U. S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

 (X)   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE
       ACT OF 1934 (FEE REQUIRED)

         For the fiscal year ended December 31, 1997

(  )   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

         For the transition period from __________ to __________

Commission file number  0-26016

                            PALMETTO BANCSHARES, INC.
                            -------------------------
             (Exact name of registrant as specified in its charter)

South Carolina                              74-2235055
--------------                              ----------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
  incorporation or organization)

301 Hillcrest Drive, Laurens, South Carolina         29360
--------------------------------------------         -----
(Address of principal executive offices)             (Zip Code)

Registrant's telephone number - (864) 984 - 4551

Securities registered pursuant to Section 12(b) of the Act:   None

Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $5.00 per share
                     ---------------------------------------
                                (Title of class)

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

       Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X

       State the aggregate market value of the voting stock held by
non-affiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of March 4, 1998. $65,555,896, based on the most
recent sales price of $28.00 per share. There is no established public trading
market for the shares. See Part II, Item 5.

       Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
3,089,852 as of March 9, 1998.
------------------------------

                       DOCUMENTS INCORPORATED BY REFERENCE

       The Company's Annual Report 1997, mailed to shareholders on March 20,
1998: Incorporated by reference in Part II of this Form 10-K.
<PAGE>

       The Company's Supplemental Annual Report 1997, mailed to shareholders on
March 20, 1998: Incorporated by reference in Parts I and II of this Form 10-K.

       The Company's Proxy Statement dated March 20, 1998 with respect to an
Annual Meeting of Shareholders to be held April 21, 1998: Incorporated by
reference in Part III of this Form 10-K.


<PAGE>


                            PALMETTO BANCSHARES, INC.
                                AND SUBSIDIARIES

              FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

                                TABLE OF CONTENTS


<TABLE>
<CAPTION>


                                     PART I

<S>  <C>
Item 1.       Business
Item 2.       Properties
Item 3.       Legal Proceedings


                                    PART II

Item 5.       Market for the Registrant's Common Stock and Related Shareholder Matters
Item 6.       Selected Financial Data
Item 7.       Management's Discussion and Analysis of Financial Condition and Results
              of Operations
Item 8.       Financial Statements and Supplementary Data


                                    PART III

Item 10.      Directors and Executive Officers of the Registrant
Item 11.      Executive Compensation
Item 12.      Security Ownership of Certain Beneficial Owners and Management
Item 13.      Certain Relationships and Related Transactions


                                    PART IV

Item 14.      Exhibits and Financial Statement Schedules and Reports on Form 8-K

</TABLE>


<PAGE>



                                                                            1
                                     Part I


Item 1.  Business

Palmetto Bancshares, Inc. ("Bancshares" or the "Company") is a bank holding
company organized in 1982 under the laws of South Carolina. Through its
wholly-owned subsidiary, The Palmetto Bank (the "Bank"), and the Bank's
wholly-owned subsidiary, Palmetto Capital, Inc. ("Palmetto Capital"), Bancshares
engages in the general banking business in the upstate South Carolina market of
Laurens, Greenville, Spartanburg, Greenwood, Anderson, and Cherokee counties.
The Bank is a state, non-member bank which was organized and chartered under
South Carolina law in 1906. There are 26 full service branch offices in addition
to the headquarters located in Laurens, South Carolina.

The Bank performs a full range of banking activities, including such services as
checking, savings, money market, and other time deposits of various types of
consumer and commercial depositors; loans for business, real estate, and
personal uses; safe deposit box rental and various electronic funds transfer
services. The Bank also offers both individual and commercial trust services
through an active trust department. Palmetto Capital is a brokerage subsidiary
of the Bank, which offers customers stocks, treasury and municipal bonds, mutual
funds and insurance annuities, as well as college and retirement planning. The
Bank's Dealer Finance Department establishes relationships with Upstate
automobile dealers to provide customer financing of automobile purchases. In the
later part of 1995, the Bank started a mortgage banking operation to continue to
meet a broader range of its customers' financial service needs. This mortgage
banking operation was in full operation by March 1996: originating, selling, and
servicing mortgage loans. Due to a reorganization in the Bank's mortgage
servicing department in 1997, the Bank is currently not actively purchasing and
originating loans to be sold. The Bank plans to re-engage in the activities in
the future, but not to the same extent or volume as before. The Bank continues
to service its portfolio of loans sold.

At December 31, 1997, Bancshares had total assets of $513.2 million, loans
outstanding of $368.0 million and deposits of $449.4 million. This compares with
total assets of $468.4 million, loans outstanding of $333.0 million and deposits
of $412.4 million, at December 31, 1996; and with total assets of $376.2
million, loans outstanding of $255.2 million and deposits of $329.7 million, at
December 31, 1995.

Competition
The upstate South Carolina market is a highly competitive banking market in
which all of the largest financial institutions in the state are represented.
The competition among the various financial institutions is based upon interest
rates offered on deposit accounts, interest rates charged on loans, credit and
service charges, the quality of service rendered and the convenience of banking
facilities. The Bank believes it has competed effectively in its market.

Interstate Banking
In 1986, South Carolina adopted legislation which permits banks and bank holding
companies in certain southern states to acquire banks in South Carolina to the
extent that such other states have reciprocal legislation applicable to South
Carolina banks and bank holding companies. The legislation resulted in a number
of the Bank's competitor banks being purchased by large, out-of-state bank
holding companies. Size gives the larger banks certain advantages in competing
for business from larger corporations. These advantages include higher lending
limits and the ability to offer services in other areas of South Carolina and
the region. As a result, the Bank does not generally attempt to compete for the
banking relationships of larger corporations, but concentrates its efforts on
small and medium-size businesses and individuals. The Bank believes it has
competed effectively in this market segment by offering quality, personalized
service. It is management's intention to remain a locally-based, independent,
South Carolina Bank.

Customers
The majority of the Bank's customers are individuals and small to medium-sized
businesses headquartered within its service area. The Bank is not dependent upon
a single or a very few customers, the loss of which would have a material
adverse effect on the Bank. No customer accounts for more than 5% of the Bank's
total deposits at any time. Management does not believe that the Bank's loan
portfolio is dependent on a single customer or group of customers concentrated
in a particular industry whose loss or insolvency would have a material adverse
effect on the Bank.

                                       1
<PAGE>


Growth
On November 20, 1997, the Bank announced it was assuming the deposits of
Greenwood Bank & Trust's Ninety-Six office. This assumption of about $4 million
increases the Bank's presence in this market. Also, in December, the Bank
announced it will be opening two new branches in Greenville County in the spring
of 1998. These branches are located in Mauldin and on Woodruff Road in
Greenville. These openings bring the Bank's total number of branches to 26.

On April 15, 1996, the Bank acquired three existing branches of First Union
National Bank of South Carolina. These branches are located in Gaffney and
Blacksburg in Cherokee County and Ninety-Six in Greenwood County. The bank
assumed deposits of approximately $54 million, but assumed no loans. The Bank is
leasing the Gaffney branch building.

Management continually reviews opportunities to expand in the upstate South
Carolina market that it believes to be in the best interest of the Bank and its
customers.

Systems
In November 1996, the Bank began operating its Telephone Banking Center (the
"TBC"), an in-house sales and service center. The TBC provides the Bank's
customers with more options to do their banking business and offers extended
service hours. The telephone bankers are qualified to answer account inquiries,
process transactions, and provide updated rate and service information.

In September 1995, the Bank successfully completed a conversion of their data
processing software. This software enables the Bank to deliver more
sophisticated user friendly financial services to its customers. The Bank
incurred conversion costs of approximately $1 million.

Employees
At December 31, 1997, the Bank had 281 full-time equivalent employees, none of
whom are subject to a collective bargaining agreement. Management believes its
relationship with its employees is excellent.

Monetary Policy
The results of operations of Bancshares and the Bank are affected by credit
policies of monetary authorities, particularly the Federal Reserve. The
instruments of monetary policy employed by the Federal Reserve include open
market operations in U.S. Government securities, changes in the discount rate on
member bank borrowings, changes in reserve requirements against member bank
deposits and limitations on interest rates which member banks may pay on time
and savings deposits. In view of changing conditions in the national economy and
in the money markets, as well as the effect of action by monetary and fiscal
authorities, including the Federal Reserve, no prediction can be made as to
possible future changes in interest rates, deposit levels, loan demand or the
business and earnings of Bancshares and the Bank.


Regulatory Environment


General

Bancshares and its subsidiaries are extensively regulated under federal and
state law. To the extent that the following information describes statutory or
regulatory provisions, it is qualified in its entirety by reference to the
particular statutory and regulatory provisions. Any change in applicable laws
may have a material effect on the business and prospects of Bancshares. The
operations of Bancshares may be affected by possible legislative and regulatory
changes and by the monetary policies of the United States.

