# UNITED STATESSECURITIES AND EXCHANGE
COMMISSION Washington, D.C. 20549

# Form 10-KSB

| | (Mark One)
| | ----------

|[X] | Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
|--- | ------------------------------------------------------------------------------

| | For the fiscal year ended December 31, 2004
| | -------------------------------------------

| | or
| | --

| | Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934
| | ----------------------------------------------------------------------------------
| | For the transition period from __________ to ________                             

Commission file no.
000-22503

BEACH FIRST NATIONAL BANCSHARES, INC.
(Name of Small Business Issuer in Its Charter)

|South Carolina                    |  | 57-1030117         
|--------------------------------- |  | -------------------
|(State or Other Jurisdiction      |  | (I.R.S. Employer   
|of Incorporation or Organization) |  | Identification No.)

|1550 Oak Street                          |  |           
|---------------------------------------- |  | ----------
|Myrtle Beach, South Carolina             |  | 29577     
|(Address of Principal Executive Offices) |  | (Zip Code)

(843) 626-2265Issuers Telephone Number, Including Area Code

Securities registered pursuant to Section 12(b) of the Act:   None
Securities registered pursuant to Section 12(g) of the Act:   Common Stock

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

Check
if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B
in this form, and no disclosure will be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-KSB or any amendment to this Form 10-KSB. [X]

The issuers revenue for the year ended December 31, 2004 was
$12,634,296.

The aggregate market value of the voting stock held by non-affiliates (shareholders holding less than 5%
of an outstanding class of stock, excluding directors and executive officers), as of March 4, 2005 was
approximately $39,968,134.  This calculation was based on the closing price of such common equity on March 4,
2005 of $19.85.

The number of shares outstanding of the issuers common stock was 2,013,508 at March 4, 2005.

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

DOCUMENTS INCORPORATED
BY REFERENCE

The Companys  Annual Report to  Shareholders  for the year ended December 31, 2004 is incorporated by reference in
this Form 10-KSB in Part II, Items 6 and 7. The Companys  Proxy  Statement for the Annual Meeting of  Shareholders
to be held on April 20, 2005 is  incorporated  by reference in this Form 10-KSB in Part III, Items 9 through 12 and
14.

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# Part IItem 1. Business

This
Report contains statements which constitute forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and the Securities Exchange Act of 1934.
These statements are based on many assumptions and estimates and are not guarantees of
future performance. Our actual results may differ materially from those projected in any
forward-looking statements, as they will depend on many factors about which we are unsure,
including many factors which are beyond our control. The words may,
would, could, will, expect,
anticipate, believe, intend, plan, and
estimate, as well as similar expressions, are meant to identify such
forward-looking statements. Potential risks and uncertainties include, but are not limited
to those described below under Risk Factors.

# General Overview

We
conduct a general commercial and retail banking business, emphasizing the needs of
individual and small- to medium-sized businesses. We operate our banking business through
our bank, Beach First National Bank. Our main office is located at the corner of Oak
Street and Sixteenth Avenue in Myrtle Beach, South Carolina. In June 2001, we opened our
first branch office, which is located at the northwest corner of the intersection of S.C.
Highway 544 and U.S. Highway 17 in Surfside Beach, South Carolina. In November 2002 we
opened our second branch office located in the Gator Hole Shopping Center in North Myrtle
Beach, South Carolina, in February 2003 we opened our third office on Hilton Head Island,
South Carolina, in July 2004 we opened our fourth office in the Willbrook Shopping Center
in the Litchfield/Pawleys Island area, South Carolina, and in January 2005 we opened our
sixth office on the south end of Hilton Head Island in the Village at Wexford Shopping
Center. We primarily serve the Grand Strand area of Myrtle Beach, South Carolina and
Hilton Head Island, South Carolina. We have plans to expand our operations to serve other
coastal areas of South Carolina. We maintain an internet web site at
http://www.beachfirst.com.

# Risk Factors

Our recent operating
results may not be indicative of our future operating results.

We
may not be able to sustain our historical rate of growth and may not even be able to grow
our business at all. Because of our relatively small size and short operating history, it
will be difficult for us to generate similar earnings growth as we continue to expand, and
consequently our historical results of operations will not necessarily be indicative of
our future operations. Various factors, such as economic conditions, regulatory and
legislative considerations, and competition, may also impede our ability to expand our
market presence. If we experience a significant decrease in our historical rate of growth,
our results of operations and financial condition may be adversely affected because a high
percentage of our operating costs are fixed expenses.

Our decisions regarding
credit risk and reserves for loan losses may materially and adversely affect our business.

Making
loans and other extensions of credit is an essential element of our business. Although we
seek to mitigate risks inherent in lending by adhering to specific underwriting practices,
our loans and other extensions of credit may not be repaid. The risk of nonpayment is
affected by a number of factors, including:

| | o | the duration of the credit;
| | - | ---------------------------

| | o | credit risks of a particular customer;
| | - | --------------------------------------

| | o | changes in economic and industry conditions; and
| | - | ------------------------------------------------

| | o | in the case of a collateralized loan, risks resulting from uncertainties about the future
value of the collateral.
| | - | ------------------------------------------------------------------------------------------------------------------

We
attempt to maintain an appropriate allowance for loan losses to provide for potential
losses in our loan portfolio. We periodically determine the amount of the allowance based
on consideration of several factors, including:

| | o | an ongoing review of the quality, mix, and size of our overall loan portfolio;
| | - | ------------------------------------------------------------------------------

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| | o | our historical loan loss experience;
| | - | ------------------------------------

| | o | evaluation of economic conditions;
| | - | ----------------------------------

| | o | regular reviews of loan delinquencies and loan portfolio quality; and
| | - | ---------------------------------------------------------------------

| | o | the amount and
quality of collateral, including guarantees, securing the loans.
| | - | -------------------------------------------------------------------------------

There
is no precise method of predicting credit losses; therefore, we face the risk that
charge-offs in future periods will exceed our allowance for loan losses and that
additional increases in the allowance for loan losses will be required. Additions to the
allowance for loan losses would result in a decrease of our net income, and possibly our
capital.

Lack of seasoning of our
loan portfolio may increase the risk of credit defaults in the future.

Due
to the rapid growth of our bank over the past several years and our short operating
history, a large portion of the loans in our loan portfolio and of our lending
relationships are of relatively recent origin. In general, loans do not begin to show
signs of credit deterioration or default until they have been outstanding for some period
of time, a process we refer to as seasoning. As a result, a portfolio of older
loans will usually behave more predictably than a newer portfolio. Because our loan
portfolio is relatively new, the current level of delinquencies and defaults may not be
representative of the level that will prevail when the portfolio becomes more seasoned,
which may be higher than current levels. If delinquencies and defaults increase, we may be
required to increase our provision for loan losses, which would adversely affect our
results of operations and financial condition.

An economic downturn,
especially one affecting the Horry and Beaufort County areas, could reduce our customerbase,
our level of deposits, and demand for financial products such as loans.

Our
success significantly depends upon the growth in population, income levels, deposits, and
housing starts in our markets, especially in Horry and Beaufort Counties and to a lesser
extent Georgetown County. If the communities in which we operate do not grow or if
prevailing economic conditions locally or nationally are unfavorable, our business may not
succeed. An economic downturn would likely contribute to the deterioration of the quality
of our loan portfolio and reduce our level of deposits, which in turn would hurt our
business. Interest received on loans represented approximately 89.8% of our interest
income for the year ended December 31, 2004. If an economic downturn occurs in the economy
as a whole, or especially in the Horry and Beaufort County areas, borrowers may be less
likely to repay their loans as scheduled. Moreover, the value of real estate or other
collateral that may secure our loans could be adversely affected. Unlike many larger
institutions, we are not able to spread the risks of unfavorable local economic conditions
across a large number of diversified economies. An economic downturn could, therefore,
result in losses that materially and adversely affect our business.

