PALMETTO BANCSHARES, INC.

                          1997 STOCK COMPENSATION PLAN





         1.  PURPOSE

          The Stock Compensation Plan (the "Plan") of Palmetto Bancshares,
Inc.(the "Company") is intended to allow certain key employees and directors of
the Company and its subsidiaries to have an opportunity to acquire an ownership
interest in the Company as an additional incentive to attract and retain
employees and directors and to encourage them to promote the Company's business.
This purpose will be achieved through the grant of stock options ("Options") to
purchase shares of common stock of the Company ("Common Stock").

         2.  ADMINISTRATION

          The Plan shall be administered by the Company's Board of Directors
(the "Board") or by a committee of the Board (the "Committee") composed solely
of all members thereof who are "disinterested persons" (as so defined)).

          The Board or Committee shall have complete authority to: (i) interpret
all terms and provisions of the Plan consistent with law; (ii) select from the
group of officers and key employees eligible to participate in the Plan the
officers and key employees to whom Options shall be granted; (iii) within the
limits established herein, determine the number of shares to be subject to, the
exercise price of and the term of each Option granted to each director, officer
and key employee; (iv) prescribe the form of instrument(s) evidencing Options
granted under this Plan; (v) determine the time or times at which Options shall
be granted to directors, officers or key employees; (vi) make special grants of
Options to directors, officers or key employees when determined to be
appropriate; (vii) provide, if appropriate, for the exercisability of Options
granted to directors, officers or key employees in installments or subject to
specified conditions; (viii) determine the method of exercise of Options granted
under the Plan; (ix) adopt, amend and rescind general and special rules and
regulations for the Plan's administration; and (x) make all other determinations
necessary or advisable for the administration of this Plan.

         The Board or Committee may designate selected Board or Committee
members or certain employees of the Company to assist the Board or Committee in
the administration of the Plan and may grant authority to such persons to
execute documents, including Options, on behalf of the Board or Committee.


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          No member of the Board or Committee or employee of the Company
assisting the Board or Committee pursuant to the preceding paragraph shall be
liable for any action taken or determination made in good faith.

                  3.  STOCK SUBJECT TO PLAN

          The stock to be offered under this Plan shall be authorized but
unissued shares of Common Stock, shares of Common Stock previously issued and
thereafter acquired by the Company, or any combination thereof. An aggregate of
175,000 shares are reserved for the grant under this Plan of Options. Any or all
of the options granted under Section 4 hereof to officers and key employees may,
at the Board's or Committee's discretion, be intended to qualify as incentive
stock options under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"). The numbers of shares which may be granted under this Plan and
under Section 4 hereof, respectively, may be adjusted to reflect any change in
the capitalization of the Company as contemplated by Section 9 of the Plan and
occurring after the adoption of this Plan. The Board or Committee will maintain
records showing the cumulative total of all shares subject to Options
outstanding under this Plan.

                  4.       ELIGIBILITY AND FACTORS TO BE CONSIDERED IN
                           GRANTING OPTIONS

          The grant of Options under this Plan shall be limited to directors and
to those officers and key employees of the Company or any of its Subsidiaries
who have the greatest impact on the Company's long-term performance and are
selected by the Board or Committee. Members of the Company's Board of Directors
who are also officers or employees of the Company are eligible to receive
Options under this Plan. In making any determination as to the officer(s) and
key employee(s) to whom Options shall be granted under this Plan and as to the
number of shares to be subject thereto, the Board or Committee shall take into
account, in each case, the level and responsibility of the person's position,
the level of the person's performance, the person's level of compensation, the
assessed potential of the person and such additional factors as the Board or
Committee shall deem relevant to the accomplishment of the purposes of the Plan.

          Options may be granted under this Section 4 only for a reason
connected with an officer's or key employee's employment by the Company or any
Subsidiary.

                  Notwithstanding any other provision of the Plan, the aggregate
number of shares of Common Stock that may be acquired by any individual director
who is not an employee of the Company shall not exceed 2500 shares, subject to
adjustment as provided in Section 9.

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                   a.  Allotment of Shares

                   The Board or Committee may, in its sole discretion and
         subject to the provisions of this Plan, grant to participants eligible
         under this Plan, on or after the date hereof, Options to purchase
         shares of Common Stock. Options granted under this Plan may, at the
         discretion of the Board or Committee, be: (i) Options which are
         intended to qualify as incentive stock options under Section 422 of the
         Code; (ii) Options which are not intended so to qualify under Section
         422 of the Code; or (iii) both of the foregoing, if granted separately,
         and not in tandem. Each Option granted under this Plan must be clearly
         identified as to its status as an incentive stock option or not.
         Non-employee directors shall be granted only options not intended to
         qualify under Section 422 of the Code.

