**UNITED                STATES                SECURITIES AND EXCHANGE COMMISSION                Washington, D.C. 20549**

**FORM                10-Q**

                 
| (Mark                            One) |                                                                                                                                              |
|---------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------|
| x                                     | **QUARTERLY                            REPORT UNDER SECTION 13 OR 15(d)**

**OF                            THE SECURITIES EXCHANGE ACT OF 1934**  |
|                                  | For the quarterly period ended:September30, 2007                                                                                                  |
|                                  |                                                                                                                                              |
| ___                                   | **TRANSITION                            REPORT UNDER SECTION 13 OR 15(d)**

**OF                            THE SECURITIES EXCHANGE ACT OF 1934** |
|                                  | For the transition period fromto                                                                                                                  |

                Commission file number:000-22503

                BEACH FIRST NATIONAL BANCSHARES, INC.

                (Exact name of registrant as specified in its charter)
| South                            Carolina           | 57-1030117                                                      |
|-----------------------------------------------------|-----------------------------------------------------------------|
| (State                            of Incorporation) | (I.R.S.                            Employer Identification No.) |

                 

3751 Grissom                Parkway, Suite 100, Myrtle Beach, South Carolina 29577

(Address of                principal executive offices)

(843)                626-2265

(Issuer's                telephone number)

Not                Applicable

(Former name,                former address and former fiscal year, if changed since last report)

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

                 

                Indicate by check mark whether the registrant is a large accelerated file, an                accelerated filer, or a non-accelerated filer. See definition of “accelerated                filer and large accelerated filer” in Rule 12b-2 of the Exchange                Act.

                                           Large accelerated filer[ ]                     Accelerated                filer [                ]               Non-accelerated                filer |X|

                Indicate by check mark whether the registrant is shell company (as defined in Rule                12b-2 of the Exchange Act).    Yes  [                ]    No                  |X|

State the                number of shares outstanding of each of the issuer's classes of common equity, as                of the latest practicable date: OnNovember 1, 2007,4,842,766shares                of the issuer's common stock, par value $1.00 per share, were issued and                outstanding.

----

**Beach First                National Bancshares, Inc. and Subsidiaries**

**INDEX                                                          **
|                                                                                                                                                                                                      |        |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
||
||
| Item 1.                        Financial Statements (Unaudited)                                                                                                                                      |   |   |  |
|                                                                                                                                                                                                      |   |   |  |  |  |
|          Consolidated                        Condensed Balance Sheets – September 30, 2007, September 30,                        2006,            |   |   |   |  |   |
|             and                        December 31, 2006                                                                                 |   |   |   | 3 |   |
|                                                                                                                                                                                                      |   |   |  |  |  |
|          Consolidated                        Condensed Statements of Income –                                                                     |   |   |   |  |   |
|             Nine                        months ended September 30, 2007 and 2006                                                         |   |   |   |  |   |
|             Three                        months ended September 30, 2007 and 2006                                                        |   |   |   | 4 |   |
|                                                                                                                                                                                                      |   |   |  |  |  |
|          Consolidated                        Condensed Statements of Shareholders’ Equity and Comprehensive Income                        – |   |   |   |  |   |
|             Nine                        months ended September 30, 2007 and 2006                                                         |   |   |   | 5 |   |
|                                                                                                                                                                                                      |   |   |  |  |  |
|          Consolidated                        Condensed Statements of Cash Flows –                                                                 |   |   |   |  |   |
|            Nine                        months ended September 30, 2007 and 2006                                                               |   |   |   | 6 |   |
|                                                                                                                                                                                                      |   |   |  |  |  |
|          Notes                        to Consolidated Condensed Financial Statements                                                                    |   |   |   | 7- | 8 |
|                                                                                                                                                                                                      |   |   |  |  |  |
| Item 2.                        Management’s Discussion and Analysis of Financial Condition and                        Results of Operations                                                    |   |   |   | 9- | 20 |
|                                                                                                                                                                                                      |   |   |  |  |  |
| Item 3. Quantitative                        and Qualitative Disclosures about Market Risk                                                                                                            |   |   |   | 20 |   |
|                                                                                                                                                                                                      |   |   |  |  |  |
| Item 4. Controls and                        Procedures                                                                                                                                               |   |   |   | 21 |   |
|                                                                                                                                                                                                      |   |   |  |  |  |
| **PART II.                        OTHER INFORMATION**                                                                                                                                                |   |   |   |  |   |
|                                                                                                                                                                                                      |   |   |  |  |  |
| Item 1. Legal                        Proceedings                                                                                                                                                     |   |   |   | 21 |   |
|                                                                                                                                                                                                      |   |   |  |  |  |
| Item 1A. Risk                        Factors                                                                                                                                                         |   |   |   | 21 |   |
|                                                                                                                                                                                                      |   |   |  |  |  |
| Item 2. Unregistered                        Sales of Equity Securities and Use of Proceeds                                                                                                           |   |   |   | 21 |   |
|                                                                                                                                                                                                      |   |   |  |  |  |
| Item 3. Defaults                        Upon Senior Securities                                                                                                                                       |   |   |   | 21 |   |
|                                                                                                                                                                                                      |   |   |  |  |  |
| Item 4. Submission                        of Matters to a Vote of Security Holders                                                                                                                   |   |   |   | 21 |   |
|                                                                                                                                                                                                      |   |   |  |  |  |
| Item 5. Other                        Information                                                                                                                                                     |   |   |   | 21 |   |
|                                                                                                                                                                                                      |   |   |  |  |  |
| Item 6.                        Exhibits                                                                                                                                                              |   |   |   | 21 |   |

**  **

                 

 

 

 

 

2

----

 **Item 1.                Financial Statements**

**Beach First                National Bancshares, Inc. and Subsidiaries**

**Consolidated                Condensed Balance Sheets**

                 
|                                                                                                                        | September                        30, | December                        31, |
|------------------------------------------------------------------------------------------------------------------------|--------------------------------------|-------------------------------------|
||
||
||
| Cash and                        due from banks                                                                         |                                 |                                | $ | 5,067,749 |   | $ | 6,694,944 |   | $ | 5,198,945 |   |
| Federal funds sold                        and short-term investments                                                   |                                 |                                |   | 359,278 |   |   | 235,866 |   |   | 14,010,667 |   |
| Investment                        securities available for sale                                                        |                                 |                                |   | 69,093,920 |   |   | 62,892,627 |   |   | 68,474,531 |   |
| Loans                                                                                                                  |                                 |                                |   |  |   |   |  |   |   |  |   |
|      Loans,                        net of unearned income                                     |                                 |                                |   | 465,394,875 |   |   | 395,643,108 |   |   | 398,736,634 |   |
|      Mortgage                        loans held for sale                                      |                                 |                                |   | 6,392,792 |   |   | 8,174,321 |   |   | 12,478,222 |   |
|         Total                        loans                                     |                                 |                                |   | 471,787,667 |   |   | 403,817,429 |   |   | 411,214,856 |   |
|      Allowance                        for Loan Loss                                           |                                 |                                |   | (6,397,012 | ) |   | (5,671,492 | ) |   | (5,888,052 | ) |
| Loans, net of                        allowance                                                                         |                                 |                                |   | 465,390,655 |   |   | 398,145,937 |   |   | 405,326,804 |   |
| Federal Reserve Bank                        stock                                                                      |                                 |                                |   | 984,000 |   |   | 984,000 |   |   | 984,000 |   |
| Federal Home Loan                        Bank stock                                                                    |                                 |                                |   | 3,395,300 |   |   | 2,475,600 |   |   | 2,475,600 |   |
| Premises and                        equipment, net                                                                     |                                 |                                |   | 15,458,744 |   |   | 11,197,614 |   |   | 14,344,330 |   |
| Cash value of life                        insurance                                                                    |                                 |                                |   | 3,522,501 |   |   | 3,393,144 |   |   | 3,424,586 |   |
| Investment in BFNB                        Trusts                                                                       |                                 |                                |   | 310,000 |   |   | 310,000 |   |   | 310,000 |   |
| Other                        assets                                                                                    |                                 |                                |   | 7,803,341 |   |   | 5,705,823 |   |   | 5,651,876 |   |
|   Total                        assets                                                                        |                                 |                                | $ | 571,385,488 |   | $ | 492,035,555 |   | $ | 520,201,339 |   |
|                                                                                                                        |                                 |                                |   |  |   |   |  |   |   |  |   |
|                                 **LIABILITIES AND SHAREHOLDERS’ EQUITY** |                                 |                                |   |  |   |   |  |   |   |  |   |
| **LIABILITIES:**                                                                                                       |                                 |                                |   |  |   |   |  |   |   |  |   |
| Deposits                                                                                                               |                                 |                                |   |  |   |   |  |   |   |  |   |
|    Noninterest bearing                        deposits                                                  |                                 |                                | $ | 40,317,614 |   | $ | 35,560,935 |   | $ | 37,194,469 |   |
|    Interest bearing                        deposits                                                     |                                 |                                |   | 399,947,404 |   |   | 347,223,536 |   |   | 379,162,660 |   |
|      Total                        deposits                                                    |                                 |                                |   | 440,265,018 |   |   | 382,784,471 |   |   | 416,357,129 |   |
| Advances from                        Federal Home Loan Bank                                                            |                                 |                                |   | 55,000,000 |   |   | 37,500,000 |   |   | 37,500,000 |   |
| Federal funds                        purchased and other borrowings                                                    |                                 |                                |   | 9,281,626 |   |   | 14,780,469 |   |   | 7,209,820 |   |
| Junior subordinated                        debentures                                                                  |                                 |                                |   | 10,310,000 |   |   | 10,310,000 |   |   | 10,310,000 |   |
| Other                        liabilities                                                                               |                                 |                                |   | 5,202,383 |   |   | 3,085,054 |   |   | 3,364,811 |   |
|      Total                        liabilities                                                 |                                 |                                |   | 520,059,027 |   |   | 448,459,994 |   |   | 474,741,760 |   |
|                                                                                                                        |                                 |                                |   |  |   |   |  |   |   |  |   |
| **SHAREHOLDERS’                        EQUITY:**                                                                 |                                 |                                |   |  |   |   |  |   |   |  |   |
| Common stock, $1 par                        value; 10,000,000 shares                                                   |                                 |                                |   |  |   |   |  |   |   |  |   |
|  authorized;                        4,842,766 issued and outstanding at                                           |                                 |                                |   |  |   |   |  |   |   |  |   |
| September 30, 2007,                        4,768,512 at September 30, 2006,                                            |                                 |                                |   |  |   |   |  |   |   |  |   |
|  and 4,768,413                        at December 31, 2006                                                        |                                 |                                |   | 4,842,766 |   |   | 4,768,512 |   |   | 4,768,413 |   |
| Paid-in                        capital                                                                                 |                                 |                                |   | 29,110,906 |   |   | 28,657,576 |   |   | 28,657,576 |   |
| Retained                        earnings                                                                               |                                 |                                |   | 17,839,719 |   |   | 10,878,299 |   |   | 12,706,795 |   |
| Accumulated other                        comprehensive loss                                                            |                                 |                                |   | (466,930 | ) |   | (728,826 | ) |   | (673,205 | ) |
|      Total                        shareholders’ equity                                  |                                 |                                |   | 51,326,461 |   |   | 43,575,561 |   |   | 45,459,579 |   |
|      Total                        liabilities and shareholders' equity                        |                                 |                                | $ | 571,385,488 |   | $ | 492,035,555 |   | $ | 520,201,339 |   |

                 

                The accompanying notes are an integral part of these consolidated condensed                financial statements.

