UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C.  20549








FORM
10-K





ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)


OF
THE SECURITIES EXCHANGE ACT OF 1934


(Mark
One)


x
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
      the fiscal year ended December 31,
2008


OR





 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the transition period
from                                    to





Commission
File Number 000-49757








FIRST
RELIANCE BANCSHARES, INC.


(Exact
Name of Registrant as Specified in its Charter)





South
      Carolina
                  80-0030931(State
      of Incorporation)
                  (I.R.S.
      Employer Identification No.)2170
      W. Palmetto Street, Florence, South Carolina
                  29501(Address
      of Principal Executive Offices)
                  (Zip
      Code)





(843)
656-5000


(Registrant’s
telephone number, including area code)





Securities
Registered Pursuant to Section 12(b) of the Act:


None





Securities
Registered Pursuant to Section 12(g) of the Act:


Common
Stock, $0.01 Par Value





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes
 ̈   No
x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act.


Yes  ̈   No
x





Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x   No
 ̈





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.  ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “accelerated filer,” “large
accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.


Large
accelerated filer o  Accelerated
filer o   Non-accelerated
filer o   Smaller
reporting company x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes  ̈   No
x





The
aggregate market value of the registrant’s outstanding common stock held by
nonaffiliates of the registrant as of June 30, 2008 was approximately $31.6
million, based on the registrant’s closing sales price of $9.00 as reported
on the Over-the Counter Bulletin Board on June 30, 2008.  There
were 3,525,004 shares of the registrant’s common stock outstanding as of March
14, 2009.





DOCUMENTS
INCORPORATED BY REFERENCE





Document
                      
                      Parts Into Which IncorporatedAnnual
      Report to Shareholders for the Year Ended December 31,
2008
                      
                      Part
      IIProxy
      Statement for the Annual Meeting of Shareholders to be held June 18,
      2009
                      
                      Part
      III












TABLE
OF CONTENTS




PART
      I
                                                                                      
                                                                                      1ITEM
      1.
                                                                                      BUSINESS
                                                                                      1ITEM
      1A.
                                                                                      RISK
      FACTORS
                                                                                      15ITEM
      1B.
                                                                                      UNRESOLVED
      STAFF COMMENTS
                                                                                      22ITEM
      2.
                                                                                      PROPERTIES
                                                                                      22ITEM
      3.
                                                                                      LEGAL
      PROCEEDINGS
                                                                                      23ITEM
      4.
                                                                                      SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
                                                                                      23PART
      II
                                                                                      
                                                                                      23ITEM
      5.
                                                                                      MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
                                                                                      23ITEM
      6.
                                                                                      SELECTED
      FINANCIAL DATA
                                                                                      23ITEM
      7.
                                                                                      MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
                                                                                      23ITEM
      7A.
                                                                                      QUANTITATIVE
      AND QUALITIATIVE DISCLOSURES ABOUT MARKET RISK
                                                                                      23ITEM
      8.
                                                                                      FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
                                                                                      24ITEM
      9.
                                                                                      CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
                                                                                      24ITEM
      9A(T).
                                                                                      CONTROLS
      AND PROCEDURES
                                                                                      24ITEM
      9B.
                                                                                      OTHER
      INFORMATION
                                                                                      25PART
      III
                                                                                      
                                                                                      25ITEM
      10.
                                                                                      DIRECTORS,
      EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
                                                                                      25ITEM
      11.
                                                                                      EXECUTIVE
      COMPENSATION
                                                                                      26ITEM
      12.
                                                                                      SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
                                                                                      26ITEM
      13.
                                                                                      CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE
                                                                                      27ITEM
      14.
                                                                                      PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
                                                                                      27PART
      IV
                                                                                      
                                                                                      27ITEM
      15.
                                                                                      EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES
                                                                                      27










PART
I





ITEM
1.                BUSINESS





Special
Cautionary Notice Regarding Forward-Looking Statements





This
Report contains statements that constitute forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”), and the Securities Exchange Act of 1934, as amended (the
“Exchange Act”).  Various matters discussed in this document and in
documents incorporated by reference herein, including matters discussed under
the caption “Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” may constitute forward-looking statements for purposes
of the Securities Act and the Exchange Act.  These forward-looking
statements are based on many assumptions and estimates and are not guarantees of
future performance, and may involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
First Reliance Bancshares, Inc. (the “Company”) or its wholly owned subsidiary,
First Reliance Bank (the “Bank”), to be materially different from future
results, performance or achievements expressed or implied by such
forward-looking statements. The words “expect,” “anticipate,” “intend,’ “plan,”
“believe,” “seek,’ “estimate,” and similar expressions are intended to identify
such forward-looking statements. The Company’s and the Bank’s actual results may
differ materially from the results anticipated in these forward-looking
statements due to a variety of factors, including, without
limitation:




·
            significant
      increases in competitive pressure in the banking and financial services
      industries;




·
            changes
      in the interest rate environment that 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 our
      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 (the
“SEC”).





All
written or oral forward-looking statements attributable to the Company are
expressly qualified in their entirety by these cautionary
statements.





General





The Company was incorporated under the
laws of the State of South Carolina on April 12, 2001 to be the holding company
for the Bank, and acquired all of the shares of the Bank on April 1, 2002 in a
statutory share exchange.  The Bank, a South Carolina banking
corporation, is the Company’s only subsidiary, and the Company conducts no
business other than through its ownership of the Bank.  The Company
has no indirect subsidiaries or special purpose entities.  The Bank
commenced operations in August 1999 and currently operates out of its main
office and five branch offices.  The Bank serves the Florence,
Lexington, Charleston and Greenville areas in South Carolina as an independent,
community-oriented commercial bank emphasizing high-quality, responsive and
personalized service.  The Bank provides a broad range of consumer and
commercial banking services, concentrating on individuals and small and
medium-sized businesses desiring a high level of personalized
services.  The Bank continues to focus on its  Easy To Do
Business With TMstandard of banking by offering products and services including: Totally
FREE Checking, Totally FREE Business Checking, Non-Profit Checking, FREE Coin
Machines, a Retail Service Guaranty, a 5 Way Mortgage Service Promise, a
Worldwide NO FEE ATM Network, and 8-8 Extended Hours in their Florence,
Lexington, and Mt. Pleasant locations.




1




Except
where the context otherwise requires, the terms the “Company,” “First Reliance,
“we,” “us,” and “our” refer to First Reliance Bancshares, Inc. and its sole
subsidiary, First Reliance Bank.





The
Company’s stock is traded on the OTC Bulletin Board under the symbol
“FSRL”.  Information about the Company is available on our website at
http://www.firstreliance.com.





Marketing
Focus





The Bank
advertises aggressively, using popular forms of media and direct mail, to target
market segments and emphasizes the Bank’s substantial local ownership, community
bank nature, locally oriented operations and ability to provide prompt,
knowledgeable and personalized service.





Location
and Service Area





The executive or main office facilities
of the Company and the Bank are located at 2170 W. Palmetto Street, Florence,
South Carolina 29501.  The Bank also has branches located at 411
Second Loop Road, Florence, South Carolina, 801 North Lake Drive,
Lexington, South Carolina, 800 South Shelmore Blvd., Mount Pleasant, South
Carolina, 25 Cumberland Street, Suite 101, Charleston, South Carolina, and 1154
Haywood Road, Suite B, Greenville, South Carolina. The Bank’s primary
market areas are the cities of Florence, Lexington, Charleston, Greenville and
the surrounding areas.





According
to the South Carolina Department of Commerce, in 2000, Florence County had an
estimated population of 125,761.  Florence County, which covers
approximately 805 square miles, is located in the eastern portion of South
Carolina and is bordered by Darlington, Marlboro, Dillon, Williamsburg, Marion,
Clarendon, Sumter and Lee Counties.  Florence County has a number of
large employers, including, Wellman, Inc., Honda, Nan Ya Plastics, ESAB, McLeod
Regional Medical Center, and Carolinas Medical Center.  The principal
components of the economy of Florence County are the wholesale and retail trade
sector, the manufacturing sector, the services sector and the financial,
insurance and real estate sector.





The Bank
opened a branch office at 801 North Lake Drive, Lexington, South Carolina in
2004.  Lexington County had an estimated population in 2003 of
226,528.  The primary market area is the City of Lexington and the
surrounding areas of Lexington County, South Carolina.  Lexington County is
centrally located in the Midlands of South Carolina just outside the capital
city in Columbia and is bordered by Richland, Newberry, Saluda, Aiken,
Orangeburg and Calhoun Counties.  Lexington County has a number of large
employers, including, Westinghouse Electric Corporation, Michelin North America,
Winnsboro Assembly Opera, Amick Farms, Inc., and Bose Corporation. 
Lexington County is a major transportation crossroads for the Midlands with
I-26, I-77 and I-20 bordering or running through the county.  The Columbia
Metropolitan Airport is located in Lexington County, just 10 miles from the town
of Lexington, and is the Southeastern hub for United Parcel Service.  The
principal components of the economy of Lexington County are the wholesale and
retail trade sector, the manufacturing sector, the government sector, the
services sector and the financial, insurance and real estate
sector.





The Bank
opened a branch office in Mount Pleasant, South Carolina as well a branch office
in Charleston, South Carolina in 2005.  Charleston County has a
population of 309,969 and the Metro Area has a population of 549,033 according
to the 2000 census.  Charleston is located on the central and southern
east coast surrounded by Berkley and Dorchester counties.  Major
employers in the area include US Navy, Medical University of South Carolina, and
the Charleston Air Force Base.





The Bank opened a branch office in
Greenville, South Carolina in 2007.  Greenville is located in the
northwestern corner of the state of South Carolina and has a population of
56,2002 according to the 2000 census.




2




Management expects the Bank to open a
new branch office in West Columbia, South Carolina during the second quarter of
2009.


Banking
Services
  The Bank strives to provide its
customers with the breadth of products and services comparable to those offered
by large regional banks, while maintaining the quick response and personal
service of a locally owned and managed bank.  In addition to offering
a full range of deposit services and commercial and personal loans, the Bank
offers investment services and products such as mortgage loan origination,
wholesale mortgage services and title insurance
services.
  The Bank continues to focus on its Easy
To Do Business WithTMstandard of banking by
continuously introducing new innovative products and services all with the goal
of providing our customers a convenient and first class banking
experience.  To allow customers immediate access to their deposits,
the Bank introduced “same day banking’ in 2008, extending the cutoff time for
transactions until 8:00 pm Monday through Friday.  The Bank also
offers a “hometown heroes” package of specially priced products for customers
who work in the law enforcement, fire and rescue, education, and medical fields,
active and veteran military personnel, and employees or board members of
religious and charitable organizations.  Other products and services
include, a customer service guaranty, free coin machines, a worldwide “no fee”
ATM network, and a “5-way mortgage service promise.”  Branch office
locations in Florence, Mt. Pleasant and Lexington offer 8 a.m. to 8 p.m.
extended hours and all locations are open on most traditional bank
holidays.
  First
Reliance, has been recognized for its success including being named to The Top
25 Fastest Growing CompaniesTMin South Carolina four
times.  For the past three consecutive years, the Bank has been named
One of the Best Places to Work in SCTM.  In January 2009, the Bank
was named “lender of the year” by the South Carolina State Housing
Authority.  The
award was based on criteriathat included overall production,
underwriting quality and low delinquency foreclosure rates.First Reliance also received
recognition as a Best Adoption-Friendly Workplace from the Dave Thomas
Foundation.
  The Bank
seeks to promote continuous long-term relationships.  Because
management of the Bank is located in Florence, Lexington,andCharleston, South Carolina, all
credit and related decisions are made locally, which facilitates prompt
responses by persons familiar with the borrower’s local business
environment.
  Deposit
Services.The Bank offers a full
range of deposit services that are typically available in most banks and savings
and loan associations, including checking accounts, NOW accounts, savings
accounts and other time deposits of various types, ranging from money market
accounts to longer-term certificates of deposit.  The transaction
accounts and time certificates are tailored to the Bank’s principal market area
at rates competitive to those offered by other banks in the area.  In
addition, the Bank offers certain retirement account services, such as
Individual Retirement Accounts.  The Bank also offers free courier
service for business accounts and offers remote deposit
capture.The
Bank solicits depositaccounts from individuals,
businesses, associations and organizations and,governmental
authorities.All deposit accounts are insured by the
Federal Deposit Insurance Corporation (the “FDIC”) up to the maximum amount
allowed by law.


