CapGen Financial Partners, Patriot Financial Partners, and Others Commit to $100 Million Investment

Greenville, S.C. – Palmetto Bancshares, Inc., a bank holding company whose principal banking subsidiary is The Palmetto Bank, announced today that it has entered into formal stock purchase agreements with institutional investors to invest $100 million in the Company’s common stock in a private placement. The executed commitments include $55 million from CapGen Financial Partners as previously announced, $23.3 million from Patriot Financial Partners, $10.4 million from Sandler O’Neill Asset Management, and the remaining $11.3 million from other institutional investors. As previously announced, the investors intend to purchase shares of Company common stock at $2.60 per share.

“Two weeks ago we announced the initial $55 million commitment from CapGen. Announcement today of the remaining $45 million in commitments, including from other well respected funds like Patriot Financial Partners and Sandler O’Neill Asset Management, is further confirmation of the progress being made to strengthen the Company,” said Samuel L. Erwin, Chief Executive Officer. Erwin continued, “We have been hard at work executing the Strategic Project Plan we adopted in June 2009 to address the loan portfolio credit quality issues which resulted from the extended recession of the past two years. We expect that raising capital, combined with an improving economy, will accelerate our road to recovery and return to profitability in the post-recession environment.”

The consummation of the private placement is subject to a number of conditions, including approval by the Company’s shareholders of a proposal to increase the number of authorized shares of common stock and the investors receiving the necessary bank regulatory approvals and determinations. As a result of the private placement, the Company’s annual meeting of shareholders scheduled for June 22, 2010 will be rescheduled to a later date and the proxy statement for the meeting will be mailed to shareholders prior to the meeting. Each of the Company’s directors and executive officers has agreed to vote his or her shares in favor of the matters to be voted upon in connection with the private placement. The Company also plans to include in the proxy statement the slate of directors proposed for election. Under the stock purchase agreement with the investors, the Company also is permitted to conduct a $10 million follow on offering after the closing of the private placement that would allow current shareholders to purchase common stock of the Company.

“Completing the capital raise is a very important step for us,” said L. Leon Patterson, Chairman of the Board. “We appreciate the loyal support of our shareholders over our 103-year history, and we are excited about the future. We are committed to moving forward in our second century of serving the Upstate of South Carolina with innovative ways of banking while continuing to provide outstanding customer service.”

The Company expects to use the net proceeds from the private placement primarily to contribute capital to The Palmetto Bank. The capital contribution to the Bank will result in the Bank’s capital adequacy ratios exceeding the minimum capital levels required to be categorized as “well capitalized”.

Howe Barnes Hoefer & Arnett, Inc. served as the sole placement agent for the transaction.

Certain investments discussed above involve the sale of securities in private transactions that will not be registered under the Securities Act of 1933, as amended, and will be subject to the resale restrictions under that Act. Such securities may not be offered or sold absent registration or an applicable exemption from registration. This news release does not constitute an offer to sell or a solicitation of an offer to buy any securities, nor shall there be any sale of securities in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.

The Company plans to file with the SEC and mail to its shareholders a proxy statement in connection with the transactions contemplated herein. The Company and its respective directors and executive officers may be deemed to be participants in the solicitation of proxies. Information regarding the Company’s directors and executive officers is contained in the Company’s proxy statement filed with the SEC on April 30, 2010. The proxy statement related to the private placement described herein will contain important additional information about the Company and related matters, including the current common stock holdings of the Company’s officers and directors. Shareholders are urged to read the proxy statement carefully when it becomes available.

The written materials described above and other documents filed by the Company with the SEC will be available free of charge from the SEC’s website at www.sec.gov.

About The Palmetto Bank

Headquartered in Greenville, South Carolina, The Palmetto Bank is a 103-year old independent statechartered commercial bank and is the fifth-largest banking institution headquartered in South Carolina. The Palmetto Bank has assets of $1.3 billion and serves the Upstate through 29 banking locations in Abbeville, Anderson, Cherokee, Greenville, Greenwood, Laurens, Oconee, Pickens, Spartanburg and York counties. The Bank specializes in providing personalized community banking services to individuals and small to mid-size businesses including Retail and Commercial Banking, Mortgage, Trust, Brokerage, and Insurance. Additional information may be found at the Company’s web site at www.palmettobank.com.

About CapGen Financial Partners

CapGen is a private equity firm that invests in financial services businesses with a particular focus on community and regional financial institutions, specialty finance and related services. CapGen seeks to invest in high quality medium-sized financial services related businesses. These may include banks, finance and leasing companies. Potential portfolio companies may be privately owned, publicly held or divisions of large institutions subject to divesture.

CapGen generally focuses its investments on companies which already have demonstrated the viability of their businesses. Therefore, CapGen specializes in providing long-term capital for recapitalizations, management led buyouts, and expansion capital for growth opportunities. The New York-based firm was founded by Eugene Ludwig, who previously served as U.S. Comptroller of the Currency and Vice Chairman of Bankers Trust / Deutsche Bank. Additional information may be found at CapGen’s web site at www.capgen.com.

About Patriot Financial Partners

Patriot Financial Partners, L.P. is a private equity fund focused on investing in community banks, thrifts and other financial service related companies. The Fund is long only with a value oriented, buy and hold strategy. Patriot Financial Partners, L.P. has committed capital of $300 million for an initial term of ten years . To learn more about Patriot Financial Partners, L.P., visit www.patriotfinancialpartners.com.