# Exhibit 13.1

Annual Report to Shareholders for the
year ended December 31, 2004.

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Exhibit 13.1

Beach First National
Bancshares, Inc.

2004 Annual Report

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(inside front cover)

Beach First National Bank
Board of Directors

(photo)

Front row from left to right are:
Walt Standish, Sammy Spann, Ray Cleary, Rick Seagroves, Joe Jarrett, and Jimmy Yahnis.
Back row from left to right are: Bart Buie, Leigh Meese, Tom Fulmer, Dick Burch, Dicke
Lester, Katie Huntley, Bert Anderson, Don Smith, Mike Harrington, Julien Springs, and
Larkin Spivey. This photograph was taken at Litchfield Plantation in Pawleys Island. The
bank opened an office in the Pawleys Island area at Litchfield Market Village in July
2004.

About the Cover (photo)

(photo)Our fourth Grand Strand office and first in the Waccamaw Neck area. 115 Willbrook Boulevard in Litchfield Market
Village, Pawleys Island.

(photo)Our second Grand Strand office, serving the Surfside Beach and Socastee areas. 3064 Dick Pond Road (Hwy. 544) in
Sayebrook Village.

(photo) Our newest location on Hilton Head
Island. 1000 William Hilton Parkway in The Village at Wexford.

(photo) Our third Grand Strand office,
located in Gator Hole Plaza, 710 Hwy. 17 North in North Myrtle Beach.

(photo) Our first Hilton Head Island office
at 430 William Hilton Parkway in Pineland Station.

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About Beach First

Beach
First National Bancshares, Inc. is the parent company of Beach First National Bank,
headquartered in Myrtle Beach, South Carolina. Beach First was organized in 1996 to meet
the financial needs of consumers and small-to-mid-sized businesses in our communities,
with emphasis on maintaining a personal one-on-one relationship with each customer.

In
addition to caring, attentive service, Beach First is committed to providing the
technologically advanced, user-friendly services that customers need, including NetTeller
internet banking, Visa Check Cards, cash management, and more.

Beach
First operates six banking offices in Myrtle Beach, Surfside Beach, North Myrtle Beach,
Litchfield, and Hilton Head Island.

Corporate Office

1550 Oak Street Myrtle Beach,
SC 29577 843.626.2265843.916.7818 (fax)

Inside the Report

|                                                                                    | 
|----------------------------------------------------------------------------------- | 
|To Our Shareholders and Friends                                                     | 
|Building a Bank Location by Location                                                | 
|Children's Art Calendar in 4th Year                                                 | 
|Management's Discussion and Analysis                                                | 
|Report of Management                                                                | 
|Report of Independent Accountants                                                   | 
|Consolidated Balance Sheets                                                         | 
|Consolidated Statements of Income                                                   | 
|Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income | 
|Consolidated Statements of Cash Flows                                               | 
|Notes                                                                               | 
|Corporate Information                                                               | 
|Staff                                                                               | 
|Directors                                                                           | 

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Selected Financial
Highlights

|                                 | 2004 | 2003 | % Change
|-------------------------------- | ---- | ---- | --------
|Earnings                         |      |      |         
|Net Income                       |      |      | $       
|Net Income per share - basic     |      |      |         
|Net Income per share - diluted   |      |      |         
|Book Value per share             |      |      |         
|Earnings Breakdown               |      |     
|Total Interest Income            |      |      | $       
|Total Interest Expense           |      |      |         
|Net Interest Income              |      |      |         
|Total Noninterest Income         |      |      |         
|Total Noninterest Expense        |      |      |         
|Year End Balances (in thousands) |      |     
|Total Assets                     |      |      | $       
|Loans, net of unearned income    |      |      |         
|Deposits                         |      |      |         
|Shareholders' Equity             |      |      |         
|Selected Ratios                  |      |     
|Return on average assets         |      |      |         
|Return on average equity         |      |      |         
|Average equity to average assets |      |      |         
|Dividend payout ratio            |      |      |         

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(Photo)

To Our Shareholders and
Friends

In 2004, Beach First National Bank
enjoyed strong financial performance, along with solid growth in the companys
balance sheet and branch network. The bank also took considerable strides in developing
the infrastructure needs to run a growing financial institution.

It is a pleasure to review the
progress made throughout this past year along with our plans for the future in this
Report.

Earnings Growth Continues
in 2004Net income grew 42% in 2004, totaling
$1.4 million and continuing an upward trend of earnings growth that began in 2000. Our
strong financial performance was fueled by solid, consistent growth in all areas of the
balance sheet. Total assets crossed the $200 million mark for the first time in the
banks history in September 2004, effectively doubling in size since crossing the
$100 million mark just two years earlier. Loans and deposits grew 41% and 47%,
respectively, over figures reported for the previous year. The mix in the balance sheet
remains constant, which is an indicator of overall robust financial health.

We continue to improve our financial
performance when compared to our peer group of banks, but work remains to be done to
further improve our standing within our peer group.

Locations and Talent Key
to Growing FranchiseDuring 2004, Beach First opened its
fifth location and first in the Waccamaw Neck area of the South Strand. Located in an area
of strong residential growth and an increasing number of small businesses, the office is a
good fit for Beach Firsts brand of community banking where local management and
local decision making are key.

The bank also planned for its second
location on Hilton Head Island during 2004, and the new office opened in early January
2005. Located in The Village at Wexford on the islands south end, the 4500
square-foot office houses the banks operations in Hilton Head, including commercial
relationship management, mortgage loans, and retail banking. The banks first Hilton
Head Island location opened at Pineland Station Office Building in February 2003.

The opportunities for new branches in
attractive locations caused us to defer building our new headquarters at the corner of
Robert Grissom Parkway and 38th Avenue North in Myrtle Beach. However, we are currently
completing plans for the new building, with the expectation that we will break ground in
the first quarter of 2005 and occupy it in 2006. We are pleased with this central location
because it is convenient for residents and business customers alike.

Successful expansion, however, is
much more than finding a location, putting up a sign, and moving in. We have found that it
takes the right combination of staff and infrastructure, along with location, to make a
new branch fruitful. Its always been part of our standard operating procedure to act
on a location only if we are certain we can staff it with the customer contact personnel
right for that particular market. In other words, we are matching the strength of location
with the strength of talent.

To achieve this delicate balance, we
added several commercial relationship officers in both the Grand Strand and Hilton Head
Island markets during the past year. These talented lenders know their markets and when
teamed with our existing staff, have been able to identify and take advantage of
opportunities as they happen within the markets.

When the team and the site are in
place, our internal business systems need to support their efforts. This not only means
technology, but the specialists required to run systems and operations. We have invested
in this infrastructure in 2004, adding a new telecommunications system for the entire
branch network, upgrading e-mail and other computer systems, and hiring a director of
information technology and facilities to manage the process.

We also need to offer technologically
advanced services to our customers. Thats why we have invested so heavily in our
NetTeller Internet Banking Service with Bill Payer. While it is expensive for a bank our
size to offer this technology, customer demand makes it a business necessity to include
this service in our product arsenal. The benefits of offering the service in terms of
growing our market share far outweigh any expense.

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Developing Core CustomersAgain, the development of NetTeller
is of vital importance to the banks success. This service plays an integral role in
our goal of developing and expanding our base of core customers. Recent research studies
have shown that use of electronic services bonds customers to the bank, making them
unlikely to switch to a competitor. By offering the service free of charge, we are able to
overcome a key objection based on price and thus the product becomes very attractive,
especially to computer-savvy customers.

(photo)

By combining the power of NetTeller
with other convenience services such as Bank by Phone and the Visa Check Card, we have
developed an attractive package of services designed to bring core customers to the bank.
Customer contact personnel also have the tools to assist customers with setting up auto
draft for payments. This is another way in which electronic services can help us build a
loyal customer base.

Our Role as a Community
BankBeach First is a growing, vibrant
financial institution that plays an active role in the communities it serves. We continue
to be involved in a large number of activities with levels of sponsorship commensurate
with our size and growth. Our support covers a wide range of events including academics
and athletics, the arts, and health and human services. Many of our employees hold
leadership positions in civic groups and church- related organizations and we applaud
their willingness to give so generously of their time to these many worthwhile causes.

An upcoming section of this Report
will talk in further detail about our Childrens Art Calendar. Now in its fourth
year, this exciting calendar promotes the artwork of youngsters and the art programs in
four local elementary schools. Were proud to play a part in programs that make a
difference in our communities.

Progress Continues to be
MadeI hope you are pleased with progress
your bank continues to make as evidenced throughout this Report. We appreciate your
investment in our company and will continue to work hard for you in the months and years
to come.

On behalf of our officers and board
of directors, please accept our invitation to attend the Annual Meeting of Shareholders to
be held on Wednesday, April 20, at 2 p.m. at the Myrtle Beach Convention Center.

/s/ Walter E. Standish Walter E.
Standish, IIIPresident and Chief Executive Officer

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Building a Bank Location
by Location

Beach First National Bank was founded
on the core community banking principal of service that is absolutely dependable,
completely attentive, and locally managed.

From its beginning in a single office
on Oak Street in 1996 to its current six-branch network along the South Carolina coast,
Beach First has known that it takes a careful combination of location, talent, and
infrastructure to build a strong bank.

The bank has offices in Beaufort and
Horry counties, two of the fastest growing counties in South Carolina, and a location in
Litchfield in Georgetown County, where population growth also exceeds the state average.

Our 2004 Report focuses on these six
physical locations and the talented bankers who staff them. We will also make a stop in
cyberspace at our seventh location, beachfirst.com.

Litchfield Our newest Grand Strand office opened
for business in July 2004. Located in Litchfield Market Village at the entrance to
Willbrook Plantation, the branch is ideally situated to serve both residents and
businesses in the Waccamaw Neck area. The Litchfield Market Village office is the
banks first in Georgetown County.

(photo)Jeri Williamson, branch manager at
the Litchfield office (left), reviews the banks products and services with customer
Jim McGowan.

North Myrtle Beach The Grand Strands third office
opened in November 2002 in a rapidly growing part of North Myrtle Beach. Located in the
Gator Hole Plaza Shopping Center, the branch brings Beach Firsts brand of community
banking to consumers and businesses in the North Strand.

(photo)Marc McDowell, vice president and
regional manager for North Myrtle Beach (right), chats with teller Peggy Roessler at the
end of a busy day.

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Pineland
StationHilton Head Island The opening of a branch in the
Pineland Station Office Building in February 2003 marked the banks first expansion
outside the Grand Strand market. The rapid growth in Hilton Head Island and Beaufort
County made this site attractive to the bank, and with a local, experienced management
team in place, its been a good fit for our growing branch network.

(photo) Stephanie Loudner, assistant vice
president and branch manager at the Pineland Station office (right), reviews plans with
Paul Cale of Hilton Head Vacation Rentals. Cales business, which provides short term
rentals to Island visitors, also is a tenant at Pineland Station.

The Village at
WexfordHilton Head Island The banks second office on
Hilton Head Island opened in January 2005 in The Village at Wexford. This location near
the Islands south end will help make Beach Firsts community banking services
even more convenient to residents and businesses. This office serves as the banks
base of operations on Hilton Head Island, including retail banking, commercial
relationship management, and mortgage lending.

(photo) Paul Walter, vice president and
regional manager for the banks Hilton Head Island operations (left), assists Grant
McKinley, owner of the Executive Golf Club in Bluffton, with his companys financial
needs.

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Main Office The main office in Myrtle Beach
serves as the banks headquarters and also provides a full service branch including
retail banking and commercial relationship management. A new headquarters, located at
Grissom Parkway and 38th Avenue North is on the drawing board, with plans to occupy a new
building sometime in 2006.

(photo) Terry Walden, president of operations
for DiamondRoc LLC, a development and realty investments company (left), consults with
commercial lender Harry Bates at the banks main office.

Surfside BeachThe Surfside Beach office opened in
2001 as the banks second full service facility. Located in Sayebrook Village on
Highway 544, the branch serves the Surfside Beach and Socastee areas. Its close proximity
to the recently-completed second phase of the Carolina Bays Parkway makes it a prime
location that is easily and quickly accessible.

(photo) Christine Holmes, customer service
representative at the Surfside Beach office (left), assists Don and Susan Duerk of Island
Storage, Inc. during a visit to the banks office.

On the Web The banks location along the
Information Highway was remodeled and made its debut in January 2005. The refurbished site
includes detailed information about Beach Firsts products and services and provides
easy access to NetTeller Internet Banking. Other features include financial tools such as
a mortgage loan calculator and a checkbook balancer. Investor Relations data is also
available at the click of a mouse. The new site provides customers with a key to the bank
to be used any time of the day of the night. To visit our seventh office, go
to beachfirst.com.

(photo)

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Childrens Art
Calendar in 4th YearOne of the banks biggest public
relations initiatives each year is the Childrens Art Calendar, Reflections of
our Youth. The Calendar is a vital project because it focuses the spotlight on young
artists and provides financial support for the art programs in four of our local
elementary schools. The art teachers at these schools work with their students for several
weeks, often incorporating the calendars theme into their lesson plans. It is a
wonderful partnership that yields amazing results and gives the bank a special holiday
gift for its customers.

(photo)North Myrtle Beach winners Laquiesha
Stanley (left) and Ali Capel (right) smile for a photo with art instructor Tonya Merricks
at the awards ceremony.

(photo) Carol Gorn, art instructor at Hilton
Head Island Elementary, looks on as Yuta Suzuki develops his drawing.

(photo) Cynthia Evans, art instructor at
Lakewood Elementary, offers suggestions to Dylan Boston (left) and Darryl Barnes (right).

(photo) Myrtle Beach Elementary students Cheriel
Ramirez (left) and Tynetta Bryant (right) share a laugh while drawing.

