Letter to Shareholders

Greer Bancshares Incorporated

MARCH 15, 2005



Dear Shareholders and Friends:



2004 was truly a significant year in the history of Greer Bancshares Incorporated and Greer State Bank. From a financial performance perspective, the company increased
annual net income by 14%. From a growth perspective, the company increased Total Assets by 7.4% and Total Loans, the primary driver of the Banks earnings, by 20.7%. In terms of asset quality, the Bank reduced nonperforming assets as a
percentage of average assets from 0.62% to 0.25%. In brief, the Bank improved its balance sheet and income statement while regaining growth and earnings momentum for the future.



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |     
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 
|Perhaps of more significance, however, was the progress made during 2004 in the planning and hiring activities of the company. Over the past three years, the Board of Directors has been actively
involved in succession planning for the future leadership of the company, and in July of 2004, the Directors employed Kenneth M. Harper as President of Greer State Bank, assuming duties previously performed by R. Dennis Hennett who remains as Chief
Executive Officer. Mr. Harper is an experienced and highly skilled banker who has already contributed significantly to the Banks growth and financial performance. |  | LOGO
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 
|Seeking to extend the Banks service footprint, the Directors approved plans in 2004 for a new office in the Taylors community, and in September, C. Greg Sisk was employed as Vice
President, Community Executive for the Taylors office which is scheduled to open in the early summer of 2005. Mr. Sisk, a native of Taylors, is also an experienced, highly skilled banker and has been instrumental in forming a Taylors Community
Advisory Board, comprised of eight outstanding individuals, to assist the Bank in serving the Taylors community.                                                                        |  | LOGO
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 
|In November 2004, the Directors developed and approved an ambitious five-year growth plan for the Bank (described later in this letter) and reaffirmed the Boards commitment to remaining a
profitable, independent, community bank. In December of 2004, the Directors employed David C. Faucette as Vice President and Internal Auditor to enhance further the Banks risk management and financial reporting skills. Mr. Faucette brings
20-plus years of audit experience and reports to the Boards Audit Committee.                                                                                                      |  | LOGO



In summary, 2004 was a very successful
year for the company in improving earnings and asset quality, growing the Bank, attracting new leadership talent, and positioning the company for further success in the future.



LOGO





---

A BOLD VISION FOR THE
FUTURE



In the sixteen years since Greer State Bank opened for
business, the banking industry has grown increasingly competitive, complex, and costly. While this could be said for many other industries, banking has historically been a low profit margin business with a 1% return on average assets consistently
serving as an industry norm. For example, a bank with average assets of $100 million in a calendar year would typically return $1 million in net profit for that year.



Recognizing the evolving and challenging business dynamics of the banking industry, your Board of Directors has determined that Greer State
Bank should grow its asset base significantly over the next five years in order to achieve the size and scale that will permit superior financial performance, risk management, and return on investment for our shareholders. Therefore, in November the
Board approved a five-year growth plan designed to grow Greer State Bank from $231 million in assets at the end of 2004 to $425 million by the end of 2009, essentially doubling the size of the Bank.



To achieve this ambitious goal, the Bank will need to extend its service area and attract
quality bankers who are capable of producing solid growth and earnings. The directors and management of your Bank are actively engaged in the process of selecting future branch sites and recruiting top quality bankers to the company. We will keep
you posted on our progress in both areas in future shareholder updates.



A CONSTANT COMMITMENT TO OUR ORIGINAL VISION AND VALUES



While we search for new service opportunities in the greater Greer community, and while we
seek to attract and employ new banking talent, we remain firmly committed to our original vision and values for the company. We believe:



| |  |  | A bank charter is a powerful tool for improving the quality of life for those who have a relationship with Greer State Bank, whether as a customer, an associate, or a shareholder;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Customers still value superior personal service, delivered by people who are trustworthy, competent, and caring;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | The confidence placed in us by shareholders and customers is a sacred trust that we must honor and preserve at all times; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | Always acting in the best interests of our customers, associates, and community is also in the best interests of the Bank and our shareholders.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



THE OUTLOOK FOR
2005



We have often stated in previous shareholder updates that the banking
industry generally reflects the health of the national economy. We believe that will be particularly true in 2005. The extraordinary monetary and fiscal stimulus that was provided to the U. S. economy by the Federal Reserve Bank and Congress
following the bursting of the speculative Internet investment bubble has produced a number of benefits to the banking industry in the past two years: record low funding costs, huge increases in mortgage refinancing activity, significant gains in the
bond portfolio, and strong improvements in credit quality and thus lower provisions for loan losses.





---

However, we believe the confluence of low interest rates, monetary stimulus, large federal tax cuts, the costs of wars in
Afghanistan and Iraq, persistently higher energy costs, and record Federal budget deficits have produced potentially significant risks to the U. S. economy while raising our dependence on foreign governments and investors to finance our budget and
trade deficits. Management of these risks by the Federal Reserve Bank (while it withdraws fiscal and monetary stimulus) could prove troublesome for the U. S. economy and the banking sector in particular.



Nevertheless, we are cautiously optimistic about the economy in 2005, and we believe the Bank
is well-positioned to grow assets and earnings nicely, barring unforeseen surprises in the economy and interest rates.



Finally, and as always, we thank you for your continued interest and support, and we remain committed to enhancing the value of your investment now and in the future.



|                                      |  |  |  |                                           |  |  |  |                            
|------------------------------------- |  |  |  | ----------------------------------------- |  |  |  | ---------------------------
|Respectfully yours,                   |  |  |  |                                           |  |  |  |                            
|                                      |  |  |  |                                          
|LOGO                                  |  |  |  | LOGO                                      |  |  |  | LOGO                       
|Gary M. Griffin Chairman of the Board |  |  |  | R. Dennis Hennett Chief Executive Officer |  |  |  | Kenneth M. Harper President



LOGO





---

LOGO



BOARD
OF DIRECTORS



Seated left to
right: Mark S. Ashmore, Theron C. Smith, III, Gary M. Griffin, Paul D. Lister and Harold K. James

Standing left to right: C. Don Wall, Walter M. Burch, Kenneth M. Harper, R. Dennis Hennett, Anthony C. Cannon and

David M. Rogers



GARY M. GRIFFIN, CHAIRMAN

Mutual Home Stores

Vice President



MARK S. ASHMORE

Ashmore Bros., Inc./Century Concrete

President



WALTER M. BURCH

The Greer Citizen

Co-Publisher/General Manager



ANTHONY C. CANNON

Greer Commission of Public Works

Energy Manager



KENNETH M. HARPER

Greer Bancshares Inc. and Greer State Bank

President



R. DENNIS HENNETT

Greer Bancshares Inc. and Greer State Bank

Chief Executive Officer



HAROLD K. JAMES

James Agency, Inc.

Real Estate and Insurance

Vice President/Broker In Charge



PAUL D. LISTER

Paul D. Lister, CPA, LLC



DAVID M. ROGERS

Joshuas Way, Inc.

President



THERON C. SMITH, III

Eye Associates of Carolina, PA

President



C. DON WALL

Professional Pharmacy of Greer, Inc.

President



GREER BANCSHARES
INCORPORATED

EXECUTIVE OFFICERS



R. DENNIS HENNETT

Chief Executive Officer



KENNETH M. HARPER

President



J. RICHARD
MEDLOCK, JR.

Secretary/Treasurer



3



---

BANK OFFICERS



R. DENNIS HENNETT

Chief Executive Officer



KENNETH M. HARPER

President



SANDRA I.
BURDETTE

Executive Vice President & Chief Operations Officer



J. RICHARD MEDLOCK, JR.

Executive Vice President & Chief Financial Officer



E. PIERCE WILLIAMS, JR.

Executive Vice President/

Credit Administration & Commercial Lending



WILLIAM S. HARRILL,
JR.

Senior Vice President/Mortgage Lending



J. WILLIAM HUGHES

Senior Vice President/Consumer Lending



SANDRA K. BOOZER

Vice President/ Manager, Information Systems



JOE COPELAND

Vice President/ Commercial Lending



JUDY A. EDWARDS

Vice President/ Manager, Loan Administration



DAVID FAUCETTE

Vice President/Internal Auditor



SANDRA D. MASON

Vice President/ Operations Officer



DENISE W. PLUMBLEE

Vice President/Corporate Training Director/CRA Officer



GREG SISK

Vice President/Community Executive of Taylors Office



CHRIS M. TALLEY

Vice President/Operations Officer



THOMAS L. WILLIAMS

Vice President/Branch Manager of North Main Office



CHRISTY H. BLACKWELL

Assistant Vice President/Branch Manager



RICK DANNER

Assistant Vice President/Human Resources and Security Officer



SUE H. GAINES

Assistant Vice President/Mortgage Lending Officer



ROBERT M. LEE

Assistant Vice President/ EDP & Operations Officer



DENNIS TROUT

Assistant Vice President/Branch Manager

of Buncombe Road Office



TERRI N. GRADY

Banking Officer/Operations



ELIZABETH C. SAYCE

Banking Officer/ Loan Administration



ANN S. MILLER

Operations Officer/ Manager, EDP & Item Processing



BANK STAFF



Jason Baldwin

Jolynne G. Beck

Marsha K. Bennett

Ashley Bowers

Miranda F. Breazeale

Tammy S. Budove

Becky E. Burrell

Brad Cantrell

Melissa Carroll

Dixie Cartmell

Patti Cason

Angie W. Coleman

Debra P. Day

Tammy Durham

Grace Edwards

Lynda M. Green

Leigh Gregory

Sherri Groce

Patsy Hairston

Doris Hendricks

Joy T. Jordan

Tonya Kellett

Jennifer Kemp

Donna Miller

Cindy K. Morrell

Marion J. Muhlenbeck

Joy Myers

Cindi Patterson

Brandi R. Prevatte

Martin Price

Gail Pruitt

Ann B. Rainey

Nalani Ramza

Annette Reynolds

Melanie Robbins

Patsy L. Robinson

Tonda B. Rogers

Denise S. Ross

Mindi C. Smith

Teresa E. Smith

Kristi G. Twiddy

Ann Vaughn

Pat Vaughn

Patricia M. Voss

Pat Wellmon

Marie J. Wilson



GREER FINANCIAL
SERVICES CORPORATION



Roger Sims

President and Investments

Representative



Jason Karr

Assistant Vice President

and Financial Advisor



Jeanette Six

Registered Client Services

Manager



Debra Goodrich

Administrative Assistant



4



---

REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM



To the
Board of Directors

Greer Bancshares Incorporated and Subsidiary

Greer, South Carolina



We have audited the accompanying consolidated
balance sheets of Greer Bancshares Incorporated and Subsidiary (the Company) as of December 31,2004 and 2003, and the related consolidated statements of income, changes in stockholders equity and cash flows for each of the three
years ended December 31, 2004. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.



We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall 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 financial position of Greer Bancshares Incorporated and Subsidiary as of December 31,2004 and 2003, and the results of their operations and their cash flows for
each of the three years ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.



|                                       
|---------------------------------------
|LOGO                                   
|                                       
|Asheville, North Carolina March 2, 2005



LOGO



5



---



GREER
BANCSHARES INCORPORATED AND SUBSIDIARY

Consolidated Balance Sheets



|                                                                                                                                                                     |  |             |             |      |   |            
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ----------- | ---- | - | -----------
|                                                                                                                                                                     |  | DECEMBER 31
|                                                                                                                                                                     |  | 2004        |             | 2003
|ASSETS                                                                                                                                                               |  |             |             |      |   |            
|Cash and due from banks                                                                                                                                              |  | $           | 4,206,967   |      | $ | 5,506,826  
|Federal funds sold                                                                                                                                                   |  |             | 650,000     |      |   | 159,000    
|Interest bearing deposits in banks                                                                                                                                   |  |             | 1,512,772   |      |   | 1,759,720  
|Investment securities:                                                                                                                                               |  |             |             |      |   |            
|Held to maturity (fair value of approximately $35,316,747 and $17,277,735, respectively)                                                                             |  | $           | 35,474,547  |      | $ | 17,263,115 
|Available for sale                                                                                                                                                   |  |             | 37,054,394  |      |   | 64,363,309 
|Loans, net of allowance for loan losses of $1,136,258 and $1,298,228, respectively                                                                                   |  |             | 138,510,175 |      |   | 114,266,396
|Premises and equipment, net                                                                                                                                          |  |             | 4,352,900   |      |   | 3,885,750  
|Real estate held for sale                                                                                                                                            |  |             | 409,250     |      |   | 125,473    
|Accrued interest receivable                                                                                                                                          |  |             | 1,137,938   |      |   | 1,244,994  
|Restricted stock                                                                                                                                                     |  |             | 3,120,014   |      |   | 2,396,714  
|Other assets                                                                                                                                                         |  |             | 4,862,448   |      |   | 3,162,365  
|                                                                                                                                                                     |  |             |             |      |   |            
|TOTAL ASSETS                                                                                                                                                         |  | $           | 231,291,405 |      | $ | 214,133,662
|                                                                                                                                                                     |  |             |             |      |   |            
|                                                                                                                                                                     |  |            
|                                                                                                                                                                     |  | 2004        |             | 2003
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                 |  |             |             |      |   |            
|Deposits:                                                                                                                                                            |  |             |             |      |   |            
|Non-interest bearing                                                                                                                                                 |  | $           | 21,325,533  |      | $ | 20,311,000 
|Interest-bearing                                                                                                                                                     |  |             | 128,934,403 |      |   | 132,649,952
|                                                                                                                                                                     |  |             |             |      |   |            
|TOTAL DEPOSITS                                                                                                                                                       |  | $           | 150,259,936 |      | $ | 152,960,952
|Notes payable to Federal Home Loan Bank                                                                                                                              |  |             | 52,185,015  |      |   | 40,057,226 
|Other long term debt                                                                                                                                                 |  |             | 6,186,000   |      |   |           
|Other liabilities                                                                                                                                                    |  |             | 1,627,227   |      |   | 1,407,699  
|                                                                                                                                                                     |  |             |             |      |   |            
|TOTAL LIABILITIES                                                                                                                                                    |  | $           | 210,258,178 |      | $ | 194,425,877
|                                                                                                                                                                     |  |             |             |      |   |            
|Commitments and contingenciesNote 9                                                                                                                                 |  |             |             |      |   |            
|Stockholders equity:                                                                                                                                                |  |             |            |      |   |           
|Preferred stock, $5 par value, 1,00,000 shares authorized; none issued                                                                                               |  |             |             |      |   |            
|Common stockpar value $5 per share, 10,000,000 shares authorized; 2,432,261 and 1,615,277 shares issued and outstanding at December 31,
2004 and 2003, respectively |  | $           | 12,161,305  |      | $ | 8,076,385  
|Additional paid in capital                                                                                                                                           |  |             | 2,513,304   |      |   | 6,465,441  
|Retained earnings                                                                                                                                                    |  |             | 5,520,915   |      |   | 4,059,696  
|Accumulated other comprehensive income                                                                                                                               |  |             | 837,703     |      |   | 1,106,263  
|                                                                                                                                                                     |  |             |             |      |   |            
|TOTAL STOCKHOLDERS EQUITY                                                                                                                                           |  | $           | 21,033,227  |      | $ | 19,707,785 
|                                                                                                                                                                     |  |             |             |      |   |            
|TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY                                                                                                                           |  | $           | 231,291,405 |      | $ | 214,133,662
|                                                                                                                                                                     |  |             |             |      |   |            



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



|                   |  |   |  | 
|------------------ |  | - |  | 
|2004 ANNUAL REPORT |  | 6 |  | 



---



GREER
BANCSHARES INCORPORATED AND SUBSIDIARY

Consolidated Statements of Income



|                                                    |  |                                  |            |      |   |            |  |   |            |  
|--------------------------------------------------- |  | -------------------------------- | ---------- | ---- | - | ---------- |  | - | ---------- | -
|                                                    |  | FOR THE YEARS ENDED DECEMBER 31, |           
|                                                    |  | 2004                             |            | 2003 |   | 2002       | 
|Interest income:                                    |  |                                  |            |      |   |            |  |   |            |  
|Loans, including fees                               |  | $                                | 7,712,511  |      | $ | 7,240,740  |  | $ | 8,242,588  |  
|Investment securities:                              |  |                                  |            |      |   |            |  |   |            |  
|Taxable                                             |  |                                  | 2,010,934  |      |   | 1,435,549  |  |   | 1,777,204  |  
|Tax-exempt                                          |  |                                  | 1,434,924  |      |   | 1,404,546  |  |   | 984,746    |  
|Federal funds sold                                  |  |                                  | 21,977     |      |   | 34,974     |  |   | 62,177     |  
|Other                                               |  |                                  | 16,013     |      |   | 23,756     |  |   | 24,762     |  
|                                                    |  |                                  |            |      |   |            |  |   |            |  
|TOTAL INTEREST INCOME                               |  | $                                | 11,196,359 |      | $ | 10,139,565 |  | $ | 11,091,477 |  
|                                                    |  |                                  |            |      |   |            |  |   |            |  
|Interest expense:                                   |  |                                  |            |      |   |            |  |   |            |  
|Interest on deposit accounts                        |  |                                  | 2,099,607  |      |   | 1,952,060  |  |   | 2,493,740  |  
|Interest on FHLB borrowings                         |  |                                  | 1,694,356  |      |   | 1,666,809  |  |   | 1,638,495  |  
|Interest on long-term borrowings                    |  |                                  | 55,389     |      |   |           |  |   |           |  
|                                                    |  |                                  |            |      |   |            |  |   |            |  
|TOTAL INTEREST EXPENSE                              |  | $                                | 3,849,352  |      | $ | 3,618,869  |  | $ | 4,132,235  |  
|                                                    |  |                                  |            |      |   |            |  |   |            |  
|Net interest income                                 |  |                                  | 7,347,007  |      |   | 6,520,696  |  |   | 6,959,242  |  
|                                                    |  |                                  |           
|Provision for loan losses                           |  |                                  | 251,000    |      |   | 10,000     |  |   | 787,500    |  
|                                                    |  |                                  |            |      |   |            |  |   |            |  
|Net interest income after provision for loan losses |  |                                  | 7,096,007  |      |   | 6,510,696  |  |   | 6,171,742  |  
|                                                    |  |                                  |            |      |   |            |  |   |            |  
|Non-interest income:                                |  |                                  |            |      |   |            |  |   |            |  
|Customer service fees                               |  |                                  | 1,235,497  |      |   | 1,167,683  |  |   | 1,088,839  |  
|Gain (loss) on sale of investment securities        |  |                                  | 295,572    |      |   | 122,585    |  |   | (11,120    | )
|Gain on sale of real estate held for sale           |  |                                  |           |      |   | 13,482     |  |   | 1,057,128  |  
|Other operating income                              |  |                                  | 677,805    |      |   | 598,551    |  |   | 670,558    |  
|                                                    |  |                                  |            |      |   |            |  |   |            |  
|TOTAL NON-INTEREST INCOME                           |  | $                                | 2,208,874  |      | $ | 1,902,301  |  | $ | 2,805,405  |  
|                                                    |  |                                  |            |      |   |            |  |   |            |  
|Non-interest expenses:                              |  |                                  |            |      |   |            |  |   |            |  
|Salaries and employee benefits                      |  | $                                | 3,440,019  |      | $ | 3,110,957  |  | $ | 2,856,452  |  
|Occupancy and equipment                             |  |                                  | 737,534    |      |   | 870,096    |  |   | 933,865    |  
|Postage and supplies                                |  |                                  | 234,163    |      |   | 241,863    |  |   | 244,113    |  
|Marketing expenses                                  |  |                                  | 178,800    |      |   | 222,550    |  |   | 190,322    |  
|Directors fees                                      |  |                                  | 163,800    |      |   | 150,000    |  |   | 152,400    |  
|Professional fees                                   |  |                                  | 260,116    |      |   | 186,628    |  |   | 236,148    |  
|Other operating expenses                            |  |                                  | 1,075,206  |      |   | 906,889    |  |   | 952,706    |  
|                                                    |  |                                  |            |      |   |            |  |   |            |  
|TOTAL NON-INTEREST EXPENSES                         |  | $                                | 6,089,638  |      | $ | 5,688,983  |  | $ | 5,566,006  |  
|                                                    |  |                                  |            |      |   |            |  |   |            |  
|Income before income taxes                          |  |                                  | 3,215,243  |      |   | 2,724,014  |  |   | 3,411,141  |  
|                                                    |  |                                  |           
|Provision for income taxes                          |  |                                  | 655,557    |      |   | 491,751    |  |   | 887,600    |  
|                                                    |  |                                  |            |      |   |            |  |   |            |  
|Net income                                          |  | $                                | 2,559,686  |      | $ | 2,232,263  |  | $ | 2,523,541  |  
|                                                    |  |                                  |            |      |   |            |  |   |            |  
|Earnings per share:                                 |  |                                  |            |      |   |            |  |   |            |  
|Basic                                               |  | $                                | 1.05       |      | $ | .92        |  | $ | 1.05       |  
|                                                    |  |                                  |            |      |   |            |  |   |            |  
|Diluted                                             |  | $                                | 1.05       |      | $ | .92        |  | $ | 1.04       |  
|                                                    |  |                                  |            |      |   |            |  |   |            |  
|Weighted average shares outstanding:                |  |                                  |            |      |   |            |  |   |            |  
|Basic                                               |  |                                  | 2,428,833  |      |   | 2,415,803  |  |   | 2,404,306  |  
|                                                    |  |                                  |            |      |   |            |  |   |            |  
|Diluted                                             |  |                                  | 2,447,589  |      |   | 2,438,631  |  |   | 2,429,867  |  
|                                                    |  |                                  |            |      |   |            |  |   |            |  



