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

# FORM 10-QSB

|[X] | QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ---------------------------------------------------------------------------------
|    | For the quarter ended:   June 30, 2005                                           

|[   ] | TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|----- | ----------------------------------------------------------------------------------
|      | For the transition period from ___________ to _____________                       

Commission file number:  
000-22503

BEACH FIRST NATIONAL BANCSHARES, INC.(Exact name of registrant as specified in its charter)

|South Carolina           |  | 58-1030117                          
|------------------------ |  | ------------------------------------
|(State of Incorporation) |  | (I.R.S. Employer Identification No.)

1550 Oak Street, 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)

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

State the  number of shares  outstanding  of each of the  issuer's  classes  of  common  equity,  as of the  latest
practicable  date: On July 15, 2005,  3,168,458  shares of the issuer's  common  stock,  par value $1.00 per share,
were issued and outstanding.

Transitional Small Business Disclosure Format (check one):              
Yes         No   X

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# PART I
FINANCIAL INFORMATION
Item 1.  Financial Statements.

# Beach First National Bancshares, Inc. and Subsidiaries
                                           Myrtle Beach, South Carolina
                                            Consolidated Balance Sheets

|                                                         | June 30, | December 31,
|-------------------------------------------------------- | -------- | ------------
|
|
|ASSETS                                                   |          |             
|Cash and due from banks                                  |          |             
|Federal funds sold and short term investments            |          |             
|Investment securities available for sale                 |          |             
|Loans, net                                               |          |             
|Federal Reserve Bank stock                               |          |             
|Federal Home Loan Bank stock                             |          |             
|Premises and equipment, net                              |          |             
|Cash value life insurance                                |          |             
|Other assets                                             |          |             
|                                                         |          |             
|Total assets                                             |          |             
|                                                         |          |             
|LIABILITIES AND SHAREHOLDERS' EQUITY                     |          |             
|LIABILITIES:                                             |          |             
|Deposits                                                 |          |             
|Noninterest bearing deposits                             |          |             
|Interest bearing deposits                                |          |             
|                                                         |          |             
|Total deposits                                           |          |             
|Advances from Federal Home Loan Bank                     |          |             
|Junior subordinated debentures                           |          |             
|Other liabilities                                        |          |             
|                                                         |          |             
|Total liabilities                                        |          |             
|                                                         |          |             
|SHAREHOLDERS' EQUITY:                                    |          |             
|Common stock, $1 par value; 10,000,000 shares            |          |             
|authorized; shares issued and outstanding - 3,168,458 at |          |             
|June 30, 2005, 2,013,008 at June 30, 2004, and 2,013,508 |          |             
|at December 31, 2004                                     |          |             
|Paid-in capital                                          |          |             
|Retained earnings                                        |          |             
|Accumulated other comprehensive income (loss)            |          |             
|                                                         |          |             
|Total shareholders' equity                               |          |             
|                                                         |          |             
|Total liabilities and shareholders' equity               |          |             
|                                                         |          |             

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

2

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Beach First National
Bancshares, Inc. and SubsidiariesMyrtle Beach, South Carolina Consolidated
Statements of Income (Unaudited)

|                                                   | Six Months Ended | Three Months Ended
|-------------------------------------------------- | ---------------- | ------------------
|
|
|INTEREST INCOME                                    |                  |                   
|Interest and fees on loans                         |                  |                   
|Investment securities                              |                  |                   
|Fed funds sold & short term investments            |                  |                   
|                                                   |                  |                   
|Total interest income                              |                  |                   
|                                                   |                  |                   
|INTEREST EXPENSE                                   |                  |                   
|Deposits                                           |                  |                   
|Advances from the FHLB and federal funds purchased |                  |                   
|Junior subordinated debentures                     |                  |                   
|                                                   |                  |                   
|Total interest expense                             |                  |                   
|                                                   |                  |                   
|Net interest income                                |                  |                   
|                                                   |                  |                   
|PROVISION FOR POSSIBLE LOAN                        |                  |                   
|LOSSES                                             |                  |                   
|                                                   |                  |                   
|Net interest income after provision                |                  |                   
|for possible loan losses                           |                  |                   
|                                                   |                  |                   
|NONINTEREST INCOME                                 |                  |                   
|Service fees on deposit accounts                   |                  |                   
|Gain on sale of loan                               |                  |                   
|Gain (Loss) on sale of investment securities       |                  |                   
|Income from cash value life insurance              |                  |                   
|Mortgage loan referral fees                        |                  |                   
|Other income                                       |                  |                   
|                                                   |                  |                   
|Total noninterest income                           |                  |                   
|                                                   |                  |                   
|NONINTEREST EXPENSES                               |                  |                   
|Salaries and wages                                 |                  |                   
|Employee benefits                                  |                  |                   
|Supplies and printing                              |                  |                   
|Advertising and public relations                   |                  |                   
|Legal and professional fees                        |                  |                   
|Depreciation and amortization                      |                  |                   
|Occupancy                                          |                  |                   
|Data processing fees                               |                  |                   
|Other operating expenses                           |                  |                   
|                                                   |                  |                   
|Total noninterest expenses                         |                  |                   
|                                                   |                  |                   
|Income before income taxes                         |                  |                   
|                                                   |                  |                   
|INCOME TAX EXPENSE                                 |                  |                   
|                                                   |                  |                   
|Net income                                         |                  |                   
|                                                   |                  |                   
|BASIC NET INCOME PER COMMON                        |                  |                   
|SHARE                                              |                  |                   
|                                                   |                  |                   
|DILUTED NET INCOME PER COMMON                      |                  |                   
|SHARE                                              |                  |                   
|                                                   |                  |                   

