Exhibit 13

LOGO



THE LOST ART OF
BANKING

THE HANDSHAKE

Once used as a greeting when entering a business

establishment, the handshake also became an

acceptable affirmation that a mutual

trust was understood.

2006 ANNUAL REPORT

Greer

Bancshares

Incorporated

Find it in Greer.



---

Dear Shareholders and Friends,

The 2006 Annual Report to Shareholders will provide you with a significant amount of information about the financial performance and business of the Company. The Annual Report is filled with numbers, charts, statistics, and explanatory
material. All of these details are important. But, as you review the details, we want you to keep in mind the bigger picture of what we do as a Company. The bigger picture is set out in the Board-approved Vision, Mission, and Values.

Our Vision:A better life for all

Our
ultimate desire is to make life better for all of the people whose lives are affected by what we do as a Company. We want to make life better for our shareholders by providing excellent returns on their investment. We want to improve the lives of
our employees by providing a livelihood that enables them to care for themselves and their families through enjoyable and meaningful employment. We want to enhance the lives of our customers by giving them exceptional service in the management of
their finances. We want to improve the quality of life in our community by supporting important community initiatives and charitable organizations.

Our Mission:Exceptional banking for everyday people

We can only accomplish our Vision by effectively carrying out our
Mission. We strive to provide excellent and exceptional service to all of our customers. By working harder, doing our job better, and caring more for those we serve, we are able to attract and retain customers who appreciate what we offer to them as
a Company. By providing exceptional banking services, we also enhance our financial performance as a Company which then enables us to provide a better life for all.

Our Values:

Character: Whatever we do, we will do with integrity.

Commitment: Whatever we do, we will do with dedication.

Competence: Whatever we do, we will do with excellence.

Courtesy: Whatever we do, we will do with respect and kindness.

Our values are important virtues that must pervade every aspect of our business. Our character creates trust among our customers. Our commitment assures people that we
will be diligent in serving them. Our competence appeals to those who want top notch banking services. Our courtesy attracts people from every walk of life who know that they will always be treated with dignity.

In conclusion, we must remember that banking is about financial performance: return on equity, return on assets, growth in assets, net income, etc. But let us never
forget that banking, rightly understood, is about so much more: a better life for all.

Toward a better life,



|                     
|---------------------
|LOGO                 
|David M. Rogers      
|Chairman of the Board



|                  
|------------------
|1                 
|2006 ANNUAL REPORT



---

Letter to Shareholders

Greer Bancshares Incorporated

March 23, 2007

Dear Shareholders and Friends:

We are pleased to report that 2006 was another year of significant growth and progress for your Company. As of
year-end 2006,



| |  |  | total assets reached $359 million, up 20.1% over year-end 2005, marking two consecutive years of 20% plus growth;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | total outstanding loans grew to $244 million, up 23.5%;
| | - |  | -------------------------------------------------------



| |  |  | total deposits reached $240 million, up 20.6%; and
| | - |  | --------------------------------------------------



| |  |  | net annual income was $3,152,806, up 12.8% over 2005; and, earnings per common diluted share were $1.25, up 11.6%.
| | - |  | ------------------------------------------------------------------------------------------------------------------

As previously reported, the Board of Directors in late 2004 adopted a five year strategic growth plan which set an ambitious goal of almost doubling the assets of Greer
State Bank in five years. At year-end 2004, the Banks assets totaled $231 million. The strategic growth goal is to reach $425 million in total assets by year-end 2009. We believe this asset growth is necessary to enhance the Banks
ability to achieve excellent financial performance, risk management, and return on investment for our shareholders.

We are very pleased to report that
as of December 31. 2006. Greer State Bank has achieved in only two years 66% of its five-year, strategic growth goal. We believe this puts the five-year goal well within reach over the next three years.

We are also gratified to report that the Taylors Office of Greer State Bank, which opened in August of 2005, has now reached $25 million in assets, well ahead of our
initial projections. We anticipate this office will continue to perform well and enable the Bank to extend its service reach within the Taylors community.

In summary, we believe 2006 was another successful year. Your Company continued its strong growth rate while investing heavily in its future and delivering a 14.9% return on average equity. We encourage you to review the enclosed financial
information and management discussion as further evidence of your Companys performance.

Finally, thank you for your interest in Greer Bancshares
Incorporated. We welcome your comments for improving your Company and our communications with you.



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



|                  
|------------------
|2                 
|2006 ANNUAL REPORT



---

|                                                 |  |                                                                                     
|------------------------------------------------ |  | ------------------------------------------------------------------------------------
|Board of Directors                              
|                                                 | 
|David M. Rogers                                  |  | Chairman/ Joshuas Way, Inc., President                                             
|                                                 | 
|Mark S. Ashmore                                  |  | Ashmore Bros. Inc./ Century Concrete, President                                     
|                                                 | 
|Walter M. Burch                                  |  | The Greer Citizen/ Retired                                                          
|                                                 | 
|Gary M. Griffin                                  |  | Mutual Home Stores, Vice President                                                  
|                                                 | 
|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                                                            
|                                                 | 
|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                                                                
|                                                
|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                                                            
|                                                 | 
|Stephanie Laserna                                |  | Administrative Assistant                                                            
|                                                 | 
|Bank Officers                                    |  |                                                                                     
|                                                 | 
|R. Dennis Hennett                                |  | Chief Executive Officer                                                             
|                                                 | 
|Kenneth M. Harper                                |  | President                                                                           
|                                                 | 
|J. Richard Medlock, Jr.                          |  | Executive Vice President & Chief Financial Officer                                  
|                                                 | 
|Victor K. Grout                                  |  | Executive Vice President & Commercial Banking Manager                               
|                                                 | 
|Chris M. Talley                                  |  | Senior Vice President & Chief Operations Officer                                    
|                                                 | 
|E. Pierce Williams, Jr.                          |  | Senior Vice President/ Commercial Banking                                           
|                                                 | 
|Greg Sisk                                        |  | Senior Vice President/ Community Executive of Taylors Office/ Retail Banking Manager
|                                                 | 
|J. William Hughes                                |  | Senior Vice President/ Consumer Lending                                             
|                                                 | 
|William S. Harrill, Jr.                          |  | Senior Vice President/ Mortgage Lending                                             
|                                                 | 
|Hilda W. Marcos                                  |  | Senior Vice President/ Senior Professional Banker                                   
|                                                 | 
|Kelly C. Long                                    |  | Vice President/ Branch Manager of Buncombe Road Office                              
|                                                 | 
|Thomas L. Williams                               |  | Vice President/ Branch Manager of North Main Office                                 
|                                                 | 
|Joe Copeland                                     |  | Vice President/ Commercial Lending                                                  
|                                                 | 
|Lola C. Hart                                     |  | Vice President/ Controller                                                          
|                                                 | 
|Denise W. Plumblee                               |  | Vice President/ Corporate Training Director                                         



|                  
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|3                 
|2006 ANNUAL REPORT



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|                         |  |                                                        
|------------------------ |  | -------------------------------------------------------
|Bank Officers(continued)
|                         | 
|Rick Danner              |  | Vice President/ Human Resources & Security             
|                         | 
|Robert M. Lee            |  | Vice President/ Information Technology                 
|                         | 
|David Faucette           |  | Vice President/ Internal Auditor                       
|                         | 
|Elizabeth C. Sayce       |  | Vice President/ Manager, Loan Administration           
|                         | 
|Sandra D. Mason          |  | Vice President/ Operations Officer                     
|                         | 
|Judy A. Edwards          |  | Vice President/ Risk Management Administrator          
|                         | 
|Travis Barbare           |  | Assistant Vice President/ Manager of Poinsett Office   
|                         | 
|Christy H. Blackwell     |  | Assistant Vice President/ Manager of Taylors Office    
|                         | 
|Marvin E. Robinson, Jr.  |  | Assistant Vice President/ Commercial Lending           
|                         | 
|Brad Cantrell            |  | Assistant Vice President/ Credit Administration Officer
|                         | 
|Ann S. Miller            |  | Assistant Vice President/ Manager EDP & Item Processing
|                         | 
|Beth C. Waters           |  | Assistant Vice President/ Marketing Director           
|                         | 
|Sue H. Gaines            |  | Assistant Vice President/ Mortgage Lending Officer     
|                         | 
|Terri N. Grady           |  | Assistant Vice President/ Operations                   
|                         | 
|Dixie G. Cartmell        |  | Finance & Accounting Officer                           
|                         | 
|Donna Miller             |  | Internet Banking Officer                               



|                   |  |                   |  |                
|------------------ |  | ----------------- |  | ---------------
|                  
|Bank Staff        
|                   |  |                  
|Meredith Alexander |  | Sherri Groce      |  | Cindi Patterson
|                   |  |                  
|Jason Baldwin      |  | Patsy Hairston    |  | Ashley Pond    
|                   |  |                  
|Jolynne Beck       |  | Vince Harris      |  | Brandi Prevatte
|                   |  |                  
|Marsha Bennett     |  | Cindy Hart        |  | Martin Price   
|                   |  |                  
|Charlotte Betts    |  | Doris Hendricks   |  | Gail S. Pruitt 
|                   |  |                  
|Nancy Brown        |  | Heather Henson    |  | Ann Rainey     
|                   |  |                  
|Tammy Budove       |  | Theresa Hice      |  | Nalani Ramza   
|                   |  |                  
|Lena Cody          |  | Debra Joines      |  | Patsy Robinson 
|                   |  |                  
|Maury Cook         |  | Joy Jordan        |  | Tonda Rogers   
|                   |  |                  
|Karen Corn         |  | Tonya Kellett     |  | Linda Rorie    
|                   |  |                  
|Terrence Cosby     |  | Jennifer Kemp     |  | Denise Ross    
|                   |  |                  
|Melissa Carroll    |  | Christy Kinard    |  | Jeanette Six   
|                   |  |                  
|Angie Coleman      |  | Stephanie Laserna |  | Mindi Smith    
|                   |  |                  
|Sarah Crutchfield  |  | Jessica Long      |  | Teresa Smith   
|                   |  |                  
|Debra Day          |  | Nikita Mack       |  | Kristi Twiddy  
|                   |  |                  
|Tammy Durham       |  | Renee Massey      |  | Ann Vaughn     
|                   |  |                  
|Grace Edwards      |  | Donna McMakin     |  | Pat Vaughn     
|                   |  |                  
|Candice Good       |  | Cindy Morrell     |  | Pat Wellmon    
|                   |  |                  
|Debra Goodrich     |  | Joy Myers         |  | Marie Wilson   
|                   |  |                  
|Lynda Green        |  | Linda Oliver      |  |                
|                   |  |                  
|Willie Greer       |  | Jinita Patel      |  |                



|                  
|------------------
|4                 
|2006 ANNUAL REPORT



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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, 2006 and
2005, and the related consolidated statements of income, changes in stockholders equity and cash flows for each of the years in the three-year period ended December 31, 2006. 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. We were not engaged to perform an audit of the Companys 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 also
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, 2006 and 2005, and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

As
discussed in Note 21 to the consolidated financial statements, during 2006 the Company changed its method of quantifying misstatements of prior year consolidated financial statements. The Company adopted the dual method for evaluating misstatements,
as required by SEC Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.

LOGO

Asheville, North Carolina

March 19, 2007



|                  
|------------------
|5                 
|2006 ANNUAL REPORT



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Greer Bancshares Incorporated and Subsidiary

Consolidated Balance Sheets



|                                                                                                                                                                       |  |              |             |   |      |   |             |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ----------- | - | ---- | - | ----------- | -
|                                                                                                                                                                       |  | December 31, |            
|                                                                                                                                                                       |  | 2006         |             |   | 2005 |  
|Assets                                                                                                                                                                 |  |              |             |   |      |   |             |  
|Cash and due from banks                                                                                                                                                |  | $            | 10,914,066  |   |      | $ | 6,234,935   |  
|Interest-bearing deposits in banks                                                                                                                                     |  |              | 776,477     |   |      |   | 563,658     |  
|Investment securities:                                                                                                                                                 |  |              |             |   |      |   |             |  
|Held to maturity (fair value of approximately $22,790,311 and $27,533,666, respectively)                                                                               |  |              | 23,581,468  |   |      |   | 28,481,861  |  
|Available for sale                                                                                                                                                     |  |              | 60,185,223  |   |      |   | 49,542,964  |  
|Loans, net of allowance for loan losses of $1,801,287 and $1,415,897, respectively                                                                                     |  |              | 244,056,635 |   |      |   | 197,586,904 |  
|Premises and equipment, net                                                                                                                                            |  |              | 6,631,721   |   |      |   | 5,746,610   |  
|Accrued interest receivable                                                                                                                                            |  |              | 2,298,855   |   |      |   | 1,615,435   |  
|Restricted stock                                                                                                                                                       |  |              | 3,948,914   |   |      |   | 3,508,814   |  
|Other assets                                                                                                                                                           |  |              | 7,269,028   |   |      |   | 6,165,765   |  
|                                                                                                                                                                       |  |              |             |   |      |   |             |  
|Total assets                                                                                                                                                           |  | $            | 359,662,387 |   |      | $ | 299,446,946 |  
|                                                                                                                                                                       |  |              |             |   |      |   |             |  
|Liabilities and Stockholders Equity                                                                                                                                   |  |              |             |   |      |   |             |  
|Liabilities:                                                                                                                                                           |  |              |             |   |      |   |             |  
|Deposits:                                                                                                                                                              |  |              |             |   |      |   |             |  
|Non interest-bearing                                                                                                                                                   |  | $            | 29,816,377  |   |      | $ | 30,013,747  |  
|Interest-bearing                                                                                                                                                       |  |              | 210,471,514 |   |      |   | 169,172,974 |  
|                                                                                                                                                                       |  |              |             |   |      |   |             |  
|Total deposits                                                                                                                                                         |  |              | 240,287,891 |   |      |   | 199,186,721 |  
|Short term borrowings                                                                                                                                                  |  |              | 14,171,875  |   |      |   | 10,519,767  |  
|Long term borrowings                                                                                                                                                   |  |              | 77,854,514  |   |      |   | 65,033,043  |  
|Other liabilities                                                                                                                                                      |  |              | 4,805.879   |   |      |   | 3,143,105   |  
|                                                                                                                                                                       |  |              |             |   |      |   |             |  
|Total Liabilities                                                                                                                                                      |  |              | 337,120,159 |   |      |   | 277,882,636 |  
|                                                                                                                                                                       |  |              |             |   |      |   |             |  
|Commitments and contingencies - Notes 10 and 11                                                                                                                        |  |              |             |   |      |   |             |  
|                                                                                                                                                                       |  |             
|Stockholders Equity:                                                                                                                                                  |  |              |             |   |      |   |             |  
|Preferred stock - par value $5 per share, 1,000,000 shares authorized; none issued                                                                                     |  |              |            |   |      |   |            |  
|Common stock - par value $5 per share, 10,000,000 shares authorized; 2,472,671 and 2,453,580 shares issued and outstanding at
December 31, 2006 and 2005, respectively |  |              | 12,363,355  |   |      |   | 12,267,900  |  
|Additional paid in capital                                                                                                                                             |  |              | 3,039,690   |   |      |   | 2,741,878   |  
|Retained earnings                                                                                                                                                      |  |              | 7,273,436   |   |      |   | 6,750,925   |  
|Accumulated other comprehensive loss                                                                                                                                   |  |              | (134,253    | ) |      |   | (196,393    | )
|                                                                                                                                                                       |  |              |             |   |      |   |             |  
|Total Stockholders Equity                                                                                                                                             |  |              | 22,542,228  |   |      |   | 21,564,310  |  
|                                                                                                                                                                       |  |              |             |   |      |   |             |  
|Total Liabilities and Stockholders Equity                                                                                                                             |  | $            | 359,662,387 |   |      | $ | 299,446,946 |  
|                                                                                                                                                                       |  |              |             |   |      |   |             |  

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



|                  
|------------------
|6                 
|2006 ANNUAL REPORT



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Greer Bancshares Incorporated and Subsidiary

Consolidated Statements of Income





|                                                    |  |                                  |            |      |   |            |  |   |           
|--------------------------------------------------- |  | -------------------------------- | ---------- | ---- | - | ---------- |  | - | ----------
|                                                    |  | For the Years Ended December 31,
|                                                    |  | 2006                             |            | 2005 |   | 2004      
|Interest income:                                    |  |                                  |            |      |   |            |  |   |           
|Loans, including fees                               |  | $                                | 18,620,395 |      | $ | 11,694,822 |  | $ | 7,615,655 
|Investment securities:                              |  |                                  |            |      |   |            |  |   |           
|Taxable                                             |  |                                  | 2,618,935  |      |   | 2,467,494  |  |   | 2,004,783 
|Tax-exempt                                          |  |                                  | 908,436    |      |   | 984,894    |  |   | 1,441,073 
|Federal funds sold                                  |  |                                  | 34,428     |      |   | 96,113     |  |   | 21,977    
|Other                                               |  |                                  | 33,415     |      |   | 64,360     |  |   | 16,014    
|                                                    |  |                                  |            |      |   |            |  |   |           
|Total interest income                               |  |                                  | 22,215,609 |      |   | 15,307,683 |  |   | 11,099,502
|Interest expense:                                   |  |                                  |            |      |   |            |  |   |           
|Interest on deposit accounts                        |  |                                  | 6,653,779  |      |   | 3,226,358  |  |   | 2,099,607 
|Interest on short term borrowings                   |  |                                  | 565,472    |      |   | 219,349    |  |   | 18,885    
|Interest on long term borrowings                    |  |                                  | 3,372,381  |      |   | 2,763,917  |  |   | 1,730,860 
|                                                    |  |                                  |            |      |   |            |  |   |           
|Total interest expense                              |  |                                  | 10,591,632 |      |   | 6,209,624  |  |   | 3,849,352 
|                                                    |  |                                  |            |      |   |            |  |   |           
|Net interest income                                 |  |                                  | 11,623,977 |      |   | 9,098,059  |  |   | 7,250,150 
|Provision for loan losses                           |  |                                  | 597,000    |      |   | 424,194    |  |   | 251,000   
|                                                    |  |                                  |            |      |   |            |  |   |           
|Net interest income after provision for loan losses |  |                                  | 11,026,977 |      |   | 8,673,865  |  |   | 6,999,150 
|Noninterest income:                                 |  |                                  |            |      |   |            |  |   |           
|Customer service fees                               |  |                                  | 936,978    |      |   | 982,321    |  |   | 1,152,687 
|Gain on sale of investment securities               |  |                                  | 78,269     |      |   | 342,394    |  |   | 295,572   
|Other noninterest income                            |  |                                  | 1,324,756  |      |   | 1,131,938  |  |   | 775,521   
|                                                    |  |                                  |            |      |   |            |  |   |           
|Total noninterest income                            |  |                                  | 2,340,003  |      |   | 2,456,653  |  |   | 2,223,780 
|Noninterest expenses:                               |  |                                  |            |      |   |            |  |   |           
|Salaries and employee benefits                      |  |                                  | 5,444,426  |      |   | 4,637,950  |  |   | 3,440,019 
|Occupancy and equipment                             |  |                                  | 875,103    |      |   | 754,102    |  |   | 737,534   
|Postage and supplies                                |  |                                  | 303,842    |      |   | 283,471    |  |   | 234,163   
|Marketing expenses                                  |  |                                  | 335,685    |      |   | 239,344    |  |   | 178,800   
|Directors fees                                      |  |                                  | 194,698    |      |   | 178,498    |  |   | 167,974   
|Professional fees                                   |  |                                  | 371,714    |      |   | 393,539    |  |   | 281,532   
|Other noninterest expenses                          |  |                                  | 1,396,751  |      |   | 1,093,838  |  |   | 967,665   
|                                                    |  |                                  |            |      |   |            |  |   |           
|Total noninterest expenses                          |  |                                  | 8,922,219  |      |   | 7,580,742  |  |   | 6,007,687 
|                                                    |  |                                  |            |      |   |            |  |   |           
|Income before income taxes                          |  |                                  | 4,444,761  |      |   | 3,549,776  |  |   | 3,215,243 
|Provision for income taxes:                         |  |                                  | 1,291,955  |      |   | 755,223    |  |   | 655,557   
|                                                    |  |                                  |            |      |   |            |  |   |           
|Net income                                          |  | $                                | 3,152,806  |      | $ | 2,794,553  |  | $ | 2,559,686 
|                                                    |  |                                  |            |      |   |            |  |   |           
|Basic net income per share of common stock          |  | $                                | 1.28       |      | $ | 1.14       |  | $ | 1.05      
|                                                    |  |                                  |            |      |   |            |  |   |           
|Diluted net income per share of common stock        |  | $                                | 1.25       |      | $ | 1.12       |  | $ | 1.05      
|                                                    |  |                                  |            |      |   |            |  |   |           
|Weighted average shares outstanding:                |  |                                  |            |      |   |            |  |   |           
|Basic                                               |  |                                  | 2,462,688  |      |   | 2,442,078  |  |   | 2,428,833 
|                                                    |  |                                  |            |      |   |            |  |   |           
|Diluted                                             |  |                                  | 2,517,549  |      |   | 2,504,856  |  |   | 2,447,589 
|                                                    |  |                                  |            |      |   |            |  |   |           