Bancshares. As a bank holding company registered under the Bank Holding Company
Act of 1956, as amended (the "BHCA"), Bancshares is subject to regulation and
supervision by the Federal Reserve. Under the BHCA, Bancshares's activities and
those of its subsidiaries are limited to banking, managing or controlling banks,
furnishing services to or performing services for its subsidiaries or engaging
in any other activity that the Federal Reserve determines to be so closely
related to banking, managing or controlling banks as to be a proper incident
thereto. The BHCA also restricts the ability of Bancshares to acquire ownership
or control of more than 5% of the outstanding voting stock of banks or certain
other nonbanking businesses.

                                       2
<PAGE>

There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by law and regulatory
policy that are designed to minimize potential loss exposure to the depositors
of such depository institutions and to the Federal Deposit Insurance Corporation
("FDIC") insurance funds in the event the depository institution becomes in
danger of defaulting or in default under its obligations to repay deposits. For
example, under current federal law, to reduce the likelihood of receivership of
an insured depository institution subsidiary, a bank holding company is required
to guarantee the compliance of any insured depository institution subsidiary
that may become "undercapitalized": with the terms of any capital restoration
plan filed by such subsidiary with its appropriate federal banking agency up to
the lesser of (i) an amount equal to 5% of the institution's total assets at the
time the institution became undercapitalized, or (ii) the amount that is
necessary (or would have been necessary) to bring the institution into
compliance with all applicable capital standards as of the time the institution
fails to comply with such capital restoration plan. Under a policy of the
Federal Reserve with respect to bank holding company operations, a bank holding
company is required to serve as a source of financial strength to its subsidiary
depository institutions and to commit resources to support such institutions in
circumstances where it might not do so absent such policy. The Federal Reserve
also has the authority under the BHCA to require a bank holding company to
terminate any activity or relinquish control of a nonbank subsidiary (other than
a nonbank subsidiary of a bank) upon the Federal Reserve's determination that
such activity or control constitutes a serious risk to the financial soundness
or stability of any subsidiary depository institution of the bank holding
company. Further, federal law grants federal bank regulatory authorities
additional discretion to require a bank holding company to divest itself of any
bank or nonbank subsidiary if the agency determines that divestiture may aid the
depository institution's financial condition.

Bancshares is subject to the obligations and restrictions described above.
However, management currently does not expect that any of those provisions will
have any material impact on its operations.

As a bank holding company registered under the South Carolina Bank Holding
Company Act, Bancshares also is subject to regulation by the State Board.
Bancshares must file with the State Board periodic reports with respect to its
financial condition and operations, management and intercompany relationships
between Bancshares and its subsidiaries.

The Bank. The Bank is a FDIC-insured, South Carolina-chartered banking
corporation and is subject to various statutory requirements and rules and
regulations promulgated and enforced primarily by the State Board and the FDIC.
These statutes, rules and regulations relate to insurance of deposits, required
reserves, allowable investments, loans, mergers, consolidations, issuance of
securities, payment of dividends, establishment of branches and other aspects of
the business of the Bank. The FDIC has broad authority to prohibit the Bank from
engaging in what it determines to be unsafe or unsound banking practices. In
addition, federal law imposes a number of restrictions on state-chartered,
FDIC-insured banks and their subsidiaries. These restrictions range from
prohibitions against engaging as a principal in certain activities to the
requirement of prior notification of branch closings. The Bank also is subject
to various other state and federal laws and regulations, including state usury
laws, laws relating to fiduciaries, consumer credit and equal credit and fair
credit reporting laws. The Bank is not a member of the Federal Reserve System.

Dividends. The holders of Bancshares common stock are entitled to receive
dividends when and if declared by the Board of Directors out of funds legally
available therefor. Bancshares is a legal entity separate and distinct from the
Bank and Palmetto Capital, Inc. and depends for its revenues on the payment of
dividends from the Bank. Current federal law would prohibit, except under
certain circumstances and with prior regulatory approval, an insured depository
institution, such as the Bank, from paying dividends or making any other capital
distribution if, after making the payment or distribution, the institution would
be considered "undercapitalized," as that term is defined in applicable
regulations. In addition, as a South Carolina-chartered bank, the Bank is
subject to legal limitations on the amount of dividends it is permitted to pay.
In particular, the Bank must receive the approval of the South Carolina
Commissioner of Banking prior to paying dividends to Bancshares.


Capital Adequacy

Bancshares. The Federal Reserve has adopted risk-based capital guidelines for
bank holding companies. Under these guidelines, the minimum ratio of total
capital to risk-weighted assets (including certain off-balance sheet activities,
such as standby letters of credit) is 8%. At least half of the total capital is
required to be "Tier 1 capital," principally consisting of common shareholders'
equity, noncumulative preferred stock, a limited amount of cumulative perpetual
preferred stock and minority interest in the equity accounts of consolidated
subsidiaries, less certain goodwill items.

                                       3
<PAGE>

The remainder (Tier 2 capital) may consist of a limited amount of subordinated
debt and intermediate-term preferred stock, certain hybrid capital instruments
and other debt securities, perpetual preferred stock and a limited amount of the
general loan loss allowance. In addition to the risk-based capital guidelines,
the Federal Reserve has adopted a minimum Tier 1 (leverage) capital ratio under
which a bank holding company must maintain a minimum level of Tier 1 capital (as
determined under applicable rules) to average total consolidated assets of at
least 3% in the case of bank holding companies which have the highest regulatory
examination ratios and are not contemplating significant growth or expansion.
All other bank holding companies are required to maintain a ratio of at least
100 to 200 basis points above the stated minimum. At December 31, 1997,
Bancshares was in compliance with both the risk-based capital guidelines and the
minimum leverage capital ratio.

The Bank. As a state-chartered, FDIC-insured institution which is not a member
of the Federal Reserve System, the Bank is subject to capital requirements
imposed by the FDIC. The FDIC requires state-chartered nonmember banks to comply
with risk-based capital standards substantially similar to those required by the
Federal Reserve, as described above. The FDIC also requires state-chartered
nonmember banks to maintain a minimum leverage ratio similar to that adopted by
the Federal Reserve. Under the FDIC's leverage capital requirement, state
nonmember banks that (a) receive the highest rating during the examination
process and (b) are not anticipating or experiencing any significant growth are
required to maintain a minimum leverage ratio of 3% of Tier 1 capital to total
assets; all other banks are required to maintain a minimum leverage ratio of not
less than 4%. As of December 31, 1997, the Bank was in compliance with both the
risk-based capital guidelines and the minimum leverage capital ratio. For
further discussion on the Bank's current capital rating, see pages 11 through 12
of the Company's Supplemental Annual Report 1997, which is incorporated herein
by reference.


Insurance

As an FDIC-insured institution, the Bank is subject to insurance assessments
imposed by the FDIC. Under current law, the insurance assessment to be paid by
insured institutions shall be as specified in a schedule required to be issued
by the FDIC that specifies, at semiannual intervals, target reserve ratios
designed to increase the FDIC insurance fund's reserve ratio to 1.25% of
estimated insured deposits (or such higher ratio as the FDIC may determine in
accordance with the statute) in 15 years. Further, the FDIC is authorized to
impose one or more special assessments in any amount deemed necessary to enable
repayment of amounts borrowed by the FDIC from the United States Department of
the Treasury (the "Treasury Department").

Effective January 1, 1993, the FDIC implemented a risk-based assessment
schedule, having assessments ranging from 0.23% to 0.31% of an institution's
average assessment base. The actual assessment to be paid by each FDIC-insured
institution is based on the institution's assessment risk classification, which
is determined based on whether the institution is considered "well capitalized,"
"adequately capitalized" or "undercapitalized," as such terms have been defined
in applicable federal regulations adopted to implement the prompt corrective
action provisions of Federal Deposit Insurance Corporation Insurance Act
("FDICIA") (see "Other Safety and Soundness Regulations -- Prompt Corrective
Action" below), and whether such institution is considered by its supervisory
agency to be financially sound or to have supervisory concerns. In August 1995,
the FDIC approved a reduction in the insurance assessments for Bank Insurance
Fund ("BIF") deposits. This reduction decreased the Bank's insurance assessment
for BIF deposits from 0.26% to 0.04% of the average assessment base. During
1996, the insurance assessment for the Bank's BIF deposits was set at zero
(although banks pay a $2,000 annual fee) due to the fact that it was "well
capitalized." Because the Bank is now "adequately capitalized," it pays
insurance premiums ranging from 0.00% to 0.27% of the average assessment base.

Under the Deposit Insurance Fund Act, BIF-assessable deposits are subject to
assessment for payment on the $780 million annual Financing Corporation ("FICO")
bond obligation at 1/5 the rate of Savings Association Insurance Fund-assessable
deposits. Accordingly, the FDIC has estimated that the annual FICO rate will be
1.30 basis points per $100 of BIF-assessable deposits in the years 1997 -- 1999.
Starting in the year 2000 until the FICO bonds are retired, banks and thrifts
will pay the assessment on a pro rata basis (estimated at 2.5 basis points for
banks).