(photo) Christian Wright and Temperance
Russell, both of Myrtle Beach Elementary, are hard at work.

(photo)Jordyn Yannacone of Lakewood
Elementary puts the finishing touches on her drawing.

(photo)Lakesha Campbell of Hilton Head
Island Elementary works hard on her drawing.

(photo) North Myrtle Beach student Bailey
Phillips works on his submission to the program.

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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 and
operating results and those of our subsidiaries, Beach First National Bank and BFNB Trust,
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.

OverviewBeach First National Bancshares, Inc.
(the Company) is the parent company of Beach First National Bank, (the
Bank) and Beach First National Trust (the Trust), both of which
are wholly-owned subsidiaries. The trust was established exclusively for the issuance of
junior subordinated debt which was used to capitalize the bank. The companys primary
business activities are conducted by the bank. We commenced operations on September 23,
1996 and completed our eighth full year of operations on December 31, 2004. From the
outset, we have focused on serving the banking needs of small businesses and individuals,
and we have emphasized our local management and ownership.

Walt Standish, our president and
chief executive officer, completed his fifth full year at December 31, 2004. Under Mr.
Standishs leadership, we are continuing to expand and grow in our service markets.
Our total assets have increased to $242.1 million at December 31, 2004, a 46.6% increase
since December 31, 2003, and our net income was $1,435,922 for the year ended December 31,
2004, an increase of $426,991, or 42.3%, over the same period in 2003. We accomplished our
first quarterly profit in the second quarter of 1999, and in 2001 our performance resulted
in the first cumulative year of profitability.

The banks primary market areas
are located along the coastal regions of South Carolina and predominately center on the
Metro regions of Myrtle Beach and Hilton Head Island, South Carolina. We currently operate
from six banking locations. In addition to the main office in Myrtle Beach, we have added
five branches. We opened our Surfside branch in June 2001. In November 2002, we opened an
office in North Myrtle Beach, and in February 2003, we opened an office in Hilton Head
Island. In 2004, we opened an office in the Litchfield/Pawleys Island area of the Grand
Strand and in early 2005, we opened our second office on the south end of Hilton Head
Island. All of our branches are full service.

The following table sets forth
selected measures of our financial performance for the periods indicated:

|                  | At and for the Years Ended December 31, | 
|----------------- | --------------------------------------- | 
|
|Net Income        |                                         | 
|Total Assets      |                                         | 
|Total Loans       |                                         | 
|Total Deposits    |                                         | 
|Retained Earnings |                                         | 

The following discussion describes
our results of operations for 2004 as compared to 2003, and 2003 compared to 2002 and also
analyzes our financial condition as of December 31, 2004 as compared to December 31, 2003.
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 and advances from Federal Home Loan Bank (FHLB), 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 and
advances from FHLB. 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.

We have included a number of tables
to assist in our description of these measures. For example, the Average Balances,
Income and Expenses, and Rates table shows the average balance during 2004, 2003,
and 2002 of each category of our assets and liabilities, as well as the yield we earned or
the rate we paid with respect to each category. A review of this table shows that our
loans typically provide higher interest yields than do other types of interest earning
assets, which is why we intend to channel a substantial percentage of our earning assets
into our loan portfolio. Similarly, the Analysis of Changes in Net Interest
Income table helps demonstrate the impact of changing interest rates and changing
volume of assets and liabilities during the years shown. We also track the sensitivity of
our various categories of assets and liabilities to changes in interest rates, and we have
included a

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Interest Sensitivity Analysis
Table to help explain this. Finally, we have included a number of tables that
provide detail about our investment securities, our loans, our deposits and other
borrowings.

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 Loans
and Allowance for Loan Losses sections, we have included a detailed discussion of
this process, as well as several tables describing our allowance for loan losses and the
allocation of this allowance among our various categories of loans.

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 Noninterest Income and Expense section.

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
thisReport.

Critical Accounting
Policies

We have adopted various accounting
policies which govern the application of accounting principles generally accepted in the
United States in the preparation of our financial statements. Our significant accounting
policies are described in Note 1 of the Notes to Consolidated Financial Statements.

Certain accounting policies involve
significant judgments and assumptions by management which has 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 a critical accounting policy that requires the most significant judgments and
estimates used in preparation of its consolidated financial statements. Refer to the
section entitled Provision and Allowance for Loan Losses for a detailed
description of our estimation process and methodology related to the allowance for loan
losses.

Analysis of the Fiscal Years Ended
December 31, 2002 and 2003 and 2004

Earnings Review

Overview.    
          For the year ended December 31, 2004, our net income was $1,435,922, or $.71
          basic net income per common share, as compared to $1,008,931, or $.51 basic net
          income per common share, for the year ended December 31, 2003, and $707,271, or
          $0.36 basic net income per common share, for the year ended December 31, 2002.
          All per share data for all periods has been adjusted to reflect the 3-for-2
          stock split effected in the form of a 50% stock dividend that we declared in
          2004. The improvement in net income in 2004 reflects our growth, with average
          earning assets increasing 43.9% to $192.1 million during 2004 from $133.4
          million during the same period of 2003. Return on average assets and return on
          average shareholders equity are key measures of earnings performance.
          Return on average assets for 2004 was 0.70% compared to 0.70% in 2003 and 0.75%
          in 2002. Return on average shareholders equity for 2004 was 9.10% verses
          7.05% in 2003 and 5.24% in 2002. Our equity to assets ratio was 6.82% in 2004,
          9.01% in 2003, and 11.67% in 2002.

We had total assets of $242.1 million
at December 31, 2004, an increase of 46.6% from $165.1 million at December 31, 2003. Our
total deposits increased to $203.2 million at December 31, 2004, up 47.1% from $138.1
million at December 31, 2003.

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Net Interest Income

General.
          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. Our net interest income increased $2.3 million, or
          37.5%, to $8.3 million in 2004 from $6.0 million in 2003. Net interest income
          increased $1.7 million in 2003, from $4.3 million in 2002. The increase in net
          interest income was due primarily to the growth of our bank, as reflected in an
          increase in our average earning assets.

Net interest spread, the difference
between the rate we earn on interest-earning assets and the rate we pay on
interest-bearing liabilities, was 3.96% for the year ended December 31, 2004, compared to
4.12% for the year ended December 31, 2003, and 4.13% for the year ended December 31,
2002. Our net interest margin, which is net interest income divided by average
interest-earning assets, was 4.30% for the year ended December 31, 2004, 4.51% for the
year ended December 31, 2003, and 4.88% for the year ended December 31, 2002. The decrease
in the net interest margin can be attributed to the decline in interest rates that began
in late November 2002, and continued to historically low levels during 2003 and 2004. Even
though our average rates on earning assets fell from the 2003 levels, we were able to
mitigate the decline by further reducing our rates paid on our deposits.

Average Balances, Income and Expenses
and Rates. The following tables set forth, for the periods indicated, information related
to our average balance sheet and average yields on assets and average rates paid on
liabilities. We derived these yields or rates by dividing income or expense by the average
balance of the corresponding assets or liabilities. We derived average balances from the
daily balances throughout the periods indicated.

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Average Balances, Income and Expenses, and Rates

|                 | For the year ended |  | For the year ended |             | For the year ended |  
|---------------- | ------------------ |  | ------------------ | ----------- | ------------------ | -
|
|
|
|Federal funds    |                    |  |                    |             |                    |  
|sold, short term |                    | 
|investments and  |                    | 
|trust preferred  |                    | 
|securities       |                    |  | $                  | 6,201,758   |                    | $
|Investment       |                    | 
|securities       |                    |  |                    | 26,537,687  |                    |  
|Loans (1)        |                    |  |                    | 159,320,786 |                    |  
|                 |                    |  |                    |             |                    |  
|Total earning    |                    | 
|assets           |                    |  | $                  | 192,060,231 |                    | $
|                 |                    |  |                    |             |                    |  
|Interest-bearing |                    | 
|deposits         |                    | 
|IBCA             |                    |  | $                  | 6,181,823   |                    | $
|MMA              |                    |  |                    | 38,995,499  |                    |  
|Savings          |                    |  |                    | 3,169,499   |                    |  
|CD's <$100,000   |                    |  |                    | 49,021,815  |                    |  
|CD's >$100,000   |                    |  |                    | 38,770,815  |                    |  
|                 |                    |  |                    |             |                    |  
|IRA              |                    |  |                    | 3,593,938   |                    |  
|                 |                    |  |                    |             |                    |  
|Total interest-  |                    | 
|bearing          |                    | 
|deposits         |                    |  | $                  | 139,733,389 |                    | $
|                 |                    |  |                    |             |                    |  
|Other borrowings |                    |  |                    | 19,835,693  |                    |  
|                 |                    |  |                    |             |                    |  
|Total            |                    | 
|interest-        |                    | 
|bearing          |                    | 
|liabilities      |                    |  | $                  | 159,569,082 |                    | $
|                 |                    |  |                    |             |                    |  
|Net interest     |                    | 
|spread           |                    |  |                    |             |                    |  
|Net interest     |                    | 
|income/margin    |                    |  |                    |             |                    | $
|                 |                    |  |                    |             |                    |  

(1) The effect of loans in nonaccrual status and fees collected is not significant
to the computations. All loans and deposits are domestic.

Analysis of Changes in Net Interest
Income. The following tables set forth the impact of the varying levels of earning assets
and interest-bearing liabilities and the applicable rates have had on changes in net
interest income for the periods presented. The change in net interest income is primarily
due to the increases in volume of both loans and deposits and changes in average rates.

Analysis of Changes in Net Interest Income

|                             | For the year ended December 31, | For the year ended December 31,
|---------------------------- | ------------------------------- | -------------------------------
|
|
|Federal funds sold and short |                                 |                                
|term investments and trust   |                                 |                                
|preferred securities         |                                 |                                
|Investment securities        |                                 |                                
|Loans                        |                                 |                                
|                             |                                 |                                
|Total earning assets         |                                 |                                
|Interest-bearing deposits    |                                 |                                
|Other borrowings             |                                 |                                
|                             |                                 |                                
|Total interest-bearing       |                                 |                                
|liabilities                  |                                 |                                
|                             |                                 |                                
|Net interest income          |                                 |                                
|                             |                                 |                                

(1) Volume-rate changes have been allocated to each category proportionately based on the percentage of the total change.

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

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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.

One monitoring technique we employ is
the measurement of our interest rate sensitivity gap, which is the difference
between the amount of interest-earning assets and interest-bearing liabilities that mature
or may reprice 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 December 31, 2004. However, 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
non-core 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.

The following table summarizes the
amounts of interest-earning assets and interest-bearing liabilities outstanding at
December 31, 2004, that are expected to mature, prepay, or reprice in each of the future
time periods shown. Except as stated in the following tables, we determined the amount of
assets or liabilities that mature or reprice during a particular period in accordance with
the contractual terms of the asset or liability. We included adjustable rate loans in the
period in which interest rates are next scheduled to adjust rather than in the period in
which they are due, and we included fixed rate loans in the periods in which we anticipate
they will be repaid based on scheduled maturities. We included our savings accounts and
interest-bearing demand accounts (interest bearing checking and money market deposit
accounts), which are generally subject to immediate withdrawal, in the Three Months
or Less category, although our historical experience has proven these deposits to be
more stable over the course of a year.

12

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Interest Sensitivity AnalysisDecember 31, 2004

|                                 | Within three | After three but | After one but |             |   |  
|-------------------------------- | ------------ | --------------- | ------------- | ----------- | - | -
|
|
|Assets                           |              |                 |               |             |   |  
|Earning assets:                  |              |                
|Federal funds sold and short     |              |                
|term                             |              |                
|investments                      |              |                 | $             | 463,069     |   | $
|Investments, including FHLB&     |              |                
|FRB                              |              |                 |               | 36,100      |   |  
|Total loans (1)                  |              |                 |               | 105,527,433 |   |  
|                                 |              |                 |               |             |   |  
|Total earning assets             |              |                 | $             | 106,026,602 |   | $
|                                 |              |                 |               |             |   |  
|Liabilities                      |              |                
|Interest-bearing liabilities     |              |                
|Money market and interest        |              |                
|checking                         |              |                 | $             | 73,682,792  |   | $
|Regular savings deposits         |              |                 |               | 3,003,904   |   |  
|Time deposits < $100,000         |              |                 | $             | 25,061,100  |   |  
|>$100,000                        |              |                 | $             | 25,143,933  |   |  
|Other borrowings                 |              |                 |               | 2,500,000   |   |  
|Junior Subordinated Debentures   |              |                 |               | -           |   |  
|                                 |              |                 |               |             |   |  
|Total interest-bearing           |              |                
|liabilities                      |              |                 | $             | 129,391,729 |   | $
|                                 |              |                 |               |             |   |  
|Period gap                       |              |                 | $             | (23,365,127 | ) | $
|Cumulative gap                   |              |                 | $             | (23,365,127 | ) | $
|Ratio of cumulative gap to total |              |                
|earning assets                   |              |                 |               | (10.17)     | % |  

(1)       
          Non-accrual loans in the amount of $76,826 are not included in the above table.

Allowance for Loan Losses

The adequacy of the allowance is
analyzed on a quarterly basis. For purposes of this analysis, adequacy is defined as a
level of reserves sufficient to absorb probable losses inherent in the portfolio. The
methodology employed for this analysis considers historical loan loss experience, the
results of loan reviews, current economic conditions, and other qualitative and
quantitative factors that warrant current consideration in determining an adequate
allowance.

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 or
conditions may include evaluation of current general economic and business conditions;
geographic, collateral, or other concentrations; system, procedural, policy, or
underwriting changes; experience of lending staff; entry into new markets or new product
offerings; and results from internal and external portfolio examinations.

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.