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



|                  
|------------------
|7                 
|2006 ANNUAL REPORT



---

Greer Bancshares Incorporated and Subsidiary

Consolidated Statements of Changes in Stockholders Equity

For the Years
Ended December 31, 2006, 2005 and 2004



|                                                                                                                        |  |              |  |                           |            |  |                  |            |   |                                      |   |            |                            |  |   |           |   |  |   |            |  
|----------------------------------------------------------------------------------------------------------------------- |  | ------------ |  | ------------------------- | ---------- |  | ---------------- | ---------- | - | ------------------------------------ | - | ---------- | -------------------------- |  | - | --------- | - |  | - | ---------- | -
|                                                                                                                        |  | Common Stock |  | Additional Paid InCapital |            |  | Retained Earning |            |   | Accumulated Other Comprehensive Loss |   |            | Total Stockholders Equity | 
|                                                                                                                        |  |              |  |                           |           
|                                                                                                                        |  |              |  |                           |           
|                                                                                                                        |  | Shares       |  | Amount                    |            |  |                  |           
|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   | ) |  |   | (85,305    | )
|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 |  
|Net income                                                                                                              |  |             |  |                           |           |  |                  |           |   |                                      |   | 2,794,553  |                            |  |   |          |   |  |   | 2,794,553  |  
|Other comprehensive income, net of tax:                                                                                 |  |              |  |                           |            |  |                  |            |   |                                      |   |            |                            |  |   |           |   |  |   |            |  
|Unrealized holding loss on investment securities, net of income tax benefit of approximately $517,000                   |  |             |  |                           |           |  |                  |           |   |                                      |   |           |                            |  |   | (821,812  | ) |  |   | (821,812   | )
|Less reclassification adjustments for gains included in net income, net of income tax expense of approximately $130,000 |  |             |  |                           |           |  |                  |           |   |                                      |   |           |                            |  |   | (212,284  | ) |  |   | (212,284   | )
|                                                                                                                        |  |              |  |                           |            |  |                  |            |   |                                      |   |            |                            |  |   |           |   |  |   |            |  
|Comprehensive income                                                                                                    |  |              |  |                           |            |  |                  |            |   |                                      |   |            |                            |  |   |           |   |  |   | 1,760,457  |  
|Stock exercised pursuant to stock option plan                                                                           |  | 18,819       |  |                           | 94,095     |  |                  | 164,207    |   |                                      |   |           |                            |  |   |          |   |  |   | 258,302    |  
|Stock granted to employees                                                                                              |  | 2,500        |  |                           | 12,500     |  |                  | 26,250     |   |                                      |   |           |                            |  |   |          |   |  |   | 38,750     |  
|Tax benefit of stock options exercised                                                                                  |  |             |  |                           |           |  |                  | 38,117     |   |                                      |   |           |                            |  |   |          |   |  |   | 38,117     |  
|Cash dividends ($.64 per share)                                                                                         |  |             |  |                           |           |  |                  |           |   |                                      |   | (1,564,543 | )                          |  |   |          |   |  |   | (1,564,543 | )
|                                                                                                                        |  |              |  |                           |            |  |                  |            |   |                                      |   |            |                            |  |   |           |   |  |   |            |  
|Balance at December 31, 2005                                                                                            |  | 2,453,580    |  |                           | 12,267,900 |  |                  | 2,741,878  |   |                                      |   | 6,750,925  |                            |  |   | (196,393  | ) |  |   | 21,564,310 |  
|Cumulative effect of adoption of SAB 108, net of tax benefit of $278,978                                                |  |             |  |                           |           |  |                  |           |   |                                      |   | (541,547   | )                          |  |   |          |   |  |   | (541,547   | )
|Net income                                                                                                              |  |             |  |                           |           |  |                  |           |   |                                      |   | 3,152,806  |                            |  |   |          |   |  |   | 3,152,806  |  
|Other comprehensive income, net of tax:                                                                                 |  |              |  |                           |            |  |                  |            |   |                                      |   |            |                            |  |   |           |   |  |   |            |  
|Unrealized holding gain on investment securities net of income taxes of approximately $24,000                           |  |             |  |                           |           |  |                  |           |   |                                      |   |           |                            |  |   | 110,666   |   |  |   | 110,666    |  
|Less reclassification adjustments for gains included in net income, net of income taxes of approximately $30,000        |  |             |  |                           |           |  |                  |           |   |                                      |   |           |                            |  |   | (48,526   | ) |  |   | (48,526    | )
|                                                                                                                        |  |              |  |                           |            |  |                  |            |   |                                      |   |            |                            |  |   |           |   |  |   |            |  
|Comprehensive income                                                                                                    |  |              |  |                           |            |  |                  |            |   |                                      |   |            |                            |  |   |           |   |  |   | 3,214,946  |  
|Stock exercised pursuant to stock option plan                                                                           |  | 19,091       |  |                           | 95,455     |  |                  | 206,646    |   |                                      |   |           |                            |  |   |          |   |  |   | 302,101    |  
|Tax benefit of stock options exercised                                                                                  |  |             |  |                           |           |  |                  | 19,155     |   |                                      |   |           |                            |  |   |          |   |  |   | 19,155     |  
|Stock based compensation                                                                                                |  |             |  |                           |           |  |                  | 72,011     |   |                                      |   |           |                            |  |   |          |   |  |   | 72,011     |  
|Cash dividends ($.85 per share)                                                                                         |  |             |  |                           |           |  |                  |           |   |                                      |   | (2,088,748 | )                          |  |   |          |   |  |   | (2,088,748 | )
|                                                                                                                        |  |              |  |                           |            |  |                  |            |   |                                      |   |            |                            |  |   |           |   |  |   |            |  
|Balance at December 31, 2006                                                                                            |  | 2,472,671    |  | $                         | 12,363,355 |  | $                | 3,039,690  |   |                                      | $ | 7,273,436  |                            |  | $ | (134,253  | ) |  | $ | 22,542,228 |  
|                                                                                                                        |  |              |  |                           |            |  |                  |            |   |                                      |   |            |                            |  |   |           |   |  |   |            |  

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



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|8                 
|2006 ANNUAL REPORT



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Greer Bancshares Incorporated and Subsidiary

Consolidated Statements of Cash Flows



|                                                                                  |  |                                  |             |   |      |   |             |      |  |   |             |  
|--------------------------------------------------------------------------------- |  | -------------------------------- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                                                                  |  | For the Years Ended December 31, |            
|                                                                                  |  | 2006                             |             |   | 2005 |   |             | 2004 | 
|Operating activities:                                                             |  |                                  |             |   |      |   |             |      |  |   |             |  
|Net income                                                                        |  | $                                | 3,152,806   |   |      | $ | 2,794,553   |      |  | $ | 2,559,686   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                  |             |   |      |   |             |      |  |   |             |  
|Depreciation                                                                      |  |                                  | 472,933     |   |      |   | 399,471     |      |  |   | 434,546     |  
|Gain on sale of investment securities                                             |  |                                  | (78,269     | ) |      |   | (342,394    | )    |  |   | (295,572    | )
|Loss (gain) on sale of real estate held for sale                                  |  |                                  |            |   |      |   | (68,672     | )    |  |   | 11,859      |  
|Provision for loan losses                                                         |  |                                  | 597,000     |   |      |   | 424,194     |      |  |   | 251,000     |  
|Deferred income taxes (benefit)                                                   |  |                                  | 16,000      |   |      |   | (189,942    | )    |  |   | 35,925      |  
|Stock-based compensation                                                          |  |                                  | 72,011      |   |      |   | 38,750      |      |  |   |            |  
|Increase in cash surrender value of life insurance                                |  |                                  | (187,737    | ) |      |   | (173,859    | )    |  |   | (136,642    | )
|Net change in:                                                                    |  |                                  |             |   |      |   |             |      |  |   |             |  
|Accrued interest receivable                                                       |  |                                  | (683,420    | ) |      |   | (477,497    | )    |  |   | 107,056     |  
|Other assets                                                                      |  |                                  | (536,449    | ) |      |   | (185,953    | )    |  |   | 32,194      |  
|Accrued interest payable                                                          |  |                                  | 852,640     |   |      |   | 709,869     |      |  |   | 217,801     |  
|Other liabilities                                                                 |  |                                  | 396,725     |   |      |   | 231,414     |      |  |   | 127,925     |  
|                                                                                  |  |                                  |             |   |      |   |             |      |  |   |             |  
|Net cash provided by operating activities                                         |  |                                  | 4,074,240   |   |      |   | 3,159,934   |      |  |   | 3,345,778   |  
|                                                                                  |  |                                  |             |   |      |   |             |      |  |   |             |  
|Investing activities:                                                             |  |                                  |             |   |      |   |             |      |  |   |             |  
|Activity in available-for-sale securities:                                        |  |                                  |             |   |      |   |             |      |  |   |             |  
|Sales                                                                             |  |                                  | 11,987,953  |   |      |   | 17,065,375  |      |  |   | 19,798,735  |  
|Maturities, prepayments and calls                                                 |  |                                  | 6,222,462   |   |      |   | 5,527,015   |      |  |   | 17,659,069  |  
|Purchases                                                                         |  |                                  | (28,673,364 | ) |      |   | (36,420,064 | )    |  |   | (10,289,999 | )
|Activity in held to maturity securities:                                          |  |                                  |             |   |      |   |             |      |  |   |             |  
|Maturities, prepayments and calls                                                 |  |                                  | 4,900,393   |   |      |   | 6,992,686   |      |  |   | 6,246,070   |  
|Purchases                                                                         |  |                                  |            |   |      |   |            |      |  |   | (24,457,502 | )
|Proceeds from sale of real estate held for sale                                   |  |                                  |            |   |      |   | 310,470     |      |  |   | 231,241     |  
|Net (increase) decrease in federal funds sold                                     |  |                                  |            |   |      |   | 650,000     |      |  |   | (491,000    | )
|Purchase of FHLB stock                                                            |  |                                  | (440,100    | ) |      |   | (388,800    | )    |  |   | (723,300    | )
|Net increase in loans                                                             |  |                                  | (47,066,731 | ) |      |   | (59,333,470 | )    |  |   | (25,021,656 | )
|Purchase of premises and equipment                                                |  |                                  | (1,358,044  | ) |      |   | (1,793,182  | )    |  |   | (891,696    | )
|Purchase of life insurance                                                        |  |                                  |            |   |      |   | (723,608    | )    |  |   | (1,000,000  | )
|                                                                                  |  |                                  |             |   |      |   |             |      |  |   |             |  
|Net cash used for investing activities                                            |  |                                  | (54,427,431 | ) |      |   | (68,113,578 | )    |  |   | (18,940,038 | )
|                                                                                  |  |                                  |             |   |      |   |             |      |  |   |             |  

(continued)



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|9                 
|2006 ANNUAL REPORT



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Greer Bancshares Incorporated and Subsidiary

Consolidated Statements of Cash Flows, Continued



|                                                       |  |                                  |            |   |      |   |            |      |  |   |            |  
|------------------------------------------------------ |  | -------------------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                       |  | For the Years Ended December 31, |           
|                                                       |  | 2006                             |            |   | 2005 |   |            | 2004 | 
|Financing activities:                                  |  |                                  |            |   |      |   |            |      |  |   |            |  
|Net increase (decrease) in deposits                    |  | $                                | 41,101,170 |   |      | $ | 48,926,785 |      |  | $ | (2,701,016 | )
|Net increase in short term borrowings                  |  |                                  | 3,652,108  |   |      |   | 10,519,767 |      |  |   |           |  
|Repayment of notes payable to FHLB                     |  |                                  | (3,404,055 | ) |      |   | (8,107,813 | )    |  |   | (1,281,846 | )
|Proceeds from notes payable to FHLB                    |  |                                  | 10,250,000 |   |      |   | 16,000,000 |      |  |   | 13,000,000 |  
|Proceeds from issuance of subordinated debentures      |  |                                  | 5,000,000  |   |      |   |           |      |  |   | 6,000,000  |  
|Proceeds from exercise of stock options                |  |                                  | 302,101    |   |      |   | 258,302    |      |  |   | 128,782    |  
|Tax benefit from stock option exercise                 |  |                                  | 19,155     |   |      |   |           |      |  |   |           |  
|Cash in lieu of fractional shares on stock dividend    |  |                                  |           |   |      |   |           |      |  |   | (4,865     | )
|Cash dividends paid                                    |  |                                  | (1,675,338 | ) |      |   | (1,564,543 | )    |  |   | (1,093,602 | )
|                                                       |  |                                  |            |   |      |   |            |      |  |   |            |  
|Net cash provided by financing activities              |  |                                  | 55,245,141 |   |      |   | 66,032,498 |      |  |   | 14,047,453 |  
|                                                       |  |                                  |            |   |      |   |            |      |  |   |            |  
|Net increase (decrease) in cash and due from banks     |  |                                  | 4,891,950  |   |      |   | 1,078,854  |      |  |   | (1,546,807 | )
|Cash and due from banks at beginning of year           |  |                                  | 6,798,593  |   |      |   | 5,719,739  |      |  |   | 7,266,546  |  
|                                                       |  |                                  |            |   |      |   |            |      |  |   |            |  
|Cash and due from banks at end of year                 |  | $                                | 11,690,543 |   |      | $ | 6,798,593  |      |  | $ | 5,719,739  |  
|                                                       |  |                                  |            |   |      |   |            |      |  |   |            |  
|Supplemental disclosures of cash flow information:     |  |                                  |            |   |      |   |            |      |  |   |            |  
|Cash paid during the year for:                         |  |                                  |            |   |      |   |            |      |  |   |            |  
|Interest                                               |  | $                                | 9,738,992  |   |      | $ | 5,499,755  |      |  | $ | 3,631,551  |  
|                                                       |  |                                  |            |   |      |   |            |      |  |   |            |  
|Income taxes                                           |  | $                                | 1,797,695  |   |      | $ | 919,761    |      |  | $ | 618,383    |  
|                                                       |  |                                  |            |   |      |   |            |      |  |   |            |  
|Non-cash investing and financing activities:           |  |                                  |            |   |      |   |            |      |  |   |            |  
|Real estate acquired in satisfaction of mortgage loans |  | $                                |           |   |      | $ | 30,000     |      |  | $ | 526,877    |  
|                                                       |  |                                  |            |   |      |   |            |      |  |   |            |  
|Investment in trust                                    |  | $                                | 155,000    |   |      | $ |           |      |  | $ | 186,000    |  
|                                                       |  |                                  |            |   |      |   |            |      |  |   |            |  
|Change in valuation of fair value hedge                |  | $                                |           |   |      | $ | 410,889    |      |  | $ | 409,635    |  
|                                                       |  |                                  |            |   |      |   |            |      |  |   |            |  
|Dividends payable                                      |  | $                                | (413,410   | ) |      | $ |           |      |  | $ |           |  
|                                                       |  |                                  |            |   |      |   |            |      |  |   |            |  
|Change in beginning retained earnings (net of tax)     |  | $                                | (541,547   | ) |      | $ |           |      |  | $ |           |  
|                                                       |  |                                  |            |   |      |   |            |      |  |   |            |  
|Loans to facilitate sale of real estate                |  | $                                |           |   |      | $ | 197,452    |      |  | $ |           |  
|                                                       |  |                                  |            |   |      |   |            |      |  |   |            |  
|Change in other comprehensive income (net of tax)      |  | $                                | 62,140     |   |      | $ | (1,034,096 | )    |  | $ | (268,560   | )
|                                                       |  |                                  |            |   |      |   |            |      |  |   |            |  

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



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|10                
|2006 ANNUAL REPORT



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Greer Bancshares Incorporated and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2006, 2005 and 2004

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 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 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 and December 2006, Greer Capital Trust I and Greer Capital Trust II (the Trusts) were formed, respectively. The Trusts were formed as part of
the process of the issuance of trust preferred securities. During 2004, the Company adopted Financial Accounting Standards Board (FASB) Interpretation Nos. 46 and 46R (FIN 46 and 46R), Consolidation of Variable Interest
Entities.Under the provisions of FIN 46 and 46R, the Company has not consolidated the Trusts. The junior subordinated debt issued by the Company to the Trusts is included in long term debt. The equity investment in the Trusts is included in
other assets.

Nature of OperationsThe primary activity of the holding company is to hold its investment in the Bank. The Bank operates under
a state bank charter and provides full banking services. The Bank is subject to regulation by the Federal Deposit Insurance Corporation (FDIC) and the South Carolina Board of Financial Institutions.

Greer Financial Services Corporation, a wholly owned subsidiary of the Bank, provides financial management services and non-deposit product sales.

Principles of ConsolidationThe consolidated financial statements include the accounts of the Company and its subsidiary and, in consolidation, all
significant intercompany items are eliminated.

Business SegmentsThe Company reports all activities as one business segment. In determining
the appropriateness of segment definition, 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 is
considered.

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, 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. Cash and cash
equivalents have an original maturity of three months or less.

Securities Held to MaturityBonds, notes and debentures for which there is 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.



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|2006 ANNUAL REPORT



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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.

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. 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The Bank makes loans to individuals and small businesses located primarily in upstate South Carolina for various personal and commercial purposes resulting in a diversified
loan portfolio. The borrowers ability to repay their loans is not dependent upon any specific economic sector.

Comprehensive
IncomeComprehensive income reflects the change in equity during the year arising from transactions and events other than investments 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The Bank grants 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 the judgment of management, 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 based on managements ongoing evaluation of the loan portfolio and reflects an amount that,
in managements opinion, is adequate to absorb probable losses in the existing portfolio. Additions to the allowance for loan losses are provided by charges to earnings. Loan losses are charged against the allowance when the ultimate
uncollectibility of a loan balance is determined. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated
on a monthly basis by management. The evaluation includes the periodic review of the collectibility 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, impairment and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes
available.



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|2006 ANNUAL REPORT



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A loan is considered impaired when, based on current information and events, it is probable that the Bank 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 management 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, individual consumer and residential loans are
not separately identified for impairment disclosures.

Premises and EquipmentLand is carried at cost. Premises and equipment are stated at
cost, net of accumulated depreciation. Depreciation is charged using the straight-line method 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 earnings.

Real Estate Held for SaleReal estate held for sale is stated at the lower of cost or net realizable value at the time of foreclosure. 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.

Restricted StockRestricted stock consists of non-marketable equity securities including investments in the stock of the Federal Home Loan Bank
(FHLB), Community Bankers Bank and Community Financial Services, Inc. These stocks have no ready market and no quoted market value. Because of the redemption provisions of the restricted stock, the Bank estimates that fair value equals
cost for these investments resulting in no impairment at December 31, 2006. Investment in the Federal Home Loan Bank is acondition of borrowing from the Federal Home Loan Bank. The stock is pledged to collateralize such borrowings. At
December 31, 2006 and 2005, the investment in the Federal Home Loan Bank stock was $3,592,100 and $3,152,000, respectively. At December 31, 2006 and 2005, the investments in Community Bankers Bank and Community Financial Services, Inc.
were $45,400 and $311,414, respectively. Dividends received on these stocks are included in interest income.

Stock-Based
CompensationEffective January 1, 2006, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 123 (revised 2004), Share-Based Payment,(SFAS No. 123R) which was issued by the FASB
in December 2004. SFAS No. 123R revises SFAS No. 123, Accounting for Stock Based Compensation,and supersedes APB No. 25, Accounting for Stock Issued to Employees,and its related interpretations. SFAS No. 123R
requires recognition of the cost of employee services received in exchange for an award of equity instruments in the financial statements over the period the employee is required to perform the services in exchange for the award (presumptively the
vesting period). SFAS No. 123R also requires measurement of the cost of employee services received in exchange for an award based on the grant-date fair value of the award. SFAS No. 123R also amends SFAS No, 95, Statement of Cash Flows,to require that excess tax benefits be reported as financing cash inflows, rather than as a reduction of taxes paid, which is included within operating cash flows.

Income TaxesThe Company files a consolidated federal income tax return and separate state income tax 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.



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|2006 ANNUAL REPORT



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Certain items of income and expense for financial reporting are recognized differently for income tax purposes
(principally the provision for loan losses, deferred compensation 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Basic and diluted earnings per share of common stock are presented 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 Company has entered into
commitments to extend credit, including commitments under commercial letters of credit and standby letters of credit. Such financial instruments are recorded when they are funded.

DerivativesThe Company utilizes derivative contracts to manage interest rate risk. These instruments consisted of interest rate swaps and swaptions in 2004, 2005 and 2006 prior to their sale in December
2006. In January 2006, an interest rate floor was purchased. A derivative is a financial instrument that derives its cash flows, and therefore its value, by reference to an underlying instrument, index, or referenced interest rate. The Company used
interest rate swaps and swaptions as fair value hedges for certain fixed rate Federal Home Loan Bank advances. The interest rate floor contract is a derivative used to hedge cash flows of certain prime based loans. The floor contract terminates on
January 30, 2009. The Bank does not utilize derivatives for trading purposes.

The derivatives did not qualify for hedge accounting under SFAS 133
(see Note 21). As a result, the derivatives are recorded at fair value with adjustments to earnings.

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.

ReclassificationCertain amounts in the 2005 and 2004 consolidated financial statements have been reclassified to conform to the 2006 presentation. The
reclassifications had no effect on net income or shareholders equity as previously reported.

Recent Accounting PronouncementsThe
following is a summary of recent authoritative pronouncements that affect accounting, reporting, and disclosure of financial information by the Company:

SFAS No. 158, EmployersAccounting for Defined Benefit Pension and Other Postretirement PlansAn Amendment of FASB Statements No. 87, 88, 106, and 132Rrequires an employer to: (a) recognize in its
statement of financial position an asset for a plans overfunded status or a liability for a plans underfunded status; (b) measure a plans assets and its obligations that determine its funded status as of the end of the
employers fiscal year (with limited exceptions); and (c) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. Those changes will be reported in comprehensive income. The
requirement to recognize the funded status of a benefit plan and the disclosure requirements are effective as of the end of the fiscal year ending after December 15, 2006. The requirement to measure plan assets and benefit obligations as of the
date of the employers fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. The Company does not anticipate that this statement will have an impact on the Companys financial
position, results of operations and cash flows.

In July 2006, the FASB issued Financial Interpretation No. 48, Accounting for Uncertainty in
Income Taxes-an interpretation of FASB Statement No. 109 (FIN 48), which is a change in accounting for income taxes. FIN 48 specifies how tax benefits for uncertain tax positions are to be recognized, measured, and derecognized



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|2006 ANNUAL REPORT



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in financial statements; requires certain disclosures of uncertain tax matters; specifies how reserves for uncertain tax positions should be classified on
the balance sheet; and provides transition and interim period guidance, among other provisions. FIN 48 is effective for fiscal years beginning after December 15, 2006 and as a result, is effective for the Company in the first quarter of fiscal
2007. The Company has evaluated the impact of FIN 48 and anticipates no significant impact on its consolidated financial statements.

The Emerging Issues
Task Force (EITF) reached a consensus at its September 2006 meeting regarding EITF 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements.The scope of
EITF 06-4 is limited to the recognition of a liability and related compensation costs for endorsement split-dollar life insurance policies that provide a benefit to an employee that extends to postretirement periods. Therefore, this EITF would not
apply to a split-dollar life insurance arrangement that provides a specified benefit to an employee that is limited to the employees active service period with an employer. EITF 06-04 is effective for fiscal years beginning after
December 15, 2007, with earlier application permitted. The effects of this standard have not yet been evaluated.

2. Investment Securities

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



|                                                      |  |                   |            |                        |   |                         |  |                      |         |  |   |           
|----------------------------------------------------- |  | ----------------- | ---------- | ---------------------- | - | ----------------------- |  | -------------------- | ------- |  | - | ----------
|                                                      |  | December 31, 2006
|                                                      |  | AmortizedCost     |            | Gross Unrealized Gains |   | Gross Unrealized Losses |  | Estimated Fair Value
|Held to maturity:                                     |  |                   |            |                        |   |                         |  |                      |         |  |   |           
|Mortgage-backed securities                            |  | $                 | 23,581,468 |                        | $ |                        |  | $                    | 791,157 |  | $ | 22,790,311
|                                                      |  |                   |            |                        |   |                         |  |                      |         |  |   |           
|Available for sale:                                   |  |                   |            |                        |   |                         |  |                      |         |  |   |           
|United States Government and other agency obligations |  | $                 | 6,643,267  |                        | $ | 35,989                  |  | $                    | 78,800  |  | $ | 6,600,456 
|Mortgage-backed securities                            |  |                   | 29,291,665 |                        |   | 21,928                  |  |                      | 447,227 |  |   | 28,866,366
|Municipal securities                                  |  |                   | 22,436,035 |                        |   | 313,772                 |  |                      | 23,774  |  |   | 22,726,033
|Corporate bonds                                       |  |                   | 2,032,555  |                        |   |                        |  |                      | 40,187  |  |   | 1,992,368 
|                                                      |  |                   |            |                        |   |                         |  |                      |         |  |   |           
|                                                      |  | $                 | 60,403,522 |                        | $ | 371,689                 |  | $                    | 589,988 |  | $ | 60,185,223
|                                                      |  |                   |            |                        |   |                         |  |                      |         |  |   |           
|                                                      | 
|                                                      |  | December 31, 2006
|                                                      |  | AmortizedCost     |            | Gross Unrealized Gains |   | Gross Unrealized Losses |  | Estimated Fair Value
|Held to maturity:                                     |  |                   |            |                        |   |                         |  |                      |         |  |   |           
|Mortgage-backed securities                            |  | $                 | 28,481,861 |                        | $ |                        |  | $                    | 948,195 |  | $ | 27,533,666
|                                                      |  |                   |            |                        |   |                         |  |                      |         |  |   |           
|Available for sale:                                   |  |                   |            |                        |   |                         |  |                      |         |  |   |           
|United States Government and other agency obligations |  | $                 | 8,562,397  |                        | $ |                        |  | $                    | 195,104 |  | $ | 8,367,293 
|Mortgage-backed securities                            |  |                   | 18,430,661 |                        |   | 14,535                  |  |                      | 375,751 |  |   | 18,069,445
|Municipal securities                                  |  |                   | 20,805,750 |                        |   | 535,699                 |  |                      | 78,763  |  |   | 21,262,686
|Corporate bonds                                       |  |                   | 2,063,534  |                        |   |                        |  |                      | 219,994 |  |   | 1,843,540 
|                                                      |  |                   |            |                        |   |                         |  |                      |         |  |   |           
|                                                      |  | $                 | 49,862,342 |                        | $ | 550,234                 |  | $                    | 869,612 |  | $ | 49,542,964
|                                                      |  |                   |            |                        |   |                         |  |                      |         |  |   |           

The amortized cost and estimated fair value of investment securities at December 31, 2006 by contractual
maturity for debt securities are shown below. Mortgage-backed securities have not been scheduled since expected maturities will differ from contractual maturities because borrowers may have the right to prepay the obligations.



