SECURITIES 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, 2001 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.
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                 (Name of Small Business Issuer in Its Charter)

                South Carolina                              58-1030117
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         (State or Other Jurisdiction                    (I.R.S. Employer
       of Incorporation or Organization)                Identification No.)

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

                                 (843) 626-2265
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                 Issuer'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 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), computed by reference to the closing price of
our common stock as reported on the OTC Electronic Bulletin Board on February
18, 2002, was approximately $11,136,753. There is not an active trading market
for the common stock and it is not possible to identify precisely the market
value of the common stock.

         The number of shares outstanding of the Registrant's common stock,
$1.00 par value was 1,318,368 at March 1, 2002.

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

                       DOCUMENTS INCORPORATED BY REFERENCE

Incorporated Document                                    Location in Form 10 KSB
Portions of Proxy Statement dated March 1, 2002
for the Annual Meeting of Shareholders to be held
on April 17, 2002                                               Part III

================================================================================


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Part 1
Item 1.  Business

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. We primarily serve Myrtle Beach, South
Carolina and the surrounding area.

Marketing Focus

         Most of the banks in the Grand Strand 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 area 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 businesses.

Operating and Growth Strategy

         Our goals are to be the leading community bank in Myrtle Beach and,
ultimately, on the Grand Strand. We intend to achieve these goals by locating
new branches in growing communities in our market area, 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.

       o   Internal Growth and Branch Expansion. We have grown since opening
           in 1996 and we have grown more rapidly since Mr. Standish became our
           bank's chief executive officer in March 2000. In June 2001, we opened
           our first branch office. This branch is 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 also
           intend to establish a residential mortgage lending business. Our
           target market includes individuals, including retirees and other new
           residents, small businesses, and current customers of regional,
           super-regional, and large national bank holding companies.

       o   Personalized Service. We continue to focus on acquiring market
           share by emphasizing our local management and decision-making and
           personal services. We strive to provide high service levels and
           maintain strong customer relationships. We seek customers who prefer
           to conduct business with a locally owned and managed institution that
           demonstrates an active interest in their business and personal
           financial affairs.

       o   Community Focus. We approach banking with a community focus. We
           have located our existing office, and plan to locate our branch
           offices, in visible locations located near rapidly growing
           residential or commercial areas in and around Myrtle Beach. In
           locating our new branches, we will consider such factors as traffic
           flow, proximity to business locations, proximity to growing
           residential areas, and other factors that we believe would favor
           deposit growth.

       o   Motivated Employees. We believe that the key to our success lies
           with our employees, because it is through the employees that we are
           able to provide Grand Strand banking customers with the high level of
           service and attention that they expect and deserve. To this end, we
           hire high caliber banking professionals who are committed to
           providing a superior level of banking service. By selecting only
           qualified and committed employees, we believe we can provide an
           unsurpassed level of customer service and satisfaction. Each employee
           focuses on the individual needs of our customers and strives to
           deliver the specific products and services that will best help these
           customers achieve their financial goals.

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       o   High Asset Quality. We place a great deal of emphasis on
           maintaining high asset quality and believe that the outstanding asset
           quality experienced to date is principally due to the closeness of
           our senior management, lending officers, and directors to our
           customers and their significant knowledge of the communities in which
           they reside. Our ratio of net charge-offs to average loans for the
           years ended December 31, 2001, 2000, 1999, 1998, 1997 and 1996 have
           been .33%, .23%, .03%, 1.14%, 0%, and 0%, respectively. We intend to
           continue to emphasize high asset quality.

       o   Broad Range of Products and Services. We strive to provide our
           customers with a variety of competitive products and services while
           maintaining the timely response and personal service of a locally
           owned and managed bank. In addition to offering a full range of
           deposit services and commercial and personal loans, we offer products
           such as mortgage loan originations, accounts receivable financing,
           and small equipment leasing through third party providers. Other bank
           services which are in place or planned include cash management
           services, safe deposit boxes, direct deposit of payroll and social
           security checks, and automatic drafts for various accounts. We are
           associated with a shared network of automated teller machines that
           may be used by our customers throughout South Carolina and around the
           world. We also offer VISA Check Card services and MasterCard and VISA
           credit card services through a correspondent bank, which acts as our
           agent. In the future, we intend to offer annuities, mutual funds,
           Internet banking, and other financial services. We have a Web site
           and we are exploring opportunities to provide internet banking
           services, which we plan to do in response to any customer demand.

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. The transaction accounts and time certificates are
offered at rates competitive to those offered in the Myrtle Beach area. 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 businesses that
are located, or conduct a substantial portion of their business, in Myrtle Beach
and the Grand Strand.

         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"
on page 17 and "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Balance Sheet Review -- Loans" on page 19.

         Real Estate Loans. The primary component of our loan portfolio is real
estate mortgage loans, which make up approximately 62% 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 22%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 10% 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


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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 6% of our loan
portfolio, or approximately $4 million dollars, 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 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 can help 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



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request is considered by an officer with a higher lending limit. Any loan in
excess of this lending limit is approved by the directors' loan committee. We do
not make any loans to any of our directors or executive officers unless the loan
is reviewed by the board of directors of the bank and is made on terms not more
favorable to such person 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 market is a highly competitive market in which all of
the largest banks in the state are represented as well as super regional banks.
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, the Company competes 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, the Company does not generally attempt to compete for the banking
relationships of large corporations, but concentrates its efforts on small- to
medium-sized businesses and individuals. The Company believes it has competed
effectively in this market by offering quality and personal service.

Employees

         At December 31, 2001, the Company employed a total of 30 full-time
equivalent employees. The company believes that the relations with its employees
are good.

Supervision and Regulation

         We are subject to extensive state and federal banking laws and
regulations which 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. Our operations may be
affected by legislative changes and the policies of various regulatory
authorities. We 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.

Recent Legislation

         The Gramm-Leach-Bliley Act, previously known as the Financial Services
Modernization Act of 1999, was signed into law on November 12, 1999. Among other
things, the Act repeals 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 underwriting and agency activities, merchant banking, and insurance
company portfolio investment activities. The Act also authorizes activities that
are "complementary" to financial activities.

         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


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full effect that the Act will have on us. From time to time other changes are
proposed to laws affecting the banking industry, and these changes could have a
material effect on our business and prospects.

         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.

Beach First National Bancshares, Inc.

         Because our holding company, Beach First National Bancshares, Inc.,
owns the outstanding capital stock of our bank, our holding company is 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
(BHCA), our holding company is subject to periodic examination by the Federal
Reserve and required to file periodic reports of its operations and any
additional information that the Federal Reserve may require. Our activities at
the holding company level 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.

         Investments, Control, and Activities. With certain limited exceptions,
the BHCA 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 BHCA and the Change
in Bank Control Act 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 challenge of the rebuttable control
presumption.

         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 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

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

         The Federal Reserve Board imposes certain capital requirements on our
holding 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 "Capital Regulations." Subject to capital
requirements and certain other restrictions, our holding company is able to
borrow money to make a capital contribution to our bank, and these loans may be
repaid from dividends paid from our bank to our company. Our ability to pay
dividends is subject to regulatory restrictions as described below in "Beach
First National Bank - Dividends." Our holding company is also able to raise
capital for contribution to our 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, our holding company is expected to act as a source of financial
strength to our bank and to commit resources to support our bank in
circumstances in which our holding company 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 subsidiary depository institution of the
bank's holding company. Further, federal bank regulatory authorities have
additional discretion to require a bank holding company to divest itself of any
bank or nonbank subsidiary if the agency determines that divestiture may aid the
depository institution's financial condition.

         The Company is subject to the obligations and restrictions described
above. However, management currently does not expect that any of these
provisions will have any material impact on our operations.

         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. Prior to acquiring the capital stock of a
national bank, we are not required to obtain the approval of the Board, 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. Our bank, Beach First National 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 FDIC up to a maximum amount,
which is generally $100,000 per depositor subject to aggregation rules.

         The Office of the Comptroller of the Currency and the FDIC regulate or
monitor virtually all areas of our 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

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

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

         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 their 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 institution's 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.

         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. Our 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 our 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.


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         Our bank is also 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. Our 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.

         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 will be 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. Under the Gramm-Leach-Bliley Act, banks with
aggregate assets of not more than $250 million will be subject to a Community
Reinvestment Act examination only once every 60 months if the bank receives an
outstanding rating, once every 48 months if it receives a satisfactory rating,
and as needed if the rating is less than satisfactory. Additionally, under the
Gramm-Leach-Bliley Act, banks are required to publicly disclose the terms of
various Community Reinvestment Act-related agreements.

         All institutions receive one of four ratings based on their
performance: Outstanding, Satisfactory, Needs Improvement or Substantial
Noncompliance. An institution that receives a rating of Substantial
Noncompliance would be subject to enforcement action. Beach First National Bank
is strongly committed to providing credit needs to individuals in the
communities that we serve. Beach First National Bank received a "satisfactory"
rating in the most recent evaluation.

         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 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;



                                       9
<PAGE>

         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 our holding company or our 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.

         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 have also 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."


                                       10
<PAGE>


         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 activity of the institution decreases, 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. 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.

         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 20 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, indemnification 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.


                                       11
<PAGE>


Item 2.    Description of Property

         The principal place of business of both the company and the bank 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 a 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.

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.

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

         Our Company's articles of incorporation authorize us to issue up to
10,000,000 shares of common stock. We issued 735,868 shares in our initial
public offering in 1996, and an additional 581,000 shares in our second public
offering that became effective on July 18, 2001. As of August 13, 2001, we had
1,318,368 shares of common stock outstanding. All of our outstanding shares of
common stock are entitled to share equally in dividends from funds legally
available therefor, when, as and if declared by the Board of Directors. We do
not plan to declare any dividends in the immediate future.

         On July 24, 2001, we issued 520,000 shares of common stock in
connection with our underwritten public offering registered with the SEC on Form
S-2. We received $5.56 million in gross proceeds in connection with the
issuance. On August 13, 2001, we issued an additional 61,000 shares of common
stock for gross proceeds of $652,000 in connection with the exercise of the
overallotment option for this offering. Our net proceeds after offering expenses
and underwriter's discount were approximately $5.9 million. We have applied
approximately $1.2 million of these proceeds to the construction and furnishing
our Surfside beach branch.

         The following table sets forth the high and low sales price information
as quoted on the OTC Bulletin Board during the periods indicated since July 18,
2001, when our common stock began trading on the OTC Bulletin Board under the
symbol "BFNB".

                                                    Stock Price
                                                    -----------
                                                High             Low
2001
Third Quarter                          $       12.00             $11.00
Fourth Quarter                         $       11.50             $10.00



                                       12
<PAGE>



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

         The following discussion and analysis are presented to assist in
understanding the financial condition and results of operations of Beach First
National Bancshares, Inc. and its subsidiaries (the Company). This discussion
should be read in conjunction with the audited consolidated financial statements
and accompanying notes presented in Item 7 of this report and the supplemental
financial data appearing throughout this report.