Assessing the adequacy of the
allowance is a process that requires considerable judgement. Managements methodology
and judgements are based on the information currently available and includes numerous
assumptions about current events, which we believe to be reasonable, but which may or may
not be valid. Thus, there can be no

13

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assurance that loan losses in future
periods will not exceed the current allowance amount or that future increases in the
allowance will not be required. No assurance can be given that managements ongoing
evaluation of the loan portfolio in light of changing economic conditions and other
relevant circumstances will not require significant future additions to the allowance,
thus adversely affecting the operating results of the Company. Management believes that
the current level of the allowance for loan losses is presently adequate considering the
composition of the loan portfolio, the portfolios loss experience, delinquency
trends, current regional and local economic conditions and other factors.

The allowance is also 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. In addition, such regulatory agencies
could require the Company to adjust the allowance based on information available to them
at the time of their examination.

At December 31, 2004, our allowance
for loan losses was $2,421,839, or 1.26% of total outstanding loans, compared to an
allowance for loans losses of $1,760,481, or 1.30% of outstanding loans, at December 31,
2003, and $1,275,778, or 1.37% at December 31, 2002.

Provision for Loan Losses

As a result of growth in loans
receivable and the credit risk associated with problem loans, the Companys provision
for loan losses was $1,340,000 for 2004, $713,000 for 2003, and $539,000 for 2002. Loans
delinquent 90 days or more were 0.04% of total loans at December 31, 2004, compared to
0.11% at December 31, 2003, and 0.05% at December 31, 2002. Management believes that the
current level of the allowance for loan losses is adequate considering the composition of
the loan portfolio, the portfolios loss experience, delinquency trends, current
regional and local economic conditions and other factors. Also see Non Performing
Assets and Allowance for Loan Losses.

Non Performing 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 December 31, 2004, there was one
loan totaling $652 accruing interest which were 90 days or more past due and we had no
restructured loans.

14

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Non Performing Assets(Dollars in Thousands)

|                                                                |  | At December 31,
|--------------------------------------------------------------- |  | ---------------
|
|Nonaccrual loans                                                |  |                
|Commercial                                                      |  |                
|Real estate - construction                                      |  |                
|Real estate - mortgage                                          |  |                
|Consumer                                                        |  |                
|                                                                |  |                
|Total                                                           |  |                
|                                                                |  |                
|Accruing loans which are contractually past due 90 days or more |  |                
|Commercial                                                      |  |                
|Real estate - construction                                      |  |                
|Real estate - mortgage                                          |  |                
|Consumer                                                        |  |                
|Total                                                           |  |                
|                                                                |  |                
|Total nonperforming loans                                       |  |                
|                                                                |  |                
|Total nonaccrual loans to total                                 |  |                
|loans                                                           |  |                
|Total nonaccrual loans to total                                 |  |                
|assets                                                          |  |                
|Total nonperforming assets to                                   |  |                
|total assets                                                    |  |                

We had three nonaccruing loans
totaling $76,826 at December 31, 2004. One loan in the amount of $34,750 is a commercial
loan secured by a first mortgage, one commercial loan in the amount of $35,235 secured by
a first mortgage and a consumer loan in the amount of $6,841 secured by a vehicle. We had
three nonaccruing loans totaling $366,326 at December 31, 2003. One loan in the amount of
$168,148 is a commercial loan secured by a first mortgage, one commercial loan in the
amount of $148,328 secured by an assignment of a lease, and a commercial loan in the
amount of $49,850 secured by a piece of construction equipment. Interest income that would
have been received for the years ended December 31, 2004 and 2003, had nonaccruing loans
been current in accordance with their original terms amounted to $6,716 and $19,720,
respectively. We did not have any other real estate owned at year end for the periods
presented above.

We do not include loans that are
current as to principal and interest in our nonperforming assets categories. However, we
will still classify a current loan as a potential problem loan if we develop serious
doubts about the borrowers future performance under the terms of the loan contract.
We consider the level of potential problem loans in our determination of the adequacy of
the allowance for loan losses. At December 31, 2002, we did not have any loans we
considered classified. At December 31, 2003, we had classified loans totaling $2,061,145
that we have classified substandard and have made a specific allocation in the allowance
for loan losses. At December 31, 2004, we had classified loans totaling $3,869,625 and
have made a specific allocation in the allowance for loan losses.

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 years ended December 31, 2000 to 2004.

15

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Non Performing Assets(Dollars in Thousands)

|                                 |  | At December 31,
|-------------------------------- |  | ---------------
|
|Average loans outstanding        |  |                
|Total loans outstanding at       |  |                
|period end                       |  |                
|                                 |  |                
|Total nonperforming loans        |  |                
|                                 |  |                
|Beginning balance of allowance   |  |                
|Loans charged off:               |  |                
|Real Estate                      |  |                
|Commercial                       |  |                
|Consumer                         |  |                
|                                 |  |                
|Total loans charged off:         |  |                
|Recoveries:                      |  |                
|Real Estate                      |  |                
|Commercial                       |  |                
|Consumer                         |  |                
|                                 |  |                
|Total recoveries:                |  |                
|                                 |  |                
|Net loans charged off            |  |                
|Provision for loan losses        |  |                
|                                 |  |                
|Balance at period end            |  |                
|                                 |  |                
|Net charge-offs to average loans |  |                
|Allowance as a percent of total  |  |                
|loans                            |  |                
|Nonperforming loans as a         |  |                
|percentage of allowance          |  |                
|Ratio of net charge-offs to      |  |                
|average total loans              |  |                
|outstanding during the period    |  |                

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 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 Lossesat December 31,

|                    | 2004 | 2003 | 2002 | 2001      | 2000
|------------------- | ---- | ---- | ---- | --------- | ----
|Commercial          |      |      | $    | 437,506   |     
|RE Construction     |      |      |      | 200,039   |     
|RE Mortgage         |      |      |      | 1,040,845 |     
|Consumer            |      |      |      | 127,500   |     
|Unallocated         |      |      |      | 615,950   |     
|                    |      |      |      |           |     
|Total allowance for |      |     
|loan losses         |      |      | $    | 2,421,839 |     
|                    |      |      |      |           |     

Noninterest Income and
Expense

Noninterest Income. Noninterest
income increased to $1,037,425 for the year ended December 31, 2004, up 5.1% from $986,834
for the year ended December 31, 2003. Noninterest income increased 34.9% from $731,624 in
2002, to $986,834 in 2003. Service fees on deposit accounts, the largest component of
noninterest income, increased 9.2% to $536,077 in 2004 from $490,694 in 2003. Service fee
income increased $70,566, or 16.8%, in 2003 from $420,128 in 2002. Service fees on deposit
accounts increased due to the growth in the number of deposit accounts

16

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and increased fee-related activities of customers. The net gain on the sale of investment securities was
$37,395 for 2004, $134,530 for 2003, and $977 in 2002. The bank purchased bank owned life
insurance in mid-2002 and income from cash value life insurance was $161,544 in 2004 and
2003 compared to $80,222 in 2002. Mortgage loan referral fee income for 2004 was $134,865
compared to $64,121 in 2003 and $34,703 for 2002. Other income increased 23.2% to $167,544
in 2004 from $135,945 in 2003, and increased 37.7% from $98,708 in 2002. Other income
increased due to the increase in electronic transactions on debit cards.

Noninterest Expense. Noninterest
expense totaled $5.7 million for the year ended December 31, 2004, up from $4.7 million
for 2003, and $3.4 million for the year ended December 31, 2002. As a percentage of total
assets, our total noninterest expenses decreased from 2.83% in 2002 and 2.84% in 2003 to
2.35% in 2004. While our total assets have grown at a 39.4% growth rate over 2002 and
46.6% over 2003, we have been able to manage our expenses while accommodating our growth.
The increase in noninterest expense reflects an increase in most expense categories as a
result of our growth to $242.1 million in total assets at the end of 2004 from $165.1
million at the end of 2003, and $118.4 million for the end of 2002. Salary and wages
expense totaled $2.6 million in 2004, $2.1 million in 2003, and $1.5 million in 2002.
Employee benefits were $501,347 in 2004, $400,579 in 2003, and $275,694 in 2002. We had 56
full-time equivalent employees at the end of 2004, an increase of 14 from the end of 2003
and an increase of 5 from the end of 2002. Staffing increases are primarily due to the
opening of new branch offices in North Myrtle Beach, South Carolina during the fourth
quarter of 2002, and in the Hilton Head Island office during the first quarter of 2003. In
2004, we added staff for the new branch office in the Litchfield/Pawleys Island area of
South Carolina and began staffing for the second location in Hilton Head Island, which
opened on January 3, 2005. Increases in personnel costs are also due to normal
compensation adjustments, higher costs associated with group insurance coverage and
certain incentive awards.

Advertising and public relations
expenses continue to be a major expense item as we develop our presence in the new
markets. In 2004, advertising and public relations expense increased $71,118 to $239,256
from $168,138 in 2003, and $117,077 in 2002. These increases in 2004 were due primarily to
the promotion of the new Litchfield/Pawleys Island office that opened in July 2004, as
well as special promotions in all markets. Professional fees increased $53,585 to $190,138
for 2004 compared to $136,553 in 2003 and $140,429 in 2002. This increase is due to the
escalating cost of accounting, auditing and legal services in addition to increased
regulatory fees.

Occupancy costs for the year ended
December 31, 2004, were $476,736, compared to $362,202 in 2003, and $239,774 in 2002.
These annual increases are the result of branch expansion and increased lease payments for
most locations during these periods. See discussion of our leases in the notes to the
consolidated financial statements.

Data processing fees increased in
2004 to $343,275 from $308,568 in 2003 and $215,397 in 2002. Data processing costs are
primarily related to the volume of loan and deposit accounts and associated transaction
activity. We feel our data processing costs are consistent with our expansion.

We experienced a 19.3% increase in
other operating expenses in 2004 to $838,945, from $703,317 in 2003, and from $483,988 in
2002, principally as a result of an increase in operating expenses related to the new
branch offices opened during these periods, along with other expenses associated with the
expansion of loans and deposits. Specifically, credit and collection expenses increased
$45,878, FDIC insurance increased $27,258, furniture and equipment increased $20,246,
totaling $93,382 of the total increase of $135,629. Expenses related to the bank owned
life insurance increased $10,001.

Income Taxes. Total income tax
expense included in the Consolidated Statements of Income was $845,060 in 2004, $589,643
in 2003, and $419,220 in 2002. Our effective tax rates were 37% for all periods.

Financial ConditionLoans.    
          Loans are our largest component of earning assets and typically provide higher
          yields than our other types of earning assets. At December 31, 2004, loans
          represented 82.9% of average earning assets, representing a decrease over the
          87.3% that they represented at the end of 2003. At December 31, 2004, net loans
          (gross loans less the allowance for loan losses and deferred loan fees) totaled
          $189.1 million, an increase of $55.2 million, or 41.2%, from December 31, 2003.
          Average gross loans increased 36.8% from $116.7 million with a yield of 6.81% in
          2003, to $159.3 million with a yield of 6.54% in 2004. Average gross loans
          increased from $75.9 million with a yield of 7.78% in 2002. The decrease in
          yield on loans during these periods is due to the declining interest rate
          environment. Associated with the higher loan yields are the inherent credit and
          liquidity risks which we attempt to control and counterbalance. The interest
          rates we charge 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.

17

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Mortgage loans constitute the
principal component of our loan portfolio. Mortgage loans represented 70.4% and 66.0% of
our portfolio at year end 2004 and 2003, 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. Most
of our real estate loans are secured by residential or commercial property. We follow the
common practice of financial institutions in our area of obtaining a security interest in
real estate whenever possible, in addition to any other available collateral. This
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 our loan-to-value ratio to 80%. We attempt to maintain a relatively diversified loan
portfolio to help reduce the risk inherent in concentrations of collateral.

The following table shows the
composition of our loan portfolio by category at December 31, for the years indicated.

Composition of Loan PortfolioAt December 31

|                           | 2004 | 2003 | 2002 | 2001    | 2000 | 
|-------------------------- | ---- | ---- | ---- | ------- | ---- | 
|
|
|
|Commercial                 |      |      | $    | 33,031  |      | 
|Real estate  construction |      |      |      | 16,255  |      | 
|Real estate  mortgage     |      |      |      | 134,978 |      | 
|Consumer                   |      |      |      | 7,554   |      | 
|                           |      |      |      |         |      | 
|Loans, gross               |      |      | $    | 191,818 |      | 
|                           |      |      |      |         |      | 
|Deferred loan fees         |      |      |      | (336    | )    | 
|Allowance for loan losses  |      |      |      | (2,422  | )    | 
|                           |      |      |      |         |      | 
|Loans, net                 |      |      | $    | 189,060 |      | 
|                           |      |      |      |         |      | 

The following tables set forth the
maturity distribution, classified according to sensitivity to changes in interest rates,
for selected components of our loan portfolio as of December 31, 2004. The information in
this table is based on the contractual maturities of the individual loans, including loans
which may be subject to renewal at their contractual maturity. Renewal of these loans is
subject to review and credit approval, as well as modification of terms upon their
maturity. Actual repayments of loans may differ from maturities reflected above because
borrowers may have the right to prepay obligations with or without prepayment penalties.

Loan Maturity Schedule and Sensitivity to Changes in Interest Rates

December 31, 2004

|                         | After one but | 
|------------------------ | ------------- | 
|
|Commercial               |               | 
|Real estate mortgage     |               | 
|Real estate construction |               | 
|Consumer                 |               | 
|                         |               | 
|Total                    |               | 
|                         |               | 
|Fixed Interest Rate      |               | 
|Variable Interest Rate   |               | 
|                         |               | 
|Total                    |               | 
|                         |               | 

Investment
Securities. Investment securities at December 31, 2004 and December 31, 2003 averaged
$26.5 million, representing 13.8% of average earning assets and $12.2 million,
representing 9.1% of average earning assets, respectively. This increase is due to a
leveraging of the securities portfolio during 2004. At December 31, 2004, our total
portfolio had a book value of $37.8 million, and a market value of $37.6 million, for an
unrealized net loss of $258,284. This compares to our market value of $11.9 million at
December 31, 2003, and $7.6 million at December 31, 2002.

