# Exhibit 13

Annual Report to Shareholders for the
year ended December 31, 2003.

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Exhibit 13

Greer State BankBanking Locations
1111 West Poinsett StreetGreer, South Carolina 29650 864-877-2000

North Main Street Office
601 North Main StreetGreer, South Carolina 29650864-848-5103

Buncombe Road Office
871 South Buncombe Road Greer, South Carolina 29650864-848-2563

[photos & logo omitted]

Greer Bancshares Incorporated
1111 West Poinsett StreetP.O. Box 1029Greer, South Carolina 29650 864-877-2000

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[Graphics & photos omitted]

FIFTEENTH ANNIVERSARY
EDITION1989-2003

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1

Letter from the President
and Chairman

Dear Shareholders and
Friends,

On January 3, 2004, Greer State Bank
observed its fifteenth anniversary of service to the Greer community. From our
perspective, the past fifteen years have been a remarkable journey and a wonderful
experience. During that period of time, we have tried to honor the confidence and trust
placed in us by the original 634 shareholders who enabled us to charter a community bank
focused solely on the needs of the Greer community. We have also tried to fulfill the
representations made to those 634 shareholders during the initial stock offering that an
investment in Greer State Bank would be both a good personal investment and a good
community investment. Ultimately, our shareholders are the best judges of how well we have
performed in fulfilling our commitments over the past fifteen years. We sincerely hope you
are pleased with our efforts and the returns on investment you have received.

A Deep Sense of Gratitude

As we look back on the Banks
history and accomplishments, the dominant feeling we have is gratitude. First, we are
deeply grateful to you, our shareholders, for your trust and support over the years. You
made everything possible by believing in our vision and mission to provide Greer with a
locally owned and managed community bank that would strive to improve the quality of life
in the Greer community.

Secondly, we are grateful to the
original organizers and directors who have provided vision, leadership and dedicated
service. We are also saddened that four of the original thirteen organizers are no longer
with us, except in memory and spirit; they were Tom Duncan, Preston Griffin, Bob
Henderson, and Cecil McClimon.

Thirdly, we feel gratitude that eight
of the original thirteen employees are still working with us and contributing
significantly (please see photo and names on page 6). A fundamental premise in our
Banks philosophy has been It cannot be a good place to bank unless it is a
good place to work. We firmly believe how we treat our employees determines to
a great extent how our employees treat our customers. The directors and management
team have tried to create a workplace that is both employee friendly and family
friendly, recognizing that nothing is more important than family. We are grateful to
have a team of officers and associates who share our vision, mission and values, and they
are largely responsible for the success we have enjoyed these past fifteen years.

Finally, we are grateful to our
customers who have blessed us with their business and loyalty. A very high percentage of
the customers who began doing business with us in our initial year of 1989 are still with
us. A major goal for us in 2004 is to communicate our appreciation and gratitude to each
and every customer who began doing business with us in 1989.

OVER A DECADE AGO,

TWELVE
GREER BUSINESSMEN HAD A DREAM.

[photos and newspaper article omitted]

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2

Where Are We After 15
Years?

Greer State Bank finished the year
2003 with $214 million in total assets and net income of $2,232,000, or $1.37 per diluted
share. Return on average assets in 2003 was 1.11% and return on average equity was 12.13%.
The Bank now serves the Greer area with three offices and 72 employees, including
part-time, hourly workers. To provide you with some historical perspective on the
Banks progress, we have included in this annual report a chronological timeline,
which identifies significant milestones in the Banks history.

From an investment perspective, we
are pleased to report that the original investment by shareholders of $4,828,940 has now
grown to a market capital value (based on the current market price of $28) of
approximately $45 million, a nine-fold increase over 15 years! On a tangible book value
basis, the original $4,828,940 has grown to $19,708,000 at December 31, 2003, an increase
of 408% over 15 years. By any objective measure of performance for banking, Greer State
Bank has been successful in generating extraordinary returns on investment.

The original 482,894 shares of common
stock, through stock dividends and a two-for-one stock split in June of 1999, has grown to
1,619,111 shares owned by approximately 760 shareholders (not including shareholders with
stock registered in street name). With the recently announced three-for-two
stock split, effective on March 15, 2004, the total number of shares outstanding will be
approximately 2,428,600, creating the opportunity for greater availability of and
liquidity in shares of Greer Bancshares Incorporated.

[graphics omitted]

A DREAM THAT THEY COULD MAKE A DIFFERENCE IN THE
COMMUNITY WHERE THEY LIVED AND WORKED

[chart and graphics omitted]

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3

The original 13-member staff has now
grown to 72 employees with 57 being full-time and 15 part-time. The original Main Office
at 1111 West Poinsett Street is supported by two additional branch offices at 601 North
Main Street and 871 South Buncombe Road.

Financial Performance in
2003

In last years annual report, we
stated, . . . the economic outlook for 2003 is still a cause for concern. The
financial markets are deeply troubled by the prospect of war in the Middle East, higher
energy costs and the potential geo-political instability that could result if war becomes
necessary in Iraq. Until these issues are resolved, we expect the economy will continue to
languish, extending the problems of unemployment, low consumer confidence and weak capital
expenditures by business. 2003 will indeed be another
challenging and interesting year for our nation, our economy and the banking
industry. In retrospect, these words were unfortunately accurate.

2003 was indeed a
difficult and challenging year for our nation and economy. In the context of this economic
environment, the Banks financial performance in 2003 was reasonably good. However,
45-year lows in interest rates significantly reduced the Banks interest income from
the loan portfolio, and this impact is reflected in the lower earnings in 2003 compared to
2002.

To put the interest rate impact on
earnings in perspective, in January of 2001, the Wall Street Journal Prime rate of
interest was 9.50%. When the economy lapsed into recession, the Federal Reserve Bank began
a series of interest rate cuts to revive the economy. Over a period of 29 months, the Wall
Street Journal Prime rate was reduced in increments to its present level of 4%. During
this same period of time, the Banks interest income from the loan portfolio was
reduced by $2.5 million before taxes. Despite these obstacles, the Bank achieved 98% of
its budget goals for the year and continued to lay the foundation for better earnings when
interest rates begin to rise.

The Outlook for 2004

Recent reports on economic activity
seem to suggest that the economy is gaining strength and momentum, and the outlook for
2004 projects moderate growth in the national economy. The manufacturing sector, important
to the Upstate economy, has begun to show signs of improvement. Nevertheless, growth in
employment is still weak and a cause for concern.

The interest rate outlook calls for
perhaps one rate increase of 1/4 of 1% in August or September. With a presidential
election in November, it is unlikely the Federal Reserve Bank will do more in 2004 unless
the economy comes roaring back with unexpected levels of growth. Economists are
forecasting several rate increases in 2005 as the economy gains a solid foundation and no
longer requires monetary stimulus.

THESE MEN WORKED HARD TO
MAKE THEIR DREAM COME TRUE

[photos & graphics omitted]

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4

If these forecasts prove accurate, we
expect the Bank will increase earnings modestly in 2004. Should interest rates increase
more than the projected 1/4 of 1%, earnings could benefit nicely.

Where Do We Go From Here?

[photos omitted]

In last years annual report, we
also stated, We now dream of taking the Bank to a higher level of success through a
deeper sense of caring and a greater commitment to service and excellence. For the
past year, we have been evaluating our opportunities for growth and expansion. Since the
Greer community has grown significantly in land area and population over the past ten
years, we believe it is now appropriate to begin expanding our branch office network to
service a larger geographic area. We envision another two to three branch offices over the
next five to eight years in areas where our name and reputation will serve us well.

[photo omitted]

At present, we believe the Bank has a
strong capital position, a sound balance sheet, a strong management team and the capacity
to support balanced growth that is profitable, sustainable and capital efficient. Our goal
is to grow the Bank to approximately $325 million in total assets over the next five years
and to enhance further the return on shareholder equity. We will keep you informed of our
plans in future shareholder updates.

Greer State Bank will continue to
focus on its original mission of making a difference in the quality of life for its
stakeholders and the community. We will continue to care deeply about our customers and
their needs and dreams. And we will continue our commitment to the human and family values
that make Greer a special community in which to live, work and play.

Finally, thank you for the
opportunity to serve the Greer community for the past fifteen years. We look forward to
the future with hope and optimism, and we pledge our best efforts to enhance further the
value of your investment.

Respectfully yours,

/s/ Gary M. Giffin               
                  
               /s/ R. Dennis Hennett
Gary M. Griffin               
                  
                 
 R. Dennis Hennett
Chairman of the Board               
                  
      President and CEO

AND IN 1989, THEY OPENED THE DOORS TO
GREER STATE BANK.

[photos & graphics omitted]

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5

[photo omitted]

|                                                   | 
|-------------------------------------------------- | 
|Board of Directors                                 | 
|Walter M. Burch                                    | 
|The Greer Citizen-Co-Publisher General Manager     | 
|Gary M. Griffin                                    | 
|Mutual Home Stores-Vice President                  | 
|R. Dennis Hennett                                  | 
|Greer State Bank President Chief Executive Officer | 
|Paul D. Lister                                     | 
|Paul D. Lister, CPA, LLC                           | 
|Harold K. James                                    | 
|James Agency, Inc. Real Estate and Insurance       | 

GREER STATE BANK CELEBRATES 15 YEARS
OF DEPENDABLE, FRIENDLY SERVICE.

[Photos and graphics omitted]

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6

|                                                    | 
|--------------------------------------------------- | 
|                                                    | 
|Bank OfficersR. Dennis Hennett                      | 
|President and Chief Executive Officer               | 
|E. Pierce Williams, Jr                              | 
|Executive Vice President/                           | 
|Credit Administration and Commercial Lending        | 
|Sandra I. Burdette                                  | 
|Senior Vice President and Chief Operations Officer  | 
|                                                    | 
|William S. Harrill, Jr                              | 
|Senior Vice President/Mortgage Lending              | 
|J. William Hughes                                   | 
|Senior Vice President/Consumer Lending              | 
|J. Richard Medlock, Jr.                             | 
|Senior Vice President and Chief Financial Officer   | 
|                                                    | 
|Sandra K. Boozer                                    | 
|Vice President/Manager, Information Systems         | 
|Joe Copeland                                        | 
|Vice President/Commercial Lending &                 | 
|Business Development                                | 
|Denise W. Plumblee                                  | 
|Vice President/Marketing Officer                    | 
|Thomas L. Williams                                  | 
|Vice President, Branch Manager of North Main Office | 

ORIGINAL EMPLOYEES STILL
WITH THE BANK

[photo & graphics omitted]

Roger Sims, President &
Investments Representative

Jason Karr, Financial Advisor

Melissa Williams, Administrative Assistant

Linda Wallace, Clerical Assistant

|                          | 
|------------------------- | 
|                          | 
|Bank StaffJolynne G. Beck | 
|Marsha K. Bennett         | 
|Christy H. Blackwell      | 
|Miranda F. Breazeale      | 
|Pam Bright                | 
|Tammy S. Budove           | 
|Becky E. Burrell          | 
|Brad Cantrell             | 
|Melissa Carroll           | 
|Dixie Cartmell            | 
|Angie W. Coleman          | 
|Debra P. Day              | 
|Tammy Durham              | 
|Ashley Ensley             | 
|Tracy B. Forrester        | 
|Janice R. Fowler          | 
|Lynda M. Green            | 
|Leigh Gregory             | 
|Sherri Groce              | 
|Louise S. Gullette        | 
|Doris Hendricks           | 
|Joy T. Jordan             | 
|Jennifer Kemp             | 
|Josie Lamphere            | 

bank
officers staff

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7

Independent
Auditors Report

To the Board of DirectorsGreer 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, 2003 and 2002, and the related consolidated
statements of income, changes in stockholders equity and cash flows for each of the
three years in the period ended December 31, 2003. These consolidated financial statements
are the responsibility of the Companys management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects, the
financial position of Greer Bancshares Incorporated and Subsidiary as of December 31, 2003
and 2002, and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America.