Changes in prevailing
interest rates may reduce our profitability.

Our
results of operations depend in large part upon the level of our net interest income,
which is the difference between interest income from interest-earning assets, such as
loans and mortgage-backed securities, and interest expense on interest-bearing
liabilities, such as deposits and other borrowings. Depending on the terms and maturities
of our assets and liabilities, a significant change in interest rates could have a
material adverse effect on our profitability. Many factors cause changes in interest
rates, including governmental monetary policies and domestic and international economic
and political conditions. While we intend to manage the effects of changes in interest
rates by adjusting the terms, maturities, and pricing of our assets and liabilities, our
efforts may not be effective and our financial condition and results of operations could
suffer. After operating in a historically low interest rate environment, the Federal
Reserve began raising short-term interest rates in the second quarter of 2004. We
anticipate that we will benefit from a rising interest rate environment. However, no
assurance can be given that the Federal Reserve will actually continue to raise interest
rates or that the results we anticipate will actually occur.

We are dependent on key
individuals and the loss of one or more of these key individuals could curtail our growthand
adversely affect our prospects.

Walter
E. Standish, III, our president and chief executive officer, has extensive and
long-standing ties within our primary market area and he has contributed significantly to
our growth. If we lose the services of Mr.

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Standish, he would be difficult to
replace and our business and development could be materially and adversely affected.

Our
success also depends, in part, on our continued ability to attract and retain experienced
loan originators, as well as other management personnel. The loss of the services of
several of such key personnel could adversely affect our growth strategy and prospects to
the extent we are unable to replace such personnel.

We are subject to
extensive regulation that could limit or restrict our activities.

We
operate in a highly regulated industry and are subject to examination, supervision, and
comprehensive regulation by various regulatory agencies. Our compliance with these
regulations is costly and restricts certain of our activities, including payment of
dividends, mergers and acquisitions, investments, loans and interest rates charged,
interest rates paid on deposits, and locations of offices. We are also subject to
capitalization guidelines established by our regulators, which require us to maintain
adequate capital to support our growth.

The
laws and regulations applicable to the banking industry could change at any time, and we
cannot predict the effects of these changes on our business and profitability. Because
government regulation greatly affects the business and financial results of all commercial
banks and bank holding companies, our cost of compliance could adversely affect our
ability to operate profitably.

The
Sarbanes-Oxley Act of 2002, and the related rules and regulations promulgated by the
Securities and Exchange Commission that are now applicable to us, have increased the
scope, complexity, and cost of corporate governance, reporting, and disclosure practices.
We have experienced, and we expect to continue to experience, greater compliance costs,
including costs related to internal controls, as a result of the Sarbanes-Oxley Act.

Our continued pace of
growth may require us to raise additional capital in the future, but that capital may notbe
available when it is needed.

We
are required by regulatory authorities to maintain adequate levels of capital to support
our operations. To support our continued growth, we may need to raise additional capital.
Our ability to raise additional capital, if needed, will depend in part on conditions in
the capital markets at that time, which are outside our control. Accordingly, we cannot
assure you of our ability to raise additional capital, if needed, on terms acceptable to
us. If we cannot raise additional capital when needed, our ability to further expand our
operations through internal growth and acquisitions could be materially impaired. In
addition, if we decide to raise additional equity capital, your interest could be diluted.

We
face strong competition for clients, which could prevent us from obtaining clients and
may cause us to payhigher interest rates to attract clients.

The
banking business is highly competitive, and we experience competition in our market from
many other financial institutions. We compete with commercial banks, credit unions,
savings and loan associations, mortgage banking firms, consumer finance companies,
securities brokerage firms, insurance companies, money market funds, and other mutual
funds, as well as other super-regional, national, and international financial institutions
that operate offices in our primary market areas and elsewhere. We compete with these
institutions both in attracting deposits and in making loans. In addition, we have to
attract our client base from other existing financial institutions and from new residents.
Many of our competitors are well-established, larger financial institutions. These
institutions offer some services, such as extensive and established branch networks, that
we do not provide. There is a risk that we will not be able to compete successfully with
other financial institutions in our market, and that we may have to pay higher interest
rates to attract deposits, resulting in reduced profitability. In addition, competitors
that are not depository institutions are generally not subject to the extensive
regulations that apply to us.

We will face risks with
respect to future expansion and acquisitions or mergers.

We
may seek to acquire other financial institutions or parts of those institutions. We may
also expand into new markets or lines of business or offer new products or services. These
activities would involve a number of risks, including:

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| | o | the potential inaccuracy of the estimates and judgments used to evaluate credit, operations, management,
         and market risks with respect to a target institution;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | the time and costs of evaluating new markets, hiring or retaining experienced local
management, and opening new offices and the time lags between these activities and the
generation of sufficient assets and deposits to support the costs of the expansion;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | the incurrence and possible impairment of goodwill associated with an acquisition and
possible adverse effects on our results of operations; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------

| | o | the risk of loss of key employees and customers.
| | - | ------------------------------------------------

# Marketing Focus

Most
of the banks in the Grand Strand and on Hilton Head Island are now local branches of
regional, super-regional, and large national banks. Although size gives the larger banks
certain advantages in competing for business from large corporations, including higher
lending limits and the ability to offer services in other areas of South Carolina and the
Southeast, we believe that there has been a void in the community banking market in the
Myrtle Beach and Hilton Head Island areas which we can successfully fill by adding
additional branches. As a result, we generally do not attempt to compete for the banking
relationships of large corporations, but concentrate our efforts on individuals and
small-to medium-sized businesses.

# Operating and Growth
Strategy

We
primarily serve the Grand Strand area of Myrtle Beach, South Carolina and Hilton Head
Island, South Carolina, although we also have a branch in the Litchfield/Pawleys Island
area. We have plans to expand our operations to serve other coastal areas of South
Carolina. Our goals are to be the leading community bank along the coast of South
Carolina. We intend to achieve these goals by locating new branches in growing communities
in our market areas, increasing asset size through internal growth, providing personalized
service with a community focus, hiring and retaining high caliber and motivated employees,
maintaining high asset quality, and offering our customers a variety of competitive
products and services. These goals are intended to build long-term shareholder value.

# Deposit Products

We
offer a full range of deposit products that are typically available in most banks and
savings and loan associations, including checking accounts, interest bearing checking
accounts, savings accounts, and other time deposits of various types, ranging from daily
money market accounts to longer-term certificates of deposit. We also offer internet
banking and cash management services for the commercial customer. The transaction accounts
and time certificates are offered at rates competitive to those offered by other financial
institutions in our market areas. In addition, we offer retirement account services, such
as Individual Retirement Accounts (IRAs). All deposit accounts are insured by the FDIC up
to the maximum amount allowed by law.

# Lending Activities

General.       
          We emphasize a range of lending services, including real estate, commercial and
          consumer loans, to individuals and small-to medium-sized businesses that are
          located, or conduct a substantial portion of their business, along the Grand
          Strand and on Hilton Head Island.

The
characteristics of our loan portfolio and our underwriting procedures, collateral types,
risks, approval process and lending limits are discussed below. See also
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Provision and Allowance for Loan Losses in the Companys
Annual Report to Shareholders, incorporated herein by reference.

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Real
Estate Loans. The primary component of our loan portfolio is real estate mortgage
loans, which make up approximately 70% of our loan portfolio. These loans are secured
generally by first or second mortgages on residential or commercial property. The major
category of this component is commercial real estate loans primarily secured by
owner-occupied real estate. The borrowers are predominantly service and professional
businesses, such as PAs, medical and service providers for consumer and commercial
customers along the Grand Strand.

Commercial
Loans.Approximately 17% of our loan portfolio consists of commercial loans.
Commercial loans consist of secured and unsecured loans, lines of credit, and working
capital loans. We make these loans to various types of businesses. Included in this
category are loans to purchase equipment, finance accounts receivable or inventory, and
loans made for working capital purposes.