18

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Investment
SecuritiesAs of December 31,

|                  | 2004 | 2003 | 2002
|----------------- | ---- | ---- | ----
|US Govt. Agencies |      |      | $   
|Mortgage backed   |      |      |     
|Other             |      |      |     
|                  |      |      |     
|Total             |      |      | $   
|                  |      |      |     

At December 31, 2004, short term
investments totaled $463,069. At December 31, 2003, we had short-term investments of $4.6
million. At December 31, 2002, we had short-term investments of $5.4 million. These funds
are generally invested in an earning capacity with maturities of six months or less in
federal funds or in US Government Agency and mortgage backed securities with an average
life of seven years or less.

Contractual maturities and yields on
our investment securities (all available for sale) at December 31, 2004 are set forth on
the following tables based on market values. Expected maturities may differ from
contractual maturities because issuers may have the right to call or prepay obligations
with or without call or prepayment penalties.

Investment Securities Maturity Distribution and YieldsDecember 31, 2004

|                  |  |  | After one year       | After five years |  |  
|----------------- |  |  | -------------------- | ---------------- |  | -
|
|
|US Govt. Agencies |  |  | $                  - |                  |  | -
|Mortgage-backed   |  |  | -                    |                  |  | -
|Other             |  |  | -                    |                  |  | -
|                  |  |  |                      |                  |  |  
|Total             |  |  | $                  - |                  |  | -
|                  |  |  |                      |                  |  |  

Funding SourcesDeposits and Other Interest-Bearing
Liabilities.Average total deposits were $166.8 million in 2004, up 37.6% from $121.7
million in 2003. Average interest-bearing deposits were $139.7 million in 2004, up 36.3%
from $102.5 million in 2003. These increases were primarily a result of the continued
expansion of the company.

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 $156.0 million at
December 31, 2004, an increase of 52.5% compared to $102.3 million at December 31, 2003.
We expect a stable base of deposits to continue 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 76.8% at December 31, 2004 and 74.1% at December 31,
2003. Our loan-to-deposit ratio was 93.1% at December 31, 2004 versus 96.9% at December
31, 2003. The average loan-to-deposit ratio was 94.3% during 2004 and 94.5% during 2003.

The following table sets forth our
deposits by category as of December 31, 2004 and 2003.

19

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Deposits

|                          | December 31, 2004 | December 31, 2003
|------------------------- | ----------------- | -----------------
|
|
|Demand deposit accounts   |                   |                  
|Interest bearing checking |                   |                  
|Money market accounts     |                   |                  
|Savings accounts          |                   |                  
|Time deposits < $100,000  |                   |                  
|Time deposits > $100,000  |                   |                  
|                          |                   |                  
|Total deposits            |                   |                  
|                          |                   |                  

The following table sets forth our deposits
by category with the average balance and the average rate paid for each category. All of
our deposits are domestic.

Average balances and rates(thousands)

|                        | 2004 | 2003 | 2002 | 2001    | 2000
|----------------------- | ---- | ---- | ---- | ------- | ----
|Non interest bearing    |      |      |      |         |     
|demand                  |      |      | $    | 27,060  |     
|Interest bearing demand |      |      |      | 6,182   |     
|Savings                 |      |      |      | 3,169   |     
|Money market            |      |      |      | 38,995  |     
|Time deposits           |      |      |      | 91,387  |     
|                        |      |      |      |         |     
|Total                   |      |      | $    | 166,793 |     
|                        |      |      |      |         |     

As of December 31, 2004, time
deposits greater than $100,000 that matured within three months were $25.1 million, those
over 3 months through 6 months were $3.4 million, those over 6 months through 12 months
were $17,895 and time deposits greater than $100,000 that had a maturity greater than 12
months were $1.3 million.

Due to the seasonal nature of our
market areas, deposit growth is strong during the summer months and loan demand usually
reaches its peak during the winter months. Thus, we historically have a more favorable
liquidity position during the summer months. To meet loan demand and liquidity needs
during the winter months, we typically offer rate specials on deposits. Our deposit growth
during the summer months is invested in temporary investments and short-term securities.
Additionally, the company has access to other funding sources including federal funds
purchased from correspondent banks and a line of credit with the Federal Home Loan Bank
(FHLB).

Borrowings.    
          During 2004, we had average short-term borrowings of $16.8 million compared to
          $7.7 million in 2003 and $1.9 million in 2002. Total borrowings outstanding at
          December 31, 2004, were $16.5 million, at December 31, 2003, were $11.5 million
          and at December 31, 2002, were $4.0 million. The maximum amount outstanding
          during any month-end period at December 31, 2004 was $21.5 million with an
          average rate of 2.35%, at December 31, 2003, was $11.5 million at an average
          rate of 2.79% and at December 31, 2002, was $4.0 million with an average rate of
          3.69%. These funds were obtained from the Federal Home Loan Bank to help fund
          our loan growth. For more information concerning borrowings from the FHLB, refer
          to Note 8 of the Notes to the Consolidated Financial Statements.

Capital Standards and
Regulatory Matters

Junior subordinated debt. During
2004, we had average junior subordinated debt of $3.1 million compared to none in 2003 and
2002. Total junior subordinated debt outstanding at December 31, 2004, was $5.2 million.
The maximum amount outstanding during any month-end period at December 31, 2004 was $5.2
million with an average rate of 4.45%. For more information concerning junior subordinated
debt, refer to Note 9 of the Notes to the Consolidated Financial Statements.

We are subject to various regulatory
capital requirements administered by our federal bank regulators. Under these capital
guidelines, we must maintain a minimum total risk-based capital ratio of 8%, with at least
4% being Tier 1 capital. In our case, our Tier 1 capital consists of our common
shareholders equity, although Tier 1 capital could also include other components,
such as qualifying perpetual preferred stock and minority interests in equity accounts of
consolidated subsidiaries. In addition, we must maintain a minimum Tier 1 leverage ratio (Tier 1

20

---

capital to total average assets) of at least 4%. 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%. For further
information concerning the Banks and the Companys capital standards, refer to
Note 18 of the Notes to the Consolidated Financial Statements.

Liquidity Management

Our primary sources of liquidity are
deposits, scheduled repayments on our loans, and interest on and maturities of our
investments. 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 are eligible to receive advances from the Federal Home Loan Bank of
Atlanta, subject to its approval. At December 31, 2004, the Bank had the ability to borrow
an additional $3.9 million from the FHLB secured by a blanket lien on one to four family
first mortgage loans. FHLB has approved borrowings up to 15% of the banks total
assets less advances outstanding. The borrowings are available by pledging collateral and
purchasing additional stock in the FHLB. We believe that our liquidity and ability to
manage assets will be sufficient to meet our cash requirements over the near term.

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. At December 31,
2004, we had issued commitments to extend credit of $29.3 million through various types of
commercial lending arrangements, of which $24.4 million was at variable rates. 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.

The commitments expire over the next
36 months. Past experience indicates that many of these commitments to extend credit will
expire unused. However, as described in Liquidity and Asset and Liability
Management, we believe that we have adequate sources of liquidity to fund
commitments that may be drawn upon by 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 December 31, 2004. 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

Unlike most industrial companies, the
assets and liabilities of financial institutions such as our company and bank are
primarily monetary in nature. Therefore, interest rates have a more significant impact on
our performance than do the effects of changes in the general rate of inflation and
changes in prices. In addition, interest rates do not necessarily move with the same
magnitude as the prices of goods and services. 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.

21

---

Report of Management

The consolidated financial statements
of Beach First National Bancshares, Inc., and other financial information included in this
summary Annual Report were prepared by management responsible for the integrity of the
information presented. The statements have been prepared in conformity with generally
accepted accounting principles appropriate in the circumstances and include amounts that
are based on managements best estimates and judgment.

The Company maintains accounting and
control systems which are believed to provide reasonable assurance that assets are
safeguarded from loss or unauthorized use and produce records adequate for preparation of
financial information. Management recognizes the limits inherent in any system of internal
control as the cost of controls should not exceed the benefits derived. Management
believes the system provides an appropriate balance.

In order to monitor compliance with
its system of controls, the Company employs Tourville and Associates, LLP to perform
quarterly internal audits of controls and compliance with systems and controls. Audit
reports are issued to management and the Audit Committee of the Board of Directors. The
independent accountants receive copies of these reports and the reports are available for
review by regulatory authorities.

The Audit Committee of the Board of
Directors meets as necessary with management, the independent auditors, and the
independent accountants to review audit scopes, audit reports, and fee arrangements of the
independent accountants, in order to evaluate managements performance of its
financial reporting responsibility. Both the independent auditors and accountants have
access to the Audit Committee without any management present in the discussions.
Independent accountants are recommended by the Audit Committee to the Board of Directors
for selection.

Elliott Davis, LLC, as independent
certified public accountants, is engaged to provide an objective, independent review as to
managements discharge of its responsibilities relating to the fairness of reported
operating results and financial condition. They have an understanding of the
Companys accounting and financial controls and conduct such tests and related
procedures as they deem appropriate to arrive at an opinion of the fairness of the
financial statements. Their opinion is included as a part of the Companys 2004
Annual Report on Form 10-KSB.

Our management is committed to, and
has always maintained and enforced, a philosophy of high ethical standards in the conduct
of its business. The policies covering conflicts of interest, community affairs, and other
subjects, are uniformly applicable to all officers and employees of our Company.

Beach First National
Bancshares, Inc.Myrtle Beach, South CarolinaMarch 19, 2005

22

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REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

Board of DirectorsBeach
First National Bancshares, Inc.Myrtle Beach, South Carolina

We have audited the accompanying
consolidated balance sheets of Beach First National Bancshares, Inc. (the Company) and
Subsidiaries as of December 31, 2004 and 2003 and the related consolidated statements of
income, changes in shareholders equity and comprehensive income and cash flows for
each of the years in the three year period ended December 31, 2004. These consolidated
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial statements based
on our audits.

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.

In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Beach First National Bancshares, Inc. and Subsidiaries
at December 31, 2004 and 2003 and the results of their operations and cash flows for each
of the years in the three year period ended December 31, 2004, in conformity with
accounting principles generally accepted in the United States of America.

/s/ Elliott Davis, LLCElliott
Davis, LLCColumbia, South CarolinaJanuary 21, 2005

23

---

Beach First National Bancshares, Inc. and Subsidiaries
Consolidated Balance Sheets

|                                                          | December 31,
|--------------------------------------------------------- | ------------
|
|Assets                                                    |             
|Cash and due from banks                                   |             
|Federal funds sold and short term investments             |             
|Investment securities                                     |             
|Loans, net                                                |             
|Federal Reserve Bank stock                                |             
|Federal Home Loan Bank stock                              |             
|Property and equipment, net                               |             
|Cash value of life insurance                              |             
|Other assets                                              |             
|                                                          |             
|Total assets                                              |             
|                                                          |             
|Liabilities and shareholders' equity                      |             
|Liabilities                                               |             
|Deposits                                                  |             
|Non-interesting bearing                                   |             
|Interest bearing                                          |             
|                                                          |             
|Total deposits                                            |             
|Advances from Federal Home Loan Bank                      |             
|Junior subordinated debentures                            |             
|Other liabilities                                         |             
|                                                          |             
|Total liabilities                                         |             
|Commitments and contingencies - Notes 10 and 14           |             
|Shareholders' equity                                      |             
|Common stock, $1 par value, 10,000,000 shares authorized, |             
|2,013,508 shares issued and outstanding at December       |             
|31, 2004 and 1,323,768 at December 31, 2003               |             
|Paid-in capital                                           |             
|Retained earnings                                         |             
|Accumulated other comprehensive loss                      |             
|                                                          |             
|Total shareholders' equity                                |             
|                                                          |             
|Total liabilities and shareholders' equity                |             
|                                                          |             

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

24

---

Beach First National Bancshares, Inc. and SubsidiariesConsolidated
Statements of Income

|                                               | For the years ended December 31, |  |  
|---------------------------------------------- | -------------------------------- |  | -
|
|Interest income                                |                                  |  |  
|Loans and fees on loans                        |                                  |  | $
|Investment securities                          |                                  |  |  
|Federal funds sold and short term investments  |                                  |  |  
|Other                                          |                                  |  |  
|                                               |                                  |  |  
|Total interest income                          |                                  |  |  
|Interest expense                               |                                  | 
|Deposits                                       |                                  |  |  
|Advances from FHLB and federal funds purchased |                                  |  |  
|Junior subordinated debentures                 |                                  |  |  
|                                               |                                  |  |  
|Total interest expense                         |                                  |  |  
|Net interest income                            |                                  |  |  
|Provision for loan losses                      |                                  |  |  
|                                               |                                  |  |  
|Net interest income after provision for        |                                  | 
|loan losses                                    |                                  |  |  
|                                               |                                  |  |  
|Noninterest income                             |                                  | 
|Service fees on deposit accounts               |                                  |  |  
|Gain on sale of loan                           |                                  |  |  
|Gain 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               |                                  |  |  
|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            |                                  |  | $
|Weighted average common shares outstanding:    |                                  | 
|Basic                                          |                                  |  |  
|                                               |                                  |  |  
|Diluted                                        |                                  |  |  
|                                               |                                  |  |  