                                       4
<PAGE>


Other Safety and Soundness Regulations

Prompt Corrective Action. Current law provides the federal banking agencies with
broad powers to take prompt corrective action to resolve problems of insured
depository institutions. The extent of these powers depends upon whether the
institutions in question are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Under uniform regulations defining such capital levels issued
by each of the federal banking agencies, a bank is considered "well capitalized"
if it has (i) a total risk-based capital ratio of 10% or greater, (ii) a Tier 1
risk-based capital ratio of 6% or greater, (iii) a leverage ratio of 5% or
greater, and (iv) is not subject to any order or written directive to meet and
maintain a specific capital level for any capital measure. An "adequately
capitalized" bank is defined as one that has (i) a total risk-based capital
ratio of 8% or greater, (ii) a Tier 1 risk-based capital ratio of 4% or greater,
and (iii) a leverage ratio of 4% or greater (or 3% or greater in the case of a
bank with a composite CAMEL rating of 1). A bank is considered (A)
"undercapitalized" if it has (i) a total risk-based capital ratio of less than
8%, (ii) a Tier 1 risk-based capital ratio of less than 4% or (iii) a leverage
ratio of less than 4% (or 3% in the case of a bank with a composite CAMEL rating
of 1); (B) "significantly undercapitalized" if the bank has (i) a total
risk-based capital ratio of less than 6%, or (ii) a Tier 1 risk-based capital
ratio of less than 3%, or (iii) a leverage ratio of less than 3%; and (C)
"critically undercapitalized" if the bank has a ratio of tangible equity to
total assets equal to or less than 2%. Bancshares and the Bank each currently
meet the definition of adequately capitalized.

Brokered Deposits. Current federal law also regulates the acceptance of brokered
deposits by insured depository institutions to permit only a "well capitalized"
depository institution to accept brokered deposits without prior regulatory
approval. Under FDIC regulations, "well capitalized" insured depository
institutions may accept brokered deposits without restriction, "adequately
capitalized" insured depository institutions may accept brokered deposits with a
waiver from the FDIC (subject to certain restrictions on payments of interest
rates), while "undercapitalized" insured depository institutions may not accept
brokered deposits. The regulations provide that the definitions of "well
capitalized," "adequately capitalized" and "undercapitalized" are the same as
the definitions adopted by the agencies to implement the prompt corrective
action provisions of FDICIA (as described in the previous paragraph). Bancshares
does not believe that these regulations will have a material adverse effect on
its current operations.

Other FDICIA Regulations. To facilitate the early identification of problems,
FDICIA required the federal banking agencies to prescribe more stringent
reporting requirements. The FDIC final regulations implementing those
provisions, among other things, require that management report on the
institution's responsibility for preparing financial statements and establishing
and maintaining an internal control structure and procedures for financial
reporting and compliance with designated laws and regulations concerning safety
and soundness, and that independent auditors attest to and report separately on
assertions in management's reports concerning compliance with such laws and
regulations, using FDIC approved audit procedures. These regulations apply to
financial institutions with greater than $500 million in assets at the beginning
of their fiscal year.


Community Reinvestment Act

The Bank is subject to the requirements of the Community Reinvestment Act
("CRA"). The CRA requires that financial institutions have an affirmative and
ongoing obligation to meet the credit needs of their local communities,
including low-income and moderate-income neighborhoods, consistent with the safe
and sound operation of those institutions. Each financial institution's efforts
in meeting community credit needs are evaluated as part of the examination
process pursuant to twelve assessment factors. These factors are also considered
in evaluating mergers, acquisitions and applications to open a branch or
facility. The Bank received an "outstanding" rating in its most recent
evaluation dated April 15, 1996.


Transactions Between Bancshares, Its Subsidiaries and Affiliates

Bancshares' subsidiaries are subject to certain restrictions on extensions of
credit to executive officers, directors, principal shareholders or any related
interest of such persons. Extensions of credit (i) must be made on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with unaffiliated persons; and (ii) must
not involve more than the normal risk of repayment or present other unfavorable
features. Aggregate limitations on extensions of credit also may apply.
Bancshares' subsidiaries also are subject to certain lending limits and
restrictions on overdrafts to such persons.



                                       5
<PAGE>

Subsidiary banks of a bank holding company are subject to certain restrictions
imposed by the Federal Reserve Act on extensions of credit to the bank holding
company or its nonbank subsidiary, on investments in their securities and on the
use of their securities as collateral for loans to any borrower. Such
restrictions may limit Bancshares' ability to obtain funds from its bank
subsidiary for its cash needs, including funds for acquisitions, interest and
operating expenses.

In addition, under the BHCA and certain regulations of the Federal Reserve, a
bank holding company and its subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with any extension of credit, lease or
sale of property or furnishing of services. For example, a subsidiary may not
generally require a customer to obtain other services from any other subsidiary
or Bancshares, and may not require the customer to promise not to obtain other
services from a competitor, as a condition to an extension of credit to the
customer.


Item 2.  Properties

The corporate headquarters, the telephone banking center, and the finance,
operations, data processing, trust, human resources, loan administration,
internal audit and marketing departments are located in a facility at 301
Hillcrest Drive, Laurens, South Carolina ("Corporate Center"). The main office
of the Bank is located in a facility at 101 West Main Street, Laurens, South
Carolina which also contains a three lane drive-in facility.

The Bank has twenty-six full-service branches in the Upstate region of South
Carolina in the following locations: Laurens (3), Duncan, Clinton, Greenwood
(2), Ninety-Six, Fountain Inn, Hodges, Mauldin, Simpsonville, Anderson (2),
Greenville (5), Pendleton, Spartanburg (3), Inman, Blacksburg and Gaffney.

The Bank has automatic teller machines at the following branches: Church Street
(Laurens), Clinton, Montague Avenue (Greenwood), Ninety-Six, Fountain Inn,
Mauldin, Simpsonville, Woodruff Road (Greenville), Haywood Road (Greenville),
East North Street at Howell Road (Greenville), Grove Road (Greenville),
Blackstock Road (Spartanburg), Fernwood (Spartanburg), Duncan, Inman,
Blacksburg, Gaffney, Pendleton, Anderson and North Anderson branches. The Bank
also has ATM's at two non-branch locations: the Flour Daniel office complex
(Greenville) and the Cato Corners Shopping Center (Laurens). In addition, the
Bank owns five limited service branches in various retirement centers located in
the Upstate region of South Carolina.

The Bank owns all of its facilities except the following leased facilities,
which have annual rental expenses from $1,400 to $99,100:

East North Street, Haywood Road, East North Street at Howell Road, Woodruff Road
offices - Greenville

Spartan Centre, Blackstock Road, Fernwood offices - Spartanburg

Gaffney office - Gaffney

South Main Street and Ninety-Six offices - Greenwood

North Main office - North Anderson

Offices range in size from branch locations of approximately 800 to 10,000
square feet, to the Corporate Center location of approximately 55,000 square
feet. The Corporate Center underwent renovations in 1996 totalling approximately
$700,000. Because of the renovations, this location houses the corporate
offices, finance department, and telephone banking center. All facilities are
protected by alarm and security systems which meet or exceed regulatory
standards. Each facility is in good condition and capable of handling increased
volume. All of the locations are considered suitable and adequate for their
intended purposes.


Item 3.  Legal Proceedings

Bancshares is not currently engaged in legal proceedings. From time to time the
Bank is involved in legal proceedings incidental to its normal course of
business as a bank. Management believes none of these proceedings is likely to
have a materially adverse effect on the business of Bancshares or the Bank.




                                       6
<PAGE>

                                     Part II


Item 5.  Market for Registrant's Common Stock and Related Shareholder Matters

There is no public market for the common stock of Bancshares or the Bank. The
last known selling price of Bancshares' common stock, based on information
available to Bancshares' management, was $28.00 per share on March 4, 1998.

Bancshares, or its predecessor, the Bank, has paid regular dividends on common
stock since 1909. For the years ended December 31, 1997, 1996, and 1995,
Bancshares paid total cash dividends per share of $0.38, $0.28, and $0.22,
respectively. Certain other information concerning dividends and historical
trading prices is set forth on page 49 of the Company's Supplemental Annual
Report 1997, which is incorporated herein by reference.

The ability of Bancshares to pay dividends depends upon the amount of dividends
that is received from the Bank. The only restrictions on the amount of dividends
available for payment to Bancshares are guidelines established by the state
regulatory authorities for primary capital to asset ratios. The South Carolina
Board of Financial Institutions guideline suggests a ratio of at least seven
percent (7%). As of December 31, 1997, the Bank's primary capital to asset ratio
was 7.88%.

As of December 31, 1997, approximately $4,576,000 was available for payment of
dividends by the Bank. Prior approval of the Office of the Commissioner of
Banking, State Board of Financial Institutions is required for any payment of
dividends by a state bank. As of December 31, 1997, there were 571 shareholders
of record.


Item 6.  Selected Financial Data

The information required by this item is set forth on page 5 of the Company's
Annual Report 1997, which is incorporated herein by reference.