                 

3

----

**Beach                First National Bancshares, Inc. and Subsidiaries                Consolidated****Condensed****Statements of Income**

(Unaudited)
|                                                                                                                        | Nine Months Ended | Three Months Ended |
|------------------------------------------------------------------------------------------------------------------------|-------------------|--------------------|
||
||
| **INTEREST                        INCOME**                                                                             |              |               |   |  |   |   |  |   |   |  |   |   |  |   |
|    Interest                        and fees on loans                                                    |              |               | $ | 30,643,888 |   | $ | 23,439,481 |   | $ | 10,587,658 |   | $ | 8,816,443 |   |
|    Investment                        securities                                                         |              |               |   | 2,783,588 |   |   | 2,048,424 |   |   | 934,016 |   |   | 786,308 |   |
|    Federal                        funds sold                                                            |              |               |   | 280,172 |   |   | 313,578 |   |   | 141,795 |   |   | 87,503 |   |
|     Other                                                                                          |              |               |   | 17,905 |   |   | 16,915 |   |   | 6,046 |   |   | 6,006 |   |
|        Total                        interest income                                 |              |               |   | 33,725,553 |   |   | 25,818,398 |   |   | 11,669,515 |   |   | 9,696,260 |   |
|                                                                                                                        |              |               |   |  |   |   |  |   |   |  |   |   |  |   |
| **INTEREST                        EXPENSE**                                                                            |              |               |   |  |   |   |  |   |   |  |   |   |  |   |
|    Deposits                                                                                             |              |               |   | 13,980,166 |   |   | 9,502,940 |   |   | 4,780,404 |   |   | 3,651,980 |   |
|    Federal                        funds purchased and other borrowings                                  |              |               |   | 1,705,203 |   |   | 1,066,931 |   |   | 734,416 |   |   | 379,518 |   |
|    Junior                        subordinated debentures                                                |              |               |   | 967,591 |   |   | 568,977 |   |   | 327,606 |   |   | 202,150 |   |
|           Total                        interest expense              |              |               |   | 16,652,960 |   |   | 11,138,848 |   |   | 5,842,426 |   |   | 4,233,648 |   |
|                                                                                                                        |              |               |   |  |   |   |  |   |   |  |   |   |  |   |
|           Net                        interest income                 |              |               |   | 17,072,593 |   |   | 14,679,550 |   |   | 5,827,089 |   |   | 5,462,612 |   |
|                                                                                                                        |              |               |   |  |   |   |  |   |   |  |   |   |  |   |
| **PROVISION FOR                        LOAN LOSSES**                                                                   |              |               |   | 950,800 |   |   | 1,778,600 |   |   | 278,800 |   |   | 591,200 |   |
|           Net                        interest income after provision |              |               |   |  |   |   |  |   |   |  |   |   |  |   |
|              for                        loan losses   |              |               |   | 16,121,793 |   |   | 12,900,950 |   |   | 5,548,289 |   |   | 4,871,412 |   |
|                                                                                                                        |              |               |   |  |   |   |  |   |   |  |   |   |  |   |
| **NONINTEREST                        INCOME**                                                                          |              |               |   |  |   |   |  |   |   |  |   |   |  |   |
|    Service                        fees on deposit accounts                                              |              |               |   | 426,979 |   |   | 381,611 |   |   | 148,955 |   |   | 119,663 |   |
|    Gain                        on sale of loans                                                         |              |               |   | 703,222 |   |   | 319,234 |   |   | 208,389 |   |   | 258,842 |   |
|    Retail                        mortgage origination income                                            |              |               |   | 2,126,300 |   |   | 527,841 |   |   | 493,648 |   |   | 406,968 |   |
|    Income                        from cash value life insurance                                         |              |               |   | 114,150 |   |   | 106,996 |   |   | 39,734 |   |   | 36,469 |   |
|    Miscellaneous                        loan fees                                                       |              |               |   | 1,514,357 |   |   | 264,278 |   |   | 354,040 |   |   | 264,277 |   |
|    Other                        income                                                                  |              |               |   | 1,406,447 |   |   | 909,829 |   |   | 559,428 |   |   | 150,803 |   |
|          Total                        noninterest income                  |              |               |   | 6,291,455 |   |   | 2,509,789 |   |   | 1,804,194 |   |   | 1,237,022 |   |
|                                                                                                                        |              |               |   |  |   |   |  |   |   |  |   |   |  |   |
| **NONINTEREST                        EXPENSES**                                                                        |              |               |   |  |   |   |  |   |   |  |   |   |  |   |
|    Salaries                        and wages                                                            |              |               |   | 5,984,093 |   |   | 4,205,389 |   |   | 1,636,798 |   |   | 1,715,590 |   |
|    Employee                        benefits                                                             |              |               |   | 1,230,203 |   |   | 762,497 |   |   | 422,781 |   |   | 328,788 |   |
|    Supplies                        and printing                                                         |              |               |   | 150,074 |   |   | 89,542 |   |   | 56,988 |   |   | 30,181 |   |
|    Advertising                        and public relations                                              |              |               |   | 495,967 |   |   | 268,441 |   |   | 178,916 |   |   | 95,658 |   |
|    Professional                        fees                                                             |              |               |   | 455,203 |   |   | 350,610 |   |   | 182,379 |   |   | 81,435 |   |
|    Depreciation                        and amortization                                                 |              |               |   | 792,982 |   |   | 365,747 |   |   | 266,224 |   |   | 115,621 |   |
|    Occupancy                                                                                            |              |               |   | 1,331,458 |   |   | 705,281 |   |   | 469,710 |   |   | 299,392 |   |
|    Data                        processing fees                                                          |              |               |   | 528,118 |   |   | 389,333 |   |   | 175,057 |   |   | 142,557 |   |
|    Other                        operating expenses                                                      |              |               |   | 3,471,769 |   |   | 1,448,729 |   |   | 1,132,224 |   |   | 589,519 |   |
|           Total                        noninterest expenses          |              |               |   | 14,439,867 |   |   | 8,585,569 |   |   | 4,521,077 |   |   | 3,398,741 |   |
|                                                                                                                        |              |               |   |  |   |   |  |   |   |  |   |   |  |   |
|           Income                        before income taxes          |              |               |   | 7,973,381 |   |   | 6,825,170 |   |   | 2,831,406 |   |   | 2,709,693 |   |
|                                                                                                                        |              |               |   |  |   |   |  |   |   |  |   |   |  |   |
| **INCOME TAX                        EXPENSE**                                                                          |              |               |   | 2,840,459 |   |   | 2,460,453 |   |   | 1,009,300 |   |   | 979,874 |   |
|                                                                                                                        |              |               |   |  |   |   |  |   |   |  |   |   |  |   |
|           Net                        income                          |              |               | $ | 5,132,922 |   | $ | 4,364,717 |   | $ | 1,822,106 |   | $ | 1,729,819 |   |
|                                                                                                                        |              |               |   |  |   |   |  |   |   |  |   |   |  |   |
| **BASIC NET                        INCOME PER COMMON**                                                                 |              |               |   |  |   |   |  |   |   |  |   |   |  |   |
|                           **SHARE**                                                                          |              |               | $ | 1.07 |   | $ | 0.92 |   | $ | 0.38 |   | $ | 0.36 |   |
|                                                                                                                        |              |               |   |  |   |   |  |   |   |  |   |   |  |   |
| **DILUTED NET                        INCOME PER COMMON**                                                               |              |               |   |  |   |   |  |   |   |  |   |   |  |   |
|                           **SHARE**                                                                          |              |               | $ | 1.04 |   | $ | 0.90 |   | $ | 0.37 |   | $ | 0.36 |   |
|     Weighted                        average common shares outstanding - basic                      |              |               |   | 4,809,546 |   |   | 4,762,576 |   |   | 4,840,145 |   |   | 4,767,705 |   |
|     Weighted                        average common shares outstanding – diluted              |              |               |   | 4,942,553 |   |   | 4,877,182 |   |   | 4,939,253 |   |   | 4,882,311 |   |

                 

The accompanying                notes are an integral part of these consolidated condensed financial                statements.

                 

4

----

**Beach First                National Bancshares, Inc. and Subsidiaries**

**Consolidated                Condensed Statements of Changes in Shareholders’ Equity and Comprehensive                Income**

(Unaudited)

                 
|                                                                                        |        |        |        |           | Accumulated |        |
|----------------------------------------------------------------------------------------|--------|--------|--------|-----------|-------------|--------|
||
||
||
||
| BALANCE,                        DECEMBER 31, 2005                                      |   |   |   | 3,169,958 |        | $      | 3,169,958 |   | $ | 30,157,843 |   | $ | 6,513,582 |   | $ | (715,970 | ) | $ | 39,125,413 |   |
|    Net                        income                                    |   |   |   | --        |        |   | -- |   |   | -- |   |   | 4,364,717 |   |   | -- |   |   | 4,364,717 |   |
| Other comprehensive                        income (loss), net of                       |   |   |   |           |        |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| taxes:                                                                                 |   |   |   |           |        |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
|   Unrealized loss on                        investment securities            |   |   |   | --        |        |   | -- |   |   | -- |   |   | -- |   |   | (12,856 | ) |   | (12,856 | ) |
|   Comprehensive                        income                                |   |   |   | --        |        |   | -- |   |   | -- |   |   | -- |   |   | -- |   |   | 4,351,861 |   |
|    Exercise of stock                        options                     |   |   |   | 9,050     |        |   | 9,050 |   |   | 89,237 |   |   | -- |   |   | -- |   |   | 98,287 |   |
|    Stock dividend in                        the form of a 3 for 2 split |   |   |   | 1,589,504 |        |   | 1,589,504 |   |   | (1,589,504 | ) |   | -- |   |   | -- |   |  |  |  |
| BALANCE, SEPTEMBER                        30, 2006                                     |   |   |   | 4,768,512 |        | $      | 4,768,512 |   | $ | 28,657,576 |   | $ | 10,878,299 |   | $ | (728,826 | ) | $ | 43,575,561 |   |

                 
|                                                                             |        |        |        |           | Accumulated |        |
|-----------------------------------------------------------------------------|--------|--------|--------|-----------|-------------|--------|
||
||
||
||
| BALANCE,                        DECEMBER 31, 2006                           |   |   |   | 4,768,413 |        | $      | 4,768,413 |   | $ | 28,657,576 |   | $ | 12,706,797 |   | $ | (673,205 | ) | $ | 45,459,581 |   |
|    Net                        income                         |   |   |   | --        |        |   | -- |   |   | -- |   |   | 5,132,922 |   |   | -- |   |   | 5,132,922 |   |
| Other comprehensive                        income, net of taxes:            |   |   |   |           |        |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
|   Unrealized gain on                        investment securities |   |   |   | --        |        |   | -- |   |   | -- |   |   | -- |   |   | 35,655 |  |   | 35,655 |  |
|   Unrealized                        gain on interest rate swap         |        |        |        | --        |             |        | -- |  |  | -- |  |  | -- |  |  | 170,620 |  |  | 170,620 |  |
|   Comprehensive                        income                     |   |   |   |           |        |   |  |   |   |  |   |   |  |   |   |  |   |   | 5,339,197 |   |
|    Stock based                        compensation expense   |   |   |   | --        |        |   | -- |   |   | 6,955 |   |   | -- |   |   | -- |   |   | 6,955 |   |
|    Exercise of stock                        option           |   |   |   | 74,353    |        |   | 74,353 |   |   | 446,375 |  |   | -- |   |   | -- |   |  | 520,728 |  |
|                                                                             |        |        |        |           |             |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| BALANCE, SEPTEMBER                        30, 2007                          |   |   |   | 4,842,766 |        | $      | 4,842,766 |   | $ | 29110906 |   | $ | 17,839,719 |   | $ | (466,930 | ) | $ | 51,326,461 |   |

                 

The accompanying                notes are an integral part of these consolidated condensed financial                statements.