Overview

         We commenced operations on September 23, 1996 and completed our fifth
full year of operations on December 31, 2001. 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
second full year as president at December 31, 2001. Under Mr. Standish's
leadership, we are continuing to grow in our service markets. Our total assets
have increased to $80.8 million at December 31, 2001, a 27% increase since
December 31, 2000, and our net income was $459,294 for the year ended December
31, 2001, an increase of $230,723, or 99.1%, over the same period in 2000. We
accomplished our first quarterly profit in the second quarter of 1999, and in
2001 our performance is represented by the first cumulative year of
profitability.

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

                                                             Years Ended December 31,
                                     -------------------------------------------------------------------------
                                            2001              2000              1999              1998
                                            ----              ----              ----              ----
<S>                              <C>                 <C>               <C>              <C>
    Total Revenues (1)........       $   3,405,568       $   2,477,321         $1,837,082       $ 1,284,571
    Net Income (loss).........             459,294             230,723             52,921          (233,183)
    Total Assets..............          80,784,815          63,770,016         46,155,395        37,944,622
    Total Loans...............          63,203,643          45,622,155         32,537,992        21,095,556
    Total Deposits............          67,132,968          56,726,511         36,836,020        31,135,042
    Retained Earnings (Deficit)              2,119            (457,175)          (687,898)         (740,819)
</TABLE>

(1)      Total revenues equal net interest income plus total noninterest income.

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 the Company's financial statements. Our significant
accounting policies are described in the footnotes to the consolidated financial
statements.

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

         We believe the allowance for loan losses is 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.

         The following discussion contains our analysis of our financial
condition and results of operations beginning with the year ended December 31,
1999. Comparisons of our results for the periods presented should be made with
an understanding of our short history.


                                       13
<PAGE>


Analysis of the Fiscal Years Ended December 31, 1999 and 2000 and 2001

Earnings Review

         Overview. For the year ended December 31, 2001, our net income was
$459,294, or $.46 per basic common share, as compared to $230,723, or $.31 per
basic common share, for the year ended December 31, 2000, and $52,921 or $0.07
per basic common share for the year ended December 31, 1999. Our net income
increased in 2001 and 2000 primarily due to increases in net interest income and
noninterest income that resulted from the significant growth in our assets and
deposits over this period.

         We had total assets of $80.8 million at December 31, 2001, an increase
of 26.7% from $63.8 million at December 31, 2000. Our total deposits increased
to $67.1 million at December 31, 2001, up 18.3% from $56.7 million at December
31, 2000. Our return on average assets for 2001 was 0.62% compared to 0.41% in
2000 and 0.13% in 1999; and our return on average equity was 3.97% in 2001
versus 3.45% in 2000 and .83% in 1999. The improvement in net income in 2001
reflects our growth, with average earning assets increasing 32.1% to $69.6
million during 2001 from $52.9 million during the same period of 2000.

Net Interest Income

         General. Our primary source of revenue is net interest income, which is
the difference between the income on interest-earning assets and expense on
interest-bearing liabilities. Our net interest income increased $851,997, or
39.0%, to $3.0 million in 2001 from $2.2 million in 2000. Net interest income
increased $501,688 in 2000 from $1.7 million in 1999. 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. Average earning assets increased to
$69.6 million during 2001, a 32.0% increase from $52.7 million in 2000, and a
40.3% increase from $37.6 million in 1999.

         Net interest spread, the difference between the rate we earn on
interest-earning assets and the rate we pay on interest-bearing liabilities, was
3.04% for the year ended December 31, 2001, compared to 2.98% for the year ended
December 31, 2000 and 3.25% for the year ended December 31, 1999. Our net
interest margin, which is net interest income divided by average
interest-earning assets, was 4.36% for the year ended December 31, 2001, 4.15%
for the year ended December 31, 2000, and 4.47% for the year ended December 31,
1999. The increase in 2001 resulted primarily from the declining interest rate
environment that occurred during 2001. The decrease in 2000 from 1999 resulted
primarily from an increase in the rate we paid to attract interest-bearing
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.


                                       14
<PAGE>
<TABLE>
<CAPTION>

                                         Average Balances, Income and Expenses, and Rates

                            For the year ended                     For the year ended                     For the year ended
                             December 31, 2001                     December 31, 2000                      December 31, 1999
                         ------------------------------      --------------------------------     ----------------------------------

                          Average      Income/    Yield/      Average       Income/    Yield/      Average        Income/     Yield/
                          Balance      Expense     Rate       Balance       Expense     Rate       Balance        Expense      Rate
                          -------      -------     ----       -------       -------     ----       -------        -------      ----


<S>                <C>            <C>          <C>      <C>            <C>           <C>     <C>           <C>            <C>
Federal funds sold
and short term
investments.......... $   6,538,716  $   242,601   3.71%   $  4,963,476   $   334,086   6.73%   $    801,068  $      43,459  5.43%

Investment securities     7,008,278      457,966   6.53%      8,738,925       586,035   6.71%      9,749,303        628,112  6.44%
Loans................    56,097,384    5,040,259   8.98%     39,031,826     3,713,902   9.52%     27,040,512      2,469,213  9.13%
                         ----------    ---------             ----------     ---------   ----      ----------      ---------  ----
  Total earning       $
  assets.............    69,644,378  $ 5,740,826   8.24%   $ 52,734,227   $ 4,634,023   8.79%   $ 37,590,883  $   3,140,784  8.36%
                         ==========    =========   ====      ==========     =========   ====      ==========      =========  ====

Interest-bearing
deposits
    IBCA............. $   2,960,275  $    58,315   1.97%   $  1,573,091   $    37,008   2.35%      1,135,096         21,980  1.94%
    M.M.A............     9,930,303      443,670   4.47%      6,353,302       347,246   5.47%      3,734,063        162,990  4.36%
    Savings..........     3,127,306       95,716   3.06%      3,841,637       183,514   4.78%      4,638,585        193,992  4.18%
    CD's <$100,000...    20,837,943    1,236,172   5.93%     16,953,510     1,052,712   6.21%     10,940,699        617,442  5.64%
    CD's >$100,000...    11,602,589      645,489   5.56%      9,594,329       593,197   6.18%      4,749,532        266,550  5.61%
    IRA..............     3,338,666      212,488   6.36%      2,962,456       183,101   6.18%      2,766,959        164,737  5.95%
                          ---------                ----       ---------       -------   ----       ---------        -------  ----
       Total interest-
       bearing
       deposits...... $  51,797,082  $ 2,691,850   5.20%   $ 41,278,325   $ 2,396,778   5.81%   $ 27,964,934  $   1,427,691  5.11%
                         ==========    =========   ====      ==========     =========   ====      ==========      =========  ====

Other borrowings.....       217,926       13,140   6.03%        893,142        53,406   5.98%        594,934         30,942  5.20%
                                          ------   -----        -------        ------   ----         -------         ------  ----
    Total interest-
    bearing
    liabilities.....  $  52,015,008  $ 2,704,990   5.20%   $ 42,171,467   $ 2,450,184   5.81%   $ 28,559,868  $   1,458,633  5.11%
                         ==========    =========   ====      ==========     =========   ====      ==========      =========  ====

Net interest spread..                              3.04%                                2.98%                                3.25%
Net interest
income/margin........                $ 3,035,836   4.36%                  $ 2,183,839   4.15%                 $   1,682,151  4.47%
                                       =========   ====                     =========   ====                      =========  ====

</TABLE>

                                       15
<PAGE>

         Analysis of Changes in Net Interest Income. The following tables set
forth the effect which 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.
<TABLE>
<CAPTION>


                                                    Analysis of Changes in Net Interest Income

                                   For the year ended December 31,             For the year ended December 31,
                                           2001 versus 2000                           2000 versus 1999
                              ------------------------------------------- ------------------------------------------
                                  Volume        Rate        Net change        Volume         Rate      Net change
                                  ------        -----       ----------        ------         ----      ----------

<S>                           <C>            <C>          <C>             <C>             <C>         <C>
Federal funds sold and
short term investments......  $     58,445   $ (149,930)  $    (91,485)   $    278,946    $    11,681  $   290,627

Investment securities.......      (113,092)     (14,977)      (128,069)        (71,212)        29,135      (42,077)
Loans.......................     1,533,313     (206,956)     1,326,357       1,140,981        103,708    1,244,689
                               -----------     --------     ----------     -----------      ---------   ----------
     Total earning assets...     1,478,666     (371,863)     1,106,803       1,348,715        144,524    1,493,239

Interest-bearing deposits...       546,651     (251,579)       295,072         773,027        196,060      969,087
Other borrowings............       (40,713)         447        (40,266)         17,832          4,632       22,464
                               -----------     --------     ----------     -----------      ---------   ----------
     Total interest-bearing
            liabilities.....       505,938     (251,132)       254,806         790,859        200,692      991,551
                               -----------     --------     ----------     -----------      ---------   ----------

Net interest income.........  $    972,728   $ (120,731)  $    851,997    $    557,856    $   (56,168) $   501,688
                               ===========     ========     ==========     ===========      =========   ==========
</TABLE>

         Interest Rate Sensitivity. A significant portion of our assets and
liabilities are monetary in nature, and consequently they are very sensitive to
changes in interest rates. This interest rate risk is our primary market risk
exposure, and it can have a significant effect on our net interest income and
cash flows. We review our exposure to market risk on a regular basis, and we
manage the pricing and maturity of our assets and liabilities to diminish the
potential adverse impact that changes in interest rates could have on our net
interest income.

         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 as of
December 31, 2000 and December 31, 2001. 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.