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

3

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# Beach First National
Bancshares, Inc. and Subsidiaries Consolidated Statements of Changes in Shareholders
Equity and Comprehensive Income (Unaudited)

|                                             |  |  |  |           | Accumulated |  
|-------------------------------------------- |  |  |  | --------- | ----------- | -
|
|
|
|
|BALANCE, DECEMBER 31, 2003                   |  |  |  | 1,323,768 |             | $
|Net income                                   |  |  |  | -         |             |  
|Other comprehensive income, net of taxes:    |  |  |  |           |             |  
|Unrealized loss on investment securities     |  |  |  | -         |             |  
|Less reclassification adjustments for losses |  |  |  |           |             |  
|included in net income                       |  |  |  | -         |             |  
|                                             |  |  |  |           |             |  
|Comprehensive income (loss)                  |  |  |  | -         |             |  
|Exercise of stock options                    |  |  |  | 18,250    |             |  
|                                             |  |  |  |           |             |  
|3-for-2 stock split                          |  |  |  | 670,990   |             |  
|                                             |  |  |  |           |             |  
|BALANCE JUNE 30, 2004                        |  |  |  | 2,013,008 |             | $
|                                             |  |  |  |           |             |  

|                                            |  |  |  |           | Accumulated |  
|------------------------------------------- |  |  |  | --------- | ----------- | -
|
|
|
|
|BALANCE, DECEMBER 31, 2004                  |  |  |  | 2,013,508 |             | $
|Net income                                  |  |  |  | -         |             |  
|Other comprehensive income, net of taxes:   |  |  |  |           |             |  
|Unrealized loss on investment securities    |  |  |  | -         |             |  
|Less reclassification adjustments for gains |  |  |  |           |             |  
|included in net income                      |  |  |  | -         |             |  
|                                            |  |  |  |           |             |  
|Comprehensive income (loss)                 |  |  |  | -         |             |  
|Exercise of stock options                   |  |  |  | 4,950     |             |  
|Issuance of common stock                    |  |  |  | 1,150,000 |             |  
|                                            |  |  |  |           |             |  
|BALANCE JUNE 30, 2005                       |  |  |  | 3,168,458 |             | $
|                                            |  |  |  |           |             |  

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

4

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Beach First National
Bancshares, Inc. and Subsidiaries Myrtle Beach, South Carolina Consolidated
Statements of Cash Flows (Unaudited)

|                                                                   | Six Months Ended
|------------------------------------------------------------------ | ----------------
|
|
|OPERATING ACTIVITIES                                               |                 
|Net income                                                         |                 
|Adjustments to reconcile net income to                             |                 
|net cash provided by operating activities:                         |                 
|Provisions for loan losses                                         |                 
|Accretion of deferred loan fees                                    |                 
|Depreciation and amortization                                      |                 
|Gain on sale of investment securities                              |                 
|Discount accretion and premium amortization                        |                 
|Increase (decrease) in other assets                                |                 
|Increase (decrease) in other liabilities                           |                 
|                                                                   |                 
|Net cash provided by operating activities                          |                 
|                                                                   |                 
|INVESTING ACTIVITIES                                               |                 
|Purchase of investment securities                                  |                 
|Purchase of Federal Home Loan Bank stock                           |                 
|Proceeds from sale or call of investment securities                |                 
|Purchase of BFNB Trust Stock                                       |                 
|Decrease (increase) in Federal funds sold & short term investments |                 
|Increase in loans, net                                             |                 
|Purchase of premises and equipment                                 |                 
|Purchase of life insurance contracts                               |                 
|                                                                   |                 
|Net cash used in investing activities                              |                 
|                                                                   |                 
|FINANCING ACTIVITIES                                               |                 
|Advances from Federal Home Loan Bank                               |                 
|Investment in BFNB Trust                                           |                 
|Net increase in deposits                                           |                 
|Issuance of common stock, net                                      |                 
|Exercise of stock options                                          |                 
|                                                                   |                 
|Net cash provided by financing activities                          |                 
|                                                                   |                 
|Net increase (decrease) in cash and cash equivalents               |                 
|                                                                   |                 
|CASH AND CASH EQUIVALENTS, BEGINNING                               |                 
|OF PERIOD                                                          |                 
|                                                                   |                 
|CASH AND CASH EQUIVALENTS, END OF                                  |                 
|PERIOD                                                             |                 
|                                                                   |                 
|CASH PAID FOR                                                      |                 
|Income taxes                                                       |                 
|                                                                   |                 
|Interest                                                           |                 
|                                                                   |                 