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



| |  |   |  |                       
| |  | - |  | ----------------------
| |  | 7 |  | www.GREERSTATEBANK.COM



---



GREER
BANCSHARES INCORPORATED AND SUBSIDIARY

Consolidated Statements of Changes in
Stockholders Equity

For the Years Ended December 31, 2004, 2003 and 2002



|                                                                                                                        |  |              |  |                           |            |  |                  |            |   |                                      |   |            |                             |  |   |           |   |  |   |            |  
|----------------------------------------------------------------------------------------------------------------------- |  | ------------ |  | ------------------------- | ---------- |  | ---------------- | ---------- | - | ------------------------------------ | - | ---------- | --------------------------- |  | - | --------- | - |  | - | ---------- | -
|                                                                                                                        |  | COMMON STOCK |  | ADDITIONALPAID IN CAPITAL |            |  | RETAINEDEARNINGS |            |   | ACCUMULATEDOTHER COMPREHENSIVEINCOME |   |            | TOTAL STOCK-HOLDERS EQUITY | 
|                                                                                                                        |  | SHARES       |  | AMOUNT                    |            |  |                  |           
|Balance at December 31, 2001                                                                                            |  | 1,557,528    |  | $                         | 7,787,640  |  | $                | 5,344,572  |   |                                      | $ | 2,758,108  |                             |  | $ | 35,266    |   |  | $ | 15,925,586 |  
|                                                                                                                        |  |              |  |                           |            | 
|Net income                                                                                                              |  |             |  |                           |           |  |                  |           |   |                                      |   | 2,523,541  |                             |  |   |          |   |  |   | 2,523,541  |  
|Other comprehensive income, net of tax:                                                                                 |  |              |  |                           |            |  |                  |            |   |                                      |   |            |                             |  |   |           |   |  |   |            |  
|Unrealized holding gains on investment securities                                                                       |  |             |  |                           |           |  |                  |           |   |                                      |   |           |                             |  |   | 750,495   |   |  |   | 750,495    |  
|Reclassification adjustments for losses included in net income                                                          |  |             |  |                           |           |  |                  |           |   |                                      |   |           |                             |  |   | 6,895     |   |  |   | 6,895      |  
|                                                                                                                        |  |              |  |                           |            |  |                  |            |   |                                      |   |            |                             |  |   |           |   |  |   |            |  
|Comprehensive income                                                                                                    |  |              |  |                           |            |  |                  |            |   |                                      |   |            |                             |  |   |           |   |  |   | 3,280,931  |  
|Stock dividend (2.5%)                                                                                                   |  | 38,839       |  |                           | 194,195    |  |                  | 854,457    |   |                                      |   | (1,048,652 | )                           |  |   |          |   |  |   |           |  
|Cash in lieu of fractional shares on stock dividend                                                                     |  |             |  |                           |           |  |                  |           |   |                                      |   | (8,992     | )                           |  |   |          |   |  |   | (8,992     | )
|Stock exercised pursuant to stock option plan                                                                           |  | 9,651        |  |                           | 48,255     |  |                  | 143,928    |   |                                      |   |           |                             |  |   |          |   |  |   | 192,183    |  
|Tax benefit of stock options exercised                                                                                  |  |             |  |                           |           |  |                  | 7,000      |   |                                      |   |           |                             |  |   |          |   |  |   | 7,000      |  
|Cash dividends ($.50 per share)                                                                                         |  |             |  |                           |           |  |                  |           |   |                                      |   | (783,440   | )                           |  |   |          |   |  |   | (783,440   | )
|                                                                                                                        |  |              |  |                           |            |  |                  |            |   |                                      |   |            |                             |  |   |           |   |  |   |            |  
|Balance at December 31, 2002                                                                                            |  | 1,606,018    |  | $                         | 8,030,090  |  | $                | 6,349,957  |   |                                      | $ | 3,440,565  |                             |  | $ | 792,656   |   |  | $ | 18,613,268 |  
|                                                                                                                        |  |              |  |                           |            | 
|Net income                                                                                                              |  |             |  |                           |           |  |                  |           |   |                                      |   | 2,232,263  |                             |  |   |          |   |  |   | 2,232,263  |  
|Other comprehensive income, net of tax:                                                                                 |  |              |  |                           |            |  |                  |            |   |                                      |   |            |                             |  |   |           |   |  |   |            |  
|Unrealized holding gains on investment securities                                                                       |  |             |  |                           |           |  |                  |           |   |                                      |   |           |                             |  |   | 389,610   |   |  |   | 389,610    |  
|Less reclassification adjustments for gain included in net income                                                       |  |             |  |                           |           |  |                  |           |   |                                      |   |           |                             |  |   | (76,003   | ) |  |   | (76,003    | )
|                                                                                                                        |  |              |  |                           |            |  |                  |            |   |                                      |   |            |                             |  |   |           |   |  |   |            |  
|Comprehensive income                                                                                                    |  |              |  |                           |            |  |                  |            |   |                                      |   |            |                             |  |   |           |   |  |   | 2,545,870  |  
|Stock exercised pursuant to stock option plan                                                                           |  | 9,259        |  |                           | 46,295     |  |                  | 97,045     |   |                                      |   |           |                             |  |   |          |   |  |   | 143,340    |  
|Tax benefit of stock options exercised                                                                                  |  |             |  |                           |           |  |                  | 18,439     |   |                                      |   |           |                             |  |   |          |   |  |   | 18,439     |  
|Cash dividends ($1.00 per share)                                                                                        |  |             |  |                           |           |  |                  |           |   |                                      |   | (1,613,132 | )                           |  |   |          |   |  |   | (1,613,132 | )
|                                                                                                                        |  |              |  |                           |            |  |                  |            |   |                                      |   |            |                             |  |   |           |   |  |   |            |  
|Balance at December 31, 2003                                                                                            |  | 1,615,277    |  | $                         | 8,076,385  |  | $                | 6,465,441  |   |                                      | $ | 4,059,696  |                             |  | $ | 1,106,263 |   |  | $ | 19,707,785 |  
|                                                                                                                        |  |              |  |                           |            | 
|Net income                                                                                                              |  |             |  |                           |           |  |                  |           |   |                                      |   | 2,559,686  |                             |  |   |          |   |  |   | 2,559,686  |  
|Other comprehensive income, net of tax:                                                                                 |  |              |  |                           |            |  |                  |            |   |                                      |   |            |                             |  |   |           |   |  |   |            |  
|Unrealized holding loss on investment securities, net of income tax benefit of approximately $54,085                    |  |             |  |                           |           |  |                  |           |   |                                      |   |           |                             |  |   | (85,305   | ) |  |   | (83,305    | )
|Less reclassification adjustments for gains included in net income, net of income tax expense of approximately $114,000 |  |             |  |                           |           |  |                  |           |   |                                      |   |           |                             |  |   | (183,255  | ) |  |   | (183,255   | )
|                                                                                                                        |  |              |  |                           |            |  |                  |            |   |                                      |   |            |                             |  |   |           |   |  |   |            |  
|Comprehensive income                                                                                                    |  |              |  |                           |            |  |                  |            |   |                                      |   |            |                             |  |   |           |   |  |   | 2,291,126  |  
|Stock exercised pursuant to stock option plan                                                                           |  | 7,689        |  |                           | 38,445     |  |                  | 90,337     |   |                                      |   |           |                             |  |   |          |   |  |   | 128,782    |  
|Tax benefit of stock options exercised                                                                                  |  |             |  |                           |           |  |                  | 4,001      |   |                                      |   |           |                             |  |   |          |   |  |   | 4,001      |  
|Stock split (3 for 2) effected in the form of a stock dividend                                                          |  | 809,295      |  |                           | 4,046,475  |  |                  | (4,046,475 | ) |                                      |   |           |                             |  |   |          |   |  |   |           |  
|Cash in lieu of fractional shares                                                                                       |  |             |  |                           |           |  |                  |           |   |                                      |   | (4,865     | )                           |  |   |          |   |  |   | (4,865     | )
|Cash dividends ($.45 per share)                                                                                         |  |             |  |                           |           |  |                  |           |   |                                      |   | (1,093,602 | )                           |  |   |          |   |  |   | (1,093,602 | )
|                                                                                                                        |  |              |  |                           |            |  |                  |            |   |                                      |   |            |                             |  |   |           |   |  |   |            |  
|Balance at December 31, 2004                                                                                            |  | 2,432,261    |  | $                         | 12,161,305 |  | $                | 2,513,304  |   |                                      | $ | 5,520,915  |                             |  | $ | 837,703   |   |  | $ | 21,033,227 |  
|                                                                                                                        |  |              |  |                           |            |  |                  |            |   |                                      |   |            |                             |  |   |           |   |  |   |            |  



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



|                   |  |   |  | 
|------------------ |  | - |  | 
|2004 ANNUAL REPORT |  | 8 |  | 



---



GREER
BANCSHARES INCORPORATED AND SUBSIDIARY

Consolidated Statements of Cash Flows



|                                                                                  |  |                                  |             |   |      |    |             |      |  |    |             |  
|--------------------------------------------------------------------------------- |  | -------------------------------- | ----------- | - | ---- | -- | ----------- | ---- |  | -- | ----------- | -
|                                                                                  |  | FOR THE YEARS ENDED DECEMBER 31, |            
|                                                                                  |  | 2004                             |             |   | 2003 |    |             | 2002 | 
|Operating activities:                                                             |  |                                  |             |   |      |    |             |      |  |    |             |  
|Net income                                                                        |  | $                                | 2,559,686   |   |      | $  | 2,232,263   |      |  | $  | 2,523,541   |  
|                                                                                  |  |                                  |            
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                  |             |   |      |    |             |      |  |    |             |  
|Depreciation                                                                      |  |                                  | 434,546     |   |      |    | 544,692     |      |  |    | 580,048     |  
|(Gain) loss on sale of investment securities                                      |  |                                  | (295,572    | ) |      |    | (122,586    | )    |  |    | 11,120      |  
|Loss (gain) on sale of real estate held for sale                                  |  |                                  | 11,859      |   |      |    | (13,482     | )    |  |    | (1,036,121  | )
|Provision for loan losses                                                         |  |                                  | 251,000     |   |      |    | 10,000      |      |  |    | 787,500     |  
|Deferred income taxes (benefit)                                                   |  |                                  | 35,925      |   |      |    | (54,000     | )    |  |    | 82,000      |  
|                                                                                  |  |                                  |            
|Net change in:                                                                    |  |                                  |             |   |      |    |             |      |  |    |             |  
|Accrued interest receivable                                                       |  |                                  | 107,056     |   |      |    | (132,161    | )    |  |    | (22,974     | )
|Other assets                                                                      |  |                                  | (104,448    | ) |      |    | (28,593     | )    |  |    | (74,726     | )
|Other liabilities                                                                 |  |                                  | 345,726     |   |      |    | (233,524    | )    |  |    | (14,669     | )
|                                                                                  |  |                                  |             |   |      |    |             |      |  |    |             |  
|Net cash provided by operating activities                                         |  | $                                | 3,345,778   |   |      | $  | 2,202,609   |      |  | $  | 2,835,719   |  
|                                                                                  |  |                                  |             |   |      |    |             |      |  |    |             |  
|Investing activities:                                                             |  |                                  |             |   |      |    |             |      |  |    |             |  
|Activity in available-for-sale securities:                                        |  |                                  |             |   |      |    |             |      |  |    |             |  
|Sales                                                                             |  | $                                | 19,798,735  |   |      | $  | 2,488,325   |      |  | $  | 12,093,002  |  
|Maturities, prepayments and calls                                                 |  |                                  | 17,659,069  |   |      |    | 22,372,630  |      |  |    | 13,488,576  |  
|Purchases                                                                         |  |                                  | (10,289,999 | ) |      |    | (36,804,019 | )    |  |    | (30,208,965 | )
|                                                                                  |  |                                  |            
|Activity in held to maturity securities:                                          |  |                                  |             |   |      |    |             |      |  |    |             |  
|Maturities, prepayments and calls                                                 |  |                                  | 6,246,070   |   |      |    | 7,238,885   |      |  |    | 3,982,971   |  
|Purchases                                                                         |  |                                  | (24,457,502 | ) |      |    | (11,915,930 | )    |  |    | (15,151,123 | )
|Proceeds from sale of real estate held for sale                                   |  |                                  | 231,241     |   |      |    | 13,482      |      |  |    | 1,862,069   |  
|Net (increase) decrease in federal funds sold                                     |  |                                  | (491,000    | ) |      |    | 3,192,000   |      |  |    | (3,201,000  | )
|Purchase of FHLB stock                                                            |  |                                  | (723,300    | ) |      |    |            |      |  |    |            |  
|Net (increase) decrease in loans                                                  |  |                                  | (25,021,656 | ) |      |    | (7,843,836  | )    |  |    | 5,440,781   |  
|Purchase of premises and equipment                                                |  |                                  | (891,696    | ) |      |    | (193,961    | )    |  |    | (208,593    | )
|Purchase of life insurance                                                        |  |                                  | (1,000,000  | ) |      |    |            |      |  |    |            |  
|                                                                                  |  |                                  |             |   |      |    |             |      |  |    |             |  
|Net cash used for investing activities                                            |  | ($                               | 18,940,038  | ) |      | ($ | 21,452,424  | )    |  | ($ | 11,902,282  | )
|                                                                                  |  |                                  |             |   |      |    |             |      |  |    |             |  
|Financing activities:                                                             |  |                                  |             |   |      |    |             |      |  |    |             |  
|Net increase (decrease) in deposits                                               |  | $                                | (2,701,016  | ) |      | $  | 15,397,700  |      |  | $  | 6,392,025   |  
|Repayment of notes payable to Federal Home Loan Bank                              |  |                                  | (1,281,846  | ) |      |    | (4,279,687  | )    |  |    | (2,277,694  | )
|Proceeds from notes payable to Federal Home Loan Bank                             |  |                                  | 13,000,000  |   |      |    | 9,500,000   |      |  |    | 5,500,000   |  
|Proceeds from issuance of long term debt                                          |  |                                  | 6,000,000   |   |      |    |            |      |  |    |            |  
|Proceeds from exercise of stock options                                           |  |                                  | 128,782     |   |      |    | 143,340     |      |  |    | 192,183     |  
|Cash in lieu of fractional shares on stock dividend                               |  |                                  | (4,865      | ) |      |    |            |      |  |    | (8,992      | )
|Cash dividends paid                                                               |  |                                  | (1,093,602  | ) |      |    | (1,613,132  | )    |  |    | (783,440    | )
|                                                                                  |  |                                  |             |   |      |    |             |      |  |    |             |  
|Net cash provided by financing activities                                         |  | $                                | 14,047,453  |   |      | $  | 19,148,221  |      |  | $  | 9,014,082   |  
|                                                                                  |  |                                  |             |   |      |    |             |      |  |    |             |  
|                                                                                  |  |                                  |            
|Net (decrease) in cash and due from banks                                         |  |                                  | (1,547,808  | ) |      |    | (101,594    | )    |  |    | (52,481     | )
|                                                                                  |  |                                  |            
|Cash and due from banks at beginning of year                                      |  |                                  | 7,266,546   |   |      |    | 7,368,140   |      |  |    | 7,420,621   |  
|                                                                                  |  |                                  |             |   |      |    |             |      |  |    |             |  
|                                                                                  |  |                                  |            
|Cash and due from banks at end of year                                            |  | $                                | 5,719,739   |   |      | $  | 7,266,546   |      |  | $  | 7,368,140   |  
|                                                                                  |  |                                  |             |   |      |    |             |      |  |    |             |  



(Continued on next page)



| |  |   |  |                       
| |  | - |  | ----------------------
| |  | 9 |  | www.GREERSTATEBANK.COM



---



GREER
BANCSHARES INCORPORATED AND SUBSIDIARY

Consolidated Statements of Cash Flows



|                                                       |  |                                  |           |      |   |           |  |   |          
|------------------------------------------------------ |  | -------------------------------- | --------- | ---- | - | --------- |  | - | ---------
|                                                       |  | FOR THE YEARS ENDED DECEMBER 31,
|                                                       |  | 2004                             |           | 2003 |   | 2002     
|Supplemental disclosures of cash flow information      |  |                                  |           |      |   |           |  |   |          
|Cash paid during the year for:                         |  |                                  |           |      |   |           |  |   |          
|Interest                                               |  | $                                | 3,631,551 |      | $ | 3,712,899 |  | $ | 4,516,670
|                                                       |  |                                  |           |      |   |           |  |   |          
|Income taxes                                           |  | $                                | 618,383   |      | $ | 741,198   |  | $ | 551,600  
|                                                       |  |                                  |           |      |   |           |  |   |          
|Non-cash investing and financing activities:           |  |                                  |           |      |   |           |  |   |          
|Real estate acquired in satisfaction of mortgage loans |  | $                                | 526,877   |      | $ | 125,473   |  | $ | 134,000  
|                                                       |  |                                  |           |      |   |           |  |   |          
|Investment in trust                                    |  | $                                | 186,000   |      |   |          |  |   |         
|                                                       |  |                                  |           |      |   |           |  |   |          
|Change in valuation of fair value hedge                |  | $                                | 409,635   |      |   |          |  |   |         
|                                                       |  |                                  |           |      |   |           |  |   |          



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



|                   |  |    |  | 
|------------------ |  | -- |  | 
|2004 ANNUAL REPORT |  | 10 |  | 



---



GREER
BANCSHARES INCORPORATED AND SUBSIDIARY



Notes to Consolidated Financial Statements

December 31, 2004, 2003 and 2002



1. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES



OrganizationGreer State Bank (the Bank) was organized under a state banking charter in August 1988 and commenced operations on January 3, 1989. Greer Bancshares Incorporated (a one-bank holding company) is a South Carolina
corporation formed in July 2001, primarily to hold all of the capital stock of Greer State Bank. The Bank engages in commercial and retail banking, emphasizing the needs of small to medium-sized businesses, professional concerns, and individuals,
primarily in Greer and surrounding areas in the upstate of South Carolina. The accompanying consolidated financial statements include the accounts of the holding company and its wholly-owned subsidiary (herein referred to as the
Company).



In October 2004, Greer Capital Trust I was formed. The trust
was formed as part of the process of the issuance of trust preferred securities. During 2004, the Company adopted FASB Interpretation Nos. 46 and 46R, Consolidation of Variable Interest Entities.



Nature of OperationsThe only current activity of the holding company is to hold its
investment in the Bank. We operate the Bank under a state bank charter and provide full banking services to our clients. We are subject to regulation by the Federal Deposit Insurance Corporation and the South Carolina Board of Financial
Institutions.



The Bank has Greer Financial Services Corporation as a
wholly-owned subsidiary to provide financial management services and non-deposit product sales.



In 2004, the Company formed Greer Capital Trust I (Trust) to issue trust preferred securities. Under the provisions of FIN 46 and 46R, the Company has not consolidated the Trust. The junior subordinated debt issued by
the Company to the Trust is included in long-term debt and the equity investment in the Trust is included in other assets.



In March 2004 the Company declared a three-for-two stock split effective in the form of a stock dividend. All share and per share information has been adjusted to reflect
the effect of the dividend.



Principles of ConsolidationThe consolidated
financial statements include the accounts of the Company and its subsidiaries and, in consolidation, all significant intercompany items are eliminated. Greer Capital Trust I is not consolidated in these financial statements.



Business SegmentsWe report our activities as one business segment. In determining the
appropriateness of segment definition, we consider the materiality of the potential segment and components of the business about which financial information is available and regularly evaluated relative to resource allocation and performance
assessment.



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 at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.



Cash and Cash EquivalentsFor the purpose of presentation in the statements of cash flows, cash and cash equivalents are defined as
those amounts included in the balance sheet caption Cash and due from banks and Interest-bearing deposits in banks.



Securities Held to MaturityBonds, notes, and debentures for which we have the positive intent and ability to hold to maturity are reported at cost, adjusted for
premiums and discounts that are recognized in interest income using the interest method over the period to maturity or to call dates.



Securities Available for SaleAvailable-for-sale securities are reported at fair value and consist of bonds, notes, debentures, and certain equity securities not
classified as trading securities or as held-to-maturity securities.



| |  |    |  |                       
| |  | -- |  | ----------------------
| |  | 11 |  | www.GREERSTATEBANK.COM



---

Unrealized holding gains and losses, net of tax, on available-for-sale securities are reported as a net amount in a
separate component of stockholders equity. Realized gains and losses on the sale of available-for-sale securities are determined using the specific-identification method. Premiums and discounts are recognized in interest income using the
interest method over the period to maturity or to call dates.



Declines in the
fair value of individual held-to-maturity and available-for-sale securities below cost that are other than temporary are reflected as write-downs of the individual securities to fair value. Related write-downs are included in income as realized
losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which fair value has been less than cost, (2) the financial condition and near term prospectus of the issuer, and (3) the
intent and ability of the company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair values.



Concentrations of Credit RiskWe make loans to individuals and small businesses located primarily in upstate South Carolina for various personal and commercial
purposes. We have a diversified loan portfolio that is not dependent upon any specific economic sector.



Comprehensive Income Annual comprehensive income reflects the change in our equity during the year arising from transactions and events other than in investment by and distributions to shareholders. It consists
of net income plus certain other changes in assets and liabilities that are reported as separate components of stockholders equity rather than as income or expense. The statement of changes in stockholders equity includes the components
of comprehensive income.



Loans and Interest IncomeWe grant mortgage,
commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by loans throughout the greater Greer area of the upstate of South Carolina. The ability of our debtors to honor their contracts is dependent upon
the general economic conditions in this area. Loans are reported at their outstanding unpaid principal balances adjusted for the allowance for loan losses and any unearned discounts. Interest income is accrued and taken into income based upon the
interest method.



The accrual of interest on loans is discontinued when, in our
judgment, the interest will not be collectible in the normal course of business. Accrual of interest of such loans is typically discontinued when the loan is 90 days past due or impaired. All interest accrued, but not collected for loans that are
placed on non-accrual or charged off, is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method until qualifying for return to accrual. Loans are returned to accrual status when all
the principal and interest amounts contractually due are brought current and future payments are reasonably assured.



Allowance for Loan LossesThe allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to
earnings. Loan losses are charged against the allowance when we believe the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.



The allowance for loan losses is evaluated on a regular basis by our management and is based upon our periodic review of the collectability
of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrowers ability to repay, estimated value of any underlying collateral, and prevailing economic conditions.
This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.



A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or
interest when due according to the contractual terms of the loan agreement. Factors considered by us in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when
due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected
future cash flows discounted at the loans effective interest rate, the loans obtainable market price, or the fair value of the collateral if the loan is collateral dependent.



Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, we do not separately identify
individual consumer and residential loans for impairment disclosures.



|                   |  |    |  | 
|------------------ |  | -- |  | 
|2004 ANNUAL REPORT |  | 12 |  | 



---

Premises and EquipmentLand is carried at cost. Premises and equipment are stated at cost, net of accumulated
depreciation. Depreciation is charged using straight-line and accelerated methods over the useful lives (three to thirty-nine years) of the assets. Additions to premises and equipment and major replacements or improvements are capitalized at cost.
Maintenance, repairs and minor replacements are expensed when incurred. Gains and losses on routine dispositions are reflected in current operations.



Real Estate Held for SaleOur real estate held for sale is stated at the lower of cost or net realizable value. Market values of real estate held for sale are
reviewed regularly and allowances for losses are established when the carrying value exceeds the estimated net realizable value. Gains and losses on the sale of real estate held for sale are recorded at the time of sale.



In 2002, we sold a tract of undeveloped real estate for approximately $1,690,000, which
resulted in a gain of approximately $1,057,000. Originally acquired as part of a larger parcel in 1996, we subdivided the undeveloped portion of the property after completing construction of a branch office.



Stock in the Federal Home Loan Bank of Atlanta -As a requirement for membership, the Company
invests in stock of the Federal Home Loan Bank of Atlanta (FHLB). This investment is carried at cost and is included in Restricted Stock in the accompanying consolidated balance sheets.



Stock-Based CompensationWe account for our stock-based compensation using the accounting prescribed by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees.We are not currently required to adopt the fair value based recognition provisions prescribed under SFAS No. 123, Accounting for Stock-Based Compensation. We do comply with the
disclosure requirements set forth in the SFAS No. 123, which include disclosing pro forma net income as if the fair value based method of accounting had been applied.



Income TaxesWe follow the practice of filing a consolidated federal return and separate state returns. Income taxes are allocated to
each company as if filed separately for federal purposes and based on the separate returns filed for state purposes.



Certain items of income and expense for financial reporting are recognized differently for income tax purposes (principally the provision for loan losses and
depreciation). Provisions for deferred taxes are made in recognition of such temporary differences as required under SFAS No. 109, Accounting for Income Taxes.Current income taxes are recorded based on amounts due with the current income tax
returns. The need for a valuation allowance is considered when it is determined more likely than not that a deferred tax asset will not be realized.



Earnings Per Share of Common StockWe present basic and diluted earnings per share of common stock after giving retroactive effect to stock splits and dividends. The
assumed conversion of stock options creates the difference between basic and diluted net income per share. Income per share is calculated by dividing net income by the weighted average number of common shares outstanding for each period presented.



Off-Balance Sheet Credit Related Financial InstrumentsIn the ordinary
course of business, the Corporation has entered into commitments to extend credit, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded when they are funded.



DerivativesWe utilize interest rate swap contracts to convert some of our fixed rate
Federal Home Loan Bank advances to a variable rate (fair-value hedge). The term and notional amount of the interest rate swaps match the term and principal amount of the debt being hedged. Interest rate swaps are contractual agreements between two
parties to exchange a series of cash flows representing interest payments. A swap allows both parties to alter the repricing characteristics of assets or liabilities without affecting the underlying principal positions. Through the use of a swap,
assets and liabilities may be transformed from fixed to floating rates, from floating rates to fixed rates, or from one type of floating rate to another. Our swap terms generally range from five years to eight years depending on the need. We do not
utilize derivatives for trading purposes. We have determined that there is no ineffectiveness with these fair value hedges and therefore have adjusted the carrying amount of the swap to its fair value and adjust the carrying amount of the liability
by an offsetting amount.



| |  |    |  |                       
| |  | -- |  | ----------------------
| |  | 13 |  | www.GREERSTATEBANK.COM



---

The net interest payable or receivable on interest rate swaps that are designated as hedges is accrued and recognized as
an adjustment to the interest expense of the related liability and flows through the income statement for each specific reporting period. Gains and losses from early terminations of derivatives are deferred and amortized as yield adjustments over
the shorter of the remaining term of the hedged asset or liability or the remaining term of the derivative instrument. Upon disposition or settlement of the asset or liability being hedged, deferral accounting is discontinued and any gains or losses
are recognized in income.



The fair value of the derivative contracts,
approximately $410,000 at December 31, 2004, has been recorded to adjust the liability (FHLB advances) being hedged and the offset is included in other assets.



Recent Accounting Pronouncements



On March 9, 2004, the SEC Staff issued Staff Accounting Bulletin No. 105, Application of Accounting Principles to Loan Commitments(SAB 105). SAB 105
clarifies existing accounting practices relating to the valuation of issued loan commitments, including interest rate lock commitments (IRLC), subject to SFAS No. 149 and Derivative Implementation Group Issue C13, Scope Exceptions:
When a Loan Commitment is included in the Scope of Statement 133.Furthermore, SAB 105 disallows the inclusion of the values of a servicing component and other internally developed intangible assets in the initial and subsequent IRLC valuation.
The provisions of SAB 105 were effective for loan commitments entered into after March 31, 2004. The adoption of SAB 105 did not have a material impact on the consolidated financial statements.