                 

                 

                 

                 

                 

                 

5

----

**Beach First                National Bancshares, Inc. and Subsidiaries                Consolidated Condensed Statements of Cash Flows**

                 
|                                                                                                                                                 | Nine                        Months Ended |        |        |
|-------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------|--------|--------|
|                                                                                                                                                 |                                          |
|                                                                                                                                                 |                                          |
|                                                                                                                                                 |                                          |
| **OPERATING                        ACTIVITIES:**                                                                                                |                                     |   |   |  |   |   |  |   |  |  |
|    Net                        income                                                                                             |                                     |   | $      | 5,132,922 |   | $ | 4,364,717 |   |  |  |
|    Adjustments to                        reconcile net income to net cash provided by (used in)                        operating |                                     |   |   |  |   |   |  |   |  |  |
|         activities:                                                                                     |                                     |   |   |  |   |   |  |   |  |  |
|    Deferred income                        taxes                                                                                  |                                     |   |   | (250,144 | ) |   | (747,736 | ) |  |  |
|    Stock based                        compensation expense                                                                       |                                     |   |   | 6,955 |   |   | -- |   |  |  |
|    Provisions for loan                        losses                                                                             |                                     |   |   | 950,800 |   |   | 1,778,600 |   |  |  |
|    Depreciation and                        amortization                                                                          |                                     |   |   | 792,982 |   |   | 365,747 |   |  |  |
|    Discount accretion                        and premium amortization                                                            |                                     |   |   | (103,077 | ) |   | 56,798 |   |  |  |
|    (Gain) on sale of                        property and equipment                                                               |                                     |   |   | (5,499 | ) |   | (581,711 | ) |  |  |
|    (Decrease) in other                        assets                                                                             |                                     |   |   | (1,901,321 | ) |   | (1,597,804 | ) |  |  |
|    Increase in other                        liabilities                                                                          |                                     |   |   | 1,939,824 |   |   | 1,529,451 |   |  |  |
|    Life insurance cash                        value increase                                                                     |                                     |   |   | (97,915 | ) |   | (91,727 | ) |  |  |
|        Net                        cash provided by operating activities                                      |                                     |   |   | 6,465,527 |   |   | 5,076,335 |   |  |  |
|                                                                                                                                                 |                                     |   |        |  |  |  |  |  |  |  |
| **INVESTING                        ACTIVITIES:**                                                                                                |                                     |   |   |  |   |   |  |   |  |  |
|    Purchase of                        investment securities                                                                      |                                     |   |   | (462,292 | ) |   | (18,993,028 | ) |  |  |
|    Purchase of Federal                        Home Loan Bank stock                                                               |                                     |   |   | (919,700 | ) |   | (464,200 | ) |  |  |
|    Purchase of Federal                        Reserve stock                                                                      |                                     |   |   | -- |   |   | (450,000 | ) |  |  |
|    Decrease in Federal                        funds sold                                                                         |                                     |   |   | 13,651,389 |   |   | 25,285,206 |   |  |  |
|    Increase in loans,                        net                                                                                 |                                     |   |   | (60,964,646 | ) |   | (92,500,102 | ) |  |  |
|    Purchase of                        premises and equipment                                                                     |                                     |   |   | (1,907,827 | ) |   | (5,809,143 | ) |  |  |
|    Proceeds from sale                        of property and equipment                                                           |                                     |   |   | 5,930 |   |   | 1,500,000 |   |  |  |
|        Net                        cash used in investing activities                                          |                                     |   |   | (50,597,146 | ) |   | (91,431,267 | ) |  |  |
|                                                                                                                                                 |                                     |   |   |  |   |   |  |   |  |  |
| **FINANCING                        ACTIVITIES:**                                                                                                |                                     |   |   |  |   |   |  |   |  |  |
|    Advances from                        Federal Home Loan Bank                                                                   |                                     |   |   | 17,500,000 |   |   | 3,500,000 |   |  |  |
|    Net increase in                        deposits                                                                               |                                     |   |   | 23,907,889 |   |   | 71,890,261 |   |  |  |
|    Proceeds from                        Federal funds purchased and other borrowings                                             |                                     |   |   | 2,071,806 |   |   | 13,276,460 |   |  |  |
|    Exercise of stock                        options                                                                              |                                     |   |   | 520,728 |   |   | 98,287 |   |  |  |
|        Net                        cash provided by financing activities                                      |                                     |   |   | 44,000,423 |   |   | 88,765,008 |   |  |  |
|                                                                                                                                                 |                                     |   |   |  |   |   |  |   |  |  |
|         Net                        increase (decrease) in cash and cash equivalents                     |                                     |   |   | (131,196 | ) |   | 2,410,076 |   |  |  |
|                                                                                                                                                 |                                     |   |   |  |   |   |  |   |  |  |
| **CASH AND DUE                        FROM BANKS, BEGINNING**                                                                                   |                                     |   |   |  |   |   |  |   |  |  |
|    **OF                        PERIOD**                                                                                          |                                     |   | $      | 5,198,945 |   | $ | 4,284,868 |   |  |  |
| **CASH AND DUE                        FROM BANKS, END OF**                                                                                      |                                     |   |   |  |   |   |  |   |  |  |
|    **PERIOD**                                                                                                                    |                                     |   | $      | 5,067,749 |   | $ | 6,694,944 |   |  |  |
|                                                                                                                                                 |                                     |   |   |  |   |   |  |   |  |  |
| **CASH PAID                        FOR:**                                                                                                       |                                     |   |   |  |   |   |  |   |  |  |
|    Income                        taxes                                                                                           |                                     |   | $      | 3,195,252 |   | $ | 4,429,302 |   |  |  |
|    Interest                                                                                                                      |                                     |   | $      | 16,577,634 |   | $ | 10,950,800 |   |  |  |

                 

The accompanying                notes are an integral part of these consolidated financial statements.

                 

6

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**Beach First                National Bancshares, Inc.                Notes to Consolidated Condensed Financial Statements (Unaudited)**
|  | **1.     ** | **Basis of Presentation** |
|--|--------------------------------------|---------------------------|

     The                accompanying consolidated condensed financial statements for Beach First National                Bancshares, Inc. (“Company”) were prepared in accordance with                instructions for Form 10-Q and, therefore, do not include all disclosures necessary                for a complete presentation of financial condition, results of operations, and cash                flows in conformity with generally accepted accounting principles. All adjustments,                consisting only of normal recurring accruals, which are, in the opinion of                management, necessary for fair presentation of the interim consolidated financial                statements have been included.Certain previously reported amounts                have been reclassified to conform to the current reporting presentation.The results of operations for theninemonth                period endedSeptember30, 2007 are not necessarily indicative of the                results that may be expected for the entire year. These consolidated financial                statements do not include all disclosures required by generally accepted accounting                principles and should be read in conjunction with the Company’s audited                consolidated financial statements and related notes for the year ended December 31,                2006.
|  | **2.     ** | **Principles of Consolidation** |
|--|--------------------------------------|---------------------------------|

                    The accompanying consolidated condensed financial statements                include the accounts of the Company and its subsidiaries, Beach First National Bank                and BFNM Building, LLC (“LLC”) (See Note 4 “Investment in                LLC” below). The Company also owns two grantor trusts, Beach First National                Trust I and Beach First National Trust II. All significant inter-company items and                transactions have been eliminated in consolidation. In accordance with current                accounting guidance, the financial statements of the trusts have not been included                in the Company’s financial statements.
|  | **3.     ** | **Earnings Per Share** |
|--|--------------------------------------|------------------------|

                   The Company calculates earnings per share in accordance with Statement of Financial                Accounting Standard No. 128, “Earnings per Share” (“SFAS                128”). SFAS 128 specifies the computation, presentation, and disclosure                requirements for earnings per share (EPS) for entities with publicly held common                stock or potential common stock such as options, warrants, convertible securities,                or contingent stock agreements if those securities trade in a public market.                 

                    This standard specifies computation and presentation                requirements for both basic EPS and, for entities with complex capital structures,                diluted EPS. Basic earnings per share are computed by dividing net income by the                weighted average common shares outstanding. Diluted earnings per share is similar                to the computation of basic earnings per share except that the denominator is                increased to include the number of additional common shares that would have been                outstanding if the dilutive potential common shares had been issued. The dilutive                effect of options outstanding under the Company’s stock option plan is                reflected in diluted earnings per share by application of the treasury stock                method.

**RECONCILIATION                OF THE NUMERATORS AND DENOMINATORS OF THE BASIC AND DILUTED EPS                COMPUTATIONS:**

                 
|                                                                          | **For the****Nine****Months                            Ended     ** |
|--------------------------------------------------------------------------|----------------------------------------------------------------------------------------------|
||
| **Basic earnings per                        share:**                     |                                                                                         |   |   |  |   |   |  |   |
| Net income available to common                        shareholders       |                                                                                         |   | $ | **5,132,922** |   | $ | 4,364,717 |   |
|                                                                          |                                                                                         |   |   |  |   |   |  |   |
| Average common shares outstanding                        – basic   |                                                                                         |   |   | 4,809,546 |   |   | 4,762,576 |   |
|                                                                          |                                                                                         |   |   |  |   |   |  |   |
| Basic earnings per share                                                 |                                                                                         |   | $ | 1.07 |   | $ | 0.92 |   |
|                                                                          |                                                                                         |   |   |  |   |   |  |   |
| **Diluted earnings per                        share:**                   |                                                                                         |   |   |  |   |   |  |   |
| Net income available to common                        shareholders       |                                                                                         |   | $ | 5,132,922 |   | $ | 4,364,717 |   |
|                                                                          |                                                                                         |   |   |  |   |   |  |   |
| Average common shares outstanding                        – basic   |                                                                                         |   |   | 4,809,546 |   |   | 4,762,576 |   |
|                                                                          |                                                                                         |   |   |  |   |   |  |   |
| Incremental shares from assumed                        conversion        |                                                                                         |   |   |  |   |   |  |   |
|    of stock                        options                |                                                                                         |   |   | 133,007 |   |   | 114,606 |   |
|                                                                          |                                                                                         |   |   |  |   |   |  |   |
| Average common shares outstanding                        – diluted |                                                                                         |   |   | 4,942,553 |   |   | 4,877,182 |   |
|                                                                          |                                                                                         |   |   |  |   |   |  |   |
| Diluted earnings per                        share                        |                                                                                         |   | **$** | **1.04** |   | $ | **0.90** |   |

                 

7

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|                                                                          | **For the** Three**Months                            Ended     ** |
|--------------------------------------------------------------------------|--------------------------------------------------------------------------------------------|
||
| **Basic earnings per                        share:**                     |                                                                                       |   |   |  |   |   |  |   |
| Net income available                        to common shareholders       |                                                                                       |   | $ | 1,822,106 |   | $ | 1,729,819 |   |
|                                                                          |                                                                                       |   |   |  |   |   |  |   |
| Average common                        shares outstanding – basic   |                                                                                       |   |   | 4,840,145 |   |   | 4,767,705 |   |
|                                                                          |                                                                                       |   |   |  |   |   |  |   |
| Basic earnings per                        share                          |                                                                                       |   | $ | 0.38 |   | $ | 0.36 |   |
|                                                                          |                                                                                       |   |   |  |   |   |  |   |
| **Diluted                        earnings per share:**                   |                                                                                       |   |   |  |   |   |  |   |
| Net income available                        to common shareholders       |                                                                                       |   | $ | 1,822,106 |   | $ | 1,729,819 |   |
|                                                                          |                                                                                       |   |   |  |   |   |  |   |
| Average common                        shares outstanding – basic   |                                                                                       |   |   | 4,840,145 |   |   | 4,767,705 |   |
|                                                                          |                                                                                       |   |   |  |   |   |  |   |
| Incremental shares                        from assumed conversion        |                                                                                       |   |   |  |   |   |  |   |
|    of                        stock options                |                                                                                       |   |   | 99,108 |   |   | 114,606 |   |
|                                                                          |                                                                                       |   |   |  |   |   |  |   |
| Average common                        shares outstanding – diluted |                                                                                       |   |   | 4,939,253 |   |   | 4,882,311 |   |
|                                                                          |                                                                                       |   |   |  |   |   |  |   |
| Diluted earnings per                        share                        |                                                                                       |   | $ | 0.37 |   | $ | 0.35 |   |

**4.**  **Investment in                LLC**

     TheLLC is in partnership with our legal                counsel, Nelson Mullins Riley & Scarborough LLP(NMR&S), for purposes of acquiring a parcel of                land and constructing an office building on the property. The Company owns                two-thirds of the LLC andNMR&Sowns the remaining one-third. The building is a                three-story, 46,066 square foot office building located on 3.5 acres at the                southwest corner of Robert Grissom Parkway and 38th Avenue North in Myrtle Beach,                South Carolina. The Company moved its main office to this location in December                2006.NMR&Salso relocated its Myrtle Beach legal office to the                building in December 2006. The LLC purchased the land for approximately $1.8                million and financed the construction project through a third-party lender with                each of the owners being responsible for their respective interests in the project.                The total land and construction project cost approximately $8.6million,                exclusive of tenant improvements. The Company leases two-thirds of the building                (approximately 30,000 square feet) from the LLC. Because the Company occupies                approximately 12,500 square feet of space, it intends to lease the other 17,500                square feet of its portion to outside tenants. As ofSeptember30,                2007,the Company has6,000 square feetavailable for lease.NMR&Salso                leases one-third of the building from the LLC.