Consumer
Loans. Consumer loans make up approximately 4% of our loan portfolio. These are loans
made to individuals for personal and household purposes, such as secured and unsecured
installment and term loans and revolving lines of credit such as overdraft protection.
Automobiles and small recreational vehicles are pledged as security for their purchase.

Construction
and Development Loans. The remaining 9% of our loan portfolio, or approximately $17.0
million, is composed of consumer and commercial real estate construction and commercial
development loans. These loans are secured by the real estate for which construction is
planned and, in many cases, by supplementary collateral.

Underwriting
Procedures, Collateral, and Risk.We use our established credit policies and
procedures when underwriting each type of loan. Although there are minor variances in the
characteristics and criteria for each loan type, which variances may require additional
underwriting procedures, we generally evaluate borrowers using the following defined
criteria:

| | o | Character  we determine that the borrower has sound character and integrity by
examining the borrowers history.
| | - | -----------------------------------------------------------------------------------------------------------------

| | o | Capital  we evaluate the borrowers overall financial strength, as well as the
equity investment in the asset being financed.
| | - | ------------------------------------------------------------------------------------------------------------------------------

| | o | Collateral  we determine that the collateral is adequate from the standpoint of
quality, marketability, value and income potential.
| | - | ------------------------------------------------------------------------------------------------------------------------------------

| | o | Capacity  we evaluate the borrowers ability to service the debt.
| | - | ------------------------------------------------------------------

| | o | Conditions  we underwrite the credit in light of the effects of external factors,
such as economic conditions and industry trends.
| | - | -----------------------------------------------------------------------------------------------------------------------------------

It
is our practice to obtain collateral for most loans to help mitigate the risk associated
with lending. We generally limit our loan-to-value ratio to 80%. We obtain a security
interest in real estate for loans secured by real estate, including construction and
development loans, and other commercial loans. For commercial loans, we obtain security
interests in equipment and other company assets. For consumer loans used to purchase
vehicles, we obtain appropriate title documentation. For secured loans that are not
associated with real estate, or for which the mortgaged real estate does not provide an
acceptable loan-to-value ratio, we obtain other available collateral such as stocks and
bonds.

Each
type of loan carries a credit risk, simply defined as the potential that the borrower will
not be willing or able to repay the debt. While real estate loans have various risks
common to all types of loans, certain types of real estate loans have specific risk
characteristics that vary according to the collateral type securing the loan and the terms
and repayment sources for the loan. Real estate loans are all sensitive to fluctuations in
the value of the real estate securing the loan. In addition, commercial real estate loans
have risk that the primary source of repayment will be insufficient to service the debt.
Construction and development real estate loans generally carry a higher degree of risk
than long term financing of existing properties. These projects are usually dependent on
the completion of the project on schedule and within cost estimates and on the timely sale
of the property. Inferior or improper construction techniques, changes in economic
conditions during the construction and marketing period, and rising interest rates which
may slow the sale of the property are all risks unique to this type of loan. Residential
mortgage loans, in contrast to commercial real estate loans, generally have longer terms
and may have fixed or adjustable interest rates. Commercial loans primarily have risk that
the primary source of

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repayment will be insufficient to service the
debt. Often this occurs as the result of changes in local economic conditions or in the
industry in which the borrower operates which impact cash flow or collateral value.
Consumer loans, other than home equity loan products, are generally considered to have
more risk than loans to individuals secured by first or second mortgages on real estate
due to dependence on the borrowers employment status as the sole source of
repayment. By following defined underwriting criteria as noted above, we seek to reduce
these risks. Additionally, we help to reduce the risk that the underlying collateral may
not be sufficient to pay the outstanding balance by using appraisals or taking other steps
to determine that the value of the collateral is adequate, and lending amounts based upon
lower loan-to-value ratios. We control risks by reducing concentration of our loan
portfolio in any one type of loan. A concentration of credit report based upon SIC codes
and other factors are reviewed on a quarterly basis by the Board of Directors.

Loan
Approval and Review. Our loan approval policies provide for various levels of officer
lending authority. When the amount of aggregate loans to a single borrower exceeds that
individual officers lending authority, the loan request is considered by an officer
with a higher lending limit or the management loan committee. Any loan in excess of this
lending limit is approved by the directors loan committee. Loans to any of our
directors or executive officers are reviewed by the directors loan committee. Terms
for these loans are not more favorable than would be available to a person not affiliated
with us. We take steps to protect against losses due to hurricanes and weather phenomena
by requiring customers to carry appropriate insurance.

Lending
Limits. Our lending activities are subject to a variety of lending limits imposed by
federal law. While differing limits apply to certain loan types or borrowers, in general
we are subject to a loan-to-one-borrower limit. These limits increase or decrease as our
capital increases or decreases. Unless we sell participations in loans to other financial
institutions, we are not able to meet all of the lending needs of loan customers requiring
aggregate extensions of credit above these limits.

# Competition

The
Myrtle Beach and Hilton Head Island markets are highly competitive markets which all of
the largest banks in the state, as well as super regional banks, are represented. The
competition among the various financial institutions is based upon a variety of factors,
including interest rates offered on deposit accounts, interest rates charged on loans,
credit and service charges, the quality of services rendered, the convenience of banking
facilities and, in the case of loans to large commercial borrowers, relative lending
limits. In addition to banks and savings associations, we compete with other financial
institutions including securities firms, insurance companies, credit unions, leasing
companies and finance companies. Size gives larger banks certain advantages in competing
for business from large corporations. These advantages include higher lending limits and
the ability to offers services in other areas of South Carolina. As a result, we do not
generally attempt to compete for the banking relationships of large corporations, but
concentrate our efforts on small- to medium-sized businesses and individuals. We believe
we have competed effectively in this market by offering quality and personal service.

# Employees

At
December 31, 2004, we employed a total of 58 full-time and 5 part-time employees. The
company believes that the relations with its employees are good.

# SUPERVISION AND
REGULATION

Both
the company and the bank are subject to extensive state and federal banking laws and
regulations that impose specific requirements or restrictions on and provide for general
regulatory oversight of virtually all aspects of our operations. These laws and
regulations are generally intended to protect depositors, not shareholders. The following
summary is qualified by reference to the statutory and regulatory provisions discussed.
Changes in applicable laws or regulations may have a material effect on our business and
prospects. Beginning with the enactment of the Financial Institutions Reform Recovery and
Enforcement Act in 1989 and followed by the FDIC Improvement Act in 1991 and the
Gramm-Leach-Bliley Act in 1999, numerous additional regulatory requirements have been
placed on the banking industry in the past several years, and additional changes have been
proposed. Our operations may be affected by legislative changes and the policies of
various regulatory authorities. We

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cannot predict the effect that fiscal or
monetary policies, economic control, or new federal or state legislation may have on our
business and earnings in the future.

The
following discussion is not intended to be a complete list of all the activities regulated
by the banking laws or of the impact of such laws and regulations on our operations. It is
intended only to briefly summarize some material provisions.

# USA PATRIOT Act of 2002

In
October 2002, the USA PATRIOT Act of 2002 was enacted in response to the terrorist attacks
in New York, Pennsylvania, and Washington D.C. that occurred on September 11, 2001. The
PATRIOT Act is intended to strengthen U.S. law enforcements and the intelligence
communities abilities to work cohesively to combat terrorism on a variety of fronts.
The potential impact of the PATRIOT Act on financial institutions is significant and wide
ranging. The PATRIOT Act contains sweeping anti-money laundering and financial
transparency laws and imposes various regulations, including standards for verifying
client identification at account opening, and rules to promote cooperation among financial
institutions, regulators, and law enforcement entities in identifying parties who may be
involved in terrorism or money laundering.

