom Faircloth
Jay Nichols             Melissa Gregory
Shannon Spires          Michael Hamrick
Ken Stoddard            Lynn Haughwout
                        Clara Horne
                        Eric Hudgens
                        Glenn Keadle
                        Diane King

     W. Fred Davis, Jr.                   Sam B. Phillips, Jr.              Paul W. (Bill) Stringer
     Investor & Retired Executive         Chief Executive Officer           President & Chief Operating Officer,
     Laurens                              S.B. Phillips Co., Inc.           Palmetto Bancshares, Inc.
                                          Greenville                        Chairman & Chief Executive Officer,
     David P. George, Jr.                                                   The Palmetto Bank
     General Manager                      Albert V. Smith                   Laurens
     George Motor Company                 Attorney
     Laurens                              Albert V. Smith, Professional     J. David Wasson, Jr.
                                          Associational Law Firm            President & Chief Executive Officer
     Michael D. Glenn                     Spartanburg                       Laurens Electric
     Attorney                                                               Cooperative, Inc.
     Glenn, Haigler, McClain              Ann B. Smith                      Laurens
     & Stathakis, LLP                     Director of the Clemson Fund
     Anderson                             Clemson University                Directors Emeritus
                                          Pendleton                         James A. Cannon
     John T. Gramling II                                                    John P. Faris
     President                            E. Keith Snead III                Ralph S. Hendricks
     Gramling Brothers, Inc.              Owner & President                 James M. Shoemaker
     Gramling                             Snead Builders Supply Co., Inc.
     John D. Hopkins, Jr.
     President & Owner                    Jane S. Sosebee
     The Fieldstone Group                 Director of External Affairs
     Simpsonville                         AT&T South Carolina
     L. Leon Patterson
     Chairman & Chief Executive Officer   L. Stewart Spinks
     Palmetto Bancshares, Inc.            Founder & President
     Laurens                              The Spinx Company, Inc.

COMMUNITY BANK BOARDS                                                                                                T H E PA L M E T T O B A N K L O C AT I O N S