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|2006 ANNUAL REPORT



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|                               |  |                    |            |                  |   |               |  |            |            |  |   |           
|------------------------------ |  | ------------------ | ---------- | ---------------- | - | ------------- |  | ---------- | ---------- |  | - | ----------
|                               |  | Available for Sale |            | Held to Maturity
|                               |  | AmortizedCost      |            | Fair Value       |   | AmortizedCost |  | Fair Value
|Due in 1 year                  |  | $                  | 1,005,644  |                  | $ | 999,568       |  | $          |           |  | $ |          
|Over 1 year through 5 years    |  |                    | 3,144,993  |                  |   | 3,111,963     |  |            |           |  |   |          
|After 5 years through 10 years |  |                    | 9,470,352  |                  |   | 9,566,900     |  |            |           |  |   |          
|Over 10 years                  |  |                    | 17,490,868 |                  |   | 17,640,426    |  |            |           |  |   |          
|                               |  |                    |            |                  |   |               |  |            |            |  |   |           
|                               |  |                    | 31,111,857 |                  |   | 31,318,857    |  |            |           |  |   |          
|Mortgage-backed securities     |  |                    | 29,291,665 |                  |   | 28,866,366    |  |            | 23,581,468 |  |   | 22,790,311
|                               |  |                    |            |                  |   |               |  |            |            |  |   |           
|Total                          |  | $                  | 60,403,522 |                  | $ | 60,185,223    |  | $          | 23,581,468 |  | $ | 22,790,311
|                               |  |                    |            |                  |   |               |  |            |            |  |   |           

The fair value of securities with temporary impairment at December 31, 2006 and 2005 is shown below:



|                                             |  |                         |            |                    |   |            |  |                  |            |  |   |          
|-------------------------------------------- |  | ----------------------- | ---------- | ------------------ | - | ---------- |  | ---------------- | ---------- |  | - | ---------
|                                             |  | Less Than Twelve Months |            | Over Twelve Months
|2006                                         |  | Fair Value              |            | UnrealizedLosses   |   | Fair Value |  | UnrealizedLosses
|Description of securities:                   |  |                         |            |                    |   |            |  |                  |            |  |   |          
|U.S. Government and other agency obligations |  | $                       | 1,750,751  |                    | $ | 3,734      |  | $                | 2,165,049  |  | $ | 75,066   
|Mortgage-backed securities                   |  |                         | 14,400,615 |                    |   | 108,181    |  |                  | 33,257,341 |  |   | 1,130,203
|Corporate bonds                              |  |                         |           |                    |   |           |  |                  | 1,992,368  |  |   | 40,187   
|Municipal securities                         |  |                         | 3,372,564  |                    |   | 9,929      |  |                  | 2,851,518  |  |   | 13,845   
|                                             |  |                         |            |                    |   |            |  |                  |            |  |   |          
|Total                                        |  | $                       | 19,523,930 |                    | $ | 121,844    |  | $                | 40,266,276 |  | $ | 1,259,301
|                                             |  |                         |            |                    |   |            |  |                  |            |  |   |          



|                                             |  |                         |            |                    |   |            |  |                  |            |  |   |          
|-------------------------------------------- |  | ----------------------- | ---------- | ------------------ | - | ---------- |  | ---------------- | ---------- |  | - | ---------
|                                             |  | Less Than Twelve Months |            | Over Twelve Months
|2005                                         |  | Fair Value              |            | UnrealizedLosses   |   | Fair Value |  | UnrealizedLosses
|Description of securities:                   |  |                         |            |                    |   |            |  |                  |            |  |   |          
|U.S. Government and other agency obligations |  | $                       | 3,500,699  |                    | $ | 47,667     |  | $                | 4,866,633  |  | $ | 147,437  
|Mortgage-backed securities                   |  |                         | 20,325,060 |                    |   | 468,442    |  |                  | 22,775,056 |  |   | 855,504  
|Corporate bonds                              |  |                         | 892,212    |                    |   | 145,283    |  |                  | 951,328    |  |   | 74,711   
|Municipal securities                         |  |                         | 6,992,097  |                    |   | 78,763     |  |                  |           |  |   |         
|                                             |  |                         |            |                    |   |            |  |                  |            |  |   |          
|Total                                        |  | $                       | 31,710,068 |                    | $ | 740,155    |  | $                | 28,593,017 |  | $ | 1,077,652
|                                             |  |                         |            |                    |   |            |  |                  |            |  |   |          

Management believes all of the unrealized losses as of December 31, 2006 are temporary and as a result of
temporary changes in the market. The number of securities with unrealized losses at December 31, 2006 was sixty-six. Two of those are agency obligations, forty-six are mortgage-backed securities, fourteen are municipal securities and four are
corporate bonds. The temporary impairment is due primarily to changes in the short and long term interest rate environment since the purchase of the securities and is not related to credit issues of the issuer. The Bank has sufficient cash and
investments showing unrealized gains and borrowing sources to provide sufficient liquidity to hold the securities until maturity if necessary.

Investment
securities with an aggregate book value of approximately $57,510,000 and $69,703,000 at December 31, 2006 and 2005, respectively, were pledged to secure public deposits and Federal Home Loan Bank borrowings.



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|2006 ANNUAL REPORT



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Gross realizedgains, gross realized losses and sale proceeds for available for sale securities for the
years ended December 31 are summarized as follows. These net gains or losses are shown in noninterest income as gain on sale of available for sale securities.



|                                          |  |      |            |      |   |            |  |   |           
|----------------------------------------- |  | ---- | ---------- | ---- | - | ---------- |  | - | ----------
|                                          |  | 2006 |            | 2005 |   | 2004      
|Gross realizedgains                       |  | $    | 204,484    |      | $ | 409,970    |  | $ | 329,420   
|Gross realized losses                     |  |      | 126,215    |      |   | 67,576     |  |   | 33,848    
|                                          |  |      |            |      |   |            |  |   |           
|Net gain on available for sale securities |  | $    | 78,269     |      | $ | 342,394    |  | $ | 295,572   
|                                          |  |      |            |      |   |            |  |   |           
|Sale proceeds                             |  | $    | 11,987,953 |      | $ | 17,065,375 |  | $ | 19,798,735
|                                          |  |      |            |      |   |            |  |   |           

3.Net Loans

A summary of loans outstanding by major classification follows:



|                                                                                       |  |              |             |   |      |   |             |  
|-------------------------------------------------------------------------------------- |  | ------------ | ----------- | - | ---- | - | ----------- | -
|                                                                                       |  | December 31, |            
|                                                                                       |  | 2006         |             |   | 2005 |  
|Real State                                                                             |  | $            | 180,400,938 |   |      | $ | 143,172,044 |  
|Commercial and industrial (non-real estate)                                            |  |              | 49,954,767  |   |      |   | 43,508,593  |  
|Installment loans to individuals for household, family and other personal expenditures |  |              | 10,853,743  |   |      |   | 10,475,834  |  
|All other loans                                                                        |  |              | 4,648,474   |   |      |   | 1,846,330   |  
|                                                                                       |  |              |             |   |      |   |             |  
|                                                                                       |  |              | 245,857,922 |   |      |   | 199,002,80  |  
|Allowance for loan losses                                                              |  |              | (1,801,287  | ) |      |   | (1,415,897  | )
|                                                                                       |  |              |             |   |      |   |             |  
|                                                                                       |  | $            | 244,056,635 |   |      | $ | 197,586,904 |  
|                                                                                       |  |              |             |   |      |   |             |  

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



|                            |  |      |           |   |      |   |           |      |  |   |           |  
|--------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                            |  | 2006 |           |   | 2005 |   |           | 2004 | 
|Balance, beginning of year  |  | $    | 1,415,897 |   |      | $ | 1,136,258 |      |  | $ | 1,298,228 |  
|Provision charged to income |  |      | 597,000   |   |      |   | 424,194   |      |  |   | 251,000   |  
|Recoveries on loans         |  |      | 41,690    |   |      |   | 15,762    |      |  |   | 7,681     |  
|Loans charged off           |  |      | (253,300  | ) |      |   | (160,317  | )    |  |   | (420,651  | )
|                            |  |      |           |   |      |   |           |      |  |   |           |  
|Balance, end of year        |  | $    | 1,801,287 |   |      | $ | 1,415,897 |      |  | $ | 1,136,258 |  
|                            |  |      |           |   |      |   |           |      |  |   |           |  

At December 31, 2006 and 2005, non-accrual loans totaled approximately $843,000 and $484,000, respectively.
The gross interest income that would have been recorded under the original terms of the non-accrual loans amounted to approximately $38,000 in 2006, $45,000 in 2005 and $32,000 in 2004.

The Bank had impaired loans at December 31, 2006 and 2005 with outstanding balances of $1,316,398 and $351,351, respectively. The average amount of impaired loans outstanding during 2006 and 2005 was $687,376 and
$347,507, respectively. The actual amount of interest income recognized on the impaired loans during 2006, 2005 and 2004 was $0, $0 and $2,427, respectively. The amount of the valuation allowance allocated to the impaired loans was $263,280 and
$105,395 at December31, 2006 and 2005, respectively.



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|2006 ANNUAL REPORT



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4. Premises and Equipment

Premises and equipment are summarized as follows:



|                              |  |              |            |   |      |   |            |  
|----------------------------- |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                              |  | December 31, |           
|                              |  | 2006         |            |   | 2005 |  
|Land                          |  | $            | 1,460,177  |   |      | $ | 898,548    |  
|Construction in process       |  |              | 248,942    |   |      |   |           |  
|Buildings and improvements    |  |              | 4,975,288  |   |      |   | 4,783,239  |  
|Equipment                     |  |              | 1,404,523  |   |      |   | 1,305,965  |  
|Furniture and fixtures        |  |              | 801,002    |   |      |   | 744,060    |  
|Electronic data processing    |  |              | 2,961,984  |   |      |   | 2,762,061  |  
|                              |  |              |            |   |      |   |            |  
|                              |  |              | 11,851,916 |   |      |   | 10,493,873 |  
|Less accumulated depreciation |  |              | (5,220,195 | ) |      |   | (4,747,263 | )
|                              |  |              |            |   |      |   |            |  
|                              |  | $            | 6,631,721  |   |      | $ | 5,746,610  |  
|                              |  |              |            |   |      |   |            |  

5. Other Assets

Other assets at December 31 consist of the following:



|                          |  |      |           |      |   |          
|------------------------- |  | ---- | --------- | ---- | - | ---------
|                          |  | 2006 |           | 2005
|Prepaid expenses          |  | $    | 293,457   |      | $ | 314,427  
|Bank owned life insurance |  |      | 5,144,661 |      |   | 4,956,924
|Other                     |  |      | 490,640   |      |   | 111,168  
|Income tax receivable     |  |      | 406,185   |      |   |         
|Deferred taxes            |  |      | 934,085   |      |   | 783,246  
|                          |  |      |           |      |   |          
|                          |  | $    | 7,269,028 |      | $ | 6,165,765
|                          |  |      |           |      |   |          

6. Time Deposits

At December 31, 2006 and 2005, time deposits of $100,000 or more totaled approximately $80,815,000 and $64,184,000, respectively. The Bank had brokered deposits of approximately $35 million at December 31,
2006 and $22 million at December 31, 2005.

Contractual maturities at December 31, 2006 of time deposits are summarized as follows:



|                  |  |   |            
|----------------- |  | - | -----------
|12 months or less |  | $ | 122,829,739
|1-3 years         |  |   | 14,627,252 
|Over three years  |  |   |           
|                  |  |   |            
|                  |  | $ | 137,456,991
|                  |  |   |            



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|2006 ANNUAL REPORT



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7. Short Term Borrowings

At December 31, 2006, short term borrowings consisted of federal funds purchased and securities sold under agreements to repurchase. The outstanding balances and related information for these borrowings are
summarized as follows:



|                                        |  |                         |           |   |                                                |   |            |      |  |   |         |   |  |      |           |   |      |   |           |   |  |  
|--------------------------------------- |  | ----------------------- | --------- | - | ---------------------------------------------- | - | ---------- | ---- |  | - | ------- | - |  | ---- | --------- | - | ---- | - | --------- | - |  | -
|                                        |  | Federal Funds Purchased |           |   | Securities Sold under Agreements to Repurchase
|                                        |  | 2006                    |           |   | 2005                                           |   |            | 2004 |  |   | 2006    |   |  | 2005 |           |   | 2004
|Outstanding balance at December 31      |  | $                       | 5,317,000 |   |                                                | $ | 1,931,000  |      |  |   |        |   |  | $    | 8,854,875 |   |      | $ | 8,588,767 |   |  | 
|Weighted average rate                   |  |                         | 5.63      | % |                                                |   | 4.60       | %    |  |   |        |   |  |      | 5.44      | % |      |   | 4.58      | % |  | 
|Maximum month-end outstanding balance   |  | $                       | 7,461,000 |   |                                                | $ | 12,373,000 |      |  |   |        |   |  | $    | 9,000,000 |   |      | $ | 9,607,000 |   |  | 
|Approximate average amounts outstanding |  | $                       | 1,861,000 |   |                                                | $ | 1,261,000  |      |  | $ | 922,341 |   |  | $    | 8,684,000 |   |      | $ | 4,716,000 |   |  | 
|Weighted average rate for the year      |  |                         | 5.28      | % |                                                |   | 3.76       | %    |  |   | 2.06    | % |  |      | 5.38      | % |      |   | 3.65      | % |  | 

Federal funds purchased and securities sold under agreements to repurchase generally mature within three months or
less from the transaction date.

8. Long Term Borrowings

At December 31, 2006 and 2005, the Bank had fixed and variable rate notes payable totaling $66,513,514 and $58,847,043, respectively, to FHLB. The stated interest rates on these notes ranged from 2.74 to 6.67 percent at
December 31, 2006 and 2005.

The Bank has pledged as collateral FHLB stock, certain investment securities and has entered into a blanket collateral
agreement whereby qualifying mortgages with a book value of at least 135 percent of total advances, free of other encumbrances, will be maintained.

The
contractual maturities at December 31, 2006, are as follows:



|           |  |   |           
|---------- |  | - | ----------
|2007       |  | $ | 4,013,514 
|2008       |  |   | 14,000,000
|2009       |  |   | 9,000,000 
|2010       |  |   | 6,000,000 
|2011       |  |   | 18,000,000
|Thereafter |  |   | 15,500,000
|           |  |   |           
|           |  | $ | 66,513,514
|           |  |   |           

In October 2004 and December 2006, the Company issued $6.186 million and $5.155 million of junior subordinated
debentures to its wholly-owned capital Trusts, Greer Capital Trust I and Greer Capital Trust II, respectively, to fully and unconditionally guarantee the trust preferred securities issued by the Trusts. These long-term obligations qualify as total
risk based capital for the Company. Also, see the detailed discussion regarding the accounting treatment of the Trusts in the summary of significant accounting policies.

The junior subordinated debentures issued in October 2004 mature in October 2034, but include an option to call the debt in October 2009. Interest payments are due quarterly to Greer Capital Trust I at the three-month
LIBOR plus 220 basis points.

The junior subordinated debentures issued in December 2006 mature in December 2036, but include an option to call the debt in
December 2011. Interest payments are due quarterly to Greer Capital Trust II at the three-month LIBOR plus 173 basis points.



|                  
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|2006 ANNUAL REPORT



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9. Unused Lines of Credit

As of December 31, 2006, the Bank had an unused short term line of credit to purchase federal funds from correspondent banks totaling $11.2 million and other unused short term lines of credit from other financial
institutions totaling $12.1 million.

The Bank has the ability to borrow an additional $44.1 million from the Federal Home Loan Bank. The borrowings are
available by pledging collateral and purchasing additional stock in the Federal Home Loan Bank.

10. Off-Balance Sheet Activities. Commitments and
Contingencies

In the normal course of business, the Bank is 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 in particular classes of financial instruments. Management uses 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 commitments at December 31, 2006 and 2005 is as follows:



|                             |  |      |            |      |   |           
|---------------------------- |  | ---- | ---------- | ---- | - | ----------
|                             |  | 2006 |            | 2005
|Commitments to extend credit |  | $    | 46,876,000 |      | $ | 42,910,000
|Standby letters of credit    |  | $    | 4,474,000  |      |   | 2,417,000 
|                             |  |      |            |      |   |           
|                             |  |      | 51,350,000 |      | $ | 45,327,000
|                             |  |      |            |      |   |           

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. Management evaluates each customers creditworthiness on a case-by-case basis. The amount of collateral, if any, obtained upon extension of credit is based on managements credit evaluation.

Standby letters of credit are conditional commitments issued by the Bank 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 management deems 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, 2006 and 2005, no liability has been
recorded related to these guarantees.

Concentrations of Credit RiskSubstantially all loans and commitments to extend credit have been granted
to customers in the Banks 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. The primary focus is toward consumer and small business transactions, and accordingly, there are not a significant number of credits to any single borrower or group of related borrowers in excess of $2,500,000.

From time to time, the Bank has cash and cash equivalents on deposit with financial institutions that exceed federally insured limits.

LitigationThe Company is a party to litigation and claims arising in the normal course of business. After consultation with legal counsel, management
believes that the liabilities, if any, arising from such litigation and claims will not be material to the Companys financial position.



|                  
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|2006 ANNUAL REPORT



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11. Stockholders Equity

The Company has 1,000,000 authorized but unissued shares of preferred stock (par value $5). Should preferred stock be issued, the Companys directors will set the designation of terms, conditions and amounts.

12. Benefit Plans

Defined Contribution
PlanThe Bank has a 401(k) Profit Sharing Plan for the benefit of employees. Subject to annual approval by the Board of Directors, employee contributions of up to 4% of compensation are matched in accordance with plan guidelines. Matching
contributions of $137,963, $89,991 and $81,230 were charged to expense during 2006, 2005 and 2004, respectively.

Stock Option PlanThe Company
adopted SFAS No. 123R using the modified prospective application as permitted under SFAS No. 123R. Accordingly, prior period amounts have not been restated. Under this application, the Company is required to record compensation expense for
all awards granted after the date of adoption and for the unvested portion of previously granted awards that remain outstanding at the date of adoption.

Prior to the adoption of SFAS No. 123R, the Company used the intrinsic value method as prescribed by APB Opinion No. 25 and thus recognized no compensation expense for options granted with exercise prices equal to the fair market
value of the Companys common stock on the date of grant.

The Company currently has an Equity Incentive Plan which is described below. The
compensation cost that has been charged against income for the plan was approximately $72,000 for the twelve months ended December 31, 2006. The income tax benefit recognized for share-based compensation arrangements was approximately $2,200
for the twelve months ended December 31, 2006.

Effective April 27, 2006, the Directors Incentive Stock Option Plan (the
Directors Incentive Plan) was terminated. Outstanding options issued under the former Directors Incentive Plan will be honored in accordance with the terms and conditions in effect at the time they were granted, except that
they are not subject to reissuance. At December 31, 2006, there were 54,000 options outstanding that had been issued under the terminated Directors Incentive Plan.

Effective April 28, 2005, the Greer State Bank Employee Incentive Stock Option Plan (the Plan) was terminated. Outstanding options issued under the former Plan will be honored in accordance with the
terms and conditions in effect at the time they were granted, except that they are not subject to reissuance. At December 31, 2006, there were 35,023 options outstanding that had been issued under the terminated Plan.

Effective April 28, 2005, the Company adopted the 2005 Equity Incentive Plan (the Incentive Plan). The Incentive Plan provides for the granting of
statutory incentive stock options within the meaning of Section 422 of the Internal Revenue Code as well as non-statutory stock options. The Incentive Plan authorized the initial issuance of options and stock awards to acquire up to 250,000
shares of common stock of the Company. The Incentive Plan provides that beginning with the annual meeting of the shareholders in 2006 and continuing for the next eight annual meetings, the aggregate number of shares of common stock that can be
issued under the Incentive Plan will automatically be increased by a number of shares equal to the least of (1) 2% of the diluted shares outstanding, (2) 20,000 shares or (3) a lesser number of shares determined by the Compensation
Committee of the Board. Diluted shares outstanding means the sum of (a) the number of shares of common stock outstanding on the date of the applicable annual meeting of shareholders, (b) the number of shares of common stock
issuable on such date assuming all outstanding shares of preferred stock and convertible notes are then converted, and (c) the additional number of shares of common stock that would be outstanding as a result of any outstanding options or
warrants during the fiscal year of such meeting using the treasury stock method. In 2006 the number of stock awards under this plan increased by 20,000.



|                  
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|2006 ANNUAL REPORT



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Under the Incentive Plan, awards may be granted for a term of up to ten years from the effective date of grant. The
Compensation Committee has the discretion as to the exercise date of any awards granted. The per-share exercise price of incentive stock options may not be less than the fair value of a share of common stock on the date the option is granted. The
per-share exercise price of nonqualified stock options may not be less than 100% of the fair value of a share on the effective date of grant, as amended. Any options that expire unexercised or are canceled become available for reissuance. No awards
may be granted more than ten years after the date the Incentive Plan was approved by the Board of Directors, which was September 24, 2004. At December 31, 2006, the Company had 110,700 awards available for grant under the Incentive Plan.