Loan
Products. 
The Bank offers a full range of commercial and consumer loans, as well as real
estate, construction and acquisition loans.  Commercial loans are extended
primarily to small and middle market customers.  Such loans include both
secured and unsecured loans for working capital needs (including loans secured
by inventory and accounts receivable), business expansion (including acquisition
of real estate and improvements), asset acquisition and agricultural
purposes. Commercial term loans generally will not exceed a five-year
maturity and may be based on a ten or fifteen-year amortization.  The
extensions of term loans are based upon (1) the ability and stability of current
management; (2) earnings and trends in cash flow; (3) earnings projections based
on reasonable assumptions; (4) the financial strength of the industry and the
business itself; and (5) the value and marketability of the collateral.  In
considering loans for accounts receivable and inventory, the Bank generally uses
a declining scale for advances based on an aging of the accounts receivable or
the quality and utility of the inventory.  With respect to loans for the
acquisition of equipment and other assets, the terms depend on the economic life
of the respective assets.




3




As of
December 31, 2008, $70.8 million, or 15% of the Bank’s total loan portfolio, was
comprised of commercial and industrial loans.Commercial loans involve
significant risk because there is generally a small market available for an
asset held as collateral that needs to be liquidated.  Commercial
loans for working capital needs are typically difficult to monitor.





As of
December 31, 2008, the classification of the consumer loans of the Bank and the
respective percentage of the Bank’s total loan portfolio of each are as follows
(dollars in thousands):





Total Outstanding
                                            
                                            
                                            Percentage ofDescription
                                            
                                            as of December 31, 2008
                                            
                                            
                                            Total Loan PortfolioIndividuals
      (household, personal, single pay,
      installment and other)
                                            
                                            $
                                            8,011
                                            
                                            
                                            
                                            2
                                            %Individuals
      (household, family, personalcredit cards and overdraft
      protection)
                                            
                                            $
                                            809
                                            
                                            
                                            
                                            1
                                            %All
      other consumer loans
                                            
                                            $
                                            154
                                            
                                            
                                            
                                            1
                                            %





The risks
associated with consumer lending are largely related to economic conditions and
increase during economic downturns.  Other major risk factors relating
to consumer loans include high debt to income ratios and poor loan-to-value
ratios.  All of the consumer loans set forth above require a debt
service income ratio of no greater than 36% based on gross income.





The
Bank’s lending activities are subject to a variety of lending limits imposed by
federal law.  Under South Carolina law, loans by the Bank to a single
customer may not exceed 7.5% of the Bank’s unimpaired capital, except that by
two-thirds vote of the directors of the Bank such limit may be increased to 15%
of the Bank’s unimpaired capital.  The Bank’s Board of Directors has
approved that increase in its lending limit.  Based on the Bank’s
unimpaired capital as of December 31, 2008, the Bank’s lending limit to a single
customer is approximately $8.5 million.  Even with the increase, the
size of the loans that the Bank is able to offer to potential customers is less
than the size of the loans that the Bank’s competitors with larger lending
limits are able to offer.  This limit affects the ability of the Bank
to seek relationships with the area’s larger businesses.  However, the
Bank may request other banks to participate in loans to customers when requested
loan amounts exceed the Bank’s legal lending limit.





Mortgage Loan
Division.  The Bank has established a mortgage loan division
through which it has broadened the range of services that it offers to its
customers.  The mortgage loan division originates secured real estate
loans to purchase existing or to construct new homes and to refinance existing
mortgages.  The following are the types of real estate loans
originated by the Bank and the general loan-to-value limits set by the Bank with
respect to each type.




·
                Raw
      Land
                65%·
                Land
      Development
                75%·
                Commercial,
      multifamily and other nonresidential construction
                80%·
                One
      to four family residential construction
                85%·
                Improved
      property
                85%·
                Owner
      occupied, one to four family and home equity
                90%
      (or less)·
                Commercial
      property
                80%
      (or less)




4




As of
December 31, 2008, the classification of the mortgage loans of the Bank and the
respective percentage of the Bank’s total loan portfolio of each are as follows
(dollars in thousands):





Total Amount
                                              
                                              
                                              Percentage ofDescription
                                              
                                              as of December 31, 2008
                                              
                                              
                                              Total Loan PortfolioSecured
      by non-farm, non-residential
                                              
                                              $
                                              192,707
                                              
                                              
                                              
                                              40
                                              %propertiesConstruction
      and land development
                                              
                                              $
                                              60,744
                                              
                                              
                                              
                                              13
                                              %Farmland
      (including farm residential
                                              
                                              $
                                              8,611
                                              
                                              
                                              
                                              1
                                              %and
      other improvements)Revolving,
      open end loans secured by
                                              
                                              $
                                              37,793
                                              
                                              
                                              
                                              8
                                              %1-4
      family extended under line ofcreditAll
      other loans secured by 1-4 family
                                              
                                              $
                                              72,245
                                              
                                              
                                              
                                              17
                                              %residential
      (1st
      lien)All
      other loans secured by 1-4 family
                                              
                                              $
                                              4,990
                                              
                                              
                                              
                                              1
                                              %residential
      (junior lien)Secured
      by multi-family (5 or more) residential properties – condos and
      apartments
                                              
                                              $
                                              7,105
                                              
                                              
                                              
                                              1
                                              %




Of the
loan types listed above, commercial real estate loans are generally more risky
because they are the most difficult to liquidate.  Construction loans
also involve risks due to weather delays and cost overruns.





The Bank
generates additional fee income by selling most of its mortgage loans in the
secondary market and cross-selling other products and services to its mortgage
customers.  In 2008, the Bank sold mortgage loans in a total amount of
approximately $121.7 million,or 56% of the total number
of mortgage loans originated by the Bank.





The Bank
does not originate or hold subprime residential mortgage loans which were
originally intended for sale on the secondary mortgage market.





All
Federal Housing Agency (“FHA”), Veterans Administration (“VA”) and South
Carolina State Housing Finance and Development Authority (“State Housing”) loans
sold by the Bank involve the right to recourse. The FHA and VA loans are subject
to recourse if the loan shows 60 days or more past due in the first four months
or goes in to foreclosure within the first 12 months.  The State
Housing loans are subject to recourse if the loan becomes delinquent prior to
purchase by State Housing or if final documentation is not delivered within 90
days of purchase.   All investors have a right to require the
Bank to repurchase a loan in the event the loan involved fraud.  In
2008, of the 692 loans sold by the Bank, 53 were FHA or VA loans and 69 were
State Housing loans.  Such loans represented 0.46% of the dollar
volume or 17.63% of the total number of loans sold by the Bank in
2008.





In addition, an increase in interest
rates may decrease the demand for consumer and commercial credit, including real
estate loans.  Net fees from residential mortgage originations were
$1.7 million, or 4.13%, of our gross revenue in 2008.




Other
Banking Services.TheBank focuses heavily on personal
customer service and offers a full range of financial
services.  Personal products include free checking, and savings
accounts, money market accounts, CDs and IRAs, and personal mortgage loans,
while business products include free checking and savings accounts, commercial
lending services, money market accounts,cash management services
including remote deposit captureand business deposit courier
service.  The Bank also offers wholesale mortgage, title insuranceand provides Internet
bankingand
eStatements, electronic
bill paying services, free ATMs, free coin machines at all branches, and an
overdraft privilege to its
customers.


5




Investments.  In
addition to its loan operations, the Bank makes other investments primarily in
obligations of the United States or obligations guaranteed as to principal and
interest by the United States and other taxable and nontaxable
securities.  The Bank also invests in certificates of deposits in
other financial institutions.  The amount invested in such time
deposits, as viewed on an institution by institution basis, does not exceed
$250,000.  Therefore, the amounts invested in certificates of deposit
are fully insured by the FDIC.  No investment held by the Bank exceeds
any applicable limitation imposed by law or regulation.  The Bank’s
Finance Committee reviews the investment portfolio on an ongoing basis to
ascertain investment profitability and to verify compliance with investment
policies.





Other
Services.In addition to
its banking services, the Bank offers securities brokerage services and life
insurance products to its customers through a networking arrangement with an
independent registered broker-dealer firm.





Competition





The Bank faces strong competition for
deposits, loans and other financial services from numerous other banks, thrifts,
credit unions, other financial institutions and other entities that provide
financial services, some of which are not subject to the same degree of
regulation as the Bank.  Because South Carolina law permits statewide
branching by banks and savings and loan associations, many financial
institutions in the state have extensive branch networks.  In
addition, subject to certain conditions, South Carolina law permits interstate
banking.  Reflecting this opportunity provided by law plus the growth
prospects of the Charleston, Florence, Lexington, and Greenville markets, all of
the five largest (in terms of local deposits) commercial banks in our market are
branches of or affiliated with regional or super-regional banks.





As of
June 30, 2008, 46 banks and 9 savings institutions
operated 417 offices within Charleston, Florence, Lexington, and Greenville
Counties.  All of these institutions aggressively compete for business in
the Bank’s market area.  Some of these competitors have been in business
for many years have established customer bases, are larger than the Bank, have
substantially higher lending limits than the Bank has and are able to offer
certain services, including trust and international banking services, that the
Bank is able to offer only through correspondents, if at all.





The Bank
currently conducts business principally through its six branches in Charleston,
Florence, Lexington, and Greenville Counties, South Carolina.  Based
upon data available on the FDIC’s website as of June 30, 2008, the Bank’s total
deposits ranked tenth among financial institutions in our market area,
representing approximately 2.05% of the total deposits in our market
area.  The table below shows our deposit market share in the counties
we serve according to data from the FDIC website as of June 30,
2008.