Abbeville                  Kenneth Peake             Thessa G. Smith            senecA                               Abbeville                   gAFFney                      lAurens                   spArtAnburg
Paul L. Agnew              Deno L. White             Todd R. Whittington        Miller Grant Cunningham, Ph.D        100 West Greenwood Street   311 South Limestone Street   501 Church Street         1490 W.O. Ezell Boulevard
R. Denny Cole, Jr.                                                              Deborah B. Dubose                    Abbeville SC 29620          Gaffney SC 29340             Laurens SC 29360          Spartanburg SC 29301
Harold A. Freese           eAsley                    greer                      David D. Kroeger                     864/366-5472                864/487-8900                 864/984-8373              864/591-5220
Charles H. Goodwin         Craig A. Homan            Jean Greer                 John B. McLellan
James B. Jones, Jr.        Kevin B. Kay              Miles H. Nason             Earle W. Mimms                       Anderson                    greenville                   645 North Harper Street   1544 East Main Street
Carolyn K. Tilley          J. Marion McCollum        David B. Owens             Mario A. Suarez                      815 North Main Street       306 East North Street        Laurens SC 29360          Spartanburg SC 29307
                           Donald B. Nelson          Paula A. Rhodes                                                 Anderson SC 29621           Greenville SC 29601          864/984-8362              864/591-5210
Anderson                   Ray W. Williams           Pastor Steve D. Watson     simpsonville                         864/261-8600                864/255-7960
Carol E. Burdette          John Wrenn                William Wilson             Carl L. Bailey                                                                                101 West Main Street      101 West Saint John Street
John F. Farr, Jr.                                                               Jackie R. Bell                       2915 North Main Street      3695 East North Street       Laurens SC 29360          Spartanburg SC 29306
James L. Lovinggood        FountAin inn              inmAn                      A. Allen Finley, DVM                 Anderson SC 29621           Greenville SC 29615          864/984-8300              864/591-5200
J. Michael Magaha          Rev. Phillip M. Baldwin   John D. Edwards, Jr.       Ralph S. Hendricks                   864/231-1120                864/255-7977
Betty N. Moore             Marion Beasley            Norma C. Gaines            Richard C. Moore                                                                              mAuldin                   trAvelers rest
George L. Sands, Jr.       James A. Cannon           Robert F. Gowan, Jr.       Jack E. Powers                       blAcksburg                  722 Grove Road               401 West Butler Road      570 Roe Center Court
Robert A. Vinson           Barbara M. Davis          William D. Gwinn           Gene G. Riddle                       203 West Cherokee Street    Greenville SC 29605          Mauldin SC 29662          Travelers Rest SC 29690
David A. Walker            D. Tobe Garrett           Gennie V. Makins                                                Blacksburg SC 29702         864/370-7800                 864/240-4499              864/834-8757
                           Stewart H. Garrett        John F. Renfro, Jr.        spArtAnburg                          864/839-6331
blAcksburg                 Paul E. Gault, Sr.                                   Richard W. Carr, Jr.                                             2101 Woodruff Road           ninety six
Victor Byars               James M. Hendershot       lAurens                    Lawrence E. Flynn, Jr.               boiling springs             Greenville SC 29607          207 North
Virgil D. Hampton          William P. Phillips       Herbert C. Adams           George William Gramling              3981 Highway 9              864/240-4489                 Cambridge Street
Fay Lee King                                         William P. Baldwin         Marion R. Griffin                    Boiling Springs SC 29316                                 Ninety Six SC 29666
Harvey London              gAFFney                   Charles L. Compton         Charles B. Hanna, Sr., MD            864/599-9940                greenwood                    864/543-2117
Jerry Parker               Katie W. Baines           A. King Dixon, II          Caleb B. Jennings, III                                           701 Montague Avenue
Ann K. Tadlock             Michelle D. Bedell, DMD   Lee R. Dominick            J. Scott Keim                        clinton                     Greenwood SC 29646           pAlmetto trust &
Robert P. Wilkerson, Sr.   Michael R. Daniel         George N. Love, III        Leslie L. McMillan, Jr.              101 West Carolina Avenue    864/223-1233                 investment group
                           Jay Hammett, MD           A. Eugene Madden           L. Perrin Powell                     Clinton SC 29325                                         115 Caroline Street
boiling springs            Kenneth L. Holland        Michael S. Mahon           Ron G. Smith                         864/833-7761                906 South Main Street        Laurens SC 29360
Paula B. Brannon           Bobby T. Mardis           Edward A. McDaniel         Evelyn K. Young                                                  Greenwood SC 29646           864/984-8400
Jeffrey A. Horton          Kim F. Phillips           Thomas B. Smith                                                 duncAn                      864/223-4725
Dr. James O. Jennings      Gloria G. Rosemond        William R. Smith           trAvelers rest                       108 East Main Street                                     pendleton
James M. Stephens                                                               Danny W. Cisson                      Duncan SC 29334             greer                        7721 Clemson Boulevard
                           greenville                mAuldin                    Donald J. Lineback                   864/439-4976                805 West Wade                Pendleton SC 29670
clinton                    Mable O. Clarke           Edwin M. Armstrong         Tommie E. Reece                                                  Hampton Boulevard            864/646-2100
Gloria Diane Anderson      Deanna T. Hemberger       Penny K. Cooper            Carl E. Reid, Sr.                    eAsley                      Greer SC 29651
Jeffrey D. Duncan          Carey Dan Joyner, Jr.     G. Mitchell Gault          Roy L. Reynolds                      1524 East Main Street       864/240-4494                 senecA
Russell B. Emerson         Timothy E. Madden         Rufus C. Jones             Jim Showalter                        Easley SC 29640                                          1094 Highway
Stephen M. Lamb            Elizabeth A. Seman        Rev. Carl A. McCluney      Alan R. Smith                        864/850-0099                Hodges                       123 Bypass
Alice Marshall             Michael H. Watts          Pamela A. Porter                                                                            4513 Main Street             Seneca SC 29678
Norman M. Scarborough      Edward T. Zeigler, Jr.    Charles B. Tidmarsh, Sr.                                        FountAin inn                Hodges SC 29653              864/882-3992
Betty K. Walker                                                                                                 37   300 North Weston Street     864/223-5062                                                                        38
                           greenwood                 pendleton                                                       Fountain Inn SC 29644                                    simpsonville
duncAn                     Ben H. Davis, Ph. D       J. Lawrence Cartee                                              864/862-4411                inmAn                        106 West College Street
Ronald Allison             Samuel C. Godfrey         Sandra G. Gantt                                                                             11500 Asheville Highway      Simpsonville SC 29681
Robert S. Blount           Harold C. Lumley, Jr.     Thomas W. Lewis                                                 investment services         Inman SC 29349               864/963-3671
George O. Coan, Jr.        Scott C. Shirley          A. J. Sitton, Jr.                                               113A South Main Street      864/472-5300
James T. Corne, Jr.        Hilda L. Sims             James D. Smith, Jr.                                             Fountain Inn SC 29644
Kenneth R. Huckaby         Mary Ann Smith            O. Wray Smith, Ph. D.                                           864/862-5417
Roger J. Page                                        Christine L. Tedesco
     C O M M U N I T I E S S E R V E D A C R O S S T H E U P S TAT E

                                                        1.   Abbeville         12. Greer
                                                        2.   Anderson          13. Hodges           301 Hillcrest Dr   PO Box 49   Laurens   South Carolina 29360 |
                                                        3.   Blacksburg        14. Inman
                                                        4.   Boiling Springs   15. Laurens
39                                                      5.   Clinton           16. Mauldin
                                                        6.   Duncan            17. Ninety SIx
                                                        7.   Easley            18. Pendleton
                                                        8.   Fountain Inn      19. Seneca
                                                        9.   Gaffney           20. Simpsonville
                                                       10.   Greenville        21. Spartanburg
                                                       11.   Greenwood         22. Travelers Rest

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