/s/ Dixon Hughes PLLCAsheville,
North CarolinaFebruary 19, 2004

independent
auditors report

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8

Greer Bancshares
Incorporated and SubsidiaryConsolidated Balance Sheets

|                                            | December 31, | 
|------------------------------------------- | ------------ | 
|
|Assets                                      |              | 
|Cash and due from banks                     |              | 
|Federal funds sold                          |              | 
|investment securities:                      |              | 
|Held to maturity                            |              | 
|Available for sale                          |              | 
|Net loans                                   |              | 
|Premises and equipment, net                 |              | 
|Real estate held for sale                   |              | 
|Accrued interest receivable                 |              | 
|Other assets                                |              | 
|                                            |              | 
|Total assets                                |              | 
|                                            |              | 
|Liabilities and Stockholders' Equity        |              | 
|Deposits:                                   |              | 
|Non-interest bearing                        |              | 
|Interest bearing                            |              | 
|                                            |              | 
|                                            |              | 
|Notes payable to Federal Home Loan Bank     |              | 
|Other liabilities                           |              | 
|                                            |              | 
|Total liabilities                           |              | 
|                                            |              | 
|Commitments-- Note 9                        |              | 
|Stockholders' equity:                       |              | 
|Common stock-- par value $5 per share,      |              | 
|10,000,000 shares authorized; 1,615,277 and |              | 
|1,606,018 shares issued and outstanding at  |              | 
|December 31, 2003 and 2002, respectively    |              | 
|Additional paid in capital                  |              | 
|Retained earnings                           |              | 
|Accumulated other comprehensive income      |              | 
|                                            |              | 
|Total stockholders' equity                  |              | 
|                                            |              | 
|Total liabilities and stockholders' equity  |              | 
|                                            |              | 
|                                            |              | 

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

consolidated
balance sheets

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9

Greer Bancshares
Incorporated and SubsidiaryConsolidated Statements
of Income

|                                             | For the Years Ended December 31, | 
|-------------------------------------------- | -------------------------------- | 
|
|Interest income:                             |                                  | 
|Loans, including fees                        |                                  | 
|Investment securities:                       |                                  | 
|Taxable                                      |                                  | 
|Tax-exempt                                   |                                  | 
|Federal funds sold                           |                                  | 
|Other                                        |                                  | 
|                                             |                                  | 
|Total interest income                        |                                  | 
|                                             |                                  | 
|Interest expense:                            |                                  | 
|Interest on deposit accounts                 |                                  | 
|Interest on other borrowings                 |                                  | 
|                                             |                                  | 
|Total interest expense                       |                                  | 
|                                             |                                  | 
|Net interest income                          |                                  | 
|Provision for loan losses                    |                                  | 
|                                             |                                  | 
|Net interest income after                    |                                  | 
|provision for loan losses                    |                                  | 
|                                             |                                  | 
|Non-interest income:                         |                                  | 
|Service fees on deposit accounts             |                                  | 
|Other service charges and fees               |                                  | 
|Gain (loss) on sale of investment securities |                                  | 
|Gain on sale of real estate held for sale    |                                  | 
|Other operating income                       |                                  | 
|                                             |                                  | 
|Total non-interest income                    |                                  | 
|                                             |                                  | 
|Non-interest expenses:                       |                                  | 
|Salaries and employee benefits               |                                  | 
|Occupancy and equipment                      |                                  | 
|Postage and supplies                         |                                  | 
|FDIC insurance                               |                                  | 
|Other operating expenses                     |                                  | 
|                                             |                                  | 
|Total non-interest expenses                  |                                  | 
|                                             |                                  | 
|Income before income taxes                   |                                  | 
|Provision for income taxes                   |                                  | 
|                                             |                                  | 
|Net income                                   |                                  | 
|                                             |                                  | 
|Earnings per share:                          |                                  | 
|Basic                                        |                                  | 
|                                             |                                  | 
|Diluted                                      |                                  | 
|                                             |                                  | 
|Weighted average shares outstanding:         |                                  | 
|Basic                                        |                                  | 
|                                             |                                  | 
|Diluted                                      |                                  | 
|                                             |                                  | 

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

consolidated statements
of income

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10

Greer Bancshares
Incorporated and Subsidiary

Consolidated Statements of Changes in Stockholders Equity For The Years Ended December 31, 2003, 2002 &
2001

|                             | Common Stock |  |  | Accumulated | 
|---------------------------- | ------------ |  |  | ----------- | 
|
|
|
|Balance at 12/31/2000        |              |  |  | 1,478,081   | 
|Net income                   |              |  |  | -           | 
|Other comprehensive income,  |              | 
|net of tax:                  |              | 
|Unrealized holding gains     |              | 
|on investment securities     |              |  |  | -           | 
|Less reclassification        |              | 
|adjustments for gains        |              |  |  | -           | 
|included in net income       |              |  |  | -           | 
|                             |              |  |  |             | 
|Comprehensive income         |              |  |  |             | 
|Stock dividend (5%)          |              |  |  | 73,824      | 
|Cash in lieu of fractional   |              | 
|shares on stock dividend     |              |  |  | -           | 
|Stock exercised pursuant to  |              | 
|stock option plan            |              |  |  | 5,623       | 
|Balance at 12/31/2001        |              |  |  | 1,557,528   | 
|Income                       |              |  |  | -           | 
|Other comprehensive income,  |              | 
|net of tax:                  |              | 
|Unrealized holding gains     |              | 
|on investment securities     |              |  |  | -           | 
|Less reclassification        |              | 
|adjustments for losses       |              | 
|included in net income       |              |  |  | -           | 
|                             |              |  |  |             | 
|Comprehensive income         |              |  |  |             | 
|Stock dividend (2.5%)        |              |  |  | 38,839      | 
|Cash in lieu of fractional   |              | 
|shares on stock dividend     |              |  |  | -           | 
|Stock exercised pursuant to  |              | 
|stock option plan            |              |  |  | 9,651       | 
|Tax benefit of stock options |              | 
|exercised                    |              |  |  | -           | 
|Cash dividends               |              | 
|($.50 per share)             |              |  |  | -           | 
|Balance at 12/31/2002        |              |  |  | 1,606,018   | 
|Net income                   |              |  |  | -           | 
|Other comprehensive          |              | 
|income, net of tax:          |              | 
|Unrealized holding gains     |              | 
|on investment securities     |              |  |  | -           | 
|Less reclassification        |              | 
|adjustments for gains        |              | 
|included in net income       |              |  |  | -           | 
|                             |              |  |  |             | 
|Comprehensive income         |              |  |  | -           | 
|Stock exercised pursuant     |              | 
|to stock option plan         |              |  |  | 9,259       | 
|Tax benefit of stock         |              |  |  |             | 
|options exercised            |              |  |  | -           | 
|Cash dividends               |              | 
|($1.00 per share)            |              |  |  | -           | 
|Balance at 12/31/2003        |              |  |  | 1,615,277   | 

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

consolidated
statements of changes in stockholders equity

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11

Greer Bancshares
Incorporated and SubsidiaryConsolidated Statements of Cash Flows

|                                                       | For the Years Ended December 31,
|------------------------------------------------------ | --------------------------------
|
|Operating activities:                                  |                                 
|Net income                                             |                                 
|Adjustments to reconcile net income to net cash        |                                 
|provided by operating activities:                      |                                 
|Depreciation                                           |                                 
|(Gain) loss on sale of investment securities           |                                 
|Gain on sale of real estate held for sale              |                                 
|Gain on surrender of life insurance policy             |                                 
|Provision for loan losses                              |                                 
|Deferred income taxes (benefit)                        |                                 
|Net change in:                                         |                                 
|Accrued interest receivable                            |                                 
|Other assets                                           |                                 
|Other liabilities                                      |                                 
|                                                       |                                 
|Net cash provided by operating activities              |                                 
|                                                       |                                 
|Investing activities:                                  |                                 
|Proceeds from sales of investment securities           |                                 
|Proceeds from the maturity of investment securities    |                                 
|Purchase of investment securities                      |                                 
|Proceeds from sale of real estate held for sale        |                                 
|Proceeds from life insurance policy surrender          |                                 
|Net (increase) decrease in federal funds sold          |                                 
|Net (increase) decrease in loans                       |                                 
|Purchase of premises and equipment                     |                                 
|                                                       |                                 
|Net cash used for investing activities                 |                                 
|                                                       |                                 
|Financing activities:                                  |                                 
|Net increase in deposits                               |                                 
|Repayment of notes payable to Federal Home Loan        |                                 
|Bank                                                   |                                 
|Proceeds from notes payable to Federal Home loan       |                                 
|Bank                                                   |                                 
|Repayment of federal funds purchased                   |                                 
|Proceeds from exercise of stock options                |                                 
|Cash in lieu of fractional shares on stock dividend    |                                 
|Cash dividends paid                                    |                                 
|                                                       |                                 
|Net cash provided by financing activities              |                                 
|                                                       |                                 
|Net increase (decrease) in cash and due from banks     |                                 
|Cash and due from banks at beginning of year           |                                 
|                                                       |                                 
|Cash and due from banks at end of year                 |                                 
|                                                       |                                 
|Supplemental disclosures of cash flow information:     |                                 
|Cash paid during the year for:                         |                                 
|Interest                                               |                                 
|                                                       |                                 
|                                                       |                                 
|                                                       |                                 
|Income taxes                                           |                                 
|Non-cash investing and financing activities:           |                                 
|Real estate acquired in satisfaction of mortgage loans |                                 
|                                                       |                                 

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

consolidated statements of cash flow

---

12

Notes
to Consolidated Financial Statements  December 31, 2003, 2002 and 2001

1.        
Summary of Significant Accounting Policies

| | Organization - Greer State Bank was organized under a state banking charter in August 1988, and
commenced operations on January 3, 1989. Greer Bancshares Incorporated (a one-bank holding
company) is a South Carolina corporation formed in July 2001, primarily to hold all of the
capital stock of Greer State Bank. 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 financial statements include the accounts of the holding company and its
wholly owned subsidiary (herein referred to as the Company).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

| | Estimates
- The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

| | 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 earnings as realized losses.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Concentrations
of Credit Risk - We make loans to individuals and small businesses located primarily
in upstate South Carolina for various personal and commercial purposes. We have a
diversified loan portfolio and the borrowers ability to repay their loans is not
dependent upon any specific economic sector.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Comprehensive
Income - Annual comprehensive income reflects the change in our equity during the
year arising from transactions and events other than investment by and distributions to
stockholders. 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Loans
and Interest Income - We grant mortgage, commercial and consumer loans to customers.
A substantial portion of the loan portfolio is represented by loans throughout the Greater
Greer area of the upstate of South Carolina. The ability of our debtors to honor their
contracts is dependent upon the general economic conditions in this area.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

notes to consolidated
financial statements

---

13

| | Loans
are reported at their outstanding unpaid principal balances adjusted for the allowance for
loan losses and any unearned discounts. Interest income is accrued and taken into income
based upon the interest method.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