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

25

---

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

|                                   |  |  |  |           | Accumulated |  
|---------------------------------- |  |  |  | --------- | ----------- | -
|
|
|
|Balance, December 31, 2001         |  |  |  | 1,318,368 |             |  
|Net income                         |  |  |  | -         |             |  
|Other comprehensive income, net of |  | 
|taxes:                             |  | 
|Unrealized gain on investment      |  | 
|securities                         |  |  |  | -         |             |  
|Plus reclassification adjustments  |  | 
|for gains included in net income   |  |  |  | -         |             |  
|                                   |  |  |  |           |             |  
|Comprehensive income               |  |  |  | -         |             |  
|                                   |  |  |  |           |             |  
|Balance, December 31, 2002         |  |  |  | 1,318,368 |             |  
|                                   |  |  |  |           |             |  
|Net income                         |  |  |  | -         |             |  
|Other comprehensive income, net of |  | 
|taxes:                             |  |  |  | -         |             |  
|Unrealized loss on investment      |  | 
|securities                         |  |  |  | -         |             |  
|Plus reclassification adjustments  |  | 
|for gains included in net income   |  |  |  | -         |             |  
|Comprehensive income               |  |  |  | -         |             |  
|Exercise of stock options          |  |  |  | 5,400     |             |  
|                                   |  |  |  |           |             |  
|Balance, December 31, 2003         |  |  |  | 1,323,768 |             |  
|                                   |  |  |  |           |             |  
|Net income                         |  |  |  | -         |             |  
|Other comprehensive income, net of |  | 
|taxes:                             |  |  |  | -         |             |  
|Unrealized gain on investment      |  | 
|securities                         |  |  |  | -         |             |  
|Plus reclassification adjustments  |  |  |  | -         |             |  
|for gains included in net income   |  |  |  | -         |             |  
|                                   |  |  |  |           |             |  
|Comprehensive income               |  | 
|                                   |  |  |  | -         |             |  
|                                   |  |  |  |           |             |  
|Exercise of stock options          |  |  |  | 18,750    |             |  
|3-for-2 stock split                |  |  |  | 670,990   |             |  
|                                   |  |  |  |           |             |  
|Balance, December 31, 2004         |  |  |  | 2,013,508 |             | $
|                                   |  |  |  |           |             |  

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

26

---

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

|                                                         | For the years ended December 31, | 
|-------------------------------------------------------- | -------------------------------- | 
|
|Operating income                                         |                                  | 
|Operating activities                                     |                                  | 
|Net income                                               |                                  | 
|Adjustments to reconcile net income to net               |                                  | 
|cash provided by operating activities:                   |                                  | 
|Depreciation and amortization                            |                                  | 
|Accretion of deferred loan fees                          |                                  | 
|Discount accretion and premium amortization              |                                  | 
|Deferred income taxes                                    |                                  | 
|Provision for loan losses                                |                                  | 
|Loss on sale of property and equipment                   |                                  | 
|Gain on sale of investment securities                    |                                  | 
|Investment in Beach First National Trust                 |                                  | 
|Decrease (increase) in other assets                      |                                  | 
|Increase in other liabilities                            |                                  | 
|                                                         |                                  | 
|Net cash provided by operating activities                |                                  | 
|                                                         |                                  | 
|Investing activities                                     |                                  | 
|Proceeds from sale of investment securities              |                                  | 
|Purchase of investment securities                        |                                  | 
|Purchase of FHLB stock                                   |                                  | 
|Purchase of Federal Reserve stock                        |                                  | 
|Decrease (increase) in Federal funds sold and short term |                                  | 
|investments                                              |                                  | 
|Increase in loans, net                                   |                                  | 
|Purchase of property and equipment                       |                                  | 
|Proceeds from sale of property and equipment             |                                  | 
|Purchase of life insurance contracts                     |                                  | 
|                                                         |                                  | 
|Net cash used by investing activities                    |                                  | 
|Financing activities                                     |                                  | 
|Advances from Federal Home Loan Bank                     |                                  | 
|Net increase in deposits                                 |                                  | 
|Advances from junior subordinated debentures             |                                  | 
|Exercise of stock options                                |                                  | 
|Cash paid in lieu of fractional shares                   |                                  | 
|                                                         |                                  | 
|Net cash provided by financing activities                |                                  | 
|                                                         |                                  | 
|Net (decrease) increase in cash                          |                                  | 
|Cash and cash equivalents at beginning of year           |                                  | 
|                                                         |                                  | 
|Cash and cash equivalents at end of year                 |                                  | 
|                                                         |                                  | 
|Cash paid for                                            |                                  | 
|Interest                                                 |                                  | 
|                                                         |                                  | 
|Income taxes                                             |                                  | 
|                                                         |                                  | 

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

27

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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES

Beach First National Bancshares, Inc.
(the Company) is organized under the laws of the State of South Carolina for
the purpose of operating as a bank holding company for Beach First National Bank (the
Bank) and Beach First National Trust (the Trust). The Bank
provides full commercial banking services to customers and is subject to regulation by the
Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance
Corporation. The Company is subject to regulation by the Federal Reserve Board. The Trust
is a special purpose subsidiary organized for the sole purpose of issuing trust preferred
securities.

Basis of presentation - The
consolidated financial statements include the accounts of the Company, the Bank, and the
Trust. All significant intercompany accounts and transactions have been eliminated in
consolidation. The accounting and reporting policies of the Company conform to accounting
principles generally accepted in the United States of America and to general practices in
the banking industry. The Company uses the accrual basis of accounting.

Estimates - The preparation of
consolidated financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the consolidated financial statements
and the reported amount of income and expenses during the reporting periods. Actual
results could differ from those estimates.

Concentrations of credit risk -
The Company, through the Bank, makes loans to individuals and businesses in and around
Horry County and Beaufort County for various personal and commercial purposes. The Company
has a diversified loan portfolio and the borrowers ability to repay their loans is
not dependent upon any specific economic sector.

Cash and cash equivalents - For
purposes of the statement of cash flows, cash and cash equivalents are defined as those
amounts included in the balance sheet caption Cash and due from banks. Cash
and cash equivalents have an original maturity of three months or less.

Investment securities - The
Company accounts for investment securities in accordance with Statement of Financial
Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and
Equity Securities. Gains or losses on the disposition of securities are based on the
difference between the net proceeds and the adjusted carrying amount of the securities
sold, using the specific identification method. The statement requires investments in
equity and debt securities to be classified into three categories:

| | 1. | Available for sale: These are securities which are not classified as either held
               to maturity or as trading securities. These securities are reported at fair
               market value. Unrealized gains and losses are reported, net of income taxes, as
               separate components of shareholders equity (accumulated other
               comprehensive income).
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | Held to maturity: These are investment securities which the Company has the
               ability and intent to hold until maturity. These securities are stated at cost,
               adjusted for amortization of premiums and the accretion of discounts. The
               Company currently has no held to maturity securities.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Trading: These are securities which are bought and held principally for the
               purpose of selling in the near future. Trading securities are reported at fair
               market value, and related unrealized gains and losses are recognized in the
               statement of income. The Company has no trading securities.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Other investments - The Bank, as
a member institution, is required to own certain stock investments in the Federal Home
Loan Bank of Atlanta and the Federal Reserve Bank. The stock is generally pledged against
any borrowings from these institutions. No ready market exists for the stocks and they
have no quoted market value. However, redemption of these stocks has historically been at
par value.

28

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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES - continued

Loans, interest and fee income on
loans - Loans are stated at the principal balance outstanding. Unamortized loan fees
and the allowance for loan losses are deducted from total loans in the balance sheet.
Interest income is recognized over the term of the loan based on the principal amount
outstanding.

Points on real estate loans are taken
into income to the extent they represent the direct cost of initiating a loan. The amount
in excess of direct costs is deferred and amortized over the expected life of the loan.

Loans are generally placed on
non-accrual status when principal or interest becomes contractually ninety days past due,
or when payment in full is not anticipated. When a loan is placed on non-accrual status,
interest accrued but not received is generally reversed against interest income. If
collectibility is in doubt, cash receipts on non-accrual loans are not recorded as
interest income, but are used to reduce principal.

Allowance for loan losses - The
provision for loan losses charged to operating expenses reflects the amount deemed
appropriate by management to establish an adequate allowance to meet the present and
foreseeable risk characteristics of the current loan portfolio. Managements
judgement is based on periodic and regular evaluation of individual loans, the overall
risk characteristics of the various portfolio segments, past experience with losses and
prevailing and anticipated economic conditions. Loans which are determined to be
uncollectible are charged against the allowance. Provisions for loan losses and recoveries
on loans previously charged off are added to the allowance. Management considers the
year-end allowance appropriate and adequate to cover probable losses in the loan
portfolio; however, managements judgement is based upon a number of assumptions
about future events, which are believed to be reasonable, but which may or may not prove
valid. Thus, there can be no assurance that charge-offs in future periods will not exceed
the allowance for loan losses or that additional increases in the allowance for loan
losses will not be required.

The Company accounts for impaired
loans in accordance with SFAS No. 114, Accounting by Creditors for Impairment of a
Loan. This standard requires that all lenders value loans at the loans fair
value if it is probable that the lender will be unable to collect all amounts due
according to the terms of the loan agreement. Fair value may be determined based upon the
present value of expected cash flows, market price of the loan, if available, or value of
the underlying collateral. Expected cash flows are required to be discounted at the
loans effective interest rate. SFAS No. 114 was amended by SFAS No. 118 to allow a
lender to use existing methods for recognizing interest income on an impaired loan and by
requiring additional disclosures about how a creditor recognizes interest income on an
impaired loan.

Under SFAS No. 114, as amended by
SFAS No. 118, when the ultimate collectibility of an impaired loans principal is in
doubt, wholly or partially, all cash receipts are applied to principal. Once the reported
principal balance has been reduced to zero, future cash receipts are applied to interest
income, to the extent that any interest has been foregone. Further cash receipts are
recorded as recoveries of any amounts previously charged off. When this doubt does not
exist, cash receipts are applied under the contractual terms of the loan agreement first
to interest income then to principal.

A loan is also considered impaired if
its terms are modified in a troubled debt restructuring. For these accruing impaired
loans, cash receipts are typically applied to principal and interest receivable in
accordance with the terms of the restructured loan agreement. Interest income is
recognized on these loans using the accrual method of accounting. As of December 31, 2004
and 2003, the Company had no impaired loans.

Real estate acquired in settlement of
loans - Real estate acquired through foreclosure is initially recorded at the lower
of cost or estimated fair value. Subsequent to the date of acquisition, it is carried at
the lower of cost or fair value, adjusted for net selling costs. Fair values of real
estate owned are reviewed regularly and writedowns are recorded when it is determined that
the carrying value of real estate exceeds the fair

29

---

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES- Continued

value less estimated costs to sell.
Costs relating to the development and improvement of such property are capitalized,
whereas those costs relating to holding the property are charged to expense.

Property and equipment -
Buildings and furniture and equipment are stated at cost, net of accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated useful lives of
the related assets. Maintenance and repairs are charged to operations, while major
improvements are capitalized. Upon retirement, sale or other disposition of property and
equipment, the cost and accumulated depreciation are eliminated from the accounts, and
gain or loss is included in net income.

Income taxes - The consolidated
financial statements have been prepared on the accrual basis. When income and expenses are
recognized in different periods for financial reporting purposes and for purposes of
computing income taxes currently payable, deferred taxes are provided on such temporary
differences. The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under SFAS No. 109, deferred tax assets and
liabilities are recognized for the expected future tax consequences of events that have
been recognized in the consolidated financial statements or tax return. Deferred tax
assets and liabilities are measured using the enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be
realized or settled.

Advertising and public relations
expense - Advertising, promotional, and other business development costs are
generally expensed as incurred. External costs incurred in producing media advertising are
expensed the first time the advertising takes place. External costs relating to direct
mailing costs are expensed in the period in which the direct mailings are sent.

Earnings per share - Basic is
computed by dividing net income by the weighted average number of common shares
outstanding. Earnings per share  diluted is computed by dividing net income by the
weighted average number of common shares outstanding and dilutive common share equivalents
using the treasury stock method. All share amounts have been adjusted for the 3-for-2
stock split recorded in 2004. Dilutive common share equivalents include common shares
issuable upon exercise of outstanding stock options.

|                                            | For the years ended December 31,
|------------------------------------------- | --------------------------------
|
|Basic earnings per share:                   |                                 
|Net income available to common shareholders |                                 
|                                            |                                 
|Average common shares outstanding - basic   |                                 
|                                            |                                 
|Basic earnings per share                    |                                 
|                                            |                                 
|Diluted earnings per share:                 |                                 
|Net income available to common shareholders |                                 
|                                            |                                 
|Average common shares outstanding - basic   |                                 
|Incremental shares from assumed conversion  |                                 
|of stock options                            |                                 
|                                            |                                 
|Average common shares outstanding - diluted |                                 
|                                            |                                 
|Diluted earnings per share                  |                                 
|                                            |                                 

30

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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES - Continued

Stock Based Compensation - The
Company has a stock-based employee compensation plan which is further described in Note
16. The Company accounts for the plan under the recognition and measurement principles of
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, and related Interpretations. No stock-based employee
compensation cost is reflected in net income, as all stock options granted under these
plans 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 net income
per common share as if the Company had applied the fair value recognition provisions of
SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee
compensation.

|                                    | For the years ended December 31,
|----------------------------------- | --------------------------------
|
|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                |                                 
|                                    |                                 
|Net income per common share         |                                 
|Basic - as reported                 |                                 
|                                    |                                 
|Basic - pro forma                   |                                 
|                                    |                                 
|Diluted - as reported               |                                 
|                                    |                                 
|Diluted - pro forma                 |                                 
|                                    |                                 

Reclassifications - Certain
previously reported amounts have been reclassified to conform to the current year
presentation. Such changes had no effect on previously reported net income or
shareholders equity.

