UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q

    [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
    EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
                                       OR
    [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
    EXCHANGE ACT OF 1934 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                       (I.R.S. Employer
     of incorporation or organization)                  Identification No.)

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

                                 (864) 984-4551
               --------------------------------------------------
              (Registrant's telephone number, including area code)


    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 the number of shares outstanding of each of the issuer's classes of
    common stock, as of the latest practicable date.


                 Class                      Outstanding at November 1, 1999
     -----------------------------          -------------------------------
     Common stock, $5.00 par value                     3,107,617




<PAGE>

                            PALMETTO BANCSHARES, INC.

                          Quarterly Report on Form 10-Q
            For the Quarter and Nine Months Ended September 30, 1999



                                INDEX                                   Page No.
                                -----                                   --------

PART I - FINANCIAL INFORMATION
------------------------------

Consolidated Balance Sheets at September 30, 1999 and

December 31, 1998                                                              1



Consolidated Income Statements for the Three Months

Ended September 30, 1999 and 1998                                              2


Consolidated Income Statements for the Nine Months

Ended September 30, 1999 and 1998                                              3



Consolidated Statements of Cash Flows for

the Nine Months Ended September 30, 1999 and 1998                            4-5



Consolidated Statements of Changes in Shareholders' Equity

and Comprehensive Income for the Nine Months Ended

September 30, 1999 and 1998                                                    6



Notes to Consolidated Interim  Financial Statements                        7 - 8



Management's Discussion and Analysis of

Financial Condition and Results of Operations                             8 - 18



PART II - OTHER INFORMATION                                                19-20
---------------------------
SIGNATURES                                                                    21
----------

<PAGE>
                    PALMETTO BANCSHARES, INC. AND SUBSIDIARY
                           Consolidated Balance Sheets
                  (Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
<S>                                                                                     <C> <C>                <C> <C>
                                                                              September 30, 1999      December 31, 1998
                                                                              -----------------------------------------
Assets                                                                          (unaudited)

Cash and due from banks                                                          $ 34,327                   $ 27,929
Federal funds sold                                                                  1,644                        110
Federal Home Loan Bank stock, at cost                                               1,733                      1,541
Investment securities held to maturity (market values of $0
     and $68,737 in 1999 and 1998, respectively)                                        -                     66,455
Investment securities available for sale (amortized cost of $124,165
     and $45,551, in 1999 and 1998, respectively)                                 121,293                     46,087
Loans held for sale                                                                 1,273                      2,122
Loans                                                                             438,712                    413,266
     Less allowance for loan losses                                                (6,369)                    (5,795)
                                                                              ---------------------------------------
                 Loans, net                                                       432,343                    407,471

Premises and equipment, net                                                        15,697                     14,347
Accrued interest                                                                    4,551                      4,499
Other assets                                                                        9,997                      6,839
                                                                              ---------------------------------------
                 Total assets                                                   $ 622,858                  $ 577,400
                                                                              =======================================

Liabilities and Shareholders' Equity

Liabilities:
Deposits:
     Non-interest-bearing                                                          87,219                     83,788
     Interest-bearing                                                             445,790                    415,885
                                                                              ---------------------------------------
                 Total deposits                                                   533,009                    499,673

Securities sold under agreements to repurchase                                     16,754                     21,630
Commercial paper (Master note)                                                     16,807                     10,859
Federal funds purchased                                                             9,100                          -
Other liabilities                                                                   2,532                      3,153
                                                                              ---------------------------------------
                 Total liabilities                                                578,202                    535,315
                                                                              ---------------------------------------

Common stock subject to put/call option (ESOP)                                          -                      4,732

Shareholders' Equity:
Common stock-$5.00 par value.  Authorized 10,000,000 shares;
   3,104,117 issued and outstanding in 1999; and
   3,099,695 issued and outstanding in 1998                                        15,520                     15,498
Capital surplus                                                                       332                        293
Retained earnings                                                                  30,570                     25,964
Accumulated other comprehensive income (loss)                                      (1,766)                       330
Common stock subject to put/call option, 270,384 common
     shares at $17.50 per share in 1998 (ESOP)                                          -                     (4,732)
                                                                              ---------------------------------------
                 Total shareholders' equity                                        44,656                     37,353
                                                                              ---------------------------------------

                 Total liabilities and shareholders' equity                     $ 622,858                  $ 577,400
                                                                              =======================================
</TABLE>

See accompanying notes to consolidated interim financial statements.

                                       1
<PAGE>
                    PALMETTO BANCSHARES, INC. AND SUBSIDIARY
                   Consolidated Income Statements (Unaudited)
                 Three Months Ended September 30, 1999 and 1998
                  (Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
<S>                                                                                  <C>                        <C>
                                                                                     1999                       1998
                                                                                --------------------------------------
Interest income:
  Interest and fees on loans                                                       $ 9,282                    $ 8,656
  Interest and dividends on investment securities available for sale:
     U.S. Treasury and U.S. Government agencies                                        261                        180
     State and municipal                                                               882                        165
     Mortgage-backed securities                                                        398                        100
  Interest and dividends on investment securities held to maturity:
     U.S. Treasury and U.S. Government agencies                                          -                        226
     State and municipal                                                                 -                        498
     Mortgage-backed securities                                                          -                        340
  Interest on federal funds sold                                                       120                         54
  Dividends on FHLB stock                                                               36                         31
                                                                                --------------------------------------
                 Total interest income                                              10,979                     10,250
                                                                                --------------------------------------

Interest expense:
  Interest on deposits                                                               3,807                      3,833
  Interest on securities sold under agreements to repurchase                           153                        175
  Interest on federal funds purchased                                                   20                         21
  Interest on commercial paper (Master note)                                           150                        143
                                                                                --------------------------------------
                 Total interest expense                                              4,130                      4,172
                                                                                --------------------------------------

                 Net interest income                                                 6,849                      6,078
Provision for loan losses                                                              741                        570
                                                                                --------------------------------------
                 Net interest income after provision for
                    loan losses                                                      6,108                      5,508
Non-interest income:
  Service charges on deposit accounts                                                1,004                        867
  Fees for trust services                                                              622                        335
  Other income                                                                         566                        463
                                                                                --------------------------------------
                 Total non-interest income                                           2,192                      1,665

