GREENVILLE, S.C. – Palmetto Bancshares, Inc. reported a net loss for the first quarter 2011 of $6.1 million, compared to a net loss for the fourth quarter 2010 of $32.6 million. Included in the results for the fourth quarter 2010 was a noncash charge of $14.1 million to establish an initial valuation allowance against the deferred tax asset at December 31, 2010. In the first quarter 2011, an additional increase in the deferred tax asset valuation allowance offset the income tax benefit that would otherwise have been recorded. Also included in the fourth quarter 2010 was a nonrecurring gain of $1.2 million on the sale of the Company’s credit card portfolio.

Excluding the noncash charges and nonrecurring item described above, the Company incurred a net loss of $6.0 million for the first quarter 2011 compared to a net loss of $19.7 million for the fourth quarter 2010. Similar to the previous quarter, the first quarter 2011 net loss was driven primarily by the continued elevated level of credit losses on problem assets stemming from depressed real estate values. The provision for loan losses, losses on loans held for sale, and writedowns and expenses on foreclosed properties totaled $7.5 million and $20.7 million, respectively, for the first quarter 2011 and fourth quarter 2010.

“Even though we again experienced an elevated level of credit losses, the aggregate amount of credit losses declined significantly in the first quarter of 2011,” said Samuel L. Erwin, Chief Executive Officer. “It appears that appraised values on commercial real estate may be starting to stabilize. In addition, during the first quarter the amount of our loans migrating into nonaccrual status declined significantly. Both of these positive factors are encouraging signs of an improving economy and indicate that the effects of the extended recession of the past few years may finally be waning.”

As part of its strategic plan to address credit quality issues, in September 2010 the Company began marketing for sale a pool of commercial real estate assets to reduce both the level of problem assets and concentration in commercial real estate. Since September 2010, the Company completed the sale of $14.7 million of these assets.

In addition to a reduction in credit losses, the Company also realized improvement in its net interest margin, which improved to 3.28% in the first quarter 2011 from 2.78% in the fourth quarter 2010. “Since the consummation of the private placement of our common stock in October 2010, we have taken strategic actions to reposition the balance sheet and improve our profitability,” Erwin continued. “In December 2010 and January 2011, we prepaid substantially all of our higher cost wholesale borrowings and during the first quarter we did not pursue retention of maturing higher priced certificates of deposit, both of which resulted in reduced interest expense. In addition, we are aggressively pursuing new loans through targeted campaigns with attractive rates. These efforts resulted in the highest quarterly loan origination volume since 2008. However, new loan volumes have not yet returned to historical levels, resulting in a continuation of our near term strategy of reinvesting excess cash into the securities portfolio to generate a higher level of interest income.”

“Continuing the reduction in problem assets and improving our net interest margin are two critically important priorities of our strategic plan. Our actions in the first quarter are moving us in the right direction as we draw closer to our return to profitability. We made progress this quarter, and we are encouraged by the ongoing signs of an improving economy,” said Erwin.

Headquartered in Greenville, South Carolina, The Palmetto Bank is a 104-year old independent state-chartered commercial bank and is the fourth-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.