Market
                
                Number of
                  Branches
                
                
                Our Market
                  Deposits
                
                
                Total
                  Market
                  Deposits
                
                
                Ranking
                
                
                MarketShare
                  PercentageSouth
      Carolina (by county):Charleston
      County
                
                
                2
                
                
                $
                50
                
                
                $
                7,303
                
                
                
                14
                
                
                
                2.70
                %Florence
      County
                
                
                2
                
                
                
                320
                
                
                
                2,078
                
                
                
                3
                
                
                
                18.70Lexington
      County
                
                
                1
                
                
                
                83
                
                
                
                2,686
                
                
                
                4
                
                
                
                7.70Greenville
      County
                
                
                1
                
                
                
                2
                
                
                
                10,121
                
                
                
                32
                
                
                
                0.01First
      Reliance Bank (statewide)
                
                
                6
                
                
                $
                456
                
                
                $
                66,549
                
                
                
                22
                
                
                
                0.69
                %





The Bank competes based on providing
its customers with high-quality, prompt and knowledgeable personalized service
at competitive rates, which is a combination that the Bank believes customers
generally find lacking at larger institutions.  The Bank offers a wide
variety of financial products and services at fees that it believes are
competitive with other financial institutions.





Employees





On December 31, 2008, the Bank had 145
full-time employees and 25 part-time employees.  The executive
officers of the Company also serve as executive officers of and are compensated
by the Bank.  The Company has no employees.




6




Supervision
and Regulation





Both the
Company and the Bank are subject to extensive state and federal banking
regulations that impose restrictions on and provide for general regulatory
oversight of their operations.  These laws generally are intended to
protect depositors and not shareholders.  Legislation and regulations
authorized by legislation influence, among other things:




·
            how,
      when and where we may expand
geographically;




·
            into
      what product or service market we may
enter;




·
            how
      we must manage our assets; and




·
            under
      what circumstances money may or must flow between the Company and the
      Bank.





Set forth
below is an explanation of the major pieces of legislation affecting our
industry and how that legislation affects our actions.  The following
summary is qualified by reference to the statutory and regulatory provisions
discussed.  Changes in applicable laws or regulations may have a
material effect on our business and prospects, and legislative changes and the
policies of various regulatory authorities may significantly affect our
operations.  We cannot predict the effect that fiscal or monetary
policies, or new federal or state legislation may have on our business and
earnings in the future.





First
Reliance Bancshares, Inc.





Since the Company owns all of the
capital stock of the Bank, it is a bank holding company under the federal Bank
Holding Company Act of 1956.  As a result, the Company is primarily
subject to the supervision, examination, and reporting requirements of the Bank
Holding Company Act and the regulations of the Board of Governors of the Federal
Reserve System (the “Federal Reserve”).





Acquisitions of
Banks.The Bank Holding Company
Act requires every bank holding company to obtain the Federal Reserve’s prior
approval before:




·
            acquiring
      direct or indirect ownership or control of any voting shares of any bank
      if, after the acquisition, the bank holding company will directly or
      indirectly own or control more than 5% of the bank’s voting
      shares;




·
            acquiring
      all or substantially all of the assets of any bank;
  or




·
            merging
      or consolidating with any other bank holding
  company.





Additionally,
the Bank Holding Company Act provides that the Federal Reserve may not approve
any of these transactions if it would result in or tend to create a monopoly or,
substantially lessen competition or otherwise function as a restraint of trade,
unless the anti-competitive effects of the proposed transaction are clearly
outweighed by the public interest in meeting the convenience and needs of the
community to be served.  The Federal Reserve is also required to
consider the financial and managerial resources and future prospects of the bank
holding companies and banks concerned and the convenience and needs of the
community to be served.  The Federal Reserve’s consideration of
financial resources generally focuses on capital adequacy, which is discussed
below.





Under the
Bank Holding Company Act, if adequately capitalized and adequately managed, the
Company or any other bank holding company located in South Carolina may purchase
a bank located outside of South Carolina.  Conversely, an adequately
capitalized and adequately managed bank holding company located outside of South
Carolina may purchase a bank located inside South Carolina.  In each
case, however, restrictions may be placed on the acquisition of a bank that has
only been in existence for a limited amount of time or will result in specified
concentrations of deposits.  For example, South Carolina law prohibits
a bank holding company from acquiring control of a financial institution until
the target financial institution has been incorporated for five
years.




7




Additionally, in July 1994, South
Carolina enacted legislation which effectively provided that, after June 30,
1996, out-of-state bank holding companies could acquire other banks or bank
holding companies in South Carolina, subject to certain
conditions.  Accordingly, effective July 1, 1996, South Carolina law
was amended to permit interstate branching but not de novo branching by an
out-of-state bank.  The Company believes that the foregoing
legislation has increased takeover activity of South Carolina financial
institutions by out-of-state financial institutions.





Change in Bank
Control.Subject to
various exceptions, the Bank Holding Company Act and the Change in Bank Control
Act, together with related regulations, require Federal Reserve approval prior
to any person or company acquiring “control” of a bank holding
company.  Control is conclusively presumed to exist if an individual
or company acquires 25% or more of any class of voting securities of the bank
holding company.  Control is rebuttably presumed to exist if a person
or company acquires 10% or more, but less than 25%, of any class of voting
securities and either:




·
            the
      bank holding company has registered securities under Section 12 of
      the Exchange Act; or




·
            no
      other person owns a greater percentage of that class of voting securities
      immediately after the transaction.





Our common stock is registered under
Section 12 of the Exchange Act.  The regulations provide a procedure
for challenging any rebuttable presumption of control.





Permitted
Activities.  The Bank Holding Company
Act has generally prohibited a bank holding company from engaging in activities
other than banking or managing or controlling banks or other permissible
subsidiaries and from acquiring or retaining direct or indirect control of any
company engaged in any activities other than those determined by the Federal
Reserve to be closely related to banking or managing or controlling banks as to
be a proper incident thereto.  Provisions of the Gramm-Leach-Bliley Act
have expanded the permissible activities of a bank holding company that
qualifies as a financial holding company.  Under the regulations
implementing the Gramm-Leach-Bliley Act, a financial holding company may engage
in additional activities that are financial in nature or incidental or
complementary to financial activity.  Those activities include, among
other activities, certain insurance and securities activities.





To qualify to become a financial
holding company, the Bank and any other depository institution subsidiary of the
Company must be well capitalized and well managed and must have a Community
Reinvestment Act rating of at least “satisfactory.”  Additionally, the
Company must file an election with the Federal Reserve to become a financial
holding company and must provide the Federal Reserve with 30 days’ written
notice prior to engaging in a permitted financial activity. While the Company
meets the qualification standards applicable to financial holding companies, the
Company has not elected to become a financial holding company at this
time.





Support of
Subsidiary Institutions.  Under Federal Reserve policy, the
Company is expected to act as a source of financial strength for the Bank and to
commit resources to support the Bank.  This support may be required at
times when, without this Federal Reserve policy, the Company might not be
inclined to provide it.  In addition, any capital loans made by the
Company to the Bank will be repaid only after its deposits and various other
obligations are repaid in full.  In the unlikely event of the
Company’s bankruptcy, any commitment by it to a federal bank regulatory agency
to maintain the capital of the Bank will be assumed by the bankruptcy trustee
and entitled to a priority of payment.





South Carolina
Law.Asa bank holding company
with its principal offices in South Carolina, the Company is subject to
limitations on sale or merger and to regulation by the South Carolina State
Board of Financial Institutions (the “State Board”).  The Company must
receive the approval of the State Board prior to acquiring control of a bank or
bank holding company or all or substantially all of the assets of a bank or a
bank holding company.  The Company also must file with the State Board
periodic reports with respect to its financial condition, operations and
management, and the intercompany relationships between the Company and its
subsidiaries.




8




First
Reliance Bank





The Bank is a state chartered bank
insured by the FDIC and is not a member of the Federal Reserve.  As
such, the Bank is subject to supervision and regulation by the FDIC and the
State Board.  Supervision, regulation and examination of banks by
regulatory agencies are intended primarily for the protection of depositors
rather than shareholders of the banks.





South Carolina
Law.  Commercial banks chartered in South Carolina have only
those powers granted by law or the regulations of the State
Board.  State law sets specific requirements for bank capital and
regulates deposits in and loans and investments by banks, including the amounts,
types and, in some cases, rates.  In addition, the State Board
regulates, among other activities, the payment of dividends, the opening of
branches, loans to officers and directors, record keeping and the use of
automated teller machines.  The State Board periodically examines
state banks to determine their compliance with the law and regulations, and
state banks must make periodic reports of their condition to the State
Board.





Prompt Corrective
Action.The Federal
Deposit Insurance Corporation Improvement Act of 1991 establishes a system of
prompt corrective action to resolve the problems of undercapitalized financial
institutions.  Under this system, the federal banking regulators have
established five capital categories (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized) in which all institutions are placed.  Federal
banking regulators are required to take various mandatory supervisory actions
and are authorized to take other discretionary actions with respect to
institutions in the three undercapitalized categories.  The severity
of the action depends upon the capital category in which the institution is
placed.  Generally, subject to a narrow exception, the banking
regulator must appoint a receiver or conservator for an institution that is
critically undercapitalized.  The federal banking agencies have
specified by regulation the relevant capital level for each
category.  As of December 31, 2008, the Bank qualified for the
well-capitalized category.





A
“well-capitalized” bank is one that significantly exceeds all of its capital
requirements, which include maintaining a total risk-based capital ratio of at
least 10%, a tier 1 risk-based capital ratio of at least 6%, and a tier 1
leverage ratio of at least 5%.  Generally, a classification as well
capitalized will place a bank outside of the regulatory zone for purposes of
prompt corrective action.  However, a well-capitalized bank may be
reclassified as “adequately capitalized” based on criteria other than capital,
if the federal regulator determines that a bank is in an unsafe or unsound
condition, or is engaged in unsafe or unsound practices and has not corrected
the deficiency.





FDIC
Insurance Assessments.The FDIC is an independent agency of
the United States government that uses the Deposit Insurance Fund to protect
against the loss of insured deposits if an FDIC-insured bank or savings
association fails. The
FDIC must maintain the Deposit Insurance Fund (the “DIF”) within a range between 1.15 percent
and 1.50 percent of all insured deposits.





The FDIC
has adopted a risk-based assessment system for insured depository institutions
that takes into account the risks attributable to different categories and
concentrations of assets and liabilities.  The system assesses higher
rates on those institutions that pose greater risks to the DIF.  The
FDIC places each institution in one of four risk categories using a two-step
process based first on capital ratios (the capital group assignment) and then on
other relevant information (the supervisory group assignment).  Within
the lower risk category, Risk Category I, rates will vary based on each
institution’s CAMELS component ratings, certain financial ratios, and long-term
debt issuer ratings.





Capital
group assignments are made quarterly and an institution is assigned to one of
three capital categories: (1) well capitalized; (2) adequately capitalized; and
(3) undercapitalized.  These three categories are substantially
similar to the prompt corrective action categories described above, with the
“undercapitalized” category including institutions that are undercapitalized,
significantly undercapitalized and critically undercapitalized for prompt
corrective action purposes.  The FDIC also assigns an institution to
one of three supervisory subgroups based on a supervisory evaluation that the
institution’s primary federal banking regulator provides to the FDIC and
information that the FDIC determines to be relevant to the institution’s
financial condition and the risk posed to the deposit insurance
funds.