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

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

| | Stock-Based
Compensation - We account for our stock-based compensation using the accounting
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. We are not currently required to adopt the fair-value-based recognition
provisions prescribed under SFAS No. 123, Accounting for Stock-Based Compensation, or the
amended requirements in SFAS No. 148, Accounting for Stock-Based Compensation
Transition and Disclose. We do comply with the disclosure requirements set forth in
the SFAS No. 148, which include disclosing pro forma net income as if the fair-value-based
method of accounting had been applied.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Certain
items of income and expense for financial reporting are recognized differently for income
tax purposes (principally the provision for loan losses and depreciation). Provisions for
deferred taxes are made in recognition of such temporary differences as required under
SFAS No. 109, Accounting for Income Taxes. Current income taxes are recorded based on
amounts due with the current income tax returns.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

notes to consolidated
financial statements

---

14

| | Earnings
Per Share of Common Stock We present basic and diluted earnings per share of common
stock after giving retroactive effect to stock splits and stock 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | Recent
Accounting Pronouncements  In November 2002, the FASB issued FASB Interpretation No.
45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires a liability to be
recognized at the time a company issues a guarantee for the fair value of the obligations
assumed under certain guarantee agreements. Additional disclosures about guarantee
agreements are also required in the interim and annual financial statements. The
disclosure provisions of FIN 45 are effective for the Company on December 31, 2002. The
provisions for initial recognition and measurement of guarantee agreements are effective
on a prospective basis for guarantees that are issued or modified after December 31, 2002.
The Company does not expect the requirements of FIN 45 to have a material impact on its
consolidated financial statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
April 2003, the FASB issued SFAS No. 149, Amendment of Statement No. 133 on Derivative
Instruments and Hedging Activities (Statement 149). Statement 149 improves financial
reporting by requiring that contracts with comparable characteristics be accounted for
similarly. In particular, Statement 149 clarifies under what circumstances a contract with
an initial net investment meets the characteristic of a derivative, clarifies when a
derivative contains a financing component, amends the definition of an
underlying to conform it to language used in FIN 45 and amends certain other
existing pronouncements. Statement 149 is effective for contracts entered into or modified
after June 30, 2003, and for hedging relationships designated after June 30, 2003. In
addition, with some exceptions, all provisions of Statement 149 should be applied
prospectively. The Company does not expect the requirements of Statement 149 to have a
material impact on its consolidated financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. This Statement establishes standards for
how an issuer classifies and measures certain financial instruments with characteristics
of both liabilities and equity. It requires that an issuer classify a financial instrument
that is within its scope as a liability (or an asset in some circumstances). This
Statement is effective for financial instruments entered into or modified by the Company
after May 31, 2003, and is effective at the beginning of the first interim period
beginning after June 15, 2003. However, the FASB has deferred indefinitely the
classification and measurement provisions as they related to certain mandatorily
redeemable non-controlling interests. The Company does not expect the requirements of
Statement 150 to have a material impact on its consolidated financial statements.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
November 2003, the Emerging Issues Task Force (EITF) reached a partial consensus on Issue
03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments. Issue 03-1 requires certain quantitative and qualitative disclosures for
investments subject to SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities, that are impaired at the balance sheet date but for which an
other-than-temporary impairment has not been recognized. The Company adopted the partial
consensus on Issue 03-1 during 2003 and has provided the new disclosures in footnote 2.
The EITF is expected to continue deliberating other aspects of Issue 03-1, including when
to recognize other-than-temporary impairment.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

notes
to consolidated financial statements

---

15

2.        
Investment Securities

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

|                           |  | December 31, 2003 |  
|-------------------------- |  | ----------------- | -
|
|
|
|Held to maturity:          |  |                   |  
|Mortgage-backed securities |  |                   | $
|                           |  |                   |  
|Available for sale:        |  |                  
|United States Government   |  |                  
|Agency obligations         |  |                   | $
|Mortgage-backed securities |  |                   |  
|Municipal securities       |  |                   |  
|Corporate bonds            |  |                   |  
|Federal Home Loan Bank     |  |                   |  
|Stock - restricted         |  |                   |  
|Other equity securities    |  |                   |  
|                           |  |                   |  
|Totals                     |  |                   | $
|                           |  |                   |  

|                           |  | December 31, 2002 |  
|-------------------------- |  | ----------------- | -
|
|
|
|Held to maturity:          |  |                   |  
|Mortgage-backed securities |  |                   | $
|                           |  |                   |  
|Available for sale:        |  |                  
|United States Government   |  |                  
|Agency obligations         |  |                   | $
|Mortgage-backed securities |  |                   |  
|Municipal securities       |  |                   |  
|Corporate bonds            |  |                   |  
|Federal Home Loan Bank     |  |                  
|Stock - restricted         |  |                   |  
|                           |  |                   |  
|Totals                     |  |                   | $
|                           |  |                   |  

The amortized cost and estimated fair
value of investment securities at December 31, 2003, by contractual maturity for debt
securities and expected maturities for mortgage-backed securities, are shown below.
Expected maturities will differ from contractual maturities because borrowers may have the
right to prepay the obligations.

|                                       | December 31, 2003
|-------------------------------------- | -----------------
|
|
|
|Due in one year or less                |                  
|Due after one year through five years  |                  
|Due after five years through ten years |                  
|Due after ten years                    |                  
|                                       |                  
|Totals                                 |                  
|                                       |                  

notes
to consolidated financial statements

---

16

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

|                                   | December 31, 2003
|---------------------------------- | -----------------
|
|
|Description of securities:         |                  
|U.S. Government agency obligations |                  
|Mortgage-backed securities         |                  
|Municipal securities               |                  
|                                   |                  
|Total                              |                  
|                                   |                  

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

Investment securities with an
aggregate book value of approximately $41,589,000 and $32,502,000 at December 31, 2003 and
2002, respectively, were pledged to secure public deposits and for other purposes.

For the years ended December 31,
2003, 2002 and 2001, proceeds from sales of securities available for sale amounted to
$2,488,325, $12,093,002, and $1,005,000, respectively. Gross realized gains amounted to
$122,585, $55,619, and $17,874, respectively. Gross realized losses amounted to $-0-,
$66,739, and $-0-, respectively. The tax provision applicable to these net realized gains
(losses) amounted to approximately $47,000, $(3,500), and $7,000, respectively.

3.   Net Loans

A summary of loans outstanding by
major classification follows:

|                                                | December 31,
|----------------------------------------------- | ------------
|
|
|Real estate                                     |             
|Commercial and industrial (non-real estate)     |             
|Installment loans to individuals for household, |             
|family and other personal expenditures          |             
|All other loans                                 |             
|                                                |             
|                                                |             
|Unearned discounts                              |             
|                                                |             
|Allowance for loan losses                       |             
|                                                |             
|                                                |             
|                                                |             

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

|                            | 2003 | 2002 | 2001
|--------------------------- | ---- | ---- | ----
|Balance, beginning of year  |      |      | $   
|Provision charged to income |      |      |     
|Recoveries on loans         |      |      |     
|Loans charged off           |      |      |     
|                            |      |      |     
|Balance, end of year        |      |      | $   
|                            |      |      |     

notes to consolidated financial
statements

---

17

At December 31, 2003 and 2002,
non-accrual loans totaled approximately $1,249,000 and $391,000, respectively. The total
amount of interest earned on non-accrual loans was approximately $50,000 in 2003, $56,000
in 2002, and $38,000 in 2001. The gross interest income that would have been recorded
under the original terms of the non-accrual loans amounted to approximately $63,000 in
2003, $24,000 in 2002, and $24,000 in 2001. As of December 31, 2003 and 2002, we had no
impaired loans.

4.   Premises and Equipment

Premises
and equipment are summarized as follows:

|                              | December 31,
|----------------------------- | ------------
|
|Land                          |             
|Buildings and improvements    |             
|Equipment                     |             
|Furniture and fixtures        |             
|Electronic data processing    |             
|                              |             
|                              |             
|Less accumulated depreciation |             
|                              |             
|                              |             
|                              |             

Depreciation expense charged to
operations was $544,693, $580,048, and $459,405 for 2003, 2002 and 2001, respectively.

5.   Other Assets

Other
assets at December 31 consist of the following:

|                          | December 31,
|------------------------- | ------------
|
|Prepaid expenses          |             
|Bank-owned life insurance |             
|Repossessed assets        |             
|Other                     |             
|                          |             
|                          |             
|                          |             

6.   Time Deposits

| | At
December 31, 2003 and 2002, time deposits of $100,000 or more totaled approximately
$32,943,000 and $26,231,000, respectively. Interest expense on these type of deposits was
approximately $658,000, $738,000, and $1,288,000 in 2003, 2002 and 2001, respectively. We
have brokered deposits of approximately $6 million at December 31, 2003. There were no
brokered deposits at December 31, 2002.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Contractual
maturities of time deposits are summarized as follows:

|                  | December 31, | 
|----------------- | ------------ | 
|
|12 months or less |              | 
|1-3 years         |              | 
|                  |              | 
|Total             |              | 
|                  |              | 

notes to consolidated
financial statements

---

18

7.   Notes Payable to
Federal Home Loan Bank

| | At
December 31, 2003 and 2002, we had notes payable totaling $40,057,226 and $34,836,913,
respectively, to the Federal Home Loan Bank (FHLB). At December 31, 2003, $-0- of these
notes had variable rates of interest. At December 31, 2002, $4,000,000 of these notes had
variable interest at rates ranging from 2.12 to 5.33 percent. The remaining $40,057,226
and $30,836,913, at December 31, 2003 and 2002, respectively, bear interest at fixed rates
ranging from 1.93 to 6.67 percent. During 2003, we were able to reduce interest expense on
some of these fixed rate notes by approximately $113,000 through the utilization of
interest rate swaps. Since the fair value adjustment for the interest rate swaps and the
hedged note obligations are offsetting, we have reported them combined for financial
statement purposes.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Minimum
required payments of principal at contract value at December 31, 2003, are as follows:

|           | 
|---------- | 
|
|2004       | 
|2005       | 
|2006       | 
|2007       | 
|2008       | 
|Thereafter | 
|           | 
|           | 
|           | 

8.   Unused Lines of Credit

We
have an unused short-term line of credit to purchase federal funds from correspondent
banks totaling $14.1 million.

| | We
also have the ability to borrow an additional $13.4 million from the Federal Home Loan
Bank. The borrowings are available by pledging collateral and purchasing additional stock
in the Federal Home Loan Bank.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9.   Commitments and
Contingencies

| | In
the normal course of our business, we are a party to financial instruments with
off-balance sheet risk. These financial instruments include commitments to extend credit
and standby letters of credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the accompanying
balance sheets. The contract amounts of those instruments reflect the extent of
involvement we have in particular classes of financial instruments. We use the same credit
policies in making commitments as for making loans. Commitments to extend credit in the
future represent financial instruments involving credit risk. A summary of our commitments
at December 31, 2003 and 2002, is as follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                             | 2003 | 2002
|---------------------------- | ---- | ----
|Commitments to extend credit |      |     
|Standby letters of credit    |      |     
|                             |      |     
|                             |      |     
|                             |      |     

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

| | Standby
letters of credit are conditional commitments issued by us to guarantee the performance of
a customer to a third party. Those guarantees are primarily issued to support public and
private borrowing arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
Collateral held varies as specified above and is required in instances that we deem
necessary.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

notes to consolidated
financial statements

---

19

| | Concentrations
of Credit Risk - Substantially all of our loans and commitments to extend credit have
been granted to customers in our market area, and such customers are generally depositors
of the Bank. The concentrations of credit by type of loan are set forth in Note 3. The
distribution of commitments to extend credit approximates the distribution of loans
outstanding. Our primary focus is toward consumer and small business transactions, and
accordingly, we do not have a significant number of credits to any single borrower or
group of related borrowers in excess of $1,500,000.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

10.   Stockholders
Equity

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

In
2003, we paid no stock dividends; in 2002, we declared a 2.5% stock dividend; and in 2001,
we declared a 5% stock dividend.

11.   Benefit Plans

| | Defined
Contribution Plan - We have a 401(k) Profit Sharing Plan for the benefit of our
employees. Subject to annual approval by the Board of Directors, we match employee
contributions of up to 4% of compensation in accordance with plan guidelines.
Contributions of $74,344, $64,674, and $64,777 were charged to operations during 2003,
2002 and 2001, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Stock
Option Plan  Under the Greer Bancshares Incorporated and Subsidiary employee
Incentive Stock Option Plan, options for up to 120,000 shares of common stock can be
granted to employees designated by the Board of Directors. The form, price, conditions and
number of shares under option are determined by the Board. Plan limitations are: (1) that
no option can be exercised before one year, or after ten years from the date that the
option is granted, and (2) that the option price will be greater than or equal to the fair
market value of the common stock at the date of the grant.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
1997, our directors adopted a Directors Stock Option Plan. Beginning with the adjournment
of the 1997 annual meeting of shareholders and at the adjournment of the annual meetings
for each of the succeeding nine years in which the return on average equity for the fiscal
year preceding the annual meeting is greater than or equal to twelve percent, each
director shall be granted an option to purchase 1,000 shares of our common stock at fair
market value on the grant date. Each option becomes exercisable on the date six months and
one day following the grant date. No director may receive grants of options in excess of
10,000 shares. The maximum number of shares for which options may be granted is 90,000.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|                                       | 2003 | 2002 | 2001
|-------------------------------------- | ---- | ---- | ----
|Net income:                            |      |      |     
|As reported                            |      |      | $   
|Compensation under SFAS 123            |      |      |     
|                                       |      |      |     
|Proforma                               |      |      |     
|Basic net income per share of common   |      |     
|stock:                                 |      |     
|As reported                            |      |      | $   
|Proforma                               |      |      |     
|Diluted net income per share of common |      |     
|stock:                                 |      |     
|As reported                            |      |      | $   
|Proforma                               |      |      |     

notes to consolidated
financial statements

---

20

The fair value of each option grant
is estimated on the date of grant using the Black  Scholes option pricing model with
the following weighted average assumptions for grants in 2003: $.50 per share dividend
yield, expected volatility of 12.5 percent, risk-free interest rate of 3.37 percent for
director stock options and 4.27 percent for officer stock options and expected lives of
six and one half years and ten years, respectively. The following were the weighted
average assumptions for grants in 2002: $.35 per share dividend yield, expected volatility
of 12.5 percent, risk-free interest rate of 4.50 percent and expected lives of seven
years. The following were the weighted average assumptions for grants in 2001: $0.35 per
share dividend yield, expected volatility of 12.5 percent, risk-free interest rate of 5.00
percent, and expected lives of seven years.