In March 2004, the Emerging Issues Task Force (EITF) released EITF Issue 03-01,
The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments. TheIssue provides guidance for determining whether an investment is other-than-temporarily impaired and requires certain disclosures with respect to
these investments. The recognition and measurement guidance for other-than-temporary impairment has been delayed by the issuance of FASB Staff Position EITF 03-1-1 on September 30, 2004. The adoption of Issue 03-1 did not result in any
other-than-temporary impairment.



|                   |  |    |  | 
|------------------ |  | -- |  | 
|2004 ANNUAL REPORT |  | 14 |  | 



---

2. INVESTMENT SECURITIES



The amortized cost, gross unrealized gains and losses, and estimated fair value of
investment securities are as follows:



|                                            |  |                   |            |                      |   |                       |  |                     |         |  |   |           
|------------------------------------------- |  | ----------------- | ---------- | -------------------- | - | --------------------- |  | ------------------- | ------- |  | - | ----------
|                                            |  | DECEMBER 31, 2004
|                                            |  | AMORTIZEDCOST     |            | GROSSUNREALIZEDGAINS |   | GROSSUNREALIZEDLOSSES |  | ESTIMATEDFAIR VALUE
|Held to maturity:                           |  |                   |            |                      |   |                       |  |                     |         |  |   |           
|Mortgage-backed securities                  |  | $                 | 35,474,547 |                      | $ | 73,983                |  | $                   | 231,783 |  | $ | 35,316,747
|                                            |  |                   |            |                      |   |                       |  |                     |         |  |   |           
|Available for sale:                         |  |                   |            |                      |   |                       |  |                     |         |  |   |           
|United States Government agency obligations |  | $                 | 7,038,582  |                      | $ | 4,921                 |  | $                   | 100,443 |  | $ | 6,943,060 
|Mortgage-backed securities                  |  |                   | 3,066,726  |                      |   | 37,366                |  |                     | 3,875   |  |   | 3,100,217 
|Municipal securities                        |  |                   | 22,471,210 |                      |   | 1,436,266             |  |                     | 676     |  |   | 23,906,800
|Corporate bonds                             |  |                   | 3,115,756  |                      |   | 1,279                 |  |                     | 12,718  |  |   | 3,104,317 
|                                            |  |                   |            |                      |   |                       |  |                     |         |  |   |           
|TOTALS                                      |  | $                 | 35,692,274 |                      | $ | 1,479,832             |  | $                   | 117,712 |  | $ | 37,054,394
|                                            |  |                   |            |                      |   |                       |  |                     |         |  |   |           
|                                            | 
|                                            |  | DECEMBER 31, 2003
|                                            |  | AMORTIZEDCOST     |            | GROSSUNREALIZEDGAINS |   | GROSSUNREALIZEDLOSSES |  | ESTIMATEDFAIR VALUE
|Held to maturity:                           |  |                   |            |                      |   |                       |  |                     |         |  |   |           
|Mortgage-backed securities                  |  | $                 | 17,263,115 |                      | $ | 103,916               |  | $                   | 89,296  |  | $ | 17,277,735
|                                            |  |                   |            |                      |   |                       |  |                     |         |  |   |           
|Available for sale:                         |  |                   |            |                      |   |                       |  |                     |         |  |   |           
|United States Government agency obligations |  | $                 | 15,847,721 |                      | $ | 62,820                |  | $                   | 44,770  |  | $ | 15,865,771
|Mortgage-backed securities                  |  |                   | 9,163,512  |                      |   | 210,161               |  |                     |         |  |   | 9,373,673 
|Municipal securities                        |  |                   | 33,461,859 |                      |   | 1,537,905             |  |                     | 8,772   |  |   | 34,990,992
|Corporate bonds                             |  |                   | 4,091,416  |                      |   | 41,457                |  |                     |        |  |   | 4,132,873 
|                                            |  |                   |            |                      |   |                       |  |                     |         |  |   |           
|TOTALS                                      |  | $                 | 62,564,508 |                      | $ | 1,852,343             |  | $                   | 53,542  |  | $ | 64,363,309
|                                            |  |                   |            |                      |   |                       |  |                     |         |  |   |           



The amortized cost and estimated fair
value of investment securities at December 31, 2004, by contractual maturity for debt securities and expected maturities for mortgage-backed securities, are shown below. Expected maturities will differ from contractual maturities because borrowers
may have the right to prepay the obligations.



|                               |  |                    |            |                  |   |                |  |            |            |  |   |           
|------------------------------ |  | ------------------ | ---------- | ---------------- | - | -------------- |  | ---------- | ---------- |  | - | ----------
|                               |  | AVAILABLE FOR SALE |            | HELD TO MATURITY
|                               |  | AMORTIZED COST     |            | FAIR VALUE       |   | AMORTIZED COST |  | FAIR VALUE
|Due in 1 year                  |  | $                  | 1,141,233  |                  | $ | 1,142,268      |  | $          |           |  | $ |          
|Over 1 year through 5 years    |  |                    | 5,715,030  |                  |   | 5,712,960      |  |            |           |  |   |          
|After 5 years through 10 years |  |                    | 7,823,761  |                  |   | 8,011,905      |  |            |           |  |   |          
|Over 10 years                  |  |                    | 17,945,524 |                  |   | 19,087,044     |  |            |           |  |   |          
|                               |  |                    |            |                  |   |                |  |            |            |  |   |           
|                               |  | $                  | 33,625,548 |                  | $ | 33,954,177     |  |            |           |  |   |          
|Mortgage-backed securities     |  |                    | 3,066,726  |                  |   | 3,100,217      |  |            | 35,474,547 |  |   | 35,316,747
|                               |  |                    |            |                  |   |                |  |            |            |  |   |           
|TOTALS                         |  | $                  | 35,692,274 |                  | $ | 37,054,394     |  | $          | 35,474,547 |  | $ | 35,316,747
|                               |  |                    |            |                  |   |                |  |            |            |  |   |           



| |  |    |  |                       
| |  | -- |  | ----------------------
| |  | 15 |  | www.GREERSTATEBANK.COM



---

The fair value of securities with temporary impairment at December 31, 2004 and 2003 is shown below:



|                           |  |                         |            |                  |                    |          |            |  |                  |   |  |   |  
|-------------------------- |  | ----------------------- | ---------- | ---------------- | ------------------ | -------- | ---------- |  | ---------------- | - |  | - | -
|                           |  | LESS THAN TWELVE MONTHS |            |                  | OVER TWELVE MONTHS
|                           |  | FAIR VALUE              |            | UNREALIZEDLOSSES |                    |          | FAIR VALUE |  | UNREALIZEDLOSSES
|2004                       |  |                         |            |                  |                    |          |            |  |                  |   |  |   |  
|Description of securities: |  |                         |            |                  |                    |          |            |  |                  |   |  |   |  
|U. S. Government Agencies  |  | $                       | 5,942,798  |                  | $                  | (100,443 | )          |  | $                |  |  | $ | 
|Mortgage-backed securities |  |                         | 28,911,633 |                  |                    | (235,658 | )          |  |                  |  |  |   | 
|Corporate bonds            |  |                         | 1,033,716  |                  |                    | (12,718  | )          |  |                  |  |  |   | 
|Municipal securities       |  |                         | 496,670    |                  |                    | (676     | )          |  |                  |  |  |   | 
|                           |  |                         |            |                  |                    |          |            |  |                  |   |  |   |  
|TOTAL                      |  | $                       | 36,384,817 |                  | $                  | (349,495 | )          |  | $                |  |  | $ | 
|                           |  |                         |            |                  |                    |          |            |  |                  |   |  |   |  
|2003                       |  |                         |            |                  |                    |          |            |  |                  |   |  |   |  
|Description of securities: |  |                         |            |                  |                    |          |            |  |                  |   |  |   |  
|U. S. Government Agencies  |  | $                       | 6,950,236  |                  | $                  | (44,770  | )          |  | $                |  |  | $ | 
|Mortgage-backed securities |  |                         | 7,911,555  |                  |                    | (89,296  | )          |  |                  |  |  |   | 
|Corporate bonds            |  |                         | 0          |                  |                    | 0        |            |  |                  |  |  |   | 
|Municipal securities       |  |                         | 2,361,753  |                  |                    | (8,772   | )          |  |                  |  |  |   | 
|                           |  |                         |            |                  |                    |          |            |  |                  |   |  |   |  
|TOTAL                      |  | $                       | 17,223,544 |                  | $                  | (142,838 | )          |  | $                |  |  | $ | 
|                           |  |                         |            |                  |                    |          |            |  |                  |   |  |   |  



We believe all of the unrealized
losses as of December 31, 2004 are temporary and a result of temporary changes in the market. The number of securities with unrealized losses at December 31, 2004 was twenty-six. Four of those are agency obligation, nineteen are mortgage-backed
securities, one is a municipal security and two are corporate bonds. The number of securities with unrealized losses at December 31, 2003 was eighteen. Seven of those are agency obligation, six are mortgage-backed securities and five are municipal
securities. We do not anticipate selling the securities for losses, and we have sufficient cash and investments showing unrealized gains to provide enough liquidity to hold the securities until maturity if necessary.



Investment securities with an aggregate book value of approximately $51,205,000 and
$41,589,000 at December 31, 2004 and 2003, respectively, were pledged to secure public deposits and Federal Home Loan Bank borrowings.



For the years ended December 31, 2004, 2003 and 2002, proceeds from sales of securities available for sale amounted to $19,798,735, $2,488,325, and $12,093,002,
respectively. Gross realized gains amounted to $329,420, $122,585, and $55,619, respectively. Gross realized losses amounted to $33,848, $-0-, and $66,739, respectively. The tax provision applicable to these net realized gains (losses) amounted to
approximately $114,000, $47,000, and $(3,500), respectively.



3. NET LOANS



A
summary of loans outstanding by major classification follows:



|                                                                                       |  |              |             |   |      |   |             |  
|-------------------------------------------------------------------------------------- |  | ------------ | ----------- | - | ---- | - | ----------- | -
|                                                                                       |  | DECEMBER 31, |            
|                                                                                       |  | 2004         |             |   | 2003 |  
|Real estate                                                                            |  | $            | 97,579,334  |   |      | $ | 80,405,053  |  
|Commercial and industrial (non-real estate)                                            |  |              | 31,138,239  |   |      |   | 20,935,455  |  
|Installment loans to individuals for household, family and other personal expenditures |  |              | 9,694,253   |   |      |   | 8,384,627   |  
|All other loans                                                                        |  |              | 1,234,607   |   |      |   | 5,839,489   |  
|                                                                                       |  |              |             |   |      |   |             |  
|                                                                                       |  | $            | 139,646,433 |   |      | $ | 115,564,624 |  
|Allowance for loan losses                                                              |  |              | (1,136,258  | ) |      |   | (1,298,228  | )
|                                                                                       |  |              |             |   |      |   |             |  
|                                                                                       |  | $            | 138,510,175 |   |      | $ | 114,266,396 |  
|                                                                                       |  |              |             |   |      |   |             |  



|                   |  |    |  | 
|------------------ |  | -- |  | 
|2004 ANNUAL REPORT |  | 16 |  | 



---

The change in the allowance for loan losses is summarized as follows:



|                            |  |      |           |   |      |   |           |      |  |   |           |  
|--------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                            |  | 2004 |           |   | 2003 |   |           | 2002 | 
|Balance, beginning of year  |  | $    | 1,298,228 |   |      | $ | 1,080,635 |      |  | $ | 1,244,657 |  
|Provision charged to income |  |      | 251,000   |   |      |   | 10,000    |      |  |   | 787,500   |  
|Recoveries on loans         |  |      | 7,681     |   |      |   | 354,047   |      |  |   | 21,724    |  
|Loans charged off           |  |      | (420,651  | ) |      |   | (146,454  | )    |  |   | (973,246  | )
|                            |  |      |           |   |      |   |           |      |  |   |           |  
|Balance, end of year        |  | $    | 1,136,258 |   |      | $ | 1,298,228 |      |  | $ | 1,080,635 |  
|                            |  |      |           |   |      |   |           |      |  |   |           |  



At December 31, 2004 and 2003,
non-accrual loans totaled approximately $567,000 and $1,249,000, respectively. The total amount of interest earned on non-accrual loans was approximately $13,000 in 2004, $50,000 in 2003, and $56,000 in 2002. The gross interest income that would
have been recorded under the original terms of the non-accrual loans amounted to approximately $32,000 in 2004, $63,000 in 2003, and $24,000 in 2002. As of December 31, 2004 we had one impaired loan, which totaled $338,558. The average amount of
impaired loans outstanding during 2004 was $318,172, and the actual amount of interest income recognized on the impaired loan was $2,427. The Banks loan loss reserve model allocates a reserve based on the rating of loans, but no reserve is
allocated for individual loans. The amount of the valuation allowance allocated to the impaired loan was $50,784 at December 31, 2004. As of December 31, 2003 and 2002, we had no impaired loans.



4. PREMISES AND
EQUIPMENT



Premises and equipment are summarized as follows:



|                              |  |              |            |   |      |   |            |  
|----------------------------- |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                              |  | DECEMBER 31, |           
|                              |  | 2004         |            |   | 2003 |  
|Land                          |  | $            | 898,548    |   |      | $ | 264,720    |  
|Construction in process       |  |              | 93,086     |   |      |   |           |  
|Buildings and improvements    |  |              | 3,617,744  |   |      |   | 3,617,744  |  
|Equipment                     |  |              | 1,024,364  |   |      |   | 996,000    |  
|Furniture and fixtures        |  |              | 648,876    |   |      |   | 620,119    |  
|Electronic data processing    |  |              | 2,418,074  |   |      |   | 2,300,413  |  
|                              |  |              |            |   |      |   |            |  
|                              |  |              | 8,700,692  |   |      |   | 7,798,996  |  
|Less accumulated depreciation |  |              | (4,347,792 | ) |      |   | (3,913,246 | )
|                              |  |              |            |   |      |   |            |  
|                              |  | $            | 4,352,900  |   |      | $ | 3,885,750  |  
|                              |  |              |            |   |      |   |            |  



Depreciation expense charged to
operations was $434,546, $544,692, and $580,048 for 2004, 2003 and 2002, respectively.



Subsequent to December 31, 2004, the Bank entered into a commitment for a construction project to build a new branch in the amount of approximately $800,000.



5. OTHER ASSETS



Other assets at December 31 consist of the following:



|                          |  |      |           |      |   |          
|------------------------- |  | ---- | --------- | ---- | - | ---------
|                          |  | 2004 |           | 2003
|Prepaid expenses          |  | $    | 258,867   |      | $ | 217,918  
|Bank owned life insurance |  |      | 4,033,065 |      |   | 2,896,424
|Repossessed assets        |  |      | 7,377     |      |   | 22,750   
|Other                     |  |      | 563,139   |      |   | 25,273   
|                          |  |      |           |      |   |          
|                          |  | $    | 4,862,448 |      | $ | 3,162,365
|                          |  |      |           |      |   |          



| |  |    |  |                       
| |  | -- |  | ----------------------
| |  | 17 |  | www.GREERSTATEBANK.COM



---

6. TIME DEPOSITS



At December 31, 2004 and 2003, time deposits of $100,000 or more totaled approximately
$38,221,000 and $32,943,000, respectively. We have brokered deposits of approximately $9 million at December 31, 2004 and $6 million at December 31, 2003.



Contractual maturities of time deposits are summarized as follows:



|                  |  |              |            |      |   |           
|----------------- |  | ------------ | ---------- | ---- | - | ----------
|                  |  | DECEMBER 31,
|                  |  | 2004         |            | 2003
|12 months or less |  | $            | 46,940,811 |      | $ | 48,353,131
|1-3 years         |  |              | 19,837,553 |      |   | 17,248,154
|Over three years  |  |              | 3,452,867  |      |   |          
|                  |  |              |            |      |   |           
|                  |  | $            | 70,231,231 |      | $ | 65,601,285
|                  |  |              |            |      |   |           



7.
NOTES PAYABLE TO FEDERAL HOME LOAN BANK



At December 31, 2004 and 2003, we had notes payable totaling $52,185,015 and $40,057,226, respectively, to the Federal Home Loan Bank (FHLB). At December 31, 2004 and
2003, none of these notes had variable rates of interest. The remaining $52,185,015 and $40,057,226, at December 31, 2004 and 2003, respectively, bear interest at fixed rates ranging from 1.93 to 6.67 percent. During 2004 and 2003, we were able to
reduce interest expense on some of these fixed rate notes by approximately $246,000 and $113,000, respectively, through the utilization of interest rate swaps accounted for as a fair value hedge.



We have pledged as collateral our FHLB stock, certain investment securities, and have entered
into a blanket collateral agreement whereby we will maintain, free of other encumbrances, qualifying mortgages with a book value of at least 135 percent of total advances.



The contractual maturities at December 31, 2004, are as follows:



|           |  |   |           
|---------- |  | - | ----------
|2005       |  | $ | 5,853,758 
|2006       |  |   | 5,300,000 
|2007       |  |   | 4,121,622 
|2008       |  |   | 6,000,000 
|2009       |  |   | 8,000,000 
|Thereafter |  |   | 22,909,635
|           |  |   |           
|           |  | $ | 52,185,015
|           |  |   |           



8.
OTHER LONG TERM DEBT



In October 2004, the Company issued $6.186 million of junior subordinated debentures to its newly formed, wholly-owned capital trust, Greer Capital Trust I (the Trust), to fully and unconditionally guarantee the trust preferred
securities issued by the Trust. These long-term obligations, currently qualify as Tier I capital for the Company. Also, see the detailed discussion regarding the accounting treatment of the Trust in the summary of significant accounting policies.



The junior subordinated debentures mature in October 2034. Interest payments
are due quarterly to Trust at the three-month LIBOR plus 220 basis points



9. UNUSED LINES OF CREDIT



We have unused short-term lines of credit to purchase federal funds from correspondent banks totaling $14.5 million.



We also have the ability to borrow an additional $16.3 million from the Federal Home Loan
Bank. The borrowings are available by pledging collateral and purchasing additional stock in the Federal Home Loan Bank.



|                   |  |    |  | 
|------------------ |  | -- |  | 
|2004 ANNUAL REPORT |  | 18 |  | 



---

10. OFF-BALANCE SHEET
ACTIVITIES, COMMITMENTS AND CONTINGENCIES



In the normal course of our business, we are a party to financial instruments with off-balance sheet risk. These financial instruments include commitments to extend credit and standby letters of credit. Those
instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the accompanying balance sheets. The contract amounts of those instruments reflect the extent of involvement we have in
particular classes of financial instruments. We use the same credit policies in making commitments as for making loans. Commitments to extend credit in the future represent financial instruments involving credit risk. A summary of our commitments at
December 31,2004 and 2003, is as follows:



|                             |  |      |            |      |   |           
|---------------------------- |  | ---- | ---------- | ---- | - | ----------
|                             |  | 2004 |            | 2003
|Commitments to extend credit |  | $    | 30,366,000 |      | $ | 25,074,000
|Standby letters of credit    |  |      | 770,000    |      |   | 1,060,000 
|                             |  |      |            |      |   |           
|                             |  | $    | 31,136,000 |      | $ | 26,134,000
|                             |  |      |            |      |   |           



Commitments to extend credit are
agreements to lend as long as there is no violation of the conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each customers creditworthiness on a case-by-case basis. The amount of collateral, if any, obtained
upon extension of credit is based on our credit evaluation.



Standby letters of
credit are conditional commitments issued by us to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to customers. Collateral held varies as specified above and is required in instances that we deem necessary. Newly issued or modified guarantees are to be recorded on the
Companys balance sheet at fair value at inception. As of December 31, 2004 and 2003, no liability has been recorded related to these guarantees.



Concentrations of Credit Risk - Substantially all of our loans and commitments to extend credit have been granted to customers in our market area and such customers are
generally depositors of the Bank. The concentrations of credit by type of loan are set forth in Note 3. The distribution of commitments to extend credit approximates the distribution of loans outstanding. Our primary focus is toward consumer and
small business transactions, and accordingly, we do not have a significant number of credits to any single borrower or group of related borrowers in excess of $2,000,000.



From time to time, we have cash and cash equivalents on deposit with financial institutions that exceed federally insured limits.



Litigation - We are a party to litigation and claims arising in the normal
course of business. After consultation with legal counsel, we believe that the liabilities, if any, arising from such litigation and claims will not be material to our financial position.



11. STOCKHOLDERS EQUITY



We have 1,000,000 authorized but unissued shares of preferred stock (par value $5). Should
we ever issue preferred stock, the designation of terms, conditions and amounts will be set by our directors.



In 2004, we declared a three for two stock split which was effective in March; in 2003, we paid no stock dividends; and in 2002, we declared a 2.5% stock dividend.



| |  |    |  |                       
| |  | -- |  | ----------------------
| |  | 19 |  | www.GREERSTATEBANK.COM



---

12. BENEFIT PLANS



Defined Contribution Plan - We have a 401(k) Profit Sharing Plan for the benefit of our
employees. Subject to annual approval by the Board of Directors, we match employee contributions of up to 4% of compensation in accordance with plan guidelines. Contributions of $81,230, $74,344, and $64,674 were charged to expense during 2004, 2003
and 2002, respectively.



Stock Option Plan - Under the Greer Bancshares
Incorporated and Subsidiary Employee Incentive Stock Option Plan, options for up to 180,000 shares of common stock can be granted to employees designated by the Board of Directors. The form, price, conditions and number of shares under option are
determined by the Board. Plan limitations are: (1) that no option can be exercised before one year, or after ten years from the date that the option is granted, and (2) that the option price will be greater than or equal to the fair market value of
the common stock at the date of the grant.



Under our Directors Stock Option
Plan, beginning with the adjournment of the 1997 annual meeting of shareholders and at the adjournment of the annual meetings for each of the succeeding nine years in which the return on average equity for the fiscal year preceding the annual
meeting is greater than or equal to twelve percent, each director shall be granted an option to purchase 1,500 shares of our common stock at fair market value on the grant date. Each option becomes exercisable on the date six months and one day
following the grant date. No director may receive grants of options in excess of 15,000 shares. The maximum number of shares for which options may be granted is 135,000.



We apply Accounting Principles Board (APB) Opinion 25 and related interpretations in accounting for the plans. Accordingly, no compensation
cost has been charged to operations. Had compensation cost for the Plan been determined based on the fair value at the grant dates for awards under the plans consistent with the accounting method available under SFAS No. 123, Accounting forStock-Based Compensation,our net income per share and our net income would have been reduced to the proforma amounts indicated below (as adjusted for a 3 for 2 stock split in March 2004):



|                                              |  |      |           |      |   |           |  |   |          
|--------------------------------------------- |  | ---- | --------- | ---- | - | --------- |  | - | ---------
|                                              |  | 2004 |           | 2003 |   | 2002     
|Net income:                                   |  |      |           |      |   |           |  |   |          
|As reported                                   |  | $    | 2,559,686 |      | $ | 2,232,263 |  | $ | 2,523,541
|Compensation under SFAS 123                   |  |      | 28,702    |      |   | 41,404    |  |   | 32,668   
|                                              |  |      |           |      |   |           |  |   |          
|Proforma                                      |  |      | 2,530,984 |      |   | 2,190,859 |  |   | 2,490,873
|                                              |  |      |          
|Basic net income per share of common stock:   |  |      |           |      |   |           |  |   |          
|As reported                                   |  | $    | 1.05      |      | $ | .92       |  | $ | 1.05     
|Proforma                                      |  |      | 1.04      |      |   | .91       |  |   | 1.03     
|                                              |  |      |          
|Diluted net income per share of common stock: |  |      |           |      |   |           |  |   |          
|As reported                                   |  | $    | 1.05      |      | $ | .92       |  | $ | 1.04     
|Proforma                                      |  |      | 1.03      |      |   | .90       |  |   | 1.03     



The fair value of each option grant is
estimated on the date of grant using the Black - Scholes option pricing model with the following weighted average assumptions for grants in 2004:2.9 percent dividend yield, expected volatility of 12.5 percent, risk-free interest rate of 3.40 percent
for director stock options and expected lives of six and one half years. The following were the weighted average assumptions for grants in 2003:5.0 percent dividend yield, expected volatility of 12.5 percent, risk-free interest rate of 3.37 percent
for director stock options and 4.27 percent for officer stock options and expected lives of six and one half years and ten years, respectively. The following were the weighted average assumptions for grants in 2002: 3.5 percent dividend yield,
expected volatility of 12.5 percent, risk-free interest rate of 4.50 percent, and expected lives of seven years.



|                   |  |    |  | 
|------------------ |  | -- |  | 
|2004 ANNUAL REPORT |  | 20 |  | 



---

A summary of the status of the plans as of December 31, 2004, 2003 and 2002, and changes during the years ending on those
dates is presented below (all per share amounts have been adjusted for the 3 for 2 stock split in 2004):



|                                                               |  |        |         |      |                                 |      |        |  |   |                                 |   |        |   |       |                                 |   |         |   |  |   |      
|-------------------------------------------------------------- |  | ------ | ------- | ---- | ------------------------------- | ---- | ------ |  | - | ------------------------------- | - | ------ | - | ----- | ------------------------------- | - | ------- | - |  | - | -----
|                                                               |  | 2004   |         | 2003 |                                 | 2002
|                                                               |  | SHARES |         |      | WEIGHTED AVERAGE EXERCISE PRICE |      | SHARES |  |   | WEIGHTED AVERAGE EXERCISE PRICE |   | SHARES |   |       | WEIGHTED AVERAGE EXERCISE PRICE
|Outstanding at beginning of year                               |  |        | 97,008  |      |                                 | $    | 14.76  |  |   | 84,197                          |   |        | $ | 12.59 |                                 |   | 74,673  |   |  | $ | 11.04
|Granted                                                        |  |        | 13,500  |      |                                 |      | 17.00  |  |   | 29,250                          |   |        |   | 18.67 |                                 |   | 24,000  |   |  |   | 17.35
|Exercised                                                      |  |        | (7,689  | )    |                                 |      | 16.74  |  |   | (13,889                         | ) |        |   | 10.32 |                                 |   | (14,477 | ) |  |   | 13.27
|Forfeited or expired                                           |  |        |        |      |                                 |      |       |  |   | (2,550                          | ) |        |   | 12.05 |                                 |   |        |   |  |   |     
|                                                               |  |        |         |      |                                 |      |        |  |   |                                 |   |        |   |       |                                 |   |         |   |  |   |      
|Outstanding at end of year                                     |  |        | 102,819 |      |                                 |      | 14.91  |  |   | 97,008                          |   |        |   | 14.76 |                                 |   | 84,197  |   |  |   | 12.59
|                                                               |  |        |         |      |                                 |      |        |  |   |                                 |   |        |   |       |                                 |   |         |   |  |   |      
|Options exercisable at year-end                                |  |        | 64,126  |      |                                 | $    | 15.17  |  |   | 53,508                          |   |        | $ | 14.60 |                                 |   | 47,299  |   |  | $ | 13.02
|Shares available for grant                                     |  |        | 98,325  |      |                                 |      |        |  |   | 111,825                         |   |        |   |       |                                 |   | 138,525 |   |  |   |      
|Weighted average fair value of options granted during the year |  | $      | 1.86    |      |                                 |      |        |  | $ | 3.63                            |   |        |   |       |                                 | $ | 4.17    |   |  |   |      