     Upon                completion of construction, the construction financing note from the third-party                lender was converted to a term loan payable by the LLC to the third-party bank and                is secured by the building. The loan requires 107 installments of principal and                interest based on a fifteen year amortization, with all remaining principal and                interest due onSeptember15, 2015. The interest rate on the term loan is                variable based on one-month LIBOR plus 1.40%. As a result of the interest rate SWAP                discussed below, the LLC has converted this variable rate to a fixed rate of 6.02%.                The outstanding balance on the term loan atSeptember30,                2007 is$7.0million and is                shown as other borrowings in the accompanying balance                sheet.

**5.**   **Interest Rate SWAP                - Derivative Financial Instrument**

     The                LLC entered into an interest rate swap agreement as a risk management tool to hedge                the interest rate risk associated with the variable rate building loan discussed                above. This swap instrument is a derivative financial instrument designated as a                cash flow hedge and is accounted for in accordance with the provisions of Statement                of Financial Accounting Standard No. 133 (“SFAS 133”). Under the swap,                the LLC pays a fixed rate of 4.62% and receives interest payments that vary based                on LIBOR. Through the swap, the LLC has converted the building loan to a fixed                effective rate of 6.02%.                 

     In                accordance with SFAS 133, the LLC has formally documented the relationship between                the building loan and the swap, as well as the risk-management objective and                strategy for undertaking the hedge transaction. In connection with this process,                the LLC has determined that the swap is highly effective as a cash flow hedge and                the entire fair value of the swap was initially recorded in other comprehensive                income. Under SFAS 133, any material ineffectiveness must be reclassified to                earnings. During the formal documentation process, the LLC also determined that no                hedge ineffectiveness is anticipated because the terms of the swap so closely match                the terms of the building loan.

                 

8

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**Item 2.                Management's Discussion and Analysis of Financial Condition and Results of                Operations**

                The following is our discussion and analysis of certain significant factors that                have affected our financial position andoperating                results and those of our subsidiary, Beach First National Bank, during the periods                included in the accompanying financial statements. This commentary should be read                in conjunction with the financial statements and the related notes and the other                statistical information included in this report.

                          This report contains                “forward-looking statements” relating to, without limitation, future                economic performance, plans and objectives of management for future operations, and                projections of revenues and other financial items that are based on the beliefs of                management, as well as assumptions made by and information currently available to                management. The words “may,” “will,”                “anticipate,” “should,” “would,”                “believe,” “contemplate,” “expect,”                “estimate,”                “continue,” and “intend,” as well as other similar words                and expressions of the future, are intended to identify forward-looking                statements.Our                actual results may differ materially from the results discussed in the                forward-looking statements, and our operating performance each quarter is subject                to various risks and uncertainties including, without limitation those described in                detail in our Annual Report on Form 10-K for the year ended December 31, 2006 under                the heading “Risk Factors” with the Securities and Exchange Commission                and the following:
|  | ·      | significant increases in competitive pressure in the banking and                            financial services industries; |
|--|----------------------------------------|----------------------------------------------------------------------------------------------------------------------------|
|  | ·      | changes                            in the interest rate environment which could reduce anticipated or                            actual margins; |
|--|----------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------|
|  | ·      | changes                            in political conditions or the legislative or regulatory                            environment; |
|--|----------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------|
|  | ·      | general                            economic conditions, either nationally or regionally and especially in                            our primary service area, becoming less favorable than expected                            resulting in, among other things, a deterioration in credit                            quality; |
|--|----------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | ·      | changes                            occurring in business conditions and inflation; |
|--|----------------------------------------|------------------------------------------------------------------------------------|
|  | ·      | changes                            in management; |
|--|----------------------------------------|---------------------------------------------------|
|  | ·      | changes                            in technology; |
|--|----------------------------------------|---------------------------------------------------|
|  | ·      | changes                            in deposit flows; |
|--|----------------------------------------|------------------------------------------------------|
|  | ·      | the                            level of allowance for loan loss; |
|--|----------------------------------------|------------------------------------------------------------------|
|  | ·      | the rate of                            delinquencies and amounts of charge-offs; |
|--|----------------------------------------|----------------------------------------------------------------------------------|
|  | ·      | the rates of loan                            growth; |
|--|----------------------------------------|------------------------------------------------------|
|  | ·      | adverse changes in                            asset quality and resulting credit risk-related losses and                            expenses; |
|--|----------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------|
|  | ·      | changes in monetary                            and tax policies; |
|--|----------------------------------------|------------------------------------------------------------------|
|  | ·      | loss of consumer                            confidence and economic disruptions resulting from terrorist                            activities; |
|--|----------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------|
|  | ·      | changes                            in the securities markets; and |
|--|----------------------------------------|-------------------------------------------------------------------|
|  | ·      | other                            risks and uncertainties detailed from time to time in our filings with                            the Securities and Exchange Commission. |
|--|----------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

We undertake no                obligation to publicly update or otherwise revise any forward-looking statements,                whether as a result of new information, future events, or otherwise.                 

**Critical                Accounting Policies**

We have adopted                various accounting policies that govern the application of accounting principles                generally accepted in the United States and with general practices within the                banking industry in the preparation of our consolidated financial statements. Our                significant accounting policies are described in the footnotes to our audited                consolidated financial statements as of December 31, 2006 as filed in our 2006                Annual Report on Form 10-K.

Certain                accounting policies involve significant judgments and assumptions by management                which have a material impact on the carrying value of certain assets and                liabilities. We consider such accounting policies to be critical accounting                policies. The judgments and assumptions we use are based on historical experience                and other factors, which are believed to be reasonable under the circumstances.                Because of the nature of the judgments and assumptions we make, actual results                could differ from these judgments and estimates. These differences could have a                material impact on our carrying values of assets and liabilities and our results of                operations.

                 

9

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We believe                the allowance for loan losses is acritical accounting policy that                requires the most significant judgment and estimates used in preparation of our                consolidated financial statements. Some of the more critical judgments supporting                the amount of our allowance for loan losses include judgments about the credit                worthiness of borrowers, the estimated value of the underlying collateral, the                assumptions about cash flow, determination of loss factors for estimating credit                losses, the impact of current events, and conditions, and other factors impacting                the level of probable inherent losses. Under different conditions or using                different assumptions, the actual amount of credit losses incurred by us may be                different from management’s estimates provided in our consolidated financial                statements. Refer to the subsection entitled“Allowance for Possible Loan Losses”                belowfor a more complete discussion of our                processes and methodology for determining our allowance for loan                losses.

**Overview**

The                following discussion describes our results of operations for the quarter                endedSeptember30, 2007 as compared to the quarter endedSeptember30,                2006, as well as results for theninemonths endedSeptember30,                2007 and 2006, and also analyzes our financial condition as ofSeptember30,                2007 as compared to December 31, 2006. Like most community banks, we derive most of                our income from interest we receive on our loans and investments. Our primary                source of funds for making these loans and investments is our deposits, on which we                pay interest. Consequently, one of the key measures of our success is our amount of                net interest income, or the difference between the income on our interest-earning                assets, such as loans and investments, and the expense on our interest-bearing                liabilities, such as deposits. Another key measure is the spread between the yield                we earn on these interest-earning assets and the rate we pay on our                interest-bearing liabilities.

Of course, there                are risks inherent in all loans, so we maintain an allowance for loan losses to                absorb probable losses on existing loans that may become uncollectible. We                establish and maintain this allowance by charging a provision for loan losses                against our operating earnings. In the following section, we have included a                detailed discussion of this process.

In addition to                earning interest on our loans and investments, we earn income through fees and                other expenses we charge to our customers. We describe the various components of                this noninterest income, as well as our noninterest expense, in the following                discussion.

**     The following discussion and analysis also identifies                significant factors that have affected our financial position and operating results                during the periods included in the accompanying financial statements. We encourage                you to read this discussion and analysis in conjunction with the financial                statements and the related notes and the other statistical information also                included in this report.**

Results of                Operations

***Earnings                Review***

     Our                net income was$5.1million,or                $1.04per diluted common share, for theninemonths                endedSeptember30, 2007 as compared to net income of$4.4million,                or$0.90per diluted common share, for theninemonths                endedSeptember30, 2006. Our net income was$1.8million,                or$0.37per diluted common share, for the three months                endedSeptember30, 2007 as compared to net income of $1.7million, or $0.35per diluted                common share, for the same period of 2006. The increase in net income reflects the                bank’s continued growth, as average earning assets increased to $529.3million during the firstninemonths of                2007 from $492.0million during the same                period of 2006. The return on average assets for theninemonth                period endedSeptember30, 2007 was1.24%compared                to1.30%for the same period 2006. The return on average                equity was14.34% for theninemonth                period endedSeptember30, 2007 versus13.93% 2006.                 

*Net Interest                Income*

     Our                primary source of revenue is net interest income, which represents the difference                between the income on interest-earning assets and expense on interest-bearing                liabilities. During the ninemonthperiod ended September 30,2007, net interest income increased16.3% to                $17.1million from$14.7million                for the same period of 2006. For the three months endedSeptember30,                2007, net interest income increased6.7% to                $5.8million from $5.5million during the comparable period of 2006. The                growth in net interest income during theninemonth                period endedSeptember30, 2007 resulted from an increase of $7.9million in interest income, partially offset                by

                 

10

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an                increase in interest expense of $5.5million. Our net interest income is                determined by the level of our earning assets and the management of our net                interest margin. The continued growth of our loan portfolio is the primary driver                of the increase in net interest income. Average total loans increased from                $360.8million in the firstninemonths of                2006 to $448.4million in the same period in                2007. In addition, average securities increased to $69.5million in the firstninemonths of                2007 compared to $57.4million for the                firstninemonths of                2006.                                           Net interest spread, the difference between the rate                we earn on interest-earning assets and the rate we pay on interest-bearing                liabilities, was3.74%in the firstninemonths of                2007 compared to4.04% during the same period                of 2006. The net interest margin was4.31% for                theninemonth period endedSeptember30,                2007 compared to4.57% for the same period of 2006. The decline in the net                interest spread and the net interest margin are due to thechanginginterest rate environment and the increased                competition in our markets for deposits.With                recent declines in key interest ratesweexpect to                continue to see a decline in our net interest margin. 

*Provision for                Loan Losses*

                     We have established an                allowance for loan losses through a provision for loan losses charged as an expense                on our statement of income. We review our loan portfolio periodically to evaluate                our outstanding loans and to measure both the performance of the portfolio and the                adequacy of the allowance for loan losses. The provision for loan losseswas $950,800for the firstninemonths of 2007 and                $1.8million for the                same period of 2006. The provision for loan losses was $278,800for the three months                endedSeptember30, 2007 and $591,200for the same period in 2006.                Thedecreasein the provision was the                result of management’s assessment of the adequacy of the reserve for loan                losses given the size, mix and quality of the current loan portfolio. Please see                the discussion below under “Allowance for Loan Losses” for a                description of the factors we considered in determining the amount of the provision                we expense each period to maintain this allowance.