9




For 2008,
assessments range from $0.05 to $0.43 per $100 of deposits, depending on the
institution’s risk category.  Institutions in the lowest risk
category, Risk Category I, were charged a rate between $0.05 and $0.07 cents per
$100 of deposits.





The FDIC
may terminate its insurance of deposits if it finds that the institution has
engaged in unsafe and unsound practices, is in an unsafe or unsound condition to
continue operations, or has violated any applicable law, regulation, rule,
order, or condition imposed by the FDIC.  Risk Categories II, III, and
IV were charged 10 basis points, 28 basis points and 43 basis points,
respectively.




Because
the Deposit Insurance Fund reserve fell below 1.15 % as of June 30, 2008, and
was expected to remain below 1.15%, the Federal Deposit Insurance Reform Act of
2005 required the FDIC to establish and implement a restoration plan to restore
the reserve ratio to no less than 1.15% within five years, absent extraordinary
circumstances.




On
December 16, 2008, the FDIC adopted, as part of its restoration plan, a uniform
increase to the assessment rates by 7 basis points (annualized) for the first
quarter 2009 assessments.  As a result, institutions in Risk Category
I will be charged a rate between $0.12 and $0.14 per $100 of
deposits.  Risk Categories II, III, and IV will be charged 17 basis
points, 35 basis points, and 50 basis points, respectively.




On
February 27, 2009, the FDIC amended its restoration plan to extend the period
for restoration to seven years and further revised the risk-based assessment
system.  Starting with the second quarter of 2009, institutions in
Risk Category I will have a base assessment rate between $0.12 and $0.16 per
$100 of deposits.  Risk Categories II, III, and IV will be have base
assessment rates of 22 basis points, 32 basis points, and 45 basis points,
respectively.  These base assessments will be subject to adjustments
based on each institution’s unsecured debt, secured liabilities, and use of
brokered deposits.  As a result of these adjustments, institutions in
Risk Category I will be charged rate between $0.7 and $0.24 per $100 of
deposits.  Risk Categories II, III, and IV will be charged between 17
and 43 basis points, 27 and 58 basis points, and 40 and 77.5 basis points,
respectively.




Under an
interim rule adopted on February 27, 2009, the FDIC will impose an emergency
special assessment of 20 basis points as of June 30, 2009, and may impose
additional emergency special assessments of up to 10 basis points thereafter if
the reserve ratio is estimated to fall to a level that the FDIC believes would
adequately affect public confidence or to a level that shall be close to zero or
negative at the end of a calendar quarter.




The FDIC
may, without further notice-and-comment rulemaking, adopt rates that are higher
or lower than the stated base assessment rates, provided that the FDIC cannot
(i) increase or decrease the total rates from one quarter to the next by more
than three basis points, or (ii) deviate by more than three basis points from
the stated assessment rates.




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




FDIC Temporary
Liquidity Guarantee Program.On October 14, 2008, the FDIC
announced that its board of directors, under the authority to prevent “systemic
risk” in the United States banking system, approved the Temporary Liquidity
Guarantee Program (“TLGP”).  The purpose of the TLGP is to strengthen
confidence and encourage liquidity in the banking system.  The TLGP is
composed of two components, the Debt Guarantee Program and the Transaction
Account Guarantee Program, and institutions had the opportunity, prior to
December 5, 2008, to opt-out of either or both components of the
TLGP.





The Debt
Guarantee Program.  Under the TLGP, the FDIC is permitted to
guarantee certain newly issued senior unsecured debt issued by participating
financial institutions.  The annualized fee that the FDIC will assess
to guarantee the senior unsecured debt varies by the length of maturity of the
debt.  For debt with a maturity of 180 days or less (excluding
overnight debt), the fee is 50 basis points; for debt with a maturity between
181 days and 364 days, the fee is 75 basis points, and for debt with a maturity
of 365 days or longer, the fee is 100 basis points.  The Bank did not
opt-out of the Debt Guarantee component of the TLGP.




10




The Transaction
Account Guarantee Program.  Under the TLGP, the FDIC is
permitted to fully insure non-interest bearing deposit accounts held at
participating FDIC-insured institutions, regardless of dollar amount. The
temporary guarantee will expire at the end of 2009.  For the eligible
non-interest-bearing transaction deposit accounts (including accounts swept from
a non-interest bearing transaction account into an non-interest bearing savings
deposit account), a 10 basis point annual rate surcharge will be applied to
non-bearing transaction deposit amounts over $250,000.  Institutions
will not be assessed on amounts that are otherwise insured.  The Bank
did not opt-out of the Transaction Account Guarantee component of the
TLGP.




Community
Reinvestment Act.  The Community Reinvestment Act of 1977 (“CRA”)
requires that, in connection with examinations of financial institutions within
their respective jurisdictions, the federal banking agencies shall evaluate the
record of each financial institution in meeting the credit needs of its local
community, including low- and moderate-income neighborhoods.  These facts
are also considered in evaluating mergers, acquisitions, and applications to
open a branch or facility.  Failure to adequately meet these criteria could
impose additional requirements and limitations on the Bank.  Additionally,
the Bank must publicly disclose the terms of various Community Reinvestment
Act-related agreements.




Allowance for
Loan and Lease Losses.The Allowance for Loan and Lease Losses
(the “ALLL”) represents one of the most significant estimates in the Bank’s
financial statements and regulatory reports.  Because of its
significance, the Bank has developed a system by which it develops, maintains
and documents a comprehensive, systematic and consistently applied process for
determining the amounts of the ALLL and the provision for loan and lease
losses.  The Interagency Policy Statement on the Allowance for Loan
and Lease Losses, issued on December 13, 2006, encourages all banks to ensure
controls are in place to consistently determine the ALLL in accordance with
GAAP, the bank’s stated policies and procedures, management’s best judgment and
relevant supervisory guidance.  Consistent with supervisory guidance,
the Bank maintains a prudent and conservative, but not excessive, ALLL, that is
at a level that is appropriate to cover estimated credit losses on individually
evaluated loans determined to be impaired as well as estimated credit losses
inherent in the remainder of the loan and lease portfolio.  The Bank’s
estimate of credit losses reflects consideration of all significant factors that
affect the collectability of the portfolio as of the evaluation
date.  See “Management’s Discussion and Analysis – Provision and
Allowance for Loan Losses” and “ – Accounting and Financial Reporting
Issues.”




Commercial Real
Estate Lending.  The Bank’s lending operations may be subject
to enhanced scrutiny by federal banking regulators based on its concentration of
commercial real estate loans.  On December 6, 2006, the federal
banking regulators issued final guidance to remind financial institutions of the
risk posed by commercial real estate (“CRE”) lending
concentrations.  CRE loans generally include land development,
construction loans and loans secured by multifamily property, and nonfarm,
nonresidential real property where the primary source of repayment is derived
from rental income associated with the property.  The guidance
prescribes the following guidelines for its examiners to help identify
institutions that are potentially exposed to significant CRE risk and may
warrant greater supervisory scrutiny:




·
            total
      reported loans for construction, land development and other land represent
      100% or more of the institutions total capital,
  or




·
            total
      commercial real estate loans represent 300% or more of the institution’s
      total capital, and the outstanding balance of the institution’s commercial
      real estate loan portfolio has increased by 50% or
  more.





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




·
            Truth-In-Lending
      Act, governing disclosures of credit terms to consumer
      borrowers;




11




·
            Home
      Mortgage Disclosure Act of 1975, requiring financial institutions to
      provide information to enable the public and public officials to determine
      whether a financial institution is fulfilling its obligation to help meet
      the housing needs of the community it
serves;




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




·
            Fair
      Credit Reporting Act of 1978, as amended by the Fair and Accurate Credit
      Transactions Act, governing the use and provision of information to credit
      reporting agencies, certain identity theft protections, and certain credit
      and other disclosures;




·
            Fair
      Debt Collection Act, governing the manner in which consumer debts may be
      collected by collection agencies;




·
            Soldiers’
      and Sailors’ Civil Relief Act of 1940, as amended by the Service members
      Civil Relief Act, governing the repayment terms of, and property rights
      underlying, secured obligations of persons currently on active duty with
      the United States military;




·
            Talent
      Amendment in the 2007 Defense Authorization Act, establishing a 36% annual
      percentage rate ceiling, which includes a variety of charges including
      late fees, for consumer loans to military service members and their
      dependents; and




·
            rules
      and regulations of the various federal agencies charged with the
      responsibility of implementing these federal
  laws.





The Bank’s deposit operations are
subject to federal laws applicable to depository accounts , such as
the:




·
            Truth-in-Savings
      Act, requiring certain disclosures for consumer deposit
      accounts;




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




·
            Electronic
      Funds Transfer Act and Regulation E issued by the Federal Reserve to
      implement that act, which govern automatic deposits to and withdrawals
      from deposit accounts and customers’ rights and liabilities arising from
      the use of automated teller machines and other electronic banking
      services; and




·
            rules
      and regulations of the various federal agencies charged with the
      responsibility of implementing these federal
  laws.





Capital
Adequacy





The
Company and the Bank are required to comply with the capital adequacy standards
established by the Federal Reserve, in the case of the Company, and the FDIC, in
the case of the Bank.  The Federal Reserve has established a
risk-based and a leverage measure of capital adequacy for bank holding
companies.  The Bank is also subject to risk-based and leverage
capital requirements adopted by the FDIC, which are substantially similar to
those adopted by the Federal Reserve for bank holding companies.





The
risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets.  Assets and off-balance-sheet
items, such as letters of credit and unfunded loan commitments, are assigned to
broad risk categories, each with appropriate risk weights.  The
resulting capital ratios represent capital as a percentage of total
risk-weighted assets and off-balance-sheet items.





The
minimum guideline for the ratio of total capital to risk-weighted assets is
8%.  Total capital consists of two components, Tier 1 Capital and Tier
2 Capital.  Tier 1 Capital generally consists of common stock,
minority interests in the equity accounts of consolidated subsidiaries,
noncumulative perpetual preferred stock, and a limited amount of qualifying
cumulative perpetual preferred stock, less goodwill and other specified
intangible assets.  Tier 1 Capital must equal at least 4% of
risk-weighted assets.  Tier 2 Capital generally consists of
subordinated debt, other preferred stock, and a limited amount of loan loss
reserves.  The total amount of Tier 2 Capital is limited to 100% of
Tier 1 Capital.  At December 31, 2008, our ratio of total capital to
risk-weighted assets was 10.86% and our ratio of Tier 1 Capital to risk-weighted
assets was 9.60%.




12




In
addition, the Federal Reserve has established minimum leverage ratio guidelines
for bank holding companies.  These guidelines provide for a minimum
ratio of Tier 1 Capital to average assets, less goodwill and other specified
intangible assets, of 3% for bank holding companies that meet specified
criteria, including having the highest regulatory rating and implementing the
Federal Reserve’s risk-based capital measure for market risk.  All
other bank holding companies generally are required to maintain a leverage ratio
of at least 4%.  At December 31, 2008, our leverage ratio was
8.18%.  The guidelines also provide that bank holding companies
experiencing internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory levels
without reliance on intangible assets.  The Federal Reserve considers
the leverage ratio and other indicators of capital strength in evaluating
proposals for expansion or new activities.