# Check 21

On
October 28, 2003, President Bush signed into law the Check Clearing for the 21st Century
Act, also known as Check 21. The new law, which became effective October 28, 2004, gives
substitute checks, such as a digital image of a check and copies made from
that image, the same legal standing as the original paper check. Some of the major
provisions include:

| | o | allowing check truncation without making it mandatory;
| | - | ------------------------------------------------------

| | o | demanding that every financial institution communicate to accountholders in writing a
description of its substitute check processing program and their rights under the law;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | legalizing substitutions for and
replacements of paper checks without agreement from consumers;
| | - | -----------------------------------------------------------------------------------------------

| | o | retaining in place the
previously mandated electronic collection and return of checks between financial ;institutions
only when individual agreements are in place;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | requiring that when accountholders request verification, financial institutions produce
the original check (or a copy that accurately represents the original) and demonstrate
that the account debit was accurate and valid; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | requiring recrediting of funds to an individuals account on the next business day
after a consumer proves that the financial institution has erred.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------

This
new legislation will likely affect bank capital spending as many financial institutions
assess whether technological or operational changes are necessary to stay competitive and
take advantage of the new opportunities presented by Check 21.

# Beach First National
Bancshares, Inc.

We
own 100% of the outstanding capital stock of the bank, and therefore we are considered to
be a bank holding company under the federal Bank Holding Company Act of 1956 and the South
Carolina Banking and Branching Efficiency Act.

The
Bank Holding Company Act. Under the Bank Holding Company Act, we are subject to
periodic examination by the Federal Reserve and are required to file periodic reports of
our operations and any additional information that the Federal Reserve may require. Our
activities at the bank and holding company levels are limited to:

| | o | banking and managing or controlling banks;
| | - | ------------------------------------------

| | o | furnishing services to or performing services for our subsidiaries; and
| | - | -----------------------------------------------------------------------

| | o | engaging in other activities that the Federal Reserve determines to be so closely related
to banking and managing or controlling banks as to be a proper incident thereto.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Investments,
Control, and Activities. With certain limited exceptions, the Bank Holding Company Act
requires every bank holding company to obtain the prior approval of the Federal Reserve
before:

| | o | acquiring substantially all the assets of any bank;
| | - | ---------------------------------------------------

| | o | acquiring
direct or indirect ownership or control of any voting shares of any bank if after the
acquisition it would own or control more than 5% of the voting shares of such bank (unless
it already owns or controls the majority of such shares); or
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | merging or consolidating with another bank holding company.
| | - | -----------------------------------------------------------

In
addition, and subject to certain exceptions, the Bank Holding Company Act and the Change
in Bank Control Act, together with regulations promulgated thereunder, require Federal
Reserve approval prior to any person or company acquiring control of a bank
holding company. Control is conclusively presumed to exist if an individual or company
acquires 25% or more of any class of voting securities of a bank holding company. Control
is rebuttably presumed to exist if a person acquires 10% or more, but less than 25%, of
any class of voting securities and either the company has registered securities under
Section 12 of the Securities Exchange Act of 1934 or no other person owns a greater
percentage of that class of voting securities immediately after the transaction. Our
common stock is registered under the Securities Exchange Act of 1934. The regulations
provide a procedure for rebutting control when ownership of any class of voting securities
is below 25%.

Under
the Bank Holding Company Act, a bank holding company is generally prohibited from engaging
in, or acquiring direct or indirect control of more than 5% of the voting shares of any
company engaged in, nonbanking activities unless the Federal Reserve Board, by order or
regulation, has found those activities to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. Some of the activities that the
Federal Reserve Board has determined by regulation to be proper incidents to the business
of a bank holding company include:

| | o | making or servicing loans and
certain types of leases;
| | - | ------------------------------------------------------

| | o | engaging in certain insurance and discount brokerage
activities;
| | - | ----------------------------------------------------------------

| | o | performing certain data processing services; o acting in certain
circumstances as a fiduciary or investment or financial adviser;
| | - | ---------------------------------------------------------------------------------------------------------------------------------

| | o | owning savings
associations; and
| | - | --------------------------------

| | o | making investments in certain corporations or projects designed
primarily to promote community welfare.
| | - | -------------------------------------------------------------------------------------------------------

The
Federal Reserve Board imposes certain capital requirements on the company under the Bank
Holding Company Act, including a minimum leverage ratio and a minimum ratio of
qualifying capital to risk-weighted assets. These requirements are described
below under - Beach First National Bank  Capital Regulations. Subject to
our capital requirements and certain other restrictions, we are able to borrow money to
make a capital contribution to the bank, and these loans may be repaid from dividends paid
from the bank to the company. Our ability to pay dividends will be subject to regulatory
restrictions as described below in - Beach First National Bank 
Dividends. We are also able to raise capital for contribution to the bank by issuing
securities without having to receive regulatory approval, subject to compliance with
federal and state securities laws.

Source
of Strength; Cross-Guarantee. In accordance with Federal Reserve Board policy, we are
expected to act as a source of financial strength to the bank and to commit resources to
support the bank in circumstances in which we might not otherwise do so. Under the Bank
Holding Company Act, the Federal Reserve Board may require a bank holding company to
terminate any activity or relinquish control of a nonbank subsidiary, other than a nonbank
subsidiary of a bank, upon the Federal Reserve Boards determination that such
activity or control constitutes a serious risk to the financial soundness or stability of
any depository institution subsidiary of the bank holding company. Further, federal bank
regulatory authorities have additional discretion to require a bank holding company to
divest itself of any bank or nonbank subsidiaries if the agency determines that
divestiture may aid the depository institutions financial condition.

The
Gramm-Leach-Bliley Act. The Gramm-Leach-Bliley Act was signed into law on November 12,
1999. Among other things, the Act repealed the restrictions on banks affiliating with
securities firms contained in sections 20 and 32 of the Glass-Steagall Act. The Act also
permits bank holding companies that become financial holding companies to engage in a
statutorily provided list of financial activities, including insurance and securities

9

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underwriting and agency activities,
merchant banking, and insurance company portfolio investment activities. The Act also
authorizes activities that are complementary to financial activities. We have
not elected to become a financial holding company.

The
Act is intended, in part, to grant to community banks certain powers as a matter of right
that larger institutions have accumulated on an ad hoc basis. Nevertheless, the Act may
have the result of increasing the amount of competition that we face from larger
institutions and other types of companies. In fact, it is not possible to predict the full
effect that the Act will have on us.

South
Carolina State Regulation. As a South Carolina bank holding company under the South
Carolina Banking and Branching Efficiency Act, we are subject to limitations on sale or
merger and to regulation by the South Carolina Board of Financial Institutions. We are not
required to obtain the approval of the Board prior to acquiring the capital stock of a
national bank, but we must notify them at least 15 days prior to doing so. We must receive
the Boards approval prior to engaging in the acquisition of a South Carolina state
chartered bank or another South Carolina bank holding company.

# Beach First National Bank

The
bank operates as a national banking association incorporated under the laws of the United
States and subject to examination by the Office of the Comptroller of the Currency.
Deposits in the bank are insured by the Federal Deposit Insurance Corporation
(FDIC) up to a maximum amount, which is generally $100,000 per depositor
subject to the aggregation rule.

The
Office of the Comptroller of the Currency and the FDIC regulate or monitor virtually all
areas of the banks operations, including

| | o | security devices and procedures;
| | - | --------------------------------

| | o | adequacy of capitalization and loss reserves;
| | - | ---------------------------------------------

| | o | loans;
| | - | ------

| | o | investments;
| | - | ------------

| | o | borrowings;
| | - | -----------

| | o | deposits;
| | - | ---------

| | o | mergers;
| | - | --------

| | o | issuances of securities;
| | - | ------------------------

| | o | payment of dividends;
| | - | ---------------------

| | o | interest rates payable on deposits;
| | - | -----------------------------------

| | o | interest rates or fees chargeable on loans;
| | - | -------------------------------------------

| | o | establishment of branches;
| | - | --------------------------

| | o | corporate reorganizations;
| | - | --------------------------

| | o | maintenance of books and records; and
| | - | -------------------------------------

| | o | adequacy of staff training to carry on safe lending and deposit gathering practices.
| | - | ------------------------------------------------------------------------------------

The
Office of the Comptroller of the Currency requires the bank to maintain specified capital
ratios and imposes limitations on the banks aggregate investment in real estate,
bank premises, and furniture and fixtures. The Office of the Comptroller of the Currency
also requires the bank to prepare annual reports on the banks financial condition
and to conduct an annual audit of its financial affairs in compliance with its minimum
standards and procedures.