Non-interest expense:
  Salaries and other personnel                                                       2,609                      2,292
  Net occupancy                                                                        523                        461
  Furniture and equipment                                                              531                        453
  FDIC assessment                                                                       15                         54
  Postage and supplies                                                                 253                        266
  Marketing and advertising                                                            130                        105
  Telephone                                                                            210                        163
  Other expense                                                                      1,035                        900
                                                                                --------------------------------------
                 Total non-interest expense                                          5,306                      4,694
                                                                                --------------------------------------
                 Income before income taxes                                          2,994                      2,479
                                                                                --------------------------------------
Income tax provision                                                                   897                        755
                                                                                --------------------------------------

                 Net income                                                        $ 2,097                    $ 1,724
                                                                                ======================================
                 Decrease in fair value of ESOP stock                                    -                         75
                                                                                --------------------------------------
                 Net income on common shares not subject to put/call               $ 2,097                    $ 1,799
                                                                                ======================================
                 Net income per share-basic, not subject to put/call                $ 0.68                     $ 0.56
                 Net income per share-dilutive, not subject to put/call             $ 0.66                     $ 0.54
                 Cash dividends declared per share                                  $ 0.16                     $ 0.13
</TABLE>

See accompanying notes to consolidated interim financial statements.

                                       2
<PAGE>

                    PALMETTO BANCSHARES, INC. AND SUBSIDIARY
                   Consolidated Income Statements (Unaudited)
                 Nine Months Ended September 30, 1999 and 1998
                 (Dollars in thousands, except per share data)
<TABLE>
<CAPTION>

                                                                                   1999                        1998
                                                                              ---------------------------------------
         <S>                                                                         <C>                       <C>

Interest income:
  Interest and fees on loans                                                    $ 27,308                   $ 25,590
  Interest and dividends on investment securities available for sale:
     U.S. Treasury and U.S. Government agencies                                      701                        572
     State and municipal                                                           2,551                        354
     Mortgage-backed securities                                                    1,161                        165
  Interest and dividends on investment securities held to maturity:
     U.S. Treasury and U.S. Government agencies                                        -                        742
     State and municipal                                                               -                      1,469
     Mortgage-backed securities                                                        -                      1,102
  Interest on federal funds sold                                                     224                        188
  Dividends on FHLB stock                                                            101                         87
                                                                             ---------------------------------------
                 Total interest income                                            32,046                     30,269
                                                                             ---------------------------------------

Interest expense:
  Interest on deposits                                                            11,159                     11,363
  Interest on securities sold under agreements to repurchase                         427                        524
  Interest on federal funds purchased                                                100                         59
  Interest on commercial paper (Master note)                                         369                        395
                                                                             ---------------------------------------
                 Total interest expense                                           12,055                     12,341
                                                                             ---------------------------------------

                 Net interest income                                              19,991                     17,928
Provision for loan losses                                                          1,772                      1,412
                                                                             ---------------------------------------
                 Net interest income after provision for
                    loan losses                                                   18,219                     16,516
Non-interest income:
  Service charges on deposit accounts                                              2,830                      2,545
  Fees for trust services                                                          1,450                      1,005
  Other income                                                                     1,638                      1,227
                                                                             ---------------------------------------
                 Total non-interest income                                         5,918                      4,777

Non-interest expense:
  Salaries and other personnel                                                     7,495                      7,153
  Net occupancy                                                                    1,407                      1,297
  Furniture and equipment                                                          1,519                      1,323
  FDIC assessment                                                                    117                        148
  Postage and supplies                                                               810                        793
  Marketing and advertising                                                          545                        529
  Telephone                                                                          588                        450
  Other expense                                                                    3,023                      2,568
                                                                             ---------------------------------------
                 Total non-interest expense                                       15,504                     14,261
                                                                             ---------------------------------------
                 Income before income taxes                                        8,633                      7,032
                                                                             ---------------------------------------
Income tax provision                                                               2,629                      2,148
                                                                             ---------------------------------------

                 Net income                                                      $ 6,004                    $ 4,884
                                                                             =======================================
                 Increase in fair value of ESOP stock                                  -                       (950)
                                                                             =======================================
                 Net income on common shares not subject to put/call             $ 6,004                    $ 3,934
                                                                             =======================================
                 Net income per share-basic, not subject to put/call              $ 1.93                     $ 1.40
                 Net income per share-dilutive, not subject to put/call           $ 1.88                     $ 1.36
                 Cash dividends declared per share                                $ 0.45                     $ 0.37
</TABLE>

See accompanying notes to consolidated interim financial statements.


                                       3
<PAGE>

                    PALMETTO BANCSHARES, INC. AND SUBSIDIARY
                Consolidated Statements of Cash Flows (Unaudited)
                  Nine Months Ended September 30, 1999 and 1998
                             (Dollars in thousands)
<TABLE>
<CAPTION>
<S>                                                                                   <C>                         <C>
                                                                                      1999                        1998
                                                                                ---------------------------------------
Cash flows from operating activities:
  Net income                                                                        $ 6,004                    $ 4,884
  Adjustments to reconcile net income to net cash
     provided by operating activities:
                 Depreciation and amortization                                        1,925                      2,026
                 Gain on sale of investment securities                                  (30)                      (141)
                 Provision for loan losses                                            1,772                      1,412
                 Origination of loans held for sale                                 (24,658)                   (25,595)
                 Sale of loans held for sale                                         25,713                     24,314
                 Gain on sale of loans                                                 (206)                      (217)
                 Change in accrued interest receivable                                  (52)                       (93)
                 Change in other assets                                              (2,347)                    (2,067)
                 Change in other liabilities, net                                       691                        677
                                                                                ---------------------------------------

                                 Net cash provided by operating activities            8,812                      5,200

Cash flows from investing activities:
  Purchase of investment securities held to maturity                                      -                     (1,559)
  Purchase of investment securities available for sale                              (40,244)                   (21,446)
  Proceeds from maturities of investment securities held to maturity                      -                      4,000
  Proceeds from maturities of investment securities available for sale               11,865                      1,030
  Proceeds from sale of investment securities available for sale                     10,186                      8,584
  Principal paydowns on mortgage-backed securities held to maturity                       -                      6,229
  Principal paydowns on mortgage-backed securities available for sale                 6,020                        349
  Purchase of Federal Home Loan Bank stock                                             (192)                       (89)
  Net increase in loans                                                             (26,644)                   (31,571)
  Purchases of premises and equipment                                                (2,526)                    (2,131)
                                                                                ---------------------------------------