The following table summarizes
information at December 31, 2004:



|                         |               |                     |         |                                             |            |                                 |   |                    |  |                                 |  |   |      
|------------------------ | ------------- | ------------------- | ------- | ------------------------------------------- | ---------- | ------------------------------- | - | ------------------ |  | ------------------------------- |  | - | -----
|OPTIONS OUTSTANDING      |               | OPTIONS EXERCISABLE
|RANGE OF EXERCISE PRICES |               | NUMBER OUTSTANDING  |         | WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE |            | WEIGHTED AVERAGE EXERCISE PRICE |   | NUMBER EXERCISABLE |  | WEIGHTED AVERAGE EXERCISE PRICE
|$                        | 3.99    6.83 |                     | 11,862  |                                             | 2.49 years |                                 | $ | 6.72               |  | 7,812                           |  | $ | 6.66 
|$                        | 9.10  12.58  |                     | 16,699  |                                             | 3.47 years |                                 |   | 10.81              |  | 9,198                           |  |   | 11.32
|$                        | 15.57  17.00 |                     | 28,125  |                                             | 3.53 years |                                 |   | 16.55              |  | 25,875                          |  |   | 16.63
|                         | $17.55        |                     | 14,812  |                                             | 3.82 years |                                 |   | 17.55              |  | 8,810                           |  |   | 17.55
|$                        | 18.00  18.67 |                     | 31,321  |                                             | 8.42 years |                                 |   | 18.59              |  | 12,431                          |  |   | 18.65
|                         |               |                     |         |                                             |            |                                 |   |                    |  |                                 |  |   |      
|                         |               |                     | 102,819 |                                             |            |                                 |   |                    |  | 64,126                          |  |   |      
|                         |               |                     |         |                                             |            |                                 |   |                    |  |                                 |  |   |      



Non-Qualified Plans -We have
established certain non-qualified benefit plans for certain key executive officers and directors. The benefits under the plan are computed and payable under certain terms as specified in each agreement. The estimated present value of future benefits
to be paid is being accrued over the period from the effective date of each agreement until the initial payments are made at the normal retirement dates. We have purchased and are the owner and beneficiary of certain life insurance policies that
will be used to finance the benefits under these agreements. The charge to income was approximately $109,000, $81,000 and $75,000 during 2004, 2003 and 2002, respectively. The cumulative accrued liabilities for the agreements are presenting in the
accompanying consolidated balance sheets in Other Liabilities.



| |  |    |  |                       
| |  | -- |  | ----------------------
| |  | 21 |  | www.GREERSTATEBANK.COM



---

13. INCOME TAXES



The components of the provision for income taxes are as follows:



|                                      |  |      |         |      |   |         |      |  |   |        
|------------------------------------- |  | ---- | ------- | ---- | - | ------- | ---- |  | - | -------
|                                      |  | 2004 |         | 2003 |   |         | 2002
|Current income tax expense:           |  |      |         |      |   |         |      |  |   |        
|State                                 |  | $    | 118,300 |      | $ | 103,000 |      |  | $ | 115,500
|Federal                               |  |      | 501,632 |      |   | 442,751 |      |  |   | 690,100
|                                      |  |      |         |      |   |         |      |  |   |        
|                                      |  | $    | 619,632 |      | $ | 545,751 |      |  | $ | 805,600
|Deferred income tax expense (benefit) |  | $    | 35,925  |      | $ | (54,000 | )    |  | $ | 82,000 
|                                      |  |      |         |      |   |         |      |  |   |        
|Provision for income taxes            |  | $    | 655,557 |      | $ | 491,751 |      |  | $ | 887,600
|                                      |  |      |         |      |   |         |      |  |   |        



The provision for income taxes differs
from the amount of income tax computed at the federal statutory rate due to the following:



|                                     |  |        |           |   |                             |       |   |        |   |           |                            |  |       |        |  |   |                            |   |  |      |  
|------------------------------------ |  | ------ | --------- | - | --------------------------- | ----- | - | ------ | - | --------- | -------------------------- |  | ----- | ------ |  | - | -------------------------- | - |  | ---- | -
|                                     |  | 2004   |           |   | 2003                        |       |   | 2002   |  
|                                     |  | AMOUNT |           |   | PERCENT OF INCOMEBEFORE TAX |       |   | AMOUNT |   |           | PERCENTOF INCOMEBEFORE TAX |  |       | AMOUNT |  |   | PERCENTOF INCOMEBEFORE TAX |  
|Income before income taxes           |  | $      | 3,215,243 |   |                             |       |   |        | $ | 2,724,014 |                            |  |       |        |  | $ | 3,411,141                  |   |  |      |  
|                                     |  |        |           |   |                             |       |   |        |   |           |                            |  |       |        |  |   |                            |   |  |      |  
|Tax at statutory rate                |  | $      | 1,093,000 |   |                             | 34.0  | % |        | $ | 926,000   |                            |  | 34.0  | %      |  | $ | 1,160,000                  |   |  | 34.0 | %
|Tax effect of:                       |  |        |           |   |                             |       |   |        |   |           |                            |  |       |        |  |   |                            |   |  |      |  
|Federally tax exempt interest income |  |        | (474,000  | ) |                             | (14.7 | ) |        |   | (465,000  | )                          |  | (17.1 | )      |  |   | (331,000                   | ) |  | (9.7 | )
|State taxes, net of federal benefit  |  |        | 78,000    |   |                             | 2.4   |   |        |   | 68,000    |                            |  | 2.5   |        |  |   | 76,000                     |   |  | 2.3  |  
|Othernet                            |  |        | (41,443   | ) |                             | (1.3  | ) |        |   | (37,249   | )                          |  | (1.4  | )      |  |   | (17,400                    | ) |  | (.6  | )
|                                     |  |        |           |   |                             |       |   |        |   |           |                            |  |       |        |  |   |                            |   |  |      |  
|Income tax provision                 |  | $      | 655,557   |   |                             | 20.4  | % |        | $ | 491,751   |                            |  | 18.0  | %      |  | $ | 887,600                    |   |  | 26.0 | %
|                                     |  |        |           |   |                             |       |   |        |   |           |                            |  |       |        |  |   |                            |   |  |      |  



Deferred tax assets are included in
other assets and consist of the following:



|                                                  |  |              |          |   |      |   |          |  
|------------------------------------------------- |  | ------------ | -------- | - | ---- | - | -------- | -
|                                                  |  | DECEMBER 31, |         
|                                                  |  | 2004         |          |   | 2003 |  
|Deferred tax assets:                              |  |              |          |   |      |   |          |  
|Bad debts                                         |  | $            | 293,000  |   |      | $ | 379,000  |  
|Other, net                                        |  |              | 391,286  |   |      |   | 252,025  |  
|                                                  |  |              |          |   |      |   |          |  
|                                                  |  | $            | 684,386  |   |      | $ | 631,025  |  
|Less valuation allowance                          |  |              | (130,500 | ) |      |   | (130,500 | )
|                                                  |  |              |          |   |      |   |          |  
|                                                  |  | $            | 553,786  |   |      | $ | 500,525  |  
|                                                  |  |              |          |   |      |   |          |  
|Deferred tax liabilities:                         |  |              |          |   |      |   |          |  
|Unrealized holding gains on investment securities |  |              | 524,415  |   |      |   | 692,500  |  
|Depreciation                                      |  |              | 162,600  |   |      |   | 149,000  |  
|Other                                             |  |              | 112,700  |   |      |   |         |  
|                                                  |  |              |          |   |      |   |          |  
|                                                  |  | $            | 799,715  |   |      | $ | 841,500  |  
|                                                  |  |              |          |   |      |   |          |  
|Net deferred tax asset (liability)                |  | $            | (245,929 | ) |      | $ | (340,975 | )
|                                                  |  |              |          |   |      |   |          |  



|                   |  |    |  | 
|------------------ |  | -- |  | 
|2004 ANNUAL REPORT |  | 22 |  | 



---

14. OTHER NON-INTEREST
INCOME



Other non-interest income for the years ended December
31, 2004, 2003 and 2002 consist of the following:



|                                          |  |      |         |      |   |         |  |   |        
|----------------------------------------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                                          |  | 2004 |         | 2003 |   | 2002   
|Income from financial management services |  | $    | 281,964 |      | $ | 262,182 |  | $ | 190,350
|Earnings on life insurance policies       |  |      | 159,020 |      |   | 145,249 |  |   | 151,404
|Card service income                       |  |      | 133,589 |      |   | 101,096 |  |   | 243,491
|Safe deposit box rental                   |  |      | 19,725  |      |   | 20,520  |  |   | 20,614 
|Other fees                                |  |      | 83,507  |      |   | 69,504  |  |   | 64,699 
|                                          |  |      |         |      |   |         |  |   |        
|                                          |  | $    | 677,805 |      | $ | 598,551 |  | $ | 670,558
|                                          |  |      |         |      |   |         |  |   |        



15.
OTHER NON-INTEREST EXPENSES



Other non-interest expense for the years ended December 31 consist of the following:



|                           |  |      |           |      |   |         |  |   |        
|-------------------------- |  | ---- | --------- | ---- | - | ------- |  | - | -------
|                           |  | 2004 |           | 2003 |   | 2002   
|Loan department expenses   |  | $    | 131,477   |      | $ | 112,221 |  | $ | 73,645 
|General operating expenses |  |      | 494,264   |      |   | 437,248 |  |   | 341,201
|Educational expenses       |  |      | 41,591    |      |   | 61,621  |  |   | 54,861 
|Credit card expense        |  |      | 116,305   |      |   | 104,107 |  |   | 279,727
|Travel and entertainment   |  |      | 70,974    |      |   | 48,018  |  |   | 41,260 
|Telephone expense          |  |      | 76,112    |      |   | 75,207  |  |   | 85,968 
|Internet banking expense   |  |      | 73,870    |      |   | 54,293  |  |   | 68,977 
|Other expense              |  |      | 70,613    |      |   | 14,174  |  |   | 7,067  
|                           |  |      |           |      |   |         |  |   |        
|                           |  | $    | 1,075,206 |      | $ | 906,889 |  | $ | 952,706
|                           |  |      |           |      |   |         |  |   |        



16.
TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS



Our directors and executive officers are customers of and had transactions with the Bank in the ordinary course of business. Included in such transactions are outstanding
loans and commitments, all of which were made on comparable terms, including interest rate and collateral, as those prevailing at the time for our other customers and did not involve more than normal risk of collectability or present other
unfavorable features.



Aggregate loan transactions with these related parties
are as follows:



|                   |  |      |            |   |      |   |            |  
|------------------ |  | ---- | ---------- | - | ---- | - | ---------- | -
|                   |  | 2004 |            |   | 2003 |  
|Balance, beginning |  | $    | 4,072,000  |   |      | $ | 4,416,000  |  
|Advances           |  |      | 1,835,965  |   |      |   | 1,037,000  |  
|Repayments         |  |      | (1,310,973 | ) |      |   | (1,381,000 | )
|                   |  |      |            |   |      |   |            |  
|Balance, ending    |  | $    | 4,596,992  |   |      | $ | 4,072,000  |  
|                   |  |      |            |   |      |   |            |  



| |  |    |  |                       
| |  | -- |  | ----------------------
| |  | 23 |  | www.GREERSTATEBANK.COM



---

In addition to the balance outstanding, directors and executive officers had available unused lines of credit totaling
approximately $ 1,617,000 and $992,000 at December 31, 2004 and 2003, respectively.



We have an unfunded Deferred Compensation Plan for our directors. Electing directors may annually defer directors fees, which are then eligible for various future payment plans as chosen by the director. Deferred amounts earn interest
currently at 12%. Deferrals, including interest, under the Plan during 2004, 2003 and 2002, totaled approximately $153,413, $123,500, and $95,200, respectively.



During 2002, the Bank sold land held for investment (see Note 1, Land Held for Resale). One of our directors earned a commission of approximately $76,000 as our real
estate broker for this transaction.



17.
EMPLOYMENT AGREEMENT



The Company has entered
into an employment agreement with its president to ensure a stable and competent management base. The agreement provides for benefits as spelled out in the contract and can be terminated by the Board of Directors with 180 days written notice, or can
be terminated immediately for cause. In the event of a change in control of Company, as outlined in the agreement, the acquirer will be bound to the terms of the contract.



18. REGULATORY MATTERS



Dividends - Our ability to pay cash dividends from the Bank to the Holding Company is
restricted by state banking regulations to the amount of our retained earnings. At December 31, 2004, the Banks retained earnings were approximately $8,219,000.



Capital Requirements -We are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting
practices. Our 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 us to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital to risk-weighted assets, and of Tier I capital to average assets. Management believes, as of December 31, 2004, that we meet all capital adequacy requirements to which we are subject.



As of December 31, 2004, the most recent notification from the Federal Deposit Insurance
Corporation 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 our category. Our actual capital
amounts (in thousands) and ratios and minimum regulatory amounts (in thousands) and ratios are presented as follows:



|                                                   |        |        |        |  |         |        |                              |         |        |                                                               |        |   |       |   |        |  |      |  
|-------------------------------------------------- | ------ | ------ | ------ |  | ------- | ------ | ---------------------------- | ------- | ------ | ------------------------------------------------------------- | ------ | - | ----- | - | ------ |  | ---- | -
|                                                   |        |        |        |  |         |        | FOR CAPITALADEQUACY PURPOSES |         |        | TO BE
WELLCAPITALIZEDUNDER PROMPT CORRECTIVE ACTIONPROVISIONS |       
|BANK                                               |        | ACTUAL |        |  | MINIMUM |        |                              | MINIMUM |       
|                                                   | AMOUNT |        | RATIO  |  |         | AMOUNT |                              | RATIO   |        |                                                               | AMOUNT |   | RATIO |  
|AS OF DECEMBER 31, 2004                            |        |        |        |  |         |        |                              |         |        |                                                               |        |   |       |   |        |  |      |  
|Total risk-based capital (to risk-weighted assets) |        | $      | 26,491 |  | 16.2    | %      |                              | $       | 13,108 |                                                               | 8.0    | % |       | $ | 16,385 |  | 10.0 | %
|Tier | capital (to risk-weighted assets)           |        | $      | 25,355 |  | 15.5    | %      |                              | $       | 6,554  |                                                               | 4.0    | % |       | $ | 9,831  |  | 6.0  | %
|Tier | capital (to average assets)                 |        | $      | 25,355 |  | 10.8    | %      |                              | $       | 9,374  |                                                               | 4.0    | % |       | $ | 11,717 |  | 5.0  | %
|                                                   |        |        |        |  |         |       
|AS OF DECEMBER 31, 2003                            |        |        |        |  |         |        |                              |         |        |                                                               |        |   |       |   |        |  |      |  
|Total risk-based capital (to risk-weighted assets) |        | $      | 19,727 |  | 14.0    | %      |                              | $       | 11,285 |                                                               | 8.0    | % |       | $ | 14,106 |  | 10.0 | %
|Tier | capital (to risk-weighted assets)           |        | $      | 18,428 |  | 13.1    | %      |                              | $       | 5,643  |                                                               | 4.0    | % |       | $ | 8,464  |  | 6.0  | %
|Tier | capital (to average assets)                 |        | $      | 18,428 |  | 8.9     | %      |                              | $       | 8,266  |                                                               | 4.0    | % |       | $ | 10,332 |  | 5.0  | %



|                   |  |    |  | 
|------------------ |  | -- |  | 
|2004 ANNUAL REPORT |  | 24 |  | 



---

The Parent Company is also subject to these capital requirements. At December 31,2004 the tier 1 risk-based capital ratio
and the total risk-based capital ratio were 15.9% and 16.59%, respectively.



We
are required by the Federal Reserve Bank to maintain average cash reserve balances at the Federal Reserve Bank and in working funds based upon a percentage of deposits. The required amount of these reserve balances at December 31,2004 was
approximately $24,000.



19.
FAIR VALUE OF FINANCIAL INSTRUMENTS



SFAS No. 107, Disclosures About FairValue of Financial Instruments,requires disclosure of fair value information, whether or not recognized in the balance sheet,
when it is practicable to estimate the fair value. SFAS 107 defines a financial instrument as cash, evidence of an ownership interest in an entity, or contractual obligations that require the exchange of cash or other financial instruments. Certain
items are specifically excluded from the disclosure requirements, including our common stock, premises and equipment, real estate held for sale, and other assets and liabilities. The following methods and assumptions were used by us in estimating
fair values of financial instruments:



Fair value approximates
carrying amount for cash and due from banks due to the short-term nature of the instruments.



Investment securities are valued using quoted fair market prices.



Fair value for variable rate loans that re-price frequently and for loans that mature in less than one year is based on the carrying amount. Fair value
for mortgage loans, personal loans and all other loans (primarily commercial) 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
demand deposit accounts and interest-bearing accounts with no fixed maturity date is equal to the carrying amount.



Certificate of deposit accounts maturing within one year are valued at their carrying amount. Certificate of deposit accounts maturing after one year are
estimated by discounting cash flows from expected maturities using current interest rates on similar instruments.



Fair value for variable rate long-term debt that re-prices frequently is based on the carrying amount. Fair value for our off-balance sheet financial
instruments is based on the discounted present value of the estimated future cash flows. Discount rates used in these computations approximate rates currently offered for similar loans of comparable terms and credit quality.



We have used our best estimate of fair value based on the above assumptions. Thus, the fair
values presented may not be the amounts that could be realized in an immediate sale or settlement of the instrument. In addition, any income taxes or other expenses that would be incurred in an actual sale or settlement are not taken into
consideration in the fair values presented.



The estimated fair values of our
financial instruments are as follows:



|                        |  |                 |             |            |   |                 |  |            |             |  |   |            
|----------------------- |  | --------------- | ----------- | ---------- | - | --------------- |  | ---------- | ----------- |  | - | -----------
|                        |  | DECEMBER 31    
|                        |  | 2004            |             | 2003      
|                        |  | CARRYING AMOUNT |             | FAIR VALUE |   | CARRYING AMOUNT |  | FAIR VALUE
|FINANCIAL ASSETS        |  |                 |             |            |   |                 |  |            |             |  |   |            
|Cash and due from banks |  | $               | 5,719,739   |            | $ | 5,719,739       |  | $          | 7,266,546   |  | $ | 7,266,546  
|Federal funds sold      |  |                 | 650,000     |            |   | 650,000         |  |            | 159,000     |  |   | 159,000    
|Investment securities   |  |                 | 72,528,941  |            |   | 72,371,141      |  |            | 84,023,138  |  |   | 84,037,758 
|Loans                   |  |                 | 138,510,175 |            |   | 138,881,528     |  |            | 114,266,396 |  |   | 113,974,728



|                              |  |   |             |  |   |             |  |   |             |  |   |            
|----------------------------- |  | - | ----------- |  | - | ----------- |  | - | ----------- |  | - | -----------
|FINANCIAL LIABILITIES         |  |   |             |  |   |             |  |   |             |  |   |            
|Deposits                      |  | $ | 150,259,936 |  | $ | 139,926,328 |  | $ | 152,960,952 |  | $ | 143,594,275
|Derivatives                   |  |   | 409,635     |  |   | 409,635     |  |   |            |  |   | 197,291    
|Notes payable to Federal Home |  |   |             |  |   |             |  |   |             |  |   |            
|Loan Bank                     |  | $ | 51,775,380  |  | $ | 53,135,582  |  | $ | 40,057,227  |  | $ | 39,303,719 
|Other Long Term Debt          |  |   | 6,186,000   |  |   | 6,186,000   |  |   |            |  |   |           
|Off Balance Sheet Commitments |  |   |            |  |   |            |  |   |            |  |   |           



| |  |    |  |                       
| |  | -- |  | ----------------------
| |  | 25 |  | www.GREERSTATEBANK.COM



---

20. ON-BALANCE SHEET
ACTIVITIES



We began utilizing derivatives in the notional
amount of $14.0 million as a fair value hedge for $14.0 million of fixed rate Federal Home Loan Bank advances. The average fixed rate for the advances being hedged is 5.41 percent and the average pay rate on the swaps is the three month Libor rate,
which at December 31,2004 was 2.56 percent. Rate repricing is quarterly based on the three month Libor. The unrealized losses of the swaps at December 31,2004 were approximately $410, 000. The expiration dates for each swap match the maturity dates
for the respective advance and other terms for settlement and notional amount are the same. The current swaps scheduled to mature in one to five years is $3 million and $1 1 million is scheduled to mature in five to ten years. There were no
maturities, sales or terminations of any swaps in 2004 or 2003.



Although
off-balance sheet derivative financial instruments do not expose the company to credit risk equal to the notional amount, such agreements generate credit risk to the extent of the fair value gain in an off-balance sheet derivative financial
instrument if the counterparty fails to perform. Such risk is minimized through the creditworthiness of the counterparties and the consistent monitoring of these agreements.