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

5

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# Beach First National
Bancshares, Inc. Notes to Consolidated Financial Statements (Unaudited)

# 1.   Basis of Presentation

The accompanying unaudited
consolidated condensed financial statements for Beach First National Bancshares, Inc.
(Company) were prepared in accordance with instructions for Form 10-QSB 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. The results of operations
for the six month period ended June 30, 2005 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, 2004.

# 2.   Principles of
Consolidation

The accompanying unaudited
consolidated condensed financial statements include the accounts of the Company and its
subsidiary, Beach First National Bank. 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 Trust I and Trust II have not been
included in the Companys financial statements.

# 3.   Earnings Per Share

The Company calculates earnings per
share in accordance with SFAS No. 128, Earnings Per Share. SFAS No. 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.

In 2004, the board of directors
declared a 3 for 2 stock split on the Companys common stock in the form of a 50%
stock dividend. The stock dividend was paid June 2, 2004 to shareholders of record as of
May 12, 2004. Shareholders of record received one additional share for every two shares
held as of the close of business on the record date. Fractional shares resulting from the
stock split were paid in cash based on the closing price as of the record date of May 12,
2004. As a result of the common stock dividend, earnings per share were retroactively
restated for all previous periods.

In 2005, the board of directors
authorized the issuance of 1,150,000 shares of common stock which were sold in a public
offering.

In 2005, the board of directors
approved the listing on the NASDAQ National Market System. The stock began trading on
NASDAQ on June 9, 2005 under the symbol of BFNB.

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.

6

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

# For the Six Months
Ended June 30, 2005

| |  | Income | Shares                        | Per Share
| |  | ------ | ----------------------------- | ---------
|
| |  |        | Basic EPS                     |          
| |  |        | Effect of Diluted Securities: |          
| |  |        | Stock options                 |          
| |  |        |                               |          
| |  |        | Diluted EPS                   |          

# For the Six Months Ended June 30, 2004

| |  | Income | Shares                        | Per Share
| |  | ------ | ----------------------------- | ---------
|
| |  |        | Basic EPS                     |          
| |  |        | Effect of Diluted Securities: |          
| |  |        | Stock options                 |          
| |  |        |                               |          
| |  |        | Diluted EPS                   |          

# For the Three Months
Ended June 30, 2005

| |  | Income | Shares                        | Per Share
| |  | ------ | ----------------------------- | ---------
|
| |  |        | Basic EPS                     |          
| |  |        | Effect of Diluted Securities: |          
| |  |        | Stock options                 |          
| |  |        |                               |          
| |  |        | Diluted EPS                   |          

# For the Three Months Ended June 30, 2004

| |  | Income | Shares                        | Per Share
| |  | ------ | ----------------------------- | ---------
|
| |  |        | Basic EPS                     |          
| |  |        | Effect of Diluted Securities: |          
| |  |        | Stock options                 |          
| |  |        |                               |          
| |  |        | Diluted EPS                   |          

4.   Stock-Based Compensation  Our stock-based
          employee compensation plan is accounted for under the recognition and
          measurement principles of Accounting Principles Board (APB) Opinion
          No. 25, Accounting for Stock Issued to Employees, and related
          Interpretations. No compensation cost is reflected in net income, as all and
          options granted under this plan had an exercise price equal to the market value
          of the underlying common stock on the date of grant. The following table
          illustrates the effect on net income and earnings per share if the fair value
          recognition provisions of Financial Accounting Standards Board
          (FASB) Statement of Financial Accounting Standards
          (SFAS) No. 123, Accounting for Stock-Based Compensation, had
          been applied to the option plan.

7

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|                                  | Six Months Ended June 30,
|--------------------------------- | -------------------------
|
|Net Income, as reported           |                          
|Deduct:  Total stock-based        |                          
|employee compensation expense     |                          
|determined under fair value based |                          
|method for all awards, net of     |                          
|related tax effects               |                          
|                                  |                          
|Pro forma net income              |                          
|                                  |                          
|Earnings per share:               |                          
|Basic - as reported               |                          
|                                  |                          
|Basic - pro forma                 |                          
|                                  |                          
|Diluted - as reported             |                          
|                                  |                          
|Diluted - pro forma               |                          
|                                  |                          

|                                  | Three Months Ended June 30,
|--------------------------------- | ---------------------------
|
|Net Income, as reported           |                            
|Deduct:  Total stock-based        |                            
|employee compensation expense     |                            
|determined under fair value based |                            
|method for all awards, net of     |                            
|related tax effects               |                            
|                                  |                            
|Pro forma net income              |                            
|                                  |                            
|Earnings per share:               |                            
|Basic - as reported               |                            
|                                  |                            
|Basic - pro forma                 |                            
|                                  |                            
|Diluted - as reported             |                            
|                                  |                            
|Diluted - pro forma               |                            
|                                  |                            