                                 Net cash used in investing activities              (41,535)                   (36,604)

Cash flows from financing activities:
  Net increase in deposit accounts                                                   19,184                     24,663
  Acquisitions of deposits, net                                                      12,636                      2,029
  Net increase (decrease) in securities sold under agreements
     to repurchase                                                                   (4,876)                     1,293
  Net increase in commercial paper                                                    5,948                      1,909
  Net increase in federal funds purchased                                             9,100                      7,325
  Proceeds from issuance of common stock                                                 61                         10
  Retirement of common stock                                                              -                        (75)
  Dividends paid                                                                     (1,398)                    (1,143)
                                                                                ---------------------------------------

                                 Net cash provided by financing activities           40,655                     36,011
                                                                                ---------------------------------------

Net increase in cash and cash equivalents                                             7,932                      4,607
                                                                                ---------------------------------------
Cash and cash equivalents at beginning of the period                                 28,039                     25,927
                                                                                ---------------------------------------
Cash and cash equivalents at end of the period                                     $ 35,971                   $ 30,534
                                                                                =======================================
</TABLE>

                                                                     (Continued)

                                       4
<PAGE>
                    PALMETTO BANCSHARES, INC. AND SUBSIDIARY
          Consolidated Statements of Cash Flows, Continued (Unaudited)
                  Nine Months Ended September 30, 1999 and 1998
                             (Dollars in thousands)
<TABLE>
<CAPTION>
<S>                                                                                   <C>                        <C>
                                                                                      1999                       1998
                                                                                ---------------------------------------
Supplemental Information:
Cash paid during the period for:
     Interest expense                                                              $ 12,101                   $ 12,411
                                                                                =======================================
     Income taxes                                                                     2,544                      1,817
                                                                                =======================================

Supplemental schedule of non-cash investing and financing transactions:
    Change in unrealized gain on investment securities available
       for sale                                                                      (2,096)                       211
                                                                                =======================================
    Transfer of investment securities held to maturity to available
       for sale                                                                      66,455                          -
                                                                                =======================================
</TABLE>

See accompanying notes to consolidated interim financial statements.


                                       5
<PAGE>
                    PALMETTO BANCSHARES, INC. AND SUBSIDIARY
         Consolidated Statements of Changes in Shareholders' Equity and
                        Comprehensive Income (Unaudited)
                  Nine Months Ended September 30, 1999 and 1998
                             (Dollars in thousands)
<TABLE>
<CAPTION>

                                                                                                                 Accumulated
                                                                                                                    Other
                                                                         Common      Capital     Retained       Comprehensive
                                                                          Stock      Surplus     Earnings     Income (Loss), Net
                                                                          -----      -------     --------     ------------------
<S>                 <C> <C>                                              <C>            <C>       <C>                       <C>
Balance at December 31, 1997                                             15,448         317       20,658                    193
Net income                                                                                         4,884
Other comprehensive income, net of tax:
     Unrealized holding gains arising during period, net
          of tax effect of $187
     Less:  reclassification adjustment for gains included
          in net income, net of tax effect of $54
     Net unrealized gains on securities                                                                                     211

Comprehensive income

Cash dividend declared                                                                            (1,143)
Issuance of 1,300 shares in connection with stock options                     6           4
Retirement of 4,310 shares common stock                                     (21)        (54)
Increase in fair value of common stock subject to put/call option
                                                                       ===========================================================
Balance at September 30, 1998                                            15,433         267       24,399                    404
                                                                       ===========================================================

Balance at December 31, 1998                                             15,498         293       25,964                    330
Net income                                                                                         6,004
Other comprehensive income, net of tax:
     Unrealized holding losses arising during period, net
          of tax effect of $1,301
     Less:  reclassification adjustment for gains included
          in net income, net of tax effect of $12
     Net unrealized losses on securities                                                                                 (2,096)

Comprehensive income

Cash dividend declared                                                                            (1,398)
Issuance of 4,422 shares in connection with stock options                    22          39
Expiration of put/call option on common stock subject to put/call
                                                                       ===========================================================
Balance at September 30, 1999                                            15,520         332       30,570                 (1,766)
                                                                       ===========================================================


                                                                              Common
                                                                              Stock
                                                                           Subject to
                                                                            Put/Call
                                                                             Option       Total
                                                                             ------       -----
Balance at December 31, 1997                                                 (3,784)     32,832
Net income                                                                                4,884
Other comprehensive income, net of tax:
     Unrealized holding gains arising during period, net
          of tax effect of $187                                                             298
     Less:  reclassification adjustment for gains included
          in net income, net of tax effect of $54                                           (87)
     Net unrealized gains on securities
                                                                                       ---------
Comprehensive income                                                                      5,095
                                                                                       ---------
Cash dividend declared                                                                   (1,143)
Issuance of 1,300 shares in connection with stock options                                    10
Retirement of 4,310 shares common stock                                                     (75)
Increase in fair value of common stock subject to put/call option              (950)       (950)
                                                                      ==========================
Balance at September 30, 1998                                                (4,734)     35,769
                                                                      ==========================

Balance at December 31, 1998                                                 (4,732)     37,353
Net income                                                                                6,004
Other comprehensive income, net of tax:
     Unrealized holding losses arising during period, net
          of tax effect of $1,301                                                        (2,078)
     Less:  reclassification adjustment for gains included
          in net income, net of tax effect of $12                                           (18)
     Net unrealized losses on securities
                                                                                       ---------
Comprehensive income                                                                      3,908
                                                                                       ---------
Cash dividend declared                                                                   (1,398)
Issuance of 4,422 shares in connection with stock options                                    61
Expiration of put/call option on common stock subject to put/call             4,732       4,732
                                                                      ==========================
Balance at September 30, 1999                                                     -      44,656
                                                                      ==========================

</TABLE>

See accompanying notes to consolidated interim financial statements.