Vesting under the plan is discretionary based upon a determination by the Compensation Committee.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. The risk-free interest rate is based on the U.S.
Treasury rate for the expected life at the time of grant. Volatility is based on the average long-term implied volatilities of the Company using historical volatility as a guide. The expected life is based on previous option exercise experience. The
following table illustrates the assumptions for the Black-Scholes model used in determining the fair value of options granted to employees for the years ended December 31, 2006, 2005 and 2004, respectively. The weighted-average grant-date fair
value of options granted during the years ended December 31, 2006, 2005 and 2004 was $4.78, $4.04 and $2.17, respectively.



|                        |  |       |   |  |       |   |  |       |  
|----------------------- |  | ----- | - |  | ----- | - |  | ----- | -
|                        |  | 2006  |   |  | 2005  |   |  | 2004  |  
|Dividend yield          |  | 3.02  | % |  | 3.00  | % |  | 2.90  | %
|Risk-free interest rate |  | 4.81  | % |  | 4.10  | % |  | 3.40  | %
|Volatility              |  | 12.50 | % |  | 12.50 | % |  | 12.50 | %
|Expected life (years)   |  | 5.7   |   |  | 7.3   |   |  | 6.5   |  

A summary of option activity under the stock option plans discussed above as of December 31, 2006, and
changes during the twelve month period ended December 31, 2006, is presented below:



|                             |  |                   |   |  |                     |   |  |                      |              |                                 |   |      
|---------------------------- |  | ----------------- | - |  | ------------------- | - |  | -------------------- | ------------ | ------------------------------- | - | -----
|                             |  | Options Available |   |  | Options Outstanding |   |  | Exercise Price Range |              | Weighted Average Exercise Price
|Balance at December 31, 2005 |  | 135,700           |   |  | 248,209             |   |  | $                    | 6.83 27.50  |                                 | $ | 19.51
|Expired                      |  | (25,500           | ) |  |                    |   |  |                      |             |                                 |   |     
|Exercised                    |  |                  |   |  | (19,091             | ) |  |                      | 6.83  20.00 |                                 |   | 15.82
|Authorized                   |  | 20,000            |   |  |                    |   |  |                      |             |                                 |   |     
|Forfeited                    |  | 2,000             |   |  | (6,875              | ) |  |                      | 9.58  27.50 |                                 |   | 21.83
|Granted                      |  | (21,500           | ) |  | 21,500              |   |  |                      | 23.00 26.50 |                                 |   | 25.33
|                             |  |                   |   |  |                     |   |  |                      |              |                                 |   |      
|Balance at December 31, 2006 |  | 110,700           |   |  | 243,743             |   |  | $                    | 6.83  27.50 |                                 | $ | 18.71
|                             |  |                   |   |  |                     |   |  |                      |              |                                 |   |      



|                  
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|22                
|2006 ANNUAL REPORT



---

The following table sets forth the exercise prices, the number of options outstanding and the number of options
exercisable at December 31, 2006:



|                         |  |                               |  |                                 |       |                                                     |      |                               |         |                                 |   |      
|------------------------ |  | ----------------------------- |  | ------------------------------- | ----- | --------------------------------------------------- | ---- | ----------------------------- | ------- | ------------------------------- | - | -----
|                         |  | Options Outstanding           |  | Options Exercisable            
|Range of Exercise Prices |  | Number of Options Outstanding |  | Weighted Average Exercise Price |       | Weighted Average Contractual Life Remaining (Years) |      | Number of Options Exercisable |         | Weighted Average Exercise Price
|$ 6.58  12.58           |  | 15,764                        |  | $                               | 9.84  |                                                     | 1.47 |                               | 12,463  |                                 | $ | 9.69 
|$15.50  18.67           |  | 150,679                       |  |                                 | 16.22 |                                                     | 7.04 |                               | 74,878  |                                 |   | 16.43
|$19.30  27.50           |  | 77,300                        |  |                                 | 25.36 |                                                     | 8.75 |                               | 58,100  |                                 |   | 20.74
|                         |  |                               |  |                                 |       |                                                     |      |                               |         |                                 |   |      
|Total/ Wtd Avg           |  | 243,743                       |  | $                               | 18.71 |                                                     | 7.22 |                               | 145,441 |                                 | $ | 17.57
|                         |  |                               |  |                                 |       |                                                     |      |                               |         |                                 |   |      

The following table sets forth information pertaining to the Companys exercisable options and options
expected to vest:



|                                                 |  |                   |          
|------------------------------------------------ |  | ----------------- | ---------
|                                                 |  | December 31, 2006
|Aggregate intrinsic value of options             |  | $                 | 1,456,869
|Aggregate intrinsic value of exercisable options |  | $                 | 777,336  
|Weighted average remaining life of all options   |  |                   | 7.22     

The total intrinsic value of options exercised during the twelve month period ended December 31, 2006, 2005
and 2004 was approximately $142,000, $172,000 and $1,000, respectively.

As of December 31, 2006, there was approximately $284,000 of total
unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Companys stock option plans. That cost is expected to be recognized over a weighted-average period of 3.37 years. The total fair value
of shares vested during the years ended December 31, 2006, 2005 and 2004 was approximately $72,000, $300,000 and $56,000, respectively. The deferred tax benefit related to non-incentive stock options was approximately $2,200, $1,600 and $0 for
years ended December 31, 2006, 2005 and 2004, respectively.

Cash received from option exercises under all share-based payment arrangements for the
year ended December 31, 2006 was approximately $302,000. The actual tax benefit realized for the tax deductions from option exercise of the share-based payment arrangements totaled approximately $19,000 for the year ended December 31,
2006.

The adoption of SFAS 123R and its fair value compensation cost recognition provisions are different from the nonrecognition provisions under SFAS
123 and the intrinsic value method for compensation cost allowed APB 25.

The effect of the adoption of SFAS 123R is as follows:



|                                    |  |                            |         |  
|----------------------------------- |  | -------------------------- | ------- | -
|                                    |  | Year EndedDecember 31,2006 |        
|Income before income tax expense    |  | $                          | (72,000 | )
|Net income                          |  | $                          | (70,000 | )
|Cash flow from operating activities |  | $                          | (19,000 | )
|Cash flow from financing activities |  | $                          | 19,000  |  
|Basic earnings per share            |  | $                          | (.03    | )
|Diluted earnings per share          |  | $                          | (.03    | )



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|23                
|2006 ANNUAL REPORT



---

For purposes of disclosures pursuant to SFAS No. 123, the estimated fair value of the options is amortized to
expense over the options vesting period using the straight line method. The following table illustrates the effect on net income available to common stockholders if the Company had applied the fair value recognition provisions of SFAS
No. 123 with respect to the years ended December 31, 2005 and 2004.



|                                                                                                                                          |  |                               |       |   |      |   |       |  
|----------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ----- | - | ---- | - | ----- | -
|                                                                                                                                          |  | Year Ended December 31        |      
|                                                                                                                                          |  | (000s) Except Per Share Data |      
|                                                                                                                                          |  | 2005                          |       |   | 2004 |  
|Net income, as reported                                                                                                                   |  | $                             | 2,795 |   |      | $ | 2,560 |  
|Add: Stock-based employee compensation expense included in reported net income, net of related income tax effects                         |  |                               | 24    |   |      |   |      |  
|Less: Stock-based employee compensation expense determined under fair value based method of all awards, net of related income tax
effects |  |                               | (282  | ) |      |   | (29   | )
|                                                                                                                                          |  |                               |       |   |      |   |       |  
|Proforma net income                                                                                                                       |  | $                             | 2,537 |   |      | $ | 2,531 |  
|                                                                                                                                          |  |                               |       |   |      |   |       |  
|Earnings per share - basic, as reported                                                                                                   |  | $                             | 1.14  |   |      | $ | 1.05  |  
|                                                                                                                                          |  |                               |       |   |      |   |       |  
|Earnings per share - diluted, as reported                                                                                                 |  | $                             | 1.12  |   |      | $ | 1.05  |  
|                                                                                                                                          |  |                               |       |   |      |   |       |  
|Earnings per share - basic, proforma                                                                                                      |  | $                             | 1.07  |   |      | $ | 1.04  |  
|                                                                                                                                          |  |                               |       |   |      |   |       |  
|Earnings per share - diluted, proforma                                                                                                    |  | $                             | 1.05  |   |      | $ | 1.03  |  
|                                                                                                                                          |  |                               |       |   |      |   |       |  

Non-Qualified PlansThe Company has established certain non-qualified benefit plans for certain key
executive officers and directors. The benefits under the plans 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. Compensation expense related to these plans of approximately $142,000, $221,000 and $109,000 was recorded during fiscal years 2006, 2005 and 2004,
respectively. The total liability under these plans was approximately $881,000 at December 31, 2006 and is included in other liabilities in the accompanying consolidated balance sheets.

The Bank has purchased and is the owner and beneficiary of certain life insurance policies that will be used to finance the benefits under these agreements. Income
earned on the life insurance policies, which is exempt from federal and state income tax, of approximately $188,000, $174,000 and $137,000 for the years ended December 31, 2006, 2005 and 2004, respectively, is included in other income.



|13. | Income Taxes
|--- | ------------

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



|                                              |  |      |           |      |   |          |      |  |   |        
|--------------------------------------------- |  | ---- | --------- | ---- | - | -------- | ---- |  | - | -------
|                                              |  | 2006 |           | 2005 |   |          | 2004
|Current income tax expense:                   |  |      |           |      |   |          |      |  |   |        
|State                                         |  | $    | 155,500   |      | $ | 149,000  |      |  | $ | 118,000
|Federal                                       |  |      | 1,120,455 |      |   | 796,165  |      |  |   | 501,632
|                                              |  |      |           |      |   |          |      |  |   |        
|                                              |  |      | 1,275,955 |      |   | 945,165  |      |  |   | 619,632
|Deferred Federal income tax expense (benefit) |  |      | 16,000    |      |   | (189,942 | )    |  |   | 35,925 
|                                              |  |      |           |      |   |          |      |  |   |        
|Provision for income taxes                    |  | $    | 1,291,955 |      | $ | 755,223  |      |  | $ | 655,557
|                                              |  |      |           |      |   |          |      |  |   |        



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|24                
|2006 ANNUAL REPORT



---

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



|                                     |  |        |           |   |                              |      |   |        |   |           |                              |  |      |        |  |   |                              |   |  |       |  
|------------------------------------ |  | ------ | --------- | - | ---------------------------- | ---- | - | ------ | - | --------- | ---------------------------- |  | ---- | ------ |  | - | ---------------------------- | - |  | ----- | -
|                                     |  | 2006   |           |   | 2005                         |      |   | 2004   |  
|                                     |  | Amount |           |   | Percent of Income Before Tax |      |   | Amount |   |           | Percent of Income Before Tax |  |      | Amount |  |   | Percent of Income Before Tax |  
|Income before taxes                  |  | $      | 4,444,761 |   |                              |      |   |        | $ | 3,549,776 |                              |  |      |        |  | $ | 3,215,243                    |   |  |       |  
|                                     |  |        |           |   |                              |      |   |        |   |           |                              |  |      |        |  |   |                              |   |  |       |  
|Tax statutory rate                   |  | $      | 1,511,000 |   |                              | 34.0 | % |        | $ | 1,207,000 |                              |  | 34.0 | %      |  | $ | 1,093,000                    |   |  | 34.0  |  
|Tax effect of:                       |  |        |           |   |                              |      |   |        |   |           |                              |  |      |        |  |   |                              |   |  |       |  
|Federally tax exempt interest income |  |        | (297,000  | ) |                              | (6.7 | ) |        |   | (302,000  | )                            |  | (8.5 | )      |  |   | (474,000                     | ) |  | (14.7 | )
|State taxes, net of federal benefit  |  |        | 103,000   |   |                              | 2.3  |   |        |   | 98,000    |                              |  | 2.8  |        |  |   | 78,000                       |   |  | 2.4   |  
|Reversal of valuation allowance      |  |        |          |   |                              |     |   |        |   | (130,5000 | )                            |  | (3.7 | )      |  |   |                             |   |  |      |  
|Other - net                          |  |        | (25,045   | ) |                              | (.6  | ) |        |   | (117,277  | )                            |  | (3.3 | )      |  |   | (41,443                      | ) |  | (1.3  | )
|                                     |  |        |           |   |                              |      |   |        |   |           |                              |  |      |        |  |   |                              |   |  |       |  
|Income tax provision                 |  | $      | 1,291,955 |   |                              | 29.1 | % |        | $ | 755,223   |                              |  | 21.3 | %      |  | $ | 655,557                      |   |  | 20.4  | %
|                                     |  |        |           |   |                              |      |   |        |   |           |                              |  |      |        |  |   |                              |   |  |       |  

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



|                          |  |              |           |      |   |          
|------------------------- |  | ------------ | --------- | ---- | - | ---------
|                          |  | December 31,
|                          |  | 2006         |           | 2005
|Deferred tax assets:      |  |              |           |      |   |          
|Bad debts                 |  | $            | 473,000   |      | $ | 361,000  
|Investment securities     |  |              | 84,046    |      |   | 122,946  
|Deferred compensation     |  |              | 666,000   |      |   | 534,000  
|Other                     |  |              |          |      |   | 49,300   
|                          |  |              |           |      |   |          
|                          |  |              | 1,223,046 |      |   | 1,067,246
|Deferred tax liabilities: |  |              |           |      |   |          
|Depreciation              |  |              | 145,000   |      |   | 142,000  
|Prepaid expenses          |  |              | 123,000   |      |   | 142,000  
|Other                     |  |              | 20,961    |      |   |         
|                          |  |              |           |      |   |          
|                          |  |              | 288,961   |      |   | 284,000  
|                          |  |              |           |      |   |          
|Net deferred tax asset    |  | $            | 934,085   |      | $ | 783,246  
|                          |  |              |           |      |   |          

During 2006, a reclassification of $73,954 from deferred tax assets to current taxes receivable was made to record
the utilization of the AMT credits. On January 1, 2006, the Company recorded an adjustment to beginning retained earnings related to interest rate swap (See Note 21). The tax impact of approximately $279,000 was recorded as a deferred tax asset
on that date. In December 2006, this amount was reclassified to current taxes in conjunction with the sale of the interest rate swap contracts.

14.
Other Noninterest Income

Other noninterest income for the years ended December 31, 2006, 2005 and 2004 consist of the following:



|                                    |  |      |           |      |   |           |  |   |        
|----------------------------------- |  | ---- | --------- | ---- | - | --------- |  | - | -------
|                                    |  | 2006 |           | 2005 |   | 2004     
|Earnings on life insurance policies |  | $    | 187,737   |      | $ | 173,859   |  | $ | 136,642
|Card service income                 |  |      | 242,650   |      |   | 168,802   |  |   | 133,589
|Safe deposit box rental             |  |      | 21,146    |      |   | 20,363    |  |   | 19,725 
|Investment services                 |  |      | 508,920   |      |   | 410,798   |  |   | 281,964
|Other fees                          |  |      | 364,303   |      |   | 358,116   |  |   | 203,601
|                                    |  |      |           |      |   |           |  |   |        
|                                    |  | $    | 1,324,756 |      | $ | 1,131,938 |  | $ | 775,521
|                                    |  |      |           |      |   |           |  |   |        



|                  
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|25                
|2006 ANNUAL REPORT



---

15. Other Noninterest Expenses

Other noninterest expense for the years ended December 31 consists of the following:



|                           |  |      |           |      |   |           |  |   |        
|-------------------------- |  | ---- | --------- | ---- | - | --------- |  | - | -------
|                           |  | 2006 |           | 2005 |   | 2004     
|Loan department expenses   |  | $    | 160,472   |      | $ | 146,618   |  | $ | 131,477
|General operating expenses |  |      | 512,962   |      |   | 468,018   |  |   | 412,291
|Educational expenses       |  |      | 68,064    |      |   | 63,971    |  |   | 41,591 
|Credit card expense        |  |      | 127,103   |      |   | 109,344   |  |   | 116,305
|Travel and entertainment   |  |      | 119,193   |      |   | 99,240    |  |   | 70,974 
|Telephone expense          |  |      | 128,216   |      |   | 92,277    |  |   | 76,112 
|Internet banking expense   |  |      | 150,059   |      |   | 78,448    |  |   | 73,870 
|Other expense              |  |      | 130,682   |      |   | 35,922    |  |   | 45,045 
|                           |  |      |           |      |   |           |  |   |        
|                           |  | $    | 1,396,751 |      | $ | 1,093,838 |  | $ | 967,665
|                           |  |      |           |      |   |           |  |   |        

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 collectibility or present other
unfavorable features.

Aggregate loan transactions with these related parties are as follows:



|                   |  |      |           |   |      |   |           |  
|------------------ |  | ---- | --------- | - | ---- | - | --------- | -
|                   |  | 2006 |           |   | 2005 |  
|Balance, beginning |  | $    | 5,811,253 |   |      | $ | 4,596,992 |  
|Advances           |  |      | 223,611   |   |      |   | 2,128,719 |  
|Repayments         |  |      | (823,877  | ) |      |   | (914,458  | )
|Other              |  |      | (430,500  | ) |      |   |          |  
|                   |  |      |           |   |      |   |           |  
|Balance, ending    |  | $    | 4,780,487 |   |      | $ | 5,811,253 |  
|                   |  |      |           |   |      |   |           |  

Other includes prior directors and executive officers loan transactions and closed or reduced lines of
credit.

Included in the balances outstanding are directors and executive officers available unused lines of credit totaling approximately $1,261,000 and
$1,749,000 at December 31, 2006 and 2005, respectively.

The Company has an unfunded Deferred Compensation Plan which allows electing directors to
annually defer directors fees, which are then eligible for various future payment plans as chosen by the director. The Deferred Compensation Plan, which was revised effective January 1, 2007, provides for a two-tiered deferred
compensation system as follows:



|        |  |            |  |                        |  |               |  |                   |  |                    
|------- |  | ---------- |  | ---------------------- |  | ------------- |  | ----------------- |  | -------------------
|        |  | Tier Level |  | MaximumDeferral Amount |  | Interest Rate |  | InterestRateFloor |  | InterestRateCeiling
|(1) (2) |  | One        |  | $9,000                 |  | 80% ROAE      |  | 5%                |  | 10%                
|(2)     |  | Two        |  | > $9,000               |  | Prime -3%     |  | None              |  | None               

---

|(1) | ROAE represents return on average equity of the Company for the previous year.
|--- | ------------------------------------------------------------------------------

|(2) | Upon attaining age 65, a director may no longer defer any fees. Fees previously deferred will continue to earn interest after age 65 as provided for by the respective tiers.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

All fees deferred prior to January 1, 2007 are treated as Tier 1. Deferrals, including interest, under the Plan during 2006, 2005 and
2004, totaled approximately $225,000, $173,000 and $153,000, respectively.



|                  
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|26                
|2006 ANNUAL REPORT



---

17. Employment Agreement

The Company has entered into employment agreements with certain key executive officers to ensure a stable and competent management base. The agreements provide for benefits as spelled out in the contracts 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 agreements, the acquirer will be bound to the terms of the contracts.

18. Regulatory Matters

Dividends
The Banks ability to pay cash dividends to the Holding Company is restricted by state banking regulations to the amount of the Banks retained earnings and statutory capital requirements. At December 31, 2006, the Banks
retained earnings were approximately $9,812,000.

Capital Requirements The Holding Company and Bank 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 the financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting practices. 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 maintaining minimum amounts and ratios (set forth in the table below) of total and
Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. Management believes, as of December 31, 2006, that all capital adequacy requirements are met to which the Holding Company and Bank are subject.

As of December 31, 2006, 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 that category. The actual capital amounts (in thousands) and ratios and minimum regulatory amounts (in thousands)
and ratios are presented as follows:



|                                                   |  |         |        |       |                              |   |        |                                                                  |        |  |     |        |  |       |        |  |      |  
|-------------------------------------------------- |  | ------- | ------ | ----- | ---------------------------- | - | ------ | ---------------------------------------------------------------- | ------ |  | --- | ------ |  | ----- | ------ |  | ---- | -
|Bank:                                              |  | Actual  |        |       | For Capital AdequacyPurposes |   |        | To Be Well Capitalized Under Prompt Corrective Action Provisions |       
|                                                   |  | Minimum |        |       | Minimum                      |  
|                                                   |  | Amount  |        | Ratio |                              |   | Amount |                                                                  | Ratio  |  |     | Amount |  | Ratio |       
|As of December 31, 2006                            |  |         |        |       |                              |   |        |                                                                  |        |  |     |        |  |       |        |  |      |  
|Total risk-based capital (to risk-weighted assets) |  | $       | 33,819 |       | 12.3                         | % |        | $                                                                | 22,036 |  | 8.0 | %      |  | $     | 27,545 |  | 10.0 | %
|Tier 1 Capital (to risk weighted assets)           |  | $       | 32,018 |       | 11.6                         | % |        | $                                                                | 11,018 |  | 4.0 | %      |  | $     | 16,527 |  | 6.0  | %
|Tier 1 capital (to average assets)                 |  | $       | 32,018 |       | 9.2                          | % |        | $                                                                | 13,914 |  | 4.0 | %      |  | $     | 17,393 |  | 5.0  | %
|As of December 31, 2005                            |  |         |        |       |                              |   |        |                                                                  |        |  |     |        |  |       |        |  |      |  
|Total risk-based capital (to risk-weighted assets) |  | $       | 28,038 |       | 12.2                         | % |        | $                                                                | 18,401 |  | 8.0 | %      |  | $     | 23,002 |  | 10.0 | %
|Tier 1 Capital (to risk weighted assets)           |  | $       | 26,632 |       | 11.6                         | % |        | $                                                                | 9,201  |  | 4.0 | %      |  | $     | 13,801 |  | 6.0  | %
|Tier 1 capital (to average assets)                 |  | $       | 26,632 |       | 9.1                          | % |        |                                                                  | 9,374  |  | 4.0 | %      |  | $     | 11,718 |  | 5.0  | %



|                  
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|27                
|2006 ANNUAL REPORT



---

The Holding Company is also subject to certain capital requirements. At December 31, 2006 the Tier 1 risk-based
capital ratio, Tier 1 capital ratio and the total risk based capital ratio were 11.2%, 8.9% and 12.9%, respectively.

The Bank is 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, 2006 was approximately $100,000.

19. Fair Value of Financial Instruments

SFAS
No. 107, Disclosures About Fair Value of Financial Instruments,requires disclosure of fair value information, whether or not recognized in the balance 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 common stock, premises and equipment, real estate held for sale and other assets and liabilities. The following methods and assumptions were used 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.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Due to the redemptive provisions of the restricted stock, fair value equals cost. The carrying amount is adjusted for any other than temporary declines in value.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The carrying amount for the cash surrender value of life insurance is a reasonable estimate of fair value.
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | The carrying value for accrued interest receivable and payable is a reasonable estimate of fair value.
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | 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 federal funds sold and purchased and repurchase agreements is based on the carrying amount since these instruments typically mature within three
months from the transaction date.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Fair value for variable rate long-term debt that re-prices frequently is based on the carrying amount. Fair value for fixed rate debt 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 debt instruments.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Fair values for derivatives are based on the present value of future cash flows based on the interest rate spread between the fixed rate and the floating rate.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



|                  
|------------------
|28                
|2006 ANNUAL REPORT



---

Management uses its best judgment in estimating 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 the Companys financial instruments are as follows:



|                               |  |                |             |            |   |                |  |            |             |  |   |            
|------------------------------ |  | -------------- | ----------- | ---------- | - | -------------- |  | ---------- | ----------- |  | - | -----------
|                               |  | December 31,  
|                               |  | 2006           |             | 2005      
|                               |  | CarryingAmount |             | Fair Value |   | CarryingAmount |  | Fair Value
|Financial assets               |  |                |             |            |   |                |  |            |             |  |   |            
|Cash and due from banks        |  | $              | 11,690,543  |            | $ | 11,690,543     |  | $          | 6,798,593   |  | $ | 6,798,593  
|Investment securities          |  |                | 83,766,691  |            |   | 82,975,534     |  |            | 78,024,825  |  |   | 77,076,630 
|Loans - net                    |  |                | 244,056,635 |            |   | 241,898,123    |  |            | 197,586,904 |  |   | 196,504,555
|Restricted stock               |  |                | 3,948,914   |            |   | 3,948,914      |  |            | 3,508,814   |  |   | 3,508,814  
|Accrued interest receivable    |  |                | 2,298,855   |            |   | 2,298,855      |  |            | 1,615,435   |  |   | 1,615,535  
|Bank owned life insurance      |  |                | 5,144,662   |            |   | 5,144,662      |  |            | 4,956,924   |  |   | 4,956,924  
|Derivatives                    |  |                | 20,520      |            |   | 20,520         |  |            |            |  |   |           
|Financial liabilities          |  |                |             |            |   |                |  |            |             |  |   |            
|Deposits                       |  | $              | 240,287,891 |            | $ | 240,236,111    |  | $          | 199,186,721 |  | $ | 198,908,961
|Federal funds purchased        |  |                | 5,317,000   |            |   | 5,317,000      |  |            | 1,931,000   |  |   | 1,931,000  
|Repurchase agreements          |  |                | 8,854,875   |            |   | 8,854,875      |  |            | 8,588,767   |  |   | 8,588,767  
|Notes payable to FHLB          |  |                | 66,513,514  |            |   | 66,823,045     |  |            | 58,847,043  |  |   | 59,990,902 
|Junior subordinated debentures |  |                | 11,341,000  |            |   | 11,341,000     |  |            | 6,186,000   |  |   | 6,186,000  
|Accrued interest payable       |  |                | 2,245,541   |            |   | 2,245,541      |  |            | 1,392,901   |  |   | 1,392,901  
|Derivatives                    |  |                |            |            |   |               |  |            | 820,524     |  |   | 820,524    

20. Derivatives

The Bank used interest rate swap contracts to hedge fixed rate Federal Home Loan Bank advances in 2004, 2005 and 2006 until the sale of the fair value derivative instruments in December 2006. The change in fair value recognized into
earnings as a component of noninterest income from 1/1/06 through the date of adoption of SAB 108 was $51,961. There was no gain or loss on the sale of the fair value derivative instruments. The Bank also purchased an interest rate floor in January
2006 to be used as a hedge for approximately $50 million in prime-based loans. The interest rate swap contracts provided for the Bank to make payments at a variable rate determined by a specified index (three month LIBOR) in exchange for receiving
payments at a fixed rate of 3.18%. During 2006, 2005 and 2004 the Bank recognized approximately ($267,000), ($17,000) and $246,000, respectively, as an (increase) reduction of interest expense on Federal Home Loan Bank Advances as a result of the
use of these contracts. See Note 21.

