Since the last report to you, as of March 31, 2008, very little of positive news has occurred in the financial sector of the U.S. economy. Indeed, for the economy as a whole we are now challenged with slower growth and rising prices both of which impact consumer spending that accounts for roughly 70 percent of economic output. Consumers are closely watching disposable income and household budgets like never before. Additionally, the much reported mortgage crisis continues to unwind with much uncertainty still as to how long this will last. And, if this was not enough to cause concern, add stock market performance of recent months and we would conclude that the economy has seen better days. Financial reporting for the second quarter and at mid-year can be characterized as not good but not as bad as was expected in many cases. In spite of these conditions, we are pleased to issue this positive report for your company. Earlier we sent to you our press release on financial performance in the second quarter and for the six months period ended June 30. With the recent failure of a large FDIC insured savings bank in California we felt it important to show the strong capital position of your company and The Palmetto Bank at mid-year and what we feel has been excellent operating results in the current banking environment. We were pleased to report an increase of 6.5% in net income for the second quarter on a record total of $4.3 million earnings. And, for the six months period we reported a record total of $8.0 million in net income as compared with $7.8 million in the first six months of 2007. Year-to-date profitability ratios at June 30, 2008 were excellent with a return on average assets of 1.24% and a return on shareholder’s equity of 14.06%, both ratios showing improvement over the year-to-date first quarter 2008 ratios. Shareholders equity at June 30 stood at $114.7 million in a well-capitalized category for federal regulatory purposes. | Current stock values reflect real or perceived asset quality and to a lesser degree expected future earnings, which of course are impacted ultimately by credit quality. Thus, with some uncertainty over asset quality some publically traded bank stocks have been trading at 20% to 60% off their twelve month highs. Palmetto Bancshares, most recently traded at $42.00 per share, we believe reflects the soundness of our balance sheet, the consistent growth in earnings over time and the excellent asset quality of our loan portfolio. Non-performing loans to total loans improved over the same period in 2007 with a decline to .56% as compared to 1.26% at June 30, 2007. The loan loss reserve is considered adequate for any future doubtful loans. Charge-offs of loans are running at a rate of ..18% year-to-date, which we judge to be excellent performance at this time. Although cautious about the balance of this year, we remain optimistic about full year operating performance. These are unusual times for the U.S. economy although fluctuating business cycles are part of longer term economic trends. That is not new. Downturns wring out the bad unfortunately at the expense often of some good. It affords an opportunity to prepare and build for the future, and for those who are judged to be strong, an opportunity to take advantage of market weaknesses to create competitive advantage. We are pleased to announce construction soon to begin for a new Greer location to replace an older facility and that progress is being made toward the opening of the new Rock Hill Office. We are delighted to have staff in place under the leadership of Senior Vice President Cindi Adams and Vice President Liz Winterburn. Our Greenwood office on Montague Avenue will soon celebrate the grand completion of its multi-year renovation. And last, the new headquarters facility in downtown Greenville continues to move along on schedule. Dry walls are in place on all four floors and what we see exceeds our expectations. This building continues to draw much attention and interest to Greenville’s Gateway location. We appreciate your continued support as a shareholder and friend of the company. We hope you will help us spread the good news across Upstate South Carolina about The Palmetto Bank.  Sincerely, Leon Patterson Chairman and Chief Executive Officer |