                                       6
<PAGE>
                    PALMETTO BANCSHARES, INC. AND SUBSIDIARY
               Notes To Consolidated Interim Financial Statements

1.  Basis of Presentation

     The accompanying unaudited consolidated interim financial statements have
been prepared pursuant to the rules and regulations for reporting on Form 10-Q.
Accordingly, certain information and footnotes required by generally accepted
accounting principles for complete financial statements are not included herein.
The interim statements should be read in conjunction with the financial
statements and notes thereto included in Palmetto Bancshares, Inc.'s (the
"Company's") Annual Report on Form 10-K for the year ended December 31, 1998.
     In the Company's opinion, all adjustments necessary for a fair presentation
of these interim statements have been included and are of a normal and recurring
nature. The results of operations for the three and nine-month periods ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the entire year.
     Certain amounts from December 31, 1998 have been reclassified to conform to
1999 presentation. These reclassifications have no effect on shareholders'
equity or on net income as previously reported.

2.  Principles of Consolidation

     The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, The Palmetto Bank (the "Bank"), and Palmetto
Capital, Inc., a wholly-owned subsidiary of the Bank. The Bank provides a
full-range of banking services, including the taking of deposits and the making
of loans. Palmetto Capital, Inc. offers the brokerage of stocks, bonds, mutual
funds and unit investment trusts. Palmetto Capital, Inc. also offers advisory
services and variable rate annuities. In consolidation, all significant
intercompany accounts and transactions have been eliminated.

3.  Summary of Significant Accounting Changes

     In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The statement is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000, with earlier
adoption permitted, as amended by SFAS No. 137. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. The statement requires an entity to recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The Company adopted SFAS No. 133 in its
entirety effective January 1, 1999. On January 1, 1999, the Company transferred
100% of its held-to-maturity investment securities to the available-for-sale
category at fair value as allowed by SFAS No. 133. Such transfers from the
held-to-maturity category at the date of initial adoption shall not call into
question the Company's intent to hold other debt securities to maturity in the
future. The adoption of this standard did not have a material effect on the
Company. The Company has no investments that are considered derivatives under
SFAS No. 133 and does not engage in any hedging activities.

4.  Common Stock Subject to Put/Call Option

     The stock in the Company's Employee Stock Ownership Plan ("ESOP") had a put
and a call feature


                                       7
<PAGE>

because the Company's stock is not listed on a national securities exchange.
Accordingly, the shares that had been distributed from the ESOP were recorded
outside of shareholders' equity at their fair value, which is determined
annually by an independent valuation. The Company's Board of Directors had voted
to terminate the ESOP effective February 28, 1997. Per the Plan document, the
shares distributed in 1998 due to the termination of the ESOP were subject to
the put/call until June 29, 1999. Now that the put/call has expired, the current
year balance sheet and income statements are absent the put/call effect of the
ESOP. The distributed shares are now included in shareholders' equity.


                            PALMETTO BANCSHARES, INC.
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                             RESULTS OF OPERATIONS


DISCUSSION OF FINANCIAL CONDITION CHANGES FROM DECEMBER 31, 1998
TO SEPTEMBER 30, 1999


General
-------

     On September 14, 1999, the Palmetto Bank opened its 27th office in
Abbeville, South Carolina. This retail location was acquired from Carolina First
and added approximately $14 million in deposits and $1.8 million in loans to the
Bank's balance sheet. The Bank plans on opening its 28th office in Greer before
year-end.

     On July 7, 1999, the Bank introduced Internet banking services to its
customers. Reached through the bank's web site at www.palmettobank.com, the
bank's customers can now access accounts for multiple purposes in a virtual
banking environment - and a secure one. Customers can obtain balances, review
account histories, transfer money between accounts and even pay bills via the
Internet banking service. Investment in new technology has long been a tradition
with the Palmetto Bank and it is essential to remaining competitive and growing
a strong customer base.

Year 2000 Readiness Disclosure
------------------------------

     Please see the Company's complete discussion of its Year 2000 readiness in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998.
The discussion here is only an update to the year-end discussion.

     Since February, representatives from the marketing and operations
departments have met with employees, general and community board members, local
civic groups, customers in our retirement facilities, and even a few churches to
discuss the Bank's readiness to greet the new century. More than 21 seminars
have been held and have provided a platform for those attending to ask questions
about the bank's readiness and contingency planning. All attendees have received
Year 2000 information kits as well as other materials related to the bank's
readiness.

     As of July 21, 1999, Business Resumption Contingency Plans have been
drafted, approved by the Company's board of directors and tested where possible.
Management believes that the most likely


                                       8
<PAGE>

worst case scenario entails customers withdrawing significant amounts of cash
from deposit accounts and on lines of credit as a result of fears of a Year 2000
banking crisis that would limit their access to cash. Management is currently
anticipating and planning for this potential liquidity issue. Management
believes the second most likely worst case scenario entails temporary
interruptions of power service. Management believes the risk of this occurring
is low. The contingency plans in place include using a generator to power the
Company's Corporate Center, sending our customers to nearby branches where power
service has not been interrupted or processing transactions manually at a branch
without power. In the event such scenarios occur, the adverse impact on net
income could possibly be as much as 1% and deposits could be reduced by as much
as 3%.

     Based on assessments completed to date and contingency plans in place,
management believes Year 2000 issues, including the cost of making critical
systems and equipment ready, will not have a material adverse effect on the
Company's business operation or consolidated results of operations or financial
position. Nevertheless, achieving Year 2000 readiness is subject to risks and
uncertainties, including those described above. While management believes the
possibility is remote, if the Company's internal systems, or the internal
systems of external parties (i.e., the Federal Reserve system), fail to achieve
Year 2000 readiness in a timely manner, the Company's business, consolidated
results of operations or financial condition could be adversely affected.


Assets
------

     Liquid assets, which include cash, federal funds sold, and investments
available for sale increased by $83.1 million, or 112%, for the nine-month
period. This increase was due to the $66.5 million transfer of investment
securities held to maturity to investment securities available for sale (see
note 3 on page 7). Investment securities available for sale also increased due
to $40.2 million in purchases offset by $22.1 million in maturities and sales
and $6.0 million in principal paydowns. The increase in liquid assets was also
attributable to the $6.4 million increase in cash and due from banks and the
$1.5 million increase in federal funds sold.