At December 31, 2005, the information pertaining to the then outstanding interest rate swaps used to hedge fixed
rate borrowings is as follows:



|                                                            |  |   |            |  
|----------------------------------------------------------- |  | - | ---------- | -
|Notional amount                                             |  | $ | 14,000,000 |  
|Weighted average fixed (receive) rate                       |  |   | 3.18       | %
|Weighted average variable (pay) rate                        |  |   | 3.30       | %
|LIBOR rate at year end                                      |  |   | 4.54       | %
|Weighted average maturity in years                          |  |   | 4.31 years |  
|Unrealized loss relating to interest rate swaps at year end |  | $ | (820,524   | )

Although on-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 any fair value gain in an on-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.



|                  
|------------------
|29                
|2006 ANNUAL REPORT



---

21. Adoption of Staff Accounting Bulletin Number 108

In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements(SAB 108). SAB 108 was issued in order to eliminate the diversity of practice surrounding public companies quantifying financial statement misstatements.

Traditionally, there have been two widely-recognized methods for quantifying the effects of financial statement misstatements: the rollover method and the
iron curtain method. The roll-over method focuses primarily on the impact of a misstatement on the income statement including the reversing effect of prior year misstatements. But its use can lead to the accumulation of misstatements in
the balance sheet. The iron curtain method, on the other hand, focuses primarily on the effect of correcting the period-end balance sheet with less emphasis on the reversing effects of prior year errors on the income statement. We have previously
used the rollover method for quantifying identified financial statement misstatements.

SAB 108 establishes an approach that requires quantification of
financial statement misstatements based on the effects of the misstatements on each of the companys financial statements and the related financial statement disclosures. This model is commonly referred to as a dual approach because
it requires quantification of errors under both the iron curtain and the rollover methods.

SAB 108 permits public companies to initially apply its
provisions either by (i) restating prior financial statements as if the dual approach had always been used or (ii) recording the cumulative effect of initially applying the dual approach as adjustments to the carrying values of assets and
liabilities as of January 1, 2006 with an offsetting adjustment recorded to the opening balance of retained earnings.

The Company adopted SAB 108
during the quarter ended December 31, 2006 and elected to use the cumulative effect transition method in connection with the preparation of the consolidated financial statements for the year ended December 31, 2006. The following table
summarizes the effects (up to January 1, 2006) of applying the guidance in SAB 108.



|                                      |  |                                                |      |   |                                  |   |      |      |  |   |      |   |  |   |      |  
|------------------------------------- |  | ---------------------------------------------- | ---- | - | -------------------------------- | - | ---- | ---- |  | - | ---- | - |  | - | ---- | -
|                                      |  | Period in Which theMisstatement Originated (1) |      |   | AdjustmentRecordedas ofJanuary 1 |  
|                                      |  | 2003                                           |      |   | 2004                             |   |      | 2005 |  |   | 2006 |  
|Interest rate swap (2)                |  | $                                              | (197 | ) |                                  | $ | (213 | )    |  | $ | (411 | ) |  | $ | (821 | )
|Income tax effect of misstatement (3) |  |                                                | 67   |   |                                  |   | 72   |      |  |   | 140  |   |  |   | 279  |  
|                                      |  |                                                |      |   |                                  |   |      |      |  |   |      |   |  |   |      |  
|Impact on net income                  |  | $                                              | (130 | ) |                                  | $ | (141 | )    |  | $ | (271 | ) |  | $ |     |  
|                                      |  |                                                |      |   |                                  |   |      |      |  |   |      |   |  |   |      |  
|Retained earnings (4)                 |  |                                                |      |   |                                  |   |      |      |  |   |      |   |  | $ | (542 | )
|                                      |  |                                                |      |   |                                  |   |      |      |  |   |      |   |  |   |      |  

---

|(1) | The error was previously evaluated under the rollover method and concluded it was immaterial.
|--- | ---------------------------------------------------------------------------------------------

|(2) | The interest rate swaps were incorrectly accounted for using hedge accounting. As a result, interest rate swap valuation expense was understated $197,290, $212,545 and $410,889, for
the years ended December 31, 2003, 2004 and 2005, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | As a result of the misstatement described, the provision for income taxes was overstated $67,079, $72,265 and $139,702 for the years ended December 31, 2003, 2004 and 2005,
respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Represents the net reduction to retained earnings recorded as of January 1, 2006 to record the initial application of SAB 108.
|--- | ------------------------------------------------------------------------------------------------------------------------------



|                  
|------------------
|30                
|2006 ANNUAL REPORT



---

22.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.



|                                           |  |             |            |      |   |           
|------------------------------------------ |  | ----------- | ---------- | ---- | - | ----------
|Parent Company Only                        |  | December 31
|Condensed Balance Sheets                   |  | 2006        |            | 2005
|Assets:                                    |  |             |            |      |   |           
|Cash and cash equivalents                  |  | $           | 86,173     |      | $ | 316,584   
|Investment in Trusts                       |  |             | 341,000    |      |   | 186,000   
|Equity in net assets of Bank subsidiary    |  |             | 31,884,994 |      |   | 26,435,348
|Taxes receivable                           |  |             | 231,391    |      |   | 260,690   
|Premises and equipment                     |  |             | 1,439,499  |      |   | 633,828   
|Other assets                               |  |             | 416,468    |      |   |          
|                                           |  |             |            |      |   |           
|Total assets                               |  | $           | 34,399,525 |      | $ | 27,832,450
|                                           |  |             |            |      |   |           
|Liabilities and stockholders equity:      |  |             |            |      |   |           
|Liabilities:                               |  |             |            |      |   |           
|Junior subordinated debentures             |  | $           | 11,341,000 |      | $ | 6,186,000 
|Interest payable                           |  |             | 101,839    |      |   | 82,140    
|Other liabilities                          |  |             | 414,458    |      |   |          
|                                           |  |             |            |      |   |           
|Total liabilities                          |  |             | 11,857,297 |      |   | 6,268,140 
|                                           |  |            
|Stockholders equity                       |  |             | 22,542,228 |      |   | 21,564,310
|                                           |  |             |            |      |   |           
|Total liabilities and stockholders equity |  | $           | 34,399,525 |      | $ | 27,832,450
|                                           |  |             |            |      |   |           



|                                                    |  |                         |           |   |      |   |           |      |  |   |           |  
|--------------------------------------------------- |  | ----------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|Parent Company Only                                 |  | Year Ended December 31, |          
|Condensed Statements of Income                      |  | 2006                    |           |   | 2005 |   |           | 2004 | 
|Income:                                             |  |                         |           |   |      |   |           |      |  |   |           |  
|Lease income from Bank subsidiary                   |  | $                       | 60,000    |   |      | $ | 25,000    |      |  | $ |          |  
|Dividends from Bank subsidiary                      |  |                         | 2,588,748 |   |      |   | 1,764,545 |      |  |   | 1,693,161 |  
|                                                    |  |                         |           |   |      |   |           |      |  |   |           |  
|Total income                                        |  |                         | 2,648,748 |   |      |   | 1,789,545 |      |  |   | 1,693,161 |  
|                                                    |  |                         |           |   |      |   |           |      |  |   |           |  
|Expenses:                                           |  |                         |           |   |      |   |           |      |  |   |           |  
|Interest on long-term borrowings                    |  |                         | 444,453   |   |      |   | 339,567   |      |  |   | 55,389    |  
|Noninterest expense                                 |  |                         | 58,916    |   |      |   | 72,892    |      |  |   | 35,634    |  
|                                                    |  |                         |           |   |      |   |           |      |  |   |           |  
|Total expenses                                      |  |                         | 503,369   |   |      |   | 412,459   |      |  |   | 91,023    |  
|                                                    |  |                         |           |   |      |   |           |      |  |   |           |  
|Income before taxes                                 |  |                         | 2,145,379 |   |      |   | 1,377,086 |      |  |   | 1,602,138 |  
|Income tax benefit                                  |  |                         | (150,385  | ) |      |   | (140,236  | )    |  |   | (30,948   | )
|                                                    |  |                         |           |   |      |   |           |      |  |   |           |  
|Income before equity earnings                       |  |                         | 2,295,764 |   |      |   | 1,517,322 |      |  |   | 1,633,086 |  
|                                                    |  |                         |          
|Equity in undistributed earnings of Bank subsidiary |  |                         | 857,042   |   |      |   | 1,277,231 |      |  |   | 926,600   |  
|                                                    |  |                         |           |   |      |   |           |      |  |   |           |  
|Net income                                          |  | $                       | 3,152,806 |   |      | $ | 2,794,553 |      |  | $ | 2,559,686 |  
|                                                    |  |                         |           |   |      |   |           |      |  |   |           |  



|                  
|------------------
|31                
|2006 ANNUAL REPORT



---

|                                                                                  |  |                         |            |   |      |   |            |      |  |   |            |  
|--------------------------------------------------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|Parent Company Only                                                               |  | Year Ended December 31, |           
|Condensed Statements of Cash Flows                                                |  | 2006                    |            |   | 2005 |   |            | 2004 | 
|Operating activities:                                                             |  |                         |            |   |      |   |            |      |  |   |            |  
|Net income                                                                        |  | $                       | 3,152,806  |   |      | $ | 2,794,553  |      |  | $ | 2,559,686  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                         |            |   |      |   |            |      |  |   |            |  
|Undistributed equity earnings of Bank subsidiary                                  |  |                         | (857,042   | ) |      |   | (1,277,231 | )    |  |   | (926,600   | )
|Change in operating assets and liabilities                                        |  |                         | (366,422   | ) |      |   | (70,478    | )    |  |   | 20,181     |  
|                                                                                  |  |                         |            |   |      |   |            |      |  |   |            |  
|Net cash provided by operating activities                                         |  |                         | 1,929,342  |   |      |   | 1,446,844  |      |  |   | 1,653,267  |  
|                                                                                  |  |                         |            |   |      |   |            |      |  |   |            |  
|                                                                                  | 
|                                                                                  |  | Year Ended December 31, |           
|                                                                                  |  | 2006                    |            |   | 2005 |   |            | 2004 | 
|Investing Activities:                                                             |  |                         |            |   |      |   |            |      |  |   |            |  
|Purchase of premises                                                              |  | $                       | (561,629   | ) |      | $ |           |      |  | $ | (623,828   | )
|Construction in process                                                           |  |                         | (244,042   | ) |      |   |           |      |  |   | (49,653    | )
|Proceeds from sale of construction in Process to Bank subsidiary                  |  |                         |           |   |      |   | 49,653     |      |  |   |           |  
|Investment in Bank subsidiary                                                     |  |                         | (5,000,000 | ) |      |   |           |      |  |   | (6,000,000 | )
|                                                                                  |  |                         |            |   |      |   |            |      |  |   |            |  
|Net cash used by investing activities                                             |  |                         | (5,805,671 | ) |      |   | 49,653     |      |  |   | (6,673,481 | )
|                                                                                  |  |                         |            |   |      |   |            |      |  |   |            |  
|Financing Activities:                                                             |  |                         |            |   |      |   |            |      |  |   |            |  
|Proceeds from the issuance of long-term debt                                      |  |                         | 5,000,000  |   |      |   |           |      |  |   | 6,000,000  |  
|Cash dividends paid                                                               |  |                         | (1,675,338 | ) |      |   | (1,564,543 | )    |  |   | (1,093,602 | )
|Proceeds from exercise of stock options                                           |  |                         | 302,101    |   |      |   | 258,302    |      |  |   | 128,782    |  
|Tax benefit from stock options exercised                                          |  |                         | 19,155     |   |      |   |           |      |  |   |           |  
|Cash lieu of fractional shares on stock dividend                                  |  |                         |           |   |      |   |           |      |  |   | (4,865     | )
|                                                                                  |  |                         |            |   |      |   |            |      |  |   |            |  
|Net cash provided (used) by financing activities                                  |  |                         | 3,645,918  |   |      |   | (1,306,241 | )    |  |   | 5,030,315  |  
|                                                                                  |  |                         |            |   |      |   |            |      |  |   |            |  
|Net increase (decrease) in cash and cash equivalents                              |  |                         | (230,411)  |   |      |   | 190,256    |      |  |   | 10,101     |  
|                                                                                  |  |                         |           
|Cash and cash equivalents beginning of year                                       |  |                         | 316,584    |   |      |   | 126,328    |      |  |   | 116,227    |  
|                                                                                  |  |                         |            |   |      |   |            |      |  |   |            |  
|Cash and cash equivalents at end of year                                          |  | $                       | 86,173     |   |      | $ | 316,584    |      |  | $ | 126,328    |  
|                                                                                  |  |                         |            |   |      |   |            |      |  |   |            |  
|Non-cash investing and financing activities:                                      |  |                         |            |   |      |   |            |      |  |   |            |  
|Investment in trust                                                               |  | $                       | 155,000    |   |      | $ |           |      |  | $ | 186,000    |  
|                                                                                  |  |                         |            |   |      |   |            |      |  |   |            |  
|Dividends payable                                                                 |  | $                       | (413,410   | ) |      | $ |           |      |  | $ |           |  
|                                                                                  |  |                         |            |   |      |   |            |      |  |   |            |  
|Change in other comprehensive income                                              |  | $                       | 62,140     |   |      | $ | (1,034,096 | )    |  | $ | (268,560   | )
|                                                                                  |  |                         |            |   |      |   |            |      |  |   |            |  



|                  
|------------------
|32                
|2006 ANNUAL REPORT



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LOGO



Greer

Bancshares

Incorporated

Find it in Greer.

www.GreerStateBank.com  877.2000



---

LOGO

THE ATTACHED INFORMATION CONSTITUTES A PORTION OF GREER

BANCSHARES INCORPORATEDS ANNUAL REPORT TO SHAREHOLDERS FOR

THE YEAR ENDED DECEMBER 31, 2006.

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

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



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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.



|                                                    |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|--------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | - |  | ---- | --------- | - |  | - | --------- | -
|December 31,                                        |  | 2006 |           |   | 2005 |   |           | 2004 |  |   | 2003      |   |  | 2002 |          
|(Dollars in Thousands, Except per Share Data)       |  |      |           |   |      |   |           |      |  |   |           |   |  |      |          
|SUMMARY OF OPERATIONS                               |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Interest and fee income                             |  | $    | 22,216    |   |      | $ | 15,308    |      |  | $ | 11,100    |   |  | $    | 10,139    |   |  | $ | 11,091    |  
|Interest expenses                                   |  |      | 10,592    |   |      |   | 6,210     |      |  |   | 3,849     |   |  |      | 3,618     |   |  |   | 4,132     |  
|                                                    |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net interest income                                 |  |      | 11,624    |   |      |   | 9,098     |      |  |   | 7,251     |   |  |      | 6,521     |   |  |   | 6,959     |  
|Provision for loan losses                           |  |      | 597       |   |      |   | 424       |      |  |   | 251       |   |  |      | 10        |   |  |   | 787       |  
|                                                    |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net interest income after provision for loan losses |  |      | 11,027    |   |      |   | 8,674     |      |  |   | 7,000     |   |  |      | 6,511     |   |  |   | 6,172     |  
|Noninterest income                                  |  |      | 2,340     |   |      |   | 2,457     |      |  |   | 2,224     |   |  |      | 1,902     |   |  |   | 2,805     |  
|Noninterest expense                                 |  |      | 10,214    |   |      |   | 8,336     |      |  |   | 6,664     |   |  |      | 6,181     |   |  |   | 6,454     |  
|                                                    |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net income                                          |  | $    | 3,153     |   |      | $ | 2,795     |      |  | $ | 2,560     |   |  | $    | 2,232     |   |  | $ | 2,523     |  
|                                                    |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|PER SHARE DATA                                      |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Earnings:                                           |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Basic                                               |  | $    | 1.28      |   |      | $ | 1.14      |      |  | $ | 1.05      |   |  | $    | 0.92      |   |  | $ | 1.05      |  
|Diluted                                             |  |      | 1.25      |   |      |   | 1.12      |      |  |   | 1.05      |   |  |      | 0.92      |   |  |   | 1.04      |  
|Dividends declared (including unpaid)               |  |      | 0.85      |   |      |   | 0.64      |      |  |   | 0.45      |   |  |      | 0.67      |   |  |   | 0.33      |  
|Book Value                                          |  |      | 9.12      |   |      |   | 8.79      |      |  |   | 8.65      |   |  |      | 7.68      |   |  |   | 7.53      |  
|Weighted average shares outstanding:                |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Basic                                               |  |      | 2,462,688 |   |      |   | 2,442,078 |      |  |   | 2,428,833 |   |  |      | 2,415,803 |   |  |   | 2,404,306 |  
|Diluted                                             |  |      | 2,517,549 |   |      |   | 2,504,856 |      |  |   | 2,447,589 |   |  |      | 2,438,631 |   |  |   | 2,429,867 |  
|                                                    |  |      |           |   |     
|SELECTED ACTUAL YEAR END BALANCES                   |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Total assets                                        |  | $    | 359,662   |   |      | $ | 299,447   |      |  | $ | 231,291   |   |  | $    | 214,134   |   |  | $ | 192,531   |  
|Loans                                               |  |      | 245,858   |   |      |   | 199,003   |      |  |   | 139,646   |   |  |      | 115,565   |   |  |   | 107,661   |  
|Allowance for loan losses                           |  |      | 1,801     |   |      |   | 1,416     |      |  |   | 1,136     |   |  |      | 1,298     |   |  |   | 1,081     |  
|Available for sale securities                       |  |      | 60,185    |   |      |   | 49,543    |      |  |   | 37,054    |   |  |      | 66,760    |   |  |   | 52,163    |  
|Held to maturity securities                         |  |      | 23,581    |   |      |   | 28,482    |      |  |   | 35,474    |   |  |      | 17,263    |   |  |   | 14,607    |  
|Deposits                                            |  |      | 240,288   |   |      |   | 199,187   |      |  |   | 150,260   |   |  |      | 152,961   |   |  |   | 137,563   |  
|Borrowings                                          |  |      | 80,685    |   |      |   | 69,367    |      |  |   | 52,185    |   |  |      | 40,057    |   |  |   | 34,837    |  
|Subordinated debt                                   |  |      | 11,341    |   |      |   | 6,186     |      |  |   | 6,186     |   |  |      |          |   |  |   |          |  
|Stockholders Equity                                |  |      | 22,542    |   |      |   | 21,564    |      |  |   | 21,033    |   |  |      | 19,708    |   |  |   | 18,613    |  
|                                                    |  |      |           |   |     
|SELECTED AVERAGE BALANCES                           |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Assets                                              |  | $    | 330,984   |   |      | $ | 271,695   |      |  | $ | 225,647   |   |  | $    | 200,217   |   |  | $ | 183,999   |  
|Deposits                                            |  |      | 227,269   |   |      |   | 172,189   |      |  |   | 157,179   |   |  |      | 140,310   |   |  |   | 133,359   |  
|Stockholders Equity                                |  |      | 21,153    |   |      |   | 20,389    |      |  |   | 19,872    |   |  |      | 18,398    |   |  |   | 16,243    |  
|                                                    |  |      |           |   |     
|FINANCIAL RATIOS                                    |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Return on average assets                            |  |      | .95       | % |      |   | 1.03      | %    |  |   | 1.14      | % |  |      | 1.11      | % |  |   | 1.37      | %
|Return on average equity                            |  |      | 14.90     | % |      |   | 13.71     | %    |  |   | 12.88     | % |  |      | 12.13     | % |  |   | 15.53     | %
|Average equity to average assets                    |  |      | 6.40      | % |      |   | 7.50      | %    |  |   | 8.86      | % |  |      | 9.19      | % |  |   | 8.83      | %
|Dividend payout ratio                               |  |      | 66.41     | % |      |   | 56.14     | %    |  |   | 42.86     | % |  |      | 72.83     | % |  |   | 31.43     | %



2



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GREER BANCSHARES INCORPORATED



|                                              |  |                    |       |                    |   |         |  |         |       |         |   |          |  |         |       |         |   |       |  |   |       |  |   |      
|--------------------------------------------- |  | ------------------ | ----- | ------------------ | - | ------- |  | ------- | ----- | ------- | - | -------- |  | ------- | ----- | ------- | - | ----- |  | - | ----- |  | - | -----
|                                              |  | 2006 Quarter Ended |       | 2005 Quarter Ended
|(Dollars in Thousands, Except per Share Data) |  | Dec. 31            |       | Sept. 30           |   | June 30 |  | Mar. 31 |       | Dec. 31 |   | Sept. 30 |  | June 30 |       | Mar. 31
|Net interest income                           |  | $                  | 3,029 |                    | $ | 3,002   |  | $       | 2,919 |         | $ | 2,674    |  | $       | 2,615 |         | $ | 2,388 |  | $ | 2,116 |  | $ | 1,979
|Provision for loan losses                     |  |                    | 68    |                    |   | 231     |  |         | 138   |         |   | 160      |  |         | 213   |         |   | 76    |  |   | 90    |  |   | 45   
|Noninterest income                            |  |                    | 592   |                    |   | 617     |  |         | 566   |         |   | 565      |  |         | 749   |         |   | 550   |  |   | 494   |  |   | 664  
|Noninterest expense                           |  |                    | 2,141 |                    |   | 2,302   |  |         | 2,262 |         |   | 2,217    |  |         | 2,015 |         |   | 1,996 |  |   | 1,826 |  |   | 1,744
|Provision for income taxes                    |  |                    | 428   |                    |   | 317     |  |         | 331   |         |   | 216      |  |         | 363   |         |   | 167   |  |   | 43    |  |   | 182  
|Net income                                    |  | $                  | 984   |                    | $ | 769     |  | $       | 754   |         | $ | 646      |  | $       | 773   |         | $ | 699   |  | $ | 651   |  | $ | 672  
|Basic earnings per share                      |  | $                  | .40   |                    | $ | .31     |  | $       | .31   |         | $ | .26      |  | $       | 0.31  |         | $ | 0.28  |  | $ | 0.27  |  | $ | 0.28 
|Diluted earnings per share                    |  | $                  | .39   |                    | $ | .31     |  | $       | .30   |         | $ | .25      |  | $       | 0.30  |         | $ | 0.28  |  | $ | 0.26  |  | $ | 0.28 

Certain amounts in the 2005 quarters were reclassified to conform to other quarters. The reclassifications had no
effect on net income as reported.

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

Description of the Companys Business

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 is a South Carolina corporation formed in July 2001,
primarily to hold all of the capital stock of Greer State Bank. Greer Bancshares Incorporated and the Bank, its wholly-owned subsidiary, are herein referred to as the Company. In October 2004 and December 2006, Greer Capital Trust I and
Greer Capital Trust II (the Trusts) were formed, respectively. The Trusts were formed as part of the process of the issuance of 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), which offers securities exclusively through Raymond James Financial Services, Inc.

There were no significant changes to the Companys business in 2006.