# Item 2.   
Managements Discussion and Analysis or Plan of Operation.

The
following is our discussion and analysis of certain significant factors that have affected
our financial position and operating 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, may, 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 that are discussed
in detail in our filings with the Securities and Exchange Commission, including, without
limitation:

| |  | 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;
| | - | -------------------------------------------------------

8

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| |  | changes in technology;
| | - | ----------------------

| |  | 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.
| | - | --------------------------------------------------------------------------------------------------------------------

# 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, 2004 as filed on our Form 10-KSB.

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.

We
believe the allowance for loan losses is the critical 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 portion of this discussion that addresses our allowance for loan
losses for 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 ended June 30,
2005 as compared to the quarter ended June 30, 2004 as well as results for the six months
ended June 30, 2005 and 2004, and also analyzes our financial condition as of June 30,
2005 as compared to December 31, 2004. 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.

9

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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 $1,145,101, or $.52 per diluted common share, for the six months ended June
30, 2005 as compared to net income of $638,232, or $.31 per diluted common share, for the
six months ended June 30, 2004. Our net income was $663,251, or $.29 per diluted common
share, for the three months ended June 30, 2005 as compared to net income of $330,581, or
$.15 per diluted common share, for the same period of 2004. The increase in net income
reflects the banks continued growth, as average earning assets increased to $266.2
million during the first six months of 2005 from $169.3 million during the same period of
2004. The return on average assets for the six month period ended June 30 was .82% in 2005
compared to .71% in 2004. The return on average equity was 11.52% in 2005 versus 8.29% in
2004.

# 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 first six months of 2005, net interest income increased 62.3% to $5,952,479 from
$3,666,794 for the same period of 2004. For the three months ended June 30, 2005, net
interest income increased to $3,167,050 from $1,935,335 during the comparable period of
2004. The growth in net interest income during the six month period resulted from an
increase of $3,867,655 in interest income, partially offset by an increase in interest
expense of $1,581,970. Our level of 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 $144.1 million in the first six months of 2004 to $221.3 million in
the same period in 2005. In addition, average securities increased to $39.5 million in the
first six months of 2005 compared to $19.0 million for the first six months of 2004. Net
interest spread, the difference between the rate we earn on interest-earning assets and
the rate we pay on interest-bearing liabilities, was 4.14% in the first six months of 2005
compared to 4.06% during the same period of 2004. The net interest margin was 4.51% for
the six month period ended June 30, 2005 compared to 4.37% for the same period of 2004.

# 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 losses was
$1,099,000 for the six months of 2005 and $508,000 for the same period of 2004. The
provision for loan losses was $599,000 for the three months ending June 30, 2005 and
$293,000 for the same period in 2004. The increase in the provision was the result of
increased loan growth and managements assessment of the adequacy of the reserve for
possible loan losses given the size, mix and quality of the current loan portfolio. Please
see the discussion below under Allowance for Possible 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 $555,147 for the first six months of 2005 compared to $474,552 in the
same period of 2004. For the three months ended June 30, 2005, noninterest income
increased to $291,967 as compared to $246,782 in 2004. Service fees on deposit accounts,
the largest component of noninterest income, increased 7.0% to $282,269 for the first six
months of 2005 from $263,937 during the same period of 2004. This category of noninterest
income increased due to growth in the number of deposit accounts as well as increased
fee-related activities of customers. Income from cash value life insurance was $46,899 for
the first six months of 2005 and $80,772 for the first six months of 2004. For the three
months ending June 30, 2005, income from cash value life insurance was $21,561 and $40,384
for the same period of 2004. Mortgage loan referral fees increased to $106,317 during the
six months ended June 30, 2005 compared to $59,550 for the same period in 2004. For the
three months ended June 30, 2005, mortgage referral fees increased to $66,497 from $26,884
for the same period in 2004. This increase is primarily due to the increased mortgage
activity in all of our markets. Income from mortgage activity is directly related to
the rate environment, however, we anticipate our referral fee income to be constant the
remainder of 2005. Other income increased to $95,387 for the

10

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first six months of 2005 compared to
$70,298 for the same period of 2004. For the three months ended June 30, 2005, other
income was $51,907 compared to $46,669 in 2004. We recorded a net gain of $9,665 on sale
of investment securities for the first six months of 2005 compared to a loss of $5 for the
same period in 2004. For the three months ended June 30, 2005 we recorded a gain of
$10,195 compared to a loss of $2 for the same period in 2004.