                                       16
<PAGE>
         The following tables summarize the amounts of interest-earning assets
and interest-bearing liabilities outstanding at December 31, 2001 and 2000 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.
<TABLE>
<CAPTION>
                                             Interest Sensitivity Analysis
                                             -----------------------------
                                                   December 31, 2001

                                 Within Three     After three but       After one but
                                   Months       Within twelve Months  Within five years  After five years  Total
                                 ------------- ---------------------  -----------------  ---------------- ------
 <S>                                  <C>               <C>                <C>             <C>           <C>
Assets
Earning assets:
   Federal funds sold and short
   term investments............      $  5,679,291      $        --        $        --     $       --   $ 5,679,291
   Investment securities.......           733,624          194,838          1,041,620      3,711,898     5,681,980
   Loans.......................        16,832,994        7,258,001          35,632,847     3,479,801    63,203,643
                                       ----------        ---------          ----------    ----------    ----------
        Total earning assets...      $ 23,245,909      $ 7,452,839        $ 36,674,467    $7,191,699   $74,564,914
                                       ==========        =========          ==========    ==========    ==========
Liabilities
Interest-bearing liabilities
   Money market and interest
   checking                          $ 17,873,801      $        --        $         --    $       --   $17,873,801
   Regular savings deposits...            695,138               --                  --            --       695,138
   Prime savings deposits.....          2,129,313               --                  --            --     2,129,313
   Time deposits
            < $100,000........          5,764,109        9,636,801           5,060,099       245,956    20,706,965
            > $100,000........          3,308,314        7,854,207           2,220,602       375,694    13,758,817
   Other borrowings...........                 --               --                  --            --            --
                                       ----------        ---------          ----------    ----------    ----------
   Total interest-bearing
   liabilities................       $ 29,770,675     $ 17,491,008        $  7,280,701    $  621,646   $55,164,034
                                       ==========       ==========          ==========     =========    ==========

Period gap....................       $ (6,524,766)    $(10,038,169)       $ 29,393,766   $ 6,570,049   $19,400,880
Cumulative gap................       $ (6,524,766)    $(16,562,935)       $ 12,830,831   $19,400,880   $19,400,880
Ratio of cumulative gap to total
earning assets...............               (8.75)%         (22.21)%             17.21%        26.02%
</TABLE>
<TABLE>
<CAPTION>
                                                   December 31, 2000
                                                   -----------------

                                Within Three   After three but       After one but
                                   Months      Within twelve Months  Within five years  After five years    Total
                                   ------      --------------------- -----------------  -----------------   -----
<S>                                  <C>               <C>                <C>             <C>          <C>
Assets
Earning assets:
   Federal funds sold and short
   term investments...........       $  6,721,000     $    198,000        $         --    $       --  $  6,919,000
   Investment securities......                 --        1,894,642                  --     6,291,391     8,186,033
   Loans......................         11,675,149        2,217,518          29,260,680     2,468,808    45,622,155
                                       ----------        ---------          ----------    ----------    ----------
        Total earning assets..       $ 18,396,149     $  4,310,160        $ 29,260,680    $8,760,199   $60,727,188
                                       ==========        =========          ==========     =========    ==========
Liabilities
Interest-bearing liabilities
   Money market and interest
   checking...................       $ 14,235,469     $         --        $         --    $        --   $14,235,469
   Regular savings deposits...            362,147               --                  --             --       362,147
   Prime savings deposits.....          2,769,831               --                  --             --     2,769,831
   Time deposits
            < $100,000........          3,797,628       10,854,194           6,237,378        292,654    21,181,854
            > $100,000........          6,017,908        4,718,983           1,806,855        108,212    12,651,958
   Other borrowings...........                 --               --                  --             --            --
                                       ----------       ----------         -----------     ----------    ----------
   Total interest-bearing
   liabilities................       $ 27,182,983     $ 15,573,177        $  8,044,233    $   400,866   $51,201,259
                                       ==========       ==========          ==========     ==========    ==========
Period gap....................       $ (8,786,834)    $(11,263,017)       $ 21,216,447    $ 8,359,333   $ 9,525,929
Cumulative gap................       $ (8,786,834)    $(20,049,851)       $  1,166,596    $ 9,525,929   $ 9,525,929
Ratio of cumulative gap to
total earning assets..........             (14.47)%         (33.00)%              1.92%         15.69%
</TABLE>
                                       17
<PAGE>


Provision and Allowance for Loan Losses

         General. We have established an allowance for loan losses through a
provision for loan losses charged to expense. The allowance represents an amount
which we believe will be adequate to absorb probable losses on existing loans
that may become uncollectible. Our judgment in determining the adequacy of the
allowance is based on evaluations of the collectibility of loans, including
consideration of factors such as the balance of impaired loans, the quality,
mix, and size of our overall loan portfolio, economic conditions that may affect
the borrower's ability to pay, the amount and quality of collateral securing the
loans, our historical loan loss experience, and a review of specific problem
loans. We adjust the amount of the allowance periodically based on changing
circumstances. We charge recognized losses to the allowance for loan losses, and
we add any subsequent recoveries back to the allowance. We consider a loan to be
impaired when it is probable that we will be unable to collect all principal and
interest payments due in accordance with the terms of the loan agreement. We
measure individually identified impaired loans based on the present value of
expected payments, using the contractual loan rate as the discount rate.
Alternatively, we may base measurement on observable market prices, or, for
loans that are solely dependent on the collateral for repayment, the fair value
of the collateral. If the recorded investment in the impaired loan exceeds the
measure of fair value, we establish a valuation allowance as a component of the
allowance for loan losses. We record changes to the valuation allowance as a
component of the provision for loan losses.

         Our policy has been to review the Allowance for Loan and Losses ("ALL")
using a reserve factor for each type of loan since there have been few
delinquencies and little charge-off activity since we commenced operations. The
objective of this review is to apply percentages to the nonclassified loans
based on the relative inherent risk for that loan type. Classified loans are
reviewed individually for specific allowance requirements.

         Reserve factors for nonclassified loan types (e.g., commercial loans,
consumer loans) are based on peer group data, information from regulatory
agencies, and on the experience of our lenders. The reserve factors will change
depending on trends in national and local economic conditions, the depth of
experience of our lenders, delinquency trends for our bank and for peer
institutions, and other factors.

         Our general strategy is to maintain a minimum coverage of a certain
percentage of total loans until we have sufficient historical data and trends
available for migration analysis (five historical years of charge off data).
Migration analysis is a more statistically sound method of analyzing the
allowance based on prior periods of loss within market area and product types.
Our current minimum ALL percentage is 1.30% of total loans.

         In addition, regulatory agencies, as an integral part of their
examination process, periodically review our allowance for loan losses, and they
may require us to record additions to the allowance based on their review of
information available to them at the time of their examinations.

         At December 31, 2001, our allowance for possible loan losses was
$851,222, or 1.35% of total outstanding loans, compared to an allowance for
possible loans losses of $569,245, or 1.25% of outstanding loans at December 31,
2000, and $408,878, or 1.26% at December 31, 1999. Our provision for loan losses
was $467,000 in 2001 compared to $251,107 in 2000 and $154,168 in 1999.
Management believes that the allowance for loan losses is adequate at this time
to cover any potential losses in the portfolio.

         In 2001, 2000, and 1999 we charged-off $189,572, $91,000 and $8,505,
respectively. The 2001 charge-offs included approximately $112,000 in commercial
real estate loans, $14,000 in commercial loans, $15,600 in consumer real estate
loans and $42,700 in consumer loans. The 2000 charge-offs included $77,000 of
commercial real estate loans and $14,000 of consumer real estate loans.

         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, 2001,



                                       18
<PAGE>

there were no loans accruing interest for loans which were 90 days or more past
due, and we did not have any restructured loans.

         We had two nonaccruing loans totaling $107,377 at December 31, 2001.
One loan in the amount of $88,000 is real estate secured, currently in
foreclosure and the other loan in the amount of $20,000 is a consumer loan. We
had two nonaccruing loans totaling $104,815 at December 31, 2000. These loans
were both SBA guaranteed and both guaranteed portions have been received. We had
no nonaccruing loans at December 31, 1999. Interest income that would have been
received for the year ended December 31, 2001 had nonaccruing loans been current
in accordance with their original terms amounted to $4,229.

         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, 2001, 2000 and 1999, we did not have
any loans we considered to be potential problem loans. At December 31, 2001, we
had one loan totaling $87,377 that we have classified substandard and have made
a specific allocation in the allowance for loan and lease losses. Management
does not anticipate any losses as a result of this classification.

         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, 2001, 2000 and 1999.
<TABLE>
<CAPTION>
                                          Allowance for Loan Losses
                                             (Dollars in Thousands)
                                                                        December 31,
                                              -----------------------------------------------------------------
                                                              2001                 2000                1999

<S>                                                     <C>                   <C>                  <C>
  Average loans outstanding....................         $   56,097            $   39,032           $  27,041
                                                            ======                ======
  Loans outstanding at period end..............         $   63,204            $   45,622           $  32,538
                                                            ======                ======             =======
  Total nonperforming loans....................                107                   105                   0
                                                            ======                ======             =======

  Beginning balance of allowance...............                569                   409                 263
  Loans charged off:...........................                190                    91                   8
        Real Estate............................         $      112            $       --           $      --
        Commercial.............................                 46                    77                   7
        Consumer...............................                 32                    14                   1
                                                           -------               -------            --------
  Total loans charged off:.....................                190                    91                   8
  Recoveries:
        Real Estate............................         $        5            $       --            $     --
        Commercial.............................                 --                    --                  --
        Consumer...............................                 --                    --                  --
                                                           -------               -------            --------
        Total recoveries:......................                  5                    --                  --
                                                           -------               -------            --------
  Net loans charged off........................                185                    91                   8

  Provision for loan losses....................                467                   251                 154
                                                           -------               -------            --------
  Balance at period end........................         $      851            $      569            $    409
                                                           =======               =======            ========

  Net charge-offs to average loans.............               0.33%                 0.23%               0.03%
  Allowance as a percent of total loans........               1.35%                 1.25%               1.26%
  Nonperforming loans as a
    percentage of total loans..................               0.17%                 0.23%                 --
  Nonperforming loans as a
  percentage of allowance......................              12.61%                18.41%                 --
  Ratio of net charge-offs to average gross
     loans outstanding during the period.......               0.33%                 0.23%               0.03%

</TABLE>

                                       19
<PAGE>


       The following table sets forth the breakdown of the allowance for loan
losses by loan category and the percentage of loans in each category to total
loans for the periods indicated. We believe that the allowance can be allocated
by category only on an approximate basis. The allocation of the allowance to
each category is not necessarily indicative of further losses and does not
restrict the use of the allowance to absorb losses in any category.
<TABLE>
<CAPTION>

                                                 Allocation of the Allowance for Loan Losses
                                                              As of December 31,
     ---------------------------------------------------------------------------------------------------------

                                            2001                       2000                       1999

<S>                             <C>           <C>      <C>                <C>       <C>             <C>
       Residential
          Real estate........   $    530,482      62.3%    $    339,042       59.6%   $    238,948      58.4%
          Construction.......         50,137       5.9%          44,970        7.9%         42,196      10.3%
       Commercial............        185,226      21.8%         108,783       19.1%         74,334      18.2%
       Consumer..............         85,377      10.0%          76,450       13.4%         53,400      13.1%
                                     -------     ------         -------      ------        -------     ------
       Total allowance for
          loan losses........   $    851,222     100.0%    $    569,245      100.0%   $    408,878     100.0%
                                     =======     ======         =======      ======        =======     ======
</TABLE>

       Noninterest Income and Expense

         Noninterest Income. Noninterest income increased to $369,730 for the
year ended December 31, 2001, up 26.0% from $293,482 for the year ended December
31, 2000. Noninterest income increased 89.4% in 2000 from $154,931 for the year
ended December 31, 1999. Service fees on deposit accounts, the largest component
of noninterest income, increased 11.9% to $295,624 in 2001 from $264,154 in
2000. Service fee income in 2000 increased $106,166, or 67.2%, from $157,988 in
1999. Other income increased 123.3% to $85,488 in 2001 from $38,287 in 2000, and
increased 29.2% from $29,645 in 1999. Both of these categories of noninterest
income increased due to the growth in the number of deposit accounts, the
addition of the VISA Check Card product and increased fee-related activities of
customers. The net loss on the sale of investment securities increased to
$11,381 in 2001 from $8,959 in 2000 and $32,702 in 1999. These losses primarily
relate to early pay downs on mortgage-backed securities as a result of declining
interest rates.