10

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Under
the FDIC Improvement Act, all insured institutions must undergo regular on-site
examinations by their appropriate banking agency. The cost of examinations of insured
depository institutions and any affiliates may be assessed by the appropriate agency
against each institution or affiliate as it deems necessary or appropriate. Insured
institutions are required to submit annual reports to the FDIC, their federal regulatory
agency, and state supervisor when applicable. The FDIC Improvement Act directs the FDIC to
develop a method for insured depository institutions to provide supplemental disclosure of
the estimated fair market value of assets and liabilities, to the extent feasible and
practicable, in any balance sheet, financial statement, report of condition or any other
report of any insured depository institution. The FDIC Improvement Act also requires the
federal banking regulatory agencies to prescribe, by regulation, standards for all insured
depository institutions and depository institution holding companies relating, among other
things, to the following:

| | o | internal controls;
| | - | ------------------

| | o | information systems and audit systems;
| | - | --------------------------------------

| | o | loan documentation;
| | - | -------------------

| | o | credit underwriting;
| | - | --------------------

| | o | interest rate risk exposure; and
| | - | --------------------------------

| | o | asset quality.
| | - | --------------

National
banks and their holding companies which have been chartered or registered or have
undergone a change in control within the past two years or which have been deemed by the
Office of the Comptroller of the Currency or the Federal Reserve Board to be troubled
institutions must give the Office of the Comptroller of the Currency or the Federal
Reserve Board 30 days prior notice of the appointment of any senior executive officer or
director. Within the 30 day period, the Office of the Comptroller of the Currency or the
Federal Reserve Board, as the case may be, may approve or disapprove any such appointment.

Deposit
Insurance The FDIC has adopted a risk-based assessment system for determining
an insured depository institutions insurance assessment rate. The system takes into
account the risks attributable to different categories and concentrations of assets and
liabilities. An institution is placed into one of three capital categories: (1) well
capitalized; (2) adequately capitalized; or (3) undercapitalized. The FDIC also assigns an
institution to one of three supervisory subgroups, based on the FDICs determination
of the institutions financial condition and the risk posed to the deposit insurance
funds. Assessments range from 0 to 27 cents per $100 of deposits, depending on the
institutions capital group and supervisory subgroup. In addition, the FDIC imposes
assessments to help pay off the $780 million in annual interest payments on the $8 billion
Financing Corporation bonds issued in the late 1980s as part of the government rescue of
the thrift industry. Our FDIC assessment rate is currently 1A or .000036 per million of
insured deposits, but may change in the future. The FDIC may increase or decrease the
assessment rate schedule on a semiannual basis. An increase in the BIF assessment rate
could have a material adverse effect on our earnings, depending on the amount of the
increase.

The
FDIC may terminate its insurance of deposits if it finds that the institution has engaged
in unsafe and unsound practices, is in an unsafe or unsound condition to continue
operations, or has violated any applicable law, regulation, rule, order, or condition
imposed by the FDIC.

Transactions
with Affiliates and Insiders The bank is subject to the provisions of Section
23A of the Federal Reserve Act, which places limits on the amount of loans or extensions
of credit to, or investments in, or certain other transactions with, affiliates and on the
amount of advances to third parties collateralized by the securities or obligations of
affiliates. The aggregate of all covered transactions is limited in amount, as to any one
affiliate, to 10% of the banks capital and surplus and, as to all affiliates
combined, to 20% of the banks capital and surplus. Furthermore, within the foregoing
limitations as to amount, each covered transaction must meet specified collateral
requirements. Compliance is also required with certain provisions designed to avoid the
taking of low quality assets.

11

---

The
bank also is subject to the provisions of Section 23B of the Federal Reserve Act which,
among other things, prohibits an institution from engaging in certain transactions with
certain affiliates unless the transactions are on terms substantially the same, or at
least as favorable to such institution or its subsidiaries, as those prevailing at the
time for comparable transactions with nonaffiliated companies. The bank is subject to
certain restrictions on extensions of credit to executive officers, directors, certain
principal shareholders, and their related interests. Such extensions of credit (i) must be
made on substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with third parties and (ii) must not
involve more than the normal risk of repayment or present other unfavorable features.

The
Federal Reserve Board has recently issued Regulation W, which codifies prior regulations
under Sections 23A and 23B of the Federal Reserve Act and interpretative guidance with
respect to affiliate transactions. Regulation W incorporates the exemption from the
affiliate transaction rules but expands the exemption to cover the purchase of any type of
loan or extension of credit from an affiliate. In addition, under Regulation W:

| | o | a bank and its subsidiaries may not purchase a low-quality asset from an affiliate; o
covered transactions and other specified transactions between a bank or its subsidiaries
and an
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | affiliate
must be on terms and conditions that are consistent with safe and sound banking practices;
and
| | - | --------------------------------------------------------------------------------------------------------

| | o | with some exceptions, each loan or extension of credit by a bank to an affiliate must be
secured by collateral with a market value ranging from 100% to 130%, depending on the type
of collateral, of the amount of the loan or extension of credit.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Regulation
W generally excludes all non-bank and non-savings association subsidiaries of banks from
treatment as affiliates, except to the extent that the Federal Reserve Board decides to
treat these subsidiaries as affiliates. Concurrently with the adoption of Regulation W,
the Federal Reserve Board has proposed a regulation which would further limit the amount
of loans that could be purchased by a bank from an affiliate to not more than 100% of the
banks capital and surplus. This regulation has not yet been adopted.

Dividends
A national bank may not pay dividends from its capital. All dividends must be
paid out of undivided profits then on hand, after deducting expenses, including reserves
for losses and bad debts. In addition, a national bank is prohibited from declaring a
dividend on its shares of common stock until its surplus equals its stated capital, unless
there has been transferred to surplus no less than one-tenth of the banks net
profits of the preceding two consecutive half-year periods (in the case of an annual
dividend). The approval of the Office of the Comptroller of the Currency is required if
the total of all dividends declared by a national bank in any calendar year exceeds the
total of its net profits for that year combined with its retained net profits for the
preceding two years, less any required transfers to surplus.

Branching
National banks are required by the National Bank Act to adhere to branch office
banking laws applicable to state banks in the states in which they are located. Under
current South Carolina law, the bank may open branch offices throughout South Carolina
with the prior approval of the Office of the Comptroller of the Currency. In addition,
with prior regulatory approval, the bank is able to acquire existing banking operations in
South Carolina. Furthermore, federal legislation permits interstate branching, including
out-of-state acquisitions by bank holding companies, interstate branching by banks if
allowed by state law, and interstate merging by banks. South Carolina law, with limited
exceptions, currently permits branching across state lines through interstate mergers.

Community
Reinvestment Act The Community Reinvestment Act requires that, in connection
with examinations of financial institutions within their respective jurisdictions, the
Federal Reserve, the FDIC, or the Office of the Comptroller of the Currency, shall
evaluate the record of each financial institution in meeting the credit needs of its local
community, including low and moderate income neighborhoods. These factors are also
considered in evaluating mergers, acquisitions, and applications to open a branch or
facility. Failure to adequately meet these criteria could impose additional requirements
and limitations on our bank.