Failure
to meet capital guidelines could subject a bank or bank holding company to a
variety of enforcement remedies, including issuance of a capital directive, the
termination of deposit insurance by the FDIC, a prohibition on accepting
brokered deposits, and certain other restrictions on its business.  As
described above, significant additional restrictions can be imposed on
FDIC-insured depository institutions that fail to meet applicable capital
requirements.





Payment
of Dividends





The
Company is a legal entity separate and distinct from the Bank.  The
principal sources of the Company’s cash flow, including cash flow to pay
dividends to its shareholders, are dividends that the Bank pays to its sole
shareholder, the Company.  Statutory and regulatory limitations apply
to the Bank’s payment of dividends to the Company as well as to the Company’s
payment of dividends to its shareholders.





Under
South Carolina law, the Bank is authorized to upstream to the Company, by way of
a cash dividend, up to 100% of the Bank’s net income in any calendar year
without obtaining the prior approval of the State Board, provided that the Bank
received a composite rating of one or two at the last examination conducted by a
state or federal regulatory authority.  All other cash dividends
require prior approval by the State Board.  South Carolina law
requires each state nonmember bank to maintain the same reserves against
deposits as are required for a state member bank under the Federal Reserve
Act.  This requirement is not expected to limit the ability of the
Bank to pay dividends on its common stock.





The
payment of dividends by the Company and the Bank may also be affected by other
factors, such as the requirement to maintain adequate capital above regulatory
guidelines.  If, in the opinion of the FDIC, the Bank were engaged in
or about to engage in an unsafe or unsound practice, the FDIC could require,
after notice and a hearing, that the Bank stop or refrain engaging in the
practice.  The federal banking agencies have indicated that paying
dividends that deplete a depository institution’s capital base to an inadequate
level would be an unsafe and unsound banking practice.  Under the
Federal Deposit Insurance Corporation Improvement Act of 1991, a depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized.  Moreover, the
federal agencies have issued policy statements that provide that bank holding
companies and insured banks should generally only pay dividends out of current
operating earnings.





The
Company received a capital investment from the United States Department of the
Treasury (the “Treasury”) under the capital purchase component of the Troubled
Assets Relief Program (“TARP”) on March 6, 2009.  Concurrent with the
closing of that transaction, the Company became subject to additional
limitations on the payment of dividends.  These limitations require,
among other things, that (i) all dividends for the securities purchased under
TARP be paid before other dividends can be paid and (ii) the Treasury must
approve any increases in common dividends for three years following the
Treasury’s investment.





Restrictions
on Transactions with Affiliates





The Company and the Bank are subject to
the provisions of Section 23A of the Federal Reserve Act.  Section 23A
places limits on the amount of:




·
            a
      bank’s loans or extensions of credit to
  affiliates;




·
            a
      bank’s investment in affiliates;




13




·
            assets
      a bank may purchase from affiliates, except for real and personal property
      exempted by the Federal Reserve;




·
            loans
      or extensions of credit to third parties collateralized by the securities
      or obligations of affiliates; and




·
            a
      bank’s guarantee, acceptance or letter of credit issued on behalf of an
      affiliate.





The total amount of the above
transactions is limited in amount, as to any one affiliate, to 10% of a bank’s
capital and surplus and, as to all affiliates combined, to 20% of a bank’s
capital and surplus.  In addition to the limitation on the amount of
these transactions, each of the above transactions must also meet specified
collateral requirements.  The Bank must also comply with other
provisions designed to avoid the taking of low-quality assets.





The Company and the Bank are also
subject to the provisions of Section 23B of the Federal Reserve Act which, among
other things, prohibit an institution from engaging in the above transactions
with affiliates unless the transactions are on terms substantially the same, or
at least as favorable to the institution or its subsidiaries, as those
prevailing at the time for comparable transactions with nonaffiliated
companies.





The Bank
is also subject to restrictions on extensions of credit to its executive
officers, directors, principal shareholders and their related
interests.  These extensions of credit (1) must be made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with third parties, and
(2) must not involve more than the normal risk of repayment or present
other unfavorable features.





Limitations
on Senior Executive Compensation





Because
the Company received an investment from the Treasury under the capital purchase
component of TARP, the Company and its senior executives agreed to certain
compensation limitations.  These limitations include:




·
            ensuring
      that senior executive incentive compensation packages do not encourage
      excessive risk;




·
            subjecting
      senior executive compensation to “clawback” if the compensation was based
      on inaccurate financial information or performance
  metrics;




·
            prohibiting
      any golden parachute payments to senior executive officers;
      and




·
            an
      agreement not to deduct for tax purposes more than $500,000 for a senior
      executive officer’s compensation.





Proposed
Legislation and Regulatory Action





New
regulations and statutes are regularly proposed that contain wide-ranging
changes to the structures, regulations and competitive relationships of
financial institutions operating and doing business in the United
States.  We cannot predict whether or in what form any proposed
regulation or statute will be adopted or the extent to which our business may be
affected by any new regulation or statute.





Effect of Governmental Monetary
Policies





Our
earnings are affected by domestic economic conditions and the monetary and
fiscal policies of the United States government and its agencies.  The
Federal Reserve Bank’s monetary policies have had, and are likely to continue to
have, an important impact on the operating results of commercial banks through
its power to implement national monetary policy in order, among other things, to
curb inflation or combat a recession.  The monetary policies of the
Federal Reserve affect the levels of bank loans, investments and deposits
through its control over the issuance of United States government securities,
its regulation of the discount rate applicable to member banks and its influence
over reserve requirements to which member banks are subject.  We
cannot predict the nature or impact of future changes in monetary and fiscal
policies.




14




Selected
Statistical Information





The
selected statistical information required by Item 1 is included in the Company’s
2008 Annual Report to Shareholders, which is Exhibit 13.1 to this Report, under
the heading “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and is incorporated herein by reference.





ITEM
1A.  RISK FACTORS





An investment in our common stock
involves risks.  If any of the following risks or other risks, which
have not been identified or which we may believe are immaterial or unlikely,
actually occur, our business, financial condition and results of operations
could be harmed.  In such a case, the trading price of our common
stock could decline, and you may lose all or part of your
investment.  The risks discussed below also include forward-looking
statements, and our actual results may differ substantially from those discussed
in these forward-looking statements.





We
could suffer loan losses from a decline in credit quality.




We could
sustain losses if borrowers, guarantors and related parties fail to perform in
accordance with the terms of their loans.  We have adopted
underwriting and credit monitoring procedures and credit policies, including the
establishment and review of the allowance for credit losses, which we believe
are appropriate to minimize this risk by assessing the likelihood of
nonperformance, tracking loan performance and diversifying our credit
portfolio.  These policies and procedures, however, may not prevent
unexpected losses that could materially adversely affect our results of
operations.





We
are subject to the local economies in Charleston, Florence, Lexington, and
Greenville Counties, South Carolina.




Our
success depends upon the growth in population, income levels, deposits and
housing starts in our primary market areas. If the communities in which First
Reliance Bank operate do not grow, or if prevailing economic conditions locally
or nationally are unfavorable, our business may not
succeed.  Unpredictable economic conditions may have an adverse effect
on the quality of our loan portfolio and our financial
performance.  Economic recession over a prolonged period or other
economic problems in our market areas could have a material adverse impact on
the quality of the loan portfolio and the demand for our products and
services.  Future adverse changes in the economies in our market areas
may have a material adverse effect on our financial condition, results of
operations or cash flows.  Further, the banking industry in South
Carolina is affected by general economic conditions such as inflation,
recession, unemployment and other factors beyond our control.  As a
community bank, we are less able to spread the risk of unfavorable local
economic conditions than larger or more regional banks.  Moreover, we
cannot give any assurance that we will benefit from any market growth or
favorable economic conditions in our primary market areas if they do
occur.





In
addition to considering the financial strength and cash flow characteristics of
borrowers, we often secure loans with real estate collateral. The real estate
collateral in each case provides an alternate source of repayment in the event
of default by the borrower and may deteriorate in value during the time the
credit is extended. The market value of the real estate securing our loans as
collateral has been adversely affected by the slowing economy and unfavorable
changes in economic conditions in our market areas and could be further
adversely affected in the future.





As of
December 31, 2008, approximately 81.9% of our loans receivable were secured by
real estate. Any sustained period of increased payment delinquencies,
foreclosures or losses caused by the adverse market and economic conditions,
including the downturn in the real estate market, in our markets will adversely
affect the value of our assets, revenues, results of operations and financial
condition. Currently, we are experiencing such an economic downturn, and if it
continues, our operations could be further adversely affected.




15




The
FDIC Deposit Insurance assessments that we are required to pay may materially
increase in the future, which would have an adverse effect on our
earnings.





As an
insured depository institution, we are required to pay quarterly deposit
insurance premium assessments to the FDIC.  These assessment are
required to ensure that FDIC deposit insurance reserve ratio is at least 1.15%
of insured deposits.  Under the Federal Deposit Insurance Act, the
FDIC, absent extraordinary circumstances, must establish and implement a plan to
restore the deposit insurance reserve ratio to 1.15% of insured deposits, over a
five-year period, when the reserve ratio falls below 1.15%.  The
recent failures of several financial institutions have significantly increased
the Deposit Insurance Fund’s loss provisions, resulting in a decline in the
reserve ratio.  The FDIC expects a higher rate of insured institution
failures in the next few years, which may result in a continued decline in the
reserve ratio.





Beginning
on January 1, 2009, there was a uniform seven basis points (annualized) increase
to the assessments that banks pay for deposit insurance.  The
increased assessment rates range from 12 to 50 basis points (annualized) for the
first quarter 2009 assessment, which will be owed on June 30,
2009.  Beginning on April 1, 2009, the FDIC will modify the risk-based
assessments to account for each institution’s unsecured debt, secured
liabilities and use of brokered deposits.  Assessment rates will range
from 7 to 77.5 basis points (annualized) starting with the second quarter 2009
assessments, which will be owed on September 30, 2009.  In addition,
the FDIC has adopted an interim rule to impose an emergency assessment of 20
basis points as of June 30, 2009, which will be owed on September 30,
2009.  The FDIC may also impose additional emergency special
assessments of up to 10 basis points thereafter if the reserve ratio is
estimated to fall to a level that the FDIC believes would adequately affect
public confidence or to a level that shall be close to zero or negative at the
end of a calendar quarter.





If the
FDIC imposes additional emergency assessments, or otherwise further increases
assessment rates, our earnings could be further adversely
impacted.




If
our allowance for loan losses is not sufficient to cover actual loan losses, our
earnings could decrease.




Our success depends to a significant
extent upon the quality of our assets, particularly loans. In originating loans,
there is a substantial likelihood that we will experience credit
losses.  The risk of loss will vary with, among other things, general
economic conditions, the type of loan, the creditworthiness of the borrower over
the term of the loan and, in the case of a collateralized loan, the quality of
the collateral for the loan.