         Noninterest Expense. Total noninterest expense increased to $2.4
million for the period ended December 31, 2001 from $1.9 million for the same
period of 2000, and from $1.6 million for the year ended December 31, 1999. The
increase in noninterest expense reflects an increase in most expense categories
as a result of our growth to $80.8 million in total assets at the end of 2001
from $63.8 million at the end of 2000, up from $46.2 million for the year ended
December 31, 1999. Salary and wages expense totaled $1,180,492 in 2001, $890,572
in 2000, and $725,470 in 1999. Employee benefits were $116,709 in 2001, $87,605
in 2000, and $66,292 in 1999. We had 30 full-time equivalent employees at the
end of 2001, an increase of 12 from the end of 2000 and the end of 1999. The
staffing increases are primarily due to the opening of a new branch office in
Surfside Beach, SC during the second quarter of 2001. Professional fees were
$88,589 for the year ended December 31, 2001, compared to $141,699 for 2000 and
$134,466 for 1999. The decrease in 2001 is primarily due to reduced legal costs.
The 2000 figures include collection costs of $47,500. The 1999 figures include
costs associated with our year 2000 preparations.

         Depreciation and amortization increased to $233,449 from $175,523 in
2000 due to the expansion of a branch office in Surfside Beach, SC and from
$197,986 in 1999. The decline in depreciation and amortization in 2000 from 1999
is primarily due to the fact that equipment purchased when our bank opened in
1996 has now been fully depreciated. We experienced an increase in other
operating expenses, to $344,052 in 2001, from $284,901 in 2000 and from $268,045
in 1999, principally as a result of an increase in operating expenses related to
the new branch office in Surfside Beach, SC, and other expenses associated with
the expansion of loans and deposits.

         Income Taxes. Total income tax expense included in the Consolidated
Statements on Income was $75,517 in 2001, $145,126 in 2000 and $34,000 in 1999.
The Companies effective tax rates were 14%, 39% and 39%, respectively. The
Companies effective tax rate decreased in 2001 primarily due to a loss carry
forward that resulted in a tax valuation allowance in the amount of $116,000.
The valuation allowance was based on our estimate that it is "more likely than
not" we will be able to realize all deferred tax benefits in future periods. We
review the valuation allowance and make adjustments when considered necessary.
There can be no assurance that additional valuation allowances may not be
recorded in future periods.


                                       20
<PAGE>

Financial Condition

         Loans. Loans are our largest component of earning assets and typically
provide higher yields than our other types of earning assets. At December 31,
2001, loans represented 80.5% of average earning assets, representing an
increase over the 74.0% that they represented at the end of 2000. At December
31, 2001, net loans (gross loans less the allowance for loan losses) totaled
$62.4 million, an increase of $17.3 million or 38.5% from December 31, 2000.
Average gross loans increased 43.7% from $39.0 million with a yield of 9.52% in
2000, to $56.1 million with a yield of 8.98% in 2001. Average gross loans
increased from $27.0 million with a yield of 9.13% in 1999. 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.

         As we expected, we were able to attract deposits with market rates
during the second half of the year in order to fund our expected loan demands in
the fall and winter months. The events of September 11 and the subsequent
economic slowdown lessened our loan demand thus positioning us with excess
liquidity that we invested in short term instruments.

         Mortgage loans constitute the principal component of our loan
portfolio. Mortgage loans represented 62.3% and 59.6% of our portfolio at year
end 2001 and 2000, 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%. Due to the short
time our portfolio has existed, the current mix may not be indicative of the
ongoing portfolio mix. 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, 2001 and 2000.
<TABLE>
<CAPTION>


                          Composition of Loan Portfolio

                                         December 31, 2001              December 31, 2000

                                                      Percent                        Percent
                                         Amount       of Total        Amount         of Total
                                         ------       --------        ------         --------

<S>                               <C>                   <C>     <C>                    <C>
Commercial....................    $    13,736,659       21.7%   $      8,719,474       19.1%
Real estate - construction....          3,716,189        5.9%          3,604,153        7.9%
Real estate - mortgage........         39,344,768       62.3%         27,171,980       59.6%
Consumer......................          6,406,027       10.1%          6,126,548       13.4%
                                     ------------   --------       -------------   --------
Loans, total..................         63,203,643      100.0%         45,622,155      100.0%
                                                    ========                       ========
Allowance for possible
Losses........................           (851,222)                      (569,245)
                                     ------------                  -------------
Loans, net....................    $    62,352,421               $     45,052,910
                                     ============                  =============

</TABLE>

         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, 2001 and 2000. The information in these
tables 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.


                                       21
<PAGE>
<TABLE>
<CAPTION>

       Loan Maturity Schedule and Sensitivity to Changes in Interest Rates


December 31, 2001
                                                               After one but
                                         One year or less    within five years   After five years        Total
                                         ----------------    -----------------   ----------------        -----
<S>                                     <C>               <C>                   <C>               <C>
Commercial............................  $       7,192,864   $       5,976,529     $    583,423      $     13,752,816
Real estate...........................          9,890,730          25,968,561        3,531,763            39,391,054
Construction..........................          1,920,735           1,799,826                              3,720,561
Consumer..............................          2,373,192           3,781,305          259,070             6,413,567
                                        -----------------   -----------------                      -----------------
     Total............................  $      21,377,521   $      37,526,221   $    4,374,256      $     63,277,998
                                        =================   =================   ==============     =================
Fixed Interest Rate...................  $      12,411,218   $      35,674,768   $    3,483,898      $     51,569,884
Variable Interest Rate................          8,966,303           1,851,453          890,358            11,708,114
                                        -----------------   -----------------                      -----------------
     Total............................  $      21,377,521   $      37,526,221   $    4,374,256      $     63,277,998
                                        =================   =================   ==============     =================
</TABLE>

<TABLE>
<CAPTION>


December 31, 2000
                                                               After one but
                                         One year or less    within five years   After five years        Total
                                         ----------------    -----------------   ----------------        -----
<S>                                     <C>                 <C>                   <C>               <C>
Commercial............................  $       4,047,374   $       4,647,508     $       175,492     $    8,870,374
Real estate...........................          4,163,710          21,239,518           2,809,942         28,213,170
Construction..........................          1,782,689           1,560,780             107,919          3,451,388
Consumer..............................          1,925,466           2,879,040             372,364          5,176,870
                                             ------------      --------------        ------------       ------------
     Total............................  $      11,919,239   $      30,326,846     $     3,465,717      $  45,711,802
                                             ============      ==============        ============       ============
Fixed Interest Rate...................  $       3,919,241   $      29,318,278     $     2,473,505      $  35,711,024
Variable Interest Rate................          7,999,998           1,008,568             992,212         10,000,778
                                             ------------      --------------        ------------       ------------
     Total............................  $      11,919,239   $      30,326,846     $     3,465,717      $  45,711,802
                                             ============      ==============        ============       ============
</TABLE>

         Investment Securities. Investment securities at December 31, 2000 and
December 31, 2001 averaged $8.7 million, representing 16.5% of average earning
assets and $7.0 million, representing 10.0% of average earning assets,
respectively. This decrease is due to the strong loan growth during 2001. At
December 31, 2001, our total portfolio had a book value of $5.7 million, and a
market value of $5.8 million, for an unrealized net gain of $62,023. This
compares to our market value at December 31, 2000 of $7.9 million, and at
December 31, 1999 of $9.0 million.

         At December 31, 2001, short term investments totaled $5.7 million. At
December 31, 2000, we had short-term investments of 7.1 million. At December 31,
1999, we had no short-term investments. These funds are generally invested in an
earning capacity with maturities of six months or less in federal funds or in
U.S. Government Agency and mortgage backed securities.

         Contractual maturities and yields on our investment securities (all
available for sale) at December 31, 2001, 2000, and 1999 are set forth on the
following tables. 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.


                                       22
<PAGE>

<TABLE>
<CAPTION>

                       Investment Securities Maturity Distribution and Yields
                                         December 31, 2001

                             After one year but      After five years but
                            Less than five years     Less than ten years     Greater than ten years
                            --------------------     -------------------     ----------------------

                              Amount       Yield      Amount       Yield       Amount       Yield
                              ------       -----      ------       -----       ------       -----

<S>                            <C>        <C>       <C>           <C>    <C>               <C>
U.S. Govt Agencies.......      $     --        --%     $199,446      7.95%  $         --         --%
Mortgage-backed..........            --        --%           --        --%     5,420,511       6.35%
Other....................      $112,200      6.25%      196,600      6.13%            --         --%
                               --------     -----       -------     -----    -----------
     Total...............      $112,200      6.25%     $396,046      7.00%   $ 5,420,511       6.35%
                               ========     =====      ========     =====    ===========      =====

</TABLE>

          Investment Securities Maturity Distribution and Yields
                            December 31, 2000

                                After five but
                               within ten years        After ten years
                               ----------------        ---------------

                              Amount      Yield       Amount      Yield
                              ------      -----       ------      -----

U.S. Govt Agencies........  $   662,903    7.30%    $       --       --%
Mortgage-backed...........           --      --%     7,299,032     6.29%
Other.....................           --      --%       286,900     6.75%
                              --------- -------     ----------   ------
     Total................  $   662,903    7.30%    $7,585,932     6.43%
                              ========= =======     ==========   ======


         Investment Securities Maturity Distribution and Yields
                           December 31, 1999

                             After five but
                             Within ten years        After ten years
                             ----------------        ---------------

                             Amount      Yield      Amount        Yield
                             ------      -----      ------        -----

U.S. Govt Agencies........ $   462,585    7.00%   $        --        --%
Mortgage-backed...........          --      --%     8,837,430      6.31%
Other.....................          --      --%       303,050      6.61%
                             ---------  ------     ----------   -------
     Total................ $   462,585    7.00%   $ 9,140,480      6.32%
                             =========  ======     ==========   =======

       Funding Sources

         Deposits and Other Interest-Bearing Liabilities. Average total deposits
were $61.4 million in 2001, up 27.1% from $48.3 million in 2000. Average
interest-bearing deposits were $51.8 million in 2001, up 25.4% from $41.3
million in 2000. These increases were primarily a result of the continued
expansion of our franchise.

         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 $53.3 million at December 31, 2001,
an increase of 20.2% compared to $44.1 million at December 31, 2000. We expect a
stable base of deposits to continue to be our primary



                                       23
<PAGE>

source of funding to meet both our short-term and long-term liquidity needs.
Core deposits as a percentage of total deposits were approximately 82.0% at
December 31, 2001 and 78.0% at December 31, 2000. Our loan-to-deposit ratio was
92.9% at December 31, 2001 versus 80.4% at December 31, 2000. The average
loan-to-deposit ratio was 85.4% during 2001, 80.9% during 2000, and 80.4% during
1999.