12

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The
Gramm-Leach-Bliley Act Under the Gramm-Leach-Bliley Act, subject to certain
conditions imposed by their respective banking regulators, national and state-chartered
banks are permitted to form financial subsidiaries that may conduct financial
or incidental activities, thereby permitting bank subsidiaries to engage in certain
activities that previously were impermissible. The Gramm-Leach-Bliley Act imposes several
safeguards and restrictions on financial subsidiaries, including that the parent
banks equity investment in the financial subsidiary be deducted from the banks
assets and tangible equity for purposes of calculating the banks capital adequacy.
In addition, the Gramm-Leach-Bliley Act imposes new restrictions on transactions between a
bank and its financial subsidiaries similar to restrictions applicable to transactions
between banks and nonbank affiliates.

The
Gramm-Leach-Bliley Act also contains provisions regarding consumer privacy. These
provisions require financial institutions to disclose their policy for collecting and
protecting confidential information. Customers generally may prevent financial
institutions from sharing personal financial information with nonaffiliated third parties
except for third parties that market an institutions own products and services.
Additionally, financial institutions generally may not disclose consumer account numbers
to any nonaffiliated third party for use in telemarketing, direct mail marketing, or other
marketing to the consumer.

Other
Regulations Interest and other charges collected or contracted for by the bank
are subject to state usury laws and federal laws concerning interest rates. The
banks loan operations are also subject to federal laws applicable to credit
transactions, such as:

| | o | the federal Truth-In-Lending Act, governing disclosures of credit terms to consumer
borrowers;
| | - | ----------------------------------------------------------------------------------------------

| | o | the Home Mortgage Disclosure Act of 1975, requiring financial institutions to
provide information to
| | - | ----------------------------------------------------------------------------------------------------

| | o | enable
the public and public officials to determine whether a financial institution is fulfilling
its obligation to help meet the housing needs of the community it serves;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | the Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other
                 prohibited factors in extending credit;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | the Fair Credit Reporting Act of 1978, governing the use and provision of information to credit
                 reporting agencies;
| | - | ------------------------------------------------------------------------------------------------------------------------------------

| | o | the Fair Debt Collection Act, governing the manner in which consumer debts may be collected by
collection agencies; and
| | - | -----------------------------------------------------------------------------------------------------------------------

| | o | the rules and regulations of the various federal agencies charged with the responsibility
of implementing such federal laws.
| | - | ----------------------------------------------------------------------------------------------------------------------------

The deposit operations of the bank
also are subject to:

| | o | the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of
consumer financial records and prescribes procedures for complying with administrative
subpoenas of financial records; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | the Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve Board to
implement that Act, which governs automatic deposits to and withdrawals from deposit
accounts and customers rights and liabilities arising from the use of automated
teller machines and other electronic banking services.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Capital
Regulations The federal bank regulatory authorities have adopted risk-based
capital guidelines for banks and bank holding companies that are designed to make
regulatory capital requirements more sensitive to differences in risk profiles among banks
and bank holding companies and account for off-balance sheet items. The guidelines are
minimums, and the federal regulators have noted that banks and bank holding companies
contemplating significant expansion programs should not allow expansion to diminish their
capital ratios and should maintain ratios in excess of the minimums. We have not received
any notice indicating that either Beach First National Bancshares or Beach First National
Bank is subject to higher capital requirements. The current guidelines require all bank
holding companies and federally-regulated banks to maintain a minimum risk-based total
capital ratio equal to 8%, of which at least 4% must be Tier 1 capital. Tier 1 capital
includes common shareholders equity, qualifying perpetual preferred stock, and
minority interests in equity accounts of consolidated subsidiaries, but excludes goodwill
and most other intangibles and excludes the allowance for loan and lease losses. Tier 2
capital includes the excess of any preferred stock not included in Tier 1 capital,
mandatory convertible securities, hybrid capital instruments, subordinated debt and
intermediate term-preferred stock, and general reserves for loan and lease losses up to
1.25% of risk-weighted assets.

13

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Under
these guidelines, banks and bank holding companies assets are given
risk-weights of 0%, 20%, 50%, or 100%. In addition, certain off-balance sheet items are
given credit conversion factors to convert them to asset equivalent amounts to which an
appropriate risk-weight applies. These computations result in the total risk-weighted
assets. Most loans are assigned to the 100% risk category, except for first mortgage loans
fully secured by residential property and, under certain circumstances, residential
construction loans, both of which carry a 50% rating. Most investment securities are
assigned to the 20% category, except for municipal or state revenue bonds, which have a
50% rating, and direct obligations of or obligations guaranteed by the United States
Treasury or United States Government agencies, which have a 0% rating.

The
federal bank regulatory authorities also have implemented a leverage ratio, which is equal
to Tier 1 capital as a percentage of average total assets less intangibles, to be used as
a supplement to the risk-based guidelines. The principal objective of the leverage ratio
is to place a constraint on the maximum degree to which a bank holding company may
leverage its equity capital base. The minimum required leverage ratio for top-rated
institutions is 3%, but most institutions are required to maintain an additional cushion
of at least 100 to 200 basis points.

The
FDIC Improvement Act established a new capital-based regulatory scheme designed to promote
early intervention for troubled banks, which requires the FDIC to choose the least
expensive resolution of bank failures. The new capital-based regulatory framework contains
five categories of compliance with regulatory capital requirements, including well
capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized.
To qualify as a well capitalized institution, a bank must have a leverage
ratio of no less than 5%, a Tier 1 risk-based ratio of no less than 6%, and a total
risk-based capital ratio of no less than 10%, and the bank must not be under any order or
directive from the appropriate regulatory agency to meet and maintain a specific capital
level. Currently, we qualify as well capitalized.

Under
the FDIC Improvement Act regulations, the applicable agency can treat an institution as if
it were in the next lower category if the agency determines (after notice and an
opportunity for hearing) that the institution is in an unsafe or unsound condition or is
engaging in an unsafe or unsound practice. The degree of regulatory scrutiny of a
financial institution increases, and the permissible activities of the institution
decrease, as it moves downward through the capital categories. Institutions that fall into
one of the three undercapitalized categories may be required to do some or all of the
following:

| | o | submit a capital restoration plan;
| | - | ----------------------------------

| | o | raise additional capital;
| | - | -------------------------

| | o | restrict their growth, deposit interest rates, and other activities;
| | - | --------------------------------------------------------------------

| | o | improve their
management;
| | - | -------------------------

| | o | eliminate management fees; or
| | - | -----------------------------

| | o | divest themselves of all or a part of their
operations.
| | - | -------------------------------------------------------

These
capital guidelines can affect us in several ways. If we grow at a rapid pace, our capital
may be depleted too quickly, and a capital infusion from our holding company may be
necessary which could impact our ability to pay dividends. Our capital levels currently
are adequate; however, rapid growth, poor loan portfolio performance, poor earnings
performance, or a combination of these factors could change our capital position in a
relatively short period of time. If we fail to meet these capital requirements, our bank
would be required to develop and file a plan with the Office of the Comptroller of the
Currency describing the means and a schedule for achieving the minimum capital
requirements. In addition, our bank would generally not receive regulatory approval of any
application that requires the consideration of capital adequacy, such as a branch or
merger application, unless our bank could demonstrate a reasonable plan to meet the
capital requirement within a reasonable period of time. A bank that is not well
capitalized is also subject to certain limitations relating to so-called
brokered deposits. Bank holding companies controlling financial institutions
can be called upon to boost the institutions capital and to partially guarantee the
institutions performance under their capital restoration plans.