A summary of the status of the plans
as of December 31, 2003, 2002 and 2001, and changes during the years ending on those
dates, is presented below (all per share amounts have been adjusted for stock dividends):

|                                | 2003 | 2002 | 2001
|------------------------------- | ---- | ---- | ----
|
|
|
|
|Outstanding atbeginning of year |      |      |     
|Granted                         |      |      |     
|Exercised                       |      |      |     
|Forfeited or expired            |      |      |     
|                                |      |      |     
|Outstanding at end              |      |     
|of year                         |      |      |     
|                                |      |      |     
|Options exercisable             |      |     
|at year-end                     |      |      |     
|Shares available                |      |     
|for grant                       |      |      |     
|Weighted average fair           |      |     
|value of options                |      |     
|granted during year             |      |      | $   

The following table summarizes
information at December 31, 2003:

|                    | Options Outstanding |  | Options Exercisable
|------------------- | ------------------- |  | -------------------
|
|
|
|
|$    5.21 - 5.98    |                     |  |                    
|$  9.73 - 10.25     |                     |  |                    
|$ 13.66 - 14.37     |                     |  |                    
|$             18.87 |                     |  |                    
|$ 23.36 - 26.33     |                     |  |                    
|$             28.00 |                     |  |                    
|                    |                     |  |                    
|                    |                     |  |                    
|                    |                     |  |                    

notes to consolidatedf
financial satement

---

21

| | Non-Qualified Plans - We have
established a non-qualified salary continuation plan for certain key executive officers.
The benefits under the plan are computed and payable under certain terms as specified in
each agreement. The estimated present value of future benefits to be paid in the future is
being accrued over the period from the effective date of each agreement until the initial
payments are made at the normal retirement dates. We have purchased and are the owner and
beneficiary of certain life insurance policies that will be used to finance the benefits
under these agreements. The charge to operations was approximately $81,000, $75,000 and
$68,000 during 2003, 2002 and 2001, respectively. The cumulative accrued liabilities for
the agreements are presenting in the accompanying consolidated balance sheets in
Other Liabilities.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

12.   Income Taxes

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

|                              | 2003 | 2002 | 2001
|----------------------------- | ---- | ---- | ----
|Current income tax expense:   |      |      |     
|State                         |      |      | $   
|Federal                       |      |      |     
|                              |      |      |     
|                              |      |      |     
|Deferred income tax expense   |      |     
|(benefit)                     |      |      |     
|                              |      |      |     
|Provision for income tax loss |      |      | $   
|                              |      |      |     

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

|                      | 2003 | 2002 | 2001
|--------------------- | ---- | ---- | ----
|
|
|
|Income before         |      |      |     
|income taxes          |      |      | $   
|                      |      |      |     
|Tax at statutory rate |      |      | $   
|Tax effect of:        |      |     
|Federally tax exempt  |      |     
|interest income       |      |      |     
|State taxes, net      |      |     
|of federal benefi     |      |      |     
|Other-- net           |      |      |     
|                      |      |      |     
|Income tax provision  |      |      | $   
|                      |      |      |     

notes to consolidated
financial statements

---

22

Deferred tax assets or liabilities
consist of the following:

|                                                  | December 31,
|------------------------------------------------- | ------------
|
|
|
|Deferred tax assets:                              |             
|Bad debts                                         |             
|Other, net                                        |             
|                                                  |             
|Less valuation allowance                          |             
|                                                  |             
|                                                  |             
|                                                  |             
|Deferred tax liabilities:                         |             
|Unrealized holding gains on investment securities |             
|Depreciation                                      |             
|                                                  |             
|                                                  |             
|                                                  |             
|Net deferred tax asset (liability)                |             
|                                                  |             

13.   Other Operating Income

Other
operating income for the years ended December 31 consist of the following:

|                                          | December 31,
|----------------------------------------- | ------------
|
|Income from financial management services |             
|Earnings on life insurance policies       |             
|Card service income                       |             
|Safe deposit box rental                   |             
|Other fees                                |             
|                                          |             
|                                          |             
|                                          |             

14.   Transactions
with Directors and Executive Officers

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

Aggregate
loan transactions with these related parties are as follows:

|                       | 2003 | 2002
|---------------------- | ---- | ----
|Balance, beginning     |      |     
|Change in relationship |      |     
|Advances               |      |     
|Repayments             |      |     
|                       |      |     
|Balance, ending        |      |     
|                       |      |     

| | In
addition to the balance outstanding, directors and executive officers had available unused
lines of credit totaling approximately $992,000 and $1,099,000 at December 31, 2003 and
2002, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | We
have an unfunded Deferred Compensation Plan for our directors. Electing directors may
annually defer directors fees, which are then eligible for various future payment
plans as chosen by the director. Deferred amounts earn interest currently at 12%.
Deferrals, including interest, under the Plan during 2003, 2002 and 2001, totaled
approximately $123,500, $95,200, and $68,100, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

notes
to consolidated financial statement

---

23

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

15.   Regulatory Matters

| | Dividends
- Our ability to pay cash dividends from the Bank to the Holding Company is
restricted by state banking regulations to the amount of our retained earnings. At
December 31, 2003, the Banks retained earnings were approximately $7,293,000.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Capital
Requirements - We are subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements can initiate
certain mandatory, and possibly additional discretionary, actions by regulators that, if
undertaken, could have a direct material effect on our financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action, we must
meet specific capital guidelines that involve quantitative measures of our assets,
liabilities and certain off-balance sheet items as calculated under regulatory accounting
practices. Our capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Quantitative
measures established by regulation to ensure capital adequacy require us to maintain
minimum amounts and ratios (set forth in the table below) of total and Tier I capital to
risk-weighted assets, and of Tier I capital to average assets. Management believes, as of
December 31, 2003, that we meet all capital adequacy requirements to which we are subject.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2003, the most recent notification from the Federal Deposit Insurance
Corporation categorized us as well capitalized under the regulatory framework for prompt
corrective action. There are no conditions or events since that notification that
management believes have changed our category. Our actual capital amounts (in thousands)
and ratios and minimum regulatory amounts (in thousands) and ratios are presented as
follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                          |  |  |   |        | To Be Well | 
|------------------------- |  |  | - | ------ | ---------- | 
|
|
|
|
|
|As of December 31, 2003   |  |  |   |        |            | 
|Total risk-based capital  |  | 
|(to risk-weighted assets) |  |  | $ | 19,727 |            | 
|Tier 1 capital            |  | 
|(to risk-weighted assets) |  |  | $ | 18,428 |            | 
|Tier 1 capital            |  | 
|(to average assets)       |  |  | $ | 18,428 |            | 
|As of December 31, 2002   |  | 
|Total risk-based capital  |  | 
|(to risk-weighted assets) |  |  | $ | 18,693 |            | 
|Tier 1 capital            |  | 
|(to risk-weighted assets) |  |  | $ | 17,612 |            | 
|Tier 1 capital            |  | 
|(to average assets)       |  |  | $ | 17,612 |            | 

| | We
are required by the Federal Reserve Bank to maintain average cash reserve balances at the
Federal Reserve Bank and in working funds based upon a percentage of deposits. The
required amount of these reserve balances at December 31, 2003, was approximately
$2,213,000.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16.   Fair Value of Fiancial 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,
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

notes to consolidated
financial statements

---

24

| | including
our common stock, premises and equipment, real estate held for sale, and other assets and
liabilities. The following methods and assumptions were used by us in estimating fair
values of financial instruments:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | o | Investment securities are valued using quoted fair market
prices.
| | - | -----------------------------------------------------------------

| | o | o 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.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | 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.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

|                        |  | December 31, |  
|----------------------- |  | ------------ | -
|
|
|
|Financial assets        |  |              | $
|Cash and due from banks |  |             
|Federal funds sold      |  |              |  
|Investment securities   |  |              |  
|Loans                   |  |              |  
|Financial liabilities   |  |             
|Deposits                |  |              |  
|Derivatives             |  |              |  
|Notes payable to        |  |             
|Federal Home Loan Bank  |  |              |  

17.   Derivatives

| | During
2003 we began utilizing derivatives in the notional amount with $14.0 million as cash flow
hedges for $14.0 million of fixed rate Federal Home Loan Bank advances. The average fixed
rate for the advances being hedged is 5.41 percent and the average pay rate on the swaps
is Libor plus an adjustment of approximately 1.14 percent. Rate repricing is done
quarterly based on the 3 month Libor. The unrealized losses of the swaps at December 31,
2003, were approximately $197,000. The expiration dates for each swap match the maturity
dates for the respective advance and other terms for settlement and notional amount are
the same. The current swaps scheduled to mature in one to five years is $3 million and $11
million is scheduled to mature in five to ten years. There were no maturities, sales or
terminations of any swaps in 2003.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

notes
to consolidated financial statements

---

25

18.   Condensed Parent Company Financial
Information

| | The
following condensed financial information for Greer Bancshares Incorporated (Parent
Company Only) should be read in conjunction with the consolidated financial statements and
the notes thereto. The activity for 2001 was from the date of organization beginning in
July. The bank subsidiary paid the Parent Company dividends of $1,449,849, $783,439 and
$50,000 in 2003, 2002 and 2001, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                         | 2003 | 2002 | 2001
|-------------------------------------------------------- | ---- | ---- | ----
|Parent Company Only                                      |      |      |     
|Condensed Balance Sheets                                 |      |     
|Assets:                                                  |      |     
|Cash and cash equivalents                                |      |      | $   
|Equity in net assets of bank subsidiary                  |      |      |     
|Taxes receivable                                         |      |      |     
|Other assets                                             |      |      |     
|                                                         |      |      |     
|Total assets                                             |      |      | $   
|                                                         |      |      |     
|Total stockholders' equity                               |      |      | $   
|                                                         |      |      |     
|Parent Company Only                                      |      |     
|Condensed Statements of Income                           |      |     
|Dividends from bank subsidiary                           |      |      | $   
|Non-interest expense                                     |      |      |     
|                                                         |      |      |     
|Income before taxes                                      |      |      |     
|Income tax benefit                                       |      |      |     
|                                                         |      |      |     
|Income before equity earnings                            |      |      |     
|Equity in undistributed earnings of bank subsidiary      |      |      |     
|                                                         |      |      |     
|Net income                                               |      |      | $   
|                                                         |      |      |     
|Parent Company Only                                      |      |     
|Condensed Statements of Cash Flows                       |      |     
|Operating activities:                                    |      |     
|Net income                                               |      |      | $   
|Adjustments to reconcile net income to net cash provided |      |     
|by operating activities:                                 |      |     
|Undistributed equity earnings of bank subsidiary         |      |      |     
|Taxes receivable                                         |      |      |     
|                                                         |      |      |     
|Net cash provided by operating activities                |      |      |     
|                                                         |      |      |     
|Investing activities:                                    |      |     
|Deposit on land                                          |      |      |     
|Financing activities:                                    |      |     
|Cash dividends paid                                      |      |      |     
|Proceeds from exercise of stock options                  |      |      |     
|Cash in lieu of fractional shares on stock dividend      |      |      |     
|                                                         |      |      |     
|Net cash used by financing activities                    |      |      |     
|                                                         |      |      |     
|Net increase (decrease) in cash and cash equivalents     |      |      |     
|Cash and cash equivalents at beginning of year           |      |      |     
|                                                         |      |      |     
|Cash and cash equivalents at end of year                 |      |      | $   
|                                                         |      |      |     
|                                                         |      |     

[Graphics omitted]

notes
to consolidated financial statements

---

26

Corporate OfficesGreer State Bank
1111 West Poinsett StreetP.O. Box 1029Greer, South Carolina 29650 864-877-2000

Banking LocationsWest Poinsett Street
Office1111 West Poinsett StreetGreer, South Carolina 29650864-877-2000North Main Street Office
601 North Main StreetGreer, South Carolina 29650864-848-5103

Buncombe Road Office
871 South Buncombe Road Greer, South Carolina 29650864-848-2563

Company Web sitewww.greerstatebank.com

Independent Auditors
Dixon Hughes PLLCAsheville, North Carolina

Stock Transfer Agent and
RegistrarRequest for stock transfers, address
changesor corrections should be sent in writing to:

Shareholder RelationsGreer
State Bank P.O. Box 1029Greer, South Carolina 29652-1029

Form 10-K and Other
InformationThe approximate number of record
shareholders as of December31, 2003, was 765. Copies of Greer Bancshares
IncorporatedsAnnual Report to the United States Securities and ExchangeCommission,
Form 10-K and other information may be obtainedwithout charge by submitting a written
request to:

Mr. J. Richard Medlock, Jr.Senior Vice President & Chief Financial Officer
Greer Bancshares IncorporatedP.O. Box 1029Greer, South Carolina 29652-1029

Member FDIC [graphic omitted]

corporate shareholder information

---

Appendix A to the Greer
Bancshares Incorporated 2003 Annual Report

---

[Greer Bancshares
Incorporated Logo omitted]

ATTACHED INFORMATION CONSTITUTES A PORTION OF GREER
BANCSHARES INCORPORATEDS ANNUAL REPORT TO SHAREHOLDERS FORTHE YEAR ENDED DECEMBER 31, 2003.