# Noninterest Expense

Total
noninterest expense increased 38.3% to $3,614,595 for the six months ended June 30, 2005
from $2,612,791 for the same period of 2004 and increased 34.6% to $1,826,956 for the
three months ended June 30, 2005 from $1,356,895 in the same period of 2004. As an
annualized percentage of average total assets, our total noninterest expenses decreased
from 2.9% in 2004 to 2.6% in 2005. While our total assets have grown at a 46.6% growth
rate over year-end 2004 compared to year-end 2003 and 60.9% for the first six months of
2005 compared to the same period in 2004, we have been able to manage our expenses while
accommodating our growth.

Salaries
and wages and employee benefits increased $570,623 to $1,977,220 for the six months ended
June 30, 2005 compared to the same period in 2004, and $282,520 to $1,011,548 for the
quarter ended June 30, 2005 compared to the same period in 2004. These increases are the
results of personnel additions, normal compensation adjustments, higher costs associated
with group insurance coverage and certain incentive awards.

Advertising
and public relations costs increased $20,881 for the six months ended June 30, 2005
compared to the same period in 2004, and decreased $2,602 for the three months ended June
30, 2005 compared to the same period in 2004. This increase was due primarily to the new
Wexford branch office that opened in January 2005 and special promotions, such as
newspaper advertisements, to attract deposits in all markets. Legal and professional
expenses increased $55,837 for the six months ended June 30, 2005 compared to the same
period in 2004, and $26,573 for the three months ended June 30, 2005 compared to the same
period in 2004. These fees continue to increase due to our growth, the regulatory fees
associated with such growth and the escalating cost of accounting, auditing and legal
services for a public company.

Occupancy
expenses increased $151,258 during the six month period ended June 30, 2005 compared to
the same period in 2004 and by $74,789 for the three months ended June 30, 2005 compared
to the same period in 2004. Increases in occupancy costs are the result of opening the
Litchfield/Pawleys Island and Wexford offices and increases on lease payments for most
locations. As we continue to expand, we expect that occupancy costs will continue to
increase.

Data
processing fees increased during the six months ended June 30, 2005 to $220,211 compared
to $168,094 for the same period in 2004. Data processing costs are primarily related to
the volume of loan and deposit accounts and associated transaction activity. We believe
our data processing costs are consistent with our expansion.

Other
operating expenses increased 26.3% to $460,686 during the first six months of 2005
compared to $364,799 for the same period in 2004. Other operating expenses increased 16.8%
or $33,158 for the three months ended June 30, 2005 compared to $197,543 for the same
period in 2004. These increases are primarily the result of increased operating expenses
related to the opening of new branch offices in Litchfield/Pawleys Island and the Wexford
office on Hilton Head Island, along with other expenses associated with the expansion of
loans and deposits. Specifically, furniture and equipment increased $27,119, postage and
freight increased $7,395, armored car services increased $11,066 and travel increased
$22,405, collectively totaling $67,985 of the total increase of $95,887.

# BALANCE SHEET REVIEW

# General

We
had total assets of $317.3 million at June 30, 2005, an increase of 60.9% from $197.2
million at June 30, 2004. Total assets consisted primarily of $246.5 million in net loans,
$42.6 million in investments, $10.0 million in federal funds sold and short-term
investments, and $5.5 million in cash and due from banks. Our liabilities at June 30, 2005
totaled $279.5 million, consisting primarily of $248.9 million in deposits, $19.0 million
in FHLB advances, and $10.3 million of junior subordinated debentures. Our total deposits
increased to $248.9 million at June 30, 2005, up 56.0% from $159.5 million at June 30,
2004. Shareholders equity increased $20,140,937, net of offering costs, as a result
of a secondary offering in the later part of the second quarter.

11

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# Investment Securities

Total
investment securities averaged $37.9 million during the first six months of 2005 and
totaled $42.6 million at June 30, 2005. Total investment securities averaged $19.0 million
during the first six months of 2004 and totaled $27.0 million at June 30, 2004. At June
30, 2005, our total investment securities portfolio had a book value of $42.7 million and
a fair market value of $42.6 million for an unrealized net loss of $83,636. We primarily
invest in U.S. Government Agency and U. S. Agency mortgage backed securities.

At
June 30, 2005, short-term investments totaled $10.0 million, compared to $2.2 million at
June 30, 2004. 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. The increase in
short-term investments was primarily due to excess funds from the stock offering being
invested on an overnight basis until needed for higher yielding loans.

# Loans

Since
loans typically provide higher yields than other types of earning assets, a substantial
percentage of our earning assets are invested in our loan portfolio. As of June 30, 2005,
loans represented 83.1% of average earning assets compared to 85.0% at June 30, 2004. At
June 30, 2005, net loans (total loans less the allowance for loan losses) totaled $246.5
million, an increase of $93.1 million from June 30, 2004. Average total loans increased
from $142.2 million, with a yield of 6.48%, in the first six months of 2004 to $221.3
million, with a yield of 7.26%, during the same in 2005. The increase in yield on loans
during these periods is due to the increasing interest rate environment in 2004 and 2005.
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.