Item 7.  Management's Discussion and Analysis of Financial Condition and Results
of Operations.

Certain information required by this item is set forth on pages 3 through 13 of
the Company's Supplemental Annual Report 1997, which is incorporated herein by
reference.




                                       7
<PAGE>



<PAGE>


                                     Table 1
                     Distribution of Assets and Liabilities
                             (DOLLARS IN THOUSANDS)




<TABLE>
<CAPTION>
                                                                               Years Ended December 31,
                                                         1997           1997           1996             1996            1995
                                                        Average         % of          Average            % of         Average
ASSETS                                                  Balance         Total         Balance           Total         Balance
                                                        -------         -----         -------           -----         -------
<S>                                                     <C>              <C>           <C>               <C>           <C>
Cash and due from banks                                 $20,098          4.07%         $23,743           5.51%         21,724
Federal funds sold                                        5,465          1.11%           1,758           0.41%          3,684
Federal Home Loan Bank stock                                779          0.16%               0           0.00%              0
Taxable investment securities                            60,915         12.34%          56,145          13.04%         47,618
Non-taxable investment securities                        36,221          7.34%          30,510           7.08%         25,777
Loans, net of unearned discount                         350,493         70.99%         301,839          70.08%        230,908
  Less: allowance for loan losses                        (4,876)        -0.99%          (4,088)         -0.95%         (3,247)
                                                  ----------------------------------------------------------------------------------
    Net loans                                           345,617         70.00%         297,751          69.13%        227,661

Premises and equipment, net                              12,679          2.57%          11,670           2.71%         10,275
Accrued Interest                                          3,563          0.72%           3,260           0.76%          2,495
Other assets                                              8,400          1.70%           5,881           1.37%          3,140
                                                  ----------------------------------------------------------------------------------
    Total assets                                       $493,737        100.00%        $430,718         100.00%        342,374
                                                  ==================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits:
  Non-interest-bearing deposits                          66,333         13.43%          58,440          13.57%         44,299
  Interest-bearing demand                               128,098         25.94%         115,674          26.86%        100,236
  Savings                                                27,639          5.60%          26,331           6.11%         21,518
  Time                                                  209,961         42.52%         172,799          40.12%        128,555
                                                  ----------------------------------------------------------------------------------
    Total deposits                                      432,031         87.50%         373,244          86.66%        294,608

Federal funds purchased and securities sold under
  agreements to repurchase                               15,279          3.09%          17,668           4.10%         12,020
Commercial paper                                          9,382          1.90%           8,075           1.87%          8,017
Note payable to a bank                                        0          0.00%               0           0.00%            107
Other liabilities                                         3,187          0.65%           2,600           0.60%          1,480
                                                  ----------------------------------------------------------------------------------
   Total liabilities                                    459,879         93.14%         401,587          93.24%        316,232

Shareholders equity:
  Common stock - $5.00 par value                         15,288          3.10%          15,165           3.52%         15,163
  Additional paid-in capital                                325          0.07%             334           0.08%            333
  Retained earnings                                      18,101          3.67%          13,671           3.17%         10,615
  Less treasury stock                                       (37)        -0.01%            (312)         -0.07%           (239)
  Unrealized gain (loss) on investment securities           181          0.04%             273           0.06%            270
                                                  ----------------------------------------------------------------------------------
    Total shareholders' equity                           33,858          6.86%          29,131           6.76%         26,142
                                                  ----------------------------------------------------------------------------------
    Total liabilities and shareholders' equity         $493,737        100.00%        $430,718         100.00%        342,374
                                                  ==================================================================================
</TABLE>


<TABLE>
<CAPTION>
                                                          Years Ended December 31,
                                                     1995          1994           1994
                                                     % of          Average        % of
ASSETS                                               Total         Balance        Total
                                                     -----         -------        -----
<S>                                                   <C>           <C>            <C>
Cash and due from banks                               6.35%         16,629         5.45%
Federal funds sold                                    1.08%          5,016         1.65%
Federal Home Loan Bank stock                          0.00%              0         0.00%
Taxable investment securities                        13.91%         44,500        14.60%
Non-taxable investment securities                     7.53%         22,864         7.50%
Loans, net of unearned discount                      67.44%        204,959        67.23%
  Less: allowance for loan losses                    -0.95%         (2,766)       -0.91%
                                                  --------------------------------------
    Net loans                                        66.49%        202,193        66.32%

Premises and equipment, net                           3.00%          9,011         2.96%
Accrued Interest                                      0.73%          2,247         0.74%
Other assets                                          0.92%          2,423         0.79%
                                                  --------------------------------------
    Total assets                                    100.00%        304,883       100.00%
                                                  ======================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits:
  Non-interest-bearing deposits                      12.94%         42,080        13.80%
  Interest-bearing demand                            29.28%        100,708        33.03%
  Savings                                             6.28%         23,305         7.64%
  Time                                               37.55%         98,692        32.37%
                                                  --------------------------------------
    Total deposits                                   86.05%        264,785        86.85%

Federal funds purchased and securities sold under
  agreements to repurchase                            3.51%          8,964         2.94%
Commercial paper                                      2.34%          6,312         2.07%
Note payable to a bank                                0.03%            630         0.21%
Other liabilities                                     0.43%          1,324         0.43%
                                                  --------------------------------------
   Total liabilities                                 92.36%        282,015        92.50%

Shareholders equity:
  Common stock - $5.00 par value                      4.43%         15,003         4.92%
  Additional paid-in capital                          0.10%            423         0.14%
  Retained earnings                                   3.10%          7,724         2.53%
  Less treasury stock                                -0.07%           (282)       -0.09%
  Unrealized gain (loss) on investment securities     0.08%              0         0.00%
                                                  --------------------------------------
    Total shareholders' equity                        7.64%         22,868         7.50%
                                                  --------------------------------------
    Total liabilities and shareholders' equity      100.00%        304,883       100.00%
                                                  ======================================
</TABLE>


                                       8
<PAGE>


INVESTMENT PORTFOLIO

The following table shows, as of December 31, 1997, 1996 and 1995, the book
value and market values of investments in obligations of (i) the U.S. Government
and its agencies, (ii) states, counties, and municipalities, and (iii)
mortgage-backed securities.
                                     TABLE 2
                              Investment Portfolio
                             (Dollars in Thousands)

INVESTMENTS HELD TO MATURITY
<TABLE>
<CAPTION>

                                      1997                      1996                        1995
                                    Carrying       Market     Carrying       Market       Carrying     Market
                                      Value         Value       Value         Value         Value       Value

<S>     <C>
U.S. Treasury and U.S.
     Government agencies          $   16,984        17,036       16,006       15,891       15,033       15,176
State and municipals                  36,861        38,428       25,450       26,491       22,593       23,183
Mortgage-backed securities            26,161        26,114       24,751       24,388        6,163        6,190
                                      ------        ------       ------       ------        -----        -----

         Total                    $   80,006        81,578       66,207       66,770       43,789       44,549
                                  ==========        ======       ======       ======       ======       ======

INVESTMENTS AVAILABLE FOR SALE

                                      1997                      1996                        1995
                                    Amortized      Market     Amortized      Market       Amortized    Market
                                      Cost          Value       Cost          Value         Cost        Value
U.S. Treasury and U.S.
     Government agencies          $   12,492        12,681        8,993        9,035       29,996       30,686
State and municipals                   4,918         5,044        6,977        7,205        8,584        8,929
                                       -----         -----        -----        -----        -----        -----

         Total                    $   17,410        17,725       15,970       16,240       38,580       39,615
                                  ==========        ======       ======       ======       ======       ======

</TABLE>

The following table indicates the maturities and respective yields by investment
category as of December 31, 1997. Yields on tax exempt securities are stated on
a tax equivalent basis using a federal tax rate of 34%. <TABLE> <CAPTION>
                                                                  TABLE 3

                                                  Investment Portfolio Maturity Schedule
                                                    (Par Value -- Dollars in Thousands)
                                                             December 31, 1997

INVESTMENTS HELD TO MATURITY

                                                    Due After               Due After
                                Due                 One Year               Five Years
                              Within                 Through                 Through             Due After
                             One Year     Yield    Five Years     Yield     Ten Years   Yield    Ten Years   Yield
<S>     <C>
U.S. Treasury and
     U.S. Government
     agencies              $   1,000      5.78%       12,000      6.24%       4,000      7.30%         -        -
State and municipals              -          -         5,530      8.33       16,085      7.70      15,180     7.41
Mortgage-backed securities       405       6.45        9,318      6.38       10,616      6.51       5,695     6.20
                                 ---       ----        -----      ----       ------      ----       -----     ----

         Total             $   1,405      5.97%       26,848     6.72 %      30,701     7.23 %     20,875     7.08%
                           =========      ====        ======     ====        ======     ====       ======     ====
</TABLE>


                                       9
<PAGE>


<PAGE>


INVESTMENTS AVAILABLE FOR SALE

<TABLE>
<CAPTION>
                                                    Due After               Due After
                                Due                 One Year               Five Years
                              Within                 Through                 Through             Due After
                             One Year     Yield    Five Years     Yield     Ten Years   Yield    Ten Years   Yield
                             --------     -----    ----------     -----     ---------   -----    ---------   -----

<S>     <C>
U.S. Treasury and U.S.
     Government agencies        $ --      --         12,500       6.29%        -          -        -           -
State and municipals             1,480   10.02%       3,410       8.84         -          -        -           -
                                 -----   -----        -----       ----        ------     -------  --------   -----


         Total                  $1,480   10.02 %     15,910       6.84%        -          -        -           --
                                ======   =====       ======       ====        ======     =======  ========   ======
</TABLE>


LOAN PORTFOLIO

Management of the Company believes that the loan portfolio is adequately
diversified. The table below summarizes loans by classification for the five
year period ended December 31, 1997.

