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