*Noninterest                Income*

     Noninterest                income increased to $6.3million for the firstninemonths of                2007 compared to $2.5million in the same                period of 2006. For the three months endedSeptember30,                2007, noninterest income increased to $1.8million as compared to $1.2 millionin 2006. Theincrease in noninterest income is relatedin part tothe                income from our mortgage operation. Thethreekey                components of the revenue fromthe mortgage                operationareretail mortgage origination income,miscellaneous loan fees, andthe net gains on the sale of mortgage loans.With the decline in the housing market we expect a                slowing in mortgage revenue until the market recovers. As revenue drops from the                mortgage operation we will also see a decline in the corresponding expenses.The following table sets forth information related to                our noninterest income fromthe mortgage                operation, for the firstninemonths of 2007 and 2006, as well as, for the three                months endedSeptember30, 2007 and                2006.                 
|                                                           | For the nine months ended | For the three months                        ended |
|-----------------------------------------------------------|---------------------------|---------------------------------------------------|
||
||
| Retail                        Mortgage Origination Income |                      |                                              | $ | 2,126,300 |   | $ | 527,842 |   | $ | 493,648 |   | $ | 406,968 |   |
| Miscellaneous loan                        fees            |                      |                                              |   | 1,514,357 |   |   | 264,278 |   |   | 354,040 |   |   | 264,277 |   |
| Gain on sale of                        mortgage loans     |                      |                                              |   | 567,222 |   |   | 258,842 |   |   | 72,389 |   |   | 258,842 |   |
|                                                           |                      |                                              | $ | 4,207,879 |   | $ | 1,050,961 |   | $ | 920,077 |   | $ | 930,087 |   |

 The                other incomecategory increased                $496,618 to $1,406,447 for the first nine months of 2007. The largest component of                this increase includes a $412,324 increase in merchant income, an increase                inrental income of $471,941 and a net                decrease of $576,562 relating to gain on sale of fixed assets.The rental income increaserelatesprimarily to the BFNB Building, LLC for the period                ending September 30, 2007. The BFNB Building,LLC’s expenses of operation are included                inthecompany’s expense                base.

*Noninterest                Expense*

     Total                noninterest expense increased68.2% to $14.4million for theninemonths                endedSeptember30, 2007 from $8.6million for the same period of 2006 and                increased33.0% to $4.5million for the three months endedSeptember30,                2007 from$3.4million in                the same period of 2006.                 

11

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     Salaries                and wages and employee benefits, the largest component ofnoninterest expense, increased$2.2million                to$7.2million for theninemonths                endedSeptember30, 2007 compared to the same period in 2006,                andincreased$15,201to$2.1million for the quarter endedSeptember30,                2007 compared to the same period in 2006.The                mortgage operation had $2.6millionofsalary and                wagesandemployee benefitexpensesthrough                nine months of 2007.Theother increases are the result of personnel additions                due to the growth of our bank, normal compensation adjustments, and higher costs                associated with group benefits.The drop in                wages in the quarter was driven by a drop in mortgage operation                staff.

     We had                163full-time                equivalent employees at September 30, 2007, a decrease of 17as compared to the                same period in 2006.  This decrease occurred primarily within our                mortgageoperation, as the housing                market hashad                an impact on our loan origination volume. At September 30, 2007,75 of the full-time                equivalent employees work within our mortgage                operation. 

Advertising                and public relations costs increased $227,526to $495,967for theninemonths                endedSeptember30, 2007 compared to the same period in 2006, and                increased $83,258to $178,916for the three months endedSeptember30,                2007 compared to the same period in 2006. We incurred advertising and public                relations costs related to our mortgage operations,special promotions to attract deposits in all                markets, as well as contracting with a professional advertising agency.                Professional fees increased $104,593for                theninemonths endedSeptember30,                2007 compared to the same period in 2006, andincreased $100,944for the three months endedSeptember30,                2007 compared to the same period in 2006.Theprofessional                feesincreaseddue to our growth, the regulatory fees associated                with such growth, and the escalating cost of accounting, auditing, and legal                services for a public company, including our expenses directly relatedto Sarbanes-Oxley(SOX)compliance. We expect these fees to continue to                increase as we formally prepare to meet the requirements of these comprehensive                regulations.

     Occupancy                expenses increased $626,176during theninemonth                period endedSeptember30, 2007 compared to the same period in 2006 and                by$170,318for the three months endedSeptember30,                2007 compared to the same period in 2006. This increase is related to the addition                of the facilities associated with our mortgage operations, increases on leases,                andthe expense related to the new corporate                headquarters.As we continue                to expand, we expect that occupancy costs will continue to increase.                 

Data                processing fees increased during theninemonths endedSeptember30,                2007 to $528,118compared to $389,333for the same period in 2006. For the three months                endedSeptember30, 2007, data processing costs totaled                $175,057compared to$142,557forSeptember30,                2006. Data processing costs are primarily related to the volume of loans,deposit accounts,and associated transaction activity. Wehaveexpanded                the security features of our internet banking product in addition to upgrading all                security measures for internal and external systems. We believe our data processing                costs are consistent with our expansion.During the quarter we signed a new contract with our                data processing provider to upgrade our systems. The conversion is scheduled in the                second quarter of 2008.

Total                other operating expenses increased139.6%to $3.5million                during the firstninemonths of 2007 compared to $1.4 millionfor the same period in 2006.Other operating expenses increased92.1%, or$1.1                million, for the three months endedSeptember30,                2007 compared to the same period in 2006.The                following table presents a comparison of other operating expenses by                category:

                 
| Other Operating                        Expenses                                                       |        |        |        |               |
|-------------------------------------------------------------------------------------------------------|--------|--------|--------|---------------|
||
||
||
| Telephone                                                                                             |   |   | $      | 97,076        |   | $ | 54,898 |   | $ | 33,514 |   | $ | 19,543 |   |
| Postage and                        freight                                                            |   |   |   | 73,728        |   |   | 51,421 |   |   | 26,411 |   |   | 23,066 |   |
| Armored                        car                                                                    |   |   |   | 67,305        |   |   | 64,856 |   |   | 24,755 |   |   | 23,774 |   |
| Credit and                        collection – mortgage operation                               |   |   |   | 1,016,369     |   |   | 80,411 |   |   | 199,991 |   |   | 91,853 |   |
| Credit and                        collection – bank                                             |   |   |   | 110,090       |   |   | 105,334 |   |   | 23,128 |   |   | 46,145 |   |
| Dues and                        subscriptions                                                         |   |   |   | 103,173       |   |   | 88,231 |   |   | 36,929 |   |   | 30,355 |   |
| Travel                                                                                                |   |   |   | 217,622       |   |   | 138,818 |   |   | 88,219 |   |   | 48,987 |   |
| Entertainment                                                                                         |   |   |   | 226,511       |   |   | 66,091 |   |   | 38,558 |   |   | 15,451 |   |
| FDIC                        insurance                                                                 |   |   |   | 94,255        |   |   | 29,522 |   |   | 69,877 |   |   | 10,691 |   |
| Other                        insurance                                                                |   |   |   | 57,801        |   |   | 32,328 |   |   | 32,660 |   |   | 10,855 |   |
| Debit/ATM                                                                                             |   |   |   | 70,623        |   |   | 57,199 |   |   | 24,600 |   |   | 19,053 |   |
| Merchant                                                                                              |   |   |   | 489,920       |   |   | 111,159 |   |   | 209,894 |   |   | 68,278 |   |
| Credit card                        processing fees                                                    |   |   |   | 33,720        |   |   | 44,785 |   |   | 12,969 |   |   | 5,633 |   |
| Fed                        charges                                                                    |   |   |   | 32,531        |   |   | 29,078 |   |   | 11,850 |   |   | 10,403 |   |
| Software                        maintenance                                                           |   |   |   | 92,244        |   |   | 43,789 |   |   | 35,263 |   |   | 18,447 |   |
| Director                        Supplemental Retirement Plan                                          |   |   |   | 83,069        |   |   | 112,671 |   |   | 33,767 |   |   | 24,596 |   |
| NASDAQ                                                                                                |   |   |   | 37,758        |   |   | 18,375 |   |   | 8,182 |   |   | 6,125 |   |
| Furniture and                        equipment                                                        |   |   |   | 226,972       |   |   | 173,809 |   |   | 64,971 |   |   | 79,387 |   |
| Other Operating                        Expenses                                                       |   |   |   | 341,002       |   |   | 145,954 |   |   | 156,686 |   |   | 36,877 |   |
|                 Total |   |   | **$**  | **3,471,769** |   | **$** | **1,448,729** |   | **$** | **1,132,224** |   | **$** | **589,519** |   |

12

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                      The$2,023,040 increase for the                nine month ended in 2007 wasprimarilydue to anincreaseof                $935,958 forcredit and collection                expensesofthe mortgage operation,$378,760 increase inmerchant expenses,a $100,000 increase in the mortgage recourse expense,                $160,420 increase inentertainment                expenses,$78,804 increase in travel expenses,                $53,163 increasefurniture and equipment                expenses, andvarious other increases under                $50,000.The merchant expense increases                aredue to the expansion of merchant related                activity in the firstninemonths of 2007.

**Balance Sheet                Review**

*General*

                     We had total assets of $571.4million atSeptember30,                2007, an increase of16.1% from $492.0million atSeptember30,                2006 and an increase of9.8%from $520.2 at December 31, 2006. Total assets                consisted primarily of $459.0 million in net loans and$69.1million in                investments.Our liabilities atSeptember30,                2007 totaled $520.0million, consisting                primarily of $440.3million in depositsand$55.0                million in FederalHomeLoanBank                (FHLB)advances. Our total deposits increased                to $440.3million atSeptember30,                2007, up15.0%from $382.8million atSeptember30,                2006, and up5.7%from $416.4 million at December 31, 2006.                Shareholder’s equity increased$7.7million to                $51.3 millionatSeptember30,                2007,as compared to $43.6 millionatSeptember30,                2006, and increased$5.8million from$45.5 million atDecember 31, 2006.

*Investment                Securities*

     AtSeptember30, 2007, investment securities totaled $69.1million and averaged $69.5million during the firstninemonths of                2007. Total investment securities averaged $57.4million during the firstninemonths of                2006 and totaled $66.4million atSeptember30,                2006. Total investment securities averaged $60.2 million for the year ended                December 31, 2006 and totaled $71.9 million at December 31, 2006. AtSeptember30,                2007, investment securities represented12.1%of total                assets compared to12.8%atSeptember30,                2006. All investment securities are classified as available-for-sale and are                recorded at fair value. AtSeptember30, 2007, our total investment securities portfolio                had a book value of $70.1million and a fair                market value of $69.1million for a gross                unrealized net loss of $1.0million. We                primarily invest in U.S. Government Sponsored Enterprises and Federal Agency                securities.

     AtSeptember30, 2007,short-term investments totaled$0.4million,compared to$0.2million                atSeptember30, 2006 and $14.0 million at December 31, 2006.                These funds are one source of our bank’s liquidity and are generally invested                in an earning capacity on an overnight or short-term basis. This increase in                short-term investments is primarily due to lower loan demand during this                quarter.

                 

*Loans*

     The                following table shows the composition of the loan portfolio by category atSeptember30, 2007,September30,                2006, and December 31, 2006.