<TABLE>
<CAPTION>
                                     TABLE 4
                           Loan Portfolio Composition
                             (Dollars in Thousands)

                                                                          December 31,
                                                                          ------------
                                                    1997        1996          1995          1994        1993
                                                    ----        ----          ----          ----        ----
<S>     <C>
Commercial, financial and
     agricultural                              $    81,678       68,616       45,377       32,672       31,107
Real estate-construction                             8,799        9,598        5,453        1,941        1,156
Real-estate-mortgage                               195,462      181,775      149,017      134,789      121,884
Installment loans to individuals                    82,024       72,997       55,340       46,006       37,344
                                                    ------       ------       ------       ------       ------

         Total                                 $   367,963      332,986      255,187      215,408      191,491
                                               ===========      =======      =======      =======      =======
</TABLE>

Commercial loans are spread through numerous types of businesses with no
particular industry concentrations. Loans to individuals are made primarily to
finance consumer goods purchased. At December 31, 1997, total loans, net of
unearned discounts, were 79% of total earning assets. Loans secured by real
estate accounted for 56% of total loans as of December 31, 1997. Most of the
loans classified as real estate-mortgage are commercial loans where real estate
provides additional collateral.

The table below shows the amounts of loans at December 31, 1997, except for real
estate mortgage and installment loans to individuals, due to mature and
available for repricing within the time period stated.

<TABLE>
<CAPTION>
                                     TABLE 5
                       Maturities and Sensitivity of Loans
                          to Changes in Interest Rates
                             (Dollars in Thousands)

                                                                  After 1 Year
                                                       1 Year        Through      After 5
                                                       or Less     Five Years      Years       Total
<S>     <C>

Commercial, financial and agricultural             $    33,086       39,786        8,806       81,678
Real estate-construction                                 4,692        3,268          839        8,799
                                                         -----        -----          ---        -----

     Total                                         $    37,778       43,054        9,645       90,477
                                                   ===========       ======        =====       ======

</TABLE>

                                       10

<PAGE>


The amounts of the preceding loans with a maturity over one year which have a
predetermined interest rate or a floating or adjustable interest rate are as
follows:

<TABLE>
<CAPTION>


                                                                                         December 31, 1997
                                                                                         -----------------

<S>                                                                                        <C>
Predetermined interest rate                                                                $   52,699
Floating or adjustable interest rate                                                               -
                                                                                               ------
         Total                                                                             $   52,699
                                                                                           ==========
</TABLE>


Thirty-one percent of total loans are repricable within one year.

Non-accrual loans are those loans which management, through its continuing
evaluation of loans, has determined offer a more than normal risk of
collectability of future interest. Interest income on non-accrual loans is
recognized only as received. Interest on past due loans continues to accrue
until such time that the loans are either charged-off or placed in non-accrual
status. The non-accrual loan policy provides that it is the responsibility of
the chief credit officer to administer the placing of loans on non-accrual
status. Loans which become ninety days past due will be placed on non-accrual.
Loans on which bankruptcy notices are received will also be placed on
non-accrual. In addition, other loans on which repayment appears doubtful may be
placed on non-accrual at the discretion of the chief credit officer.

The following table sets forth, for each loan category, the amounts of total
loans 90 days or more past due and on non-accrual, the amounts of total loans 90
days or more past due and accruing, total loans outstanding, the percentage of
each type of loan 90 days or more past due and the amount of foregone interest
income for each of the five years for December 31, 1993 through December 31,
1997.

In addition to the non-performing loans disclosed below, the Company had
approximately $193,000 in impaired loans at December 31, 1995. During 1995, the
average recorded investment in impaired loans was approximately $211,000.
Included in the allowance for loan losses at December 31, 1995 is approximately
$97,000 related to these impaired loans.

During 1996, the Company charged-off some of the loans previously considered
impaired and was able to reclassify others due to improved credit conditions; so
that at December 31, 1996 there were no impaired loans. During 1996, the average
recorded investment in impaired loans was approximately $76,000, and there is no
allowance for loan losses related to impaired loans at December 31, 1996.

At December 31, 1997, impaired loans amounted to approximately $70,000. During
1997, the average recorded investment in impaired loans was approximately
$44,000, and there is $70,000 included in the allowance for loan losses related
to impaired loans at December 31, 1997.

                                       11
<PAGE>
<TABLE>
<CAPTION>


                                     TABLE 6
                               Nonperforming Loans
                             (Dollars in Thousands)


                                                                     90 Days                                   Foregone
                                                                     or More                                   Interest
                                                                    Past Due                  Percentage        Income
                                                                   and not on      Total        90 Days          From
                                                          Non-        Non-         Loans        or More          Non-
                                                         Accrual     Accrual    Outstanding    Past Due         Accrual
                                                         -------     -------    -----------    --------         -------

December 31, 1997:
<S>                                                  <C>                           <C>            <C>               <C>
    Commercial, financial and agricultural           $       63         -          81,678         0.08%             2
    Real estate - construction                               -          -           8,799         0.00             -
    Real estate - mortgage                                  256         -         195,462         0.13             26
    Installment loans to individuals                        777        144         82,024         1.12             38
                                                            ---        ---         ------         ----             --

        Total                                       $     1,096        144        367,963         0.34%            66
                                                    ===========        ===        =======         ====             ==

December 31, 1996:
    Commercial, financial and agricultural           $      140         -          68,617         0.20%             4
    Real estate - construction                               -          -           9,598         0.00             -
    Real estate - mortgage                                  428         -         181,775         0.24             25
    Installment loans to individuals                        545         -          72,996         0.75             23
                                                            ---                    ------         ----             --

        Total                                       $     1,113         -         332,986         0.33%            52
                                                    ===========                   =======         ====             ==

December 31, 1995:
    Commercial, financial and agricultural                  146         -          45,377         0.32             20
    Real estate - construction                               -          -           5,453         0.00             -
    Real estate - mortgage                                  241         -         149,017         0.16             11
    Installment loans to individuals                        409          3         55,340         0.74             35
                                                            ---          -         ------         ----             --

        Total                                       $       796          3        255,187         0.31%            66
                                                    ===========          =        =======         ====             ==

December 31, 1994:
    Commercial, financial and agricultural                  295         -          32,672         0.90             14
    Real estate - construction                               -          -           1,941         0.00             -
    Real estate - mortgage                                   -          -         134,789         0.00              9
    Installment loans to individuals                        341         18         46,006         0.78             27
                                                            ---         --         ------         ----             --

        Total                                       $       636         18        215,408         0.30%            50
                                                    ===========         ==        =======         ====             ==

December 31, 1993:
    Commercial, financial and agricultural                   44         -          31,107         0.14              3
    Real estate - construction                               -          -           1,156         0.00             -
    Real estate - mortgage                                  204         -         121,884         0.17             16
    Installment loans to individuals                        306         -          37,344         0.82             24
                                                            ---                    ------         ----             --

        Total                                       $       554         -         191,491         0.29%            43
                                                    ===========         ==        =======         ====             ==


</TABLE>




                                       12

<PAGE>


                                     TABLE 7
                  Summary of Loan Loss and Recovery Experience
                             (Dollars in Thousands)

The allowance for loan losses is based on an in-depth analysis of the loan
portfolio. Specifically, included in that analysis are the following types of
loans: loans determined to be of a material amount, loans commented on by
regulatory authorities, loans which are past due more than 60 days and loans
which are in a non-accrual status. In addition, based on past experience, an
unallocated portion of the reserve is established which does not relate to any
specific loan or category of loans. Based on the above analysis, management
makes a provision for possible loan losses which will bring the allowance for
loan losses to an adequate level.