                    Options granted under this Plan may be allotted to
         participants in such amounts, subject to the limitations specified in
         this Plan, as the Board or Committee, in its sole discretion, may from
         time to time determine.

                    In the case of Options intended to be incentive stock
         options, the aggregate fair market value (determined at the time of the
         Options' respective grants) of the shares with respect to which
         incentive stock options are exercisable for the first time by a
         participant hereunder during any calendar year (under all plans taken
         into account pursuant to Section 422(d) of the Code) shall not exceed
         $100,000. Options under this Plan not intended to qualify as incentive
         stock options under Section 422 of the Code may be granted to any Plan
         participant without regard to the Section 422(d) limitations.

                  b. Option Price

                   The price per share at which each Option granted under this
         Plan may be exercised shall be such price as shall be determined by the
         Board or Committee at the time of grant based on such criteria as may
         be adopted by the Board or Committee at the time of grant in good
         faith, taking into account, in each case, the market price of the
         Common Stock, the level and responsibility of the person's position,
         the level of the person's performance, the person's level of
         compensation, the assessed potential of the person, and such additional
         factor or factors as the Board or Committee shall deem relevant to the
         accomplishment of the purposes of the Plan; provided, however, that in
         no event shall the exercise price per share of an Option be less than
         100% of the fair market value of the Company's shares of Common Stock
         on the date the Option is granted. In the case of an Option intended to
         qualify as an incentive stock option under

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         Section 422 of the Code, the price per share shall not be less than
         100% (or 110% for owners of more than 10% of the total combined voting
         power of all classes of stock of the Company or any Subsidiary) of the
         fair market value of the Common Stock at the time such Option is
         granted.

                  If the Company's shares of Common Stock are:

                            (1) actively traded on any national securities
                  exchange or NASDAQ system that reports their sales prices,
                  fair market value shall be the average of the high and the low
                  sales prices per share on the date the Board or Committee
                  grants the Option;

                            (2) otherwise traded over the counter, fair market
                  value shall be the average of the final bid and asked prices
                  for the shares of Common Stock as reported for the date the
                  Board or Committee grants the Option; or

                            (3) not traded, the Board or Committee shall
                  consider any factor or factors which it believes affects fair
                  market value, and shall determine fair market value without
                  regard to any restriction other than a restriction which by
                  its terms will never lapse. The Board or Committee may cause
                  fair market value to be determined by an independent third
                  party appraiser.

                  c. Term of Option

                  The term of each Option granted under this Plan shall be
         established by the Board or Committee, but shall not exceed 10 years
         (or 5 years for owners of more than 10% of the total combined voting
         power of all classes of stock of the Company or of a Subsidiary) from
         the date of the grant.

                  d. Time of Granting Options

                  The date of grant of an Option shall, for all purposes, be the
         date on which the Board or Committee makes the determination of
         granting such Option. Notice of the determination shall be given to
         each director, officer or key employee to whom an Option is so granted
         within a reasonable time after the date of such grant.

                  e. Cancellation and Replacement of Options

                    The Board or Committee may at any time or from time to time
         permit the voluntary surrender by the holder of any outstanding Option
         granted under this Plan where such surrender is conditioned upon the
         granting under this Plan to such holder of new Option(s) for such
         number of shares as the

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         Board or Committee shall determine, or may require such a voluntary
         surrender as a condition precedent to the grant under this Plan of new
         Option(s) to such holder.

                    The Board or Committee shall determine the terms and
         conditions of any such new Option(s), including the prices at and
         periods during which they may be exercised, in accordance with the
         provisions of this Plan, all or any of which may differ from the terms
         and conditions of the Option(s) surrendered. Any such new Option(s)
         shall be subject to all the relevant provisions of this Plan.

                    The shares subject to any Option so surrendered shall no
         longer be charged against the limitation or limitations provided in
         Section 3 of this Plan and may again become shares subject to the same
         applicable limitations of this Plan.

                    The granting of new Option(s) in connection with the
         surrender of outstanding Option(s) under this Plan shall be considered
         for the purposes of the Plan as the grant of new Option(s) and not an
         alteration, amendment or modification of the Plan or of the Option(s)
         being surrendered.

         5.  NON-TRANSFERABILITY

        An Option granted to a participant under this Plan shall not be
transferable by him or her except: (i) by will; (ii) by the laws of descent and
distribution; or (iii) pursuant to a qualified domestic relations order as
defined by the Code or in Title I of the Employee Retirement Income Security
Act, or the rules thereunder. In the case of an Option intended to be an
incentive stock option, such Option shall not be transferable by a participant
other than by will or the laws of descent and distribution and during the
optionee's lifetime shall be exercisable only by him or her.