P.O. Box 1029Greer, SC 29652-1029
Phone: 864-877-2000 Fax: 864-848-5141





---

GREER BANCSHARES
INCORPORATED

Selected Financial Data

The following table sets forth
certain selected financial data concerning Greer Bancshares Incorporated. This information
should be read in conjunction with Managements Discussion and Analysis of Financial
Condition and Results of Operations

|                                     |  |  |   |           |  
|------------------------------------ |  |  | - | --------- | -
|
|(Dollars in Thousands)               |  |  |   |           |  
|SUMMARY OF OPERATIONS                |  | 
|Interest and fee income              |  |  | $ | 10,139    |  
|Interest expenses                    |  |  |   | 3,618     |  
|                                     |  |  |   |           |  
|Net interest income                  |  |  |   | 6,521     |  
|Provision for loan losses            |  |  |   | 10        |  
|                                     |  |  |   |           |  
|Net interest income after provision  |  | 
|For loan losses                      |  |  |   | 6,511     |  
|Noninterest income                   |  |  |   | 1,902     |  
|Noninterest expense                  |  |  |   | 6,181     |  
|                                     |  |  |   |           |  
|Net income                           |  |  | $ | 2,232     |  
|                                     |  |  |   |           |  
|PER SHARE DATA                       |  | 
|Earnings:                            |  | 
|Basic                                |  |  | $ | 1.39      |  
|Diluted                              |  |  |   | 1.37      |  
|Dividends declared                   |  |  |   | 1.00      |  
|Book Value                           |  |  |   | 11.52     |  
|Weighted average shares outstanding: |  | 
|Basic                                |  |  |   | 1,610,535 |  
|Diluted                              |  |  |   | 1,625,754 |  
|SELECTED ACTUAL YEAR END BALANCES    |  | 
|Total assets                         |  |  | $ | 214,134   |  
|Loans                                |  |  |   | 115,565   |  
|Allowance for loan losses            |  |  |   | 1,298     |  
|Available For Sale Securities        |  |  |   | 66,760    |  
|Held To Maturity Securities          |  |  |   | 17,263    |  
|Deposits                             |  |  |   | 152,961   |  
|Borrowings                           |  |  |   | 40,057    |  
|Stockholders' Equity                 |  |  |   | 19,708    |  
|SELECTED AVERAGE BALANCES            |  | 
|Assets                               |  |  | $ | 200,217   |  
|Deposits                             |  |  |   | 140,310   |  
|Stockholders' Equity                 |  |  |   | 18,398    |  
|FINANCIAL RATIOS                     |  | 
|Return on average assets             |  |  |   | 1.11      | %
|Return on average equity             |  |  |   | 12.13     | %
|Average equity to average assets     |  |  |   | 9.19      | %
|Dividend payout ratio                |  |  |   | 71.94     | %

2

---

GREER BANCSHARES
INCORPORATED

|(Dollars in Thousands)(except per share data) | 2003 Quarter Ended | 2002 Quarter Ended |   |      
|--------------------------------------------- | ------------------ | ------------------ | - | -----
|
|Net interest income                           |                    |                    | $ | 1,808
|Provision for loan losses                     |                    |                    |   | 0    
|Noninterest income                            |                    |                    |   | 365  
|Noninterest expense                           |                    |                    |   | 1,445
|Provision for income taxes                    |                    |                    |   | 130  
|Net income                                    |                    |                    |   | 598  
|Basic earnings per share                      |                    |                    | $ | 0.37 
|Diluted earnings per share                    |                    |                    | $ | 0.36 

DESCRIPTION OF THE
COMPANYS BUSINESS

Greer State Bank was organized under
a state banking charter in August 1988, and commenced operations on January 3, 1989. Greer
Bancshares Incorporated (a one-bank holding company) is a South Carolina corporation
formed in July 2001, primarily to hold all of the capital stock of Greer State Bank. 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.

There were no significant changes to
the Companys business in 2003.

Results of Operations

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

The following discussion describes
our results of operations for 2003 as compared to 2002 and 2002 compared to 2001 and also
analyzes our financial condition as of December 31, 2003 as compared to December 31, 2002.
Like most community banks, we derive most of our income from interest we receive on our
loans and investments. Our primary source of funds for making these loans and investments
is our deposits, on which we pay interest. Consequently, one of the key measures of our
success is our amount of net interest income, or the difference between the income on our
interest-earning assets, such as loans and investments, and the expense on our
interest-bearing liabilities, such as deposits. Another key measure is the spread between
the yield we earn on these interest-earning assets and the rate we pay on our
interest-bearing liabilities.

We have included a number of tables
to assist in our description of these measures. For example, the Average
Balances table shows the average balances during 2003, 2002 and 2001 of each
category of our assets and liabilities, as well as the yield we earned or the rate we paid
with respect to each category. A review of this table shows that our loans typically
provide higher interest yields than do other types of interest earning assets, which is
why we intend to channel a substantial percentage of our earning assets into our loan
portfolio. Similarly, the Rate/Volume Analysis table helps demonstrate the
impact of changing interest rates and the changing volume of assets and liabilities during
the years shown. We also track the sensitivity of our various categories of assets and
liabilities to changes in interest rates, and we have included a Sensitivity
Analysis Table to help explain this. Finally, we have included a number of tables
that provide detail about our investment securities, our loans, and our deposits and other
borrowings.

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

3

---

GREER BANCSHARES
INCORPORATED

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

The following discussion and analysis
also identifies significant factors that have affected our financial position and
operating results during the periods included in the accompanying financial statements. We
encourage you to read this discussion and analysis in conjunction with the financial
statements and the related notes and the other statistical information also included in
this report.

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

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

Net income for the year ended
December 31, 2003 was $2,232,263, or $1.37 per diluted share, compared to $2,523,541, or
$1.56 per diluted share, for the year ended December 31, 2002. The primary reason for this
decrease was the decline in market interest rates that occurred during 2003, which
resulted in a decline in yield on average earning assets that was greater than the decline
in the cost of interest-bearing liabilities during the year. Net interest income decreased
$438,546, or 6.3%, to $6,520,696 for the year ended December 31, 2003. Non-interest income
also decreased $903,104 to $1,902,301 for the year ended December 31, 2003. Our
non-interest income in 2003 compared favorably with our historic level of non-interest
income, whereas in 2002 our non-interest income was significantly higher than normal due
primarily to a gain on the sale of undeveloped real estate. If this gain were not
considered in our 2002 non-interest income, non-interest income would have increased in
2003 by $154,024, or 8.8%. Other operating expenses decreased $64,295, or 4.3%, primarily
due to the reduction of credit card expenses associated with the Companys credit
card portfolio that was sold to one of our correspondent banking relationships in 2002.

Year ended December 31, 2002 compared
with year ended December 31, 2001

Net income for the year ended
December 31, 2002 was $2,523,541, or $1.56 per diluted share, compared to $2,125,861, or
$1.35 per diluted share, for the year ended December 31, 2001. Net interest income
increased $510,760, or 7.9%, to $6,959,242 for the year ended December 31, 2002.
Non-interest income also increased $1,101,495 to $2,805,405 for the year ended December
31, 2002, primarily as a result of a gain on the sale of undeveloped real estate. If the
gain were not considered, the increase in non-interest income would have been $44,367, or
2.6%. Other operating expenses increased $244,309, or 19.3%, and included expenses
associated with a significant upgrade of the Companys core data processing system,
which was completed in January 2002.

Net Interest Income

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

Net interest income decreased from
$6,959,242 for the year ended December 31, 2002 to $6,520,696 for the year ended December
31, 2003. The decrease in net interest income of $438,546, or 6.3%, occurred primarily due
to the decline of 98 basis points in yield on earning assets, compared to the decline in
cost of interest-bearing liabilities, which was 53 basis points. Average interest earning
assets increased in 2003 by $16,647,000 and average interestbearing liabilities
increased by $11,246,000; however, since the decline in the yield on average earning
assets (98 basis points) was significantly more than the decline in cost of average
interest-bearing liabilities, the result was a decline in net interest income. The decline
in yield on average earning assets and cost of interest-bearing liabilities was due to the
decline in market interest rates that occurred during 2003. The Companys balance
sheet is asset sensitive at one year, which means its assets reprice at a faster rate than
its liabilities in a one-year period. The more rapid repricing of assets during the year
resulted in the yield on earning assets declining faster than the decline in cost of
interest-bearing liabilities, which led to a decline in interest rate spread and net
interest margin. (For additional related information, see discussion on Interest
Rate Sensitivity.)  Net interest income increased from $6,448,482 for the year ended
December 31, 2001 to $6,959,242 for the year ended December 31, 2002. The increase in net
interest income of $510,760, or 7.9%, is primarily due to the decrease of 146

4

---

GREER BANCSHARES
INCORPORATED

basis points
in our cost of interest bearing liabilities, from 4.30% for the year ended December 31,
2001 to 2.84% for the year ended December 31, 2002. This decrease in cost of funds more
than offset the additional cost associated with the increase in the average interest
bearing liabilities of approximately $4.9 million. The decrease in yield on earning assets
was 116 basis points, from 7.89% for the year ended December 31, 2001 to 6.73% for the
year ended December 31, 2002. Therefore, the Companys cost of interest bearing
liabilities declined 30 basis points more in 2002 than the yield on average earning
assets. The increase in net interest income is reflected in the increases in the
Companys net interest spread and net interest margin, and is a direct result of the
decreasing interest rate environment experienced in 2001 and 2002. The rate decreases were
offset somewhat by the 116 basis point decrease in the yield on assets during the year as
new loans were funded at market rates and variable rate loans repriced to market rates.