21. CONDENSED PARENT COMPANY FINANCIAL
INFORMATION



The following condensed financial information for
Greer Bancshares Incorporated (Parent Company Only) should be read in conjunction with the consolidated financial statements and the notes thereto. The bank subsidiary paid the Parent Company dividends of $ 1,693,161, $ 1,449,849 and $783,439 in
2004,2003 and 2002, respectively.



|                                                    |  |      |            |   |      |   |            |      |  |   |            |  
|--------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|PARENT COMPANY ONLY CONDENSED BALANCE SHEETS        |  | 2004 |            |   | 2003 |   |            | 2002 | 
|Assets:                                             |  |      |            |   |      |   |            |      |  |   |            |  
|Cash and cash equivalents                           |  | $    | 126,328    |   |      | $ | 1 16,227   |      |  | $ | 196,902    |  
|Investment in trust                                 |  |      | 186,000    |   |      |   |           |      |  |   |           |  
|Equity in net assets of bank subsidiary             |  |      | 26,192,213 |   |      |   | 19,534,171 |      |  |   | 18,404,666 |  
|Taxes receivable                                    |  |      | 82,337     |   |      |   | 47,387     |      |  |   | 11,700     |  
|Premises and equipment                              |  |      | 683,481    |   |      |   | 10,000     |      |  |   |           |  
|                                                    |  |      |            |   |      |   |            |      |  |   |            |  
|TOTAL ASSETS                                        |  | $    | 27,270,359 |   |      | $ | 19,707,785 |      |  | $ | 18,613,268 |  
|                                                    |  |      |            |   |      |   |            |      |  |   |            |  
|Notes payable                                       |  |      | 6,186,000  |   |      |   |           |      |  |   |           |  
|Interest payable                                    |  |      | 51,129     |   |      |   |           |      |  |   |           |  
|Total stockholders equity                          |  | $    | 21,033,230 |   |      | $ | 19,707,785 |      |  | $ | 18,613,268 |  
|                                                    |  |      |            |   |      |   |            |      |  |   |            |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY          |  | $    | 27,270,359 |   |      | $ | 19,707,785 |      |  | $ | 18,613,268 |  
|                                                    |  |      |            |   |      |   |            |      |  |   |            |  
|                                                    |  |      |           
|PARENT COMPANY ONLY CONDENSED STATEMENTS OF INCOME  |  | 2004 |            |   | 2003 |   |            | 2002 | 
|Dividends from bank subsidiary                      |  | $    | 1,693,161  |   |      | $ | 1,449,849  |      |  | $ | 783,439    |  
|Non-interest expense                                |  |      | 91,023     |   |      |   | 50,733     |      |  |   | 14,317     |  
|                                                    |  |      |            |   |      |   |            |      |  |   |            |  
|Income before taxes                                 |  |      | 1,602,138  |   |      |   | 1,399,116  |      |  |   | 769,122    |  
|Income tax benefit                                  |  |      | (30,948    | ) |      |   | (17,249    | )    |  |   | (4,700     | )
|Income before equity earnings                       |  |      | 1,633,086  |   |      |   | 1,416,365  |      |  |   | 773,822    |  
|Equity in undistributed earnings of bank subsidiary |  |      | 926,600    |   |      |   | 815,898    |      |  |   | 1,749,719  |  
|                                                    |  |      |            |   |      |   |            |      |  |   |            |  
|Net income                                          |  | $    | 2,559,686  |   |      | $ | 2,232,263  |      |  | $ | 2,523,541  |  
|                                                    |  |      |            |   |      |   |            |      |  |   |            |  



|                   |  |    |  | 
|------------------ |  | -- |  | 
|2004 ANNUAL REPORT |  | 26 |  | 



---

|                                                                                  |  |      |            |   |      |   |            |      |  |   |            |  
|--------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|PARENT COMPANY ONLY CONDENSED STATEMENTS OF CASH
FLOWS                            |  | 2004 |            |   | 2003 |   |            | 2002 | 
|Operating activities:                                                             |  |      |            |   |      |   |            |      |  |   |            |  
|Net income                                                                        |  | $    | 2,559,686  |   |      | $ | 2,232,263  |      |  | $ | 2,523,541  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |            |   |      |   |            |      |  |   |            |  
|Undistributed equity earnings of bank subsidiary                                  |  |      | (926,600   | ) |      |   | (815,898   | )    |  |   | (1,749,719 | )
|Change in operating assets and liabilities                                        |  |      | (20,181    | ) |      |   | (17,248    | )    |  |   | (4,700     | )
|                                                                                  |  |      |            |   |      |   |            |      |  |   |            |  
|Net cash provided by operating activities                                         |  | $    | 1,653,267  |   |      | $ | 1,399,117  |      |  | $ | 769,122    |  
|                                                                                  |  |      |            |   |      |   |            |      |  |   |            |  
|Investing activities:                                                             |  |      |            |   |      |   |            |      |  |   |            |  
|Purchase of premises                                                              |  |      | (623,828   | ) |      |   | (10,000    | )    |  |   |           |  
|Construction in process                                                           |  |      | (49,653    | ) |      |   |           |      |  |   |           |  
|Investment in subsidiary                                                          |  |      | (6,000,000 | ) |      |   |           |      |  |   |           |  
|                                                                                  |  |      |            |   |      |   |            |      |  |   |            |  
|Total investing activities                                                        |  |      | (6,673,481 | ) |      |   | (10,000    | )    |  |   |           |  
|                                                                                  |  |      |           
|Financing activities:                                                             |  |      |            |   |      |   |            |      |  |   |            |  
|Proceeds from the issuance of long-term debt                                      |  |      | 6,000,000  |   |      |   |            |      |  |   |            |  
|Cash dividends paid                                                               |  |      | (1,093,602 | ) |      |   | (1,613,132 | )    |  |   | (783,440   | )
|Proceeds from exercise of stock options                                           |  |      | 128,782    |   |      |   | 143,340    |      |  |   | 192,183    |  
|Cash in lieu of fractional shares on stock dividend                               |  |      | (4,865     | ) |      |   |           |      |  |   | (8,992     | )
|                                                                                  |  |      |            |   |      |   |            |      |  |   |            |  
|Net cash used by financing activities                                             |  |      | 5,030,315  |   |      |   | (1,469,792 | )    |  |   | (600,249   | )
|                                                                                  |  |      |            |   |      |   |            |      |  |   |            |  
|Net increase (decrease) in cash and cash equivalents                              |  |      | 10,101     |   |      |   | (80,675    | )    |  |   | 168,873    |  
|Cash and cash equivalents at beginning of year                                    |  |      | 116,227    |   |      |   | 196,902    |      |  |   | 28,029     |  
|                                                                                  |  |      |            |   |      |   |            |      |  |   |            |  
|Cash and cash equivalents at end of year                                          |  | $    | 126,328    |   |      | $ | 116,227    |      |  | $ | 196,902    |  
|                                                                                  |  |      |            |   |      |   |            |      |  |   |            |  



| |  |    |  |                       
| |  | -- |  | ----------------------
| |  | 27 |  | www.GREERSTATEBANK.COM



---

CORPORATE AND SHAREHOLDER INFORMATION

Greer Bancshares Incorporated and Subsidiary



Corporate Offices

Greer Bancshares Incorporated

1111 West Poinsett Street

PO Box 1029

Greer, South Carolina 29652

864-877-2000



Banking Locations

Poinsett Street Office

1111 West Poinsett Street

Greer, South Carolina 29650

864-877-2000



North Main Street Office

601 North Main Street

Greer, South Carolina 29650

864-848-5103



Buncombe Road Office

871 South Buncombe Rd.

Greer, South Carolina 29650

864-848-2563



MEMBER FDIC



Company Website

www.greerstatebank.com



Independent Auditors

Dixon Hughes, PLLC

Asheville, North Carolina



Stock Transfer Agent and Registrar

Request for stock transfers, address changes,

or corrections should be sent
in writing to:



Shareholder Relations

Greer Bancshares Incorporated

PO Box 1029

Greer, SC 29652-1029



Form 10-K and Other Information



The
approximate number of record shareholders as of December 31, 2004 was 817. Copies of Greer Bancshares Incorporateds Annual Report to the United States Securities and Exchange Commission, Form 10-K, and other information may be obtained by
submitting a written request to:



|                                                   |  |     
|-------------------------------------------------- |  | ----
|Mr. J. Richard Medlock, Jr.                        |  | LOGO
|Executive Vice President & Chief Financial Officer | 
|Greer Bancshares Incorporated  PO Box 1029        | 
|Greer, South Carolina 29652-1029                   | 





---

PROMOTION ANNOUNCEMENTS



In January of 2005, the Board of Directors promoted Sandra I. Burdette

to Executive Vice President, Chief Operations Officer, and J. Richard Medlock, Jr. to Executive

Vice President, Chief Financial Officer, recognizing both for 16-plus years of outstanding contributions

and service to Greer State Bank.



LOGO





---

LOGO



THE ATTACHED
INFORMATION CONSTITUTES A PORTION OF GREER

BANCSHARES INCORPORATEDS ANNUAL REPORT TO SHAREHOLDERS FOR

THE YEAR ENDED DECEMBER 31, 2004.



























































































P.O. Box 1029 Greer, SC 29652-1029

Phone: 864-877-2000    Fax: 864-848-5141





---



GREER BANCSHARES
INCORPORATED



Selected Financial Data



The following table sets forth certain selected financial data concerning Greer Bancshares
Incorporated. This information should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations. All share and per share data have been restated to account for a 3-for-2 stock split,
effected in the form of a stock dividend that was effective March 15, 2004



|                                                    |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|--------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | - |  | ---- | --------- | - |  | - | --------- | -
|December 31,                                        |  | 2004 |           |   | 2003 |   |           | 2002 |  |   | 2001      |   |  | 2000 |          
|(Dollars in Thousands, Except per Share Data)       |  |      |           |   |      |   |           |      |  |   |           |   |  |      |          
|SUMMARY OF OPERATIONS                               |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Interest and fee income                             |  | $    | 11,196    |   |      | $ | 10,139    |      |  | $ | 11,091    |   |  | $    | 12,497    |   |  | $ | 12,219    |  
|Interest expenses                                   |  |      | 3,849     |   |      |   | 3,618     |      |  |   | 4,132     |   |  |      | 6,049     |   |  |   | 6,451     |  
|                                                    |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net interest income                                 |  |      | 7,347     |   |      |   | 6,521     |      |  |   | 6,959     |   |  |      | 6,448     |   |  |   | 5,768     |  
|Provision for loan losses                           |  |      | 251       |   |      |   | 10        |      |  |   | 787       |   |  |      | 355       |   |  |   | 200       |  
|                                                    |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net interest income after provision for loan losses |  |      | 7,096     |   |      |   | 6,511     |      |  |   | 6,172     |   |  |      | 6,093     |   |  |   | 5,568     |  
|Noninterest income                                  |  |      | 2,209     |   |      |   | 1,902     |      |  |   | 2,805     |   |  |      | 1,704     |   |  |   | 1,184     |  
|Noninterest expense                                 |  |      | 6,745     |   |      |   | 6,181     |      |  |   | 6,454     |   |  |      | 5,671     |   |  |   | 4,999     |  
|                                                    |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net income                                          |  | $    | 2,560     |   |      | $ | 2,232     |      |  | $ | 2,523     |   |  | $    | 2,126     |   |  | $ | 1,753     |  
|                                                    |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|PER SHARE DATA                                      |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Earnings:                                           |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Basic                                               |  | $    | 1.05      |   |      | $ | 0.92      |      |  | $ | 1.05      |   |  | $    | 0.91      |   |  | $ | 0.77      |  
|Diluted                                             |  |      | 1.05      |   |      |   | 0.92      |      |  |   | 1.04      |   |  |      | 0.90      |   |  |   | 0.75      |  
|Dividends declared                                  |  |      | 0.45      |   |      |   | 0.67      |      |  |   | 0.33      |   |  |      | 0.00      |   |  |   | 0.23      |  
|Book Value                                          |  |      | 8.65      |   |      |   | 7.68      |      |  |   | 7.53      |   |  |      | 6.47      |   |  |   | 5.57      |  
|Weighted average shares outstanding:                |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Basic                                               |  |      | 2,428,833 |   |      |   | 2,415,803 |      |  |   | 2,404,306 |   |  |      | 2,327,037 |   |  |   | 2,286,626 |  
|Diluted                                             |  |      | 2,447,589 |   |      |   | 2,438,631 |      |  |   | 2,429,867 |   |  |      | 2,355,512 |   |  |   | 2,316,819 |  
|                                                    |  |      |           |   |     
|SELECTED ACTUAL YEAR END BALANCES                   |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Total assets                                        |  | $    | 231,291   |   |      | $ | 214,134   |      |  | $ | 192,531   |   |  | $    | 180,052   |   |  | $ | 166,197   |  
|Loans                                               |  |      | 139,646   |   |      |   | 115,565   |      |  |   | 107,661   |   |  |      | 114,360   |   |  |   | 116,466   |  
|Allowance for loan losses                           |  |      | 1,136     |   |      |   | 1,298     |      |  |   | 1,081     |   |  |      | 1,245     |   |  |   | 948       |  
|Available For Sale Securities                       |  |      | 37,054    |   |      |   | 66,760    |      |  |   | 52,163    |   |  |      | 49,754    |   |  |   | 36,242    |  
|Held To Maturity Securities                         |  |      | 35,474    |   |      |   | 17,263    |      |  |   | 14,607    |   |  |      | 0         |   |  |   | 0         |  
|Deposits                                            |  |      | 150,260   |   |      |   | 152,961   |      |  |   | 137,563   |   |  |      | 131,171   |   |  |   | 127,014   |  
|Borrowings                                          |  |      | 52,185    |   |      |   | 40,057    |      |  |   | 34,837    |   |  |      | 31,615    |   |  |   | 24,190    |  
|Stockholders Equity                                |  |      | 21,033    |   |      |   | 19,708    |      |  |   | 18,613    |   |  |      | 15,926    |   |  |   | 13,540    |  
|                                                    |  |      |           |   |     
|SELECTED AVERAGE BALANCES                           |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Assets                                              |  | $    | 224,409   |   |      | $ | 200,217   |      |  | $ | 183,999   |   |  | $    | 174,513   |   |  | $ | 159,713   |  
|Deposits                                            |  |      | 157,179   |   |      |   | 140,310   |      |  |   | 133,359   |   |  |      | 127,650   |   |  |   | 122,542   |  
|Stockholders Equity                                |  |      | 19,872    |   |      |   | 18,398    |      |  |   | 16,243    |   |  |      | 14,589    |   |  |   | 11,878    |  
|                                                    |  |      |           |   |     
|FINANCIAL RATIOS                                    |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Return on average assets                            |  |      | 1.14      | % |      |   | 1.11      | %    |  |   | 1.37      | % |  |      | 1.22      | % |  |   | 1.10      | %
|Return on average equity                            |  |      | 12.88     | % |      |   | 12.13     | %    |  |   | 15.63     | % |  |      | 14.83     | % |  |   | 14.06     | %
|Average equity to average assets                    |  |      | 8.86      | % |      |   | 9.19      | %    |  |   | 8.83      | % |  |      | 8.36      | % |  |   | 7.44      | %
|Dividend payout ratio                               |  |      | 42.86     | % |      |   | 72.83     | %    |  |   | 31.43     | % |  |      | 0.00      | % |  |   | 30.43     | %



2



---

GREER BANCSHARES INCORPORATED



|                                               |         |   |                    |  |         |                    |         |   |         |  |          |       |         |   |         |  |   |       |  |   |       |  |   |      
|---------------------------------------------- | ------- | - | ------------------ |  | ------- | ------------------ | ------- | - | ------- |  | -------- | ----- | ------- | - | ------- |  | - | ----- |  | - | ----- |  | - | -----
|(Dollars in Thousands) (except per share data) |         |   | 2004 Quarter Ended |  |         | 2003 Quarter Ended
|                                               | Dec. 31 |   | Sept. 30           |  | June 30 |                    | Mar. 31 |   | Dec. 31 |  | Sept. 30 |       | June 30 |   | Mar. 31
|Net interest income                            |         | $ | 2,245              |  | $       | 1,759              |         | $ | 1,689   |  | $        | 1,654 |         | $ | 1,808   |  | $ | 1,566 |  | $ | 1,552 |  | $ | 1,595
|Provision for loan losses                      |         |   | 112                |  |         | 94                 |         |   | 30      |  |          | 15    |         |   | 0       |  |   | 0     |  |   | 0     |  |   | 10   
|Noninterest income                             |         |   | 446                |  |         | 624                |         |   | 549     |  |          | 590   |         |   | 365     |  |   | 503   |  |   | 574   |  |   | 460  
|Noninterest expense                            |         |   | 1,605              |  |         | 1,538              |         |   | 1,503   |  |          | 1,443 |         |   | 1,445   |  |   | 1,393 |  |   | 1,466 |  |   | 1,385
|Provision for income taxes                     |         |   | 226                |  |         | 143                |         |   | 121     |  |          | 166   |         |   | 130     |  |   | 104   |  |   | 119   |  |   | 139  
|Net income                                     |         |   | 748                |  |         | 608                |         |   | 584     |  |          | 620   |         |   | 598     |  |   | 572   |  |   | 541   |  |   | 521  
|Basic earnings per share                       |         | $ | 0.30               |  | $       | 0.25               |         | $ | 0.24    |  | $        | 0.26  |         | $ | 0.25    |  | $ | 0.24  |  | $ | 0.23  |  | $ | 0.22 
|Diluted earnings per share                     |         | $ | 0.30               |  | $       | 0.24               |         | $ | 0.24    |  | $        | 0.25  |         | $ | 0.24    |  | $ | 0.23  |  | $ | 0.22  |  | $ | 0.21 



DESCRIPTION OF THE
COMPANYS BUSINESS



Greer State Bank was organized under a state
banking charter in August 1988, and commenced operations on January 3, 1989. Greer Bancshares Incorporated (a one-bank holding company) is a South Carolina corporation formed in July 2001, primarily to hold all of the capital stock of Greer State
Bank. In October 2004 the Company formed, and owns all the common stock of, Greer Capital Trust I (Trust). The Trust is a special purpose subsidiary organized for the sole purpose of issuing trust preferred securities. The Bank engages in commercial
and retail banking, emphasizing the needs of small to medium businesses, professional concerns, and individuals, primarily in Greer and surrounding areas in the upstate of South Carolina. The Company currently engages in no other business other than
owning and managing the Bank and its alternative investments subsidiary, Greer Financial Services Corporation (GFSC). GFSC offers securities exclusively through Raymond James Financial Services, Inc.



There were no significant changes to the Companys business in 2004.



Recent Events



In March 2004 the company declared a three-for-two stock split effective in the form of a
stock dividend. All share and per share information has been adjusted to reflect the effect of the dividend.



In October 2004, the Company issued $6.186 million of junior subordinated debentures to its newly formed, wholly-owned capital trust, Greer Capital Trust I (the Trust), to fully and unconditionally
guarantee the trust preferred securities issued by the Trust. These long-term obligations, currently qualify as Tier I capital for the Company. Also, see the detailed discussion regarding the accounting treatment of the Trust in the summary of
significant accounting policies. The junior subordinated debentures mature in October 2034. Interest payments are due quarterly to the Trust at the three-month LIBOR plus 220 basis points.



In January 2005, the Bank entered into a commitment for a construction project to build a new
branch in the amount of approximately $800,000.



Critical
Accounting Policies



General



The financial condition and results of operations presented in the consolidated financial
statements, the accompanying notes to the consolidated financial statements and this section are, to a large degree, dependent upon our accounting policies. The selection and application of these accounting policies involve judgments, estimates, and
uncertainties that are susceptible to change. We discuss below those accounting policies that we believe are the most important to the portrayal and understanding of our financial condition and results of operations. These critical accounting
policies require our most difficult, subjective and complex judgments about matters that are inherently uncertain. In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, the
possibility of materially different financial condition or results of operations is a reasonable likelihood.



3



---

GREER BANCSHARES INCORPORATED



Allowance for Loan Losses



The allowance for loan losses is an estimate of the losses that may be sustained in our loan portfolio. The allowance is based on two basic principles of accounting:



| |  |  | SFAS 5, Accounting for Contingencies, which requires that losses be accrued when they are probable of occurring and estimatable and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | SFAS 114, Accounting by Creditors for Impairment of a Loan, which requires that losses be accrued based on the differences between the value of collateral, present value of future
cash flows or values that are observable in the secondary market and the loan balance.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our allowance for loan losses is determined by evaluating our loan portfolio on a quarterly basis. The evaluation includes a close review of the internal watch list and other non-performing loans. Management uses
certain steps in calculating the balance of the allowance. A specific classification is used, which examines problem loans and applies a weight factor to each category. The weight factor is based upon FDIC data and the loans within each category are
reviewed on a monthly basis to determine changes in their status. Then a predetermined rate is applied against total loans with unspecified reserves. Again, this rate is based upon experience and can change over time. Management also considers the
amount in specific types of loans, unfunded lines of credit and loans classified as non-accruals. This process is based on data that can be subjective and the actual losses may be greater or less than the amount of the allowance. However, management
feels that the allowance represents a reasonable assessment of the risk imbedded in the portfolio.



Results of Operations



This discussion and analysis is intended to assist the reader in understanding the financial condition and results of operations of Greer Bancshares Incorporated and its subsidiary, Greer State Bank. The commentary should be read in
conjunction with the consolidated financial statements and the related notes and the other statistical information in this report.



The following discussion describes our results of operations for 2004 as compared to 2003 and 2003 compared to 2002 and also analyzes our financial condition as of
December 31, 2004 as compared to December 31, 2003. Like most community banks, we derive most of our income from interest we receive on our loans and investments. Our primary source of funds for making these loans and investments is our deposits,
approximately 86 percent of which we pay interest on. We also use Federal Home Loan Bank advances for funding loans and deposits. One of our key measures of success is net interest income, or the difference between the income on interest-earning
assets, such as loans and investments, and the expense on interest-bearing liabilities, such as deposits and other borrowings. Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on
interest-bearing liabilities.



We have included a number of tables to assist in
the description of these measures. For example, the Average Balances table shows the average balances during 2004, 2003 and 2002 of each category of assets and liabilities, as well as the yield we earned or the rate we paid with respect
to each category. A review of this table shows that loans typically provide higher interest yields than do other types of interest earning assets, which is why we intend to channel a substantial percentage of our earning assets into our loan
portfolio. Similarly, the Rate/Volume Analysis table helps demonstrate the impact of changing interest rates and the changing volume of assets and liabilities during the years shown. We also track the sensitivity of our various
categories of assets and liabilities to changes in interest rates, and we have included a Sensitivity Analysis Table to help explain this. Finally, we have included a number of tables that provide detail about our investment securities,
loans, and our deposits and other borrowings.



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



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



The following discussion and analysis also identifies significant factors that have affected our financial position and operating results during the periods included in
the accompanying financial statements. We encourage you to read this discussion and



4



---

GREER BANCSHARES INCORPORATED



analysis in conjunction with the consolidated financial statements and the related notes and the other statistical information also included in this report.



Managements Discussion and Analysis of Financial
Condition and Results of Operations



Year ended December 31, 2004
compared with year ended December 31, 2003



Net income for the year
ended December 31, 2004 was $2,559,686, or $1.05 per diluted share, compared to $2,232,263, or $.92 per diluted share, for the year ended December 31, 2003, which was an increase of $327,423, or 14.7%. The improvement in net income was the result of
growth in the Banks loan portfolio. Net interest income increased $826,311 or 12.7%, to $7,347,007 for the year ended December 31, 2004. Non-interest income also increased $306,573 to $2,208,874 for the year ended December 31, 2004.
Non-interest expenses increased $400,655, or 7.0%, primarily due to an increase of $329,062, or 10.6%, in salaries and benefits. The increase in salaries and benefits was the result of an increase of three full-time equivalent employees during 2004,
in addition to annual salary adjustments made, as the Companys total assets grew $17,157,743, or 8.0 %, and the Company planned for additional growth.



Year ended December 31, 2003 compared with year ended December 31, 2002



Net income for the year ended December 31, 2003 was $2,232,263, or $.92 per diluted share, compared to $2,523,541, or $1.04 per diluted
share, for the year ended December 31, 2002. Net interest income declined $438,546, or 6.3%, to $6,520,696 for the year ended December 31, 2003. The primary reason for this decrease was the decline in market interest rates that occurred during 2003,
which resulted in a decline in yield on average earning assets that was greater than the decline in the cost of interest-bearing liabilities during the year. Non-interest income also decreased $903,104 to $1,902,301 for the year ended December 31,
2003. Our non-interest income in 2003 compared favorably with our historic level of non-interest income, whereas in 2002 our non-interest income was significantly higher than normal due primarily to a gain on the sale of undeveloped real estate. If
the gain were not considered in our 2002 non-interest income, the increase in non-interest income in 2003 would have been $154,024, or 8.8%. Other operating expenses decreased $64,295, or 4.3%, primarily due to the reduction of credit card expenses
associated with the Companys credit card portfolio that was sold in 2002 to one of our correspondent banking relationships.



Net Interest Income



Net interest income, the difference between interest earned and interest paid, is the largest component of our earnings and changes in it have the greatest impact on net
income. Variations in the volume and mix of assets and liabilities and their relative sensitivity to interest rate movements determine changes in net interest income. Interest rate spread and net interest margin are two significant elements in
analyzing our net interest income. Interest rate spread is the difference between the yield on average earning assets and the rate on average interest bearing liabilities. Net interest margin is calculated as net interest income divided by average
earning assets.



Net interest income increased from $6,520,696 for the year
ended December 31, 2003 to $7,347,007 for the year ended December 31, 2004. The increase in net interest income of $826,311, or 12.7%, was the result of the significant growth in the loan portfolio experienced in the second half of 2004. Beginning
on June 30, 2004, the Federal Open Market Committee raised the federal funds rate five times for a total of 125 basis points. The prime lending rate, which generally moves up and down with changes in the federal funds rate, also increased 125 basis
points during the last six months of 2004. At December 31, 2004, the Bank had approximately $83 million in loans indexed to the Wall Street Journal prime rate. The Banks loan portfolio increased by approximately $24 million, or 21%, during
2004. The majority of the growth occurred in the last six months of the year.



Net interest income decreased from $6,959,242 for the year ended December 31, 2002 to $6,520,696 for the year ended December 31, 2003. The decrease in net interest income of $438,546, or 6.3%, occurred primarily due to the decline of 98
basis points in yield on earning assets, compared to the decline in cost of interest-bearing liabilities, which was 53 basis points. Average interest earning assets increased in 2003 by $16,647,000 and average interestbearing liabilities
increased by $11,246,000; however, since the decline in the yield on average earning assets (98 basis points) was significantly more than the decline in cost of average interest-bearing liabilities, the result was a decline in net interest income.
The decline in yield on average earning assets and cost of interest-bearing liabilities was due to the decline in market interest rates that occurred during 2003. The Companys balance sheet is asset sensitive at one year, which means its
assets reprice at a faster rate than its liabilities in a one-year period. The more rapid repricing of assets during 2003 resulted in the yield on earning assets declining faster than the decline in cost of interest-bearing liabilities, which led to
a decline in interest rate spread and net interest margin. (For additional related information, see discussion on Interest Rate Sensitivity.)



5



---

GREER BANCSHARES INCORPORATED



The following table sets forth for the periods indicated, the weighted-average yields earned, the weighted-average
yields paid, the net interest spread and the net interest margin on earning assets. The table also indicates the average monthly balance and the interest income or expense by specific categories.