         6.  EXERCISING OF OPTIONS

          Subject to the provisions of this Plan, an Option granted under this
Plan shall be exercisable at such time or times after the date of grant thereof,
according to such schedule and upon such conditions as may be determined by the
Board or Committee at the time of grant.
          For a period of six months commencing on the date of grant of an
Option hereunder to a participant, such participant may not sell any share(s) of
Common Stock acquired upon exercise of such Option.

          Any Option granted under this Plan shall terminate prior to the
expiration of its term on the date the optionee ceases to be a director of the
Company or an employee of the Company or any Subsidiary of the Company, unless
the optionee

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shall (a) die while a director of the Company or an employee of the Company or
such Subsidiary, in which case the participant's legatee(s) under his or her
last will or the participant's personal representative or representatives may
exercise all or part of the previously unexercised portion of the Option at any
time within one year after the participant's death to the extent the optionee
could have exercised the Option immediately prior to his or her death, (b)
become permanently or totally disabled within the meaning of section 22(e)(3) of
the Code (or any successor provision), in which case the participant or his or
her personal representative may exercise the previously unexercised portion of
the Option at any time within one year after termination of his or her
employment or directorship to the extent the optionee could have exercised the
Option immediately prior to such termination, or (c) resign or retire with the
consent of the Company, in which case the participant may exercise the
previously unexercised portion of the Option at any time within three months
after the participant's resignation or retirement to the extent the optionee
could have exercised the Option immediately prior to such resignation or
retirement.

          In no event may an Option be exercised after the expiration of its
fixed term.

         7.  METHOD OF EXERCISE

          Each Option granted under the Plan shall be deemed exercised when the
holder (a) shall indicate the decision to do so in writing delivered to the
Company, (b) shall at the same time tender to the Company payment in full in
cash or in shares of Common Stock at the fair market value of such shares at the
time of exercise of the exercise price for the shares for which the Option is
exercised, (c) shall tender to the Company payment in full in cash of the amount
of all federal and state withholding or other employment taxes applicable to the
taxable income, if any, of the holder resulting from such exercise, and (d)
shall comply with such other reasonable requirements as the Board or Committee
may establish.

          No person, estate or other entity shall have any of the rights of a
shareholder with reference to shares subject to an Option until a certificate
for the shares has been delivered.

          An Option granted under this Plan may be exercised for any lesser
number of shares than the full amount for which it could be exercised. Such a
partial exercise of an Option shall not affect the right to exercise the Option
from time to time in accordance with this Plan for the remaining shares subject
to the Option.

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         8.  TERMINATION OF OPTIONS

          An Option granted under this Plan shall be considered terminated in
whole or part, to the extent that, in accordance with the provisions of this
Plan and such Option, it can no longer be exercised for any shares originally
subject to the Option. The shares subject to any Option or portion thereof,
which terminates, shall no longer be charged against the applicable limitation
or limitations provided in Section 3 of this Plan and may again become shares
available for the purposes, and subject to the same applicable limitations, of
this Plan.

         9.  ADJUSTMENTS UPON CHANGES IN CAPITALIZATION

          In the event of any change in the outstanding Common Stock of the
Company by reason of a stock dividend, stock split, stock consolidation,
recapitalization, reorganization, merger, split up or the like, the shares
available for purposes of this Plan, the shares to be covered by subsequent
grants under Section 3 hereof and the number and kind of shares under option in
outstanding option agreements pursuant to this Plan and the option price under
such agreements shall be appropriately adjusted so as to preserve, but not
increase, the benefits of this Plan to the Company and the benefits to the
holders of such Options; provided in the case of incentive stock options that,
in the case of a corporate merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation, the excess of the aggregate
fair market value of the shares subject to any Option immediately after such
event over the aggregate option price of such shares is not more than the excess
of the aggregate fair market value of all shares subject to the Option
immediately before such event over the aggregate option price of such shares.

         In the event of a consolidation or a merger in which the Company is not
the surviving corporation, or any other merger in which the shareholders of the
Company exchange their shares of stock in the Company for stock of another
corporation, or in the event of complete liquidation of the Company, or in the
case of a tender offer approved by the Board of Directors, all outstanding
options shall become exercisable in full immediately prior to the effective date
of any such transaction, regardless of the exercise schedule.

          Adjustments under this Section shall be made by the Board or
Committee, whose determination as to what adjustments shall be made and the
extent thereof, shall be final, binding and conclusive.

         10.  COMPLIANCE WITH SECURITIES LAWS AND OTHER REQUIREMENTS

          No certificate(s) for shares shall be executed and

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delivered upon exercise of an Option until the Company shall have taken such
action, if any, as is then required to comply with the provisions of the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the South Carolina Uniform Securities Act, as amended, any other
applicable state securities law(s) and the requirements of any exchange on which
the Common Stock may, at the time, be listed.