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,                | 2003 | 2002 | 2001
|-------------------------------------- | ---- | ---- | ----
|
|
|(Dollars in Thousands)                 |      |      |     
|Assets:                                |      |     
|Interest Earning Assets:               |      |     
|Taxable Investments                    |      |      | $   
|Non-Taxable Investments                |      |      |     
|Int. Bearing Deposits in other banks   |      |      |     
|Federal Funds Sold                     |      |      |     
|Loans (1)                              |      |      |     
|                                       |      |      |     
|Total Interest Earning Assets          |      |      | $   
|                                       |      |      |     
|Other noninterest-earning assets       |      |      |     
|                                       |      |      |     
|Total Assets                           |      |      | $   
|                                       |      |      |     
|Liabilities and Shareholder's Equity   |      |     
|Interest Bearing Liabilities:          |      |     
|NOW Accounts                           |      |      | $   
|Money Market and Savings               |      |      |     
|Time Deposits                          |      |      |     
|Federal Funds Purchased                |      |      |     
|FHLB Borrowings                        |      |      |     
|                                       |      |      |     
|Total Interest Bearing Liabilities     |      |      | $   
|                                       |      |      |     
|Non Interest-Bearing Liabilities:      |      |     
|Demand Deposits                        |      |      |     
|Other Liabilities                      |      |      |     
|                                       |      |      |     
|Total Non Interest-Bearing Liabilities |      |      | $   
|                                       |      |      |     
|Total Liabilities                      |      |      | $   
|                                       |      |      |     
|Stockholders' Equity                   |      |      |     
|                                       |      |      |     
|Total Liabilities and Stockholders'    |      |     
|Equity                                 |      |      | $   
|                                       |      |      |     
|Net Interest Spread                    |      |      |     
|Net Interest Income                    |      |      |     
|                                       |      |      |     
|Net Interest Margin                    |      |      |     

(1)    
          The effect of loans in nonaccrual status and fees collected is not significant
          to the computations. All loans and deposits          are domestic. (2)     All Yields/Rates
          are computed on a Tax Equivalent Basis at a Federal Tax Rate of 34% and State
          Tax Rate of 4.5%.

5

---

GREER BANCSHARES
INCORPORATED

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

Analysis of Changes in
Net Interest Income

|Year Ended December 31,             | 2003 Compared with 2002 | 2002 Compared with 2001
|----------------------------------- | ----------------------- | -----------------------
|
|
|(Dollars in Thousands)              |                         |                        
|Interest Income:                    |                         |                        
|Taxable Investments                 |                         |                        
|Non-Taxable Investments             |                         |                        
|Int-Bearing Deposits in other banks |                         |                        
|Federal Funds Sold                  |                         |                        
|Loans                               |                         |                        
|                                    |                         |                        
|Total                               |                         |                        
|Interest Expense:                   |                         |                        
|NOW Accounts                        |                         |                        
|Money Market and Savings            |                         |                        
|Time Deposits                       |                         |                        
|Federal Funds Purchased             |                         |                        
|HLB Borrowings                      |                         |                        
|                                    |                         |                        
|Total                               |                         |                        
|Net Interest Income                 |                         |                        
|                                    |                         |                        

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

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

The table included above shows the
changes in interest income and expense during 2003 and 2002, and allocates the appropriate
amount of income or expense to changes in rate or changes in volume. The table indicates
that in 2002 the Company was able to decrease its rates on interest-bearing liabilities at
a greater pace than the decline in the rates on its earning assets, which caused an
increase in its spread and net interest margin. In 2003, however, market rates declined
even more and the rate on the Companys earning assets declined more than the rates
on its interest-bearing liabilities, which caused the spread and net interest margin to
decline. The decrease in rates on earning assets was more than the decrease in rates on
interest-bearing liabilities primarily due to market interest rates falling to fifty-year
lows and the rates on the Companys liabilities reaching what management deemed to be
the minimum rates that could be paid on certain account types.

6

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GREER BANCSHARES
INCORPORATED

The following table presents the
Companys rate sensitivity at each of the time intervals indicated as of December 31,
2003. The table may not be indicative of the Companys rate sensitivity position at
other points in time.

Interest Rate Sensitivity
Analysis

|                                         |  | After | After |        |  
|---------------------------------------- |  | ----- | ----- | ------ | -
|
|
|
|Interest earning assets:                 |  |       |       |        |  
|Federal Funds Sold                       |  |       | $     | 159    |  
|Interest bearing due from banks          |  |       |       | 1,734  |  
|Investment securities                    |  |       |       | 4,207  |  
|Loans                                    |  |       |       | 48,539 |  
|                                         |  |       |       |        |  
|Total interest earning assets            |  |       |       | 54,639 |  
|                                         |  |       |       |        |  
|Cumulative interest earning assets       |  |       | $     | 54,639 |  
|                                         |  |       |       |        |  
|Interest bearing liabilities:            |  |      
|Certificates of deposit                  |  |       |       | 15,927 |  
|IRA's                                    |  |       |       | 1,383  |  
|Money Market Accounts                    |  |       |       | 0      |  
|Transaction Accounts                     |  |       |       | 0      |  
|Savings Accounts                         |  |       |       | 4,613  |  
|FHLB Advances                            |  |       |       | 18,360 |  
|                                         |  |       |       |        |  
|Total interest bearing liabilities       |  |       |       | 40,283 |  
|                                         |  |       |       |        |  
|Cumulative interest bearing              |  |      
|liabilities                              |  |       | $     | 40,283 |  
|                                         |  |       |       |        |  
|Gap Analysis:                            |  |      
|Interest sensitivity gap                 |  |       | $     | 14,356 |  
|                                         |  |       |       |        |  
|Cumulative interest sensitivity gap      |  |       | $     | 14,356 |  
|                                         |  |       |       |        |  
|Cumulative gap ratio of interest earning |  |      
|assets to interest bearing liabilities   |  |       |       | 136    | %
|                                         |  |       |       |        |  

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

The Company generally would benefit
from increasing market rates of interest when it has an asset-sensitive gap position and
generally would benefit from decreasing market rates of interest when it is
liability-sensitive. We are asset-sensitive

7

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GREER BANCSHARES
INCORPORATED

over the one to twelve month time
frame. However, gap analysis is not a precise indicator of interest rate sensitivity. The
analysis presents only a static view of the timing of maturities and repricing
opportunities, without taking into consideration that changes in interest rates do not
affect all assets and liabilities equally. The analysis also does not consider any options
relating to assets and liabilities (such as floors, ceilings, calls, etc.). Since gap
analysis is not a precise indicator of interest sensitivity, management uses the Risk
Analytics Interest Rate Risk Management Model. The model calculates the effects of
interest rate movements on net interest income, and considers all characteristics of the
Companys assets and liabilities, based on assumptions made by management.

Provision for Loan
Losses

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

Additions to the allowance for loan
losses, which are expensed as the provision for loan losses on our income statement, are
made as needed to maintain the allowance at an appropriate level based on
managements analysis of the potential risk in the loan portfolio. Loan losses and
recoveries are charged or credited directly to the allowance. The amount of the provision
is a function of the level of loans outstanding, the level of nonperforming loans,
historical loan loss experience, the amount of loan losses actually charged against the
reserve during a given period, and current and anticipated economic conditions. During
2003, we provided $10,000 for loan losses, raising the balance to $1,298,228 on December
31, 2003 after including current year net recoveries of $207,593. After a significant
amount of recoveries were received early in 2003 and credited to the reserve, the
Companys loan loss reserve models indicated the reserve was adequate, and the board
of directors approved no additional provisions to be necessary. The reserve for loan
losses was approximately 1.12% and 1.00% of total loans on December 31, 2003 and 2002,
respectively.

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

Based on present information and
ongoing evaluation, management considers the allowance for loan losses to be adequate to
meet presently known and inherent risks in the loan portfolio. Managements judgment
as to the adequacy of the allowance is based upon a number of assumptions about future
events that it believes to be reasonable, but which may or may not prove to be accurate.
Our losses will undoubtedly vary from our estimates, and there is a possibility that
charge-offs in future periods will exceed the allowance for loan losses as estimated at
any point in time. Thus, there can be no assurance that charge-offs in future periods will
not exceed the allowance for loan losses or that additional increases in the allowance for
loan losses will not be required. Management estimates charge-offs in 2004 to net
approximately $348,000, with $320,000 of the total amount relating to commercial loans,
and $28,000 being consumer loans. The Company does not allocate the allowance for loan
losses to specific categories of loans but evaluates the adequacy on an overall portfolio
basis utilizing a risk grading system.

Other Income

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

8

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GREER BANCSHARES
INCORPORATED

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

Non-interest income for the year
ended December 31, 2002 was $2,805,405 compared to $1,703,910 for the year ended December
31, 2001, primarily due to a gain of $1,057,128 realized on the sale of undeveloped real
estate owned by the Bank. The excess of a tract of land that was purchased in 1996 in
order to obtain a corner lot on which to build a branch office was sold in 2002 for a gain
of $1,057,128. Another significant portion of non-interest income was from service charges
and fees relating to deposit accounts that totaled $1,088,839 in 2002 compared to $912,115
in 2001. The increase of $176,724 is a result of the continued success of the Banks
overdraft privilege product. The most significant portion of other operating income is
income from credit cards, which totaled $243,491 in 2002 and $241,425 in 2001. Also
included in that line item is fees from brokerage services offered through Raymond James
Financial Services, which totaled $190,350 in 2002 and $177,456 in 2001, an increase of
$12,894, or 7.3%, despite volatile market conditions during 2002.

Other Expenses

Non-interest expenses were $5,688,983
for the year ended December 31, 2003 compared to $5,566,006 for the year ended December
31, 2002. This was comprised primarily of salaries and employee benefits totaling
$3,110,957 for the year ended December 31, 2003 compared to $2,856,452 for the year ended
December 31, 2002. The increase in salaries was due to annual salary adjustments and the
addition of staff made necessary by the Companys growth. Included in non-interest
expenses is depreciation expense on equipment, which totaled $445,725 in 2003, and
$482,899 in 2002. The decrease of $37,174, or 7.7%, was due to certain equipment and
software becoming fully depreciated during 2003. Other operating expenses were $1,444,778
compared to $1,509,073, a decrease of $64,295, or 4.3%. This decrease is primarily due to
a reduction in expenses related to the Companys credit card portfolio that was sold
during 2002.

Non-interest expenses were $5,566,006
for the year ended December 31, 2002 compared to $4,830,181 for the year ended December
31, 2001. This was comprised primarily of salaries and employee benefits totaling
$2,856,452 for the year ended December 31, 2002 compared to $2,560,920 for the year ended
December 31, 2001. The increase in salaries was due to annual salary adjustments and the
addition of staff needed as the Company grows. Included in non-interest expenses is
depreciation expense on equipment which totaled $482,899 in 2002 and $364,839 in 2001,
which was an increase of $118,060, or 32.4%. Internet banking expense increased to $68,978
in 2002 from $22,286 in 2001, as the result of growth and the additional features
implemented in 2002. All other operating expenses increased also as a result of the
continued growth of the Company.

Income Taxes

For the years ended December 31, 2003
and 2002, the Company recorded income tax expense in the amounts of $491,751 and $887,600,
respectively. This resulted in an effective tax rate of 18.0% and 26.0% for the years
ended December 31, 2003 and 2002, respectively. The decrease in the effective income tax
rate is due to non-taxable interest income on investment securities relating to the
addition of $9,185,331 and $12,134,217 in tax-free securities in 2003 and 2002,
respectively. At December 31, 2003 the Bank owned $34,990,992 in tax-free municipal
securities, and recorded tax-exempt income of $1,404,546 in 2003, compared with $984,746
from municipal securities in 2002, an increase of approximately $420,000. For the year
ended December 31, 2001, the Company recorded income tax expense in the amount of
$841,350. This resulted in an effective tax rate of 28.4%.

Capital Resources

Total capital of the Company was
increased by 2003 net income of $2,232,263 and unrealized gains of $313,607, net of tax,
on securities available for sale. In addition, the Company paid a cash dividend on May 15,
2003 and November 15, 2003 totaling $1.00 per share. The total cash paid out for the cash
dividends was $1,613,132. In 2002, total capital of the Company was increased by net
income of $2,523,541 and unrealized gains of $757,390, net of tax, on securities available
for sale. In addition, the Company issued a 2.5% stock dividend and paid a cash dividend
of $.50 per share on May 30, 2002. Total cash paid out for the cash dividend was $783,440,
and cash paid in lieu of fractional shares was $8,992. In 2001, total capital of the
Company was increased by net income of $2,125,861 and unrealized gains of

9

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GREER BANCSHARES
INCORPORATED

$179,891, net of tax, on securities
available for sale. The Company issued a 5% stock dividend and paid cash in lieu of
fractional shares totaling $8,909 on July 31, 2001.

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

Greer State Bank and the Company
exceeded the Federal Reserves fully phased in regulatory capital requirements at
December 31, 2003, 2002 and 2001 as set forth in the following table.