The
following table shows the composition of the loan portfolio by category at June 30, 2005
and 2004.

# Composition of Loan
Portfolio

|                                   | June 30, 2005 | June 30, 2004
|---------------------------------- | ------------- | -------------
|
|
|
|Commercial                         |               |              
|Real estate - construction         |               |              
|Real estate - mortgage             |               |              
|Consumer                           |               |              
|                                   |               |              
|Loans, gross                       |               |              
|                                   |               |              
|Unearned income                    |               |              
|Allowance for possible loan losses |               |              
|                                   |               |              
|Loans, net                         |               |              
|                                   |               |              

The
principal component of our loan portfolio at June 30, 2005 and 2004 was mortgage loans,
which represented 74.3% and 69.9% 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. The collateral 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%. Because of our
relatively small size and the short period of time our loan portfolio has existed, the
current portfolio mix may not be indicative of the on-going mix. We will attempt to
maintain a relatively diversified loan portfolio to help reduce the risk inherent in
concentrations of collateral.

# Allowance for Possible
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

12

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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.

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 allowance to 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.

At
June 30, 2005, the allowance for possible loan losses was $3,433,929, or 1.37% of
outstanding loans, compared to an allowance for possible loan losses of $2,087,171, or
1.34% of outstanding loans, at June 30, 2004. In the first six months of 2005, we had net
charge-offs totaling $86,910. During the same period in 2004 we had net charge-offs
totaling $181,310. We had non-performing loans totaling $532,512 at June 30, 2005 and
$495,801 at June 30, 2004. While there can be no assurances, we do not expect significant
losses relating to these non-performing loans.

13

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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 six months ended June 30,
2005 and 2004.

# Allowance for Loan
Losses

|                                       | Six months ending June 30,
|-------------------------------------- | --------------------------
|
|
|Average total loans outstanding        |                           
|Total loans outstanding at period end  |                           
|Total nonperforming loans              |                           
|Beginning balance of allowance         |                           
|Loans charged off                      |                           
|Total recoveries                       |                           
|                                       |                           
|Net loans charged off                  |                           
|Provision for loan losses              |                           
|                                       |                           
|Balance at period end                  |                           
|                                       |                           
|Net charge-offs to average total loans |                           
|Allowance as a percent of total loans  |                           
|Nonperforming loans as a               |                           
|percentage of total loans              |                           
|Nonperforming loans as a               |                           
|percentage of allowance                |                           

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 total loans for the periods indicated. 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.

# Allocation of the
Allowance for Loan Losses

| |  | As of June 30, 2005
| |  | -------------------
|
| |  |                    
| |  |                    
| |  |                    
| |  |                    
| |  |                    
| |  |                    
| |  |                    
| |  |                    
| |  |                    

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# 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. At
June 30, 2005, there were no loans accruing interest which were 90 days or more past due
and we had no restructured loans.

# Deposits and Other
Interest-Bearing Liabilities

Average
total deposits were $228.8 million and average interest-bearing deposits were $199.0
million in the first half of 2005. Average total deposits were $147.4 million and average
interest-bearing deposits were $123.8 million in the same period of 2004. The following
table sets forth our deposits by category as of June 30, 2005 and June 30, 2004.

# Deposits

|                                   | June 30, 2005 | June 30, 2004
|---------------------------------- | ------------- | -------------
|
|
|
|Demand deposit accounts            |               |              
|Interest bearing checking accounts |               |              
|Money market accounts              |               |              
|Savings accounts                   |               |              
|Time deposits less than $100,000   |               |              
|Time deposits of $100,000 or over  |               |              
|                                   |               |              
|Total deposits                     |               |              
|                                   |               |              

Deposit
growth was attributable to internal growth and the generation of new deposit accounts due
primarily to special promotions and increased advertising. The decrease in demand deposit
accounts during this reporting period was primarily the result of a shift of approximately
$15.0 million in demand deposits to interest bearing 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 and brokered deposits,
provide a relatively stable funding source for our loan portfolio and other earning
assets. Our core deposits were $183.1 million at June 30, 2005 compared to $117.0 million
at June 30, 2004, and our brokered deposits were $8.7 million as of June 30, 2005 and $4.0
million as of June 30, 2004. We expect a stable base of deposits to be our primary source
of funding to meet both our short-term and long-term liquidity needs. Core deposits as a
percentage of total deposits were approximately 73.6% at June 30, 2005 and 73.1% at June
30, 2004. Our loan-to-deposit ratio was 93.1% at June 30, 2005 versus 95.4% at June 30,
2004. The average loan-to-deposit ratio was 95.5% during the first six months of 2005 and
95.3% during the same period of 2004.