         The following tables set forth our deposits by category as of December
31, 2001 and 2000.
<TABLE>
<CAPTION>

                                                                      Deposits

                                               December 31, 2001               December 31, 2000

                                                               Percent of                 Percent of
                                               Amount           Deposits       Amount     Deposits
                                               ------          ----------     -------     ----------

<S>                                        <C>                 <C>      <C>                <C>
 Demand deposit accounts...............       $ 11,968,934        17.9%    $ 5,525,253        9.8%
 Interest bearing checking accounts....          3,911,552         5.8%      2,148,148        3.8%
 Money market accounts.................         13,962,249        20.9%     12,085,652       21.3%
 Savings accounts......................          2,824,451         4.2%      3,133,648        5.5%
 Time deposits less than $100,000......         20,706,965        30.8%     21,181,849       37.3%
 Time deposits of $100,000 or over.....         13,758,817        20.4%     12,651,961       22.3%
                                                ----------        -----     ----------       -----
      Total deposits...................       $ 67,132.968       100.0%    $56,726,511      100.0%
                                               ===========       ======    ===========      ======
</TABLE>

         As of December 31, 2001, time deposits less than $100,000 that matured
within three months were $5,764,109 and within 3-12 months were $9,636,801. Time
deposits less than $100,000 that had a maturity greater than 12 months were
$5,060,099 and after five years were $245,956. As of December 31, 2000, time
deposits greater than $100,000 that matured within three months were $3,308,314,
those within 3-12 months were $7,854,207. Time deposits greater than $100,000
that had a maturity greater than 12 months were $2,220,604 and after five years
were $375,690.

         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 invests significant amounts of our
deposit growth during the summer months in temporary investments and short-term
securities maturing in the winter months. Additionally, the Corporation has
access to other funding sources including federal funds purchased form
correspondent banks and a line of credit with the Federal Home Loan Bank (FHLB).

         Borrowings. During 2001, the Company had average short-term borrowings
of $217,926 compared to $893,142 in average short term borrowings for 2000. The
primary reason for the decline in federal funds purchased was the secondary
common stock offering conducted in July 2001 which raised $5.9 million.

Capital

         We are subject to various regulatory capital requirements administered
by our federal bank regulators. As long as we have less than $150 million in
total assets, our capital levels are measured for regulatory purposes only at
the bank level, not at the holding company level. 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 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%.

         Our total shareholders' equity at December 31, 2001 was $13.1 million,
compared with $6.7 million in shareholders' equity in 2000. We were considered
to be "well capitalized" at the bank level for regulatory purposes at December
31, 2001, as our Tier 1 capital ratio was 15.8%, our total risk-based capital
ratio was 17.1%, and our Tier 1 leverage ratio was 12.7%.

                                       24
<PAGE>


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 $3.5 million. We also are eligible to receive
advances from the Federal Home Loan Bank of Atlanta, subject to its approval. In
July 2001, we were approved to participate in the Federal Home Loan Bank Blanket
Lien Program where the Bank can borrow up to 75% of outstanding loan balances on
1 to 4 family residences. The Company estimates borrowing availability under
this line to be approximately $7.5 million. Taking into account the $5.9 million
in net proceeds we raised in our underwritten public offering, 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,
2001, we had issued commitments to extend credit of $4.5 million through various
types of commercial lending arrangements, of which $1.1 million was at fixed
rates and $3.4 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 next thirty six 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 $1.5 million at December 31,
2001. 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 in 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.

                                       25
<PAGE>


Part 1.  Item 7:  Financial Statements


<TABLE>
<CAPTION>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


BEACH FIRST NATIONAL BANCSHARES, INC.

<S>                                                                                                        <C>
Report of Independent Auditor...................................................................................F-2

Consolidated Balance Sheets at December 31, 2001 and 2000.......................................................F-3

Consolidated Statements of Income for the Years Ended December 31, 2001, 2000 and 1999..........................F-4

Consolidated Statement of Changes in Shareholders' Equity for the Years Ended
     December 31, 2001, 2000 and 1999 ..........................................................................F-5

Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000, and 1999.....................F-6

Notes to Financial Statements......................................................................F-7 through F-22

</TABLE>

                                      F-1

<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors
Beach 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 Subsidiary as of December
31, 2001 and 2000 and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2001. 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 auditing standards
generally accepted in the United States of America. 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 Subsidiary at December 31,
2001 and 2000 and the results of their operations and cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.





                                                       /S/ ELLIOTT DAVIS, LLP


Greenville, South Carolina
January 25, 2002


                                       F-2



<PAGE>

<TABLE>
<CAPTION>

                         BEACH FIRST NATIONAL BANCSHARES, INC. AND SUBSIDIARY
                                      CONSOLIDATED BALANCE SHEETS

                                                                                                   December 31,
                                                                                    ----------------------------------------
                                                                                            2001                  2000
                                                                                    ------------------    ------------------
                                                          ASSETS

<S>                                                                                 <C>                    <C>
Cash and due from banks                                                             $       3,387,066      $     1,192,989
Federal funds sold and short term investments                                               5,679,291            7,085,169
Investment securities                                                                       5,681,980            7,899,133
Loans, net                                                                                 62,352,421           45,052,910
Federal Reserve Bank stock                                                                    164,700              164,700
Federal Home Loan Bank stock                                                                  144,100              122,200
Property and equipment, net                                                                 2,568,475            1,546,447
Other assets                                                                                  806,782              706,468
                                                                                   ------------------    -----------------
        Total assets                                                                $      80,784,815     $     63,770,016
                                                                                   ==================     ================

                                           LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits
     Non-interest bearing                                                           $      11,968,934     $      5,525,253
     Interest bearing                                                                      55,164,034           51,201,258
                                                                                   ------------------     ----------------
        Total deposits                                                                     67,132,968           56,726,511
Other liabilities                                                                             503,017              314,835
                                                                                    -----------------     ----------------
        Total liabilities                                                                  67,635,985           57,041,346

COMMITMENTS AND CONTINGENCIES - Notes 9 and 13

SHAREHOLDERS' EQUITY
        Common stock, $1 par value, 10,000,000 shares authorized,
        1,318,368 and 737,368 shares issued and outstanding
        at December 31, 2001 and 2000, respectively                                         1,318,368              737,368
     Paid-in capital                                                                       11,787,899            6,489,981
     Retained earnings (deficit)                                                                2,119             (457,175)
     Accumulated other comprehensive income (loss)                                             40,444              (41,504)
                                                                                    -----------------     ----------------
        Total shareholders' equity                                                         13,148,830            6,728,670
                                                                                    -----------------     ----------------
        Total liabilities and shareholders' equity                                  $      80,784,815     $     63,770,016
                                                                                    =================     ================

</TABLE>

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

                                      F-3
<PAGE>

<TABLE>
<CAPTION>

                         BEACH FIRST NATIONAL BANCSHARES, INC. AND SUBSIDIARY
                                      CONSOLIDATED STATEMENTS OF INCOME


                                                                            For the years ended December 31,
                                                                ----------------------------------------------------------
                                                                      2001                2000                 1999
                                                                -----------------   ------------------   -----------------

<S>                                                             <C>                 <C>                  <C>
INTEREST INCOME
     Loans and fees on loans                                    $     5,040,259     $    3,713,902       $    2,469,213
     Investment securities                                              457,966            586,035              628,112
     Federal funds sold and short term investments                      242,601            334,086               43,459
                                                                ---------------    ---------------       --------------
         Total interest income                                        5,740,826          4,634,023            3,140,784

INTEREST EXPENSE
     Deposits and borrowings                                          2,704,990          2,450,184            1,458,633
                                                                ---------------    ---------------       --------------
         Net interest income                                          3,035,836          2,183,839            1,682,151

PROVISION FOR POSSIBLE LOAN LOSSES                                      467,000            251,107              154,168
                                                                ---------------    ---------------       --------------

         Net interest income after provision for possible
            loan losses                                               2,568,836          1,932,732            1,527,983
                                                                ---------------    ---------------       --------------
NONINTEREST INCOME
     Service fees on deposit accounts                                   295,624            264,154              157,988
     Loss on sale of investment securities                              (11,381)            (8,959)             (32,702)
     Other income                                                        85,488             38,287               29,645
                                                                ---------------    ---------------       --------------

         Total noninterest income                                       369,731            293,482              154,931
                                                                ---------------    ---------------       --------------
NONINTEREST EXPENSES
     Salaries and wages                                               1,180,492            890,572              725,410
     Employee benefits                                                  116,709             87,605               66,292
     Supplies and printing                                               81,324             51,222               36,595
     Advertising and public relations                                    81,605             34,598               23,126
     Professional fees                                                   88,589            141,699              134,466
     Depreciation and amortization                                      233,449            175,523              197,986
     Occupancy                                                          121,114             53,485               49,268
     Data processing fees                                               156,422             96,560               70,805
     Other operating expenses                                           344,052            319,101              292,045
                                                                ---------------    ---------------       --------------
         Total noninterest expenses                                   2,403,756          1,850,365            1,595,993
                                                                ---------------    ---------------       --------------
         Income before income taxes                                     534,811            375,849               86,921
INCOME TAX EXPENSE                                                       75,517            145,126               34,000
                                                                ---------------    ---------------       --------------
         Net income                                             $       459,294     $      230,723       $       52,921
                                                                ===============    ===============       ==============
BASIC NET INCOME PER
     COMMON SHARE                                               $          0.46     $         0.31       $         0.07
                                                                ===============     ==============       ==============
DILUTED NET INCOME PER
     COMMON SHARE                                               $          0.46     $         0.28       $         0.06
                                                                ===============     ==============       ==============

WEIGHTED AVERAGE NUMBER OF COMMON
     SHARES OUTSTANDING

        Basic                                                           990,302            736,118              735,868
                                                                ===============     ==============       ==============
        Diluted                                                       1,000,369            822,407              824,050
                                                                ===============     ==============       ==============

</TABLE>

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

                                      F-4
<PAGE>
<TABLE>
<CAPTION>

                                     BEACH FIRST NATIONAL BANCSHARES, INC. AND SUBSIDIARY
                                  CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                                                                                                        Accumulated
                                                                                            Retained       other          Total
                                                              Common stock        Paid-in   earnings   comprehensive  shareholders'
                                                        Shares          Amount    capital   (deficit)  income (loss)     equity
                                                       -----------  ----------- ---------- ----------  ------------- ---------------