     Loans, net, increased by $24.9 million, or 6%, during the nine-month period
as a result of normal growth. The Company increased the allowance for loan
losses to 1.45% from 1.40% at September 30, 1999 and 1998, respectively, due to
a change in the loan mix shifting towards a higher concentration of commercial
loans which are inherently more risky.

     At September 30, 1999, the Company had $1.3 million in loans held for sale
with commitments to sell these loans in October and November 1999. The mortgage
servicing rights related to the mortgage servicing department's activities were
$1.2 million at September 30, 1999, which approximates their fair value. Loans
serviced for the benefit of others amounted to $141.2 million at September 30,
1999.

     Other assets increased by $3.2 million, or 46%, due to the $1.3 million
increase in the deferred tax benefit related to the unrealized loss on the
investment securities available for sale and the $1.4 million addition of
goodwill related to the Abbeville branch purchase. The remainder of the increase
is due to normal growth offset by the amortization of intangibles and various
prepaids.


                                       9
<PAGE>

Liabilities and Shareholders' Equity
------------------------------------

     Deposit balances increased by 7% during the nine-month period, from $499.7
million to $533.0 million. The increase was due to normal growth and the
acquisition of $14 million in deposits from the Abbeville branch purchase.

     Securities sold under agreements to repurchase decreased by $4.9 million,
or 23%, and commercial paper associated with the alternative commercial sweep
accounts (master note program) increased by $5.9 million, or 55%. These changes
are the result of normal fluctuations in the accounts.

     Total shareholders equity increased by $7.3 million, or 20%, for the
nine-month period as a result of comprehensive income of $3.9 million, and
expiration of the put/call on the ESOP of $4.7 million (see footnote 4 on pages
7-8), less dividends paid of $1.4 million.


Liquidity
---------

     The liquidity ratio is an indication of a company's ability to meet its
short-term funding obligations. The Company's policy is to maintain a liquidity
ratio between 15% and 25%. At September 30, 1999, the Company's liquidity ratio
was 18.33%. Due to the possibility of significant amounts of deposits being
withdrawn from customer accounts due to customer concerns relating to the
accessibility of cash over the century date change, the Bank has been buying
excess cash from the Federal Reserve Bank since September and will continue to
do so through year-end. If needed, alternative funding sources have been
arranged through Federal Funds lines at correspondent banks, FHLB, and Federal
Reserve Discount window. At September 30, 1999, the Bank has unused short-term
lines of credit totaling approximately $35 million (which are withdrawable at
the lender's option). At September 30, 1999, unused borrowing capacity from the
FHLB totaled $48 million. Management believes that these sources are adequate to
meet its liquidity needs and to maintain the liquidity ratio within policy
guidelines.

     The Company has certain cash needs, including general operating expenses
and the payment of dividends and interest on borrowings. The Company currently
has no debt outstanding and has declared $0.45 per share in dividends so far in
1999. There can be no guarantee, however, that any additional dividends will be
paid. Liquidity is provided from the Company's subsidiary, the Bank. The Company
and the Bank are subject to certain regulatory restrictions on the amount of
dividends they are permitted to pay. The Bank's current total risk-based capital
ratio is 10.71%. At September 30, 1999, the Bank had $3.2 million of excess
retained earnings available to pay out for dividends and still be considered
"well-capitalized." The Bank plans to continue its quarterly dividend payout.


                                       10
<PAGE>

Capital Resources
-----------------

     As of September 30, 1999, the Company and the Bank were in compliance with
each of the applicable regulatory capital requirements and met or exceeded the
"well-capitalized" regulatory guidelines. The table below sets forth various
capital ratios for the Company and the Bank:

--------------------------------- --------- ----------------- ------------------

                                                ADEQUATELY
                                    AS OF      CAPITALIZED      WELL-CAPITALIZED
                                   9/30/99     REQUIREMENT         REQUIREMENT
--------------------------------- --------- ----------------- ------------------

Company:

   Total Risk-based Capital        10.73%         8.00%              10.00%

   Tier 1 Risk-based Capital        9.48           4.00               6.00

   Tier 1 Leverage Ratio            7.10           4.00               5.00




Bank:

   Total Risk-based Capital         10.71          8.00               10.00

   Tier 1 Risk-based Capital        9.45           4.00               6.00

   Tier 1 Leverage Ratio            7.08           4.00               5.00

--------------------------------- --------- ----------------- ------------------


     Because the Bank's total risk-based capital ratio is 10.71%, the Company is
defined to be "well-capitalized" under currently applicable regulatory
guidelines.


Accounting and Reporting Matters
--------------------------------

     The Financial Accounting Standards Board has not released any accounting
pronouncements that have not been adopted and that affect the Company or the
Bank.

                                       11
<PAGE>

COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998


       Net income for the three months ended September 30, 1999 was $2.1
million, an increase of 22% from the $1.7 million reported for the same period
in 1998. Net income per common share-basic was $0.68 for the 1999 period as
compared with $0.56 for the comparable period in 1998. Net income per common
share-dilutive was $0.66 for the 1999 period as compared with $0.54 for the
comparable period in 1998.


Net Interest Income
-------------------

     The largest component of the Company's net income is the Bank's net
interest income, defined as the difference between gross interest and fees on
earning assets, primarily loans and investment securities, and interest paid on
deposits and borrowed funds. Net interest income is affected by the interest
rates earned or paid and by volume changes in loans, securities, deposits and
borrowed funds.

     For the three-month period ended September 30, 1999, net interest income
was $6.8 million, which represented a 13% increase from the same period in 1998.
This increase was the result of increases in the volume of earning assets as
well as an increased average rate. Earning assets averaged $556.9 million and
$501.9 million during the third quarters of 1999 and 1998, respectively. The
increases in volume were due to the growth of loans compared to third
quarter-end 1998. The average tax-equivalent net interest margin for the 1999
period was 5.03%, compared to 4.99% for the same period in 1998.

     Interest and fees on loans increased 7%, from $8.7 million to $9.3 million,
for the 1999 three-month period compared to the corresponding period in 1998 due
to increased volume offset by decreased rates. Interest and dividends on
investment securities remained constant for the 1999 three-month period compared
to the corresponding period in 1998 due to increased volume offset by decreased
rates. Interest income on federal funds sold increased $66,000 due to increased
average volume of federal funds sold for the quarter compared to the same period
last year. The yield on average earning assets, which includes loans, federal
funds sold and investment securities, decreased from 8.10% for the three months
ended September 30, 1998 to 7.82% for the three months ended September 30, 1999.