14

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Enforcement
Powers The Financial Institutions Reform Recovery and Enforcement Act expanded
and increased civil and criminal penalties available for use by the federal regulatory
agencies against depository institutions and certain institution-affiliated
parties. Institution-affiliated parties primarily include management, employees, and
agents of a financial institution, as well as independent contractors and consultants such
as attorneys and accountants and others who participate in the conduct of the financial
institutions affairs. These practices can include the failure of an institution to
timely file required reports or the filing of false or misleading information or the
submission of inaccurate reports. Civil penalties may be as high as $1,000,000 a day for
such violations. Criminal penalties for some financial institution crimes have been
increased to twenty years. In addition, regulators are provided with greater flexibility
to commence enforcement actions against institutions and institution-affiliated parties.
Possible enforcement actions include the termination of deposit insurance. Furthermore,
banking agencies power to issue cease-and-desist orders were expanded. Such orders
may, among other things, require affirmative action to correct any harm resulting from a
violation or practice, including restitution, reimbursement, indemnifications or
guarantees against loss. A financial institution may also be ordered to restrict its
growth, dispose of certain assets, rescind agreements or contracts, or take other actions
as determined by the ordering agency to be appropriate.

Effect
of Governmental Monetary Policies Our earnings are affected by domestic
economic conditions and the monetary and fiscal policies of the United States government
and its agencies. The Federal Reserve Banks monetary policies have had, and are
likely to continue to have, an important impact on the operating results of commercial
banks through its power to implement national monetary policy in order, among other
things, to curb inflation or combat a recession. The monetary policies of the Federal
Reserve Board have major effects upon the levels of bank loans, investments and deposits
through its open market operations in United States government securities and through its
regulation of the discount rate on borrowings of member banks and the reserve requirements
against member bank deposits. It is not possible to predict the nature or impact of future
changes in monetary and fiscal policies.

Proposed
Legislation and Regulatory Action. New regulations and statutes are regularly proposed
that contain wide-ranging proposals for altering the structures, regulations, and
competitive relationships of the nations financial institutions. We cannot predict
whether or in what form any proposed regulation or statute will be adopted or the extent
to which our business may be affected by any new regulation or statute.

# Item 2. Description of
Property

The
principal place of business of both the company and the main office of the bank is located
at the corner of Oak Street and Sixteenth Avenue in Myrtle Beach, South Carolina. The
banks main office is located on 0.8-acre plot of land, which was purchased for
$218,000. We constructed a permanent banking facility of 5,000 square feet on the site at
a cost of approximately $1,000,000, which was paid out of the proceeds of our initial
public offering. Furniture, fixtures, and equipment for the main office cost approximately
$534,000. There is one automated teller machine located at the banks main office.

We
have a branch office located at the northwest corner of the intersection of S.C. Highway
544 and U.S. Highway 17 in Surfside Beach, which is just south of Myrtle Beach. We have a
20 year lease for the property on which the branch is located, which we may renew for two
five-year periods. The branch office opened in June of 2001 and was constructed at a cost
of approximately $850,000, which was paid out of the proceeds of our secondary offering.
Furniture, fixtures, and equipment for the branch office cost approximately $300,000.

We
have a second branch office located in the Gator Hole Shopping Center at 710 Highway 17
North, North Myrtle Beach, South Carolina. We have a 20 year lease for the property, which
we may renew for four successive separate periods of five years. The branch opened in
November 2002 and was constructed at a cost of approximately $500,000. Furniture,
fixtures, and equipment for the branch office cost approximately $250,000.

Our
third branch office located in the Pineland Shopping Center at 430 William Hilton Parkway
Hilton Head Island, South Carolina was opened in February 2003. We have a ten year lease
with renewal options for two five year periods. We incurred leasehold improvements
totaling $150,000.

15

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Our
fourth branch office, which is located in the Willbrook Shopping Center at 115 Willbrook
Blvd., Suite A Pawleys Island, South Carolina, opened in July 2004. We have a five
year lease with renewal options for five additional five year periods. We incurred
leasehold improvements totaling approximately $15,000.

Our
fifth branch office is located in the Village at Wexford Shopping Center at 1000 William
Hilton Parkway, Hilton Head Island, South Carolina. We have a fifteen year lease with
renewal options for two five year periods. We incurred leasehold improvements totaling
approximately $150,000.

# Item 3.   Legal
Proceedings.

There
are no material legal proceedings.

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

No
matter was submitted to a vote of security holders during the fourth quarter of the fiscal
year covered by this report.

# Part II

# Item 5.   Market for
Common Equity and Related Stockholder Matters.

Our
common stock has been quoted on the OTC Bulletin Board under the symbol BFNB
since the third quarter of 2001. As of March 4, 2005, we had approximately 1,641
shareholders of record.

The
following table sets forth the high and low bid stock prices published by OTC Bulletin
Board for each quarter during the last two fiscal years. The quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may not
represent actual transactions. The company has paid or declared any cash or stock
dividends.

|               | 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 cash dividends on our common stock. We currently intend to retain
earnings to support operations and finance expansion and therefore do not anticipate
paying cash dividends in the foreseeable future. Our ability to pay cash dividends is
dependent upon receiving cash dividends from our bank. However, South Carolina and federal
banking regulations restrict the amount of cash dividends that can be paid to the company
from the bank. See Dividends in the section entitled Supervision and
Regulation. All of our outstanding shares of common stock are entitled to share
equally in dividends from funds legally available when, and if, declared by the board of
directors.

# Item 6.   Management's Discussion and Analysis of Financial Condition and Results of Operations

In
response to this Item, the information contained on pages 8 through 23 of the
Companys Annual Report to Shareholders for the year ended December 31, 2004 is
incorporated herein by reference.

# Item 7.   Financial
Statements

In
response to this Item, the information contained on pages 25 through 42 of the
companys Annual Report to Shareholders for the year ended December 31, 2004 is
incorporated herein by reference.

16

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# Item 8.   Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

# Item 8A.   Controls and
Procedures

As
of the end of the period covered by this report, we carried out an evaluation, under the
supervision and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures as defined in Exchange Act Rule 13a-15(e). Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that our current
disclosure controls and procedures are effective as of December 31, 2004. There have been
no significant changes in our internal controls over financial reporting during the fourth
fiscal quarter ended December 31, 2004 that have materially affected, or are reasonably
likely to materially affect, our internal controls over financial reporting.

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

# Item 8B.   Other
Information

None.

# Part IIIItem 9.    Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the
Exchange Act

In
response to this Item, the information contained on pages 13 through of the
companys Proxy Statement for the Annual Meeting of Shareholders to be held on
April 20, 2005 is incorporated herein by reference.

We
have adopted a Code of Ethics that applies to our board of directors, principal executive
officer, principal financial officer, senior financial officers, and other executive
officers in accordance with the Sarbanes-Oxley Corporate Responsibility Act of 2002. The
Code of Ethics is available without charge to shareholders upon request. Shareholders
should contact our chief financial officer, Richard N. Burch, at our main office to obtain
a copy.

# Item 10.   Executive
Compensation

In
response to this Item, the information contained on pages 6 through 8 of the
companys Proxy Statement for the Annual Meeting of Shareholders to be held on April
20, 2005 is incorporated herein by reference.

# Item 11.   Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

In
response to this Item, the information contained on pages 6 through 9 of the
companys Proxy Statement for the Annual Meeting of Shareholders to be held on April
20, 2005 is incorporated herein by reference.

# Item 12.   Certain
Relationships and Related Transactions

In
response to this Item, the information contained on page 15 of the companys
Proxy Statement for the Annual Meeting of Shareholders to be held on April 20, 2005 is
incorporated herein by reference.