Average Balances, Income, Expenses, and Rates



|                                           |  |                |         |                |      |                |  |      |                |  |                |         |                |   |        |                |      |                |  |                |         |  |   |        |  |      |  
|------------------------------------------ |  | -------------- | ------- | -------------- | ---- | -------------- |  | ---- | -------------- |  | -------------- | ------- | -------------- | - | ------ | -------------- | ---- | -------------- |  | -------------- | ------- |  | - | ------ |  | ---- | -
|Year Ended December 31,                    |  | 2004           |         |                | 2003 |                |  | 2002 |               
|(Dollars in Thousands)                     |  | AverageBalance |         | Income/Expense |      | Yield/Rate (2) |  |      | AverageBalance |  | Income/Expense |         | Yield/Rate (2) |   |        | AverageBalance |      | Income/Expense |  | Yield/Rate (2) |        
|Assets:                                    |  |                |         |                |      |                |  |      |                |  |                |         |                |   |        |                |      |                |  |                |         |  |   |        |  |      |  
|Interest Earning Assets:                   |  |                |         |                |      |                |  |      |                |  |                |         |                |   |        |                |      |                |  |                |         |  |   |        |  |      |  
|Taxable Investments                        |  | $              | 51,253  |                | $    | 2,011          |  | 3.92 | %              |  | $              | 42,680  |                | $ | 1,435  |                | 3.36 | %              |  | $              | 36,411  |  | $ | 1,777  |  | 4.88 | %
|Non-Taxable Investments                    |  |                | 32,720  |                |      | 1,435          |  | 6.81 | %              |  |                | 31,331  |                |   | 1,405  |                | 6.92 | %              |  |                | 21,041  |  |   | 985    |  | 7.24 | %
|Int. Bearing Deposits in other banks       |  |                | 1,402   |                |      | 16             |  | 1.14 | %              |  |                | 2,046   |                |   | 24     |                | 1.17 | %              |  |                | 1,685   |  |   | 25     |  | 1.48 | %
|Federal Funds Sold                         |  |                | 1,748   |                |      | 22             |  | 1.26 | %              |  |                | 3,067   |                |   | 35     |                | 1.14 | %              |  |                | 4,036   |  |   | 62     |  | 1.54 | %
|Loans (1)                                  |  |                | 125,013 |                |      | 7,712          |  | 6.18 | %              |  |                | 107,961 |                |   | 7,241  |                | 6.57 | %              |  |                | 107,265 |  |   | 8,243  |  | 7.54 | %
|                                           |  |                |         |                |      |                |  |      |                |  |                |         |                |   |        |                |      |                |  |                |         |  |   |        |  |      |  
|Total Interest Earning Assets              |  | $              | 208,515 |                | $    | 11,196         |  | 5.76 | %              |  | $              | 187,085 |                | $ | 10,140 |                | 5.75 | %              |  | $              | 170,438 |  | $ | 11,092 |  | 6.73 | %
|                                           |  |                |         |                |      |                |  |      |                |  |                |         |                |   |        |                |      |                |  |                |         |  |   |        |  |      |  
|Other noninterest-earning assets           |  |                | 17,132  |                |      |                |  |      |                |  |                | 13,132  |                |   |        |                |      |                |  |                | 13,561  |  |   |        |  |      |  
|                                           |  |                |         |                |      |                |  |      |                |  |                |         |                |   |        |                |      |                |  |                |         |  |   |        |  |      |  
|Total Assets                               |  | $              | 225,647 |                |      |                |  |      |                |  | $              | 200,217 |                |   |        |                |      |                |  | $              | 183,999 |  |   |        |  |      |  
|                                           |  |                |         |                |      |                |  |      |                |  |                |         |                |   |        |                |      |                |  |                |         |  |   |        |  |      |  
|Liabilities and Stockholders Equity       |  |                |         |                |      |                |  |      |                |  |                |         |                |   |        |                |      |                |  |                |         |  |   |        |  |      |  
|Interest Bearing Liabilities:              |  |                |         |                |      |                |  |      |                |  |                |         |                |   |        |                |      |                |  |                |         |  |   |        |  |      |  
|NOW Accounts                               |  | $              | 34,832  |                | $    | 139            |  | 0.40 | %              |  | $              | 32,029  |                | $ | 217    |                | 0.68 | %              |  | $              | 26,964  |  | $ | 230    |  | 0.85 | %
|Money Market and Savings                   |  |                | 27,720  |                |      | 378            |  | 1.36 | %              |  |                | 26,917  |                |   | 324    |                | 1.20 | %              |  |                | 27,741  |  |   | 476    |  | 1.72 | %
|Time Deposits                              |  |                | 68,641  |                |      | 1,583          |  | 2.31 | %              |  |                | 58,077  |                |   | 1,410  |                | 2.43 | %              |  |                | 57,734  |  |   | 1,788  |  | 3.10 | %
|Federal Funds Purchased                    |  |                | 922     |                |      | 19             |  | 2.06 | %              |  |                | 98      |                |   | 1      |                | 1.02 | %              |  |                | 80      |  |   | 1      |  | 1.25 | %
|FHLB Borrowings                            |  |                | 44,396  |                |      | 1,675          |  | 3.77 | %              |  |                | 39,653  |                |   | 1,667  |                | 4.20 | %              |  |                | 33,009  |  |   | 1,638  |  | 4.96 | %
|Other Long Term Debt                       |  |                | 1,331   |                |      | 55             |  | 4.13 | %              |  |                |        |                |   |       |                |     |                |  |                |        |  |   |       |  |     |  
|                                           |  |                |         |                |      |                |  |      |                |  |                |         |                |   |        |                |      |                |  |                |         |  |   |        |  |      |  
|Total Interest Bearing Liabilities         |  | $              | 177,842 |                | $    | 3,849          |  | 2.16 | %              |  | $              | 156,774 |                | $ | 3,619  |                | 2.31 | %              |  | $              | 145,528 |  | $ | 4,133  |  | 2.84 | %
|                                           |  |                |         |                |      |                |  |      |                |  |                |         |                |   |        |                |      |                |  |                |         |  |   |        |  |      |  
|NonInterest-Bearing Liabilities:           |  |                |         |                |      |                |  |      |                |  |                |         |                |   |        |                |      |                |  |                |         |  |   |        |  |      |  
|Demand Deposits                            |  |                | 25,893  |                |      |                |  |      |                |  |                | 23,287  |                |   |        |                |      |                |  |                | 20,920  |  |   |        |  |      |  
|Other Liabilities                          |  |                | 2,040   |                |      |                |  |      |                |  |                | 1,758   |                |   |        |                |      |                |  |                | 1,308   |  |   |        |  |      |  
|                                           |  |                |         |                |      |                |  |      |                |  |                |         |                |   |        |                |      |                |  |                |         |  |   |        |  |      |  
|Total NonInterest-Bearing Liabilities      |  | $              | 27,933  |                |      |                |  |      |                |  | $              | 25,045  |                |   |        |                |      |                |  | $              | 22,228  |  |   |        |  |      |  
|                                           |  |                |         |                |      |                |  |      |                |  |                |         |                |   |        |                |      |                |  |                |         |  |   |        |  |      |  
|Total Liabilities                          |  | $              | 205,775 |                |      |                |  |      |                |  | $              | 181,819 |                |   |        |                |      |                |  | $              | 167,756 |  |   |        |  |      |  
|                                           |  |                |         |                |      |                |  |      |                |  |                |         |                |   |        |                |      |                |  |                |         |  |   |        |  |      |  
|Stockholders Equity                       |  |                | 19,872  |                |      |                |  |      |                |  |                | 18,398  |                |   |        |                |      |                |  |                | 16,243  |  |   |        |  |      |  
|                                           |  |                |         |                |      |                |  |      |                |  |                |         |                |   |        |                |      |                |  |                |         |  |   |        |  |      |  
|Total Liabilities and Stockholders Equity |  | $              | 225,647 |                |      |                |  |      |                |  | $              | 200,217 |                |   |        |                |      |                |  | $              | 183,999 |  |   |        |  |      |  
|                                           |  |                |         |                |      |                |  |      |                |  |                |         |                |   |        |                |      |                |  |                |         |  |   |        |  |      |  
|Net Interest Spread                        |  |                |         |                |      |                |  | 3.59 | %              |  |                |         |                |   |        |                | 3.44 | %              |  |                |         |  |   |        |  | 3.89 | %
|Net Interest Income                        |  |                |         |                | $    | 7,347          |  |      |                |  |                |         |                | $ | 6,521  |                |      |                |  |                |         |  | $ | 6,959  |  |      |  
|                                           |  |                |         |                |      |                |  |      |                |  |                |         |                |   |        |                |      |                |  |                |         |  |   |        |  |      |  
|Net Interest Margin                        |  |                |         |                |      |                |  | 3.78 | %              |  |                |         |                |   |        |                | 3.82 | %              |  |                |         |  |   |        |  | 4.31 | %



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



|(2) | All Yields/Rates are computed on a Tax Equivalent Basis at a Federal Tax Rate of 34% and State Tax Rate of 4.5%.
|--- | ----------------------------------------------------------------------------------------------------------------



The following table sets forth the effect that the varying levels of earning assets and
interest-bearing liabilities and the changes in applicable rates have had on changes in net interest income during the periods indicated. The net changes in net interest income in this table can be traced to the difference in net interest income in
the previous table, Average Balances, Income, Expenses, and Rates.



6



---

GREER BANCSHARES INCORPORATED



Analysis of Changes in Net Interest Income



|                                    |  |                         |       |   |                         |   |      |       |  |   |        |   |  |      |     |   |       |   |        |   |  |   |        |  
|----------------------------------- |  | ----------------------- | ----- | - | ----------------------- | - | ---- | ----- |  | - | ------ | - |  | ---- | --- | - | ----- | - | ------ | - |  | - | ------ | -
|Year Ended December 31,             |  | 2004 Compared with 2003 |       |   | 2003 Compared with 2002 |  
|                                    |  | Variance Due to         |       |   | Variance Due to         |  
|(Dollars in Thousands)              |  | Volume                  |       |   | Rate                    |   |      | Total |  |   | Volume |   |  | Rate |     |   | Total |  
|Interest Income:                    |  |                         |       |   |                         |   |      |       |  |   |        |   |  |      |     |   |       |   |        |   |  |   |        |  
|Taxable Investments                 |  | $                       | 288   |   |                         | $ | 288  |       |  | $ | 576    |   |  | $    | 306 |   |       | $ | (648   | ) |  | $ | (342   | )
|Non-Taxable Investments             |  |                         | 62    |   |                         |   | (32  | )     |  |   | 30     |   |  |      | 482 |   |       |   | (62    | ) |  |   | 420    |  
|Int-Bearing Deposits in other banks |  |                         | (8    | ) |                         |   | (0   | )     |  |   | (8     | ) |  |      | 5   |   |       |   | (6     | ) |  |   | (1     | )
|Federal Funds Sold                  |  |                         | (15   | ) |                         |   | 2    |       |  |   | (13    | ) |  |      | (15 | ) |       |   | (12    | ) |  |   | (27    | )
|Loans                               |  |                         | 901   |   |                         |   | (430 | )     |  |   | 471    |   |  |      | 53  |   |       |   | (1,055 | ) |  |   | (1,002 | )
|                                    |  |                         |       |   |                         |   |      |       |  |   |        |   |  |      |     |   |       |   |        |   |  |   |        |  
|Total                               |  | $                       | 1,229 |   |                         | $ | (173 | )     |  | $ | 1,056  |   |  | $    | 832 |   |       | $ | (1,784 | ) |  | $ | (952   | )
|Interest Expense:                   |  |                         |       |   |                         |   |      |       |  |   |        |   |  |      |     |   |       |   |        |   |  |   |        |  
|NOW Accounts                        |  | $                       | 19    |   |                         | $ | (97  | )     |  | $ | (78    | ) |  | $    | 43  |   |       | $ | (56    | ) |  | $ | (13    | )
|Money Market and Savings            |  |                         | 10    |   |                         |   | 44   |       |  |   | 54     |   |  |      | (14 | ) |       |   | (138   | ) |  |   | (152   | )
|Time Deposits                       |  |                         | 256   |   |                         |   | (83  | )     |  |   | 173    |   |  |      | 11  |   |       |   | (389   | ) |  |   | (378   | )
|Federal Funds Purchased             |  |                         | 8     |   |                         |   | 10   |       |  |   | 18     |   |  |      | 0   |   |       |   | (0     | ) |  |   |       |  
|FHLB Borrowings                     |  |                         | 199   |   |                         |   | (191 | )     |  |   | 8      |   |  |      | 330 |   |       |   | (301   | ) |  |   | 29     |  
|Other Long Term Debt                |  |                         | 55    |   |                         |   |     |       |  |   | 55     |   |  |      |    |   |       |   |       |   |  |   |       |  
|                                    |  |                         |       |   |                         |   |      |       |  |   |        |   |  |      |     |   |       |   |        |   |  |   |        |  
|Total                               |  | $                       | 548   |   |                         | $ | (318 | )     |  | $ | 230    |   |  | $    | 370 |   |       | $ | (884   | ) |  | $ | (514   | )
|Net Interest Income                 |  | $                       | 681   |   |                         | $ | 145  |       |  | $ | 826    |   |  | $    | 462 |   |       | $ | (900   | ) |  | $ | (438   | )
|                                    |  |                         |       |   |                         |   |      |       |  |   |        |   |  |      |     |   |       |   |        |   |  |   |        |  



|(1) | The rate/volume variances (change in volume times change in rate) have been allocated to the change attributable to rate.
|--- | -------------------------------------------------------------------------------------------------------------------------



The Company monitors and manages the pricing and maturity of its assets and liabilities in
order to diminish the potential adverse impact that changes in interest rates could have on its net interest income. The principal monitoring technique employed by the Company is the use of an interest rate risk management model that measures the
effects movements in interest rates will have on net interest income and the present value of equity. Included in the interest rate risk management reports generated by the model is a report that measures our interest sensitivity gap,
which is the positive or negative dollar difference between assets and liabilities that are subject to interest rate repricing within a given period of time. Interest rate sensitivity can be managed by repricing assets or liabilities, 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 repricing in this same time interval helps to hedge the risk and minimize the impact on net
interest income of rising or falling interest rates.



The table included above
shows the changes in interest income and expense during 2004 and 2003, and allocates the appropriate amount of income or expense to changes in rate or changes in volume. The table indicates that in 2003 market rates declined, and the rate on the
Companys earning assets declined more than the rates on its interest-bearing liabilities, which caused the spread and net interest margin to decline. The decrease in rates on earning assets was more than the decrease in rates on
interest-bearing liabilities primarily due to market interest rates falling to fifty-year lows and the rates on the Companys liabilities reaching what management deemed to be the minimum rates that could be paid on certain account types. In
2004 the yield on earning assets declined at a much slower pace than in 2003, due to an increase in interest rates during the last half of the year. The average rate paid on interest-bearing liabilities declined only by two basis points in 2004,
since minimum rates had previously been reached on many of the deposits. The result was a minimal decline in the spread and net interest margin.



The following table presents the Companys rate sensitivity at each of the time intervals indicated as of December 31, 2004. The table may not be indicative of the
Companys rate sensitivity position at other points in time.



7



---

GREER BANCSHARES INCORPORATED



Interest Rate Sensitivity Analysis



|                                                                                |  |                    |        |   |                                       |   |          |                                 |  |   |                 |   |  |        |         |   |  |   |         |  
|------------------------------------------------------------------------------- |  | ------------------ | ------ | - | ------------------------------------- | - | -------- | ------------------------------- |  | - | --------------- | - |  | ------ | ------- | - |  | - | ------- | -
|December 31, 2004                                                               |  | ThreeMonthsor Less |        |   | After ThreeMonthsThroughTwelve Months |   |          | After One YearThroughFive Years |  |   | After FiveYears |   |  | Totals |        
|Interest earning assets:                                                        |  |                    |        |   |                                       |   |          |                                 |  |   |                 |   |  |        |         |   |  |   |         |  
|Federal Funds Sold                                                              |  | $                  | 650    |   |                                       | $ | 0        |                                 |  | $ | 0               |   |  | $      | 0       |   |  | $ | 650     |  
|Interest bearing due from banks                                                 |  |                    | 1,513  |   |                                       |   | 0        |                                 |  |   | 0               |   |  |        | 0       |   |  |   | 1,513   |  
|Investment securities                                                           |  |                    | 3,080  |   |                                       |   | 5,941    |                                 |  |   | 24,916          |   |  |        | 38,592  |   |  |   | 72,529  |  
|Loans                                                                           |  |                    | 89,038 |   |                                       |   | 15,304   |                                 |  |   | 30,325          |   |  |        | 4,979   |   |  |   | 139,646 |  
|                                                                                |  |                    |        |   |                                       |   |          |                                 |  |   |                 |   |  |        |         |   |  |   |         |  
|Total interest earning assets                                                   |  |                    | 93,631 |   |                                       |   | 21,245   |                                 |  |   | 55,241          |   |  |        | 43,571  |   |  |   | 213,688 |  
|                                                                                |  |                    |        |   |                                       |   |          |                                 |  |   |                 |   |  |        |         |   |  |   |         |  
|Cumulative interest earning assets                                              |  | $                  | 93,631 |   |                                       | $ | 114,876  |                                 |  | $ | 170,117         |   |  | $      | 213,688 |   |  | $ | 213,688 |  
|                                                                                |  |                    |        |   |                                       |   |          |                                 |  |   |                 |   |  |        |         |   |  |   |         |  
|Interest bearing liabilities:                                                   |  |                    |        |   |                                       |   |          |                                 |  |   |                 |   |  |        |         |   |  |   |         |  
|Certificates of deposit                                                         |  |                    | 14,976 |   |                                       |   | 25,456   |                                 |  |   | 20,502          |   |  |        | 0       |   |  |   | 60,934  |  
|IRAs                                                                           |  |                    | 5,638  |   |                                       |   | 3,365    |                                 |  |   | 3,175           |   |  |        | 0       |   |  |   | 12,178  |  
|Money Market Accounts                                                           |  |                    | 0      |   |                                       |   | 4,811    |                                 |  |   | 9,752           |   |  |        | 0       |   |  |   | 14,563  |  
|Transaction Accounts                                                            |  |                    | 0      |   |                                       |   | 477      |                                 |  |   | 23,069          |   |  |        | 11,592  |   |  |   | 35,138  |  
|Savings Accounts                                                                |  |                    | 505    |   |                                       |   | 1,515    |                                 |  |   | 4,101           |   |  |        | 0       |   |  |   | 6,121   |  
|FHLB Advances                                                                   |  |                    | 15,691 |   |                                       |   | 4,418    |                                 |  |   | 20,167          |   |  |        | 11,909  |   |  |   | 52,185  |  
|Other Long Term Debt                                                            |  |                    |       |   |                                       |   |         |                                 |  |   |                |   |  |        | 6,000   |   |  |   | 6,000   |  
|                                                                                |  |                    |        |   |                                       |   |          |                                 |  |   |                 |   |  |        |         |   |  |   |         |  
|Total interest bearing liabilities                                              |  |                    | 36,810 |   |                                       |   | 40,042   |                                 |  |   | 80,766          |   |  |        | 29,501  |   |  |   | 187,119 |  
|                                                                                |  |                    |        |   |                                       |   |          |                                 |  |   |                 |   |  |        |         |   |  |   |         |  
|Cumulative interest bearing liabilities                                         |  | $                  | 36,810 |   |                                       | $ | 76,852   |                                 |  | $ | 157,618         |   |  | $      | 187,119 |   |  | $ | 187,119 |  
|                                                                                |  |                    |        |   |                                       |   |          |                                 |  |   |                 |   |  |        |         |   |  |   |         |  
|Gap Analysis:                                                                   |  |                    |        |   |                                       |   |          |                                 |  |   |                 |   |  |        |         |   |  |   |         |  
|Interest sensitivity gap                                                        |  | $                  | 56,821 |   |                                       |   | ($18,797 | )                               |  |   | ($25,525        | ) |  | $      | 14,070  |   |  | $ | 26,569  |  
|                                                                                |  |                    |        |   |                                       |   |          |                                 |  |   |                 |   |  |        |         |   |  |   |         |  
|Cumulative interest sensitivity gap                                             |  | $                  | 56,821 |   |                                       | $ | 38,024   |                                 |  | $ | 12,499          |   |  | $      | 26,569  |   |  | $ | 26,569  |  
|                                                                                |  |                    |        |   |                                       |   |          |                                 |  |   |                 |   |  |        |         |   |  |   |         |  
|Cumulative gap ratio of interest earning assets to interest bearing liabilities |  |                    | 254    | % |                                       |   | 149      | %                               |  |   | 108             | % |  |        | 114     | % |  |   | 114     | %
|                                                                                |  |                    |        |   |                                       |   |          |                                 |  |   |                 |   |  |        |         |   |  |   |         |  



The above table reflects the balances
of interest-earning assets and interest-bearing liabilities at the earlier of their repricing or maturity dates. Overnight federal funds are reflected at the earliest pricing interval due to the immediate availability of the instruments. Debt
securities are reflected at each instruments ultimate maturity date. Scheduled payment amounts of fixed rate amortizing loans are reflected at each scheduled payment date. Scheduled payment amounts of variable rate amortizing loans are
reflected at each scheduled payment date until the loan may be repriced contractually; the unamortized balance is reflected at that point. Interest-bearing liabilities with no contractual maturity, such as savings deposits and interest-bearing
transaction accounts, are reflected in the repricing period indicated appropriate by historical data. Due to contractual arrangements, the Company has the opportunity to vary the rates paid on those deposits within a thirty-day or shorter period;
however, historically rates on these types of deposits have not been immediately adjusted. When adjustments have been made to rates on savings and transaction accounts in the past, the adjustments have been only a fraction of the movement in
overnight rates. Fixed rate time deposits, principally certificates of deposit, are reflected at their contractual maturity date. Securities sold under agreements to repurchase mature on a daily basis and are reflected in the earliest pricing
period. Advances from Federal Home Loan Bank are reflected at their contractual maturity date.



The Company generally would benefit from increasing market rates of interest when it has an asset-sensitive gap position and generally would benefit from decreasing market rates of interest when it is
liability-sensitive. We are asset-sensitive over the one to twelve month time frame. However, gap analysis is not a precise indicator of interest rate sensitivity. 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. The analysis also does not consider any options relating to assets and liabilities (such as floors, ceilings, calls,
etc.). Since gap analysis is not a precise indicator of interest sensitivity, management uses the Risk Analytics Interest Rate Risk Management Model. The model calculates the effects of



8



---

GREER BANCSHARES INCORPORATED



interest rate movements on net interest income, and considers all characteristics of the Companys assets and liabilities, based on assumptions made by
management.



Provision for Loan Losses



The Company has developed policies and procedures for evaluating the overall quality of its
credit portfolio and the timely identification of potential problem credits. On a quarterly basis, the Banks Board of Directors reviews and approves the appropriate level for the Banks allowance for loan losses based upon
managements recommendations, the results of the internal monitoring and reporting system, and a review of historical statistical data for both the Bank and other financial institutions.



Additions to the allowance for loan losses, which are expensed as the provision for loan
losses on our income statement, are made as needed to maintain the allowance at an appropriate level based on managements analysis of the potential risk in the loan portfolio. Loan losses and recoveries are charged or credited directly to the
allowance. The amount of the provision is a function of the level of loans outstanding, the level of nonperforming loans, historical loan loss experience, the amount of loan losses actually charged against the reserve during a given period, and
current and anticipated economic conditions. During 2004, we provided $251,000 for loan losses, raising the balance to $1,136,258 on December 31, 2004 after charging current year net bad debts of $412,970. The reserve for loan losses was
approximately .81% and 1.12% of total loans on December 31, 2004 and 2003, respectively. Non-performing loans (i.e., loans ninety days or more past due and loans on non-accrual status) as a percentage of average assets declined from December 31,
2003 to December 31, 2004 from .62% to .25%. The decrease in loan loss reserve as a percentage of loans was due to the decline in non-performing loans from 2003 to 2004. The Companys loan loss reserve model indicated the reserve was adequate
at December 31, 2004.



The Banks allowance for loan losses is based upon
judgments and assumptions of risk elements in the portfolio, future economic conditions, and other factors affecting borrowers. The process includes identification and analysis of loss potential in various portfolio segments utilizing a credit risk
grading process and specific reviews and evaluations of significant problem credits. In addition, management monitors the overall portfolio quality through observable trends in delinquencies, charge-offs, and general conditions in the market area.
The adequacy of the allowance for loan losses and the effectiveness of our monitoring and analysis system are also reviewed periodically by the banking regulators and our independent auditors.



Based on present information and ongoing evaluation, management considers the allowance for
loan losses to be adequate to meet presently known and inherent risks in the loan portfolio. Managements judgment as to the adequacy of the allowance is based upon a number of assumptions about future events that it believes to be reasonable,
but which may or may not prove to be accurate. Our losses will undoubtedly vary from our estimates, and there is a possibility that charge-offs in future periods will exceed the allowance for loan losses as estimated at any point in time. 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 does not allocate the allowance for loan
losses to specific categories of loans but evaluates the adequacy on an overall portfolio basis utilizing a risk grading system.



Other Income



Non-interest income for the year ended December 31, 2004 was $2,208,874 compared to $1,902,301 for the year ended December 31, 2003, an increase of $306,573, or 16.1%.
Service charges and fees relating to deposit accounts, which increased from $1,167,683 for the year ended December 31, 2003 to $1,235,497 for the year ended December 31, 2004, were the most significant portion of non-interest income. Gains on the
sale of investment securities were $295,572 in 2004, compared to $122,585 in 2003. Investment securities were sold to fund significant growth in the loan portfolio experienced in the last half of 2004. Other operating income, which is included in
total non-interest income, increased from $598,551 in 2003 to $677,805 in 2004. The largest component of other operating income is income from financial management services, which increased from $262,182 in 2003, to $281,964 in 2004.