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 the Companys accounting policies. The selection and application of these accounting policies involve judgments, estimates and uncertainties that are susceptible to change. Those accounting policies that are believed to be the most
important to the portrayal and understanding of the Companys financial condition and results of operations are discussed below. These critical accounting policies require managements 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 a materially different financial condition or results of operations is
a reasonable likelihood.

Allowance for Loan Losses

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



| |  |  | Statement of Financial Accounting Standard (SFAS) No. 5, Accounting for Contingencies, which requires that losses be accrued when they are
probable of occurring and estimatable; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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GREER BANCSHARES INCORPORATED



| |  |  | SFAS No. 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.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The allowance
for loan losses is based on managements ongoing evaluation of the loan portfolio and reflects an amount that in managements opinion is adequate to absorb probable losses in the existing portfolio. Additions to the allowance for loan
losses are provided by charges to earnings. Loan losses are charges against the allowance when the ultimate uncollectibility of the loan balance is determined. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a monthly basis by management. The evaluation includes the periodic review of the collectibility 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, impairment 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 the Bank 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
management 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, individual consumer and residential loans are not separately identified for impairment disclosures.

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 wholly-owned 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 2006 as compared to 2005 and 2005 compared to
2004. The Companys financial condition as of December 31, 2006 as compared to December 31, 2005 is also analyzed. Like most community banks, the Bank derives most of its income from interest received on loans and investments. The
primary source of funds for making these loans and investments is deposits, of which interest is paid on approximately 88 percent. The Bank also utilizes Federal Home Loan Bank advances, federal funds purchased and reverse repurchase agreements for
funding loans and investments. One of the 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 earned on interest-earning assets and the rate paid on interest-bearing liabilities.

A number of tables have been included to assist in the description of these measures. For example, the Average Balances table shows the average balances during 2006, 2005 and 2004 of each category of
assets and liabilities, as well as the yield earned or the rate 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, resulting in
managements intent to channel a substantial percentage of funding sources into the loan portfolio. Similarly, the Rate/Volume Analysis table demonstrates the impact of changing interest rates and the changing volume of assets and
liabilities during the years shown. The sensitivity of various categories of assets and liabilities to changes in interest rates is also tracked as shown in the Sensitivity Analysis Table. Finally, a number of tables have been included
that provide detail about the Companys investment securities, loans, deposits and other borrowings.

There are risks inherent in all loans.
Therefore, an allowance for loan losses is maintained to absorb probable losses on existing loans that may become uncollectible. The allowance is established and maintained by charging a provision



4



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GREER BANCSHARES INCORPORATED



for loan losses against operating earnings. A detailed discussion of this process is included, as well as tables, describing the allowance for loan losses.

In addition to earning interest on loans and investments, income is earned through fees and other expenses collected for services provided to customers.
Various components of this noninterest income, as well as noninterest expense, are described in the following discussion.

The following discussion and
analysis also identifies significant factors that have affected the financial position and operating results during the periods included in the accompanying financial statements. Therefore, this discussion and analysis should be read in conjunction
with the consolidated financial statements and the related notes and the other statistical information also included in this report.

Year ended
December 31, 2006 compared with year ended December 31, 2005

Net income for the year ended December 31, 2006 was $3,152,806 or $1.25
per diluted share, compared to $2,794,553, or $1.12 per diluted share for the year ended December 31, 2005, which was an increase of $358,253 or 12.8%. The improvement in net income was primarily the result of continued growth in the
Banks loan portfolio. Net interest income increased $2,525,918 or 27.8%, to $11,623,977 for the year ended December 31, 2006. Noninterest income decreased $116,650, or 4.7%, to $2,340,003 for the year ended December 31, 2006. This
decrease in noninterest income was primarily due to a decrease in the gain on sale of investment securities. Noninterest expenses increased $1,341,477, or 17.7%, primarily due to an increase of $806,476, or 17.4%, in salaries and benefits. The
increase in salaries and benefits related primarily to the addition of five full-time equivalent employees during 2006 which were needed to support growth of $60,215,441 in the Companys total assets, combined with annual salary adjustments for
existing employees.

Year ended December 31, 2005 compared with year ended December 31, 2004

Net income for the year ended December 31, 2005 was $2,794,553 or $1.12 per diluted share, compared to $2,559,686, or $1.05 per diluted share for the year ended
December 31, 2004, which was an increase of $234,867, or 9.2%. The improvement in net income was primarily the result of continued growth in the Banks loan portfolio. Net interest income increased $1,847,909 or 25.5%, to $9,098,059 for
the year ended December 31, 2005. Noninterest income also increased $232,873, or 10.5%, to $2,456,653 for the year ended December 31, 2005. Noninterest expenses increased $1,573,055, or 26.2%, primarily due to an increase of $1,197,931, or
34.8%, in salaries and benefits. The increase in salaries and benefits related to the addition of sixteen full-time equivalent employees during 2005 due to an increase in the Companys total assets of $68,978,065, combined with annual salary
adjustments. Eight of the sixteen additional employees were employed to staff the new Taylors Office.

Net Interest Income

Net interest income, the difference between interest earned and interest paid, is the largest component of the Companys earnings and changes in
that area 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 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 $9,098,059 for the year ended December 31, 2005 to $11,623,977
for the year ended December 31, 2006. The increase in net interest income of $2,525,918 or 27.8% was the result of the significant growth in the loan portfolio experienced during 2006, as well as an increase in lending rates. During 2006, the
Federal Open Market Committee raised the federal funds rate four times for a total of 100 basis points. The prime lending rate, which generally moves up and down with changes in the federal funds rate, also increased 100 basis points during the
year. At December 31, 2006, the Bank had approximately $132 million in loans indexed to the Wall Street Journal prime rate. The Banks loan portfolio increased by approximately $46.5 million, or 23.5%, during 2006, which contributed to an
increase of approximately $6,926,000 in interest income on loans. Increases in interest rates during the last half of 2005 and the first half of 2006 also directly affected the increase in interest income.

Net interest income increased from $7,250,150 for the year ended December 31, 2004 to $9,098,059 for the year ended December 31, 2005. The increase in net
interest income of $1,847,909 or 25.5% was the result of the significant growth



5



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GREER BANCSHARES INCORPORATED



in the loan portfolio experienced during 2005, as well as an increase in lending rates. During 2005, the Federal Open Market Committee raised the federal
funds rate eight times for a total of 200 basis points. The prime lending rate also increased 200 basis points during the year. At December 31, 2005, the Bank had approximately $122 million in loans indexed to the Wall Street Journal prime
rate. The Banks loan portfolio increased by approximately $59.3 million, or 42.5%, during 2005, which contributed to an increase of approximately $4,208,000 in interest income on loans. The increase in the loan portfolio was due to continued
improvements in the economy and the addition of four lending officers during 2005.

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,                    |  | 2006            |         |                 | 2005 |                 |  | 2004 |                
|(Dollars in Thousands)                     |  | Average Balance |         | Income/ Expense |      | Yield/ Rate (2) |  |      | Average Balance |  | Income/ Expense |         | Yield/ Rate (2) |   |        | Average Balance |      | Income/ Expense |  | Yield/ Rate (2) |        
|                                           |  |                 |         |                 |      |                 |  |     
|Assets:                                    |  |                 |         |                 |      |                 |  |      |                 |  |                 |         |                 |   |        |                 |      |                 |  |                 |         |  |   |        |  |      |  
|Interest Earning Assets:                   |  |                 |         |                 |      |                 |  |      |                 |  |                 |         |                 |   |        |                 |      |                 |  |                 |         |  |   |        |  |      |  
|Taxable Investments                        |  | $               | 57,036  |                 | $    | 2,619           |  | 4.59 | %               |  | $               | 59,317  |                 | $ | 2,468  |                 | 4.16 | %               |  | $               | 51,253  |  | $ | 2,005  |  | 3.91 | %
|Non-Taxable Investments                    |  |                 | 20,703  |                 |      | 908             |  | 6.79 | %               |  |                 | 21,995  |                 |   | 985    |                 | 6.95 | %               |  |                 | 32,720  |  |   | 1,441  |  | 6.83 | %
|Int. Bearing Deposits in other banks       |  |                 | 803     |                 |      | 33              |  | 4.11 | %               |  |                 | 2,219   |                 |   | 64     |                 | 2.88 | %               |  |                 | 1,402   |  |   | 16     |  | 1.14 | %
|Federal Funds Sold                         |  |                 | 658     |                 |      | 34              |  | 5.17 | %               |  |                 | 3,578   |                 |   | 96     |                 | 2.68 | %               |  |                 | 1,748   |  |   | 22     |  | 1.26 | %
|Loans (1)                                  |  |                 | 229,467 |                 |      | 18,621          |  | 8.11 | %               |  |                 | 161,909 |                 |   | 11,695 |                 | 8.04 | %               |  |                 | 124,170 |  |   | 7,615  |  | 6.15 | %
|                                           |  |                 |         |                 |      |                 |  |      |                 |  |                 |         |                 |   |        |                 |      |                 |  |                 |         |  |   |        |  |      |  
|Total Interest Earning Assets              |  |                 | 308,667 |                 |      | 22,215          |  | 7.36 | %               |  |                 | 249,018 |                 |   | 15,308 |                 | 6.89 | %               |  |                 | 211,293 |  |   | 11,099 |  | 5.64 | %
|                                           |  |                 |         |                 |      |                 |  |      |                 |  |                 |         |                 |   |        |                 |      |                 |  |                 |         |  |   |        |  |      |  
|Other noninterest-earning assets           |  |                 | 22,317  |                 |      |                 |  |      |                 |  |                 | 17,564  |                 |   |        |                 |      |                 |  |                 | 14,354  |  |   |        |  |      |  
|                                           |  |                 |         |                 |      |                 |  |      |                 |  |                 |         |                 |   |        |                 |      |                 |  |                 |         |  |   |        |  |      |  
|Total Assets                               |  | $               | 330,984 |                 |      |                 |  |      |                 |  | $               | 266,582 |                 |   |        |                 |      |                 |  | $               | 225,647 |  |   |        |  |      |  
|                                           |  |                 |         |                 |      |                 |  |      |                 |  |                 |         |                 |   |        |                 |      |                 |  |                 |         |  |   |        |  |      |  
|Liabilities and Stockholders Equity       |  |                 |         |                 |      |                 |  |      |                 |  |                 |         |                 |   |        |                 |      |                 |  |                 |         |  |   |        |  |      |  
|Interest Bearing Liabilities:              |  |                 |         |                 |      |                 |  |      |                 |  |                 |         |                 |   |        |                 |      |                 |  |                 |         |  |   |        |  |      |  
|NOW Accounts                               |  | $               | 36,908  |                 |      | 50              |  | 0.14 | %               |  | $               | 29,864  |                 |   | 32     |                 | 0.11 | %               |  | $               | 34,832  |  |   | 139    |  | 0.40 | %
|Money Market and Savings                   |  |                 | 35,434  |                 |      | 1,141           |  | 3.22 | %               |  |                 | 29,566  |                 |   | 684    |                 | 2.31 | %               |  |                 | 27,720  |  |   | 378    |  | 1.36 | %
|Time Deposits                              |  |                 | 124,217 |                 |      | 5,463           |  | 4.40 | %               |  |                 | 81,948  |                 |   | 2,511  |                 | 3.06 | %               |  |                 | 68,641  |  |   | 1,583  |  | 2.31 | %
|Federal Funds Purchased                    |  |                 | 1,861   |                 |      | 98              |  | 5.27 | %               |  |                 | 1,261   |                 |   | 47     |                 | 3.73 | %               |  |                 | 922     |  |   | 19     |  | 2.06 | %
|Repurchase Agreements                      |  |                 | 8,684   |                 |      | 467             |  | 5.38 | %               |  |                 | 4,716   |                 |   | 172    |                 | 3.65 | %               |  |                 |        |  |   |       |  |     |  
|FHLB Borrowings                            |  |                 | 60,662  |                 |      | 2,928           |  | 4.83 | %               |  |                 | 58,850  |                 |   | 2,424  |                 | 4.12 | %               |  |                 | 44,396  |  |   | 1,675  |  | 3.77 | %
|Other Long Term Debt                       |  |                 | 6,200   |                 |      | 444             |  | 7.16 | %               |  |                 | 6,186   |                 |   | 340    |                 | 5.50 | %               |  |                 | 1,331   |  |   | 55     |  | 4.13 | %
|                                           |  |                 |         |                 |      |                 |  |      |                 |  |                 |         |                 |   |        |                 |      |                 |  |                 |         |  |   |        |  |      |  
|Total Interest Bearing Liabilities         |  |                 | 273,966 |                 |      | 10,591          |  | 3.87 | %               |  |                 | 212,391 |                 |   | 6,210  |                 | 2.92 | %               |  |                 | 177,842 |  |   | 3,849  |  | 2.16 | %
|                                           |  |                 |         |                 |      |                 |  |      |                 |  |                 |         |                 |   |        |                 |      |                 |  |                 |         |  |   |        |  |      |  
|                                           |  |                 |         |                 |      |                 |  |      |                
|Noninterest-Bearing Liabilities:           |  |                 |         |                 |      |                 |  |      |                 |  |                 |         |                 |   |        |                 |      |                 |  |                 |         |  |   |        |  |      |  
|Demand Deposits                            |  |                 | 30,710  |                 |      |                 |  |      |                 |  |                 | 30,811  |                 |   |        |                 |      |                 |  |                 | 25,893  |  |   |        |  |      |  
|Other Liabilities                          |  |                 | 5,155   |                 |      |                 |  |      |                 |  |                 | 2,531   |                 |   |        |                 |      |                 |  |                 | 2,040   |  |   |        |  |      |  
|                                           |  |                 |         |                 |      |                 |  |      |                 |  |                 |         |                 |   |        |                 |      |                 |  |                 |         |  |   |        |  |      |  
|Total Noninterest-Bearing Liabilities      |  |                 | 35,865  |                 |      |                 |  |      |                 |  |                 | 33,342  |                 |   |        |                 |      |                 |  |                 | 27,933  |  |   |        |  |      |  
|                                           |  |                 |         |                 |      |                 |  |      |                 |  |                 |         |                 |   |        |                 |      |                 |  |                 |         |  |   |        |  |      |  
|Total Liabilities                          |  |                 | 309,831 |                 |      |                 |  |      |                 |  |                 | 245,733 |                 |   |        |                 |      |                 |  |                 | 205,775 |  |   |        |  |      |  
|                                           |  |                 |         |                 |      |                 |  |      |                 |  |                 |         |                 |   |        |                 |      |                 |  |                 |         |  |   |        |  |      |  
|Stockholders Equity                       |  |                 | 21,153  |                 |      |                 |  |      |                 |  |                 | 20,849  |                 |   |        |                 |      |                 |  |                 | 19,872  |  |   |        |  |      |  
|                                           |  |                 |         |                 |      |                 |  |      |                 |  |                 |         |                 |   |        |                 |      |                 |  |                 |         |  |   |        |  |      |  
|Total Liabilities and Stockholders Equity |  | $               | 330,984 |                 |      |                 |  |      |                 |  | $               | 266,582 |                 |   |        |                 |      |                 |  | $               | 225,647 |  |   |        |  |      |  
|Net Interest Spread                        |  |                 |         |                 |      |                 |  | 3.49 | %               |  |                 |         |                 |   |        |                 | 3.97 | %               |  |                 |         |  |   |        |  | 3.48 | %
|Net Interest Income                        |  |                 |         |                 | $    | 11,624          |  |      |                 |  |                 |         |                 | $ | 9,098  |                 |      |                 |  |                 |         |  | $ | 7,250  |  |      |  
|                                           |  |                 |         |                 |      |                 |  |      |                 |  |                 |         |                 |   |        |                 |      |                 |  |                 |         |  |   |        |  |      |  
|Net Interest Yield                         |  |                 |         |                 |      |                 |  | 3.93 | %               |  |                 |         |                 |   |        |                 | 3.79 | %               |  |                 |         |  |   |        |  | 3.69 | %

---

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



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GREER BANCSHARES INCORPORATED



(2) All yields/rates are computed on a tax equivalent basis at a federal tax rate of 34%.

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 expand the differences
in net interest income in the previous table, Average Balances, Income, Expenses, and Rates.

Analysis of Changes in Net Interest Income



|                                         |  |                         |       |   |                         |   |       |       |  |   |        |   |  |      |       |   |       |   |       |   |  |   |       |  
|---------------------------------------- |  | ----------------------- | ----- | - | ----------------------- | - | ----- | ----- |  | - | ------ | - |  | ---- | ----- | - | ----- | - | ----- | - |  | - | ----- | -
|Year Ended December 31,                  |  | 2006 Compared with 2005 |       |   | 2005 Compared with 2004 |  
|                                         |  | Variance Due to         |       |   | Variance Due to         |  
|(Dollars in Thousands)                   |  | Volume                  |       |   | Rate                    |   |       | Total |  |   | Volume |   |  | Rate |       |   | Total |  
|Interest Income:                         |  |                         |       |   |                         |   |       |       |  |   |        |   |  |      |       |   |       |   |       |   |  |   |       |  
|Taxable Investments                      |  | $                       | (95   | ) |                         | $ | 246   |       |  | $ | 151    |   |  | $    | 315   |   |       | $ | 148   |   |  | $ | 463   |  
|Non-Taxable Investments                  |  |                         | (58   | ) |                         |   | (19   | )     |  |   | (77    | ) |  |      | (472  | ) |       |   | 16    |   |  |   | (456  | )
|Interest-Bearing Deposits in other banks |  |                         | (41   | ) |                         |   | 10    |       |  |   | (31    | ) |  |      | 9     |   |       |   | 39    |   |  |   | 48    |  
|Federal Funds Sold                       |  |                         | (78   | ) |                         |   | 16    |       |  |   | (62    | ) |  |      | 23    |   |       |   | 51    |   |  |   | 74    |  
|Loans                                    |  |                         | 4,880 |   |                         |   | 2,046 |       |  |   | 6,926  |   |  |      | 2,315 |   |       |   | 1,765 |   |  |   | 4,080 |  
|                                         |  |                         |       |   |                         |   |       |       |  |   |        |   |  |      |       |   |       |   |       |   |  |   |       |  
|Total                                    |  |                         | 4,608 |   |                         |   | 2,299 |       |  |   | 6,907  |   |  |      | 2,190 |   |       |   | 2,019 |   |  |   | 4,209 |  
|                                         |  |                         |       |   |                         |  
|Interest Expense:                        |  |                         |       |   |                         |   |       |       |  |   |        |   |  |      |       |   |       |   |       |   |  |   |       |  
|NOW Accounts                             |  |                         | (2    | ) |                         |   | 20    |       |  |   | 18     |   |  |      | (20   | ) |       |   | (87   | ) |  |   | (107  | )
|Money Market and Savings                 |  |                         | 136   |   |                         |   | 321   |       |  |   | 457    |   |  |      | 25    |   |       |   | 281   |   |  |   | 306   |  
|                                         |  |                         |       |   |                         |  
|Time Deposits                            |  |                         | 1,295 |   |                         |   | 1,657 |       |  |   | 2,952  |   |  |      | 307   |   |       |   | 621   |   |  |   | 928   |  
|                                         |  |                         |       |   |                         |  
|Federal Funds Purchased                  |  |                         | 22    |   |                         |   | 29    |       |  |   | 51     |   |  |      | 7     |   |       |   | 21    |   |  |   | 47    |  
|                                         |  |                         |       |   |                         |  
|Repurchase Agreements                    |  |                         | 145   |   |                         |   | 150   |       |  |   | 295    |   |  |      | 172   |   |       |   |      |   |  |   | 172   |  
|FHLB Borrowings                          |  |                         | 75    |   |                         |   | 429   |       |  |   | 504    |   |  |      | 545   |   |       |   | 204   |   |  |   | 749   |  
|Other Long Term Debt                     |  |                         | 1     |   |                         |   | 103   |       |  |   | 104    |   |  |      | 201   |   |       |   | 84    |   |  |   | 285   |  
|                                         |  |                         |       |   |                         |   |       |       |  |   |        |   |  |      |       |   |       |   |       |   |  |   |       |  
|Total                                    |  | $                       | 1,672 |   |                         | $ | 2,709 |       |  | $ | 4,381  |   |  | $    | 1,237 |   |       | $ | 1,124 |   |  | $ | 2,361 |  
|                                         |  |                         |       |   |                         |  
|Net Interest Income                      |  | $                       | 2,936 |   |                         | $ | (410  | )     |  | $ | 2,526  |   |  | $    | 953   |   |       | $ | 895   |   |  | $ | 1,848 |  
|                                         |  |                         |       |   |                         |   |       |       |  |   |        |   |  |      |       |   |       |   |       |   |  |   |       |  

---

|(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 which measures the effects that 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 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 2006 and 2005, and allocates the appropriate amount of income or expense to changes in
rate or changes in volume. In 2006 interest income increased by approximately $6,907,000 and interest expense increased by approximately $4,381,000, which resulted in an increase of approximately $2,526,000 in net interest income. The increase in
interest income is attributable to increases in the volume and rate. The increase in interest income due to the increase in volume was slightly offset by increased interest



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GREER BANCSHARES INCORPORATED



expense due to an increase in rates paid on interest bearing liabilities. Earning assets increased in 2006 by approximately $52,810,000, and interest-bearing
liabilities increased by approximately $57,772,000. Market interest rates increased during 2006 as the Federal Open Market Committee increased its target for the federal funds rate by a total of 100 basis points. Interest rate increases accounted
for $2,299,000 of the increase in interest income and $2,709,000 of the increase in interest expense.

In 2005 interest income increased by approximately
$4,209,000 and interest expense increased by approximately $2,361,000, which resulted in an increase of approximately $1,848,000 in net interest income. The increases in both interest income and interest expense were due to the increases in volume
and rate during the year. Earning assets increased in 2005 by approximately $63,903,000, and interest-bearing liabilities increased by approximately $58,240,000. Market interest rates increased during 2005 as the Federal Open Market Committee
increased its target for the federal funds rate by a total of 200 basis points. Interest rate increases accounted for $2,019,000 of the increase in interest income and $1,124,000 of the increase in interest expense.

The following table presents the Companys rate sensitivity at each of the time intervals indicated as of December 31, 2006. The table may not be indicative of
the Companys rate sensitivity position at other points in time.