     Total interest expense decreased by 1%, from $4.2 million to $4.1 million,
due to a decrease in the average cost of interest-bearing liabilities from 3.87%
for the quarter ended September 30, 1998 to 3.49% for the quarter ended
September 30, 1999.


Market Risk
-----------

     Market risk is the risk of loss from adverse changes in market prices and
rates. The Company's market risk arises principally from interest rate risk
inherent in its lending, deposit and borrowing activities. Management actively
monitors and manages its inherent rate risk exposure. Although the Company
manages other risks, such as credit quality and liquidity risk, in the normal
course of business, management considers interest rate risk to be its most
significant market risk and believes that this risk could potentially have the
largest material effect on the Company's financial condition and results of


                                       12
<PAGE>

operations. Other types of market risks, such as foreign currency exchange rate
risk and commodity price risk, do not arise in the normal course of the
Company's business activities.

     The Company's profitability is affected by fluctuations in interest rates.
Management's goal is to maintain a reasonable balance between exposure to
interest rate fluctuations and earnings. A sudden and substantial increase in
interest rates may adversely impact the Company's earnings to the extent that
the interest rates on interest-earning assets and interest-bearing liabilities
do not change at the same speed, to the same extent or on the same basis. The
Company monitors the impact of changes in interest rates on its net interest
income using several tools.

       The Bank's goal is to minimize interest rate risk between interest
bearing assets and liabilities at various maturities through its Asset-Liability
Management ("ALM"). ALM involves managing the mix and pricing of assets and
liabilities in the face of uncertain interest rates and an uncertain economic
outlook. It seeks to achieve steady growth of net interest income with an
acceptable amount of interest rate risk exposure and sufficient liquidity. The
process provides a framework for determining, in conjunction with the profit
planning process, which elements of the Company's profitability factors can be
controlled by management. Understanding the current position and implications of
past decisions is necessary in providing direction for the future financial
management of the Company. The Company uses an asset-liability model to
determine the appropriate strategy for current conditions.

       Interest sensitivity management is part of the asset-liability management
process. Interest sensitivity gap ("GAP") is the difference between total rate
sensitive assets and rate sensitive liabilities in a given time period. The
Company's current GAP analysis reflects that in periods of increasing interest
rates, rate sensitive assets will reprice slower than rate sensitive
liabilities. The Company's GAP analysis also shows that at the interest
repricing of one year, the Company's net interest margin would be adversely
impacted. This analysis, however, does not take into account the dynamics of the
marketplace. GAP is a static measurement that assumes that if the prime rate
increases by 100 basis points, all assets and liabilities that are due to
reprice will increase by 100 basis points at the next opportunity. However, the
Company is actually able to experience a benefit from rising rates in the short
term because deposit rates generally do not follow the national money market,
but are instead controlled by the local market. Loans do follow the money
market, so when rates increase they reprice immediately, but the Company is able
to manage the deposit side. The Company generally does not raise deposit rates
as fast or as much as loan rates. The Company also has the ability to manage its
funding costs by choosing alternative sources of funds.

       The Company's current GAP position would also be interpreted to mean that
in periods of declining interest rates, the Company's net interest margin would
benefit. However, competitive pressures in the local market may not allow the
Company to lower rates on deposits, but may force the Company to lower rates on
loans.

       Because the Company's management feels that GAP analysis is a static
measurement, it manages its interest income through its asset/liability
strategies which focus on a net interest income model based on management's
projections. The Company has a targeted net interest income range of plus or
minus twenty percent based on a 300 basis point shock over twelve months. The
asset/liability committee meets weekly to address interest pricing issues, and
this model is reviewed monthly. Management will continue to monitor its
liability sensitive position in times of higher interest rates which might
adversely affect its net interest margin. The Company does not feel that the
market risk to the Company has changed significantly since December 31, 1998.


                                       13
<PAGE>

Provision for Loan Losses
-------------------------

       The provision for loan losses increased to $741,000 from $570,000 for the
three months ended September 30, 1999 and 1998, respectively, due to a change in
the loan mix shifting towards a higher concentration of commercial loans which
are inherently more risky. The provision is adjusted each month to reflect loan
volume growth and allow for loan charge-offs, recoveries and other factors which
impact management's assessment of the adequacy of the allowance for loan losses.
Management's objective is to maintain the allowance for loan losses at an
adequate level to cover probable inherent losses in the portfolio. Additions to
the allowance for loan losses are based on management's evaluation of the loan
portfolio under current economic conditions, past loan loss experience, and such
other factors, which in management's judgment, deserve recognition in estimating
loan losses. Loans are charged off when, in the opinion of management, they are
deemed to be uncollectible. Recognized losses are charged against the allowance,
and subsequent recoveries are added to the allowance. Loans over 90 days
delinquent and on non-accrual amounted to approximately $1,915,000 and
$1,917,000 at September 30, 1999 and 1998, respectively. The annualized net
charge-off ratio has increased from 0.34% at September 30, 1998 to 0.38% at
September 30, 1999. While management uses the best information available to make
evaluations, future adjustments to the allowance may be necessary if economic
conditions differ substantially from the assumptions used in making the
evaluation. The allowance for loan losses is subject to periodic evaluation by
various regulatory authorities and may be subject to adjustment, based upon
information that is available to them at the time of their examination.


Non-interest Income
-------------------

       Total non-interest income increased by $527,000, or 32%, for the three
months ended September 30, 1999, as compared to the same period in 1998. The
largest portion of this increase can be attributed to fees for trust services,
which increased by $287,000 or 86% due to a new fee structure, new business and
increased assets under management. At September 30, 1999, assets under
management amounted to $203.5 million compared to $182.0 million at September
30, 1998, a 12% increase.

       Another contributor to the increase is other income, which increased by
$103,000, or 22%, during the 1999 period compared to the same period in 1998 due
primarily to the fact that the Bank is charging $1.00 per non-customer ATM
transaction. The Bank began charging this fee in June 1998.