                 

13

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|                                                                                    | Composition of Loan Portfolio |
|------------------------------------------------------------------------------------|-------------------------------|
||
||
||
| Commercial                                                                         |                          |   | $ | 52,213,925 |   |   | 11.1 | % | $ | 44,386,968 |   |   | 11.0 | % | $ | 43,974,792 |   |   | 10.7 | % |
|                                                                                    |                          |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Real estate –                        construction                            |                          |   |   | 51,724,912 |   |   | 10.9 | % |   | 40,924,105 |   |   | 10.1 | % |   | 44,032,693 |   |   | 10.7 | % |
|                                                                                    |                          |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Real estate –                        mortgage (1)                            |                          |   |   | 359,454,651 |   |   | 76.1 | % |   | 310,748,890 |   |   | 76.9 | % |   | 315,689,304 |   |   | 76.7 | % |
|                                                                                    |                          |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Consumer                                                                           |                          |   |   | 8,768,942 |   |   | 1.9 | % |   | 8,077,587 |   |   | 2.0 | % |   | 7,784,157 |   |   | 1.9 | % |
|                                                                                    |                               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                                               |                          |   |   | 472,162,430 |   |   | 100.0 | % |   | 404,137,550 |   |   | 100.0 | % |   | 411,480,946 |   |   | 100.0 | % |
|                                                                                    |                          |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Unearned loan fees                        and costs, net                           |                          |   |   | (374,763 | ) |   |  |   |   | (320,121 | ) |   |  |   |   | (266,090 | ) |   |  |   |
|       Total                        loans             |                          |   |   | 471,787,667 |   |   |  |   |   | 403,817,429 |   |   |  |   |   | 411,214,856 |   |   |  |   |
|                                                                                    |                          |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Allowance for loan                        losses                                   |                          |   |   | (6,397,012 | ) |   |  |   |   | (5,671,492 | ) |   |  |   |   | (5,888,052 | ) |   |  |   |
|                                                                                    |                          |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
|       Loans,                        net of allowance |                          |   | $ | 465,390,655 |   |   |  |   | $ | 398,145,937 |   |   |  |   | $ | 405,326,804 |   |   |  |   |

                 
|  | (1)      | Includes mortgage loans held for sale |
|--|-----------------------------------|---------------------------------------|

Becauseloans typically provide higher yields                than other types of earning assets, a substantial percentage of our earning assets                are invested in our loan portfolio. As ofSeptember30,                2007, loans represented84.7%of total earning assets compared to84.4%atSeptember30,                2006 and 84.2% at December 31, 2006. AtSeptember30,                2007 net loans (total loans less the allowance for loan losses) totaled$465.4million,                an increase of$67.3million fromSeptember30,                2006 andan increaseof $60.1million                from December 31, 2006. Average total loans increased from $360.7million, with a yield of8.69%, in the firstninemonths of                2006 to $448.4 million, with a yield of9.12%,                during the same in 2007. Average total loans were $372.8 million with a yield of                8.88% at December 31, 2006. The interest rates charged on loans vary with the                degree of risk and the maturity and amount of the loan. Competitive pressures,                money market rates, availability of funds and government regulations also influence                interest rates.

Mortgage                loans were the principal component of our loan portfolio atSeptember30, 2007,September30,                2006,and December 31, 2006, which                represented76.1%,76.9%,and 76.7%                of the portfolio, respectively. In the context of this discussion, a “real                estate mortgage loan” is defined as any loan, other than loans for                construction purposes, secured by real estate, regardless of the purpose of the                loan. We follow the common practice of financial institutions in our market area of                obtaining a security interest in real estate whenever possible, in addition to any                other available collateral. Thesecurity                interest in thecollateral is taken to                reinforce the likelihood of the ultimate repayment of the loan and tends to                increase the magnitude of the real estate loan portfolio component. Generally, we                limit the loan-to-value ratio to 80%.

***Allowance for Loan Losses***

We have                established an allowance for loan losses through a provision for loan losses                charged to expense on our statement of income. The allowance for loan losses                represents an amount which we believe will be adequate to absorb probable losses on                existing loans that may become uncollectible. Our judgment as to the adequacy of                the allowance for loan losses is based on a number of assumptions about future                events, which we believe to be reasonable, but which may or may not prove to be                accurate.The evaluation of the                allowance is segregated into general allocations and specific allocations. For                general allocations, the portfolio is segregated into risk-similar segments for                which historical loss ratios are calculated and adjusted for identified trends or                changes in current portfolio characteristics. Historical loss ratios are calculated                by product type for consumer loans (installment and revolving), mortgage loans, and                commercial loans and may be adjusted for other risk factors. To allow for modeling                error, a range of probable loss ratios is then derived for each segment. The                resulting percentages are then applied to the dollar amounts of the loans in each                segment to arrive at each segment’s range of probable loss levels. Certain                nonperforming loans are individually assessed for impairment under SFAS No. 114 and                assigned specific allocations. Other identified high-risk loans or credit                relationships based on internal risk ratings are also individually assessed and                assigned specific allocations.

                 

14

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The general                allocation also includes a component for probable losses inherent in the portfolio,                based on management’s analysis that is not fully captured elsewhere in the                allowance. This component serves to address the inherent estimation and imprecision                risk in the methodology as well as address management’s evaluation of various                factors or conditions not otherwise directly measured in the evaluation of the                general and specific allocations. Such factors include the current general economic                and business conditions; geographic, collateral, or other concentrations of credit;                system, procedural, policy, or underwriting changes; experience of the lending                staff; entry into new markets or new product offerings; and results from internal                and external portfolio examinations.

Periodically, we                adjust the amount of the allowance based on changing circumstances. We charge                recognized losses to the allowance and add subsequent recoveries back to the                allowance for loan losses. There can be no assurance that charge-offs of loans in                future periods will not exceed the allowance for loan losses as estimated at any                point in time or that provisions for loan losses will not be significant to a                particular accounting period.

The                allocation of the allowancefor                loan lossesto the respective loan segments is                an approximation and not necessarily indicative of future losses or future                allocations. The entire allowance is available to absorb losses occurring in the                overall loan portfolio. In addition, the allowance is subject to examination and                adequacy testing by regulatory agencies, which may consider such factors as the                methodology used to determine adequacy and the size of the allowance relative to                that of peer institutions, and other adequacy tests. Such regulatory agencies could                require us to adjust the allowance based on information available to them at the                time of their examination.

AtSeptember30, 2007, the allowance for loan losses was                $6.4million,or1.36%of outstanding loans, compared to an allowance for                loan losses of $5.7million, or1.40%of                outstanding loans, atSeptember30, 2006 and an allowance for possible loan losses of                $5.9 million,or 1.43% of outstanding                loans,at December 31, 2006. In the                firstninemonths of 2007, we had net charge-offs totaling $0.4                million. During the same period in 2006,we                had net charge-offs totaling $0.5 million. For the twelve months ended December 31,                2006, we had net charge-offs totaling $0.7 million. We had non-performing loans                totaling$0.6 millionatSeptember30,                2007, $2.6 millionatSeptember30,                2006,and $1.6millionat                December 31, 2006. While there can be no assurances, we do not expect significant                losses relating to these nonperforming loans because we believe that the collateral                supporting these loans is largely sufficient to cover the outstanding loan                balances.

The                following table sets forth certain information with respect to our allowance for                loan losses and the composition of charge-offs and recoveries for the ninemonths endedSeptember30,                2007,September30, 2006, and December 31,                2006.

                 
|                                                                           | Allowance for Loan Losses |
|---------------------------------------------------------------------------|---------------------------|
||
||
||
| Average                        total loans outstanding                    |                      |   | $ | 448,406,531 |   | $ | 360,729,338 |   | $ | 372,791,961 |   |
| Total loans                        outstanding at period end              |                      |   |   | 471,787,667 |   |   | 403,817,429 |   |   | 411,214,857 |   |
| Total nonperforming                        loans                          |                      |   |   | 549,714 |   |   | 2,615,341 |   |   | 1,625,511 |   |
|                                                                           |                      |   |   |  |   |   |  |   |   |  |   |
| Beginning balance of                        allowance for loan losses     |                      |   | $ | 5,888,052 |   | $ | 4,364,287 |   | $ | 4,364,287 |   |
| Mortgage recourse                        reserve                          |                      |   |   | (50,000 | ) |   |  |   |   |  |   |
| Loans charged                        off                                  |                      |   |   | (410,174 | ) |   | (498,490 | ) |   | (792,188 | ) |
| Total                        recoveries                                   |                      |   |   | 18,334 |   |   | 27,095 |   |   | 141,553 |   |
| Net loans charged                        off                              |                      |   |   | (391,840 | ) |   | (471,395 | ) |   | (650,635 | ) |
|                                                                           |                      |   |   |  |   |   |  |   |   |  |   |
| Provision for loan                        losses                          |                      |   |   | 950,800 |   |   | 1,778,600 |   |   | 2,174,400 |   |
| End of period                        balance of allowance for loan losses |                      |   | $ | 6,397,012 |   | $ | 5,671,492 |   | $ | 5,888,052 |   |
|                                                                           |                      |   |   |  |   |   |  |   |   |  |   |
| Annualized net                        charge-offs to average total loans  |                      |   |   | 0.12 | % |   | 0.17 | % |   | 0.17 | % |
| Allowance as a                        percent of total loans              |                      |   |   | 1.36 | % |   | 1.40 | % |   | 1.43 | % |
| Nonperforming loans                        as a percentage of total loans |                      |   |   | 0.12 | % |   | 0.65 | % |   | 0.40 | % |
| Nonperforming loans                        as a percentage of allowance   |                      |   |   | 8.59 | % |   | 46.11 | % |   | 27.59 | % |

15

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                       In 2006, we set up a retail mortgage                recourse reserve of $50,000 within the allowance. The reserve is set up for                situations where retail mortgage loans, that were sold, may be returned to us under                certain circumstances delineated in the sales contract. For 2007, we transferred                this amount into a separate liability. For 2007, we have expensed an additional                $100,000 and have incurred losses of $47,445. At September 30, 2007, the reserve                was $102,555. With the turmoil in the retail mortgage market we are constantly                reviewing all loans sold to ensure our reserve is sufficient.

                The following table sets forth the breakdown of the allowance for loan losses by                loan category and the percentage of loans in each category to gross loans as                ofSeptember30, 2007. We believe that                the allowance can be allocated by category only on an approximate basis. The                allocation of the allowance to each category is not necessarily indicative of                further losses and does not restrict the use of the allowance to absorb losses in                any category.

                 
| As                        of September 30, 2007         |
|---------------------------------------------------------|
| Commercial                                              |   |   | $ | 1,179,820 |   |   | 18.5 | % |
| Real estate –                        construction |   |   |   | 666,783 |   |   | 10.4 |   |
| Real estate –                        mortgage     |   |   |   | 4,313,300 |   |   | 67.4 |   |
| Consumer                                                |   |   |   | 192,807 |   |   | 3.0 |   |
| Unallocated                                             |   |   |   | 44,302 |   |   | 0.7 | % |
|                                                         |   |   |   |  |   |   |  |   |
| Total allowance for                        loan losses  |   |   | $ | 6,397,012 |   |   | 100.0 | % |

*Nonperforming                Assets*

     We                discontinue accrual of interest on a loan when we conclude it is doubtful that we                will be able to collect interest from the borrower. We reach this conclusion by                taking into account factors such as the borrower's financial condition, economic                and business conditions, and the results of our previous collection efforts.                Generally, we will place a delinquent loan in nonaccrual status when the loan                becomes 90 days or more past due. When we place a loan in nonaccrual status, we                reverse all interest which has been accrued on the loan but remains unpaid and we                deduct this interest from earnings as a reduction of reported interest income. We                do not accrue any additional interest on the loan balance until we conclude the                collection of both principal and interest is reasonably certain. AtSeptember30, 2007, there were no loans accruing interest which                were 90 days or more past due and we had no restructured                loans.

***Deposits***

                     Total deposits were$440.3 million and                represented77.1%of total assets atSeptember30, 2007. Average total                deposits were $436.0million and average                interest-bearing deposits were $399.9million for theninemonths endedSeptember30, 2007. Average total                deposits were $353.5million and average                interest-bearing deposits were $320.9                million in the same period of 2006. Average total deposits were $367.1 million and                average interest-bearing deposits were $333.6 million at December 31, 2006.                 