Non-interest income for the year ended December 31, 2003 was $1,902,301 compared to
$2,805,405 for the year ended December 31, 2002. As discussed earlier in this document, this decrease was primarily due to a 2002 gain of $1,057,128 realized on the sale of undeveloped real estate that was purchased in 1996 in order to obtain a
corner lot on which to build a branch office in 1998. The most significant portion of non-interest income in 2003 was from service charges and fees relating to deposit accounts that totaled $1,167,683 compared to $1,088,839 in 2002. The increase of
$78,844 is a result of increased revenue from an overdraft privilege product, which the Bank has offered since August 2000. Other operating income decreased $72,007, or 10.7%, to $598,551 for the year ended December 31, 2003 due primarily to a
decline in credit card income. This was a result of the Companys credit card portfolio being sold to one of the Companys correspondent banking relationships during 2002. While there was a significant decrease in income from the credit
card function in 2003,



9



---

GREER BANCSHARES INCORPORATED



since 2003 was the first full year after the sale of the credit card portfolio, the Company still received certain income relating to credit cards. The
commission income from credit card products was expected to increase as the Company grows. While other operating income as a whole decreased, income from the Companys brokerage services subsidiary, offered through Raymond James Financial
Services, totaled $262,182 in 2003 and $190,350 in 2002, an increase of $71,832, or 37.7%. The increase was due primarily to favorable conditions in the equity markets, which encouraged investors to move funds from cash accounts and invest in the
equity markets.



Other Expenses



Non-interest expenses were $6,089,638 for the year ended December 31, 2004 compared to
$5,688,983 for the year ended December 31, 2003. This was comprised primarily of salaries and employee benefits totaling $3,440,019 for the year ended December 31, 2003 compared to $3,110,957 for the year ended December 31, 2002. The increase in
salaries was due to annual salary adjustments and the addition of staff to support the Companys growth. Included in non-interest expenses is depreciation expense on equipment which totaled $335,320 in 2004 and $445,725 in 2003, which was a
decrease of $110,405, or 24.8%. The decrease was due to certain equipment and software becoming fully depreciated early in 2004. Internet banking expense increased to $73,870 in 2004 from $54,293 in 2003, as the result of growth and additional
features implemented in 2004. Marketing expenses declined in 2004 to $178,800 from $222,550 in 2003. Included in marketing expenses in 2003 were approximately $70,000 in expenses for marketing programs relating to one-time promotions. All other
operating expenses increased primarily as a result of the continued growth of the Company.



Non-interest expenses were $5,688,983 for the year ended December 31, 2003 compared to $5,566,006 for the year ended December 31, 2002. This was comprised primarily of salaries and employee benefits totaling
$3,110,957 for the year ended December 31, 2003 compared to $2,856,452 for the year ended December 31, 2002. The increase in salaries was due to annual salary adjustments and the addition of staff made necessary by the Companys growth.
Included in non-interest expenses is depreciation expense on equipment, which totaled $445,725 in 2003 and $482,899 in 2002. The decrease of $37,174, or 7.7%, was due to certain equipment and software becoming fully depreciated during 2003. Other
operating expenses were $906,889 compared to $952,706, a decrease of $45,817, or 4.8%. This decrease is primarily due to 2003 being the first full year after the sale of the Companys credit card portfolio.



Income Taxes



For the years ended December 31, 2004 and 2003, the Company recorded income tax expense in
the amounts of $655,557 and $491,751, respectively. This resulted in an effective tax rate of 20.4% and 18.1% for the years ended December 31, 2004 and 2003, respectively. The increase in the effective tax rate is due to the decrease in the amount
of tax-free income as a percentage of net interest income, which was 19.5% for 2004 and 21.5% for 2003. The amount of tax-free income the Company has is related to the amount of municipal securities and loans to municipalities that qualify as
tax-exempt.



For the year ended December 31, 2002, the Company recorded income
tax expense in the amount of $887,600, which resulted in an effective tax rate of 26.0%. The effective tax rate for 2002 was higher due to the percentage of tax-free income to net interest income being 14.2%, which was significantly lower than the
ratio for 2003 and 2004. In 2003 the Bank recorded tax-exempt income of $1,404,546, compared with $984,746 in 2002, an increase of approximately $420,000. The increase was the result of the addition of $9,185,331 and $12,134,217 in tax-free
securities in 2003 and 2002, respectively.



Capital Resources



Total capital of the Company was increased by 2004 net income of
$2,559,686 and was decreased by the change in accumulated other comprehensive income of ($266,560). In addition, the Company paid cash dividends on June 15, September 15 and December 15, 2004 totaling $1,093,602, or $.45 per share. In addition, the
Company paid cash in lieu of fractional shares in the amount of $4,865 relating to a 3 for 2 stock split that was effective on March 15, 2004. In 2003, total capital of the Company was increased by net income of $2,232,263 and the change in
accumulated other comprehensive income of $313,607. The Company also paid cash dividends in the amount of $1,613,132, or $1.00 per share on May 15 and November 15, 2003.



In 2002, total capital of the Company was increased by net income of $2,523,541 and the change in accumulated other comprehensive income of
$757,390. In addition, the Company issued a 2.5% stock dividend and paid a cash dividend of $.50 per share on May 30, 2002. Total cash paid out for the cash dividend was $783,440, and cash paid in lieu of fractional shares was $8,992.



10



---

GREER BANCSHARES INCORPORATED



The Federal Reserve Board and bank regulatory agencies require bank holding companies and financial institutions to
maintain capital at adequate levels based on a percentage of assets and off-balance-sheet exposures, adjusted for risk weights ranging form 0% to 100%. Under the risk-based standard, capital is classified into two tiers. Tier 1 capital of the
Company consists of common shareholders equity minus unrealized gains on securities available for sale. Tier 2 capital consists of the allowance for loan losses subject to certain limitations. A bank holding companys qualifying capital
base for purposes of its risk-based capital ratio consists of the sum of its Tier 1 and Tier 2 capital. The regulatory minimum requirements are 4% for Tier 1 and 8% for total risk-based capital. The holding company and banking subsidiary are also
required to maintain capital at a minimum level based on average assets, which is known as the leverage ratio. Only the strongest bank holding companies and banks are allowed to maintain capital at the minimum requirement. All others are subject to
maintaining ratios 100 to 200 basis points above the minimum.



Greer State Bank
and the Company exceeded the Federal Reserves fully phased in regulatory capital requirements at December 31, 2004, 2003 and 2002 as set forth in the following table.



Risk-Based Capital Ratios



|                                                           |  |                   |         |   |                 |   |         |                  |  |   |         |  
|---------------------------------------------------------- |  | ----------------- | ------- | - | --------------- | - | ------- | ---------------- |  | - | ------- | -
|                                                           |  | (000s)           |        
|Bank                                                       |  | 2004              |         |   | 2003            |   |         | 2002             | 
|Tier 1 Capital                                             |  |                   | 25,354  |   |                 | $ | 18,428  |                  |  | $ | 17,612  |  
|Tier 2 Capital                                             |  |                   | 1,136   |   |                 |   | 1,299   |                  |  |   | 1,081   |  
|                                                           |  |                   |         |   |                 |   |         |                  |  |   |         |  
|Total Qualifying Capital                                   |  |                   | 26,490  |   |                 | $ | 19,727  |                  |  | $ | 18,693  |  
|                                                           |  |                   |         |   |                 |   |         |                  |  |   |         |  
|Risk-adjusted total assets                                 |  | $                 | 163,850 |   |                 | $ | 141,064 |                  |  | $ | 125,036 |  
|                                                           |  |                   |         |   |                 |   |         |                  |  |   |         |  
|(including off-balance-sheet exposures)                    |  |                   |         |   |                 |   |         |                  |  |   |         |  
|Tier 1 risk-based capital ratio                            |  |                   | 15.47   | % |                 |   | 13.06   | %                |  |   | 14.09   | %
|Total risk-based capital ratio                             |  |                   | 16.17   | % |                 |   | 13.98   | %                |  |   | 14.95   | %
|Tier 1 leverage ratio                                      |  |                   | 10.82   | % |                 |   | 8.92    | %                |  |   | 9.13    | %
|                                                           |  |                   |        
|                                                           |  | Tier 1 Risk-Based |         |   | Tier 1 Leverage |   |         | Total Risk-Based | 
|Greer Bancshares capital ratios at December 31, 2004 were: |  |                   | 15.90   | % |                 |   | 11.18   | %                |  |   | 16.59   | %



Liquidity



The Company manages its liquidity from both the asset and liability side
of the balance sheet through the coordination of the relative maturities of its assets and liabilities. Short-term liquidity needs are generally met from cash, due from banks, federal funds purchased and sold and deposit levels. The Company has
federal funds lines in place totaling $14.5 million, and also has the ability to borrow additional funds from the Federal Home Loan Bank of up to 30% of the Banks assets. Management has established policies and procedures governing the length
of time to maturity on loans and investments. In the opinion of management, our deposit base and lines of credit can adequately support our short-term liquidity needs. Management believes the new branch that is scheduled to open in 2005, and is
discussed above in the Recent Events section, will generate adequate deposits to fund its growth.



Impact of Off-Balance Sheet Instruments



The Company has certain off-balance-sheet instruments in the form of contractual commitments to extend credit to customers. These legally binding commitments have set expiration dates and are at predetermined interest
rates. The underwriting criteria for these commitments are the same as for loans in our loan portfolio. Collateral is also obtained, if necessary, based on the credit evaluation of each borrower. Although many of the commitments will expire unused,
management believes that we have the necessary resources to fund these commitments. At December 31, 2004 and 2003, the Companys commitments to extend credit totaled $31,136,000 and $26,134,000, respectfully.



11



---

GREER BANCSHARES INCORPORATED



Impact of On-Balance Sheet Instruments



In addition, the Company has utilized interest rate swap contracts as fair value hedges for
some of our fixed rate Federal Home Loan Bank advances. The term and notional amount of the interest rate swaps match the term and principal amount of the debt being hedged. Interest rate swaps are contractual agreements between two parties to
exchange a series of cash flows representing interest payments. A swap allows both parties to alter the repricing characteristics of assets or liabilities without affecting the underlying principal positions. Through the use of a swap, assets and
liabilities may be transformed from fixed to floating rates, from floating rates to fixed rates, or from one type of floating rate to another. The remaining term on our swaps at December 31, 2004 ranged from five years to eight years. We do not
utilize derivatives for trading purposes. We assume that there is no ineffectiveness with these fair value hedges and therefore, have adjusted the carrying amount of the swap to its fair value and adjusted the carrying amount of the liability by an
offsetting amount.



The net interest payable or receivable on interest rate
swaps that are designated as hedges is accrued and recognized as an adjustment to the interest expense of the related liability and flow through the income statement for each specific reporting period. Gains and losses from early terminations of
derivatives are deferred and amortized as yield adjustments over the shorter of the remaining term of the hedged asset or liability or the remaining term of the derivative instrument. Upon disposition or settlement of the asset or liability being
hedged, deferral accounting is discontinued and any gains or losses are recognized in income.



Investment Portfolio



The following
tables summarize the carrying value and estimated market value of investment securities and weighted-average yields of those securities at December 31, 2004, 2003 and 2002. The yield on state and political subdivisions is presented on a tax
equivalent basis using a federal income tax rate of 34% and state income tax rate of 4.5%. For mortgage-backed securities, the amounts are based on the actual contracted maturities, and prepayments were not considered.



Investment Securities Portfolio Composition



|                                                  |  |                      |       |   |                             |   |       |                              |  |   |                 |   |  |       |        |                        |  |                           |        |  |   |        |  |      
|------------------------------------------------- |  | -------------------- | ----- | - | --------------------------- | - | ----- | ---------------------------- |  | - | --------------- | - |  | ----- | ------ | ---------------------- |  | ------------------------- | ------ |  | - | ------ |  | -----
|                                                  |  | Due One Year or Less |       |   | One Year Through Five Years |   |       | Five Years through Ten Years |  |   | After Ten Years |   |  | Total |        | Estimated Market Value |  | Average Maturity in Years
|(Dollars in Thousands)                            |  |                      |       |   |                             |   |      
|December 31, 2004                                 |  |                      |       |   |                             |   |      
|Held-To-Maturity                                  |  |                      |       |   |                             |   |       |                              |  |   |                 |   |  |       |        |                        |  |                           |        |  |   |        |  |      
|Mortgage Backed Securities                        |  | $                    |      |   |                             | $ |      |                              |  | $ | 7,108           |   |  | $     | 28,366 |                        |  | $                         | 35,474 |  | $ | 35,316 |  | 13.44
|                                                  |  |                      |       |   |                             |   |       |                              |  |   |                 |   |  |       |        |                        |  |                           |        |  |   |        |  |      
|Available-For-Sale                                |  |                      |       |   |                             |   |       |                              |  |   |                 |   |  |       |        |                        |  |                           |        |  |   |        |  |      
|U.S. Govt Agencies and Mortgage Backed Securities |  |                      |      |   |                             |   | 3,097 |                              |  |   | 3,799           |   |  |       | 2,209  |                        |  |                           | 9,105  |  |   | 9,043  |  | 8.00 
|States of the U.S. and Political Subdivisions     |  |                      | 368   |   |                             |   | 912   |                              |  |   | 5,476           |   |  |       | 15,715 |                        |  |                           | 22,471 |  |   | 23,906 |  | 10.38
|Corporate Securities                              |  |                      | 1,021 |   |                             |   | 3,094 |                              |  |   |                |   |  |       |       |                        |  |                           | 4,115  |  |   | 4,105  |  | 2.88 
|                                                  |  |                      |       |   |                             |   |       |                              |  |   |                 |   |  |       |        |                        |  |                           |        |  |   |        |  |      
|Total                                             |  | $                    | 1,389 |   |                             | $ | 7,103 |                              |  | $ | 9,275           |   |  | $     | 17,924 |                        |  | $                         | 35,691 |  | $ | 37,054 |  |      
|                                                  |  |                      |       |   |                             |   |       |                              |  |   |                 |   |  |       |        |                        |  |                           |        |  |   |        |  |      
|Held-To-Maturity                                  |  |                      |       |   |                             |   |       |                              |  |   |                 |   |  |       |        |                        |  |                           |        |  |   |        |  |      
|Weighted Average Yields:                          |  |                      |       |   |                             |   |       |                              |  |   |                 |   |  |       |        |                        |  |                           |        |  |   |        |  |      
|Mortgage Backed Securities                        |  |                      | 0.00  | % |                             |   | 0.00  | %                            |  |   | 3.81            | % |  |       | 4.44   | %                      |  |                           |        |  |   |        |  |      
|Available-For-Sale                                |  |                      |       |   |                             |   |       |                              |  |   |                 |   |  |       |        |                        |  |                           |        |  |   |        |  |      
|Weighted Average Yields:                          |  |                      |       |   |                             |   |       |                              |  |   |                 |   |  |       |        |                        |  |                           |        |  |   |        |  |      
|U.S. Govt Agencies and Mortgage Backed Securities |  |                      | 0.00  | % |                             |   | 2.70  | %                            |  |   | 4.38            | % |  |       | 4.92   | %                      |  |                           |        |  |   |        |  |      
|States of the U.S. and Political Subdivisions     |  |                      | 6.65  | % |                             |   | 6.48  | %                            |  |   | 6.34            | % |  |       | 6.68   | %                      |  |                           |        |  |   |        |  |      
|Corporate Securities                              |  |                      | 3.38  | % |                             |   | 4.70  | %                            |  |   | 0.00            | % |  |       | 0.00   | %                      |  |                           |        |  |   |        |  |      



12



---

GREER BANCSHARES INCORPORATED



(Investment Portfolio, cont.)



|                                                  |  |                      |       |   |                             |   |        |                              |  |   |                 |   |  |       |       |                        |  |                           |        |  |   |        |  |     
|------------------------------------------------- |  | -------------------- | ----- | - | --------------------------- | - | ------ | ---------------------------- |  | - | --------------- | - |  | ----- | ----- | ---------------------- |  | ------------------------- | ------ |  | - | ------ |  | ----
|                                                  |  | Due One Year or Less |       |   | One Year Through Five Years |   |        | Five Years through Ten Years |  |   | After Ten Years |   |  | Total |       | Estimated Market Value |  | Average Maturity in Years
|(Dollars in Thousands)                            |  |                      |       |   |                             |   |       
|December 31, 2003                                 |  |                      |       |   |                             |   |       
|Held-To-Maturity                                  |  |                      |       |   |                             |   |        |                              |  |   |                 |   |  |       |       |                        |  |                           |        |  |   |        |  |     
|Mortgage Backed Securities                        |  | $                    |      |   |                             | $ | 15,291 |                              |  | $ | 1,972           |   |  | $     |      |                        |  | $                         | 17,263 |  | $ | 17,278 |  | 2.89
|                                                  |  |                      |       |   |                             |   |        |                              |  |   |                 |   |  |       |       |                        |  |                           |        |  |   |        |  |     
|Available-For-Sale                                |  |                      |       |   |                             |   |        |                              |  |   |                 |   |  |       |       |                        |  |                           |        |  |   |        |  |     
|U.S. Govt Agencies and Mortgage Backed Securities |  |                      | 6,016 |   |                             |   | 11,914 |                              |  |   | 5,087           |   |  |       | 1,995 |                        |  |                           | 25,012 |  |   | 25,240 |  | 4.30
|States of the U.S. and Political Subdivisions     |  |                      | 115   |   |                             |   | 6,797  |                              |  |   | 22,808          |   |  |       | 3,741 |                        |  |                           | 33,461 |  |   | 34,991 |  | 7.68
|Corporate Securities                              |  |                      | 3,031 |   |                             |   | 1,061  |                              |  |   |                |   |  |       |      |                        |  |                           | 4,092  |  |   | 4,132  |  | 0.69
|Other Securities                                  |  |                      |      |   |                             |   |       |                              |  |   | 2,397           |   |  |       |      |                        |  |                           | 2,397  |  |   | 2,397  |  | 5.69
|                                                  |  |                      |       |   |                             |   |        |                              |  |   |                 |   |  |       |       |                        |  |                           |        |  |   |        |  |     
|Total                                             |  | $                    | 9,162 |   |                             | $ | 19,772 |                              |  | $ | 30,292          |   |  | $     | 5,736 |                        |  | $                         | 64,962 |  | $ | 66,760 |  |     
|                                                  |  |                      |       |   |                             |   |        |                              |  |   |                 |   |  |       |       |                        |  |                           |        |  |   |        |  |     
|Held-To-Maturity                                  |  |                      |       |   |                             |   |        |                              |  |   |                 |   |  |       |       |                        |  |                           |        |  |   |        |  |     
|Weighted Average Yields:                          |  |                      |       |   |                             |   |        |                              |  |   |                 |   |  |       |       |                        |  |                           |        |  |   |        |  |     
|Mortgage Backed Securities                        |  |                      | 0.00  | % |                             |   | 3.66   | %                            |  |   | 4.06            | % |  |       | 0.00  | %                      |  |                           |        |  |   |        |  |     
|Available-For-Sale                                |  |                      |       |   |                             |   |        |                              |  |   |                 |   |  |       |       |                        |  |                           |        |  |   |        |  |     
|Weighted Average Yields:                          |  |                      |       |   |                             |   |        |                              |  |   |                 |   |  |       |       |                        |  |                           |        |  |   |        |  |     
|U.S. Treasury Securities                          |  |                      | 0.00  | % |                             |   | 0.00   | %                            |  |   | 0.00            | % |  |       | 0.00  | %                      |  |                           |        |  |   |        |  |     
|U.S. Govt Agencies and Mortgage Backed Securities |  |                      | 3.57  | % |                             |   | 3.32   | %                            |  |   | 4.67            | % |  |       | 5.28  | %                      |  |                           |        |  |   |        |  |     
|States of the U.S. and Political Subdivisions     |  |                      | 6.51  | % |                             |   | 6.39   | %                            |  |   | 6.43            | % |  |       | 5.60  | %                      |  |                           |        |  |   |        |  |     
|Corporate Securities                              |  |                      | 5.19  | % |                             |   | 3.38   | %                            |  |   | 0.00            | % |  |       | 0.00  | %                      |  |                           |        |  |   |        |  |     
|Other Securities                                  |  |                      | 0.00  | % |                             |   | 0.00   | %                            |  |   | 3.69            | % |  |       | 0.00  | %                      |  |                           |        |  |   |        |  |     
|                                                  |  |                      |       |   |                             |   |       
|                                                  |  | Due One Year or Less |       |   | One Year Through Five Years |   |        | Five Years through Ten Years |  |   | After Ten Years |   |  | Total |       | Estimated Market Value |  | Average Maturity in Years
|(Dollars in Thousands)                            |  |                      |       |   |                             |   |       
|December 31, 2002                                 |  |                      |       |   |                             |   |       
|Held-To-Maturity                                  |  |                      |       |   |                             |   |        |                              |  |   |                 |   |  |       |       |                        |  |                           |        |  |   |        |  |     
|Mortgage Backed Securities                        |  | $                    |      |   |                             | $ | 12,044 |                              |  | $ | 2,563           |   |  | $     |      |                        |  | $                         | 14,607 |  | $ | 14,686 |  | 3.47
|                                                  |  |                      |       |   |                             |   |        |                              |  |   |                 |   |  |       |       |                        |  |                           |        |  |   |        |  |     
|Available-For-Sale                                |  |                      |       |   |                             |   |        |                              |  |   |                 |   |  |       |       |                        |  |                           |        |  |   |        |  |     
|U.S. Govt Agencies and Mortgage Backed Securities |  |                      | 7,868 |   |                             |   | 10,887 |                              |  |   |                |   |  |       |      |                        |  |                           | 18,755 |  |   | 19,183 |  | 1.16
|States of the U.S. and Political Subdivisions     |  |                      | 105   |   |                             |   | 2,106  |                              |  |   | 19,657          |   |  |       | 4,571 |                        |  |                           | 26,439 |  |   | 27,261 |  | 8.44
|Corporate Securities                              |  |                      | 1,336 |   |                             |   | 2,545  |                              |  |   |                |   |  |       |      |                        |  |                           | 3,881  |  |   | 3,922  |  | 1.33
|Other Securities                                  |  |                      |      |   |                             |   |       |                              |  |   | 1,797           |   |  |       |      |                        |  |                           | 1,797  |  |   | 1,797  |  | 7.00
|                                                  |  |                      |       |   |                             |   |        |                              |  |   |                 |   |  |       |       |                        |  |                           |        |  |   |        |  |     
|Total                                             |  | $                    | 9,309 |   |                             | $ | 15,538 |                              |  | $ | 21,454          |   |  | $     | 4,571 |                        |  | $                         | 50,872 |  | $ | 52,163 |  |     
|                                                  |  |                      |       |   |                             |   |        |                              |  |   |                 |   |  |       |       |                        |  |                           |        |  |   |        |  |     
|Held-To-Maturity                                  |  |                      |       |   |                             |   |        |                              |  |   |                 |   |  |       |       |                        |  |                           |        |  |   |        |  |     
|Weighted Average Yields:                          |  |                      |       |   |                             |   |        |                              |  |   |                 |   |  |       |       |                        |  |                           |        |  |   |        |  |     
|Mortgage Backed Securities                        |  |                      | 0.00  | % |                             |   | 4.10   | %                            |  |   | 4.56            | % |  |       | 0.00  | %                      |  |                           |        |  |   |        |  |     
|Available-For-Sale                                |  |                      |       |   |                             |   |        |                              |  |   |                 |   |  |       |       |                        |  |                           |        |  |   |        |  |     
|Weighted Average Yields:                          |  |                      |       |   |                             |   |        |                              |  |   |                 |   |  |       |       |                        |  |                           |        |  |   |        |  |     
|U.S. Govt Agencies and Mortgage Backed Securities |  |                      | 3.73  | % |                             |   | 5.09   | %                            |  |   | 0.00            | % |  |       | 0.00  | %                      |  |                           |        |  |   |        |  |     
|States of the U.S. and Political Subdivisions     |  |                      | 6.37  | % |                             |   | 6.52   | %                            |  |   | 6.55            | % |  |       | 6.20  | %                      |  |                           |        |  |   |        |  |     
|Corporate Securities                              |  |                      | 5.30  | % |                             |   | 5.02   | %                            |  |   | 0.00            | % |  |       | 0.00  | %                      |  |                           |        |  |   |        |  |     
|Other Securities                                  |  |                      | 0.00  | % |                             |   | 0.00   | %                            |  |   | 5.29            | % |  |       | 0.00  | %                      |  |                           |        |  |   |        |  |     



13



---

GREER BANCSHARES INCORPORATED



Loan Portfolio



Credit Risk Management



Credit risk entails both general risk, which is inherent in the process of lending, and risk that is specific to individual borrowers. The management of credit risk
involves both the process of loan underwriting and loan administration. The Company manages credit risk through a strategy of making loans within our primary marketplace and within our limits of expertise. Although management seeks to avoid
concentrations of credit by loan type or industry through diversification, a substantial portion of the borrowers ability to honor the terms of their loans is dependent on the business and economic conditions in Greenville and Spartanburg
Counties and the surrounding areas comprising our marketplace. Additionally, since real estate is considered by the Company as the most desirable non-monetary collateral, a significant portion of our loans are collateralized by real estate; however,
the cash flow of the borrower or the business enterprise is generally considered as the primary source of repayment. Generally, the value of real estate is not considered by the Company as the primary source of repayment for performing loans. We
also seek to limit total exposure to individual and affiliated borrowers. We manage the risk specific to individual borrowers through the loan underwriting process and through an ongoing analysis of the borrowers ability to service the debt as
well as the value of the pledged collateral.