17

---

# Item 13.   Exhibits

| | 3.1 | Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company's Registration
         Statement No. 33-95562 on Form S-1).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------

| | 3.2. | Bylaws (incorporated by reference to Exhibit 3.2 to the Companys
          Registration Statement No. 33-95562 on Form S-1).
| | ---- | -----------------------------------------------------------------------------------------------------------------------------

| | 4.1. | Provisions in the Companys Articles of Incorporation and Bylaws defining
          the rights of holders of the Companys Common Stock (incorporated by
          reference to Exhibit 4.1 to the Companys Registration Statement No.
          33-95562 on Form S-1).
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.2. | Form of Certificate of Common Stock (incorporated by reference to Exhibit 4.2 to
          the Companys Registration Statement No. 33-95562 on Form S-1).
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.1 | Employment Agreement of Walter E. Standish, III with the Company dated March 4, 2000
(incorporated by reference to Exhibit 10.9 of the Companys Form 10-KSB for the year
ended December 31, 2003).*
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.2 | Description of the Director Deferred Compensation Plan (incorporated to Exhibit 10.1 to
the Companys Form 10-QSB filed with the SEC on November 14, 2002).*
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.3 | Description of the Executive Deferred Compensation Plan (incorporated to Exhibit 10.2 to
the Companys Form 10-QSB filed with the SEC on November 14, 2002).*
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.4 | Description of the Split Dollar Life Insurance Plan (incorporated to Exhibit 10.3 to the
Companys Form 10-QSB filed with the SEC on November 14, 2002).*
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.5 | Employment Agreement of Walter E. Standish, III with the Company dated February 24, 2004
(incorporated to Exhibit 10.5 to the Companys Form 10-KSB filed with the SEC on
March 19, 2004).*
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.6 | Beach First National Bancshares, Inc. 1997 Stock Option Plan and Form of Option Agreement
(incorporated by reference to Exhibit 10.7 of the Companys Form 10-KSB for the
fiscal year ended December 31, 1996).*
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 13 | Annual Report to Shareholders for the year ended December 31, 2004.
| | -- | -------------------------------------------------------------------

| | 21.1 | Subsidiaries of the
Company
| | ---- | ---------------------------

| | 23 | Consent of Certified
Public Accountants
| | -- | ---------------------------------------

| | 24 | Power of Attorney (contained on the signature page hereof).
| | -- | -----------------------------------------------------------

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

| | 31.2 | 3Rule 13a-14(a) Certification of the Chief Financial Officer.
| | ---- | -------------------------------------------------------------

| | 32 | Section 1350
Certifications.
| | -- | ----------------------------

---

| | * | Management contract of compensatory plan or arrangement required to be filed as an Exhibit
to this Annual Report on Form 10-KSB.
| | - | --------------------------------------------------------------------------------------------------------------------------------

# Item 14.   Principal
Accountant Fees and Services

The
information required by Item 14 is incorporated by reference from our proxy statement for
the 2005 annual meeting of shareholders under the heading Audit Fees on
page .

18

---

# SIGNATURES

In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
Exchange Act), the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

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

|Date:  March 19, 2005 |  | By:  /s/ Walter E. Standish, III
        Walter E. Standish, III        
President and Chief Executive Officer
|--------------------- |  | --------------------------------------------------------------------------------------------------------------

KNOW
ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Walter E. Standish, III, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all amendments to this Annual Report on Form
10-KSB, and to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto attorney-in-fact and
agent full power and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.

In
accordance with the Exchange Act, this report has been signed below by the following
persons on behalf of the registrant in the capacities and on the dates indicated.

|Signature | Title | Date
|--------- | ----- | ----

| |  | 
| |  | 

|/s/ Michael Bert Anderson
Michael Bert Anderson | Director | March 19, 2005
|----------------------------------------------- | -------- | --------------

|/s/ Orvis Bartlett Buie
Orvis Bartlett Buie | Director | March 19, 2005
|------------------------------------------- | -------- | --------------

|/s/ Raymond E. Cleary, III
Raymond E. Cleary, III | Chairman and Director | March 19, 2005
|------------------------------------------------- | --------------------- | --------------

|/s/ E.Thomas Fulmer
E.Thomas Fulmer | Director | March 19, 2005
|----------------------------------- | -------- | --------------

|/s/ Michael D. Harrington
Michael D. Harrington | Director | March 19, 2005
|----------------------------------------------- | -------- | --------------

|/s/ Joe N. Jarrett, Jr.
Joe N. Jarrett, Jr. | Director | March 19, 2005
|------------------------------------------- | -------- | --------------

|/s/ Richard E. Lester
Richard E. Lester | Director | March 19, 2005
|--------------------------------------- | -------- | --------------

|/s/ Leigh Ammons Meese
Leigh Ammons Meese | Director | March 19, 2005
|----------------------------------------- | -------- | --------------

19

---

|/s/ Rick H. Seagroves
Rick H. Seagroves | Director | March 19, 2005
|--------------------------------------- | -------- | --------------

|/s/ Don J. Smith
Don J. Smith | Director | March 19, 2005
|----------------------------- | -------- | --------------

|/s/ Samuel Robert Spann
Samuel Robert Spann | Director | March 19, 2005
|------------------------------------------- | -------- | --------------

|/s/ B. Larkin Spivey, Jr.
B. Larkin Spivey, Jr. | Director | March 19, 2005
|----------------------------------------------- | -------- | --------------

|/s/ Walter E. Standish, III
Walter E. Standish, III | President, CEO andDirector | March 19, 2005
|--------------------------------------------------- | -------------------------- | --------------

|/s/ James C. Yahnis
James C. Yahnis | Director | March 19, 2005
|----------------------------------- | -------- | --------------

|/s/ Richard N. Burch
Richard N. Burch | Chief Financial Officer andPrincipal
Accounting Officer | March 19, 2005
|------------------------------------- | ------------------------------------------------------- | --------------

20

---

# Exhibit List:

| | 3.1 | Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company's Registration
         Statement No. 33-95562 on Form S-1).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------

| | 3.2. | Bylaws (incorporated by reference to Exhibit 3.2 to the Companys
          Registration Statement No. 33-95562 on Form S-1).
| | ---- | -----------------------------------------------------------------------------------------------------------------------------

| | 4.1. | Provisions in the Companys Articles of Incorporation and Bylaws defining
          the rights of holders of the Companys Common Stock (incorporated by
          reference to Exhibit 4.1 to the Companys Registration Statement No.
          33-95562 on Form S-1).
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.2. | Form of Certificate of Common Stock (incorporated by reference to Exhibit 4.2 to
          the Companys Registration Statement No. 33-95562 on Form S-1).
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.1 | Employment Agreement of Walter E. Standish, III with the Company dated March 4, 2000
(incorporated by reference to Exhibit 10.9 of the Companys Form 10-KSB for the year
ended December 31, 2003).*
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.2 | Description of the Director Deferred Compensation Plan (incorporated to Exhibit 10.1 to
the Companys Form 10-QSB filed with the SEC on November 14, 2002).*
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.3 | Description of the Executive Deferred Compensation Plan (incorporated to Exhibit 10.2 to
the Companys Form 10-QSB filed with the SEC on November 14, 2002).*
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.4 | Description of the Split Dollar Life Insurance Plan (incorporated to Exhibit 10.3 to the
Companys Form 10-QSB filed with the SEC on November 14, 2002).*
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.5 | Employment Agreement of Walter E. Standish, III with the Company dated February 24, 2004
(incorporated to Exhibit 10.5 to the Companys Form 10-KSB filed with the SEC on
March 19, 2004).*
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.6 | Beach First National Bancshares, Inc. 1997 Stock Option Plan and Form of Option Agreement
(incorporated by reference to Exhibit 10.7 of the Companys Form 10-KSB for the
fiscal year ended December 31, 1996).*
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 13 | Annual Report to Shareholders for the year ended December 31, 2004.
| | -- | -------------------------------------------------------------------

| | 21.1 | Subsidiaries of the
Company
| | ---- | ---------------------------

| | 23 | Consent of Certified
Public Accountants
| | -- | ---------------------------------------

| | 24 | Power of Attorney (contained on the signature page hereof).
| | -- | -----------------------------------------------------------

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

| | 31.2 | 3Rule 13a-14(a) Certification of the Chief Financial Officer.
| | ---- | -------------------------------------------------------------

| | 32 | Section 1350
Certifications.
| | -- | ----------------------------