Interest Rate Sensitivity Analysis



|                                                                                |  |                     |         |   |                                         |   |         |                                 |  |   |                  |   |  |        |         |   |  |   |         |  
|------------------------------------------------------------------------------- |  | ------------------- | ------- | - | --------------------------------------- | - | ------- | ------------------------------- |  | - | ---------------- | - |  | ------ | ------- | - |  | - | ------- | -
|December 31, 2006                                                               |  | ThreeMonths or Less |         |   | After Three Months ThroughTwelve Months |   |         | After One YearThroughFive Years |  |   | After Five Years |   |  | Totals |        
|(Dollars in thousands)                                                          |  |                     |         |   |                                         |   |         |                                 |  |   |                  |   |  |        |        
|Interest earning assets:                                                        |  |                     |         |   |                                         |   |         |                                 |  |   |                  |   |  |        |         |   |  |   |         |  
|Federal Funds Sold                                                              |  | $                   |        |   |                                         | $ |        |                                 |  | $ |                 |   |  | $      |        |   |  | $ |        |  
|Interest bearing due from banks                                                 |  |                     | 776     |   |                                         |   |        |                                 |  |   |                 |   |  |        |        |   |  |   | 776     |  
|Investment securities                                                           |  |                     | 4,595   |   |                                         |   | 7,071   |                                 |  |   | 32,222           |   |  |        | 39,879  |   |  |   | 83,767  |  
|Loans                                                                           |  |                     | 128,298 |   |                                         |   | 37,102  |                                 |  |   | 72,573           |   |  |        | 7,885   |   |  |   | 245,858 |  
|                                                                                |  |                     |         |   |                                         |   |         |                                 |  |   |                  |   |  |        |         |   |  |   |         |  
|Total interest earning assets                                                   |  |                     | 133,669 |   |                                         |   | 44,173  |                                 |  |   | 104,795          |   |  |        | 47,764  |   |  |   | 330,401 |  
|                                                                                |  |                     |         |   |                                         |   |         |                                 |  |   |                  |   |  |        |         |   |  |   |         |  
|Cumulative interest earning assets                                              |  | $                   | 133,669 |   |                                         | $ | 177,842 |                                 |  | $ | 282,637          |   |  | $      | 330,401 |   |  | $ | 330,401 |  
|                                                                                |  |                     |         |   |                                         |   |         |                                 |  |   |                  |   |  |        |         |   |  |   |         |  
|Interest bearing liabilities:                                                   |  |                     |         |   |                                         |   |         |                                 |  |   |                  |   |  |        |         |   |  |   |         |  
|Certificates of deposit                                                         |  |                     | 37,671  |   |                                         |   | 77,934  |                                 |  |   | 9,082            |   |  |        |        |   |  |   | 124,687 |  
|IRAs                                                                           |  |                     | 2,515   |   |                                         |   | 4,710   |                                 |  |   | 5,545            |   |  |        |        |   |  |   | 12,770  |  
|Money Market Accounts                                                           |  |                     | 1,420   |   |                                         |   | 10,128  |                                 |  |   | 21,642           |   |  |        |        |   |  |   | 33,190  |  
|Transaction Accounts                                                            |  |                     |        |   |                                         |   | 448     |                                 |  |   | 22,281           |   |  |        | 11,195  |   |  |   | 33,924  |  
|Savings Accounts                                                                |  |                     | 487     |   |                                         |   | 1,460   |                                 |  |   | 2,006            |   |  |        | 1,947   |   |  |   | 5,900   |  
|Reverse Repurchase                                                              |  |                     | 8,855   |   |                                         |   |        |                                 |  |   |                 |   |  |        |        |   |  |   | 8,855   |  
|Fed Funds Purchased                                                             |  |                     | 5,317   |   |                                         |   |        |                                 |  |   |                 |   |  |        |        |   |  |   | 5,317   |  
|FHLB Advances                                                                   |  |                     | 15,514  |   |                                         |   | 6,000   |                                 |  |   | 31,000           |   |  |        | 14,000  |   |  |   | 66,514  |  
|                                                                                |  |                     |         |   |                                        
|Other Long Term Debt                                                            |  |                     |        |   |                                         |   |        |                                 |  |   |                 |   |  |        | 11,341  |   |  |   | 11,341  |  
|                                                                                |  |                     |         |   |                                         |   |         |                                 |  |   |                  |   |  |        |         |   |  |   |         |  
|Total interest bearing liabilities                                              |  |                     | 71,779  |   |                                         |   | 100,680 |                                 |  |   | 91,556           |   |  |        | 38,483  |   |  |   | 302,498 |  
|                                                                                |  |                     |         |   |                                         |   |         |                                 |  |   |                  |   |  |        |         |   |  |   |         |  
|Cumulative interest bearing liabilities                                         |  | $                   | 71,779  |   |                                         | $ | 172,459 |                                 |  | $ | 264,015          |   |  | $      | 302,498 |   |  | $ | 302,498 |  
|                                                                                |  |                     |         |   |                                         |   |         |                                 |  |   |                  |   |  |        |         |   |  |   |         |  
|                                                                                |  |                     |         |   |                                        
|Gap Analysis:                                                                   |  |                     |         |   |                                         |   |         |                                 |  |   |                  |   |  |        |         |   |  |   |         |  
|                                                                                |  |                     |         |   |                                        
|Interest sensitivity gap                                                        |  | $                   | 61,890  |   |                                         | $ | (56,507 | )                               |  | $ | 13,239           |   |  | $      | 9,281   |   |  | $ | 27,903  |  
|                                                                                |  |                     |         |   |                                         |   |         |                                 |  |   |                  |   |  |        |         |   |  |   |         |  
|Cumulative interest sensitivity gap                                             |  | $                   | 61,890  |   |                                         | $ | 5,383   |                                 |  | $ | 18,622           |   |  | $      | 27,903  |   |  | $ | 27,903  |  
|                                                                                |  |                     |         |   |                                         |   |         |                                 |  |   |                  |   |  |        |         |   |  |   |         |  
|Cumulative gap ratio of interest earning assets to interest bearing liabilities |  |                     | 186     | % |                                         |   | 103     | %                               |  |   | 107              | % |  |        | 109     | % |  |   | 109     | %
|                                                                                |  |                     |         |   |                                         |   |         |                                 |  |   |                  |   |  |        |         |   |  |   |         |  



8



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GREER BANCSHARES INCORPORATED



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 by appropriate 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 90 day 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. The Companys cumulative interest sensitivity gap position indicates it is asset-sensitive over the periods presented. 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 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 and the results of the internal monitoring and reporting system. Management also monitors historical statistical data for both the Bank and other financial
institutions. The adequacy of the allowance for loan losses and the effectiveness of the monitoring and analysis system are also reviewed by the Banks regulators and the Companys internal auditor.

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 2006, the Bank provided
$597,000 for loan losses, raising the balance to $1,801,287 December 31, 2006 after charging off current year net bad debts of $211,610. The reserve for loan losses was approximately .73% and .71% of total loans on December 31, 2006 and
2005, 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 increased from December 31, 2005 to December 31, 2006 from .18% to .26%. The
Companys loan loss reserve model indicated the reserve was adequate at December 31, 2006.

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.

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. Actual
losses will undoubtedly vary from the estimates. Also, there is a possibility that



9



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GREER BANCSHARES INCORPORATED



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.

Noninterest Income

Noninterest income for the year ended December 31, 2006 was $2,340,003 compared to $2,456,653 for the year ended December 31, 2005, a decrease of $116,650 or
4.7%. Service charges and customer service fees relating to deposit accounts, which declined from $982,321 for the year ended December 31, 2005, to $936,978 for the year ended December 31, 2006, were the most significant portion of
noninterest income. The majority of the decline in customer service fees was due to a decline of $80,803 in non-sufficient funds fees, which was partially offset by increases in business account service charges. Gains on the sale of investment
securities were $342,394 in 2005, compared to $78,269 in 2006. Investment securities were sold to help fund the significant growth in the loan portfolio experienced during 2005. The loan growth in 2006 was funded primarily by increased deposits.
Other operating income, which is included in total non-interest income, increased from $1,131,938 in 2005 to $1,324,756 in 2006. The largest component of other operating income is income from the Banks financial management services subsidiary,
which increased from $410,798 in 2005 to $508,920 in 2006. Another significant component of other operating income is net earnings on bank owned life insurance, which increased from $173,859 in 2005 to $187,737 in 2006, due to the purchase of one
additional $1,000,000 policy in June 2005.

Noninterest income for the year ended December 31, 2005 was $2,456,653 compared to $2,223,780 for the year
ended December 31, 2004, an increase of $232,873, or 10.5%. Service charges and customer service fees relating to deposit accounts, which decreased from $1,152,686 for the year ended December 31, 2004 to $982,321 for the year ended
December 31, 2005, were the most significant portion of noninterest income. Gains on the sale of investment securities were $295,572 in 2004 compared to $342,394 in 2005. Investment securities were sold to help fund significant growth in the
loan portfolio experienced in 2005. Other operating income, which is included in total noninterest income, increased from $775,521 in 2004 to $1,131,938 in 2005. The largest component of other operating income is income from financial management
services, which increased from $281,964 in 2004 to $410,798 in 2005.

Noninterest Expenses

Noninterest expenses were $8,922,219 for the year ended December 31, 2006 compared to $7,580,742 for the year ended December 31, 2005. This increase was
comprised primarily of salaries and employee benefits totaling $5,444,426 for the year ended December 31, 2006 compared to $4,637,950 for the year ended December 31, 2005. The increase in salaries and benefits was due to the addition of
five full-time equivalent employees during 2006 to support the growth experienced by the Company. Included in noninterest expenses was a 40.3% increase in marketing expenses. Marketing expenses increased as the result of increased marketing efforts
designed to assist the growth of the Company. Another component of noninterest expenses is internet banking fees which increased $107,580 due to a system conversion. A total of $84,480 was expensed to record changes in the value of the interest rate
floor.

Noninterest expenses were $7,580,742 for the year ended December 31, 2005 compared to $6,007,687 for the year ended December 31, 2004.
This was comprised primarily of salaries and employee benefits totaling $4,637,950 for the year ended December 31, 2005 compared to $3,440,019 for the year ended December 31, 2004. The increase in salaries and benefits was due to the
increase of sixteen full-time equivalent employees during 2005 to support the growth experienced by the Company. Eight of the sixteen employees were hired to staff the Banks Taylors Office, which was opened in August 2005. Also included in
noninterest expenses is marketing expenses which increased from $178,800 in 2004 to $239,344 in 2005. The increase was due to an enhanced marketing effort designed to assist the opening of the Taylors branch in addition to the growth of the Company.
Professional fees increased from $281,532 in 2004 to $393,539 in 2005. The increase was due primarily to an increase of $46,772 in fees paid to consultants, the majority of which was for consultation regarding future branch sites, and an increase of
$35,800 in professional audit and accounting fees, which was due to increased compliance and accounting requirements.



10



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GREER BANCSHARES INCORPORATED



Income Taxes

For the
year ended December 31, 2006, the Company recorded income tax expense in the amount of $1,291,955, or an effective tax rate of 29.1% compared to a 21.3% effective tax rate in 2005. A one time reversal of a valuation allowance reduced the
effective tax rate from 24.9% to 21.3% in 2005. The effective tax rate for 2006 was higher than previous years due to the decline in tax-exempt income in 2006 resulting from the sale of $5,599,000 in tax-exempt municipal securities during 2006 in
combination with the 2005 reversal of the valuation allowance.

For the years ended December 31, 2005 and 2004, the Company recorded income tax
expense in the amounts of $755,223 and $655,557, respectively. This resulted in an effective tax rate of 21.3% and 20.4% for the years ended December 31, 2005 and 2004, 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 10.8% for 2005 and 19.8% for 2004. 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. This increase was offset by a one time reversal of a valuation allowance in 2005.

Capital Resources

Total capital of the Company increased in 2006 by net income of $3,152,806, $393,267 from stock based activity and the change in accumulated other
comprehensive income of $62,140. In addition, the Company paid cash dividends on April 15, June 15, September 15 and December 15, 2006 totaling $1,675,338 or $.68 per share and declared cash dividends to be paid on
March 15, 2007 totaling $413,410, or $.17 per share. The Company adopted SEC Staff Accounting Bulletin (SAB) 108 in December 2006. See Note 21 in the accompanying 2006 Annual Report. As a result of the adoption, retained earnings
was decreased January 1, 2006 for the cumulative effect of a material misstatement under the iron curtain method related to derivatives of $541,547, net of tax. Total capital of the Company increased in 2005 by net income of
$2,794,553 and $335,169 from the exercise of stock options, related tax benefits and a stock grant. Total capital was decreased by the change in accumulated other comprehensive income of ($1,034,096). In addition, the Company paid cash dividends on
April 15, June 15, September 15 and December 15, 2005 totaling $1,564,543, or $.64 per share. In 2004, total capital of the Company was increased by net income of $2,559,686 and $132,783 from the exercise of stock
options. Total capital was decreased by the change in accumulated other comprehensive income of ($268,560). In addition, the Company paid cash dividends on June 15, September 15 and December 15, 2004 totaling $1,093,602, or $.45
per share. The Company also 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.

The Federal Reserve Board and bank regulatory agencies require bank holding companies and financial institutions to maintain capital at adequate levels based on a percentage of assets and off-balance-sheet exposures,
adjusted for risk weights ranging from 0% to 100%. Under the risk-based standard, capital is classified into two tiers. Tier 1 capital of the Company consists of common shareholders equity minus unrealized gains plus unrealized losses on
securities available for sale. In addition to Tier 1 capital requirements, 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.

In October 2004 and December 2006, the Company issued $6.186 and $5.155 million of junior subordinated debentures to its
wholly-owned capital Trusts, Greer Capital Trust I and Greer Capital Trust II, respectively, to fully and unconditionally guarantee the trust preferred securities issued by the Trusts. These long term obligations qualify as total risk based capital
for the Company. In addition, all proceeds received from the issuance were invested in the Bank as additional capital.



11



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GREER BANCSHARES INCORPORATED



Greer State Bank and the holding company exceeded the Federal Reserves fully phased-in regulatory capital requirements at
December 31, 2006, 2005 and 2004 as set forth in the following table.

Risk-Based Capital Ratios



|                                        |  |                        |         |   |      |   |         |      |  |   |         |  
|--------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                        |  | (Dollars in thousands) |        
|Bank                                    |  | 2006                   |         |   | 2005 |   |         | 2004 | 
|Tier 1 Capital                          |  | $                      | 32,018  |   |      | $ | 26,632  |      |  | $ | 25,355  |  
|Tier 2 Capital                          |  |                        | 1,801   |   |      |   | 1,406   |      |  |   | 1,136   |  
|                                        |  |                        |         |   |      |   |         |      |  |   |         |  
|Total Qualifying Capital                |  | $                      | 33,819  |   |      | $ | 28,038  |      |  | $ | 26,491  |  
|                                        |  |                        |         |   |      |   |         |      |  |   |         |  
|Risk-adjusted total assets              |  | $                      | 275,443 |   |      | $ | 230,014 |      |  | $ | 163,850 |  
|                                        |  |                        |         |   |      |   |         |      |  |   |         |  
|(including off-balance-sheet exposures) |  |                        |         |   |      |   |         |      |  |   |         |  
|                                        |  |                        |        
|Tier 1 risk-based capital ratio         |  |                        | 11.62   | % |      |   | 11.58   | %    |  |   | 15.47   | %
|Total risk-based capital ratio          |  |                        | 12.28   | % |      |   | 12.19   | %    |  |   | 16.17   | %
|Tier 1 leverage ratio                   |  |                        | 9.20    | % |      |   | 9.07    | %    |  |   | 10.82   | %



|                                                           |  |                  |   |  |                 |   |  |                |  
|---------------------------------------------------------- |  | ---------------- | - |  | --------------- | - |  | -------------- | -
|                                                           |  | Tier 1Risk-Based |   |  | TotalRisk-Based |   |  | Tier 1Leverage |  
|Greer Bancshares capital ratios at December 31, 2006 were: |  | 11.25            | % |  | 12.92           | % |  | 8.93           | %

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 $16.6 million, the ability to borrow additional funds from the Federal Home Loan Bank of up to 30% of the
Banks assets and also has a reverse repurchase line totaling $20 million. Use of the FHLB and reverse repurchase lines requires the pledging of acceptable collateral. As of December 31, 2006, the Company had approximately $36,600,000 in
available collateral. Management has established policies and procedures governing the length of time to maturity on loans and investments, and has established policies regarding the use of alternative funding sources. In the opinion of management,
the deposit base and lines of credit can adequately support short-term liquidity needs.

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 the 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 there are adequate resources to fund these commitments. At December 31, 2006 and 2005, the Companys commitments to extend credit totaled
approximately $51,350,000 and $45,327,000, respectively.

Impact of On-Balance Sheet Instruments

The Company utilizes derivative contracts to manage interest rate risk. These instruments consisted of interest rate swaps and swaptions in 2004, 2005 and 2006 prior to
their sale in December 2006. In January 2006, an interest rate floor was purchased. A derivative is a financial instrument that derives its cash flows, and therefore its value, by reference to an underlying instrument, index, or referenced interest
rate. The Company used interest rate swaps and swaptions as fair value hedges for certain fixed rate Federal Home Loan Bank advances. The interest rate floor contract is a derivative



12



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GREER BANCSHARES INCORPORATED



used to hedge cash flows of certain prime based loans. The floor contract terminates on January 30, 2009. The Bank does not utilize derivatives for
trading purposes.

The derivatives did not qualify for hedge accounting under SFAS 133. As a result, the derivatives are recorded at fair value with
adjustments to earnings.

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, 2006. The yields are based upon amortized cost. The yield on
securities of state and political subdivisions is presented on a tax equivalent basis using a federal income tax rate of 34%. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations
with or without call or prepayment penalties.

Investment Securities Portfolio Composition



|                                                  |  |                    |       |   |                           |   |       |                            |  |   |                |   |  |       |        |                      |  |                         |        |  |   |        |  |      
|------------------------------------------------- |  | ------------------ | ----- | - | ------------------------- | - | ----- | -------------------------- |  | - | -------------- | - |  | ----- | ------ | -------------------- |  | ----------------------- | ------ |  | - | ------ |  | -----
|(Dollars in Thousands) December 31, 2006          |  | DueOne Yearor Less |       |   | One YearThroughFive Years |   |       | Five YearsthroughTen Years |  |   | AfterTen Years |   |  | Total |        | EstimatedMarketValue |  | AverageMaturityin Years
|Held-To-Maturity                                  |  |                    |       |   |                           |   |       |                            |  |   |                |   |  |       |        |                      |  |                         |        |  |   |        |  |      
|Mortgage Backed Securities                        |  | $                  |      |   |                           | $ |      |                            |  | $ | 4,307          |   |  | $     | 19,274 |                      |  | $                       | 23,581 |  | $ | 22,790 |  | 11.65
|                                                  |  |                    |       |   |                           |   |       |                            |  |   |                |   |  |       |        |                      |  |                         |        |  |   |        |  |      
|Available-For-Sale                                |  |                    |       |   |                           |   |       |                            |  |   |                |   |  |       |        |                      |  |                         |        |  |   |        |  |      
|U.S. Govt Agencies and                            |  |                    |       |   |                           |   |       |                            |  |   |                |   |  |       |        |                      |  |                         |        |  |   |        |  |      
|Mortgage Backed Securities                        |  |                    |      |   |                           |   | 1,850 |                            |  |   | 9,182          |   |  |       | 24,903 |                      |  |                         | 35,935 |  |   | 35,467 |  | 15.13
|States of the U.S. and                            |  |                    |       |   |                           |   |       |                            |  |   |                |   |  |       |        |                      |  |                         |        |  |   |        |  |      
|Political Subdivisions                            |  |                    |      |   |                           |   | 364   |                            |  |   | 4,582          |   |  |       | 17,490 |                      |  |                         | 22,436 |  |   | 22,726 |  | 12.27
|Corporate Securities                              |  |                    | 1,006 |   |                           |   | 1,027 |                            |  |   |               |   |  |       |       |                      |  |                         | 2,033  |  |   | 1,992  |  | 1.00 
|                                                  |  |                    |       |   |                           |   |       |                            |  |   |                |   |  |       |        |                      |  |                         |        |  |   |        |  |      
|Total                                             |  | $                  | 1,006 |   |                           | $ | 3,241 |                            |  | $ | 13,764         |   |  | $     | 42,393 |                      |  | $                       | 60,404 |  | $ | 60,185 |  |      
|                                                  |  |                    |       |   |                           |   |       |                            |  |   |                |   |  |       |        |                      |  |                         |        |  |   |        |  |      
|Held-To-Maturity                                  |  |                    |       |   |                           |   |       |                            |  |   |                |   |  |       |        |                      |  |                        
|Weighted Average Yields:                          |  |                    |       |   |                           |   |       |                            |  |   |                |   |  |       |        |                      |  |                         |        |  |   |        |  |      
|Mortgage Backed Securities                        |  |                    | 0.00  | % |                           |   | 0.00  | %                          |  |   | 4.02           | % |  |       | 4.36   | %                    |  |                         |        |  |   |        |  |      
|                                                  |  |                    |       |   |                           |   |      
|Available-For-Sale                                |  |                    |       |   |                           |   |       |                            |  |   |                |   |  |       |        |                      |  |                         |        |  |   |        |  |      
|Weighted Average Yields:                          |  |                    |       |   |                           |   |       |                            |  |   |                |   |  |       |        |                      |  |                         |        |  |   |        |  |      
|U.S. Govt Agencies and Mortgage Backed Securities |  |                    | 0.00  | % |                           |   | 5.09  | %                          |  |   | 4.86           | % |  |       | 4.34   | %                    |  |                         |        |  |   |        |  |      
|States of the U.S. and Political Subdivisions     |  |                    | 0.00  | % |                           |   | 6.67  | %                          |  |   | 7.02           | % |  |       | 6.58   | %                    |  |                         |        |  |   |        |  |      
|Corporate Securities                              |  |                    | 3.70  | % |                           |   | 5.04  | %                          |  |   | 0.00           | % |  |       | 0.00   | %                    |  |                         |        |  |   |        |  |      

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 its primary marketplace and
within its 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 the Companys marketplace. Additionally, since real estate is considered by the Company as the most desirable non-monetary collateral,
a significant portion of 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. Management also seeks to limit total exposure to



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GREER BANCSHARES INCORPORATED



individual and affiliated borrowers. Risk specific to individual borrowers is managed 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 the loan portfolio, several credit risk identification and monitoring processes are utilized. The Company uses an outside consultant, a former Office of the Comptroller of the Currency (OCC) bank examiner, to
perform loan reviews on a monthly basis.

Lending Activities

The Company extends credit primarily to consumers and small to medium 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 2007.

Total loans outstanding were
$245,857,922 and $199,002,801 at December 31, 2006 and 2005, respectively. There are no significant concentrations of loans in the loan portfolio to any particular individuals or industry or group of related individuals or industries.

The Companys ratio of loans to deposits was 102.3% and 99.9% at December 31, 2006 and 2005, 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 2006. The growth was funded primarily by an increase in deposits; however, the Company also utilized approximately $6,025,000 in additional advances from the Federal Home Loan Bank and approximately $5,000,000 in trust preferred
securities.