Risk-Based Capital Ratios

|                                        | 2003 | 2002 | 2001
|--------------------------------------- | ---- | ---- | ----
|Tier 1 Capital                          |      |      | $   
|Tier 2 Capital                          |      |      |     
|                                        |      |      |     
|Total Qualifying Capital                |      |      | $   
|                                        |      |      |     
|Risk-adjusted total assets              |      |      | $   
|                                        |      |      |     
|(including off-balance-sheet exposures) |      |      |     
|Tier 1 risk-based capital ratio         |      |      |     
|Total risk-based capital ratio          |      |      |     
|Tier 1 leverage ratio                   |      |      |     

|                                                           | Tier 1 | Total | Tier 1
|---------------------------------------------------------- | ------ | ----- | ------
|
|Greer Bancshares capital ratios at December 31, 2003 were: |        |       |       

Liquidity

The Company manages its liquidity
from both the asset and liability side of the balance sheet through the coordination of
the relative maturities of its assets and liabilities. Short-term liquidity needs are
generally met from cash, due from banks, federal funds purchased and sold, and deposit
levels. The Company has federal funds lines in place totaling $14.1 million, and also has
the ability to borrow additional funds from the Federal Home Loan Bank of up to 30% of the
Banks assets. Management has established policies and procedures governing the
length of time to maturity on loans and investments. In the opinion of management, our
deposit base and lines of credit can adequately support our short-term liquidity needs.

Impact of Off-Balance
Sheet Instruments

The Company has certain
off-balance-sheet instruments in the form of contractual commitments to extend credit to
customers. These legally binding commitments have set expiration dates and are at
predetermined interest rates. The underwriting criteria for these commitments are the same
as for loans in our loan portfolio. Collateral is also obtained, if necessary, based on
the credit evaluation of each borrower. Although many of the commitments will expire
unused, management believes that we have the necessary resources to fund these
commitments. In addition, the Company has utilized interest rate swap contracts as fair value hedges for some of our fixed rate Federal Home
Loan Bank advances. The term and notional amount of the interest rate swaps match the term
and principal amount of the debt being hedged. Interest rate swaps are contractual
agreements between two parties to exchange a series

10

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GREER BANCSHARES
INCORPORATED

of cash flows representing interest
payments. A swap allows both parties to alter the repricing characteristics of assets or
liabilities without affecting the underlying principal positions. Through the use of a
swap, assets and liabilities may be transformed from fixed to floating rates, from
floating rates to fixed rates, or from one type of floating rate to another. Our swap
terms currently range from five years to eight years. We do not utilize derivatives for
trading purposes. We assume that there is no ineffectiveness with these fair value hedges
and therefore have adjusted the carrying amount of the swap to its fair value and adjust
the carrying amount of the liability by an offsetting amount.

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

Impact of Inflation and
Changing Prices

The financial statements and related
financial data presented herein have been prepared in accordance with accounting
principles generally accepted in the United States of America which require the
measurement of financial position and operating results in terms of historical dollars,
without considering changes in relative purchasing power over time due to inflation.
Unlike most industrial companies, virtually all of the assets and liabilities of a
financial institution are monetary in nature. As a result, interest rates generally have a
more significant impact on a financial institutions performance than does the effect
of inflation.

While the effect of inflation on a
bank is normally not as significant as its influence on those businesses that have large
investments in plant and inventories, it does have an effect. Interest rates generally
increase as the rate of inflation increases, but the magnitude of the change in rates may
not be the same. While interest rates have traditionally moved with inflation, the effect
on income is diminished because both interest earned on assets and interest paid on
liabilities vary directly with each other. Also, increases in the price of goods and
services will generally result in increased operating expenses.

11

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GREER BANCSHARES
INCORPORATED

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, 2003, 2002 and 2001. The yield on state and
political subdivisions is presented on a tax equivalent basis using a federal income tax
rate of 34% and state income tax rate of 4.5%.

Investment Securities
Portfolio Composition

|                           | Due | One Year | Five Years |       |   | Estimated | Average
|-------------------------- | --- | -------- | ---------- | ----- | - | --------- | -------
|
|
|Held-To-Maturity           |     |          |            |       |   |           |        
|Mortgage Backed Securities |     |          | $          | -     |   | $         | 15,291 
|                           |     |          |            |       |   |           |        
|Available-For-Sale         |     |         
|U.S. Treasury Securities   |     |          | $          | -     |   | $         | -      
|U.S. Govt Agencies and     |     |         
|Mortgage Backed Securities |     |          |            | 6,016 |   |           | 11,914 
|States of the U.S. and     |     |         
|Political Subdivisions     |     |          |            | 115   |   |           | 6,797  
|Corporate Securities       |     |          |            | 3,031 |   |           | 1,061  
|Other Securities           |     |          |            | -     |   |           | -      
|                           |     |          |            |       |   |           |        
|Total                      |     |          | $          | 9,162 |   | $         | 19,772 
|                           |     |          |            |       |   |           |        
|Held-To-Maturity           |     |         
|Weighted Average Yields:   |     |         
|Mortgage Backed Securities |     |          |            | 0.00  | % |           | 3.66   
|Available-For-Sale         |     |         
|Weighted Average Yields:   |     |         
|U.S. Treasury Securities   |     |          |            | 0.00  | % |           | 0.00   
|U.S. Govt Agencies and     |     |         
|Mortgage Backed Securities |     |          |            | 3.57  | % |           | 3.32   
|States of the U.S. and     |     |         
|Political Subdivisions     |     |          |            | 6.51  | % |           | 6.39   
|Corporate Securities       |     |          |            | 5.19  | % |           | 3.38   
|Other Securities           |     |          |            | 0.00  | % |           | 0.00   

12

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GREER BANCSHARES
INCORPORATED

(Investment Portfolio, cont.)

|                           | Due | One Year | Five Years |       |   | Estimated | Average
|-------------------------- | --- | -------- | ---------- | ----- | - | --------- | -------
|
|
|Held-To-Maturity           |     |          |            |       |   |           |        
|Mortgage Backed Securities |     |          | $          | -     |   | $         | 12,044 
|                           |     |          |            |       |   |           |        
|Available-For-Sale         |     |         
|U.S. Treasury Securities   |     |          | $          | -     |   | $         | -      
|U.S. Govt Agencies and     |     |         
|Mortgage Backed Securities |     |          |            | 7,868 |   |           | 10,887 
|States of the U.S. and     |     |         
|Political Subdivisions     |     |          |            | 105   |   |           | 2,106  
|Corporate Securities       |     |          |            | 1,336 |   |           | 2,545  
|Other Securities           |     |          |            | -     |   |           | -      
|                           |     |          |            |       |   |           |        
|Total                      |     |          | $          | 9,309 |   | $         | 15,538 
|                           |     |          |            |       |   |           |        
|Held-To-Maturity           |     |         
|Weighted Average Yields:   |     |         
|Mortgage Backed Securities |     |          |            | 0.00  | % |           | 4.10   
|Available-For-Sale         |     |         
|Weighted Average Yields:   |     |         
|U.S. Treasury Securities   |     |          |            | 0.00  | % |           | 0.00   
|U.S. Govt Agencies and     |     |         
|Mortgage Backed Securities |     |          |            | 3.73  | % |           | 5.09   
|States of the U.S. and     |     |         
|Political Subdivisions     |     |          |            | 6.37  | % |           | 6.52   
|Corporate Securities       |     |          |            | 5.30  | % |           | 5.02   
|Other Securities           |     |          |            | 0.00  | % |           | 0.00   

|                           | Due | One Year | Five Years |       |   | Estimated | Average
|-------------------------- | --- | -------- | ---------- | ----- | - | --------- | -------
|
|
|Available-For-Sale         |     |          |            |       |   |           |        
|U.S. Treasury Securities   |     |          | $          | -     |   | $         | -      
|U.S. Govt Agencies and     |     |         
|Mortgage Backed Securities |     |          |            | -     |   |           | 5,000  
|States of the U.S. and     |     |         
|Political Subdivisions     |     |          |            | 100   |   |           | 469    
|Corporate Securities       |     |          |            | 1,427 |   |           | 835    
|Other Securities           |     |          |            | 1,895 |   |           | -      
|                           |     |          |            |       |   |           |        
|Total                      |     |          | $          | 3,422 |   |           | 6,304  
|                           |     |          |            |       |   |           |        
|Available-For-Sale         |     |         
|Weighted Average Yields:   |     |         
|U.S. Treasury Securities   |     |          |            | 0.00  | % |           | 0.00   
|U.S. Govt Agencies and     |     |         
|Mortgage Backed Securities |     |          |            | 0.00  | % |           | 5.12   
|States of the U.S. and     |     |         
|Political Subdivisions     |     |          |            | 6.23  | % |           | 6.59   
|Corporate Securities       |     |          |            | 6.26  | % |           | 5.49   
|Other Securities           |     |          |            | 5.75  | % |           | 0.00   

13

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GREER BANCSHARES INCORPORATED

Loan Portfolio

Credit Risk Management

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

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

Lending Activities

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

The Companys service area is
mixed in nature. The corporate office is located in Greer, South Carolina. 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 2004.

Total loans outstanding were
$115,564,624 and $107,661,418 at December 31, 2003 and 2002, respectively. There are no
significant concentrations of loans in our loan portfolio to any particular individuals or
industry or group of related individuals or industries.

The Companys ratio of loans to
deposits was 75.6% and 78.3% at December 31, 2003 and 2002, 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.

14

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GREER BANCSHARES
INCORPORATED

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

Loan Portfolio Composition

|December 31,             | 2003 | 2002 | 2001 | 2000    | 1999
|------------------------ | ---- | ---- | ---- | ------- | ----
|
|(Dollars in Thousands)   |      |      |      |         |     
|Commercial               |      |      | $    | 28,122  |     
|Real Estate-Construction |      |      |      | 15,288  |     
|Real Estate Mortgage:    |      |     
|Residential 1-4          |      |      |      | 36,777  |     
|Multi-Family             |      |      |      | 1,732   |     
|NonFarm/Nonresidential   |      |      |      | 21,099  |     
|Installment Loans to     |      |     
|Individuals              |      |      |      | 9,154   |     
|Lease Financing          |      |      |      | 931     |     
|Obligations of State and |      |     
|Political Subdivisions   |      |      |      | 2,462   |     
|                         |      |      |      |         |     
|Total Loans              |      |      | $    | 115,565 |     
|                         |      |      |      |         |     

The Companys loan portfolio
contains a significant percentage of real estate mortgage loans. Real estate mortgage
loans increased by $1,579,000, or 2.2%, to $74,896,000 during the twelve months ended
December 31, 2003. However, at December 31, 2003 real estate mortgage loans represented
64.8% of the total loan portfolio compared to 68.1% at December 31, 2002. The overall
decline in mortgage loans as a percentage of total loans is attributable to the relatively
small amount of growth in mortgage loans, as well as the increase in commercial loans of
$4,829,000, or 20.7%. In addition, in an effort to effectively manage its interest rate
risk, over the past several years the Company has not offered in-house long-term fixed
rate mortgage loans. However, during 2003 the Company began increasing its variable rate
in-house mortgage loans and now offers a five-year balloon mortgage loan. The Company
continues to offer fixed rate mortgages through an investor loan program.