                The following table sets forth our deposits by category as ofSeptember30, 2007,September30, 2006, and December 31,                2006.

                 
|                                                                     |        |        |        |             |        |        |
|---------------------------------------------------------------------|--------|--------|--------|-------------|--------|--------|
||
||
||
| Demand                        deposit accounts                      |   |   | $      | 40,317,614  |   |   | 9.2 | % | $ | 5,560,935 |   |   | 9.3 | % | $ | 37,194,469 |   |   | 8.9 | % |
| Interest bearing                        checking accounts           |   |   |   | 23,650,334  |   |   | 5.4 | % |   | 20,071,664 |   |   | 5.2 | % |   | 21,336,836 |   |   | 5.1 | % |
| Money market                        accounts                        |   |   |   | 107,480,890 |   |   | 24.4 | % |   | 97,421,218 |   |   | 25.5 | % |   | 103,056,865 |   |   | 24.8 | % |
| Savings                        accounts                             |   |   |   | 3,265,956   |   |   | 0.7 | % |   | 3,306,161 |   |   | 0.9 | % |   | 3,303,763 |   |   | 0.8 | % |
| Time deposits less                        than $100,000             |   |   |   | 150,064,341 |   |   | 34.1 | % |   | 129,146,950 |   |   | 33.7 | % |   | 154,191,755 |   |   | 37.0 | % |
| Time deposits of                        $100,000 or over            |   |   |   | 115,485,883 |   |   | 26.2 | % |   | 97,277,543 |   |   | 25.4 | % |   | 97,273,441 |   |   | 23.4 | % |
|      Total                        deposits |   |   | $      | 440,265,018 |   |   |  |  | $ | 382,784,471 |   |   | 100.0 | % | $ | 416,357,129 |   |   | 100.0 | % |

16

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                     Deposit growth was attributable to internal growth                and the generation of new deposit accounts due primarily to special promotions and                increased advertising. Demand deposit accounts increased as a result of an expanded                focus on demand deposit accounts. Interest bearing checking accounts increased                primarily due to a change mandated by the South Carolina Bar Association requiring                that all lawyer trust accounts be interest bearing. This created a shift from                demand deposit accounts to interest bearing checking accounts.

     Core                deposits, which exclude certificates of deposit of $100,000 or more, provide a                relatively stable funding source for our loan portfolio and other earning                assets.Our core deposits were                $324.8million atSeptember30,                2007,compared to $285.5million atSeptember30,                2006 and $319.1 million at December 31, 2006. Our brokered deposits were                $37.2million as ofSeptember30,                2007, $27.1million as ofSeptember30,                2006, and $34.6 million as of December 31, 2006. We expect a stable base of                deposits to be our primary source of funding to meet both short-term and long-term                liquidity needs. Core deposits as a percentage of total deposits were                approximately73.8% atSeptember30,                2007,74.6% atSeptember30,                2006,and 76.6% at December 31, 2006. Our                loan-to-deposit ratio was107.2%atSeptember30,                2007 versus105.5% atSeptember30,                2006 and 98.8% at December 31, 2006. The average loan-to-deposit ratio was102.8% during the firstninemonths of                2007,102.1%duringthe same                period of 2006,and 102.0%for the year endedDecember 31,                2006.                 

**Advances                from Federal Home Loan Bank****(FHLB)**

In addition to                deposits, we obtained funds from the FHLB to help fund our loan growth, as shown                below:

                 
|                                            |        |        |         |
|--------------------------------------------|--------|--------|---------|
||
| Fixed                        Rate Hybrid   |   |   | $       | 5,000,000 |   |   | 4.76 | % |   | 10/21/2010 |   |
| Fixed                        Rate          |   |   |    | 10,000,000 |   |   | 5.358 | % |   | 06/04/2010 |   |
| Convertible                                |   |   |    | 7,500,000 |   |   | 4.51 | % |   | 11/23/2010 |   |
| Convertible                                |   |   |    | 5,000,000 |   |   | 3.68 | % |   | 07/13/2015 |   |
| Convertible                                |   |   |    | 5,000,000 |   |   | 4.06 | % |   | 09/29/2015 |   |
| Convertible                                |   |   |    | 5,000,000 |   |   | 4.16 | % |   | 03/13/2017 |   |
| Convertible                                |   |   |    | 7,500,000 |   |   | 4.385 | % |   | 04/13/2017 |   |
| Prime Based                        Advance |   |   |    | 10,000,000 |   |   | 4.91 | % |   | 09/19/2011 |   |
|                                       |   |   | $  | 55,000,000 |  |   |  |  |  |  |  |

                 

                Average borrowings from the FHLB were $55.0 million during the third quarter of                2007 and totaled $55.0 million at September 30, 2007.

**Junior                Subordinated Debentures**

     On                May 27, 2004 we raised $5.0 million and on March 30, 2005,we raised an additional $5.0 million through                the issuance and sale of floating rate trust preferred securities through BFNB                Trust I and BFNB Trust II (the “Trusts”). These trust preferred                securities are reported on our consolidated balance sheet as junior subordinated                debentures. The Trusts loaned these proceeds to our holding company to use for                general corporate purposes. Trust preferred securities currently qualify as Tier 1                capital under Federal Reserve Board guidelines.

     Debt                issuance costs, net of accumulated amortization, from the junior subordinated                debentures totaled$35,194atSeptember30, 2007, $44,865atSeptember30, 2006, and $41,067 at December 31, 2006.                These costs are included in other assets on our consolidated balance sheet.                Amortization of debt issuance costs from trust preferred debt totaled $3,754for theninemonth period endedSeptember30, 2007,$3,337for theninemonth period endedSeptember30,                2006, and $4,588 for the year ended December 31, 2006. These costs are reported in                other noninterest expense on the consolidated statement of income.                 

     The                trust preferred securities accrue and pay distributions annually at a rate per                annum equal to the three month LIBOR plus 270 and 190 basis points, respectively,                which was8.060% and7.594% atSeptember30, 2007. The distribution rate payable on                these securities is cumulative and payable quarterly in arrears. We have the right,                subject to events of default, to defer payments of interest on the trust preferred                securities for a period not to exceed 20 consecutive quarterly periods, provided                that no extension period may extend beyond the maturity dates of May 27, 2034 and                March 30, 2035, respectively. We have no current intention to exercise our right to                defer payments of interest on the trust preferred securities. We have the right to                redeem the trust

                 

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preferred                securities, in whole or in part, on or after May 27, 2009,and                March 30, 2010, respectively. We may also redeem the trust preferred securities                prior to such dates upon occurrence of specified conditions and the payment of a                redemption premium.                 

**Capital                Resources**

                The Federal Reserve Board and bank regulatory agencies require bank holding                companies and financial institutions to maintain capital at adequate levels based                on a percentage of assets and off-balance sheet exposures, adjusted for risk                weights ranging from 0% to 100%. Under the capital adequacy guidelines, regulatory                capital is classified into two tiers. These guidelines require an institution to                maintain a certain level of Tier 1 and Tier 2 capital to risk-weighted assets. Tier                1 capital consists of common shareholders’ equity, excluding the unrealized                gain or loss on securities available for sale, minus certain intangible assets. In                determining the amount of risk-weighted assets, all assets, including certain                off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 100%                based on the risks believed to be inherent in the type of asset. Tier 2 capital                consists of Tier 1 capital plus the general reserve for loan losses, subject to                certain limitations. We are also required to maintain capital at a minimum level                based on total average assets, which is known as the Tier 1 leverage ratio. At both                the holding company and bank level, we are subject to various regulatory capital                requirements administered by the federal banking agencies. To be considered                “well-capitalized,” we must maintain total risk-based capital of at                least 10%, Tier 1 capital of at least 6%, and a leverage ratio of at least                5%.

                In October 2006, the Company announced a 3-for-2 stock split effected in the form                of a 50% stock dividend to shareholders of record on December 1, 2006. The dividend                was paid on December 21, 2006. All earnings per share amounts for all periods have                been adjusted to reflect this 3-for-2 split.

                At September30, 2007, our                total shareholders’ equity was $51.3million ($51.6million at the bank level).                AtSeptember30, 2007, our Tier 1 capital                ratio was13.4%(11.40% at the bank level), our                total risk-based capital ratio was14.6%(12.66% at the bank level), and                our Tier 1 leverage ratio was11.2%(9.28% at the bank level). The                bank was considered “well capitalized” and the holding company met or                exceeded its applicable regulatory capital requirements.

**Liquidity                Management                 **

Liquidity                represents the ability of a company to convert assets into cash or cash equivalents                without significant loss, and the ability to raise additional funds by increasing                liabilities. Liquidity management involves monitoring our sources and uses of funds                in order to meet our day-to-day cash flow requirements while maximizing profits.                Liquidity management is made more complicated because different balance sheet                components are subject to varying degrees of management control. For example, the                timing of maturities of our investment portfolio is fairly predictable and subject                to a high degree of control at the time investment decisions are made. However, net                deposit inflows and outflows are far less predictable and are not subject to the                same degree of control.

                     Our primary sources of liquidity are deposits,                scheduled repayments on our loans, and interest on and maturities of our                investments. We plan to meet our future cash needs through the liquidation of                temporary investments and the generation of deposits. All of our securities have                been classified as available for sale. Occasionally, we might sell investment                securities in connection with the management of our interest sensitivity gap or to                manage cash availability. We may also utilize our cash and due from banks, security                repurchase agreements, and federal funds sold to meet liquidity requirements as                needed. In addition, we have the ability, on a short-term basis, to purchase                federal funds from other financial institutions. Presently, we have made                arrangements with commercial banks for short-term unsecured advances of up to $21.8                million. We maintain a secured line of credit in the amount of $10.0 million                with our primary correspondent. We also have a line of credit with the FHLB to                borrow up to 80% of our 1 to 4 family loans, resulting in an availability of funds                of$3.8million atSeptember30, 2007. The FHLB has                approved borrowings up to 15% of the bank’s total assets less advances                outstanding. The borrowings are available by pledging additional collateral and                purchasing FHLB stock. AtSeptember30, 2007, we had                borrowed$55.0million on this line. We                believe that our existing stable base of core deposits, our bond portfolio,                borrowings from the FHLB, and short-term federal funds lines will enable us to                successfully meet our liquidity needs for the next 12                months.

**Interest Rate                Sensitivity                 **

A significant                portion of our assets and liabilities are monetary in nature, and consequently they                are very sensitive to changes in interest rates. This interest rate risk is our                primary market risk exposure, and it can have asignificant                effect on our net interest income and cash flows. We review our exposure to market                risk on a regular

                 

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We                actively monitor and manage our interest rate risk exposure principally by                measuring our interest sensitivity “gap,” which is the positive or                negative dollar difference between assets and liabilities that are subject to                interest rate repricing within a given period of time. A gap is considered positive                when the amount of interest-rate sensitive assets exceeds the amount of                interest-rate sensitive liabilities, and it is considered negative when the amount                of interest-rate sensitive liabilities exceeds the amount of interest-rate                sensitive assets. We generally would benefit from increasing market interest rates                when we have an asset-sensitive, or a positive, interest rate gap and we would                generally benefit from decreasing market interest rates when we have                liability-sensitive, or a negative, interest rate gap. When measured on a                “gap” basis, we are liability-sensitive over the cumulative one-year                time frame and asset-sensitive after one year as ofSeptember30, 2007. However, our gap analysis is not a precise                indicator of our interest sensitivity position. The analysis presents only a static                view of the timing of maturities and repricing opportunities, without taking into                consideration that changes in interest rates do not affect all assets and                liabilities equally. For example, rates paid on a substantial portion of core                deposits may change contractually within a relatively short time frame, but we                believe those rates are significantly less interest-sensitive than market-based                rates such as those paid on noncore deposits.

Net interest                income is also affected by other significant factors, including changes in the                volume and mix of interest-earning assets and interest-bearing liabilities. We                perform asset/liability modeling to assess the impact of varying interest rates and                the impact that balance sheet mix assumptions will have on net interest income. We                attempt to manage interest rate sensitivity by repricing assets or liabilities,                selling securities available-for-sale, replacing an asset or liability at maturity,                or adjusting the interest rate during the life of an asset or liability. Managing                the amount of assets and liabilities that reprice in the same time interval helps                us to hedge risks and minimize the impact on net interest income of rising or                falling interest rates. We evaluate interest sensitivity risk and then formulate                guidelines regarding asset generation and repricing, funding sources and pricing,                and off-balance sheet commitments in order to decrease interest rate sensitivity                risk.