<S>                                                   <C>       <C>         <C>          <C>        <C>           <C>
BALANCE, DECEMBER 31, 1998                               735,868   $  735,868  $ 6,476,481  $(740,819) $     2,126   $   6,473,656
                                                                                                                      ------------
     Net income                                                                                52,921                       52,921
     Other comprehensive loss, net of income taxes:
        Unrealized loss on investment securities                                                          (234,847)       (234,847)
Plus reclassification adjustments for losses
             included in net income
               included in net income                                                                       21,583          21,583
                                                                                                                      ------------
     Comprehensive loss                                                                                                   (160,343)
                                                       ----------   ---------   ----------   --------   ----------    ------------
BALANCE, DECEMBER 31, 1999                               735,868      735,868    6,476,481   (687,898)    (211,138)      6,313,313
                                                                                                                      ------------
     Net income                                                                               230,723                      230,723
     Other comprehensive income, net of income taxes:
        Unrealized gain on investment securities                                                           163,721         163,721
          Plus reclassification adjustments for losses
             included in net income
               included in net income                                                                        5,913           5,913
                                                                                                                      ------------
     Comprehensive income                                                                                                  400,357
     Exercise of stock options                             1,500        1,500       13,500                                  15,000
                                                       ---------   ----------   ----------  ---------   ----------    ------------
BALANCE, DECEMBER 31, 2000                               737,368      737,368    6,489,981   (457,175)     (41,504)      6,728,670
                                                                                                                      ------------
     Net income                                                                               459,294                      459,294
     Other comprehensive income, net of income taxes:
        Unrealized gain on investment securities                                                            77,042          77,042
          Plus reclassification adjustments for losses
             included in net income
                included in net income                                                                       4,906           4,906
                                                                                                                      ------------
     Comprehensive income                                                                                                  541,242
     Issuance of common stock, less offering expenses
     of $258,824                                         581,000      581,000    5,297,918                               5,878,918
                                                       ---------   ----------   ----------   --------   ----------    ------------
BALANCE, DECEMBER 31, 2001                             1,318,368   $1,318,368  $11,787,899   $  2,119       40,444    $ 13,148,830
                                                       =========   ==========   ==========   ========   ==========    ============

</TABLE>

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


                                      F-5
<PAGE>

<TABLE>
<CAPTION>

                   BEACH FIRST BANCSHARES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                  For the years ended December 31,
                                                                        ------------------------------------------------------
                                                                              2001               2000              1999
                                                                        -----------------  -----------------  ----------------

<S>                                                                     <C>                <C>                 <C>
OPERATING ACTIVITIES
     Net income                                                         $        459,294   $      230,723      $       52,921
     Adjustments to reconcile net income to net
         cash provided by operating activities:
         Depreciation and amortization                                           225,754          175,523             197,986
         Deferred income taxes                                                  (189,449)         129,286              31,000
         Provision for loan losses                                               467,000          251,107             154,168
         Writedown on real estate acquired in settlement of loans                      -           11,426              50,000
         Loss on sale of investment securities                                    11,381            8,959              32,702
         Decrease (increase) in other assets                                      43,721         (176,699)           (203,788)
         Increase in other liabilities                                           188,182          128,771             120,172
                                                                         ---------------   --------------      --------------
             Net cash provided by operating activities                         1,205,882          759,096             435,161
                                                                         ---------------   --------------      --------------

INVESTING ACTIVITIES
     Proceeds from sale of investment securities                               2,338,654        1,548,201           4,678,226
     Purchase of investment securities                                                 -         (209,313)         (2,790,691)
     Purchase of FHLB stock                                                      (21,900)               -                   -
     Decrease (increase) in Federal funds sold and short term
           investments                                                         1,405,878       (6,984,786)          2,250,000
     Increase in loans, net                                                  (17,921,511)     (13,174,903)        (11,450,941)
     Proceeds from sale of real estate acquired in
           settlement of loans                                                   155,000                -                   -
     Purchase of premises and equipment                                       (1,253,302)        (271,024)            (96,556)
     Proceeds from disposal of premises and equipment                                  -           24,085                   -
                                                                         ---------------   --------------      --------------
             Net cash used by investing activities                           (15,297,181)     (19,067,740)         (7,510,345)
                                                                         ---------------   --------------      --------------

FINANCING ACTIVITIES
     Proceeds from Federal Home Loan Bank advances                                     -                -           1,900,000
     Repayments of Federal Home Loan Bank advances                                     -       (1,900,000)                  -
     Increase (decrease) in Federal funds purchased                                    -         (920,000)            920,000
     Net increase in deposits                                                 10,406,457       19,890,490           5,700,978
     Exercise of stock options                                                         -           15,000                   -
     Issuance of common stock                                                  5,878,918                -                   -
                                                                         ---------------   --------------      --------------
             Net cash provided by financing activities                        16,285,375       17,085,490           8,520,978
                                                                         ---------------   --------------      --------------

             Net increase (decrease) in cash                                   2,194,076       (1,223,154)          1,445,794

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
     YEAR                                                                      1,192,989        2,416,143             970,349
                                                                         ---------------   --------------      --------------
CASH AND EQUIVALENTS AT END OF YEAR                                      $     3,387,066   $    1,192,989      $    2,416,143
                                                                         ===============   ==============      ==============

CASH PAID FOR
     Interest                                                            $     2,718,206   $    2,378,832      $    1,447,576
                                                                         ===============   ==============      ==============
     Income taxes                                                        $        16,640   $        1,910      $        1,000
                                                                         ===============   ==============      ==============
SCHEDULE OF NONCASH INVESTING ACTIVITY
             Real estate acquired in settlement of loans                 $       155,000   $            -      $      288,074
                                                                         ===============   ==============      ==============

</TABLE>

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

                                      F-6

<PAGE>



              BEACH FIRST NATIONAL BANCSHARES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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"). 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.

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

   Estimates
         The preparation of 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 its subsidiary, makes loans to individuals and
businesses in and around Horry 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". 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 (loss)).


                                      F-7

<PAGE>


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

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 stock and it has not quoted market
value. However, redemption of these stocks has historically been at par value.

   Loans, interest and fee income on loans

         Loans are stated at the principal balance outstanding. Unearned
discount, unamortized loan fees and the allowance for possible 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 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 possible loan losses

         The provision for possible 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 possible 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.

                                       F-8


<PAGE>


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

         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 principle.

         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, 2001 and
2000, 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 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

         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 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

         SFAS No. 128, "Earnings per Share" requires that the Company present
basic and diluted net income per common share. The assumed conversion of stock
options creates the difference between basic and diluted net income per common
share


                                F-9
<PAGE>



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

Earnings Per Share, Continued

         Income per share is calculated by dividing net income by the weighted
average number of common shares outstanding for each period presented.

         The weighted average number of common shares outstanding for basic net
income per common share was 990,302 in 2001, and 736,118 in 2000 and735,868 in
1999. The weighted average number of common shares outstanding for diluted net
income per common share was 1,000,369 in 2001, 822,407 in 2000 and 824,050 in
1999.

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 standards

         SFAS No. 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities -- a replacement of SFAS No. 125, "
was issued in September 2000. It revises the standards for accounting for
securitizations and other transfers of financial assets and collateral and
requires certain disclosures but will carry over most of SFAS No. 125's
provisions without reconsideration. SFAS 140 is effective for transfers and
servicing of financial assets and extinguishment of liabilities occurring after
March 31, 2001. This statement is effective for recognition and reclassification
of collateral and for disclosures related to securitization transactions and
collateral for fiscal years ending after December 15, 2000. The adoption of the
provisions of SFAS No. 140 in 2001 did not have a material effect on the
Company.

         In July 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001. SFAS 141
also specifies criteria intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill, noting
that any purchase price allocable to an assembled workforce may not be accounted
for separately. SFAS No. 142 will require that goodwill and intangible assets
with indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of SFAS No. 142.
The Company was required to adopt the provisions of SFAS No. 141 immediately and
must adopt SFAS No. 142 effective January 1, 2002. The adoption of the
provisions of SFAS No. 141 in 2001 did not have a material effect on the
Company. The adoption of SFAS No. 142 is not expected to have a material effect
on the Company.

         In August 2001, the FASB issued SFAS No. 144 - Accounting for the
Impairment or Disposal of Long-Lived Assets. This SFAS supercedes prior
pronouncements associated with impairment or disposal of long-lived assets. The
SFAS establishes methodologies for assessing impairment of long-lived assets,
including assets to be disposed of by sale or by other means. This statement is
effective for all fiscal years beginning after December 15, 2001. This SFAS is
not expected to have a material impact on the Company's financial position.

         On July 2, 2001, The Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 102 "Selected Loan Loss Allowance
Methodology and Documentation Issues". SAB 102 expresses the SEC's views on the
development, documentation and application of a systematic methodology for
determining the allowance for loan and lease losses in accordance with
accounting principles generally accepted in the United States of America. A
concurrent statement was also issued by the Federal Financial Institutions
Examination Council ("FFIEC"). The Company believes that it is currently in
compliance with the requirements of SAB 102.


                                      F-10
<PAGE>


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, 2001 and 2000
these required reserves were met by vault cash.

NOTE 3 - INVESTMENT SECURITIES

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

<TABLE>
<CAPTION>
                                                                    December 31, 2001
                                        ---------------------------------------------------------------------------
                                             Amortized                 Gross unrealized                   Fair
                                                cost               gains             losses              value
                                        --------------------   ---------------    --------------     --------------

<S>                                   <C>                    <C>                <C>                <C>
Federal agencies                        $            199,445   $      11,867      $           -      $      211,312
Mortgage-backed                                    5,420,512          69,166             19,010           5,470,668
                                        --------------------   -------------      -------------      --------------
         Total securities               $          5,619,957   $      81,033      $      19,010      $    5,681,980
                                        ====================   =============      =============      ==============

                                                                    December 31, 2000
                                        ---------------------------------------------------------------------------
Federal agencies                        $           662,903    $       6,507       $        150      $      669,260
Mortgage-backed                                   7,299,032           11,866             81,025           7,229,873
                                        -------------------    -------------       ------------      --------------
         Total securities               $         7,961,935    $      18,373       $     81,175      $    7,899,133
                                        ===================    =============       ============      ==============
</TABLE>

         The amortized costs and fair values of investment securities at
December 31, 2001, 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.

                                           Amortized cost          Fair value
                                         -------------------    ----------------

  Due after five through ten years        $        199,445       $      211,312
  Due after ten years                            5,420,512            5,470,668
                                         -------------------    ----------------
           Total investment securities    $      5,619,957       $    5,681,980
                                         ===================    ================

         During 2001, 2000, and 1999 gross proceeds from the sale of investment
securities were $2,338,654, $1,548,201, and $4,678,226, respectively. Net losses
from the sale of investment securities in 2001, 2000, and 1999 were $11,381,
$8,959, and $32,702, respectively. Securities pledged as collateral for public
funds and other purposes as of December 31, 2001 and 2000 were $4,967,103 and
$4,199,635, respectively.


                                      F-11

<PAGE>



NOTE 4 - LOANS

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

                                                        December 31,
                                           -------------------------------------
                                                  2001                  2000
                                           ----------------    -----------------

Commercial                                 $   13,453,083      $      8,719,474
Real estate - construction                      2,368,358             3,604,153
Real estate - mortgage                         39,046,158            27,171,980
Consumer                                        8,336,044             6,126,548
                                           --------------     -----------------

Loss, gross                                    63,203,643            45,622,155
Less allowance for possible loan losses          (851,222)             (569,245)
                                           --------------     -----------------

Loans, net                                 $   62,352,421      $     45,052,910
                                           ==============     =================

         At December 31, 2001and 2000 nonaccruing loans were $107,377 and
$104,815, respectively.