Our loan customers may not repay their
loans according to the terms of these loans, and the collateral securing the
payment of these loans may be insufficient to assure repayment.  As a
result, we may experience significant loan losses, which could have a material
adverse effect on our operating results.  Management makes various
assumptions and judgments about the collectability of our loan portfolio,
including the creditworthiness of our borrowers and the value of the real estate
and other assets serving as collateral for the repayment of many of our
loans.  We maintain an allowance for loan losses in an attempt to
cover any loan losses that may occur. In determining the size of the allowance,
we rely on an analysis of our loan portfolio based on historical loss
experience, volume and types of loans, trends in classification, volume and
trends in delinquencies and non-accruals, national and local economic
conditions, and other pertinent information.




If our assumptions are wrong, our
current allowance may not be sufficient to cover future loan losses, and we may
need to make adjustments to allow for different economic conditions or adverse
developments in our loan portfolio.  Material additions to our
allowance would materially decrease our net income.  As a result of a
difficult real estate market, we have increased our allowance from $5.3 million
as of December 31, 2007 to $8.2 million as of December 31,
2008.  We expect to continue to increase our allowance in 2009;
however, given current and future market conditions, we can make no assurance
that our allowance will be adequate to cover future loan losses.




In addition, federal and state
regulators periodically review our allowance for loan losses and may require us
to increase our provision for loan losses or recognize further loan charge-offs,
based on judgments different than those of our management. Any increase in our
allowance for loan losses or loan charge-offs as required by these regulators
could have a negative effect on our operating results.





Our
business strategy includes the continuation of growth plans, and our financial
condition and results of operations could be negatively affected if we fail to
grow or fail to manage our growth effectively.




We intend
to continue pursuing a growth strategy for our business.  Our
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by companies in significant growth stages of
development.  We cannot assure you we will be able to expand our
market presence in our existing markets or successfully enter new markets or
that any such expansion will not adversely affect our results of
operations.  Failure to manage our growth effectively could have a
material adverse effect on our business, future prospects, financial condition
or results of operations, and could adversely affect our ability to successfully
implement our business strategy.  Also, if our growth occurs more
slowly than anticipated or declines, our operating results could be materially
adversely affected.




16




Our
ability to successfully grow will depend on a variety of factors including the
continued availability of desirable business opportunities, the competitive
responses from other financial institutions in our market areas and our ability
to manage our growth.  While we believe we have the management
resources and internal systems in place to successfully manage our future
growth, there can be no assurance growth opportunities will be available or
growth will be successfully managed.





Changes
in the interest rate environment could reduce our profitability.




As a
financial institution, our earnings are significantly dependent upon our net
interest income, which is the difference between the interest income that we
earn on interest-earning assets, such as investment securities and loans, and
the interest expense that we pay on interest-bearing liabilities, such as
deposits and borrowings. Therefore, any change in general market interest rates,
including changes resulting from changes in the Federal Reserve’s fiscal and
monetary policies, affects us more than nonfinancial institutions and can have a
significant effect on our net interest income and total income. Our assets and
liabilities may react differently to changes in overall market rates or
conditions because there may be mismatches between the repricing or maturity
characteristics of the assets and liabilities. As a result, an increase or
decrease in market interest rates could have material adverse effects on our net
interest margin and results of operations.




Since
January 2008, in response to the dramatic deterioration of the subprime,
mortgage, credit, and liquidity markets, the Federal Reserve has taken action on
seven occasions to reduce interest rates by a total of 400 to 425 basis points,
which has reduced our net interest income and will likely continue to reduce
this income for the foreseeable future.  Any reduction in our net
interest income will negatively affect our business, financial condition,
liquidity, operating results, cash flows and, potentially, the price of our
securities.  Additionally, in 2009, we expect to have continued margin
pressure given these historically low interest rates, along with elevated levels
of non-performing assets.




Recent
negative developments in the financial industry, and the domestic and
international credit markets may adversely affect our operations and
results.




Negative developments during 2008 in
the global credit and derivative markets have resulted in uncertainty in the
financial markets in general with the expectation of the general economic
downturn continuing in 2009. As a result of this “credit crunch,” commercial as
well as consumer loan portfolio performances have deteriorated at many
institutions and the competition for deposits and quality loans has increased
significantly. In addition, the values of real estate collateral supporting many
commercial loans and home mortgages have declined and may continue to decline.
Global securities markets, and bank holding company stock prices in particular,
have been negatively affected, as has the ability of banks and bank holding
companies to raise capital or borrow in the debt markets.  If these
negative trends continue, our business operations and financial results may be
negatively affected.





Our
pace of growth may require us to raise additional capital in the future, but
that capital may not be available when it is needed.




We are
required by federal and state regulatory authorities to maintain adequate levels
of capital to support our operations.  We anticipate our capital
resources following this offering will satisfy our capital requirements for the
foreseeable future.  We may at some point, however, need to raise
additional capital to support our continued growth.




Our
ability to raise additional capital, if needed, will depend on conditions in the
capital markets at that time, which are outside our control, and on our
financial performance.  Accordingly, we cannot assure you of our
ability to raise additional capital if needed on terms acceptable to
us.  If we cannot raise additional capital when needed, our ability to
further expand our operations through internal growth and acquisitions could be
materially impaired.




17




We
face strong competition from larger, more established competitors.




The
banking business is highly competitive, and we experience strong competition
from many other financial institutions.  We compete with commercial
banks, credit unions, savings and loan associations, mortgage banking firms,
consumer finance companies, securities brokerage firms, insurance companies,
money market funds and other financial institutions, which operate in our
primary market areas and elsewhere.




We
compete with these institutions both in attracting deposits and in making
loans.  In addition, we have to attract our customer base from other
existing financial institutions and from new residents.  Many of our
competitors are well-established and much larger financial
institutions.  While we believe we can and do successfully compete
with these other financial institutions in our markets, we may face a
competitive disadvantage as a result of our smaller size and lack of geographic
diversification.




Although
we compete by concentrating our marketing efforts in our primary market area
with local advertisements, personal contacts and greater flexibility in working
with local customers, we can give no assurance that this strategy will be
successful.





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




We
continually seek to acquire other financial institutions or parts of those
institutions and may continue to engage in de novo branch expansion in the
future.  Acquisitions and mergers involve a number of risks,
including:




•
            the
      time and costs associated with identifying and evaluating potential
      acquisitions and merger partners may negatively affect our
      business;




•
            the
      estimates and judgments used to evaluate credit, operations, management
      and market risks with respect to the target institution may not be
      accurate;




•
            the
      time and costs of evaluating new markets, hiring experienced local
      management and opening new offices and the time lags between these
      activities and the generation of sufficient assets and deposits to support
      the costs of the expansion may negatively affect our
    business;




•
            we
      may not be able to finance an acquisition without diluting our existing
      shareholders;




•
            the
      diversion of our management’s attention to the negotiation of a
      transaction may detract from their business
  productivity;




•
            we
      may enter into new markets where we lack
  experience;




•
            we
      may introduce new products and services into our business with which we
      have no prior experience; and




•
            we
      may incur an impairment of goodwill associated with an acquisition and
      experience adverse short-term effects on our results of
      operations.




In
addition, no assurance can be given that we will be able to integrate our
operations after an acquisition without encountering difficulties including,
without limitation, the loss of key employees and customers, the disruption of
our respective ongoing businesses or possible inconsistencies in standards,
controls, procedures and policies.  Successful integration of our
operations with another entity’s will depend primarily on our ability to
consolidate operations, systems and procedures and to eliminate redundancies and
costs.  If we have difficulties with the integration, we might not
achieve the economic benefits we expect to result from any particular
acquisition or merger.  In addition, we may experience greater than
expected costs or difficulties relating to such integration.




18




Hurricanes
or other adverse weather events could negatively affect our local economies or
disrupt our operations, which could have an adverse effect on our business or
results of operations.




The
economy of South Carolina’s coastal region is affected, from time to time, by
adverse weather events, particularly hurricanes.  Our Charleston
County market area consists primarily of coastal communities, and we cannot
predict whether, or to what extent, damage caused by future hurricanes will
affect our operations, our customers or the economies in our banking
markets.  However, weather events could cause a decline in loan
originations, destruction or decline in the value of properties securing our
loans, or an increase in the risks of delinquencies, foreclosures and loan
losses.  Even if a hurricane does not cause any physical damage in our
market area, a turbulent hurricane season could significantly affect the market
value of all coastal property.





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




We may
not be able to sustain our historical rate of growth or may not even be able to
grow our business at all.  In addition, our growth over the past few
years may distort some of our historical financial ratios and
statistics.  In the future, we may not have the benefit of several
recently favorable factors, such as a generally predictable interest rate
environment, a strong residential mortgage market or the ability to find
suitable expansion opportunities.  Various factors, such as economic
conditions, regulatory and legislative considerations and competition, may also
impede or prohibit our ability to expand our market presence.  If we
experience a significant decrease in our historical rate of growth, our results
of operations and financial condition may be adversely affected due to a high
percentage of our operating costs being fixed expenses.




Our
corporate culture has contributed to our success, and if we cannot maintain this
culture as we grow, we could lose the teamwork and increased productivity
fostered by our culture, which could harm our business.




We
believe that a critical contributor to our success has been our corporate
culture, which we believe fosters teamwork and increased
productivity.  As our organization grows and we are required to
implement more complex organization management structures, we may find it
increasingly difficult to maintain the beneficial aspects of our corporate
culture.  This could negatively impact our future
success.




As
a community bank, we have different lending risks than larger
banks.




We
provide services to our local communities.  Our ability to diversify
our economic risks is limited by our own local markets and
economies.  We lend primarily to individuals and to small to
medium-sized businesses, which may expose us to greater lending risks than those
of banks lending to larger, better-capitalized businesses with longer operating
histories.




We manage
our credit exposure through careful monitoring of loan applicants and loan
concentrations in particular industries, and through loan approval and review
procedures.  We have established an evaluation process designed to
determine the adequacy of our allowance for loan losses.  While this
evaluation process uses historical and other objective information, the
classification of loans and the establishment of loan losses is an estimate
based on experience, judgment and expectations regarding our borrowers, the
economies in which we and our borrowers operate, as well as the judgment of our
regulators.  We cannot assure you that our loan loss reserves will be
sufficient to absorb future loan losses or prevent a material adverse effect on
our business, profitability or financial condition.




We
are subject to extensive regulation that could limit or restrict our activities
and impose financial requirements or limitations on the conduct of our
business.




As a bank
holding company, we are primarily regulated by the Federal Reserve. Our
subsidiary is primarily regulated by the State Board and the
FDIC.  Our compliance with Federal Reserve, State Board and FDIC
regulations is costly and may limit our growth and restrict certain of our
activities, including payment of dividends, mergers and acquisitions,
investments, loans and interest rates charged, interest rates paid on deposits
and locations of offices. We are also subject to capital requirements of our
regulators.




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




19




The
Sarbanes-Oxley Act of 2002 and the related rules and regulations promulgated by
the SEC, have increased the scope, complexity and cost of corporate governance,
reporting and disclosure practices.  As a result, we may experience
greater compliance costs.




Our
ability to pay dividends is limited and we may be unable to pay future
dividends.