**Off Balance                Sheet Risk**

Through the                operations of our bank, we have made contractual commitments to extend credit in                the ordinary course of our business activities. These commitments are legally                binding agreements to lend money to our customers at predetermined interest rates                for a specified period of time. We evaluate each customer's credit worthiness on a                case-by-case basis. The amount of collateral obtained, if deemed necessary by us                upon extension of credit, is based on our credit evaluation of the borrower.                Collateral varies but may include accounts receivable, inventory, property, plant                and equipment, commercial and residential real estate. We manage the credit risk on                these commitments by subjecting them to normal underwriting and risk management                processes.

     AtSeptember30, 2007, the bank had issued commitments to extend                credit of $53.5million through various types                of lending arrangements, of which $49.2million was at                variable rates. The commitments expire over the next 18 months. Past experience                indicates that many of these commitments to extend credit will expire unused. We                believe that we have adequate sources of liquidity to fund commitments that are                drawn upon by the borrowers.                 

In                addition to commitments to extend credit, we also issue standby letters of credit                which are assurances to a third party that they will not suffer a loss if our                customer fails to meet its contractual obligation to the third party. Standby                letters of credit totaled $11.4million atSeptember30,                2007. Past experience indicates that many of these standby letters of credit will                expire unused. However, through our various sources of liquidity, we believe that                we will have the necessary resources to meet these obligations should the need                arise.

                Except as disclosed in this report, we are not involved in off-balance sheet                contractual relationships, unconsolidated related entities that have off-balance                sheet arrangements or transactions that could result in liquidity needs or other                commitments or significantly impact earnings.

**Impact of                Inflation                 **

The effect of                relative purchasing power over time due to inflation has not been taken into                account in our consolidated financial statements. Rather, our financial statements                have been prepared on an historical cost basis in accordance with generally                accepted accounting principles.

                 

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Unlike most                industrial companies, our assets and liabilities are primarily monetary in nature.                Therefore, the effect of changes in interest rates will have a more significant                impact on our performance than will the effect of changing prices and inflation in                general. In addition, interest rates may generally increase as the rate of                inflation increases, although not necessarily in the same magnitude. As discussed                previously, we seek to manage the relationships between interest sensitive assets                and liabilities in order to protect against wide rate fluctuations, including those                resulting from inflation.

**Recently                Issued Accounting Standards                 **

     The                following is a summary of recent authoritative pronouncements that could impact the                accounting, reporting, and/or disclosure of financial information by us.                                       InSeptember2006, the FASB issued Statement of Financial                Accounting Standards (“SFAS”) No. 157, “Fair Value                Measurements”. SFAS No. 157 provides enhanced guidance for using fair value                to measure assets and liabilities. The standard also requires expanded disclosures                about the extent to which company’s measure assets and liabilities at fair                value, the information used to measure fair value, and the effect of fair value                measurements on earnings. SFAS No. 157 is effective for financial statements issued                for fiscal years beginning after November 15, 2007, and interim periods within                those fiscal years.The Companydoesnot expect                the adoption of Statement 157 to materially impactourconsolidated                financial statements.                 

In                September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined                Benefit Pension and Other Postretirement Plans”, which amends SFAS No. 87 and                SFAS No. 106 to require recognition of the over funded or under funded status of                pension and other postretirement benefit plans on the balance sheet. Under SFAS No.                158, gains and losses, prior service costs and credits, and any remaining                transition amounts under SFAS No. 87 and SFAS No. 106 that have not yet been                recognized through net periodic benefit cost will be recognized in accumulated                other comprehensive income, net of tax effects, until they are amortized as a                component of net periodic cost. The measurement date,the date at which the benefit                obligation and plan assets are measured,is                required to be the company's fiscal year end. SFAS No. 158 is effective for                publicly-held companies for fiscal years ending after December 15, 2006, except for                the measurement date provisions, which are effective for fiscal years ending after                December 15, 2008.The Companydoesnot have a                defined benefit pension plan. Therefore, SFAS No. 158 will not impactourconsolidated                financial statements.

In                February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for                Financial Assets and Financial Liabilities-Including an amendment of SFAS No. 115”. This                statement permits, but does not require, entities to measure many financial                instruments at fair value. The objective is to provide entities with an opportunity                to mitigate volatility in reported earnings caused by measuring related assets and                liabilities differently without having to apply complex hedge accounting                provisions. Entities electing this option will apply it when the entity first                recognizes an eligible instrument and will report unrealized gains and losses on                such instruments in current earnings. This statement 1) applies to all entities, 2)                specifies certain election dates, 3) can be applied on an instrument-by-instrument basis with some exceptions, 4) is                irrevocable and 5) applies only to entire instruments. One exception is demand                deposit liabilities which are explicitly excluded as qualifying for fair value.                With respect to SFAS No. 115, available for sale and held to maturity securities at                the effective date are eligible for the fair value option at that date. If the fair                value option is elected for those securities at the effective date, cumulative                unrealized gains and losses at that date shall be included in the cumulative-effect                adjustment and thereafter, such securities will be accounted for as trading                securities. SFAS No. 159will beeffective foruson January 1,                2008. Earlier adoption is permitted in 2007 ifwealso elect to                apply the provisions of SFAS No. 157.The                Companydid not adoptearlySFAS No.                159 and believes that it is unlikely that it will expand its use of fair value                accounting upon the January 1, 2008 effective date.

In                September2006, The FASB                ratified the consensuses reached by the FASB's Emerging Issues Task Force ("EITF")                relating to EITF No. 06-4 "Accounting for the Deferred Compensation and                Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance                Arrangements". EITF No. 06-4 addresses employer accounting for endorsement                split-dollar life insurance arrangements that provide a benefit to an employee that                extends to postretirement periods should recognize a liability for future benefits                in accordance with SFAS No. 106, "Employers' Accounting for Postretirement Benefits                Other Than Pensions", or Accounting Principles Board ("APB") Opinion No. 12,                "Omnibus Opinion-1967". EITF 06-4 is effective for fiscal years beginning after                December 15, 2007. Entities should recognize the effects of applying this Issue                through either (a) a change in accounting principle through a cumulative-effect                adjustment to retained earnings or to other components of equity or net assets in                the statement of financial position as of the beginning of the year of adoption or                (b) a change in accounting principle through retrospective application to all prior                periods.The Board has approved a change in                our post retirement benefit program such thatEITF No. 06-4 will havenoimpact                onourconsolidated financial                statements.

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In September 2006, the                FASB ratified the consensus reached related to EITF No. 06-5, "Accounting for                Purchases of Life Insurance -Determining the Amount That Could Be Realized in                Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life                Insurance." EITF No. 06-5 states that a policyholder should consider any additional                amounts included in the contractual terms of the insurance policy other than the                cash surrender value in determining the amount that could be realized under the                insurance contract. EITF No. 06-5 also states that a policyholder should determine                the amount that could be realized under the life insurance contract assuming the                surrender of an individual-life by individual-life policy (or certificate by                certificate in a group policy). EITF No. 06-5 is effective for fiscal years                beginning after December 15, 2007.Wedo not believe the adoption of EITF No. 06-5 will                have a material impact onourconsolidated financial statementsonceadoption.

                 

Other accounting                standards that have been issued or proposed by the FASB or other standards-setting                bodies are not expected to have a material impact on                ourfinancial                position, results of operations,and cash                flows.

**Item 3.                Quantitative and Qualitative Disclosures About Market Risk**

                     Market risk is the risk of loss from adverse changes                in market prices and rates. Our market risk arises principally from interest rate                risk inherent in our lending, deposit, and borrowing activities. Management                actively monitors and manages its interest rate risk exposure. In addition to other                risks that we manage in the normal course of business, such as credit quality and                liquidity, management considers interest rate risk to be a significant market risk                that could potentially have a material effect on our financial condition and                results of operations. The information contained in Item 2 in the section captioned                "Interest Rate Sensitivity" is incorporated herein by reference. Other types of                market risks, such as foreign currency risk and commodity price risk, do not arise                in the normal course of our business activities.                                       The primary objective of asset and liability                management is to manage interest rate risk and achieve reasonable stability in net                interest income throughout interest rate cycles. This is achieved by maintaining                the proper balance of rate-sensitive earning assets and rate-sensitive                interest-bearing liabilities. The relationship of rate-sensitive earning assets to                rate-sensitive interest-bearing liabilities is the principal factor in projecting                the effect that fluctuating interest rates will have on future net interest income.                Rate-sensitive assets and liabilities are those that can be repriced to current                market rates within a relatively short time period. Management monitors the rate                sensitivity of earning assets and interest-bearing liabilities over the entire life                of these instruments, but places particular emphasis on the next twelve months.                AtSeptember30, 2007, on a cumulative                basis through 12 months, rate-sensitiveassetsexceeded                rate-sensitiveliabilitiesby $19.8million. Thisasset-sensitive position is                largely attributable to                our variable rate loan portfolio.                 

**Item 4.                Controls and Procedures**

                As of the end of the period covered by this report, we carried out an evaluation,                under the supervision and with the participation of our management, including our                Chief Executive Officer and Chief Financial Officer, of the effectiveness of our                disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based                upon that evaluation, our Chief Executive Officer and Chief Financial Officer have                concluded that our current disclosure controls and procedures are effective as                ofSeptember30, 2007. There have been no                significant changes in our internal controls over financial reporting during the                fiscal quarter endedSeptember30, 2007,that have materially                affected, or are reasonably likely to materially affect, our internal controls over                financial reporting.

The design of                any system of controls and procedures is based in part upon certain assumptions                about the likelihood of future events. There can be no assurance that any design                will succeed in achieving its stated goals under all potential future conditions,                regardless of how remote.

                 

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**PART                II**

**OTHER                INFORMATION**

**Item 1.                Legal Proceedings.**

                           There are no material legal proceedings to which the company or any of its                subsidiaries is a party or of which any of their property is the subject. 

**Item 1A. Risk Factors.**

                                                There were no material                changes from the risk factorspresented in                our annual report on Form 10-K for the year ended December 31,                2006.

     

**Item 2.                Unregistered Sales of Equity Securities and Use of Proceeds.**

                             Not applicable.

**Item 3.                Defaults Upon Senior Securities.**

                            Not applicable.

**Item 4.                Submission of Matters to a Vote of Security Holders.**

       Not                Applicable.

**Item 5.                Other Information.**

Not                applicable.

**Item 6.                Exhibits.**

Exhibit          Description

31.1                               Rule 13a-14(a) Certification of the Principal Executive Officer                 

31.2                               Rule 13a-14(a) Certification of the Principal Financial Officer

32                                  Section 1350 Certifications

                 

                 

                 

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**SIGNATURES**

                         In accordance with the requirements of the Exchange Act, the registrant caused this                report to be signed on its behalf by the undersigned, thereunto duly                authorized.                 

                                                                                                     BEACH FIRST NATIONAL BANCSHARES, INC.

                Date:                November 9, 2007                                                          By:  /s/ Walter E. Standish,                III     

                                                                                                                            Walter E. Standish, III                                                                                                                                            President and Chief Executive Officer

                 

                 

Date:November 9,                2007**                                        **                  By: /s/ Gary S.                Austin                    

                                                                                                           Gary S. Austin

                                                                                                            Chief Financial and Principal Accounting Officer

                 

                 

                 

                 

                 

                 

                 

                 

                 

                 

                 

                 

                 

                 

                 

                 

                 

                 

                 

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INDEX TO                EXHIBITS

Exhibit

Number          Description

31.1                                  Rule 13a-14(a) Certification of the Principal Executive Officer

                 

31.2                                  Rule 13a-14(a) Certification of the Principal Financial Officer

                 

32                                     Section 1350 Certifications

                 

                 

                 

                 

                 

                 

                 

                 

                 

                 

                 

                 

                 

                 

                 

                 

                 

                 

                 

                 

                 

                 

                 

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