Recently issued accounting
pronouncements - In April 2003, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities, which amends and clarifies accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and loan commitments that relate to the
origination of mortgage loans held for sale, and for hedging activities under SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
149 clarifies under what circumstances a contract with an initial net investment meets the
characteristics of a derivative, clarifies when a derivative contains a financing
component, amends the definition of an underlying to conform it to a language used in FASB
Interpretation (FIN) No. 45, and amends certain other existing pronouncements.
The pronouncement was generally effective for contracts entered into or modified after
June 30, 2003. The adoption of SFAS No. 149 did not have any impact on the financial
condition or operating results of the Company.

In May 2003, the FASB issued SFAS No.
150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity, which establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities and
equity. SFAS No. 150 requires an issuer to classify certain financial instruments that
include certain obligations, such as mandatory redemption, repurchase of the issuers
equity, or settlement by issuing equity, previously classified as equity, as liabilities
or assets in some circumstances. SFAS No. 150 was generally effective

31

---

Recently issued accounting
pronouncements, continued

for financial instruments entered
into or modified after May 31, 2003, and otherwise was effective at the beginning of the
first interim period beginning after June 15, 2003, except for mandatorily redeemable
financial instruments of nonpublic entities which are subject to the provisions of SFAS
No. 150 for the first fiscal period beginning after December 15, 2003. The adoption of
SFAS No. 150 did not have any impact on the financial condition or operating results of
the Company.

In December 2004, the FASB issued
SFAS No. 153, Exchange of Nonmonetary Assets, an amendment of APB Opinion Mo. 29,
Accounting for Nonmonetary Transactions. The amendments made by SFAS No. 153 are
based on the principle that exchanges of nonmonetary assets should be measured on the fair
value of the assets exchanges. Further, the amendments eliminate the narrow exception for
nonmonetary exchanges of similar productive assets and replace it with a broader exception
for exchanges of nonmonetary assets that do not have commercial substance. Previously,
Accounting Principles Board (APB) Opinion No. 29 required that the accounting
for an exchange of a productive asset for a similar productive asset or an equivalent
interest in the same productive asset should be based on the recorded amount of the asset
or an equivalent interest in the same or similar productive asset should be based on the
recorded amount of the asset relinquished. APB Opinion No. 29 provided an exception to its
basic measurement principle (fair value) for exchanges of similar productive assets. SFAS
No. 153 is effective for nonmonetary assets exchanges occurring in fiscal periods
beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset
exchanges occurring in fiscal periods beginning after the date of issuance. The provisions
of this statement shall be applied prospectively. The adoption of this statement is not
expected to have a material impact on the financial condition or operating results of the
Company.

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 interim or
annual reporting period beginning after June 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 November 2002, the FASB issued
FASB Interpretation (FIN) No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others. FIN No. 45 elaborates on the disclosure to be made by a guarantor in its
interim and annual financial statements about its obligations under certain guarantees and
warranties that it has issued. FIN 45 requires a company, at the time it issues a
guarantee to recognize an initial liability for the fair value of obligations assumed
under the guarantee. The initial recognition requirement of FIN No. 45 were effective for
guarantees issued or modified after December 31, 2002. The disclosure requirements were
effective for financial statements for periods ending after December 15, 2002. The
adoption of FIN No. 45 did not have a material impact on the Companys financial
position or results of operations.

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 disclosure 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

32

---

Recently issued accounting
pronouncements, continued

Companys existing variable
interest entities in the first reporting period ending March 31, 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 a 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 which other-than-temporary impairments has
not been recognized. Accordingly EITF issued EITF No. 03-1, The Meaning of
Other-Than-Temporary Impairments and Its Application to Certain Investments. This
issue addresses the meaning of other-than-temporary impairments 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
requirement 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
of EITF No. 03-1 had 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 impairments
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 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.

In March 2004, the Securities and
Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB)
No. 105, Application of Accounting Principles to Loan Commitments, to inform
registrants of the Staffs view that the fair value of the recorded loan commitments
should not consider the expected future cash flows related to the associated servicing of
the future loan. The provisions of SAB No. 105 must be applied to loan commitments
accounted for as derivatives that are entered into after March 31, 2004. The Staff will
not object to the application of existing accounting practices to loan commitments
accounted for as derivatives that are entered into on or before March 31, 2004, with
appropriate disclosures. The Company adopted the provision of SAB No. 105 on April 1,
2004. The adoption of SAB No. 105 did not have a material impact on the Companys
financial condition 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.

NOTE 2 
RESTRICTIONS ON CASH AND DUE FROM BANKS

The Bank is required to maintain
average reserve balances, computed by applying prescribed percentages to its various types
of deposits, either at the bank or on deposit with the Federal Reserve Bank. At December
31, 2004 and 2003, these required reserves were met by vault cash.

33

---

NOTE 3  INVESTMENT
SECURITIES

The amortized costs and fair value of
available for sale investment securities are as follows:

|                 | December 31, 2004
|---------------- | -----------------
|
|
|Federal agencies |                  
|Mortgage-backed  |                  
|                 |                  
|Total securities |                  
|                 |                  

|                 | December 31, 2003
|---------------- | -----------------
|
|
|Federal agencies |                  
|Mortgage-backed  |                  
|                 |                  
|Total securities |                  
|                 |                  

The amortized costs and fair values
of investment securities at December 31, 2004, by contractual maturity, are shown in the
following chart. Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call or
prepayment penalties. Mortgage-backed securities are presented as a separate line since
pay downs are expected before contractual maturity dates.

|                                      | Amortized cost | Fair values
|------------------------------------- | -------------- | -----------
|Due after one year through five years |                |            
|Due after five through ten years      |                |            
|Due after ten years                   |                |            
|                                      |                |            
|Sub-total                             |                |            
|Mortgage-backed                       |                |            
|                                      |                |            
|Total securities                      |                |            
|                                      |                |            

The following table shows gross
unrealized losses and fair value, aggregated by investment category, and length of time
that individual securities have been in a continuous unrealized loss position, at December
31, 2004.

|                           | Less than 12 months | 12 months or More | Total |           
|-------------------------- | ------------------- | ----------------- | ----- | ----------
|
|
|Federal Agencies           |                     |                   | $     | 4,679,304 
|Mortgage backed securities |                     |                   |       | 18,045,351
|                           |                     |                   |       |           
|Total                      |                     |                   | $     | 22,724,655
|                           |                     |                   |       |           

The amortized cost and fair value of
securities pledged as collateral for public funds and other purposes as of December 31,
2004 and 2003 were $30,219,563 and $29,949,946 and $9,032,389 and $8,925,491,
respectively.

For the years ended December 31,
2004, 2003 and 2002, proceeds from sales of securities available for sale amounted to
$5,034,461, $8,021,325, and $4,319,905, respectively. Gross realized gains amounted to
$37,395, $134,530, and $976, respectively. There were no gross realized losses during
these periods.

34

---

NOTE 4  LOANS

The composition of net loans by major
loan category is presented below:

|                           | December 31,
|-------------------------- | ------------
|
|Commercial                 |             
|Real estate - construction |             
|Real estate - mortgage     |             
|Consumer                   |             
|                           |             
|                           |             
|                           |             
|Less:                      |             
|Allowance for loan losses  |             
|Deferred loan fees         |             
|                           |             
|                           |             
|                           |             
|Loans, net                 |             
|                           |             

At December 31, 2004 and 2003,
nonaccrual loans were $76,826 and $366,326, respectively. Foregone interest income on
nonaccrual loans in 2004, 2003, and 2002, was an insignificant amount.

NOTE 5  ALLOWANCE
FOR LOAN LOSSES

The allowance for loan losses is
available to absorb future loan charge-offs. The allowance is increased by provisions
charged to operating expenses and by recoveries of loans which were previously
written-off. The allowance is decreased by the aggregate loan balances, if any, which were
deemed uncollectible during the year.

Activity within the allowance for
loan losses account follows:

|                                       | For the years ended December 31,
|-------------------------------------- | --------------------------------
|
|Balance, beginning of year             |                                 
|Recoveries of loans previously charged |                                 
|against the allowance                  |                                 
|Provision for loan losses              |                                 
|Loans charged against the allowance    |                                 
|                                       |                                 
|Balance, end of year                   |                                 
|                                       |                                 

35

---

NOTE 6 - PROPERTY
AND EQUIPMENT

Property and equipment are stated at
cost less accumulated depreciation. Components of property and equipment included in the
consolidated balance sheets are as follows:

|                             | December 31,
|---------------------------- | ------------
|
|Land                         |             
|Buildings and improvements   |             
|Furniture and equipment      |             
|Software                     |             
|Construction in progress     |             
|                             |             
|                             |             
|Accumulated depreciation     |             
|                             |             
|Total property and equipment |             
|                             |             

Depreciation expense for the years
ended December 31, 2004, 2003, and 2002 amounted to $446,158, $428,609, and $320,590,
respectively. Depreciation is charged to operations over the estimated useful lives of the
assets. The estimated useful lives and methods of depreciation for the principal items
follow:

|Type of Asset              | Life in Years | Depreciation Method
|-------------------------- | ------------- | -------------------
|Software                   |               |                    
|Furniture and equipment    |               |                    
|Buildings and improvements |               |                    

The Bank has entered into
non-cancelable operating leases related to land and buildings. At December 31, 2004,
future minimum payments under non-cancelable operating leases with initial or remaining
terms of one year or more are as follows:

|           | 
|---------- | 
|2005       | 
|2006       | 
|2007       | 
|2008       | 
|2009       | 
|Thereafter | 
|           | 

Total rental expense amounted to
$293,098, $205,412 and $118,617 for the years ended December 31, 2004, 2003, and 2002.

The bank leases land for the Surfside
Beach branch location. The operating lease was originated on June 1, 2001 with an initial
term of 20 years. The lease is renewable at the Companys option for two additional
periods of five years each. The lease term requires monthly payments of $5,534. Monthly
payments increase each year for the first ten years, then increase on the anniversary date
of years eleven and sixteen.

The bank also leases land for the
North Myrtle Beach branch location. The operating lease was originated on November 1,
2002, with an initial term of 20 years. The lease is renewable at the Companys
option for four successive periods of five years each. The lease term requires monthly
payments of $5,416. Monthly payments increase on the anniversary date of years eleven and
sixteen.

The bank also leases an office
building for the first Hilton Head Island branch location. The operating lease was
originated on March 1, 2003, with an initial term of 10 years. The lease term requires
monthly payments of $4,500. Monthly payments increase on the anniversary date every two
years.

36

---

NOTE 6 - PROPERTY AND EQUIPMENT
- Continued

The bank also leases an office
building for the Litchfield branch location. The operating lease was originated on April
1, 2004, with a term of five years. The lease contains five options to renew the term of
the lease for five years each. The lease term requires monthly payments of $3,900 each.
Monthly payments increase at the beginning of an option period.

The bank also leases an office
building for a second Hilton Head branch location. The operating lease was originated on
October 18, 2004, with a term of 15 years. The lease term requires monthly payments of
$11,000 through October 2005. Monthly payments increase on the anniversary date of years
two, three, and six.

The bank also leases an office
building for the operational areas of the bank. The operating lease was originated on May
7, 2004, with a term of one year. The lease contains two options to renew the term of the
lease for six months each. The lease requires monthly payments of $7,000.

NOTE 7 - DEPOSITS

The following is a detail of the
deposit accounts:

|                                   | December 31,
|---------------------------------- | ------------
|
|Non-interest bearing               |             
|Interest bearing:                  |             
|Interest bearing checking accounts |             
|Money market accounts              |             
|Savings                            |             
|Time, less than $100,000           |             
|Time, $100,000 and over            |             
|                                   |             
|Total deposits                     |             
|                                   |             

At December 31, 2004 and 2003,
$3,957,000 of time deposits less than $100,000 consisted of brokered deposits. Interest
expense on time deposits greater than $100,000 was $866,990 in 2004, $776,857 in 2003, and
$603,427 in 2002.

At December 31, 2004, the scheduled
maturities of time deposits are as follows:

|     | 
|---- | 
|2005 | 
|2006 | 
|2007 | 
|2008 | 
|2009 | 
|2010 | 
|     | 
|     | 
|     | 

37

---

NOTE 8 - ADVANCES
FROM FEDERAL HOME LOAN BANK

Advances from the Federal Home Loan
Bank (FHLB) at December 31 are summarized below:

|FHLB              | Current | Maturity |  |      |  
|----------------- | ------- | -------- |  | ---- | -
|
|CIP/EDP           |         |          |  | 1.88 | %
|CIP/EDP           |         |          |  | 3.69 | %
|Convertible       |         |          |  | 1.86 | %
|Fixed Rate Credit |         |          |  | 1.93 | %
|Fixed Rate Credit |         |          |  | 2.25 | %
|                  |         |          |  |      |  
|                  |         |          |  |      |  
|                  |         |          |  |      |  

The advances were collateralized by
one to four family residential mortgage loans, US agency securities and FHLB stock.
Additional borrowings are available by pledging additional collateral and purchasing
additional stock in the FHLB.

NOTE 9 - JUNIOR
SUBORDINATED DEBENTURES

On May 27, 2004, Beach First National
Trust (the Trust), wholly-owned subsidiary of the Company, issued and sold
floating rate capital securities of the trust (the Capital Securities), which
are reported on the consolidated balance sheet as junior subordinated debentures,
generating proceeds of $5.0 million. The Trust loaned these proceeds to the Company to use
for general corporate purposes, primarily to provide capital to the Bank. The debentures
qualify as Tier 1 capital under Federal Reserve Board guidelines.

Debt issuance costs, net of
accumulated amortization, from junior subordinated debentures totaled $23,333 at December
31, 2004, and is included in other assets on the consolidated balance sheet. Amortization
of debt issuance costs from trust preferred debt totaled $1,667 for the year ended
December 31, 2004, and is reported in other noninterest expense on the consolidated
statement of income.