15

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# Advances from Federal
Home Loan Bank

In
addition to deposits, we obtained funds from the Federal Home Loan Bank to help fund our
loan growth. Average borrowings from the Federal Home Loan Bank were $17.9 million during
the first six months of 2005 and totaled $19.0 million at June 30, 2005. The following
table reflects the current borrowing terms as of June 30, 2005.

| | FHLB Description | Balance | Current Rate      | Maturity Date
| | ---------------- | ------- | ----------------- | -------------
| |                  |         | CIP/EDP           |              
| |                  |         | Fixed Rate Credit |              
| |                  |         | Fixed Rate Credit |              
| |                  |         | Convertible       |              
| |                  |         | Convertible       |              
| |                  |         |                   |              
| |                  |         |                   |              
| |                  |         |                   |              

# 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 $46,457 at June 30, 2005 and are included in other assets on our consolidated
balance sheet. Amortization of debt issuance costs from trust preferred debt totaled
$1,876 for the six month period ended June 30, 2005 and is 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 was 5.861% and
5.310% at June 30, 2005. 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 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%.

At
June 30, 2005, our total shareholders equity was $37.8 million ($22.3 million at the
bank level). At June 30, 2005, our Tier 1 capital ratio was 19.3% (9.0% at the bank
level), our total risk-based capital ratio was 20.5% (10.3% at the bank level), and our
Tier 1 leverage ratio was 16.4% (7.6% at the bank level). The bank was considered
well capitalized and the holding company met or exceeded its applicable
regulatory capital requirements.

16

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On
June 14, 2005, we closed the sale of 1,150,000 shares of our common stock at $18.75 per
share in a firm commitment underwritten offering sole managed by Sandler ONeill
& Partners, L.P. We received net proceeds from the offering of approximately $20
million after deducting underwriting discounts and expenses. We plan to use the net
proceeds for general corporate purposes, which include, among other things, providing
additional capital to our bank to support our asset growth.

# 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 $16.4 million. 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
$28.5 million at June 30, 2005. 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. At June 30, 2005, we had
borrowed $19.0 million 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 a significant effect on our net interest
income and cash flows. We review our exposure to market risk on a regular basis, and we
manage the pricing and maturity of our assets and liabilities to diminish the potential
adverse impact that changes in interest rates could have on our net interest income.

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 of March 31, 2005. 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

17

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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.

At
June 30, 2005, the bank had issued commitments to extend credit of $44.9 million through
various types of lending arrangements, of which $39.5 million 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 $4.4
million at June 30, 2005. 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.

# 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.

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 affect accounting,
reporting, and disclosure of financial information by us:

In
December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based
Payment (SFAS No. 123(R)). SFAS No. 123(R) will require companies to
measure all employee stock-based compensation awards using a fair value method and record
such expense in its financial statements. In addition, the adoption of SFAS No. 123(R)
requires additional accounting and disclosure related to the income tax and cash flow
effects resulting from share-based payment arrangements. SFAS No. 123(R) is effective
beginning as of the first annual reporting period beginning after December 15, 2005. The
Company is currently evaluating the impact that the adoption of SFAS No. 123(R) will have
on its financial position, results of operations and cash flows. The cumulative effect of
adoption, if any, will be measured and recognized in the statement of operations on the
date of adoption.

In
April 2005, the Securities and Exchange Commissions Office of the Chief Accountant
and its Division of Corporation Finance has released Staff Accounting Bulletin (SAB)
No.107 to provide guidance regarding the application of FASB Statement No.123 (revised
2004), Share-Based Payment. Statement No.123(R) covers a wide range of share-based
compensation arrangements including share options, restricted share plans,
performance-based awards, share appreciation rights, and employee share purchase plans.
SAB 107 provides interpretive guidance related to the interaction between

18

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Statement No.123R and certain SEC
rules and regulations, as well as the staffs views regarding the valuation of
share-based payment arrangements for public companies. SAB 107 also reminds public
companies of the importance of including disclosures within filings made with the SEC
relating to the accounting for share-based payment transactions, particularly during the
transition to Statement No.123R.

In
December 2003, the FASB issued FIN No. 46 (revised), Consolidation of Variable
Interest Entities (FIN No. 46(R)), which addresses consolidation by
business enterprises of variable interest entities. FIN No. 46(R) requires a variable
interest entity to be consolidated by a company if that company is subject to a majority
of the risk of loss from the variable interest entitys activities or entitled to
receive a majority of the entitys residual returns, or both. FIN No. 46(R) also
requires disclosures about variable interest entities that a company is not required to
consolidate, but in which it has a significant variable interest. FIN No. 46(R) provides
guidance for determining whether an entity qualifies as a variable interest entity by
considering, among other considerations, whether the entity lacks sufficient equity or its
equity holders lack adequate decision-making ability. The consolidation requirements of
FIN No. 46(R) applied immediately to variable interest entities created after
January 31, 2003. The consolidation requirements applied to the Companys
existing variable interest entities in the first reporting period ending after December
15, 2004.Certain of the disclosure requirements applied to all financial
statements issued after December 31, 2003, regardless of when the variable interest entity
was established. The adoption of FIN No. 46(R) did not have any material impact on the
Companys financial position or results of operations.