The following table summarizes the activity in the allowance for loan losses for
the years indicated:
<TABLE>
<CAPTION>

                                                          1997          1996          1995          1994          1993

<S>                                                 <C>                 <C>           <C>           <C>         <C>
Average loans, net of unearned discount             $    350,493        301,839       230,908       204,959     180,880
                                                    ============        =======       =======       =======     =======

Allowance for loan losses:
    Beginning balance                               $      4,729          3,700         3,016         2,394       2,064
    Add provision for loan losses                          1,331          1,450         1,140           819       1,172

Loan charge-offs:
    Commercial, financial and agricultural                   158            131           262           100         521
    Real estate - construction                                -              -             -             -           -
    Real estate - mortgage                                    -              92            14            -           -
    Installment loans to individuals                         891            487           337           357         469
                                                             ---            ---           ---           ---         ---
Total loan charge-offs                                     1,049            710           613           457         990

Recoveries of loans previously charged-off:
    Commercial, financial and agricultural                    56             42            60           123          42
    Real estate - construction                                -              -             -             -           -
    Real estate - mortgage                                    -              65            33            -           -
    Installment loans to individuals                          85            182            64           137         106
                                                              --            ---            --           ---         ---
Total recoveries of loans previously charged off             141            289           157           260         148
                                                             ---            ---           ---           ---         ---

        Net charge-offs                                      908            421           456           197         842
                                                             ---            ---           ---           ---         ---

Ending balance                                      $      5,152          4,729         3,700         3,016       2,394
                                                    ============          =====         =====         =====       =====

Net charge-offs to average loans, net                       0.26%          0.14%        0.20%          0.10%       0.47%
Allowance for loan losses to average
    loans, net                                              1.47           1.57         1.60           1.47        1.32
Allowance for loan losses to total loans at
    period-end                                              1.40           1.42         1.45           1.40        1.25
</TABLE>

Losses and recoveries are charged or credited to the allowance at the time
realized.


                                       13
<PAGE>


The following table summarizes the allocation of the allowance for loan losses
at December 31:
<TABLE>
<CAPTION>

                            1997                1996                1995                1994                1993
                                % of                 % of                 % of                % of                % of
                        Total   Total     Total      Total     Total      Total     Total     Total     Total     Total
                        -----   -----     -----      -----     -----      -----     -----     -----     -----     -----
<S>     <C>
Balance applicable to:
    Commercial,
       financial and
       agricultural$  1,144     22.20%       974     20.61%       658     17.78%     457      15.15%     190     7.94%
    Real estate -
       construction     123      2.39        136      2.88         79      2.14       27       0.90       -      -
    Real estate -
       mortgage       2,737     53.12      2,582     54.59      2,161     58.40    1,887      62.60      882    36.84
    Installment loans
       to individuals 1,148     22.29      1,037     21.92        802     21.68      644      21.35    1,322    55.22
                      -----     -----      -----     -----        ---     -----      ---      -----    -----    -----

          Total    $  5,152    100.00%     4,729    100.00%     3,700    100.00%   3,016     100.00%   2,394   100.00
                   ========    ======      =====    ======      =====    ======    =====     ======    =====   ======

</TABLE>

DEPOSITS

The following table presents average balances and average rates paid by category
of deposit for the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>

                                     TABLE 8
                                    Deposits
                             (Dollars in Thousands)

                                     1997                              1996                            1995
                                     ----                              ----                            ----
                                              Average                           Average                        Average
                        Average    Interest    Rate     Average     Interest     Rate      Average  Interest    Rate
                        Balance     Expense    Paid     Balance      Expense     Paid      Balance   Expense    Paid
                        -------     -------    ----     -------      -------     ----      -------   -------    ----
Non-interest bearing
<S>                    <C>       <C>           <C>           <C>     <C>         <C>      <C>         <C>      <C>             
    demand             $ 66,333       --         --    $ 58,440       --           --     $ 44,299      --       --
Interest-bearing
    demand              128,098      2,730      2.13%   115,674      2,693        2.33%    100,236     2,480    2.47%
Savings                  27,639        676      2.45     26,331        652        2.48      21,518       600    2.79
Time                    209,961     11,410      5.43    172,799      9,379        5.43     128,555     6,907    5.37
                        -------     ------      ----    -------      -----        ----     -------     -----    ----

    Total deposits     $432,031     14,816      3.43%$373,244     12,724          3.41%   $294,608     9,987    3.39%
                       ========     ======      ==== ========     ======          ====    ========     =====    ====
</TABLE>


The following table sets forth, by time remaining to maturity, domestic
certificates of deposit over $100,000 as of December 31, 1997, 1996 and 1995.

<TABLE>
<CAPTION>

                                                  1997               1996             1995
                                                  ----               ----             ----
Maturities:
<S>                                   <C>                       <C>               <C>   
     3 months or less                    $        23,062           18,082            17,598
     3 through 6 months                           12,206            8,569            11,722
     6 through 12 months                          11,004           11,286             6,512
     Over 12 months                                3,680            4,163             3,798
          --                                       -----            -----             -----

                                         $        49,952           42,100            39,630
                                                 ========          ======            ======

</TABLE>

The company has no foreign deposits.

                                       14

<PAGE>


RETURN ON EQUITY AND ASSETS


The table below illustrates the return on average assets (net income divided by
average total assets), return on average equity (net income divided by average
equity), dividend payout ratio (dividends declared divided by net income), and
average equity to average assets ratio (average equity divided by average total
assets) for the years indicated:

                                     TABLE 9
                           Return on Equity and Assets
                  (Dollars in thousands, except per share data)


<TABLE>
<CAPTION>
                                                                           Years Ended December 31,
                                                                     1997           1996               1995

<S>                                                          <C>              <C>               <C>
Net income                                                   $      5,925     $      4,753      $      3,602

Average shareholders' equity (1)                             $     33,858     $     29,131      $     26,142

Average total assets                                         $    493,737     $    430,718      $    342,374

Dividends declared                                           $      1,165     $        842      $        652

Dividends per share (2)                                      $       0.38     $       0.28      $       0.22

Net income per share, basic (2) (3)                          $       1.97     $       1.54      $       1.20

Return on average assets                                             1.20%            1.10  %           1.05%

Return on average equity                                            17.50%           16.32  %          13.78%

Dividend payout ratio                                               19.66%           17.72  %          18.10%

Average equity to average asset ratio                                6.86%            6.76  %           7.64%

</TABLE>


(1)    Excluding an accounting reclassification for shares held as ESOP stock of
       $3,784, $3,314 and $2,771 at December 31, 1997, 1996 and 1995,
       respectively.

(2)    These numbers have been restated to reflect the three-for-one stock split
       in 1996.

(3)    Based on weighted average shares outstanding not subject to put call of
       2,772,298; 2,732,305 and 3,010,320 for 1997, 1996 and 1995, respectively.


SHORT - TERM BORROWINGS

The information required by this item is set forth on pages 32 and 33 of the
Company's Supplemental Annual Report 1997, which is incorporated herein by
reference.


RATE / VOLUME ANALYSIS

The following table includes, for the years ended December 31, 1997, 1996 and
1995 interest income on earning assets and related average yields, as well as
interest expense on liabilities and related average rates paid. Also shown are
the dollar amounts of change due to rate and volume variances. The effect of the
combination of rate and volume change has been divided equally between the rate
change and volume change.



                                       15
<PAGE>

                                    TABLE 11
                              Rate Volume Analysis

<TABLE>
<CAPTION>
                                                                                                  1997
                                               ------------------------------------------------------------------------------------
                                                        Average             Income/                          Volume          Rate
Assets                                                 Balances             Expense              Yield       Change         Change
                                                       --------             -------              -----       ------         ------
<S>                                                         <C>                 <C>               <C>          <C>         <C>

Cash and due from banks                                   $20,098
Federal funds sold                                          5,465               291               5.32%        197               1
Federal Home Loan Bank stock                                  779                56               7.19%         28              28
Taxable investment securities                              60,915             3,894               6.39%        293             283
Non-taxable investment securities                          36,221             2,637               7.28%        450            (396)
Loans, net of unearned discount                           350,493            30,868               8.81%      4,307            (291)
     Less: allowance for loan losses                       (4,876)
                                               -------------------
         Net loans
                                                          345,617

Premises an equipment, net                                 12,679
Accrued Interest                                            3,563
Other assets                                                8,400
                                               -------------------

     Total assets                                        $493,737
                                               ===================
Liabilities and Shareholders' Equity

Liabilities:
  Deposits:
    Non-interest bearing demand                            66,333
    Interest-bearing demand                               128,098             2,730               2.13%        277            (240)
    Savings                                                27,639               676               2.45%         32              (9)
    Time                                                  209,961            11,410               5.43%      2,018              13
                                               -------------------
     Total deposits                                       432,031            14,816               3.43%      2,010              82

  Federal funds purchased and
    securities sold under
    agreements to repurchase                               15,279               644               4.21%       (103)            (25)
  Commercial paper                                          9,382               381               4.06%         52              16
  Note payable to a bank                                        0
  Other liabilities                                         3,187
                                               -------------------
     Total liabilities                                    459,879

Shareholders' equity:
  Common stock - $5.00 par value                           15,288
Additional Paid-in Capital                                    325
Retained earnings                                          18,101
Less treasury stock                                           (37)
Unrealized gain (loss) on
investment securities                                         181
                                               -------------------
     Total shareholders' equity                            33,858
                                               -------------------
     Total liabilities and
        shareholders' equity                             $493,737
                                               ===================

Average yield on all interest - earning assets                                                    8.32%
Average effective rate paid on all interest-bearing liabilities                                   4.06%
Net yield on interest-earning assets                                                              4.83%
</TABLE>

Yields on nontaxable securities are stated on a fully taxable equivalent basis,
assuming a federal tax rate of 34% for the three years reported on. The
adjustments made to convert to a fully taxable equivalent basis were $669, $655
and $691 for 1997, 1996 and 1995, respectively.