The Banks loan officers and
loan administration staff are charged with monitoring our loan portfolio and identifying changes in the economy or in a borrowers circumstances which may affect the ability to repay the debt or the value of the pledged collateral. In order to
assess and monitor the degree of risk in our loan portfolio, several credit risk identification and monitoring processes are utilized. We use an outside consultant, a former OCC bank examiner, to perform loan reviews on a monthly basis.



Lending Activities



The Company extends credit primarily to consumers and small businesses in Greenville and
Spartanburg Counties and, to a limited extent, customers in surrounding areas.



The Companys corporate office is located in Greer, South Carolina, and its service area is mixed in nature. The Greenville-Spartanburg area is a regional business center whose economy contains elements of manufacturing, higher
education, regional health care, and distribution facilities. Outside the incorporated city limits of Greer, the economy includes manufacturing, agriculture, and industry. No particular category or segment of the economy previously described is
expected to grow or contract disproportionately in 2005.



Total loans
outstanding were $139,646,433 and $115,664,624 at December 31, 2004 and 2003, respectively. There are no significant concentrations of loans in our loan portfolio to any particular individuals or industry or group of related individuals or
industries.



The Companys ratio of loans to deposits was 92.9% and 75.6%
at December 31, 2004 and 2003, respectively. The loan to deposit ratio is used to monitor a financial institutions potential profitability and efficiency of asset distribution and utilization. Generally, a higher loan to deposit ratio is
indicative of higher interest income since loans yield a higher return than alternative investment vehicles. Management has concentrated on maintaining quality in the loan portfolio while continuing to increase the deposit base. The increase in the
loans to deposits ratio is due to the significant growth experienced in the loan portfolio during the last six months of 2004. The growth was funded primarily by advances from the Federal Home Loan Bank, the sale of investment securities and the
issuance of long term debt in the form of trust preferred securities.



14



---

GREER BANCSHARES INCORPORATED



The following table summarizes the composition of the loan portfolio by category at the dates indicated.



Loan Portfolio Composition



|                                                |  |        |         |         |       |   |        |      |         |  |       |        |  |         |         |  |        |   |         |   |         |        |       |         |  |   |         |  |       |  
|----------------------------------------------- |  | ------ | ------- | ------- | ----- | - | ------ | ---- | ------- |  | ----- | ------ |  | ------- | ------- |  | ------ | - | ------- | - | ------- | ------ | ----- | ------- |  | - | ------- |  | ----- | -
|December 31,                                    |  | 2004   |         |         | 2003  |   |        | 2002 |         |  | 2001  |        |  | 2000    |        
|(Dollars in Thousands)                          |  | Amount |         | Percent |       |   | Amount |      | Percent |  |       | Amount |  | Percent |         |  | Amount |   | Percent |   |         | Amount |       | Percent | 
|Commercial                                      |  | $      | 31,188  |         | 22.33 | % |        | $    | 28,122  |  | 24.33 | %      |  | $       | 23,293  |  | 21.64  | % |         | $ | 24,482  |        | 21.41 | %       |  | $ | 17,672  |  | 15.17 | %
|Real Estate-Construction                        |  |        | 28,362  |         | 20.31 | % |        |      | 15,288  |  | 13.23 | %      |  |         | 13,596  |  | 12.63  | % |         |   | 11,361  |        | 9.93  | %       |  |   | 4,650   |  | 3.99  | %
|Real Estate Mortgage:Residential 1-4            |  |        | 40,772  |         | 29.20 | % |        |      | 36,777  |  | 31.82 | %      |  |         | 43,527  |  | 40.43  | % |         |   | 49,196  |        | 43.02 | %       |  |   | 55,570  |  | 47.72 | %
|Multi-Family                                    |  |        | 1,636   |         | 1.17  | % |        |      | 1,732   |  | 1.50  | %      |  |         | 639     |  | 0.59   | % |         |   | 413     |        | 0.36  | %       |  |   | 427     |  | 0.37  | %
|NonFarm/Nonresidential                          |  |        | 26,810  |         | 19.20 | % |        |      | 21,099  |  | 18.26 | %      |  |         | 15,555  |  | 14.45  | % |         |   | 17,149  |        | 15.00 | %       |  |   | 26,247  |  | 22.54 | %
|Installment Loans to Individuals                |  |        | 9,694   |         | 6.94  | % |        |      | 9,154   |  | 7.92  | %      |  |         | 9,535   |  | 8.86   | % |         |   | 9,956   |        | 8.71  | %       |  |   | 10,073  |  | 8.65  | %
|Lease Financing                                 |  |        | 977     |         | 0.70  | % |        |      | 931     |  | 0.81  | %      |  |         | 462     |  | 0.43   | % |         |   | 469     |        | 0.41  | %       |  |   | 509     |  | 0.44  | %
|Obligations of State and Political Subdivisions |  |        | 207     |         | 0.15  | % |        |      | 2,462   |  | 2.13  | %      |  |         | 1,054   |  | 0.98   | % |         |   | 1,334   |        | 1.17  | %       |  |   | 1,313   |  | 1.13  | %
|                                                |  |        |         |         |       |   |        |      |         |  |       |        |  |         |         |  |        |   |         |   |         |        |       |         |  |   |         |  |       |  
|Total Loans                                     |  | $      | 139,646 |         | 100   | % |        | $    | 115,565 |  | 100   | %      |  | $       | 107,661 |  | 100    | % |         | $ | 114,360 |        | 100   | %       |  | $ | 116,461 |  | 100   | %
|                                                |  |        |         |         |       |   |        |      |         |  |       |        |  |         |         |  |        |   |         |   |         |        |       |         |  |   |         |  |       |  



The Companys loan portfolio
contains a significant percentage of real estate mortgage loans. Real estate mortgage loans increased by $22,684,000, or 30.3%, to $97,580,000 during the twelve months ended December 31, 2004. At December 31, 2004 real estate mortgage loans
represented 69.9% of the total loan portfolio compared to 64.8% at December 31, 2003. The increase in mortgage loans as a percentage of total loans can be attributed to the demand in the Companys market area for commercial and residential
construction, which is fueled by a strong local economy. The Company also added two experienced commercial lenders during 2004 who have attracted significant commercial real estate loans. In addition, in an effort to effectively manage its interest
rate risk, over the past several years the Company has not offered in-house long-term fixed rate mortgage loans; however, in 2003 the Company began offering five-year balloon mortgage loan product at attractive rates. The Company continues to offer
fixed rate long term mortgages through an investor loan program.



The Company
also has a significant amount of commercial and industrial loans. Commercial and industrial loans increased $3,066,000, or 10.9%, to $31,188,000 at December 31, 2004. Commercial and industrial loans comprised 22.3% and 24.3% of the total loan
portfolio at December 31, 2004 and 2003, respectively.



Maturities and
Sensitivity of Loans to Changes in Interest Rates



The following table
summarizes the loan maturity distribution for the selected categories as of December 31, 2004. The Company has a total of $82.9 million in loans indexed to the Wall Street Journal Prime rate.



|                                 |  |            |  |         |                          |  |        |       |         |   |  |        |  |         |  
|-------------------------------- |  | ---------- |  | ------- | ------------------------ |  | ------ | ----- | ------- | - |  | ------ |  | ------- | -
|December 31, 2004                |  | Commercial |  |         | Real Estate-Construction |  |        | Total |        
|(Dollars in Thousand)            |  | Amount     |  | Percent |                          |  | Amount |       | Percent |   |  | Amount |  | Percent |  
|Due One Year or Less:            |  | 25,247     |  | 80.95   | %                        |  | 19,544 |       | 68.91   | % |  | 44,208 |  | 75.00   | %
|                                 |  |            |  |         |                          | 
|Due One Year through Five Years: |  |            |  |         |                          |  |        |       |         |   |  |        |  |         |  
|Fixed Rate                       |  | 4,783      |  | 15.34   | %                        |  | 1,484  |       | 5.23    | % |  | 6,362  |  | 10.79   | %
|Variable Rate                    |  | 159        |  | 0.51    | %                        |  | 2,774  |       | 9.78    | % |  | 2,872  |  | 4.87    | %
|                                 |  |            |  |         |                          | 
|Due After Five Years:            |  |            |  |         |                          |  |        |       |         |   |  |        |  |         |  
|Fixed Rate                       |  | 999        |  | 3.20    | %                        |  | 2,774  |       | 13.86   | % |  | 4,929  |  | 8.36    | %
|Variable Rate                    |  |           |  | 0.00    | %                        |  | 629    |       | 2.22    | % |  | 575    |  | 0.98    | %
|                                 |  |            |  |         |                          |  |        |       |         |   |  |        |  |         |  
|Total                            |  | 31,188     |  | 100     | %                        |  | 28,362 |       | 100     | % |  | 58,946 |  | 100     | %
|                                 |  |            |  |         |                          |  |        |       |         |   |  |        |  |         |  



Risk Elements



At December 31, 2004, there were no restructured loans, $388 in loans 90
days past due and still accruing interest, and $567,000 in non-accrual status. At December 31, 2003, there were no restructured loans, $0 in loans 90 days past due and still accruing interest, and $1,249,000 in non-accrual status. At December 31,
2002, there were no restructured loans, $291,000 in loans 90 days past due and still accruing interest, and $391,000 in non-accrual status.



15



---

GREER BANCSHARES INCORPORATED



The accrual of interest on loans is discontinued when, in our judgment, the interest will not be collectible in the
normal course of business. Accrual of interest of such loans is typically discontinued when the loan is 90 days past due or impaired. All interest accrued, but not collected for loans that are placed on non-accrual or charged off, is reversed
against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually
due are brought current and future payments are reasonably assured.



The
following table sets forth certain information with respect to our allowance for loan losses and the composition of charge offs and recoveries for each of the last five years.



Summary of Loan Loss Experience



|                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|--------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|(Dollars in Thousands)                        |  | 2004 |         |   | 2003 |   |         | 2002 |  |   | 2001    |   |  | 2000 |        
|Total loans outstanding at end of year        |  |      | 139,646 |   |      | $ | 115,565 |      |  | $ | 107,661 |   |  | $    | 114,360 |   |  | $ | 116,466 |  
|                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Average loans outstanding                     |  |      | 125,013 |   |      | $ | 107,961 |      |  | $ | 107,265 |   |  | $    | 114,378 |   |  | $ | 104,064 |  
|                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Balance, beginning of year                    |  | $    | 1,298   |   |      | $ | 1,081   |      |  | $ | 1,244   |   |  | $    | 948     |   |  | $ | 784     |  
|Loans charged-off                             |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Commercial and industrial                     |  |      | 347     |   |      |   | 92      |      |  |   | 910     |   |  |      | 6       |   |  |   | 11      |  
|Real estate - mortgage                        |  |      | 31      |   |      |   | 20      |      |  |   | 3       |   |  |      | 42      |   |  |   | 0       |  
|Consumer                                      |  |      | 42      |   |      |   | 35      |      |  |   | 60      |   |  |      | 33      |   |  |   | 34      |  
|                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total loans charged-off                       |  |      | 420     |   |      |   | 147     |      |  |   | 973     |   |  |      | 81      |   |  |   | 45      |  
|                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Recoveries of previous loan losses            |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Commercial and industrial                     |  |      | 4       |   |      |   | 352     |      |  |   | 2       |   |  |      | 3       |   |  |   | 1       |  
|Real estate - mortgage                        |  |      | 0       |   |      |   | 0       |      |  |   | 0       |   |  |      | 3       |   |  |   | 0       |  
|Consumer                                      |  |      | 3       |   |      |   | 2       |      |  |   | 20      |   |  |      | 16      |   |  |   | 8       |  
|                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total loan recoveries                         |  |      | 7       |   |      |   | 354     |      |  |   | 22      |   |  |      | 22      |   |  |   | 9       |  
|                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net charge-offs                               |  |      | 413     |   |      |   | (207    | )    |  |   | 951     |   |  |      | 59      |   |  |   | 36      |  
|                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Provision charged to operations               |  |      | 251     |   |      |   | 10      |      |  |   | 788     |   |  |      | 355     |   |  |   | 200     |  
|                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Balance, end of year                          |  | $    | 1,136   |   |      | $ | 1,298   |      |  | $ | 1,081   |   |  | $    | 1,244   |   |  | $ | 948     |  
|                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Ratios:                                       |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Allowance for loan losses to average loans    |  |      | 0.91    | % |      |   | 1.20    | %    |  |   | 1.01    | % |  |      | 1.09    | % |  |   | 0.91    | %
|Allowance for loan losses to period end loans |  |      | 0.81    | % |      |   | 1.12    | %    |  |   | 1.00    | % |  |      | 1.09    | % |  |   | 0.81    | %
|Net charge offs to average loans              |  |      | 0.33    | % |      |   | -0.19   | %    |  |   | 0.89    | % |  |      | 0.05    | % |  |   | 0.03    | %



The allowance for loan losses is
maintained at a level determined by management to be adequate to provide for probable losses inherent in the loan portfolio including commitments to extend credit. The allowance is maintained through the provision for loan losses which is a charge
to operations. The potential for loss in the portfolio reflects the risks and uncertainties inherent in the extension of credit.



The Banks provision and allowance for loan losses is subjective in nature and relies on judgments and assumptions about future economic conditions and other factors
affecting borrowers. Management is not aware of any trends, material risks, or uncertainties affecting the loan portfolio nor is management aware of any information about any significant borrowers which causes serious doubts as to the ability of the
borrower to comply with the loan repayment terms. However, it should be noted that no assurances could be made that future charges to the allowance for loan losses or provisions for loan losses may not be significant to a particular accounting
period.



Interest is discontinued on impaired loans when management determines
that a borrower may be unable to meet payments as they become due. As of December 31, 2004 we had one impaired loan, which totaled $338,558. The average amount of impaired loans outstanding during 2004 was $318,172, and the actual amount of interest
income recognized on the impaired loan was $2,427.



16



---

GREER BANCSHARES INCORPORATED





Deposits



Average deposits were $157,179,000 and $140,310,000 during 2004 and 2003,
respectively. Each type of deposit increased in 2004. The most significant increases were in time deposits and demand deposit accounts. Management believes the increase in time deposits is the result of the increase in interest rates that occurred
during the last six months of 2004. As the economy improved and short term interest rates increased, the Companys loan demand also increased, and management raised time deposits rates in an effort to raise deposits to fund the loan growth.
These actions resulted in the significant increase in time deposits. Demand deposits increased as a result of the Company offering free checking accounts to individuals and businesses.



Contractual maturities of all time deposits at December 31, 2004 were as follows: twelve months or less - $46,941,000, over twelve months
through thirty-six months - $19,838,000, and over thirty-six months - $3,453,000.



The following table summarizes the Banks average deposits by categories at the dates indicated.



|                             |  |                 |         |         |       |   |                 |      |         |  |       |                 |  |         |         |  |       |  
|---------------------------- |  | --------------- | ------- | ------- | ----- | - | --------------- | ---- | ------- |  | ----- | --------------- |  | ------- | ------- |  | ----- | -
|                             |  | 2004            |         |         | 2003  |   |                 | 2002 |        
|December 31,                 |  | Average Balance |         | Percent |       |   | Average Balance |      | Percent |  |       | Average Balance |  | Percent |        
|Noninterest-Bearing Deposits |  |                 |         |         |       |   |                 |      |         |  |       |                 |  |         |         |  |       |  
|Demand Deposits              |  |                 | 25,986  |         | 16.53 | % |                 | $    | 23,287  |  | 16.60 | %               |  | $       | 20,920  |  | 15.69 | %
|                             |  |                 |         |         |       |  
|Interest Bearing Liabilities |  |                 |         |         |       |   |                 |      |         |  |       |                 |  |         |         |  |       |  
|NOW Accounts                 |  |                 | 34,832  |         | 22.16 | % |                 |      | 32,029  |  | 22.83 | %               |  |         | 26,964  |  | 20.22 | %
|Money Market and Savings     |  |                 | 27,720  |         | 17.64 | % |                 |      | 26,917  |  | 19.18 | %               |  |         | 27,741  |  | 20.80 | %
|Time Deposits                |  |                 | 68,641  |         | 43.67 | % |                 |      | 58,077  |  | 41.39 | %               |  |         | 57,734  |  | 43.29 | %
|                             |  |                 |         |         |       |   |                 |      |         |  |       |                 |  |         |         |  |       |  
|Total Deposits               |  | $               | 157,179 |         | 100   | % |                 | $    | 140,310 |  | 100   | %               |  | $       | 133,359 |  | 100   | %
|                             |  |                 |         |         |       |   |                 |      |         |  |       |                 |  |         |         |  |       |  



Core deposits, which exclude time
deposits of $100,000 or more, provide a relatively stable funding source for our loan portfolio and other earning assets. Our core deposits were $112,039,000, $120,396,000 and $111,332,000 at December 31, 2004, 2003 and 2002, respectively. The
decrease in core deposits is the result of the loss of a significant amount of deposits of one depositor in 2004.



Time deposits over $100,000 totaled $38,221,000, $32,943,000 and $26,231,000 at December 31, 2004, 2003 and 2002, respectively. Scheduled maturities were as follows:



|                                                |  |      |        |      |   |        |  |   |       
|----------------------------------------------- |  | ---- | ------ | ---- | - | ------ |  | - | ------
|December 31,                                    |  | 2004 |        | 2003 |   | 2002  
|Maturing in 3 months or less                    |  | $    | 9,425  |      | $ | 6,898  |  | $ | 8,099 
|Maturing after 3 months but less than 6 months  |  |      | 13,075 |      |   | 5,254  |  |   | 3,764 
|Maturing after 6 months but less than 12 months |  |      | 12,304 |      |   | 6,913  |  |   | 2,712 
|Maturing after 12 months                        |  |      | 3,416  |      |   | 13,878 |  |   | 11,656
|                                                |  |      |        |      |   |        |  |   |       
|Total                                           |  | $    | 38,220 |      | $ | 32,943 |  | $ | 26,231
|                                                |  |      |        |      |   |        |  |   |       



Short-Term
Borrowings



At December 31, 2004, 2003 and 2002 the Company had no
short-term borrowings.



Borrowings



Advances from the Federal Home Loan Bank (FHLB) totaled $52,185,015 at December 31, 2004 and
$40,057,226 at December 31, 2003. At December 31, 2004 and 2003, none of these advances had variable rates of interest. Interest rates on the advances are fixed and range from 1.93% to 6.67%. During 2004 and 2003, interest expense on some of these
fixed rate notes was reduced by $245,844 and $112,690, respectively, through the utilization of interest rate swaps. For financial



17



---

GREER BANCSHARES INCORPORATED



statement purposes, we have netted the income from the swaps against the interest expense on FHLB borrowings. The Company has pledged its 1 to 4 family
residential, commercial real estate mortgages, home equity lines of credit and certain mortgage backed securities as collateral.



In October 2004, the Company issued $6,186,000 of junior subordinated debentures to its newly formed, wholly-owned capital trust, Greer Capital Trust I (the
Trust), to fully and unconditionally guarantee the trust preferred securities issued by the Trust. These long term obligations, currently qualify as Tier I capital for the Company. Also, see the detailed discussion regarding the
accounting treatment of the Trust in the summary of significant accounting policies.



The junior subordinated debentures mature in October 2034. Interest payments are due quarterly to the Trust at three-month LIBOR plus 220 basis points.



The following table reflects our contractual obligations as of December 31, 2004:



|                        |  |                        |       |            |   |            |  |                     |        |       |   |        |  |   |       
|----------------------- |  | ---------------------- | ----- | ---------- | - | ---------- |  | ------------------- | ------ | ----- | - | ------ |  | - | ------
|Contractual Obligations |  | Payments Due by Period
|(in thousands)          |  | Less Than1 Year        |       | 1 - 3Years |   | 3 - 5Years |  | GreaterThan 5 Years |        | Total
|Borrowings              |  | $                      | 4,854 |            | $ | 10,422     |  | $                   | 14,409 |       | $ | 28,686 |  | $ | 58,371



Stock Information and Dividend
History



The common stock of Greer Bancshares Incorporated is traded in
the over-the-counter market and quoted on the OTC Bulletin Board (symbol: GRBS) and in two local newspapers, The Greenville News and The Spartanburg Herald, in the area OTC listings section. The following table sets forth the high and
low bid prices per share of the common stock for each quarterly period during the past two fiscal years, as reported on NASDAQ.com. Such over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.



|        |  |      |       |     |   |         |  |        |  |     |       |  |   |      
|------- |  | ---- | ----- | --- | - | ------- |  | ------ |  | --- | ----- |  | - | -----
|2004    |  | 2003
|Quarter |  | High |       | Low |   | Quarter |  | High   |  | Low
|First   |  | $    | 18.75 |     | $ | 11.55   |  | First  |  | $   | 18.00 |  | $ | 18.00
|Second  |  | $    | 18.50 |     | $ | 17.00   |  | Second |  | $   | 18.67 |  | $ | 18.00
|Third   |  | $    | 17.00 |     | $ | 15.00   |  | Third  |  | $   | 18.67 |  | $ | 18.67
|Fourth  |  | $    | 18.50 |     | $ | 15.00   |  | Fourth |  | $   | 18.67 |  | $ | 18.67



Beginning in 1992, the Company
declared annual cash and/or stock dividends or stock splits. In May 2003, the Company paid a 23 cents per share cash dividend and in November 2003, the Company paid a 44 cents per share cash dividend, totaling 67 cents per share during the year
ending December 31, 2003. The 44 cents per share paid in November included a special one-time dividend of 20 cents per share. In 2004, the Company paid 15 cents per share cash dividends in June, September and December, for total cash dividends in
2004 of 60 cents per share. A 3-for-2 stock split was issued effective March 15, 2004 and effected in the form of a stock dividend. Cash dividends, as well as the prices listed above, have been adjusted to reflect the stock splits.



Our ability to continue to pay cash dividends is dependent upon receiving cash dividends from
the Bank. Federal and state banking regulations restrict the amount of cash dividends that can be paid to the Company from the Bank. The payment of dividends in the future is subject to earnings, capital requirements, financial condition, and such
other factors as the Board of Directors of Greer Bancshares Incorporated, the Commissioner of Banking for South Carolina and the FDIC may deem relevant.



Accounting and Financial Reporting Issues



On March 9, 2004, the SEC Staff issued Staff Accounting Bulletin No. 105, Application of Accounting Principles to Loan Commitments (SAB 105). SAB 105
clarifies existing accounting practices relating to the valuation of issued loan commitments, including interest rate lock commitments (IRLC), subject to SFAS No. 149 and Derivative Implementation



18



---

GREER BANCSHARES INCORPORATED



Group Issue C13, Scope Exceptions: When a Loan Commitment is included in the Scope of Statement 133. Furthermore, SAB 105 disallows the inclusion of the
values of a servicing component and other internally developed intangible assets in the initial and subsequent IRLC valuation. The provisions of SAB 105 were effective for loan commitments entered into after March 31, 2004. The adoption of SAB 105
did not have a material impact on the consolidated financial statements



In March 2004, the Emerging Issues Task Force (EITF) released EITF Issue 03-01, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments. The Issue provides guidance for determining whether an
investment is other-than-temporarily impaired and requires certain disclosures with respect to these investments. The recognition and measurement guidance for other-than-temporary impairment has been delayed by the issuance of FASB Staff Position
EITF 03-1-1 on September 30, 2004. The adoption of Issue 03-1 did not result in any other-than-temporary impairment.



Forward Looking Information



This Report contains statements which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and the Securities Exchange
Act of 1934. These statements are based on many assumptions and estimates and are not guarantees of future performance. Our actual results may differ materially from those projected in any forward-looking statements, as they will depend on many
factors about which we are unsure, including many factors which are beyond our control. The words may, would, could, will, expect, anticipate, believe,
intend, plan, and estimate, as well as similar expressions, are meant to identify such forward-looking statements. Potential risks and uncertainties include, but are not limited to: significant increases in
competitive pressure in the banking and financial services industries; changes in the interest rate environment which could reduce anticipated or actual margins; changes in political conditions or the legislative or regulatory environment; general
economic conditions, either nationally or regionally and especially in primary service area, becoming less favorable than expected resulting in, among other things, a deterioration in credit quality; changes occurring in business conditions and
inflation; changes in technology; changes in monetary and tax policies; the level of allowance for loan loss; the rate of delinquencies and amounts of charge-offs; the rates of loan growth; adverse changes in asset quality and resulting credit
risk-related losses and expenses; changes in the securities markets; and other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission.



19