Non-interest Expense
--------------------

       Total non-interest expense increased by $612,000, or 13%, during the 1999
three-month period compared to the same period in 1998. The largest contributor
to non-interest expense was salaries and other personnel expense, which
increased $317,000 or 14% due to normal raises, and new employees related to
growth and branch acquisitions. The number of full-time equivalent employees was
322 and 303 at September 30, 1999 and 1998, respectively.

       The second biggest contributor is other expense, which increased
$135,000, or 15%, due to increased expenses related to outside management
consultants, credit card processing, armored car couriers and miscellaneous loan
expense. These increases were due to increased fees and activity in these areas.

                                       14
<PAGE>

Income Taxes
------------

       The Company incurred income tax expense of $897,000 for the 1999
three-month period compared to $755,000 for the same period in 1998 due to the
increase in taxable income. This expense is based on an expected annual
effective tax rate of approximately 30% for both periods.


Net Income Per Share
--------------------

The following table illustrates a reconciliation of the numerators and
denominators of the basic and diluted per-share computations for net income for
the three-months ended September 30, 1999 and 1998 (dollars in thousands except
per share numbers):
<TABLE>
<CAPTION>
                                                                  Income             Shares           Per-Share
       1999                                                     (Numerator)       (Denominator)        Amount
       ----                                                     ---------------------------------------------
       Basic EPS:
       ----------
<S>                                                              <C>                <C>                 <C>
       Income available to common stockholders                   $2,097             3,104,117           $0.68
                                                                 --------------------------------------------
       Effect of Dilutive Securities: Stock Options                  --                93,943           --
       Diluted EPS:
       ----------

       Income available to common stockholders
           plus assumed conversions                              $2,097             3,198,060           $0.66
                                                                 ============================================


                                                                  Income             Shares           Per-Share
       1998                                                     (Numerator)       (Denominator)        Amount
       ----                                                     ---------------------------------------------
       Basic EPS:
       ----------
       Income available to common stockholders                   $1,724             3,089,396           $0.56
                                                                 --------------------------------------------
       Effect of Dilutive Securities: Stock Options                  --                80,616           --
       Diluted EPS:
       ----------

       Income available to common stockholders
           plus assumed conversions                              $1,724             3,170,012           $0.54
                                                                 ============================================
</TABLE>

COMPARISON OF THE RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998

       Net income for the nine months ended September 30, 1999 was $6.0 million,
an increase of 23% from the $4.9 million reported for the same period in 1998.
Net income per common share-basic was $1.93 for the 1999 period as compared with
$1.40 for the comparable period in 1998. Net income per common share-dilutive
was $1.88 for the 1999 period as compared with $1.36 for the comparable period
in 1998. The reason that net income per share-basic increased 38% in 1999 versus
1998 even though net income increased only 23% is because there is no adjustment
to net income for the ESOP valuation in 1999 because the put/call on the ESOP
stock expired in 1999.


                                       15
<PAGE>

Net Interest Income
-------------------

       The largest component of the Company'vs net income is the Bank's net
interest income, defined as the difference between gross interest and fees on
earnings assets, primarily loans and investment securities, and interest paid on
deposits and borrowed funds. Net interest income is affected by the interest
rates earned or paid and by volume changes in loans, securities, deposits, and
borrowed funds.

       For the nine-month period ended September 30, 1999, net interest income
was $19.9 million, which represented an 12% increase from the same period in
1998. This increase was the result of increases in the volume of earning assets.
Earning assets averaged $544.7 million and $491.7 million during the first nine
months of 1999 and 1998, respectively. The increases in volume were due to the
growth of loans and investments compared to 1998. The average tax equivalent net
interest margin for the 1999 period was 5.13%, compared to 5.05% for the same
period in 1998.

       Interest and fees on loans increased 7% due to increased volume and fees
offset by decreased rates. Interest income on investment securities remained
unchanged at $4.4 million during the 1999 period compared to the corresponding
period in 1998 due to increased volume offset by decreased rates. The weighted
average rate (tax equivalent) on the investment securities portfolio was 6.75%
and 6.99%, at September 30, 1999 and 1998, respectively. Interest income on
federal funds sold increased due to an increased average volume of federal funds
sold compared to the first nine months of last year. The yield on average
earning assets, which includes federal funds sold, loans and investment
securities, decreased from 8.23% for the nine months ended September 30, 1998 to
7.87% for the nine months ended September 30, 1999.

       Total interest expense decreased by 2% during the 1999 period due to
decreased rates on deposits at September 30, 1999, compared to September 30,
1998. Average total interest-bearing liabilities, increased by 9% from September
30, 1999 to September 30, 1998. The average rate paid on interest bearing
liabilities decreased from 3.91% during the nine-month period in 1998, to 3.52%
during the 1999 period.

       The profitability of the Bank is influenced significantly by management's
ability to control the relationship between rate sensitive assets and
liabilities, and the current interest rate environment. See further discussion
under "Comparison of the Results of Operations for the Three Months Ended
September 30, 1999 and 1998" above.


Provision for Loan Losses
-------------------------

       The provision for loan losses was $1.8 million for the nine months ended
September 30, 1999 compared to $1.4 million for the nine months ended September
30, 1998, due to a change in the loan mix shifting towards a higher
concentration of commercial loans which are inherently more risky. See further
discussion under "Comparison of the Results of Operations for the Three Months
Ended September 30, 1999 and 1998" above.

                                       16
<PAGE>
Non-interest Income
-------------------

       Total non-interest income increased by $1.1 million, or 24%, for the nine
months ended September 30, 1999, as compared to the same period in 1998. The
largest contributor to this increase is fees for trust services, which increased
$445,000, or 44%, due to a new fee structure, new business and increased assets
under management. Assets under management were $203.5 million and $182.0 million
at September 30, 1999 and 1998, respectively, representing a 12% increase.

       The second largest contributor to this increase is ATM fee income, which
increased $265,000 due mostly to the $1.00 charge per non-customer transaction
the Bank began charging in June of 1998.


Non-interest Expense
--------------------

       Total non-interest expense increased by $1.2 million, or 9%, during the
1999 nine-month period over the same period in 1998. The largest component of
non-interest expense is salaries and other personnel expense, which increased
$342,000 or 5% due to normal raises, officer incentive accruals and new
employees related to growth and branch acquisitions.

       The second largest component is other expense. The increase in other
expense is attributable to increased expenses related to outside management
consultants, credit card processing, armored car couriers and miscellaneous loan
expense. These increases were due to increased fees and/or increased activity in
these areas.