The Company also has a significant
amount of commercial and industrial loans. Commercial and industrial loans increased
$4,829,000, or 20.7%, to $28,122,000 at December 31, 2003. Commercial and industrial loans
comprised 24.3% and 21.6% of the total loan portfolio at December 31, 2003 and 2002,
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, 2003. The
Company has a total of $64.5 million in loans indexed to the Wall Street Journal Prime
rate.

|December 31, 2003         |  |  | Real Estate |        |  | 
|------------------------- |  |  | ----------- | ------ |  | 
|
|
|Due One Year or Less:     |  |  | $           | 18,018 |  | 
|Due One Year through Five |  | 
|Years:                    |  | 
|Fixed Rate                |  |  |             | 7,318  |  | 
|Variable Rate             |  |  |             | 119    |  | 
|Due After Five Years:     |  | 
|Fixed Rate                |  |  |             | 2,667  |  | 
|Variable Rate             |  |  |             | 0      |  | 
|                          |  |  |             |        |  | 
|Total                     |  |  | $           | 28,122 |  | 
|                          |  |  |             |        |  | 

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GREER BANCSHARES
INCORPORATED

Risk Elements

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

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

Summary of Loan Loss
Experience

|(Dollars in Thousands)                        | 2003 | 2002 | 2001 | 2000    | 1999
|--------------------------------------------- | ---- | ---- | ---- | ------- | ----
|Total loans outstanding at end of year        |      |      | $    | 115,565 |     
|                                              |      |      |      |         |     
|Average loans outstanding                     |      |      | $    | 107,961 |     
|                                              |      |      |      |         |     
|Balance, beginning of year                    |      |      | $    | 1,081   |     
|Loans charged-off                             |      |     
|Commercial and industrial                     |      |      |      | 92      |     
|Real estate - mortgage                        |      |      |      | 20      |     
|Consumer                                      |      |      |      | 35      |     
|                                              |      |      |      |         |     
|Total loans charged-off                       |      |      |      | 147     |     
|                                              |      |      |      |         |     
|Recoveries of previous loan losses            |      |     
|Commercial and industrial                     |      |      |      | 352     |     
|Real estate - mortgage                        |      |      |      | 0       |     
|Consumer                                      |      |      |      | 2       |     
|                                              |      |      |      |         |     
|Total loan recoveries                         |      |      |      | 354     |     
|                                              |      |      |      |         |     
|Net charge-offs                               |      |      |      | (207    | )   
|                                              |      |      |      |         |     
|Provision charged to operations               |      |      |      | 10      |     
|                                              |      |      |      |         |     
|Balance, end of year                          |      |      | $    | 1,298   |     
|                                              |      |      |      |         |     
|Ratios:                                       |      |     
|Allowance for loan losses to average loans    |      |      |      | 1.20    | %   
|Allowance for loan losses to period end loans |      |      |      | 1.12    | %   
|Net charge offs to average loans              |      |      |      | -0.19   | %   

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

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

Interest is discontinued on impaired
loans when management determines that a borrower may be unable to meet payments as they
become due. At December 31, 2003, management reviewed its loan portfolio and determined
that no impairment on loans existed that it believes would have a material effect on the
Companys consolidated financial statements.

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GREER BANCSHARES
INCORPORATED

Average Daily Deposits

Average deposits were $140,310,000
and $133,359,000 during 2003 and 2002, respectively. Each type of deposit increased in
2003, with the exception of money market and savings accounts, which declined by a
moderate amount. The most significant increases were in demand deposit and NOW accounts.
Management believes the decrease of money market and savings accounts, as well as the
increase in demand deposit accounts, are the result of increased consumer confidence in
the equity markets. As a result, money was reinvested into the markets with the assumption
of a higher rate of return.

Contractual maturities of all time
deposits at December 31, 2003 were as follows: twelve months or less - $48,353,000
and over twelve months through thirty-six months - $17,248,000.

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

|December 31,                 | 2003 | 2002 | 2001
|---------------------------- | ---- | ---- | ----
|
|Noninterest-Bearing Deposits |      |      |     
|Demand Deposits              |      |      | $   
|Interest Bearing Liabilities |      |     
|NOW Accounts                 |      |      |     
|Money Market and Savings     |      |      |     
|Time Deposits                |      |      |     
|                             |      |      |     
|Total Deposits               |      |      | $   
|                             |      |      |     

Core deposits, which exclude time
deposits of $100,000 or more, provide a relatively stable funding source for our loan
portfolio and other earning assets. Our core deposits were $120,396,000 and $111,332,000
at December 31, 2003 and 2002, respectively.

Time deposits over $100,000 totaled
$32,943,000, $26,231,000 and $22,593,000 at December 31, 2003, 2002 and 2001,
respectively. Scheduled maturities were as follows:

|December 31,                                    | 2003 | 2002 | 2001
|----------------------------------------------- | ---- | ---- | ----
|Maturing in 3 months or less                    |      |      | $   
|Maturing after 3 months but less than 6 months  |      |      |     
|Maturing after 6 months but less than 12 months |      |      |     
|Maturing after 12 months                        |      |      |     
|                                                |      |      |     
|Total                                           |      |      | $   
|                                                |      |      |     

Advances from the
Federal Home Loan Bank

Advances from the Federal Home Loan
Bank (FHLB) totaled $40,057,226 at December 31, 2003 and $34,836,913 at December 31, 2002.
At December 31, 2003, none of these notes had variable rates of interest. At December 31,
2002, $4,000,000 of these notes had variable interest at rates ranging from 2.12% to
5.33%, and $3,000,000 of the notes had variable interest at 5.33%. The remaining
$40,057,226 and $30,836,913, at December 31, 2003 and 2002, respectively, bear interest at
fixed rates ranging from 1.93% to 6.67%. During 2003, interest expense on some of these
fixed rate notes was reduced by $113,000 through the utilization of interest rate swaps.
For financial statement purposes, we have netted the income from the swaps against the
interest expense on FHLB borrowings. The Company has pledged its 1 to 4 family residential
and commercial real estate mortgages as collateral.

17

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GREER BANCSHARES
INCORPORATED

The following table reflects our
contractual obligations as of December 31, 2003. As of that date, the only obligation
included is our debt to the Federal Home Loan Bank.

|Contractual Obligations    | Payments Due by Period
|-------------------------- | ----------------------
|
|
|Long Term Debt Obligations |                       

Short-Term Borrowings

At December 31, 2003, 2002 and 2001
the Company had no short-term borrowings.

Stock Information and
Dividend History

The common stock of Greer Bancshares Incorporated
(which replaced Greer State Bank common stock on a one-for-one basis in July, 2001) has
been traded in the local over-the-counter market since January 4, 1989, and is quoted in
two local papers, The Greenville News and The Spartanburg Herald, in the Area OTC listings
section. The following table sets forth the high and low bid prices per share
of the common stock for each quarterly period during the past two fiscal years, as
reported by the Area Over the Counter Market. The quotations may not necessarily represent
transactions.

|2003   |  |  | 2002 |       | 
|------ |  |  | ---- | ----- | 
|
|First  |  |  | $    | 27.00 | 
|Second |  |  | $    | 28.00 | 
|Third  |  |  | $    | 28.00 | 
|Fourth |  |  | $    | 28.00 | 

The Bank paid 5% stock dividends
annually from 1992 through 1998, its fourth through tenth years of operations, and paid a
cash dividend of 12.5 cents per share in June of 1997, 17.5 cents per share in June of
1998, and 30 cents per share in June 1999. A 2-for-1 stock split was issued effective as
of June 1, 1999. Cash dividends, as well as the prices listed above, have been adjusted to
reflect the stock split. In June of 2000, the Bank paid a 3% stock dividend and a 35 cents
per share cash dividend. In July of 2001, the Company paid a 5% stock dividend, and in May
2002 paid a 50 cents per share and 2.5% stock dividend. In May 2003, the Company paid a 35
cents per share cash dividend and in November 2003, the Company paid a 65 cents per share
cash dividend, totaling $1.00 per share during the year ending December 31, 2003. The 65
cents per share paid in November included a special one-time dividend of 30 cents per
share.

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

Accounting and
Financial Reporting Issues

In April 2002, the FASB issued SFAS
No. 145, Rescission of FASB Statement No. 4, 44, and 64, Amendment of FASB Statement No.
13, and Technical Corrections (Statement 145). Under Statement 4, all gains and losses
from extinguishment of debt were required to be aggregated and, if material, classified as
an extraordinary item, net of related income tax effect. This statement eliminates
Statement 4 and as a result, gains and losses from extinguishment of debt should be
classified as extraordinary items only if they meet the criteria in APB No. 30.
Additionally, this statement amends SFAS No. 13, Accounting for Leases, such that lease
modifications that have economic effects similar to sale-leaseback transactions be
accounted for in a similar manner as a sale-leaseback. Statement 145 became effective for
the Company on January 1, 2003.

In October 2002, the FASB issued SFAS
No. 147, Acquisitions of Certain Financial Institutions (Statement 147), which addresses
the financial accounting and reporting for the acquisition of all or part of a financial
institution. This standard removes certain acquisitions of financial institutions from the
scope of SFAS No. 72, Accounting for Certain

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GREER BANCSHARES
INCORPORATED

Acquisitions of Bank or Thrift Institutions (Statement 72). Statement 147 requires financial institutions to reclassify goodwill
arising from a qualified business acquisition from Statement 72 goodwill to goodwill
subject to the provisions of Statement 142. The reclassified goodwill will no longer be
amortized but will be subject to an annual impairment test, pursuant to Statement 142. In
the event that any portion of the Companys Statement 72 goodwill is reclassified as
Statement 142 goodwill, Statement 147 will require the Company to retroactively restate
its previously issued 2002 financial statements to reverse reclassified Statement 72
goodwill amortization expense recorded in the first three quarters of the 2002 fiscal
year.

In November 2002, the FASB issued
FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45
requires a liability to be recognized at the time a company issues a guarantee for the
fair value of the obligations assumed under certain guarantee agreements. Additional
disclosures about guarantee agreements are also required in the interim and annual
financial statements. The disclosure provisions of FIN 45 are effective for the Company on
December 31, 2002. The provisions for initial recognition and measurement of guarantee
agreements are effective on a prospective basis for guarantees that are issued or modified
after December 31, 2002. The Company is in the process of assessing the impact of FIN 45
on its consolidated financial statements.

In December 2002, the FASB issued
SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure
(Statement 148). Statement 148 amends SFAS No. 123, Accounting for Stock-Based
Compensation (Statement 123), to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee compensation.
In addition, this Statement amends the disclosure requirements of Statement 123 to require
prominent disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method used on
reported results. Statement 148 is effective for financial statements for fiscal years
ending after December 15, 2002. Early application of the disclosure provisions is
encouraged. The Company continues to account for its stock-based compensation in
accordance with APB 25 and has adopted the disclosure provisions of Statement 148
effective for all periods presented herein.

In April 2003, the FASB issued SFAS
No. 149, Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities
(Statement 149). Statement 149 improves financial reporting by requiring that contracts
with comparable characteristics be accounted for similarly. In particular, Statement 149
clarifies under what circumstances a contract with an initial net investment meets the
characteristic of a derivative, clarifies when a derivative contains a financing
component, amends the definition of an underlying to conform it to language
used in FIN 45 and amends certain other existing pronouncements. Statement 149 is
effective for contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. In addition, with some exceptions, all
provisions of Statement 149 should be applied prospectively. The Company does not expect
the requirements of Statement 149 to have a material impact on its consolidated financial
statements.

In May 2003, the FASB issued SFAS No.
150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities
and Equity. This Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). This Statement is effective for financial
instruments entered into or modified by the Company after May 31, 2003, and is effective
at the beginning of the first interim period beginning after June 15, 2003. However, the
FASB has deferred indefinitely the classification and measurement provisions as they
related to certain mandatorily redeemable non-controlling interests. The Company does not
expect the requirements of Statement 150 to have a material impact on its consolidated
financial statements.

In January 2003, the FASB issued FASB
Interpretation No. (FIN) 46, Consolidation of Variable Interest Entities. This
interpretation addresses the consolidation by business enterprises of variable interest
entities as defined in the interpretation. In December 2003, the FASB issued a revision to
FIN 46 (FIN 46R) to clarify some of the provisions of FIN 46 and to exempt certain
entities from its requirements. FIN 46R is effective for public entities that have
interests in structures that are commonly referred to as special-purpose entities for
periods ending after December 15, 2003.

Application by public entities, other
than small business issuers, for all other types of variable interest entities is required
in financial statements for periods ending after March 15, 2004. Application by small
business issuers to variable interest entities other than special-purpose entities is
required for periods ending after December 15, 2004. The Company is in the process of
determining the impact of FIN 46 and FIN 46R on its consolidated financial statements.

19

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GREER BANCSHARES
INCORPORATED

In November 2003, the Emerging Issues
Task Force (EITF) reached a partial consensus on Issue 03-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments. Issue 03-1
requires certain quantitative and qualitative disclosures for investments subject to SFAS
No. 115, Accounting for Certain Investments in Debt and Equity Securities, that are
impaired at the balance sheet date but for which an other-than-temporary impairment has
not been recognized. The Company adopted the partial consensus on Issue 03-1 during 2003
and has provided the new disclosures. The EITF is expected to continue deliberating other
aspects of Issue 03-1, including when to recognize other-than-temporary impairment.

Forward Looking
Information

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