The Capital Securities in the
transaction accrue and pay distributions annually at a rate per annum equal to the
three-month LIBOR plus 270 basis points, which was 4.80% at December 31, 2004. The
distribution rate payable on the Capital Securities is cumulative and payable quarterly in
arrears. The Company has the right, subject to events of default, to defer payments of
interest on the Capital Securities for a period not to exceed 20 consecutive quarterly
periods, provided that no extension period may extend beyond the maturity date of July 23,
2034. The Company has no current intention to exercise its right to defer payments of
interest on the Capital Securities.

The Capital Securities mature or are
mandatorily redeemable upon maturity on May 27, 2034, and or upon earlier optional
redemption as provided in the indenture. The Company has the right to redeem the Capital
Securities in whole or in part, on or after May 27, 2009. The Company may also redeem the
capital securities prior to such dates upon occurrence of specified conditions and the
payment of a redemption premium

NOTE 10  UNUSED
LINES OF CREDIT

At December 31, 2004, the Bank had
$16,400,000 of lines of credit to purchase federal funds from unrelated banks. These lines
of credit are available on a one to fourteen day basis for general corporate purposes of
the Bank. All of the lenders have reserved the right to withdraw these lines at their
option.

38

---

NOTE 10 - UNUSED
LINES OF CREDIT,Continued

At December 31, 2004, the Bank had
the ability to borrow an additional $3.9 million from the FHLB secured by a blanket lien
on one to four family first mortgage loans and $9.3 million secured by U S Government
Agency securities. FHLB has approved borrowings up to 15% of the banks total assets
less advances outstanding. The borrowings are available by pledging collateral and
purchasing additional stock in the FHLB.

NOTE 11 -
COMMITMENTS AND CONTINGENCIES

The Company is party to litigation
and claims arising in the normal course of business. As of December 31, 2004, there
is no litigation pending.

Refer to Note 14 concerning financial
instruments with off balance sheet risk.

NOTE 12 - INCOME
TAXES

The following summary of the
provision for income taxes includes tax deferrals which arise from temporary differences
in the recognition of certain items of revenue and expense for tax and financial reporting
purposes for the years ended December 31:

|                               | 2004 | 2003 | 2002
|------------------------------ | ---- | ---- | ----
|Income taxes currently payable |      |      |     
|Federal                        |      |      | $   
|State                          |      |      |     
|                               |      |      |     
|                               |      |      |     
|                               |      |      |     
|Deferred taxes                 |      |     
|Allowance for loan losses      |      |      |     
|Depreciation                   |      |      |     
|Loan origination fees          |      |      |     
|Deferred compensation          |      |      |     
|Other                          |      |      |     
|                               |      |      |     
|                               |      |      |     
|                               |      |      |     
|Income tax expense             |      |      | $   
|                               |      |      |     

The income tax effect of cumulative
temporary differences at December 31, are as follows:

|                                         | Deferred tax asset (liability)
|---------------------------------------- | ------------------------------
|
|Allowance for loan losses                |                               
|Unrealized gain on investment securities |                               
|Depreciation                             |                               
|Loan origination fees                    |                               
|Deferred compensation                    |                               
|Other                                    |                               
|                                         |                               
|Net deferred tax asset                   |                               
|                                         |                               

The net deferred tax asset is
reported in other assets in the balance sheets at December 31, 2004 and 2003. The
recognition of a net deferred tax asset is dependent upon a more likely than
not expectation of the realization of the deferred tax asset, based upon the
analysis of the available evidence. A valuation allowance is required to sufficiently
reduce the deferred tax asset to the amount that is expected to be realized through future
realization of profits on a more likely than not basis. The analysis of
available

39

---

NOTE 12 - INCOME TAXES, -
Continued

evidence is performed on an ongoing basis
utilizing the more likely than not criteria to determine the amount, if any,
of the deferred tax asset to be realized. Adjustments to the valuation allowance are made
accordingly. There can be no assurance that the Company will recognize additional portions
of the deferred tax asset in future periods or that additional valuation allowances may
not be recorded in the future periods.

The provision for income taxes is
reconciled to the amount of income tax computed at the federal statutory rate on income
before income taxes for the years ended December 31, as follows:

|                              | 2004 | 2003 | 2002 |        
|----------------------------- | ---- | ---- | ---- | -------
|
|Tax expense at statutory rate |      |      | $    | 775,534
|Increase (decrease) in taxes  |      |     
|Resulting from:               |      |     
|State bank tax (net of        |      |     
|federal benefit)              |      |      |      | 45,458 
|Other                         |      |      |      | 24,068 
|                              |      |      |      |        
|Tax provision                 |      |      | $    | 845,060
|                              |      |      |      |        

NOTE 13  RELATED
PARTY TRANSACTIONS

Certain directors, executive officers
and companies with which they are affiliated, are customers of and have banking
transactions with the Bank in the ordinary course of business. These loans were made on
substantially the same terms, including interest rates and collateral, as those prevailing
at the time for comparable arms-length transactions.

A summary of loan transactions with
directors, including their affiliates, and executive officers follows:

|                           | For the years ended December 31,
|-------------------------- | --------------------------------
|
|Balance, beginning of year |                                 
|New loans                  |                                 
|Less loan payments         |                                 
|                           |                                 
|Balance, end of year       |                                 
|                           |                                 

Deposits by directors, including
their affiliates and executive officers, at December 31, 2004 and 2003, approximated
$9,096,272 and $11,053,909, respectively.

NOTE 14  FINANCIAL
INSTRUMENTS WITH OFF BALANCE SHEET RISK

In the ordinary course of business,
and to meet the financing needs of its customers, the Company is a party to various
financial instruments with off balance sheet risk. These financial instruments, which
include commitments to extend credit and standby letters of credit, involve, to varying
degrees, elements of credit and interest rate risk in excess of the amounts recognized in
the balance sheets. The contract amount of those instruments reflects the extent of
involvement the Company has in particular classes of financial instruments.

The Companys exposure to credit
loss in the event of nonperformance by the other party to the financial instrument for
commitments to extend credit and standby letters of credit is represented by the
contractual amounts of those instruments.

40

---

The Company uses the same credit
policies in making commitments and conditional obligations as it does for on balance sheet
instruments.

Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any material
condition established in the contract. Commitments generally have fixed expiration dates
or other termination clauses and may require the payment of a fee. At December 31, 2004,
unfunded commitments to extend credit were $29,272,219 of which $4,903,811 were at fixed
rates and $24,368,408 were at variable rates. The Company evaluates each customers
credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Company upon extension of credit, is based on managements credit
evaluation of the borrower. Collateral varies but may include accounts receivable,
inventory, property, plant and equipment, and commercial and residential real estate.

At December 31, 2004, there were
commitments totaling $4,429,388 for letters of credit. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan facilities to
customers. Collateral varies but may include accounts receivable, inventory, equipment,
marketable securities, and property. Since most of the letters of credit are expected to
expire without being drawn upon, they do not necessarily represent future cash
requirements.

NOTE 15 - EMPLOYEE
BENEFIT PLAN

The Company sponsors the Beach First
National Bank Profit Sharing and 401(k) Plan for the benefit of all eligible employees.
The Company contributes to the Plan annually upon approval by the Board of Directors.
Contributions made to the Plan in 2004, 2003, and 2002, amounted to $81,464, $65,543, and
$51,416, respectively.

Supplemental benefits have been
approved by the Board of Directors for the directors and certain executive officers of
Beach First National Bank. These benefits are not qualified under the Internal Revenue
Code and they are not funded. However, certain funding is provided informally and
indirectly by life insurance policies. The cash surrender value of the life insurance
policies are recorded as a separate line item in the accompanying balances sheets at
$3,230,950 and $3,076,570 at December 31, 2004 and 2003, respectively. Income earned on
these policies is reflected as a separate line item in the consolidated statements of
income. The Company recorded expense related to these benefits of $107,939 in 2004,
$76,650 in 2003, and $42,434 in 2002.

NOTE 16 - STOCK
OPTION PLANS

The Company sponsors a qualified
stock option plan for the benefit of the directors, officers and employees. The Board may
grant up to 270,000 incentive stock options, adjusted for the stock split, at an option
price per share not less than the fair market value on the date of grant. During 1997, the
directors were granted 4,500 options each that vested immediately. During 2004, the
directors were granted 3,000 options each that vested immediately. All other options
granted to officers and employees vest immediately or up to five years and expire 10 years
from the grant date.

The fair value of the option grant is
estimated on the date of grant using the Black-Scholes option pricing model. For December
31, 2004, the risk free rate used ranged from 4.04% to 4.76%, the expected life was 9.74
years, volatility ranged from 29.02% to 30.20%, and the assumed dividend rate was zero.
For December 31, 2003, the risk free interest rate used ranged from 3.94% to 4.21%, the
expected option life was 10 years, volatility was 22.32%, and the assumed dividend rate
was zero. For December 31, 2002, the risk free interest rate used was 3.99%, the expected
option life was 6 to 10 years, volatility was 5.42%, and the assumed dividend rate was
zero.

41

---

NOTE 16 -STOCK OPTION PLANS- Continued

A summary of the status of the plan
as of December 31, 2004, 2003, and 2002 and changes during the years ending on those dates
is presented below:

|                       | 2004 | 2003 | 2002
|---------------------- | ---- | ---- | ----
|
|
|
|Outstanding at         |      |      |     
|beginning of year      |      |      |     
|Granted                |      |      |     
|Exercised              |      |      |     
|Forfeited or expired   |      |      |     
|                       |      |      |     
|Outstanding at end     |      |     
|of year                |      |      |     
|                       |      |      |     
|Options exercisable at |      |     
|year-end               |      |      |     
|                       |      |      |     
|Shares available for   |      |     
|grant                  |      |      |     
|                       |      |      |     

NOTE 17 - DIVIDENDS

Cash Dividends - There are no
current plans to initiate payment of cash dividends and future dividend policy will depend
on the Banks and the Companys earnings, capital requirements, financial
condition, and other factors considered relevant by the Companys Board of Directors.
The Bank is restricted in its ability to pay dividends under the national banking laws and
regulations of the Office of the Comptroller of the Currency. Generally, these
restrictions require the Bank to pay dividends derived solely from net profits. Moreover,
OCC prior approval is required if dividends declared in any calendar year exceed the
Banks net profit for that year combined with its retained net profits for the
preceding two years.

Stock Dividends - In April 2004,
the Company announced a 3-for-2 stock split effected in the form of a 50% stock dividend
to shareholders of record of May 12, 2004. The dividend was paid on June 2, 2004. All
earnings per share amounts for all periods have been adjusted to reflect the 3-for-2
split.

NOTE 18 - REGULATORY
MATTERS

The Bank is subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possible additional discretionary
actions by regulators that, if undertaken, could have a direct material effect on the
Banks financial statements.

Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Banks assets, liabilities, and
certain off balance sheet items as calculated under regulatory accounting practices. The
Banks capital amounts and classification are also subject to qualitative judgments
by the regulators about components, risk weightings, and other factors.

Quantitative measures established by
regulation to ensure capital adequacy require the Bank to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier 1 capital to risk-weighted assets,
and of Tier 1 capital to average assets. Management believes, as of December 31, 2004,
that the Bank meets all capital adequacy requirements to which it is subject.

As of December 31, 2004, the most
recent notification of the Office of the Comptroller of the Currency categorized the Bank
as well capitalized under the regulatory framework for prompt corrective action. There are
no conditions or events since that notification that management believes have changed the
institutions category.

42

---

The Companys actual capital
amounts and ratios are presented as follows:

|                           |  |  |   |        | To be well capitalized | 
|-------------------------- |  |  | - | ------ | ---------------------- | 
|
|
|
|
|
|As of December 31, 2004    |  |  |   |        |                        | 
|Total Capital (to risk     |  | 
|weighted assets)           |  |  | $ | 23,926 |                        | 
|Tier 1 Capital (to risk    |  | 
|weighted assets)           |  |  |   | 20,587 |                        | 
|Tier 1 Capital (to average |  | 
|assets)                    |  |  |   | 20,587 |                        | 
|As of December 31, 2003    |  | 
|Total Capital (to risk     |  | 
|weighted assets)           |  |  | $ | 14,881 |                        | 
|Tier 1 Capital (to risk    |  | 
|weighted assets)           |  |  |   | 13,214 |                        | 
|Tier 1 Capital (to average |  | 
|assets)                    |  |  |   | 13,214 |                        | 

The Banks actual capital
amounts and ratios and minimum regulatory amounts and ratios are presented as follows:

|                           |  |  |   |        | To be well capitalized | 
|-------------------------- |  |  | - | ------ | ---------------------- | 
|
|
|
|
|
|As of December 31, 2004    |  |  |   |        |                        | 
|Total Capital (to risk     |  | 
|weighted assets)           |  |  | $ | 19,467 |                        | 
|Tier 1 Capital (to risk    |  | 
|weighted assets)           |  |  |   | 17,045 |                        | 
|Tier 1 Capital (to average |  | 
|assets)                    |  |  |   | 17,045 |                        | 
|As of December 31, 2003    |  | 
|Total Capital (to risk     |  | 
|weighted assets)           |  |  | $ | 13,681 |                        | 
|Tier 1 Capital (to risk    |  | 
|weighted assets)           |  |  |   | 12,015 |                        | 
|Tier 1 Capital (to average |  | 
|assets)                    |  |  |   | 12,015 |                        | 

NOTE 19 - FAIR VALUE
OF FINANCIAL INSTRUMENTS

SFAS No. 107, Disclosures about
Fair Value of Financial Instruments requires disclosure of fair value information,
whether or not recognized in the balance sheets, when it is practical to estimate the fair
value. SFAS No. 107 defines a financial instrument as cash, evidence of an ownership
interest in an entity or contractual obligations which require the exchange of cash or
other financial instruments.