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

Loan Portfolio Composition



|                                 |  |        |         |         |        |   |        |      |         |  |        |        |  |         |         |  |        |   |         |   |         |        |        |         |  |   |         |  |        |  
|-------------------------------- |  | ------ | ------- | ------- | ------ | - | ------ | ---- | ------- |  | ------ | ------ |  | ------- | ------- |  | ------ | - | ------- | - | ------- | ------ | ------ | ------- |  | - | ------- |  | ------ | -
|December 31,                     |  | 2006   |         |         | 2005   |   |        | 2004 |         |  | 2003   |        |  | 2002    |        
|                                 |  | Amount |         | Percent |        |   | Amount |      | Percent |  |        | Amount |  | Percent |         |  | Amount |   | Percent |   |         | Amount |        | Percent | 
|(Dollars in Thousands)           |  |        |         |         |        |   |        |      |         |  |        |        |  |         |         |  |        |   |         |   |         |        |        |         | 
|Commercial                       |  | $      | 49,954  |         | 20.32  | % |        | $    | 43,509  |  | 21.86  | %      |  | $       | 31,188  |  | 22.33  | % |         | $ | 28,122  |        | 24.33  | %       |  | $ | 23,293  |  | 21.64  | %
|Real Estate-Construction/Land    |  |        | 59,625  |         | 24.26  | % |        |      | 42,980  |  | 21.60  | %      |  |         | 28,362  |  | 20.31  | % |         |   | 15,288  |        | 13.23  | %       |  |   | 13,596  |  | 12.63  | %
|Real Estate Mortgage:            |  |        |         |         |        |   |        |      |         |  |        |        |  |         |         |  |        |   |         |   |         |        |        |         |  |   |         |  |        |  
|Residential 1-4                  |  |        | 68,926  |         | 28.04  | % |        |      | 58,898  |  | 29.60  | %      |  |         | 40,772  |  | 29.20  | % |         |   | 36,777  |        | 31.82  | %       |  |   | 43,527  |  | 40.43  | %
|Multi-Family                     |  |        | 608     |         | 0.25   | % |        |      | 921     |  | 0.46   | %      |  |         | 1,636   |  | 1.17   | % |         |   | 1,732   |        | 1.50   | %       |  |   | 639     |  | 0.59   | %
|Nonfarm/Nonresidential           |  |        | 51,244  |         | 20.84  | % |        |      | 40,374  |  | 20.29  | %      |  |         | 26,810  |  | 19.20  | % |         |   | 21,099  |        | 18.26  | %       |  |   | 15,555  |  | 14.45  | %
|Installment Loans to Individuals |  |        | 10,853  |         | 4.41   | % |        |      | 10,476  |  | 5.26   | %      |  |         | 9,694   |  | 6.94   | % |         |   | 9,154   |        | 7.92   | %       |  |   | 9,535   |  | 8.86   | %
|Lease Financing                  |  |        | 796     |         | 0.32   | % |        |      | 899     |  | 0.45   | %      |  |         | 977     |  | 0.70   | % |         |   | 931     |        | 0.81   | %       |  |   | 462     |  | 0.43   | %
|Obligations of State and         |  |        |         |         |        |   |        |      |         |  |        |        |  |         |         |  |        |   |         |   |         |        |        |         |  |   |         |  |        |  
|Political Subdivisions           |  |        | 571     |         | 0.23   | % |        |      | 104     |  | 0.05   | %      |  |         | 207     |  | 0.15   | % |         |   | 2,462   |        | 2.13   | %       |  |   | 1,054   |  | 0.97   | %
|Other                            |  |        | 3,281   |         | 1.33   | % |        |      | 842     |  | .43    | %      |  |         |        |  |       |   |         |   |        |        |       |         |  |   |        |  |       |  
|                                 |  |        |         |         |        |   |        |      |         |  |        |        |  |         |         |  |        |   |         |   |         |        |        |         |  |   |         |  |        |  
|Total Loans                      |  | $      | 245,858 |         | 100.00 | % |        | $    | 199,003 |  | 100.00 | %      |  | $       | 139,646 |  | 100.00 | % |         | $ | 115,565 |        | 100.00 | %       |  | $ | 107,661 |  | 100.00 | %
|                                 |  |        |         |         |        |   |        |      |         |  |        |        |  |         |         |  |        |   |         |   |         |        |        |         |  |   |         |  |        |  



14



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GREER BANCSHARES INCORPORATED



The Companys loan portfolio contains a significant percentage of real estate mortgage loans. Real estate mortgage loans increased by
approximately $37,231,000, or 26.0%, to approximately $180,403,000 during the twelve months ended December 31, 2006. At December 31, 2006 real estate mortgage loans represented 73.4% of the total loan portfolio compared to 71.9% at
December 31, 2005. The increase in real estate 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. 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, the Company has offered five-year and seven-year balloon mortgage loan
products 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 approximately $6,445,000, or 14.8%, to $49,954,000 at December 31, 2006 due primarily to the increase in lending personnel. Commercial and
industrial loans comprised 20.3% and 21.9% of the total loan portfolio at December 31, 2006 and 2005, 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,
2006. The Company has a total of approximately $132,346,000 million in loans indexed to the Wall Street Journal Prime rate.



|                                 |  |            |        |         |                               |   |        |       |         |  |        |        |  |         |         |  |        |  
|-------------------------------- |  | ---------- | ------ | ------- | ----------------------------- | - | ------ | ----- | ------- |  | ------ | ------ |  | ------- | ------- |  | ------ | -
|December 31, 2006                |  | Commercial |        |         | Real Estate-Construction/Land |   |        | Total |        
|(Dollars in Thousand)            |  | Amount     |        | Percent |                               |   | Amount |       | Percent |  |        | Amount |  | Percent |        
|Due One Year or Less:            |  | $          | 29,933 |         | 59.92                         | % |        | $     | 46,740  |  | 78.39  | %      |  | $       | 76,673  |  | 69.98  | %
|                                 |  |            |        |         |                               |  
|Due One Year through Five Years: |  |            |        |         |                               |   |        |       |         |  |        |        |  |         |         |  |        |  
|Fixed Rate                       |  |            | 14,517 |         | 29.06                         | % |        |       | 4,214   |  | 7.07   | %      |  |         | 18,731  |  | 17.09  | %
|Variable Rate                    |  |            | 53     |         | 0.11                          | % |        |       | 4,223   |  | 7.08   | %      |  |         | 4,276   |  | 3.90   | %
|                                 |  |            |        |         |                               |  
|Due After Five Years:            |  |            |        |         |                               |   |        |       |         |  |        |        |  |         |         |  |        |  
|Fixed Rate                       |  |            | 5,451  |         | 10.91                         | % |        |       | 4,448   |  | 7.46   | %      |  |         | 9,899   |  | 9.03   | %
|Variable Rate                    |  |            |       |         | 0.00                          | % |        |       |        |  | 0.00   | %      |  |         |        |  | 0.00   | %
|                                 |  |            |        |         |                               |   |        |       |         |  |        |        |  |         |         |  |        |  
|Total                            |  | $          | 49,954 |         | 100.00                        | % |        | $     | 59,625  |  | 100.00 | %      |  |         | 109,579 |  | 100.00 | %
|                                 |  |            |        |         |                               |   |        |       |         |  |        |        |  |         |         |  |        |  

Risk Elements

At December 31, 2006, there was one loan for $1,316,398 classified as impaired (see discussion below), $700 in loans 90 days past due and still accruing interest and approximately $843,000 in non-accrual status.
At December 31, 2005, there were no restructured loans, approximately $32,000 in loans 90 days past due and still accruing interest, and approximately $484,000 in non-accrual status. At December 31, 2004, there were no restructured loans,
$388 in loans 90 days past due and still accruing interest, and approximately $567,000 in non-accrual status.

The accrual of interest on loans is
discontinued when, in managements 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.



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GREER BANCSHARES INCORPORATED



The following table sets forth certain information with respect to the 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)                        |  | 2006 |         |   | 2005 |   |         | 2004 |  |   | 2003    |   |  | 2002 |        
|Total loans outstanding at end of year        |  | $    | 245,858 |   |      | $ | 199,003 |      |  | $ | 139,646 |   |  | $    | 115,565 |   |  | $ | 107,661 |  
|                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Average loans outstanding                     |  | $    | 229,467 |   |      | $ | 161,909 |      |  | $ | 124,170 |   |  | $    | 107,961 |   |  | $ | 107,265 |  
|                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|                                              |  |      |         |   |     
|Balance, beginning of year                    |  | $    | 1,416   |   |      | $ | 1,136   |      |  | $ | 1,298   |   |  | $    | 1,081   |   |  | $ | 1,244   |  
|Loans charged-off                             |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Commercial and industrial                     |  |      | 177     |   |      |   | 24      |      |  |   | 347     |   |  |      | 92      |   |  |   | 910     |  
|Real estate - mortgage                        |  |      | 0       |   |      |   | 20      |      |  |   | 31      |   |  |      | 20      |   |  |   | 3       |  
|Consumer                                      |  |      | 77      |   |      |   | 114     |      |  |   | 42      |   |  |      | 35      |   |  |   | 60      |  
|                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total loans charged-off                       |  |      | 254     |   |      |   | 158     |      |  |   | 420     |   |  |      | 147     |   |  |   | 973     |  
|                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|                                              |  |      |         |   |     
|Recoveries of previous loan losses            |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Commercial and industrial                     |  |      | 1       |   |      |   | 4       |      |  |   | 4       |   |  |      | 352     |   |  |   | 2       |  
|Real estate - mortgage                        |  |      | 0       |   |      |   | 0       |      |  |   | 0       |   |  |      | 0       |   |  |   | 0       |  
|Consumer                                      |  |      | 41      |   |      |   | 10      |      |  |   | 3       |   |  |      | 2       |   |  |   | 20      |  
|                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total loan recoveries                         |  |      | 42      |   |      |   | 14      |      |  |   | 7       |   |  |      | 354     |   |  |   | 22      |  
|                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net charge-offs                               |  |      | 212     |   |      |   | 144     |      |  |   | 413     |   |  |      | (207    | ) |  |   | 951     |  
|                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Provision charged to operations               |  |      | 597     |   |      |   | 424     |      |  |   | 251     |   |  |      | 10      |   |  |   | 788     |  
|                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Balance, end of year                          |  | $    | 1,801   |   |      | $ | 1,416   |      |  | $ | 1,136   |   |  | $    | 1,298   |   |  | $ | 1,081   |  
|                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|                                              |  |      |         |   |     
|Ratios:                                       |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Allowance for loan losses to average loans    |  |      | 0.78    | % |      |   | 0.87    | %    |  |   | 0.91    | % |  |      | 1.20    | % |  |   | 1.01    | %
|Allowance for loan losses to period end loans |  |      | 0.73    | % |      |   | 0.71    | %    |  |   | 0.81    | % |  |      | 1.12    | % |  |   | 1.00    | %
|Net charge offs to average loans              |  |      | 0.09    | % |      |   | 0.09    | %    |  |   | 0.33    | % |  |      | -0.19   | % |  |   | 0.89    | %

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. 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 can 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, 2006 the Bank had one impaired loan with an outstanding balance of $1,316,398. The average amount of impaired loans outstanding during 2006 was $687,376. There was no interest income recognized on the
impaired loan.



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GREER BANCSHARES INCORPORATED



Deposits

Average
deposits were approximately $227,269,000 and $172,189,000 during 2006 and 2005, respectively. The most significant increase was in the average balance of time deposits, which increased by approximately $42,269,000, or 51.6%. Management believes the
increase in time deposits is the result of the continued increase in interest rates that occurred during 2006, as well as the result of a marketing effort emphasizing special rates on certificates of deposit. As the economy improved and short term
interest rates continued to increase, the Companys loan demand also increased. Management raised time deposits rates in an effort to raise deposits to fund the loan growth. In addition, average balances in NOW accounts increased by
approximately $7,044,000 from 2005 to 2006 primarily as a result of increased emphasis on deposit gathering.

Contractual maturities of all time deposits
at December 31, 2006 were as follows: twelve months or less - $122,829,739, over twelve months through thirty-six months - $14,627,252, and over thirty-six months - $0.

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



|                             |  |                 |         |         |        |   |                 |      |         |  |        |                 |  |         |         |  |        |  
|---------------------------- |  | --------------- | ------- | ------- | ------ | - | --------------- | ---- | ------- |  | ------ | --------------- |  | ------- | ------- |  | ------ | -
|Year Ended December 31,      |  | 2006            |         |         | 2005   |   |                 | 2004 |        
|                             |  | Average Balance |         | Percent |        |   | Average Balance |      | Percent |  |        | Average Balance |  | Percent |        
|                             |  |                 |         |         |       
|(Dollars in thousands)       |  |                 |         |         |        |   |                 |      |         |  |        |                 |  |         |        
|Noninterest-Bearing Deposits |  |                 |         |         |        |   |                 |      |         |  |        |                 |  |         |         |  |        |  
|Demand Deposits              |  | $               | 30,710  |         | 13.51  | % |                 | $    | 30,811  |  | 17.90  | %               |  | $       | 25,893  |  | 16.53  | %
|Interest Bearing Liabilities |  |                 |         |         |        |   |                 |      |         |  |        |                 |  |         |         |  |        |  
|NOW Accounts                 |  |                 | 36,908  |         | 16.24  | % |                 |      | 29,864  |  | 17.34  | %               |  |         | 34,832  |  | 22.16  | %
|Money Market and Savings     |  |                 | 35,434  |         | 15.59  | % |                 |      | 29,566  |  | 17.17  | %               |  |         | 27,720  |  | 17.64  | %
|Time Deposits                |  |                 | 124,217 |         | 54.66  | % |                 |      | 81,948  |  | 47.59  | %               |  |         | 68,641  |  | 43.67  | %
|                             |  |                 |         |         |        |   |                 |      |         |  |        |                 |  |         |         |  |        |  
|Total Deposits               |  | $               | 227,269 |         | 100.00 | % |                 | $    | 172,189 |  | 100.00 | %               |  | $       | 157,086 |  | 100.00 | %
|                             |  |                 |         |         |        |   |                 |      |         |  |        |                 |  |         |         |  |        |  

Core deposits, which exclude time deposits of $100,000 or more, provide a relatively stable funding source for the
loan portfolio and other earning assets. Core deposits were approximately $163,255,000, $135,003,000, and $112,039,000 at December 31, 2006, 2005 and 2004, respectively.

Time deposits over $100,000 totaled approximately $80,815,000, $64,184,000 and $38,220,000 at December 31, 2006, 2005 and 2004, respectively. Scheduled maturities were as follows:



|                                                |  |      |        |      |   |        |  |   |       
|----------------------------------------------- |  | ---- | ------ | ---- | - | ------ |  | - | ------
|Year Ended December 31,                         |  | 2006 |        | 2005 |   | 2004  
|(Dollars in thousands)                          |  |      |        |      |   |       
|Maturing in 3 months or less                    |  | $    | 20,132 |      | $ | 12,506 |  | $ | 9,425 
|Maturing after 3 months but less than 6 months  |  |      | 29,229 |      |   | 13,192 |  |   | 13,075
|Maturing after 6 months but less than 12 months |  |      | 21,932 |      |   | 12,177 |  |   | 12,304
|Maturing after 12 months                        |  |      | 9,522  |      |   | 26,309 |  |   | 3,416 
|                                                |  |      |        |      |   |        |  |   |       
|Total                                           |  | $    | 80,815 |      | $ | 64,184 |  | $ | 38,220
|                                                |  |      |        |      |   |        |  |   |       

Short-Term Borrowings

At December 31, 2006, the Company had purchased federal funds totaling $5,317,000 and $8,854,875 in securities sold under agreements to repurchase. At December 31, 2005 the Company had purchased federal
funds totaling $1,931,000 and $8,588,767 in securities sold under agreements to repurchase. The Company had no short-term borrowings at December 31, 2004.

The related information for these borrowings during 2006 is summarized as follows:



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GREER BANCSHARES INCORPORATED



|                                            |  |                         |           |   |                                                |   |           |  
|------------------------------------------- |  | ----------------------- | --------- | - | ---------------------------------------------- | - | --------- | -
|                                            |  | Federal Funds Purchased |           |   | Securities Sold Under Agreements
To Repurchase |  
|Average balance outstanding during the year |  | $                       | 1,861,000 |   |                                                | $ | 8,684,000 |  
|Average rate paid during the year           |  |                         | 5.28      | % |                                                |   | 5.38      | %
|Average rate on year end balance            |  |                         | 5.63      | % |                                                |   | 5.44      | %

Long Term Borrowings

At December 31, 2006 and December 31, 2005, the Company had fixed rate notes payable totaling $59,513,514 and $58,847,043, respectively, to Federal Home Loan Bank (FHLB). Interest rates on the
advances ranged from 2.74% to 6.67% at December 31, 2006 and 2005. At December 31, 2006, the Company had variable rate notes payable totaling $7,000,000 to FHLB. A note for $2,000,000 was indexed to the 3 month LIBOR rate and was 5.37% on
December 31, 2006. A note for $5,000,000 was indexed to the Wall Street Journal prime rate and was 5.40% on December 31, 2006. During 2006, interest expense on some of these fixed rate notes was increased by $266,992, and in 2005 was
reduced by $16,798, through the utilization of interest rate swaps. For financial statement purposes interest expense or interest income from the swaps has been netted against the interest expense on FHLB borrowings. The Company has pledged its 1 to
4 family residential mortgages, commercial real estate mortgages, home equity lines of credit and certain mortgage-backed securities as collateral against the FHLB borrowings.

In October 2004 and December 2006, the Company issued $6,186,000 and $5,155,000 of junior subordinated debentures to its wholly-owned capital Trusts, Greer Capital Trust I and Greer Capital Trust II, respectively, to
fully and unconditionally guarantee the trust preferred securities issued by the Trusts. These long-term obligations currently qualify as total risk based capital for the Company.

The junior subordinated debentures issued in October 2004 mature in October 2034, but include an option to call the debt in October 2009. Interest payments are due quarterly to Greer Capital Trust I at
three-month LIBOR plus 220 basis points.

The junior subordinated debentures issued in December 2006 mature in December 2036, but include an option to call
the debt in December 2011. Interest payments are due quarterly to Greer Capital Trust II at the three-month LIBOR plus 173 basis points.

The following
table reflects the Companys contractual obligations as of December 31, 2006:

Contractual Obligations

(in thousands)

|               |  |                        |       |            |   |            |  |                     |        |       |   |        |  |   |       
|-------------- |  | ---------------------- | ----- | ---------- | - | ---------- |  | ------------------- | ------ | ----- | - | ------ |  | - | ------
|               |  | Payments Due by Period
|               |  | Less Than1 Year        |       | 1  3Years |   | 3 - 5Years |  | GreaterThan 5 Years |        | Total
|Long-term debt |  | $                      | 4,014 |            | $ | 23,000     |  | $                   | 24,000 |       | $ | 26,841 |  | $ | 77,855

Accounting and Financial Reporting Issues

SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement PlansAn Amendment of FASB Statements No. 87, 88,
106, and 132R requires an employer to: (a) recognize in its statement of financial position an asset for a plans overfunded status or a liability for a plans underfunded status; (b) measure a plans assets and its
obligations that determine its funded status as of the end of the employers fiscal year (with limited exceptions); and (c) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes
occur. Those changes will be reported in comprehensive income. The requirement to recognize the funded status of a benefit plan and the disclosure requirements are effective as of the end of the fiscal year ending after December 15, 2006. The
requirement to measure plan assets and benefit obligations as of the date of the employers fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. The Company does not anticipate that
this statement will have an impact on the Companys financial position, results of operations and cash flows.

In July 2006, the FASB issued Financial
Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109 (FIN 48), which is a change in accounting for income taxes. FIN 48

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GREER BANCSHARES INCORPORATED



specifies how tax benefits for uncertain tax positions are to be recognized, measured, and derecognized in financial statements; requires certain disclosures
of uncertain tax matters; specifies how reserves for uncertain tax positions should be classified on the balance sheet; and provides transition and interim period guidance, among other provisions. FIN 48 is effective for fiscal years beginning after
December 15, 2006 and as a result, is effective for the Company in the first quarter of fiscal 2007. The Company has evaluated the impact of FIN 48 and anticipates no significant impact on its consolidated financial statements.

The Emerging Issues Task Force (EITF) reached a consensus at it September 2006 meeting regarding EITF 06-4 Accounting for Deferred Compensation and
Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. The scope of EITF 06-4 is limited to the recognition of a liability and related compensation costs for endorsement split-dollar life insurance policies that
provide a benefit to an employee that extends to postretirement periods. Therefore, this EITF would not apply to a split-dollar life insurance arrangement that provides a specified benefit to an employee that is limited to the employees active
service period with an employer. EITF 06-04 is effective for fiscal years beginning after December 15, 2007, with earlier application permitted. The effects of this standard have not yet been evaluated.

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 quoted in two local newspapers, The Greenville News and The Spartanburg Herald, in the area OTC
listings section. As of February 22, 2007, there were 1,153 record holders of our common stock, $5.00 par value per share.

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.



|        |  |        |  |        |  |         |  |        |  |       
|------- |  | ------ |  | ------ |  | ------- |  | ------ |  | ------
|2006    |  | 2005  
|Quarter |  | High   |  | Low    |  | Quarter |  | High   |  | Low   
|First   |  | $28.25 |  | $26.25 |  | First   |  | $19.80 |  | $17.00
|Second  |  | $27.00 |  | $21.75 |  | Second  |  | $22.90 |  | $19.24
|Third   |  | $23.00 |  | $22.00 |  | Third   |  | $26.84 |  | $22.90
|Fourth  |  | $24.50 |  | $21.50 |  | Fourth  |  | $28.25 |  | $26.00

Beginning in 1992, the Company has declared annual cash and/or stock dividends or stock splits. In 2004, the
Company paid 15 cents per share cash dividends in June, September and December, for total cash dividends in 2004 of 45 cents per share. A 3-for-2 stock split was issued effective March 15, 2004 and affected in the form of a stock dividend. Cash
dividends, as well as the prices listed above, have been adjusted to reflect the stock splits. In 2005, the Company paid 16 cents per share cash dividends in April, June, September and December for total cash dividends in 2005 of 64 cents per share.
In 2006, the Company paid 17 cents per share cash dividends in March, June, September and December for total cash dividends in 2006 of 68 cents per share and declared dividends to be paid in March 2007 of 17cents per share.

The Companys 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.

Performance Graph

We are required to provide our shareholders with a line graph comparing our cumulative total shareholder return with a performance indicator of the overall stock market
and either a published industry index or a Company-determined peer comparison. The purpose of the graph is to help shareholders determine the reasonableness of the compensation committees decisions with respect to the setting of various levels
of executive officer compensation. Shareholder return (measured through increases in stock price and payment of dividends) is often a benchmark used in assessing corporate performance and the reasonableness of compensation paid to executive
officers.



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GREER BANCSHARES INCORPORATED



However, shareholders should recognize that corporations often use a number of other performance benchmarks (in addition to shareholder
return) to set various levels of executive officer compensation. Our 2006 Annual Report to Shareholders contains a variety of relevant performance indicators concerning the Company. Thus, Company shareholders may wish to consider other relevant
performance indicators which may be more closely related to officer performance in assessing the reasonableness of Company executive officer compensation, such as growth in earnings per share, book value per share and cash dividends per share, along
with Return on Equity (ROE) and Return on Assets (ROA) percentages.

The performance graph below compares the Companys cumulative total shareholder
return over the previous five fiscal years with both the NASDAQ stock index and the Carson Medlin Companys Independent Bank Index (an index published by the Carson Medlin Company, Investment Bankers). The NASDAQ stock index reflects overall
stock market performance. The Independent Bank Index is the compilation of the total return to shareholders over the past five years of a group of 28 independent community banks located in the southeastern states of Alabama, Florida, Georgia, North
Carolina, South Carolina, Tennessee, Virginia and West Virginia. The total five year return was calculated for each of the banks in the peer group taking into consideration changes in stock price, cash dividends, stock dividends and stock splits
since December 31, 2001. The individual results were then weighted by the market capitalization of each bank relative to the entire peer group. The total return approach and the weighting based upon market capitalization are consistent with the
preparation of the NASDAQ total return index. The Company believes the Independent Bank Index is a more relevant standard by which community banks should measure their own performance because the peer group is comprised of banks that are closer in
size and style of doing business. Furthermore, this index more closely reflects the actual trading patterns of community bank stocks.

Returns assume a
beginning stock index price of $100 per share. The value of the Companys stock as used to develop the graph was based on information obtained by the Company from the website NASDAQ.com regarding trading prices of the Companys stock.
Because the Companys stock is not actively traded, the information is based on a limited number of transactions.

LOGO



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GREER BANCSHARES INCORPORATED



|                              |  |      |  |      |  |      |  |      |  |      |  |     
|----------------------------- |  | ---- |  | ---- |  | ---- |  | ---- |  | ---- |  | ----
|                              |  | 2001 |  | 2002 |  | 2003 |  | 2004 |  | 2005 |  | 2006
|                              |  |      |  |      |  |     
|Greer Bancshares Incorporated |  | 100  |  | 104  |  | 112  |  | 108  |  | 172  |  | 157 
|                              |  |      |  |      |  |     
|Independent Bank Index        |  | 100  |  | 124  |  | 168  |  | 193  |  | 199  |  | 230 
|                              |  |      |  |      |  |     
|NASDAQ Index                  |  | 100  |  | 69   |  | 103  |  | 113  |  | 115  |  | 126 

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 Section 21E of the Securities Exchange Act of 1934. These
statements are based on many assumptions and estimates and are not guarantees of future performance. Actual results may differ materially from those projected in any forward-looking statements, as they will depend on many factors about which there
is uncertainty, including many factors which are beyond managements 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 the Companys 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 the Companys filings with the Securities and Exchange Commission.



21