NOTE 5 - ALLOWANCE FOR POSSIBLE LOAN LOSSES

         The allowance for possible 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 possible loan losses account follows:

                                            For the years ended December 31,
                                       -----------------------------------------
                                          2001           2000           1999
                                       ------------  -------------  ------------
   Balance, beginning of year          $   569,245   $    408,878  $    263,215
   Recoveries of loans previously
   charged against the allowance             4,549              -             -
   Provision for loan losses               467,000        251,107       154,168
   Loans charged against the allowance    (189,572)       (90,740)       (8,505)
                                       -----------   ------------  ------------

   Balance, end of year                $   851,222   $    569,245  $    408,878
                                       ===========   ============  ============


                                      F-12

<PAGE>



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,
                                          --------------------------------------
                                               2001                  2000
                                          ------------------    ----------------

    Land                                  $        218,608     $        218,608
    Buildings and improvements                   1,862,789              996,724
    Furniture and equipment                      1,072,357              672,940
    Software                                       272,610              173,406
    Construction in progress                           771              112,156
                                          ----------------     ----------------

                                                 3,427,135            2,173,834
    Accumulated depreciation                      (858,660)            (627,387)
                                          ----------------     ----------------

             Total property and equipment $      2,568,475     $      1,546,447
                                          ================     ================

         Depreciation expense for the years ended December 31, 2001, 2000 and
1999 amounted to $231,274, $146,918, and $180,136, 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                         3                 Straight-line
    Furniture and equipment          5 to 7            Straight-line
    Buildings and improvements       5 to 40           Straight-line


NOTE 7 - REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS

         During January of 1998, the Bank discovered a kiting operation
involving two customers' accounts. In 1999, as part of recovering amounts at
risk from the fraud, a deed was taken in lieu of foreclosure on a single family
residence. The residence was sold in 2000. During 2000 and 1999, $58,927 and
$61,192, respectively, of amounts previously thought to be recoverable from the
sale of the real estate were charged to operations in writedowns to real estate
and in other operating expenses. Management believes all related losses due to
the fraud have been recorded and no additional losses will be incurred.


NOTE 8 - DEPOSITS

           The following is a detail of the deposit accounts:

                                                           December 31,
                                                --------------------------------
                                                   2001             2000
                                                --------------   --------------
   Non-interest bearing                         $   11,968,934   $    5,525,253
   Interest bearing:
            Interest bearing checking accounts       3,911,552        2,148,148
            Money market accounts                   13,962,249       12,085,652
            Savings                                  2,824,451        3,133,648
            Time, less than $100,000                20,706,965       21,181,849
            Time, $100,000 and over                 13,758,817       12,651,961
                                                --------------   --------------
   Total deposits                               $   67,132,968   $   56,726,511
                                                ==============   ==============


                                      F-13
<PAGE>

NOTE 8 - DEPOSITS, , Continued

         Interest expense on time deposits greater than $100,000 was $689,842 in
2001, $647,924 in 2000, and $312,030 in 1999.

         At December 31, 2001 the scheduled maturities of certificates of
deposit are as follows:

                   2002                          $       26,563,437
                   2003 through 2004                      7,280,700
                   2005                                     621,645
                                                 ------------------
                                                 $       34,465,782
                                                 ==================

NOTE 9 - COMMITMENTS AND CONTINGENCIES

         The Company is party to litigation and claims arising in the normal
course of business. Management, after consultation with legal counsel, believes
that the liabilities, arising from such litigation and claims either have been
properly accrued for or will not be material to shareholders' equity or the net
income from operations.


         Refer to Note 13 concerning financial instruments with off balance
sheet risk.


NOTE 10 - LINES OF CREDIT

         At December 31, 2001, the Bank had $10,000,000 of lines of credit to
purchase federal funds from unrelated banks. These lines of credit are available
on a one to seven day basis for general corporate purposes of the Bank. All of
the lenders have reserved the right to withdraw these lines at their option.

NOTE 11 - 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:

                                             2001          2000         1999
                                         ------------ ------------  -----------
 Income taxes currently payable
          Federal                        $   255,728  $          -  $         -
          State                               12,100        15,840        1,890
                                         -----------  ------------  -----------
                                             267,828        15,840        1,890
                                         -----------  ------------  -----------

 Tax consequences of differences
          Allowance for loan losses          (84,002)            -            -
          Depreciation                         3,970         4,470       24,680
          Net operating loss                       -       124,816        7,430
          Valuation allowance adjustment    (112,279)            -            -
                                         -----------  ------------  -----------
                                            (192,311)      129,286       32,110
                                         -----------  ------------  -----------

                   Provision             $    75,517  $    145,126  $    34,000
                                         ===========  ============  ===========


                                      F-14

<PAGE>


NOTE 11 - INCOME TAXES, (Continued)

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

                                                  Deferred tax asset (liability)
                                                 -------------------------------
                                                     2001            2000
                                                 --------------  ---------------
 Allowance for loan losses                        $     282,477   $     198,475
 Unrealized (gain) loss on investment securities        (21,580)         22,661
 Depreciation                                           (33,120)        (29,150)
                                                  -------------   -------------
                                                        227,777         191,986
          Less valuation allowance                            -        (112,279)
                                                  -------------   -------------
                   Net deferred tax asset         $     227,777   $      79,707
                                                  =============   =============

         The net deferred tax asset is reported in other assets in the balance
sheets at December 31, 2001 and 2000. 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 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:
<TABLE>
<CAPTION>

                                             2001                      2000                          1999
                                   -------------------------  ------------------------    ----------------------------
                                      Amount          %          Amount          %            Amount            %
                                   --------------  -------    -------------   --------    ---------------   ----------
<S>                             <C>                <C>     <C>              <C>      <C>                    <C>
Tax expense at statutory rate      $   181,835        34%     $   127,790        34%      $      29,550          34%
Increase (decrease) in taxes
   Resulting from:
   State bank tax (net of                7,990         1           10,455         3               1,250           1
   federal benefit)
   Valuation allowance                (112,279)      (21)           6,881         2               3,200           4
   Other                                (2,029)        -                -         -                   -           -
                                   -----------  --------      -----------   -------         -----------    --------

   Tax provision                   $    75,517        14%     $   145,126        39%      $      34,000          39%
                                   ===========  ========      ===========   =======         ===========    ========

</TABLE>

                                      F-15
<PAGE>


NOTE 12 - 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,
                            -----------------------------------------------

                                 2001              2000             1999
                            -------------    ---------------   ------------

Balance, beginning of year  $   4,835,728    $     3,936,854   $  2,505,386
New loans                       3,129,598          2,757,853      3,315,398
Less loan payments              2,195,346          1,858,979      1,883,930
                            -------------    ---------------   ------------
Balance, end of year        $   5,769,980    $     4,835,728   $  3,936,854
                            =============    ===============   ============

         Deposits by directors, including their affiliates and executive
officers, at December 31, 2001 and 2000, approximated $7,175,000 and $4,924,000,
respectively.


NOTE 13 - 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.

         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, 2001, unfunded
commitments to extend credit were $4,498,405, of which $1,134,065 was at fixed
rates and $3,364,340 was 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,
commercial and residential real estate.

         At December 31, 2001, there was a $1,490,978 commitment under a letter
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.

                                      F-16

<PAGE>


NOTE 14 - 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 2001, 2000, and 1999 amounted to $33,125, $18,416, $11,854,
respectively.

NOTE 15 - STOCK OPTION PLANS

         The Company sponsors a stock option plan for the benefit of the
directors, officers and employees. The Board may grant up to 110,000 incentive
stock options at an option price per share not less than the fair market value
on the date of grant. The directors were granted 1,500 options each that vested
immediately. All other options granted to officers and employees vest either
over two or five years and expire 10 years from the grant date.

         During 2000, the Company extended the expiration of 22,077 stock
options to a former officer. Under the terms of the extension, these options
became nonqualified options with an exercise price of $10.00 per share and
expiration date of January 15, 2002. No compensation expense was charged to
operations as the exercise price was equal to the fair market value of the stock
on the date of the extension.


         The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation". Accordingly, no compensation cost has
been recognized for the stock option plan. Had compensation cost been determined
based on the fair value at the grant date for the above stock option awards
consistent with the provisions of SFAS No. 123, the Company's net income (loss)
and net income (loss) per common share would have changed to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>

                                                  For the years ended December 31,
                                        ------------------------------------------------------
                                             2001                2000               1999
                                        ---------------    -----------------    --------------

<S>                                     <C>                <C>                  <C>
Net income
         As reported                    $    459,294       $ 230,723            $    52,921
         Pro forma                           433,456         193,968                 (1,451)
Basic net income per common share
         As reported                             .46              .31                   .07
         Pro forma                               .44              .26                   .00
Diluted net income per common share
         As reported                             .46              .28                   .06
         Pro forma                               .43              .24                   .00
</TABLE>

         The fair value of the option grant is estimated on the date of grant
using the Black-Scholes option pricing model. The risk free interest rate used
was 4.5 percent, the expected option life was 6 to 10 years and the assumed
dividend rate was zero.

                                      F-17
<PAGE>

NOTE 15 - STOCK OPTION PLANS, Continued

         A summary of the status of the plan as of December 31, 2001, 2000 and
1999 and changes during the years ending on those dates is presented below:
<TABLE>
<CAPTION>

                                            2001                           2000                         1999
                                -----------------------------    -----------------------------  -----------------------------
                                                 Weighted                         Weighted                     Weighted
                                                  average                          average                      average
                                   Shares     exercise price       Shares       exercise price     Shares    exercise price
                                  -------     --------------      -------       --------------    -------    --------------


<S>                                 <C>         <C>                <C>         <C>               <C>        <C>
Outstanding at beginning
of year                             88,862      $    10.24         104,978     $    10.08        103,978    $    10.07
Granted                              7,000           11.50           5,000          12.50          1,000         12.00
Exercised                                -               -          (1,500)         10.00              -             -
Forfeited or expired                (3,000)          10.50         (19,616)         10.00              -             -
                              ------------                     -----------                     ---------
Outstanding at end
     of year                        92,862           10.33          88,862          10.24        104,978         10.08
                              ============                     ===========                     =========

Options exercisable at
     year-end                       81,688           10.13          77,091          10.05         69,714         10.02
                              ============                     ===========                    ==========
Shares available for
     grant                          15,638                          19,638                         5,022
                              ============                     ===========                    ==========

</TABLE>

NOTE 16 - 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 OCC.
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.

NOTE 17 -  SECONDARY OFFERING OF COMMON STOCK

         On July 24, 2001, the Company issued 520,000 shares of common stock in
connection with an underwritten public offering registered with the SEC on Form
S-2. The Company received $5.56 million in gross proceeds in connection with the
issuance. On August 13, 2001, the Company issued an additional 61,000 shares of
common stock for gross proceeds of $652,000 in connection with the exercise of
the overallotment option for this offering.

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.

                                      F-18
<PAGE>

NOTE 18 - REGULATORY MATTERS, Continued

         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, 2001,
that the Bank meets all capital adequacy requirements to which it is subject.