Certain items are specifically
excluded from the disclosure requirements, including the Companys common stock,
premises and equipment and other assets and liabilities.

43

---

Fair value approximates carrying
value for the following financial instruments due to the short-term nature of the
instrument: cash and due from banks, federal funds sold and short term investments, demand
deposit accounts, and interest-bearing accounts with no fixed maturity date.

Securities are valued using quoted
market prices. Fair value for the Companys off-balance sheet financial instruments
is based on the discounted present value of the estimated future cash flows.

Fair value for fixed rate loans
maturing after one year is based on the discounted present value of the estimated future
cash flows. Discount rates used in these computations approximate the rates currently
offered for similar loans of comparable terms and credit quality.

Fair value for Certificate of Deposit
accounts are valued by discounting at rates currently available on similar account types.

Fair value for advances from the FHLB are
based on discounted cash flows using the Companys current incremental borrowing
rate.

Fair value for junior subordinated
debentures approximates their carrying value since the debentures were issued at a
floating rate.

The Company has used
managements best estimate of fair value based on the above assumptions. Thus, the
fair values presented may not be the amounts which could be realized in an immediate sale
or settlement of the instrument. In addition, any income taxes or other expenses which
would be incurred in an actual sale or settlement are not taken into consideration in the
fair value presented.

The estimated fair values of the
Companys financial instruments are as follows:

|                                     | December 31,
|------------------------------------ | ------------
|
|
|
|Financial Assets:                    |             
|Cash and due from banks              |             
|Federal funds sold and short term    |             
|investments                          |             
|Investment securities                |             
|Loans, net                           |             
|Federal Reserve Bank stock           |             
|Federal Home Bank Loan Bank stock    |             
|Financial Liabilities:               |             
|Deposits                             |             
|Advances from Federal Home Loan Bank |             
|Junior subordinated debt             |             
|                                     |             
|                                     |             

Financial Instruments with Off-Balance Sheet Risks:



|                             | Notional | Fair | Notional | Fair      
|---------------------------- | -------- | ---- | -------- | ----------
|
|Commitments to extend credit |          |      |          | 29,272,219
|Standby letters of credit    |          |      |          | 4,429,388 

44

---

NOTE 20  PARENT
COMPANY FINANCIAL INFORMATION

Following is condensed financial
information of Beach First National Bancshares, Inc. (parent company only):

Condensed
Balance Sheets

|                                           | December 31,
|------------------------------------------ | ------------
|
|Assets                                     |             
|Cash                                       |             
|Due from Bank subsidiary                   |             
|Investment in Bank subsidiary              |             
|Investment in Beach First National Trust   |             
|Securities available for sale              |             
|Land                                       |             
|Other assets                               |             
|                                           |             
|Total assets                               |             
|                                           |             
|Liabilities and Shareholders' Equity       |             
|Accounts payable                           |             
|Junior subordinated debentures             |             
|Shareholders' equity                       |             
|                                           |             
|Total liabilities and shareholders' equity |             
|                                           |             

Condensed Statements of
Income

|                                      | For the years ended December 31,
|------------------------------------- | --------------------------------
|
|Income                                |                                 
|Expenses                              |                                 
|Interest                              |                                 
|Amortization                          |                                 
|Other expenses                        |                                 
|                                      |                                 
|Total expenses                        |                                 
|                                      |                                 
|Income before equity in undistributed |                                 
|net income (loss)of subsidiaries      |                                 
|Equity in undistributed net income of |                                 
|subsidiaries                          |                                 
|                                      |                                 
|Net income                            |                                 
|                                      |                                 

45

---

Condensed Statements of Cash
Flows

|                                                         | For the years ended December 31,
|-------------------------------------------------------- | --------------------------------
|
|Operating activities                                     |                                 
|Net income                                               |                                 
|Adjustments to reconcile net income to net cash          |                                 
|provided by (used in) operating activities:              |                                 
|Equity in undistributed net income of                    |                                 
|the bank subsidiary                                      |                                 
|Amortization                                             |                                 
|Decrease (increase) in due from Bank                     |                                 
|(Increase) decrease in other assets                      |                                 
|Increase (decrease) in accounts payable                  |                                 
|                                                         |                                 
|Net cash provided by (used for) operating activities     |                                 
|                                                         |                                 
|Investing activities                                     |                                 
|Additional investment in bank                            |                                 
|Investment in Beach First National Trust                 |                                 
|Commissions paid on trust preferred securities           |                                 
|Proceeds from sale of securities available for sale      |                                 
|Purchase of land                                         |                                 
|                                                         |                                 
|Net cash provided (used for) investing activities        |                                 
|                                                         |                                 
|Financing activities                                     |                                 
|Proceeds from issuance of junior subordinated debentures |                                 
|Proceeds from exercise of stock options                  |                                 
|Cash in lieu of stock dividend                           |                                 
|                                                         |                                 
|Net cash provided by financing activities                |                                 
|                                                         |                                 
|Net increase (decrease) in cash and cash                 |                                 
|equivalents                                              |                                 
|                                                         |                                 
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR             |                                 
|                                                         |                                 
|CASH AND CASH EQUIVALENTS, END OF YEAR                   |                                 
|                                                         |                                 

46

---

Corporate Information

Annual Meeting of
Shareholders The Annual Meeting of Shareholders of
Beach First National Bancshares, Inc. will be held at the Myrtle Beach Convention Center,
2101 Oak Street, Myrtle Beach, South Carolina on Wednesday, April 20. The meeting will
take place in room 202, beginning at 2 p.m.

Stock InformationThe Companys stock trades under
the symbol BFNB on the Over-the-Counter Bulletin Board. As of March 4, 2005,
the Company had approximately 1,641 stockholders and 2,013,508 shares of common stock
outstanding. This does not reflect the number of persons or entities who hold stock in
nominee or street name. For information contact:

|                          | 
|------------------------- | 
|Scott & Stringfellow      | 
|                          | 
|Hill, Thompson, Magid     | 
|                          | 
|Monroe Securities         | 
|                          | 
|Trident Securities        | 
|Wedbush Morgan Securities | 
|Securities                | 

The table below reflects the high and
low bid stock prices as quoted on the OTC Bulletin Board during the periods indicated. The
quotations reflect inter-dealer prices without retail mark-up, mark-down, or commissions,
and may not represent actual transactions.

|               | High Bid | Low Bid
|-------------- | -------- | -------
|Year end 2004: |          |        
|First Quarter  |          |        
|Second Quarter |          |        
|Third Quarter  |          |        
|Fourth Quarter |          |        
|Year end 2003: |          |        
|First Quarter  |          |        
|Second Quarter |          |        
|Third Quarter  |          |        
|Fourth Quarter |          |        

To date, we have not paid any cash
dividends on our common stock, and currently have no plans to do so. Our ability to pay
cash dividends is dependent upon receiving cash dividends from our bank. Federal banking
regulations restrict the amount of cash dividends that can be paid to our Company from the
bank.

To obtain the current stock price,
simply enter the ticker symbol, BFNB, in the quote search section of any financial or news
website. For more detailed information, please visit the Investor Relations area of our
website, beachfirst.com.

Form 10-KSB
Copies of the Companys Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004, as filed with the
Securities and Exchange Commission, will be furnished at no charge to shareholders upon

47

---

written request to Richard N. Burch,
Senior Vice President and Chief Financial Officer, at the Corporate Office address, or via
e-mail (dburch@beachfirst.com).

Forward Looking Statement

Certain statements in this Report
contain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, such as statements relating to future plans and
expectations, and are thus prospective. Such forward-looking statements are subject to
risks, uncertainties, and other factors, such as a downturn in the economy, which could
cause actual results to differ materially from future results expressed or implied by such
forward-looking statements.

Although we believe that the
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions could prove to be inaccurate. Therefore, we can give no assurance that the
results contemplated in the forward-looking statements will be realized. The inclusion of
this forward-looking information should not be construed as a representation by our
Company or any person that the future events, plans, or expectations contemplated by our
Company will be achieved. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future events, or
otherwise.

|                             | 
|---------------------------- | 
|Offices                      | 
|Corporate Office             | 
|1550 Oak St                  | 
|Myrtle Beach, SC 29577       | 
|843.626.2265                 | 
|843.916.7818 (fax)           | 
|Surfside Beach               | 
|3064 Dick Pond Rd            | 
|Surfside Beach, SC 29588     | 
|843.294.6000                 | 
|843.294.6001 (fax)           | 
|Hilton Head Island           | 
|Village at Wexford           | 
|1000 William Hilton Pkwy     | 
|Hilton Head Island, SC 29928 | 
|843.842.3232                 | 
|843.842.3235 (fax)           | 

48

---

|                         |  |  |                         
|------------------------ |  |  | ------------------------
|Staff                    |  |  |                         
|Executive Officers       |  |  | Departments             
|Walter E. Standish, III  |  |  | Accounting              
|President                |  |  | Joey Hardwick           
|Chief Executive Officer  |  |  | Accounting Manager      
|                         |  |  | Kathy Doane             
|Richard N. Burch         |  |  |                         
|Senior Vice President    |  |  |                         
|Chief Financial Officer  |  |  | Deposit Operations      
|                         |  |  | Tiffany P. Suggs        
|M. Katharine Huntley     |  |  | Vice President          
|(Katie)                  |  |  |                         
|Executive Vice President |  |  | Deposit Operations      
|Chief Credit Officer     |  |  | Manager                 
|                         |  |  | Deborah J. Myers        
|                         |  |  | Assistant Vice President
|                         |  |  | Commercial Account      
|                         |  |  | Services                
|Julien E. Springs        |  |  |                         
|Senior Vice President    |  |  | Yolonda Bryant          
|Business Development     |  |  | Veronica Gilbert        
|Officer                  |  |  | Amy Stubbs              
|Branches                 |  |  |                         
|Myrtle Beach             |  |  | Surfside Beach          
|Barbara H. Abrams        |  |  | John D. Brown, Jr.      
|Vice President           |  |  | Vice President          
|Branch Manager           |  |  | Regional Manager        
|                         |  |  |                         
|Jason F. Atkinson        |  |  | Ann Marion              
|Assistant Vice President |  |  | Assistant Vice President
|Commercial Lender        |  |  | Branch Manager          
|                         |  |  |                         
|Harry G. Bates, IV       |  |  | Verne Brooks            
|Assistant Vice President |  |  | Carrie Duran            
|Commercial Lender        |  |  | Karen Hess              
|                         |  |  | Christine Holmes        
|Jolene McCune            |  |  | Tami Jackson            
|Banking Officer          |  |  |                         
|Loan Support Specialist  |  |  | North Myrtle Beach      
|                         |  |  | Marcus G. McDowell      
|Susie Barnhill           |  |  | Vice President          
|Lorraine Best            |  |  | Regional Manager        
|Kathleen Crawford        |  |  |                         
|Mary Kay Flynn           |  |  | Mary Argondizzo         
|Patricia Gregory         |  |  | Lisa Bell               
|Beverley Harrison        |  |  | Sandra Gore             
|Zella Henley             |  |  | Peggy Roessler          
|Sarah Johnson            |  |  |                         
|Yolanda Rogers           |  |  |                         
|Monica Shinn             |  |  |                         

49

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Equal Employment
OpportunityBeach First is an equal opportunity employer. It is the banks policy to grant equal employment opportunity (EEO) to all
qualified persons without regard to race, sex, religion, age, national origin, physical or
mental disability, veterans status, citizenship or gender or any other
characteristics protected by applicable law (Protected Characteristics). The
bank provides equal opportunities in employment, promotion, wages, benefits, and all other
privileges, terms, and conditions of employment. This policy has the support of the
highest levels of management. Unfavorable speech or actions by employees regarding the
Protected Characteristics of other employees, agents, contractors, vendors, customers, or
others having an affiliation with the Bank will not be tolerated. All employees and
managers are expected to comply with our equal employment opportunity policy.

(logo) SC Family Friendly
Workplace Award Winner

50

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(inside back cover)

|                                 |  | 
|-------------------------------- |  | 
|Board of Directors               |  | 
|Michael Bert Anderson            |  | 
|Managing Owner                   |  | 
|Patricia Resorts                 |  | 
|                                 |  | 
|Bart Buie                        |  | 
|Certified Public Accountant      |  | 
|Bartlett Buie, CPA, P.A          |  | 
|                                 |  | 
|Raymond E. Cleary, III, DDS      |  | 
|Chairman of the Board            |  | 
|Beach First National Bancshares, |  | 
|Inc.                             |  | 
|Dentist                          |  | 
|Glenn's Bay Dentists at Surfside |  | 
|                                 |  | 
|E. Thomas Fulmer                 |  | 
|Owner                            |  | 
|Beachcomber Realty               |  | 
|Michael D. Harrington            |  | 
|General Contractor               |  | 
|Harrington Construction Company, |  | 
|Inc.                             |  | 
|Business Development Boards      |  | 
|North Strand                     |  | 
|J. Michael Campbell              |  | 
|Sales Representative             |  | 
|Blanchard Machinery              |  | 
|                                 |  | 
|Roger P. Roy                     |  | 
|Attorney                         |  | 
|Cook & Roy, LLC                  |  | 
|                                 |  | 
|Linda Hope Taylor                |  | 
|Owner                            |  | 
|Hope Taylor & Company            |  | 
|                                 |  | 
|Mickey Thompson                  |  | 
|Owner                            |  | 
|Marine Service Center of Little  |  | 
|River                            |  | 
|                                 |  | 
|Joey Todd                        |  | 
|Owner                            |  | 
|Atlantic Heating and Cooling     |  | 
|                                 |  | 
|                                 |  | 

51

---

(back cover)

52