The effect of foregone interest income as a result of loans on non-accrual was
not considered in the above analysis.

                                       16


<PAGE>

TABLE 11
(CONTINUED)

<TABLE>
<CAPTION>
                      1996                                                                             1995
--------------------------------------------------------------       --------------------------------------------------------------
  Average     Income/                    Volume          Rate           Average     Income/                        Volume     Rate
 Balances    Expense        Yield        Change         Change          Balances    Expense         Yield          Change    Change
 --------    -------        -----        ------         ------          --------    -------         -----          ------    ------
<S>               <C>       <C>          <C>             <C>              <C>         <C>             <C>            <C>       <C>
  $23,743                                                               $21,724
    1,758         93        5.29%        (150)           (137)            3,684       380             10.31%         (95)      278
        0          0        0.00%           0               0                 0         0              0.00%           0         0
   56,145      3,318        5.91%         532            (338)           47,618     3,124              6.56%          38       744
   30,510      2,583        8.47%         387             164            25,777     2,032              7.88%         264      (299)
  301,839     26,852        8.90%       6,445          (1,016)          230,908    21,423              9.28%       2,508     1,526
   (4,088)                                                               (3,247)
----------                                                           -----------

  297,751                                                               227,661

   11,670                                                                10,275
    3,260                                                                 2,495
    5,881                                                                 3,140
----------                                                           -----------

 $430,718                                                              $342,374
==========                                                           ===========





   58,440                                                                44,299
  115,674      2,693        2.33%         371            (157)          100,236     2,479              2.47%
   26,331        653        2.48%         127             (74)           21,518       600              2.79%
  172,799      9,379        5.43%       2,389              83           128,555     6,907              5.37%
----------                                                           -----------

  373,244     12,724        3.41%       2,673              65           294,608     9,986              3.39%         953     2,283



   17,668        772        4.37%         241              30            12,020       501              4.17%          31       226
    8,075        313        3.88%           2             (30)            8,017       341              4.25%          55       114
                                                                            107        13             12.15%         (50)       22
    2,600                                                                 1,480
----------                                                           -----------

  401,687                                                               316,232


   15,165                                                                15,163
      334                                                                   333
   13,671                                                                10,615
     (312)                                                                 (239)

      273                                                                   270
----------                                                           -----------

   29,131                                                                26,142
----------                                                           -----------

 $430,718                                                               342,374
==========                                                           ===========

                            8.42%                                                                      8.75%
                            4.05%                                                                      4.01%
                            4.88%                                                                      5.23%
</TABLE>

                                       17

<PAGE>
<TABLE>
<CAPTION>


                                    TABLE 12
                                                            Interest Rate Sensitivity
                                                             (Dollars in Thousands)
                                                              At December 31, 1997


                                                   2 Days
                                                    to 3          3-6         6-12          1-5       Over
                                        1 Day      Months       Months       Months        Years     5 Years     Total
                                        -----      ------       ------       ------        -----     -------     -----
<S>                                      <C>       <C>           <C>         <C>        <C>         <C>        <C>
Assets:
Federal funds sold                  $       388        -             -           -           -          -          388
Federal Home Loan Bank stock                 -         -             -           -           -       1,452       1,452
Investment securities                        -      4,923         1,950          -       43,212     47,646      97,731
Total loans                              45,666    28,716        21,410      19,877     199,958     52,336     367,963
                                         ------    ------        ------      ------     -------     ------     -------

     Total interest-earning assets  $    46,054    33,639        23,360      19,877     243,170    101,434     467,534
                                    ===========    ======        ======      ======     =======    =======     =======

Liabilities and Shareholders Equity

Interest checking                        84,741        -             -           -           -          -       84,741
Retail repurchase agreements             12,224        -             -           -           -          -       12,224
Insured money markets                    55,033        -             -           -           -          -       55,033
Savings deposits                         26,639        -             -           -           -          -       26,639
Time deposits over $100,000                  -     23,062        12,206      11,004       3,680         -       49,952
Other time deposits                          -     58,657        51,474      37,416      14,871         12     162,430
Commercial paper                          11,28        -             -           -           -           -      11,289
Federal funds purchased                   1,500        -             -           -           -          -        1,500

     Total interest-bearing
         liabilities                $   191,426    81,719        63,680      48,420      18,551         12     403,808

Interest rate sensitivity gap       $  (145,372)  (48,080)      (40,320)    (28,543)    224,619    101,422      63,726

Cumulative interest rate
     sensitivity gap                $  (145,372) (193,452)     (233,772)   (262,315)     37,696     63,726          -

Cumulative interest rate
     sensitivity gap
     as a % of total
     interest-earning assets             (31.09)% (41.38)%       (50.00)%    (56.11)%      8.06%     13.63%         -%
</TABLE>



Notes to Interest Rate Sensitivity table:

o        Interest-earning assets are included in the period in which the
         balances are expected to be repaid and/or repriced as a result of
         scheduled rate adjustments and contractual maturities.
o        Loans receivable includes non-performing loans and unamortized deferred
         loan costs, and is reduced by unamortized discounts.
o        Interest-bearing liabilities are included in the period in which the
         balances are expected to be withdrawn as a result of contractural
         maturities. For accounts with no stated maturities, the balances are
         included in the one day category.
o        The interest rate sensitivity gap represents the difference between
         total interest-earning assets and total interest-bearing liabilities.


                                       18
<PAGE>


An important aspect of achieving satisfactory net interest income is the
composition and maturities of rate sensitive assets and liabilities. The
preceding table generally reflects that in periods of rising interest rates,
rate sensitive liabilities will reprice faster than rate sensitive assets, thus
having a negative effect on net interest income. It must be understood, however,
that such an analysis is only a snapshot picture and does not reflect the
dynamics of the market place. Therefore, management reviews simulated earnings
statements on a monthly basis to more accurately anticipate its sensitivity to
changes in interest rates. For further discussion, please see "Net Interest
Income" and "Asset and Liability Management" section of Management's Discussion
and Analysis in the Company's Supplemental Annual Report 1997 (pages 4 through
8), which is incorporated herein by reference.


NON - INTEREST INCOME

The information required by this item is set forth on pages 8-9 and 16 of the
Company's Supplemental Annual Report 1997, incorporated herein by reference.


NON - INTEREST EXPENSES

The information required by this item is set forth on pages 9 and 16 of the
Company's Supplemental Annual Report 1997, which is incorporated herein by
reference.


Item 8.  Financial Statements and Supplementary Data

The information required by this item is set forth in the Company's Supplemental
Annual Report 1997, which is incorporated herein by reference.


                                    Part III


Item 10.  Directors and Executive Officers of the Registrant

The information required by this item is set forth under the headings "Election
of Directors" and "Executive Officers" on pages 2 through 5 in the definitive
Proxy Statement of the Company filed in connection with its 1998 Annual Meeting
of the Shareholders, which is incorporated herein by reference.


Item 11.  Executive Compensation

The information required by this item is set forth under the headings
"Compensation of Directors and Executive Officers," "Aggregated Option Exercises
in Last Fiscal Year and Year-end Option Values" and "Security Ownership of
Certain Beneficial Owners and Management" on pages 5 through 14 in the
definitive Proxy Statement of the Company filed in connection with its 1998
Annual Meeting of Shareholders, which is incorporated herein by reference.


Item 12.  Security Ownership of Certain Beneficial Owners and Management

The information required by this item is set forth under the heading "Security
Ownership of Certain Beneficial Owners and Management" on pages 12 through 14 in
the definitive Proxy Statement of the Company filed in connection with its 1998
Annual Meeting of Shareholders, which is incorporated herein by reference.


<PAGE>

Item 13.  Certain Relationships and Related Transactions

The information required by this item is set forth under the heading "Certain
Relationships and Related Transactions" on page 14 in the definitive Proxy
Statement of the Company filed in connection with its 1998 Annual Meeting of
Shareholders, which is incorporated herein by reference.


                                     Part IV


Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)       (1) The following are filed as a part of this report on Form 10-K:
          Incorporated by reference to the Company's Supplemental Annual Report
          1997, which is incorporated herein by reference.

          Report of Independent Certified Public Accountant: Incorporated by
          reference to the Company's Supplemental Annual Report 1997, which is
          incorporated herein by reference.

          Consolidated Balance Sheets as of December 31, 1997 and 1996:
          Incorporated by reference to the Company's Supplemental Annual Report
          1997, which is incorporated herein by reference.