         As of December 31, 2001, 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.

         The Bank's actual capital amounts and ratios and minimum regulatory
amounts and ratios are presented as follows:
<TABLE>
<CAPTION>
                                                                                            To be well capitalized
                                                                    For capital             under prompt corrective
                                                                 adequacy purposes             action provisions
                                                              -------------------------------------------------------
                                   Actual                Minimum                       Minimum
                                 ------------------------------------------------------------------------------------
                                   Amount            Ratio        Amount         Ratio        Amount           Ratio
                                 ----------       ----------   ------------    --------   --------------    ---------
                                                                    (amounts in $000)
<S>                             <C>              <C>         <C>             <C>       <C>                  <C>
As of December 31, 2001
Total Capital (to risk
weighted assets)                   $ 11,156         17.1%       $   5,211       8.0%      $     6,513          10.0%
Tier 1 Capital (to risk
weighted assets)                     10,305         15.8            2,605       4.0             3,908           6.0
Tier 1 Capital (to average
assets)                              10,305         12.7            3,251       4.0             4,064           5.0

As of December 31, 2000
Total Capital (to risk
weighted assets)                   $  6,428         13.8%       $   3,731       8.0%      $     4,664          10.0%
Tier 1 Capital (to risk
weighted assets)                      5,859         12.6            1,866       4.0             2,798           6.0
Tier 1 Capital (to average
assets)                               5,859          9.4            2,499       4.0             3,123           5.0
</TABLE>


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.

                                      F-19
<PAGE>

NOTE 19 -FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued


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

         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 long-term debt is based on discounted cash flows using
the Company's current incremental borrowing rate. Discount rates used in these
computations approximate rates currently offered for similar borrowings of
comparable terms and credit quality.

         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:
<TABLE>
<CAPTION>

                                                                                December 31,
                                                       ----------------------------------------------------------------
                                                                   2001                             2000
                                                       ------------------------------  --------------------------------
                                                          Carrying       Fair             Carrying            Fair
                                                          amount         value            amount             value
                                                       --------------  --------------  ----------------  --------------

<S>                                                      <C>             <C>                <C>          <C>
Financial Assets:
    Cash and due from banks                              $ 3,387,066     $ 3,387,066        $1,359,158   $  1,359,158
    Federal funds sold and short term investments          5,679,291       5,679,291         6,919,000      6,919,000
    Investment securities                                  5,681,980       5,681,980         7,899,133      7,899,133
    Federal Reserve Bank stock                               164,700         164,700           164,700        164,700
    Federal Home Bank Loan Bank stock                        144,100         144,100           122,200        122,200
    Loans, net                                            62,352,421      62,558,325        45,052,910     44,232,947

Financial Liabilities:
    Deposits                                              67,132,968      68,416,910        56,726,511     64,055,576

Financial Instruments with Off-Balance Sheet  Risks:
    Commitments to extend credit                           4,498,405       4,498,405         6,225,000      6,225,000
    Standby letters of credit                              1,490,978       1,490,978           840,999        840,999

</TABLE>


                                      F-20
<PAGE>


NOTE 20 - PARENT COMPANY FINANCIAL INFORMATION

Following is condensed financial information of Beach First National Bancshares,
Inc. (parent company only):
<TABLE>
<CAPTION>
                                              Condensed Balance Sheets

                                                                         --------------------------------------
                                                                                        December 31,
                                                                         --------------------------------------
                                                                              2001                    2000
                                                                         ----------------       ---------------
<S>                                                                  <C>                    <C>
Assets
Cash                                                                     $     2,293,490       $         9,344
Due from Bank subsidiary                                                         195,697               317,901
Investment in Bank subsidiary                                                 10,340,271             5,816,629
Securities available for sale                                                    353,036               600,454
Other assets                                                                       3,808                26,491
                                                                         ---------------       ---------------
         Total assets                                                    $    13,186,302       $     6,770,819
                                                                         ===============       ===============

Liabilities and Shareholders' Equity
Accounts payable                                                         $        37,472       $        42,149
Shareholders' equity                                                          13,148,830             6,728,670
                                                                         ---------------       ---------------

         Total liabilities and shareholders' equity                      $    13,186,302       $     6,770,819
                                                                         ===============       ===============
</TABLE>

<TABLE>
<CAPTION>

                                           Condensed Statements of Income

                                                                      For the years ended December 31,
                                                            ----------------------------------------------
                                                                 2001            2000             1999
                                                            ---------------  -------------   -------------

<S>                                                         <C>              <C>             <C>
Revenues
Interest income                                             $       53,364   $     40,681    $     40,337
Gain (loss) on sale of securities                                     (788)           167          (1,363)
Other income                                                             -              -              91
                                                            --------------   ------------    ------------
         Total revenues                                             52,576         40,848          39,065
                                                            --------------   ------------    ------------

Expenses
Amortization                                                         2,175          2,900           2,900
Other expenses                                                      37,163         31,384          25,081
                                                            --------------   ------------    ------------
         Total expenses                                             39,338         34,284          27,981
                                                            --------------   ------------    ------------

Income before equity in undistributed
  net income of Bank subsidiary                                     13,238          6,564          11,084
Equity in undistributed net income of Bank
  Subsidiary                                                       446,056        224,159          41,837
                                                            --------------   ------------    ------------


         Net income                                         $      459,294   $    230,723    $     52,921
                                                            ==============   ============    ============
</TABLE>

                                      F-21
<PAGE>

NOTE 20 - PARENT COMPANY FINANCIAL INFORMATION, Continued

<TABLE>
<CAPTION>

                                            Condensed Statements of Cash Flows

                                                                 --------------------------------------------------
                                                                         For the years ended December 31,
                                                                 --------------------------------------------------
                                                                    2001               2000             1999
                                                                 --------------     -------------    --------------

<S>                                                              <C>                <C>              <C>
Operating activities
  Net income                                                     $    459,294      $    230,723     $    52,921
  Adjustments to reconcile net income to net cash
    provided by (used in) operating activities
   Equity in undistributed net income of
    the bank subsidiary                                              (446,056)         (224,159)        (41,837)
  Amortization                                                          2,175             2,900           2,900
  Decrease (increase) in due from Bank                                122,210          (213,147)        248,284
  (Gain) loss on sale of securities                                       788              (167)          1,363
  (Increase) decrease in order assets                                  19,783           (12,795)         (5,915)
  Increase (decrease) in accounts payable                              (4,677)           24,653          (3,659)
                                                                 ------------     -------------    ------------

         Net cash provided by (used for) operating activities         153,517          (191,992)        254,057
                                                                 ------------     -------------    ------------

Investing activities
  Additional investment in bank                                    (4,000,000)                -               -
  Purchase of securities available for sale                                 -                 -        (343,000)
  Proceeds from sale of securities available for sale                 251,711           130,082         132,407
                                                                 ------------     -------------    ------------

         Net cash provided (used for) investing activities         (3,748,289)          130,082        (210,593)
                                                                 ------------     -------------    ------------
Financing activities
Proceeds from issuance of stock                                     5,878,918                 -               -
Proceeds from exercise of stock options                                     -            15,000               -
                                                                 ------------     -------------    ------------
         Net cash provided by financing activities                  5,878,918            15,000               -
                                                                 ------------     -------------    ------------
         Net increase (decrease) in cash and cash
            equivalents                                             2,284,146           (46,910)         43,464
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                            9,344            56,254          12,790
                                                                 ------------     -------------    ------------
CASH AND CASH EQUIVALENTS, END OF YEAR                           $  2,293,490      $      9,344     $    56,254
                                                                 ============     =============    ============

</TABLE>

                                       F-22

<PAGE>


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

         None.

Item 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 page 11 of the
company's Proxy Statement for the Annual Meeting of Shareholders to be held on
April 17, 2002 is incorporated herein by reference.

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 17, 2002 is incorporated herein by reference.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

         In response to this Item, the information contained on page 9 of the
company's Proxy Statement for the Annual Meeting of Shareholders to be held on
April 17, 2002 is incorporated herein by reference.

Item 12.  Certain Relationships and Related Transactions

         In response to this Item, the information contained on page 11 of the
company's Proxy Statement for the Annual Meeting of Shareholders to be held on
April 17, 2002 is incorporated herein by reference.

Item 13.   Exhibits, List and Reports on Form 8-K

(a)      The following documents are filed as part of this report:

10.7.    Separation Agreement of William Gary Horn with the Company dated
         February 9, 2000 (incorporated by reference to Exhibit 10.9 of the
         Company's Form 10-KSB for the year ended December 31, 2000).

10.8.    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, 2000).

13       Annual Report to Shareholders for the year ended December 31, 2001

21.1.    Subsidiaries of the Company


(b)      Reports on Form 8-K

         There were no reports filed on Form 8-K during the fourth quarter ended
December 31, 2001.


                                       26
<PAGE>


                                   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 1, 2002              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.
<TABLE>
<CAPTION>

<S>                                             <C>                                      <C>
Signature                                               Title                                   Date
-----------------------------------------               -------------------                     --------------

/s/ Michael Bert Anderson
-----------------------------------------
Michael Bert Anderson                                   Director                                March 1, 2002

/s/ Orvis Bartlett Buie
-----------------------------------------
Orvis Bartlett Buie                                     Director                                March 1, 2002

/s/ Raymond E. Cleary, III
-----------------------------------------
Raymond E. Cleary III                            Chairman and Director                          March 1, 2002

/s/ Michael D. Harrington
-----------------------------------------
Michael D. Harrington                                   Director                                March 1, 2002

/s/ Joe N. Jarrett, Jr.
-----------------------------------------
Joe N. Jarrett, Jr.                                     Director                                March 1, 2002

/s/ Richard E. Lester
-----------------------------------------
Richard E. Lester                                       Director                                March 1, 2002

/s/ Leigh Ammons Meese
-----------------------------------------
Leigh Ammons Meese                                      Director                                March 1, 2002


                                       27

<PAGE>
Signature                                               Title                                   Date
-----------------------------------------               -------------------                     --------------


/s/ Rick H. Seagroves
-----------------------------------------
Rick H. Seagroves                                       Director                               March 1, 2002

/s/ Don J. Smith
-----------------------------------------
Don J. Smith                                            Director                               March 1, 2002

/s/ Samuel Robert Spann
-----------------------------------------
Samuel Robert Spann, Jr.                                Director                               March 1, 2002

/s/ B. Larkin Spivey, Jr.
-----------------------------------------
B. Larkin Spivey, Jr.                                   Director                               March 1, 2002

/s/ Walter E. Standish, III
-----------------------------------------
Walter E. Standish, III                       President, CEO, and Director                     March 1, 2002

/s/ James C. Yahnis
-----------------------------------------
James C. Yahnis                                         Director                               March 1, 2002

/s/ Richard N. Burch
-----------------------------------------
Richard N. Burch                              Chief Financial Officer and                      March 1, 2002
                                              Principal Accounting Officer
</TABLE>




                                       28