We make no assurances that we will pay
any dividends in the future.  Any future determination relating to
dividend policy will be made at the discretion of our Board of Directors and
will depend on a number of factors, including our future earnings, restrictions
imposed by our agreement with the Treasury entered into in connection with its
investment under TARP, capital requirements, financial condition, future
prospects, regulatory restrictions and other factors that our Board of Directors
may deem relevant.





Weakness
in the economy and in the real estate market, including specific weakness within
our geographic footprint, has adversely affected us and may continue to
adversely affect us.





Declines in the U.S. economy and our
local real estate markets contributed to our increasing provisions for loan
losses during 2008, and may result in additional loan losses and loss provisions
in 2009.  These factors could result in further increases in loan loss
provisions, delinquencies and/or charge-offs in future periods, which may
adversely affect our financial condition and results of
operations.  If the strength of the U.S. economy in general and the
strength of the local economies in which we conduct operations continue to
decline, this could result in, among other things, further deterioration in
credit quality or a reduced demand for credit, including a resultant adverse
effect on our loan portfolio and allowance for loan and lease
losses.





In addition, deterioration of the U.S.
economy may adversely impact our banking business more generally. Economic
declines may be accompanied by a decrease in demand for consumer or commercial
credit and declining real estate and other asset values. Declining real estate
and other asset values may reduce the ability of borrowers to use such equity to
support borrowings.  Delinquencies, foreclosures and losses generally
increase during economic slowdowns or recessions.  Additionally, our
servicing costs, collection costs and credit losses may also increase in periods
of economic slowdown or recessions.  Effects of the current real
estate slowdown have not been limited to those directly involved in the real
estate construction industry (such as builders and
developers).  Rather, it has impacted a number of related businesses
such as building materials suppliers, equipment leasing firms, and real estate
attorneys, among others.  All of these affected businesses have
banking relationships, and when their businesses suffer from recession, the
banking relationship suffers as well.




We are subject to
liquidity risk in our operations.





Liquidity risk is the possibility of
being unable to satisfy obligations as they come due, capitalize on growth
opportunities as they arise, or pay regular dividends because of an inability to
liquidate assets or obtain adequate funding on a timely basis, at a reasonable
cost and within acceptable risk tolerances.  Liquidity is required to
fund various obligations, including credit obligations to borrowers, mortgage
originations, withdrawals by depositors, repayment of debt, dividends to
shareholders, operating expenses and capital expenditures.  Liquidity
is derived primarily from retail deposit growth and retention, principal and
interest payments on loans and investment securities, net cash provided from
operations and access to other funding sources.  Our access to funding
sources in amounts adequate to finance our activities could be impaired by
factors that affect us specifically or the financial services industry in
general.  Factors that could detrimentally affect our access to
liquidity sources include a decrease in the level of our business activity due
to a market downturn or adverse regulatory action against us.  Our
ability to borrow could also be impaired by factors that are not specific to us,
such as a severe disruption in the financial markets or negative views and
expectations about the prospects for the financial services industry as a whole,
given the recent turmoil faced by banking organizations in the domestic and
worldwide credit markets.




20




The
impact of the current economic downturn on the performance of other financial
institutions in our geographic area, actions taken by our competitors to address
the current economic downturn, and the public perception of and confidence in
the economy generally, and the banking industry specifically, could
negatively impact our performance and operations.





All financial institutions are subject
to the same risks resulting from a weakening economy such as increased
charge-offs and levels of past due loans and nonperforming assets.  As
troubled institutions in our market area continue to dispose of problem assets,
the already excess inventory of residential homes and lots will continue to
negatively affect home values and increase the time it takes us or our borrowers
to sell existing inventory.  The perception that troubled banking
institutions (and smaller banking institutions that are not “in trouble”) are
risky institutions for purposes of regulatory compliance or safeguarding
deposits may cause depositors nonetheless to move their funds to larger
institutions.  If our depositors should move their funds based on
events happening at other financial institutions, our operating results would
suffer.





The
United States Department of the Treasury, as a holder of our preferred stock,
has rights that are senior to those of our common shareholders.





We have supported our capital
operations by issuing classes of preferred stock to the Treasury under the
capital purchase component of TARP.  As of March 6, 2009, we had
outstanding preferred stock issued to the Treasury under TARP totaling $16.1
million.  The preferred stock has dividend rights that are senior to
our common stock; therefore, we must pay dividends on the preferred stock before
we can pay any dividends on our common stock.  In the event of our
bankruptcy, dissolution, or liquidation, the Treasury must be satisfied before
we can make any distributions to our common shareholders.




Our
agreement with the United States Department of the Treasury under the capital
purchase component of TARP is subject to unilateral change by the Treasury,
which could adversely affect our business, financial condition, and results of
operations.





Under the
capital purchase component of TARP, the Treasury may unilaterally amend the
terms of its agreement with us in order to comply with any changes in federal
law.  We cannot predict the effects of any of these changes and of the
associated amendments.





The Emergency
Economic Stabilization Act of 2008 (“EESA”) or other governmental actions may
not stabilize the financial services industry.




The EESA, which was signed into law on
October 3, 2008, is intended to alleviate the financial crisis affecting the
U.S. banking system.  A number of programs are being developed and
implemented under EESA.  The EESA may not have the intended effect,
however, and as a result, the condition of the financial services industry could
decline instead of improve.  The failure of the EESA to improve the
condition of the U.S. banking system could significantly adversely affect our
access to funding or capital, the trading price of our stock, and other elements
of our business, financial condition, and results of operations.





In addition to EESA, a variety of
legislative, regulatory, and other proposals have been discussed or may be
introduced in an effort to address the financial crisis.  Depending on
the scope of such proposals, if they are adopted and applied to the Company, our
financial condition, results of operations or liquidity could, directly or
indirectly, benefit or be adversely affected in a manner that could be material
to our business.





ITEM
1B.  UNRESOLVED STAFF COMMENTS





Not
Applicable.





ITEM
2.  PROPERTIES





The executive and main offices of the
Company and the Bank are located at 2170 W. Palmetto Street in Florence, South
Carolina.  The facility at that location is owned by the
Bank.  The Bank also owns an adjacent lot that is used as a parking
lot.  The headquarters building is a two-story building having
approximately 12,000 square feet.  The building has six inside teller
stations, two teller stations servicing four drive-through lanes and a night
depository and automated teller machine drive-through lane that is accessible
after the Bank’s normal business hours.




21




On April 26, 2000, the Bank opened a
branch at 411 Second Loop Road in Florence, South Carolina.  The
Second Loop branch facility, which is owned by the Bank, is located on
approximately one acre of land and contains approximately 3,500 square
feet.





On May
15, 2002, the Bank purchased an additional facility located at 2145 Fernleaf
Drive in Florence, South Carolina.  The Fernleaf Drive site contains
approximately 0.5 acres of land and includes a 7,500 square feet
building.  The facility will serve as additional space for the
operational and information technology activities of the Bank, including data
processing and auditing.  No customer services will be conducted in
this facility.





On June 17, 2004, the Bank opened a
temporary branch at 709 North Lake Drive in Lexington, South Carolina.  On
July 1, 2008, the bank subsequently moved into its permanent branch facility at
801 North Lake Drive in Lexington, South Carolina.  The Lexington
branch facility, which is owned by the Bank, is located on approximately two
acres of land and contains approximately 13,000 square feet.





On March
15, 2005, the Bank opened a branch at 51 State Street, Charleston, South
Carolina.  This property is leased.  On August 8, 2005, the
bank changed the street address of this location to 25 Cumberland Street,
Charleston, South Carolina because of a change in the primary entrance to the
branch.





On March 24, 2005, the Bank leased
approximately five acres at 2211 West Palmetto Street in Florence, South
Carolina for possible development of a future headquarters
location.  This property and an adjacent parcel were purchased by the
Company on November 24, 2008 and are leased by the Bank.





On October 3, 2005, the Bank opened a
branch office at 800 South Shelmore Blvd., Mount Pleasant, South
Carolina.  The Mount Pleasant branch facility is located on
approximately one acre of land and contains approximately 6,500 square
feet.





On February 9, 2006, the Bank purchased
approximately 0.75 acres at 2148 West Palmetto Street, Florence, South Carolina
for a future training facility.  On April 1, 2007, the Bank opened its
Learning Center  which contains approximately 6,000 square
feet.





On January 18, 2007, the Bank opened a
branch office at 1154-B Haywood Road, Greenville, South Carolina.  The
property is leased.





The Bank
owns property at 44th
Business Park, Lots 1, 2 & 3, North Myrtle Beach, South Carolina, which is a
branch site listed for sale.





On March
10, 2008, the Bank purchased 1.37 acres at 8551 Rivers Avenue, North Charleston,
South Carolina.





On
November 21, 2008, the Bank purchased a one acre lot at 950 Lake Murray
Boulevard, which is expected to be a future branch site.





Other than the Bank facilities
described in the preceding paragraphs and the real estate-related loans funded
by the Bank previously described in “Item 1.  Business—First Reliance
Bank,” the Company does not invest in real estate, interests in real estate,
real estate mortgages, or securities of or interests in persons primarily
engaged in real estate activities.





ITEM
3.  LEGAL PROCEEDINGS





None.





22




ITEM
4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
 None.
 
 PART
II
 
 ITEM
      5.
              MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
 
 (a)           The
response to this Item 5(a) is included in the Company’s 2008 Annual Report to
Shareholders under the heading, “Market for First Reliance Bancshares, Inc.’s
Common Stock; Payment of Dividends,” and is incorporated herein by
reference.
 
 (b) Not
Applicable
 
 (c)           Not
Applicable
 
 ITEM
      6.
              SELECTED
      FINANCIAL DATA
 
 Pursuant to the revised disclosure
requirements for smaller reporting companies effective February 4, 2008, no
disclosure under this Item is required.
 
 ITEM
      7.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
 
 The
response to this Item is included in the Company’s 2008 Annual Report to
Shareholders under the heading “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and is incorporated herein by
reference.
 
 ITEM
      7A.
              QUANTITATIVE
      AND QUALITIATIVE DISCLOSURES ABOUT MARKET
RISK
 
 Pursuant to the revised disclosure
requirements for smaller reporting companies effective February 4, 2008, no
disclosure under this Item is required.
  23
 
 ITEM
      8.
              FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
 
 The
following financial statements are included in the Company’s 2008 Annual Report
to Shareholders, and are incorporated herein by reference:
 
 ·
              Management’s
      Report on Internal Control Over Financial
  Reporting
 
 ·
              Report
      of Independent Registered Public Accounting
Firm
 
 ·
              Consolidated
      Financial Statements:
 
 1.
              Consolidated
      Balance Sheets dated as of December 31, 2008 and
  2007.
 2.
              Consolidated
      Statements of Income for the Years Ended December 31, 2008, 2007 and
      2006.
 3.
              Consolidated
      Statements of Changes in Shareholders’ Equity and Comprehensive Income for
      the Years Ended December 31, 2008, 2007 and
  2006.
 4.
              Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2007, 2006
      and 2005.
 5.
              Notes
      to Consolidated Financial
Statements.
 