          Consolidated Statements of Operations for the Years Ended December 31,
          1997, 1996 and 1995: Incorporated by reference to the Company's
          Supplemental Annual Report 1997, which is incorporated herein by
          reference.

          Consolidated Statements of Changes in Shareholder's Equity for the
          Years Ended December 31, 1997, 1996 and 1995: Incorporated by
          reference to the Company's Supplemental Annual Report 1997, which is
          incorporated herein by reference.

          Consolidated Statements of Cash Flows for the Years Ended December 31,
          1997, 1996 and 1995: Incorporated by reference to the Company's
          Supplemental Annual Report 1997, which is incorporated herein by
          reference.

          Notes to Consolidated Financial Statements: Incorporated by reference
          to the Company's Supplemental Annual Report 1997, which is
          incorporated herein by reference.

      (2) Additional financial statement schedules furnished pursuant to the
          requirements of Form 10-K

          All other schedules have been omitted as the required information is
          either inapplicable or included in the Notes to the Consolidated
          Financial Statements.

      (3) Exhibits:

          Exhibit No.                 Description
          -----------                 -----------

          3.1.1          Articles of Incorporation filed on May 13, 1982 in the
                         office of the Secretary of State of South Carolina:
                         Incorporated by reference to Exhibit 3 to the Company's
                         Registration Statement on Form S-4, Commission File No.
                         33-19367, filed with the Securities and Exchange
                         Commission on December 30, 1987

          3.1.2          Articles of Amendment filed on May 5, 1988 in the
                         office of the Secretary of State of South Carolina:
                         Incorporated by reference to Exhibit 4.1.2 to the
                         Company's Registration Statement on Form S-8,
                         Commission File No. 33-51212 filed with the Securities
                         and Exchange Commission on August 20, 1992

          3.1.3          Articles of Amendment filed on January 26, 1989 in the
                         office of the Secretary of State of South Carolina:
                         Incorporated by reference to Exhibit 4.1.3 to the
                         Company's

                                       20
<PAGE>



                         Registration Statement on Form S-8, Commission File No.
                         33-51212 filed with the Securities and Exchange
                         Commission on August 20, 1992

          3.1.4          Articles of Amendment filed on April 23, 1990 in the
                         office of the Secretary of State of South Carolina:
                         Incorporated by reference to Exhibit 4.1.4 to the
                         Company's Registration Statement on Form S-8,
                         Commission File No. 33-51212 filed with the Securities
                         and Exchange Commission on August 20, 1992

          3.1.5          Articles of Amendment filed on October 16, 1996 in the
                         office of the Secretary of State of South Carolina:
                         Incorporated by reference to Exhibit 3.1.5 to the
                         Company's Quarterly Report on Form 10-Q for the fiscal
                         quarter ended September 30, 1996.

          3.2.1          By-Laws adopted April 10, 1990.

          3.2.2          Amendment to By-Laws dated April 12, 1994.

          4.1.1          Articles of Incorporation of the Registrant: Included
                         in Exhibits 3.1.1 - .5

          4.2            Bylaws of the Registrant: Included in Exhibit 3.2.1 -
                         .2

          4.3            Specimen Certificate for Common Stock: Incorporated by
                         reference to Exhibit 4.3 to the Company's Registration
                         Statement on Form S-8, Commission File No. 33-51212,
                         filed with the Securities and Exchange Commission on
                         August 20, 1992

          10.1**         Palmetto Bancshares, Inc. 1997 Stock Compensation Plan:
                         filed herewith.

          13.1.1*        Page 5 of the Company's Annual Report 1997, mailed to
                         shareholders on March 20, 1998.

          13.1.2*        The Company's Supplemental Annual Report 1997, mailed
                         to shareholders on March 20, 1998.

          20.1           The Company's Proxy Statement dated March 20, 1998,
                         with respect to an Annual Meeting of Shareholders as
                         filed with the Commission on March 20, 1998.

          21.1**         List of Subsidiaries of the Registrant

          27.1**         Financial Data Schedule


              * Management contract or compensatory plan or arrangement.

              ** Filed herewith.

(b)    Reports on Form 8-K

       The Registrant did not file any reports on Form 8-K during the three
       months ended December 31, 1997.

(c)    Exhibits required to be filed with this Form 10-K by Item 601 of
       Regulation S-K are filed herewith or incorporated by reference herein.

(d)    Certain additional financial statements. Not Applicable.



                                       21
<PAGE>



                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.



PALMETTO BANCSHARES, INC.



By:

 /s/ L. Leon Patterson
 ---------------------
L. Leon Patterson
Chairman and Chief
Executive Officer

 /s/ Paul W. Stringer
 --------------------
Paul W. Stringer
President  (Chief Accounting Officer)


Date:  March 9, 1998

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below and on the dates by the following persons on behalf of the
registrant and in the capacities indicated:

          Signature                    Title                      Date
          ---------                    -----                      ----


 /s/ L. Leon Patterson
----------------------
L. Leon Patterson                   Director                March 9, 1998


 /s/ Paul W. Stringer
----------------------
Paul W. Stringer                    Director                March 9, 1998


 /s/ James A. Cannon
----------------------
James A. Cannon                     Director                March 9, 1998


 /s/ Fred Davis, Jr.
----------------------
W. Fred Davis, Jr.                  Director                March 9, 1998


 /s/ Michael D. Glenn
----------------------
Michael D. Glenn                    Director                March 9, 1998




                                       22
<PAGE>

          Signature                    Title                      Date
          ---------                    -----                      ----


 /s/ David P. George, Jr.
-----------------------------
David P. George, Jr.                Director                March 9, 1998


 /s/ John T. Gramling, II
-----------------------------
John T. Gramling, II                Director                March 9, 1998


 /s/ James M. Shoemaker, Jr.
-----------------------------
James M. Shoemaker, Jr.             Director                March 9, 1998



-----------------------------
J. David Wasson, Jr.                Director                March __,1998


 /s/ Ann B. Smith
-----------------------------
Ann B. Smith                        Director                March 9, 1998


 /s/ Edward Keith Snead, III
-----------------------------
Edward Keith Snead III              Director                March 9, 1998


 /s/ William S. Moore
-----------------------------
William S. Moore                    Director                March 9, 1998



                                       23
<PAGE>

                                  EXHIBIT INDEX

Exhibit No.                         Description
-----------                         -----------

     3.1.1    Articles of Incorporation filed on May 13, 1982 in the office of
              the Secretary of State of South Carolina: Incorporated by
              reference to Exhibit 3 to the Company's Registration Statement on
              Form S-4, Commission File No. 33-19367, filed with the Securities
              and Exchange Commission on December 30, 1987

     3.1.2    Articles of Amendment filed on May 5, 1988 in the office of the
              Secretary of State of South Carolina: Incorporated by reference to
              Exhibit 4.1.2 to the Company's Registration Statement on Form S-8,
              Commission File No. 33-51212 filed with the Securities and
              Exchange Commission on August 20, 1992

     3.1.3    Articles of Amendment filed on January 26, 1989 in the office of
              the Secretary of State of South Carolina: Incorporated by
              reference to Exhibit 4.1.3 to the Company's Registration Statement
              on Form S-8, Commission File No. 33-51212 filed with the
              Securities and Exchange Commission on August 20, 1992

     3.1.4    Articles of Amendment filed on April 23, 1990 in the office of the
              Secretary of State of South Carolina: Incorporated by reference to
              Exhibit 4.1.4 to the Company's Registration Statement on Form S-8,
              Commission File No. 33-51212 filed with the Securities and
              Exchange Commission on August 20, 1992

     3.1.5    Articles of Amendment filed on October 16, 1996 in the office of
              the Secretary of State of South Carolina: Incorporated by
              reference to Exhibit 3.1.5 to the Company's quarterly report on
              Form 10-Q for the fiscal quarter ended September 30, 1996.

     3.2.1    By-Laws adopted April 10, 1990.

     3.2.2    Amendment to By-Laws dated April 12, 1994.

     4.1.1    Articles of Incorporation of the Registrant: Included in Exhibits
              3.1.1 - .5

     4.2      Bylaws of the Registrant: Included in Exhibit 3.2.1 - .2

     4.3      Specimen Certificate for Common Stock: Incorporated by reference
              to Exhibit 4.3 to the Company's Registration Statement on Form
              S-8, Commission File No. 33-51212, filed with the Securities and
              Exchange Commission on August 20, 1992

     10.1*    Palmetto Bancshares, Inc. 1997 Stock Compensation Plan: filed
              herewith.

     13.1.1*  Page 5 of the Company's Annual Report 1997, mailed to shareholders
              on March 20, 1998.

     13.1.2*  The Company's Supplemental Annual Report 1997, mailed to
              shareholders on March 20, 1998.

     20.1     The Company's Proxy Statement dated March 20, 1998, with respect
              to an Annual Meeting of Shareholders as filed with the Commission
              on March 20, 1998.

     21.1*    List of Subsidiaries of the Registrant

     27.1*    Financial Data Schedule

* Filed herewith.