In
November 2003, the Emerging Issues Task Force (EITF) reached a consensus that
certain quantitative and qualitative disclosures should be required for debt and
marketable equity securities classified as available for sale or held to maturity under
SFAS No. 115 and SFAS No. 124 that are impaired at the balance sheet date but for which
other-than-temporary impairment has not been recognized. Accordingly the EITF issued EITF
No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments. This issue addresses the meaning of other-than-temporary
impairment and its application to investments classified as either available for sale or
held to maturity under SFAS No. 115 and provides guidance on quantitative and qualitative
disclosures. The disclosure requirements of EITF No. 03-1 are effective for annual
financial statements for fiscal years ending after June 15, 2004. The effective date for
the measurement and recognition guidance of EITF No. 03-1 has been delayed. The FASB staff
has issued a proposed Board-directed FASB Staff Position (FSP), FSP EITF
03-1-a, Implementation Guidance for the Application of Paragraph 16 of Issue No.
03-1. The proposed FSP would provide implementation guidance with respect to debt
securities that are impaired solely due to interest rates and/or sector spreads and
analyzed for other-than-temporary impairment under the measurement and recognition
requirements of EITF No. 03-1. The delay of the effective date for the measurement and
recognition requirements of EITF No. 03-1 will be superseded concurrent with the final
issuance of FSP EITF 03-1-a. Adopting the disclosure provisions of EITF No. 03-1 did not
have any impact on the Companys financial position or results of operations.

Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are not expected
to have a material impact on the consolidated financial statements upon adoption.

# Item 3.   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 of June 30, 2005. There have been no
significant changes in our internal controls over financial reporting during the fiscal
quarter ended June 30, 2005 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.

19

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# PART II  OTHER
INFORMATION

# Item 1.   Legal
Proceedings.

There
are no material legal proceedings to which we are a party or of which any of our property
is the subject.

# 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.

There
were two matters submitted to a vote of security holders during the three months ended
June 30, 2005 at our annual meeting of shareholders held on April 20, 2005.

# Proposal #1 
Election of Class I Directors

Our
board of directors is divided into three classes with each class to be as nearly equal in
number as possible. The three classes of directors have staggered terms, so that the terms
of only approximately one-third of the board members will expire at each annual meeting of
shareholders. The current Class I directors are Raymond E. Cleary, III, DDS, Joe N.
Jarrett, Jr., MD, Richard E. Lester and Don J. Smith. The current Class II directors are
Michael Bert Anderson, O. Bartlett Buie, Michael D. Harrington, Rick H. Seagroves and
Walter E. Standish, III. The current Class III directors are James C. Yahnis, Samuel
Robert Spann, Jr., B. Larkin Spivey, Jr., Leigh Ammons Meese and E. Thomas Fulmer. The
Class I directors were up for reelection at this years annual meeting held April 20,
2005. Each of the existing Class I directors were re-elected at the annual meeting for a
three-year term expiring at the 2008 annual meeting of shareholders. For Mr. Cleary,
1,578,305 votes were cast in favor of his reelection as director with 2,800 abstained. For
Mr. Jarrett, 1,578,305 votes were cast in favor of his reelection as director with 2,800
abstained. For Mr. Lester, 1,578,305 votes were cast in favor of his reelection as
director with 2,800 abstained. For Mr. Smith, 1,578,305 votes were cast in favor of his
reelection as director with 2,800 abstained. There were no votes cast against any of
the four directors.  The terms of the Class II directors will expire at the 2006
annual shareholders meeting, and the terms of the Class III directors will expire at the
2007 annual shareholders meeting.

# Proposal #2 
Approval of Amendment to the 1997 Stock Option Plan

The
shareholders approved the amendment to the 1997 Stock Option Plan to increase the number
of shares of common stock that may be issued pursuant to options granted under the plan
from 270,000 to 402,701 shares with 1,063,263 shares voting in favor, 43,575 shares voting
against, and 12,350 shares abstaining. There were 461,917 broker non-votes.

# Item 5.   Other Information.

Not
applicable.

# Item 6.   Exhibits and
Reports on Form 8-K.

(a)        
          Exhibits:

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

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

32          Section 1350
Certifications.

20

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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.

| |  | BEACH FIRST NATIONAL BANCSHARES, INC.
| |  | -------------------------------------

|Date:August 15, 2005 |  | By:  /s/ Walter E. Standish, III
        Walter E. Standish, III        
President and Chief Executive Officer
|-------------------- |  | --------------------------------------------------------------------------------------------------------------

|Date:August 15, 2005 |  | By:  /s/ Richard N. Burch
        Richard N. Burch       
Chief Financial and Principal Accounting Officer
|-------------------- |  | ----------------------------------------------------------------------------------------------------------

21

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INDEX TO EXHIBITS

Exhibit Number
          Description

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

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

32                     Section 1350
Certifications.

22