Income Taxes
------------

       The Company incurred income tax expense of $2.6 million for the 1999
nine-month period compared to $2.1 million for the same period in 1998 due to
the increase in taxable income. This expense is based on an expected effective
tax rate of approximately 30%, for both periods.


Net Income Per Share
--------------------

The table below illustrates a reconciliation of the numerators and denominators
of the basic and diluted per-share computations for net income for the
nine-months ended September 30, 1999 and 1998 (dollars in thousands except per
share numbers):
<TABLE>
<CAPTION>
                                                                  Income             Shares           Per-Share
       1999                                                     (Numerator)       (Denominator)        Amount
       ----                                                     ---------------------------------------------
       Basic EPS:
       ----------
<S>                                                              <C>                <C>                 <C>
       Income available to common stockholders                   $6,004             3,103,511           $1.93
                                                                 --------------------------------------------
       Effect of Dilutive Securities: Stock Options                  --                88,722           --
       Diluted EPS:
       ----------

       Income available to common stockholders
           plus assumed conversions                              $6,004             3,192,233           $1.88
                                                                 ============================================
</TABLE>

                                       17
<PAGE>
<TABLE>
<CAPTION>


                                                                  Income             Shares           Per-Share
       1998                                                     (Numerator)       (Denominator)        Amount
       ----                                                     ---------------------------------------------
       Basic EPS:
       ----------
<S>                                                              <C>                <C>                   <C>

       Income available to common stockholders                   $3,934             2,814,976           $1.40
                                                                 --------------------------------------------
       Effect of Dilutive Securities: Stock Options                  --                72,791           --
       Diluted EPS:
       ----------

       Income available to common stockholders
           plus assumed conversions                              $3,934             2,887,767           $1.36
                                                                 ============================================
</TABLE>


INDUSTRY DEVELOPMENTS

       Certain proposed industry-related legislation could have an effect on
both the costs of doing business and the competitive factors facing the
financial institution industry. Because of the uncertainty of the final terms
and likelihood of passage of the proposed legislation, the Company is unable to
assess the impact of any proposed legislation on its financial condition or
operations at this time.

                                       18
<PAGE>

                    PALMETTO BANCSHARES, INC. AND SUBSIDIARY

                           Part II - Other Information


Item 1. Legal Proceedings

                  Palmetto Bancshares, Inc. (the Company) is not engaged in any
legal proceedings. From time to time The Palmetto Bank (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 the Company or the Bank.


Item 6.  Exhibits and Reports on Form 8-K

(a) 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, 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 of the Company's quarterly
                                    report on Form 10-Q for the fiscal quarter
                                    ended September 30, 1996.

                                       19
<PAGE>

         3.1.6                      Articles of Amendment filed on May 17, 1999
                                    in the office of the Secretary of State of
                                    South Carolina: Incorporated by reference to
                                    Exhibit 3.1.6 of the Company's quarterly
                                    report on Form 10-Q for the fiscal quarter
                                    ended June 30, 1999.

         3.2.1                      By-Laws adopted April 10, 1990: Incorporated
                                    by reference to Exhibit 3.2.1 to the
                                    Company's Annual Report on Form 10-K, filed
                                    with the Securities and Exchange Commission
                                    on September 30, 1997.

         3.2.2                      Amendment to By-Laws dated April 12, 1994:
                                    Incorporated by reference to Exhibit 3.2.2
                                    to the Company's Annual Report on Form 10-K,
                                    filed with the Securities and Exchange
                                    Commission on September 30, 1997.

         3.2.3                      Amendment to By-Laws dated January 19, 1999:
                                    Incorporated by reference to Exhibit 3.2.3
                                    to the Company's Annual Report on Form 10-K,
                                    filed with the Securities and Exchange
                                    Commission on March 19, 1999.

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

         4.2                        Bylaws of the Registrant: Included in
                                    Exhibits 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

         4.4                        Palmetto Bancshares, Inc. 1998 Stock
                                    Compensation Plan, as amended to date.
                                    Incorporated by reference to the Company''s
                                    Annual Report on Form 10-K, filed with the
                                    Securities and Exchange Commission on March
                                    23, 1998.

         27.1*                      Financial Data Schedule

         * Filed herewith.


(b) Reports on Form 8-K

         The Company did not file any reports on Form 8-K during the three
         months ended September 30, 1999.


                                       20
<PAGE>

                                   SIGNATURES



Pursuant to the requirements 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 and Chief Operating Officer
(Chief Accounting Officer)

Date:  November 2, 1999

                                       21
<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, 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 of the Company's quarterly
                                    report on Form 10-Q for the fiscal quarter
                                    ended September 30, 1996.

         3.1.6                      Articles of Amendment filed on May 17, 1999
                                    in the office of the Secretary of State of
                                    South Carolina: Incorporated by reference to
                                    Exhibit 3.1.6 of the Company's quarterly
                                    report on Form 10-Q for the fiscal quarter
                                    ended June 30, 1999.

         3.2.1                      By-Laws adopted April 10, 1990: Incorporated
                                    by reference to Exhibit 3.2.1 to the
                                    Company's Annual Report on Form 10-K, filed
                                    with the Securities and Exchange Commission
                                    on September 30, 1997.

         3.2.2                      Amendment to By-Laws dated April 12, 1994:
                                    Incorporated by reference to Exhibit 3.2.2
                                    to the Company's Annual Report on Form 10-K,
                                    filed with the Securities and Exchange
                                    Commission on September 30, 1997

                                       22

<PAGE>

         3.2.3                      Amendment to By-Laws dated January 19, 1999:
                                    Incorporated by reference to Exhibit 3.2.3
                                    to the Company's Annual Report on Form 10-K,
                                    filed with the Securities and Exchange
                                    Commission on March 19, 1999


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

         4.2                        Bylaws of the Registrant: Included in
                                    Exhibits 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

         4.4                        Palmetto Bancshares, Inc. 1998 Stock
                                    Compensation Plan, as amended to date.
                                    Incorporated by reference to the Company's
                                    Annual Report on Form 10-K, filed with the
                                    Securities and Exchange Commission on March
                                    23, 1998

         27.1*                      Financial Data Schedule

         * Filed herewith.


                                       23