          In the case of the exercise of an Option by a person or estate
acquiring the right to exercise the Option by bequest or inheritance, the Board
or Committee may require reasonable evidence as to the ownership of the Option
and may require such consents and releases of taxing authorities as it may deem
advisable.

         11.  NO RIGHT TO EMPLOYMENT

          Neither the adoption of the Plan nor its operation, nor any document
describing or referring to the Plan, or any part thereof, shall confer upon any
employee participant under the Plan any right to continue in the employ of the
Company, or upon any director participant under the Plan any right to continue
as a director of the Company, or shall in any way affect the right and power of
the Company to terminate the employment or position with the Company of any
participant under this Plan at any time with or without assigning a reason
therefor, to the same extent as the Company might have done if this Plan had not
been adopted.

         12.  AMENDMENT AND TERMINATION

          The Board or Committee may at any time suspend, amend or terminate
this Plan. The Board or Committee may make such modifications of the terms and
conditions of a holder's Option as it shall deem advisable. No Option may be
granted during any suspension of the Plan or after such termination.
Notwithstanding the foregoing provisions of this Section, no amendment,
suspension or termination shall, without the consent of the holder of an Option,
alter or impair any rights or obligations under any Option theretofore granted
under the Plan.

                  In addition to Board or Committee approval of an amendment, if
the amendment would: (i) materially increase the benefits accruing to
participants; (ii) increase the number of securities issuable under this Plan;
(iii) change the class or classes of individuals eligible to receive Options; or
(iv) otherwise materially modify the requirements for eligibility, then such
amendment must be approved by the holders of a majority of the Company's
outstanding capital stock present or represented by proxy and entitled to vote
at a meeting duly held of the stockholders of the Company.



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         13.  USE OF PROCEEDS

          The proceeds received by the Company from the sale of shares pursuant
to Options granted under the Plan shall be used for general corporate purposes
as determined by the Board.

         14.  INDEMNIFICATION OF BOARD OR COMMITTEE

          In addition to such other rights of indemnification as they may have
as members of the Board, the members of the Board or Committee shall, to the
fullest extent permitted by law, be indemnified by the Company against the
reasonable expenses, including attorney's fees, actually and necessarily
incurred in connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection with the
Plan or any Option granted thereunder, and against all amounts paid by them in
settlement thereof (provided the settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, except in relation to matters as to
which it shall be adjudged in such action, suit or proceeding that such Board
member or Committee member is liable for gross negligence or misconduct in the
performance of his duties; provided that within 60 days after institution of any
such action, suit or proceeding the Board member or Committee member shall in
writing offer the Company the opportunity, at its own expense, to handle and
defend the same.

         15.  EFFECTIVE DATE OF THE PLAN

          This Plan was adopted by the Board of the Company on December 9, 1997
and shall be effective as of December 9, 1997, subject to its approval by the
appropriate shareholder vote at the next ensuing annual meeting of shareholders
of the Company.

         16.  DURATION OF THE PLAN

          Unless previously terminated by the Board or Committee, this Plan
shall terminate at the close of business on December 8, 2007, and no Option
shall be granted under it thereafter, but such termination shall not affect any
Option theretofore granted under this Plan.



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                           __________________ ___,199_




Dear        :

          In accordance with the 1997 Stock Compensation Plan (the "Plan") of
Palmetto Bancshares, Inc. (the "Company"), you, a director, officer or a key
employee of the Company or its subsidiaries, and in order to give you an added
proprietary interest in the Company and an additional incentive to advance the
interest of the Company, were granted on __________________, 199_, an option to
purchase _____ shares of the common stock of the Company upon the following
terms and conditions:

         (1)      The exercise price shall be $_________ (_________ % of the
                  fair market value of a share on the date of grant , 199 );

         (2)      This Option will become exercisable according to the following
                  schedule:

         (3)      Once exercisable, this Option may be exercised until
                  ____________________, ____, subject to the terms and
                  conditions of the Plan, a copy of which is attached hereto and
                  incorporated herein by reference. This Option is granted
                  subject to the Plan and shall be construed in accordance with
                  the Plan.

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Page Two
__________________ ___,199_


         (4)      This Option is [is not] intended to be treated as an
                  "incentive stock option" for purposes of Section 422 of the
                  Internal Revenue Code.

         This Option is not transferable except pursuant to the terms and
         conditions of the Plan.

                                            Very truly yours, PALMETTO
                                            BANCSHARES, INC.



                                            By:_________________________________

                                            Title:______________________________



I hereby accept the within Stock Option and acknowledge receipt of a copy of the
Plan.



-------------------------------------
Optionee

-------------------------------------
Date:


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