 ITEM
      9.
              CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
 
 Not
Applicable
 
 ITEM
      9A(T).
              CONTROLS
      AND PROCEDURES
 
 Disclosure
Controls
 
 As of the end of the period covered by
this Annual Report on Form 10-K, our principal executive officer and principal
financial officer have evaluated the effectiveness of our “disclosure controls
and procedures” (“Disclosure Controls”).  Disclosure Controls, as
defined in Rule 13a-15(e) of the Exchange Act, are procedures that are designed
with the objective of ensuring that information required to be disclosed in our
reports filed under the Exchange Act, such as this Annual Report, is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms.  Disclosure Controls are also designed with the
objective of ensuring that such information is accumulated and communicated to
our management, including the Chief Executive Officer (“CEO”)and Chief Financial
Officer (“CFO”) as appropriate to allow timely decisions regarding required
disclosure.
 
 Our management, including the CEO and
CFO, does not expect that our Disclosure Controls will prevent all error and all
fraud.  A control system, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of the
control system are met.  Further, the design of a control system must
reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs.  Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the company have been detected.  These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or
mistake.  The design of any system of controls also is based in part
upon certain assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions.
 
 Based upon their controls evaluation,
our CEO and CFO have concluded that our Disclosure Controls are effective at a
reasonable assurance level.
  24
 
 Management’s
Report on Internal Control Over Financial Reporting
 
 Our management is responsible for
establishing and maintaining adequate internal control over financial reporting
as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act.  Our internal control over financial reporting is a process
designed to provide reasonable assurance that assets are safeguarded against
loss from unauthorized use or disposition, transactions are executed in
accordance with appropriate management authorization and accounting records are
reliable for the preparation of financial statements in accordance with
generally accepted accounting principles.
 
 Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements.  Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
 
 Management assessed the effectiveness
of our internal control over financial reporting as of December 31,
2007.  Management based this assessment on criteria for effective
internal control over financial reporting described in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission.  Management’s assessment included an
evaluation of the design of our internal control over financial reporting and
testing of the operational effectiveness of its internal control over financial
reporting.  Management reviewed the results of its assessment with the
Audit Committee of our Board of Directors.
 
 Based on this assessment, management
believes that First Reliance Bancshares, Inc. maintained effective internal
control over financial reporting as of December 31, 2008.
 
 This annual report does not include an
attestation report of the Company’s registered public accounting firm regarding
internal control over financial reporting.  Management’s report was
not subject to attestation by the company’s registered public accounting firm
pursuant to temporary rules of the SEC that permit the Company to provide only
management’s report in this annual report.
 
 Changes
to Internal Control Over Financial Reporting
 
 There have been no changes in our
internal control over financial reporting during our fourth fiscal quarter that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
 
 ITEM
      9B.
              OTHER
      INFORMATION
 
 Not Applicable.
 
 PART
III
 
 ITEM
      10.
              DIRECTORS,
      EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE
 
 The Company has adopted a Code of
Ethics that applies to its principal executive, financial and accounting
officers.  The Code of Ethics has been posted to the Company’s website
at www.firstreliance.com.  A copy may also be obtained, without
charge, upon written request addressed to First Reliance Bancshares, Inc., 2170
W. Palmetto Street, , Florence, South Carolina 29501,
Attention:  Corporate Secretary.  The request may be
delivered by letter to the address set forth above or by fax to the attention of
the Company’s Corporate Secretary at (843)656-3045.
 
 The
remaining information for this Item is included in the Company’s Proxy Statement
for the Annual Meeting of Shareholders to be held on June 18, 2009, under the
headings “Proposal:  Election of Directors”, “Security Ownership of
Certain Beneficial Owners and Management,” “Section 16(a) Beneficial Ownership
Reporting Compliance” and “Corporate Governance” and are incorporated herein by
reference.
  25
 
 ITEM
      11.
              EXECUTIVE
      COMPENSATION
 
 The
responses to this Item are included in the Company’s Proxy Statement for the
Annual Meeting of Shareholders to be held on June 18, 2009, under the headings
“Proposal: Election of Directors – Director Compensation”
and  “Executive Compensation” and are incorporated herein by
reference.
 
 ITEM
      12.
              SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
 
 The following table provides
information regarding compensation plans under which equity securities of the
Company are authorized for issuance.  All data is presented as of
December 31, 2008.
 
 Equity Compensation Plan Table(a)
                                
                                
                                (b)
                                
                                
                                (c)Plan category
                                
                                Number of securities to be
                                  issued upon exercise of
                                  outstanding options, warrants
                                  and rights
                                
                                
                                Weighted-average exercise
                                  price of outstanding options,
                                  warrants and rights
                                
                                
                                Number of securities
                                  remaining available for future
                                  issuance under equity
                                  compensation plans
                                  (excluding securities reflected
                                  in column (a))Equity
      compensation plans approved by security holders
                                
                                
                                269,447
                                
                                
                                $
                                8.36
                                
                                
                                
                                —Equity
      compensation plans not approved by security holders
                                
                                
                                130,613
                                
                                
                                
                                10.76
                                
                                
                                
                                219,387Total
                                
                                
                                400,060
                                
                                
                                $
                                8.25
                                
                                
                                
                                219,837
 
 The equity compensation plans not
approved by our shareholders include non-qualified option grants to four
employees of the Company to purchase a total of 8,100 shares of the Company’s
common stock.  All of the non-qualified option grants are fully vested
as of December 31, 2008.  The table below breaks down the exercise
prices of the non-qualified options that have been granted by the
Company.
 
 Price
                    
                    Number
      of Options$
                    9.32
                    
                    
                    2,800$
                    11.00
                    
                    
                    5,000$
                    13.50
                    
                    
                    300
 
 On January 19, 2006, the Board of
Directors approved the First Reliance Bancshares, Inc. 2006 Equity Incentive
Plan (the “2006 Plan”).   The 2006 Plan provides that the Company
may grant stock incentives to participants in the form of nonqualified stock
options, dividend equivalent rights, phantom shares, stock appreciation rights,
stock awards and performance unit awards (each a “Stock
Incentive”).   The Company reserved up to 350,000 shares of the
Company’s common stock for issuance pursuant to awards granted under the
Plan.   This number of shares may change in the event of future
stock dividends, stock splits, recapitalizations and similar
events.   If a Stock Incentive expires or terminates without
being paid, exercised or otherwise settled, the shares subject to that Stock
Incentive may again be available for awards under the 2006 Plan.
 
 The additional responses to this Item
are included in the Company’s Proxy Statement for the Annual Meeting of
Shareholders to be held on June 18, 2009, under the heading “Security Ownership
of Certain Beneficial Owners and Management” and are incorporated herein by
reference.
  26
 
 ITEM
      13.
              CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE
 
 The
responses to this Item are included in the Company’s Proxy Statement for the
Annual Meeting of Shareholders held on June 18, 2009, under the headings
“Related Party Transactions” and “Proposal: Election of Directors – Director
Independence” and are incorporated herein by reference.
 
 ITEM
      14.
              PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
 
 The responses to this Item are included
in the Company Proxy Statement for the Annual Meeting of Shareholders to be held
on June 18, 2009, under the heading “Audit Committee Matters – Independent
Registered Public Accounting Firm” and are incorporated herein by
reference.
 
 PART
IV
 
 ITEM
      15.
              EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES
 
 A list of
exhibits included as part of this annual report is set forth in the Exhibit
Index that immediately precedes the exhibits and is incorporated by reference
herein.
  27
 
 SIGNATURES
 
 In
accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
 
 FIRST
      RELIANCE BANCSHARES, INC.By:
                        /s/ F. R. Saunders, Jr.F.
      R. Saunders, Jr.President
      and ChiefExecutive
      OfficerDate:     March
      31,
2009
 
 POWER
OF ATTORNEY
 
 KNOW ALL MEN BY THESE
PRESENTS, that each person whose signature appears on the signature page
to this Report constitutes and appoints F. R. Saunders, Jr. and Jeffrey A.
Paolucci, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him or her and in his or her name,
place, and stead, in any and all capacities, to sign any and all amendments to
this Report, and to file the same, with all exhibits hereto, and other documents
in connection herewith with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as they might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
 
 Signature
                          
                          Title
                          
                          Date/s/
      F. R. Saunders, Jr.
                          
                          Director,
      President and Chief Executive Officer
                            (Principal
      Executive Officer)
                          
                          March
      31, 2009F.
      R. Saunders, Jr./s/ Paul C. Saunders
                          
                          Director
                          
                          March
      31, 2009Paul
      C. Saunders/s/ A. Dale Porter
                          
                          Director
                          
                          March
      31, 2009A.
      Dale Porter/s/ Leonard A. Hoogenboom
                          
                          Chairman
      of the Board
                          
                          March
      31, 2009Leonard
      A. Hoogenboom/s/ John M. Jebaily
                          
                          Director
                          
                          March
      31, 2009John
      M. Jebaily
  
 Signature
                          
                          Title
                          
                          Date
 /s/ Andrew G. Kampiziones
                            
                            Director
                            
                            March
      31, 2009Andrew
      G. Kampiziones/s/ C. Dale Lusk
                            
                            Director
                            
                            March
      31, 2009C.
      Dale Lusk/s/ J. Munford Scott
                            
                            Director
                            
                            March
      31, 2009J.
      Munford Scott/s/ A. Joe Willis
                            
                            Director
                            
                            March
      31, 2009A.
      Joe Willis/s/ Jeffrey A. Paolucci
                            
                            Director,
      Senior Vice President and
                            
                            March
      31, 2009Jeffrey
      A. Paolucci
                            
                            Chief
      Financial Officer (Principal Financial and
                              Accounting
      Officer)
                            
                            March
      31,
2009
  
  EXHIBIT INDEX
  Exhibit
                    Number
                
                Description3.1
                
                Articles
      of Incorporation of First Reliance Bancshares, Inc. 13.2
                
                Articles
      of Amendment to the Articles of Incorporation authorizing a class of
      preferred stock23.3
                
                Articles
      of Amendment to the Articles of Incorporation establishing the terms of
      the Series A Preferred Stock and the Series B Preferred Stock23.4
                
                Bylaws
      of First Reliance Bancshares, Inc.14.1
                
                See
      Articles of Incorporation, as amended at Exhibit 3.1, 3.2 and 3.3 hereto
      and Bylaws at Exhibit 3.2 hereto.4.2
                
                Indenture
      between the Registrant and the Trustee. 34.3
                
                Guarantee
      Agreement.34.4
                
                Amended
      and Restated Declaration.34.5
                
                Form
      of Certificate for the Series A Preferred Stock24.6
                
                Form
      of Certificate for the Series B Preferred Stock24.7
                
                Warrant
      to Purchase up to 767.00767 shares of Series B Preferred Stock, dated
      March 6, 2009210.1*
                
                1999
      First Reliance Bank Employee Stock Option Plan. 410.2*
                
                Amendment
      No. 1 to the 1999 First Reliance Bank Employee Stock Option Plan. 410.3*
                
                Amendment
      No. 2 to the 1999 First Reliance Bank Employee Stock Option Plan. 510.4*
                
                First
      Reliance Bancshares, Inc. 2003 Stock Incentive Plan. 610.5*
                
                First
      Reliance Bancshares, Inc. 2006 Equity Incentive Plan. 710.6
                
                Lease
      Agreement between SP Financial, LLC and First Reliance Bank. 710.7*
                
                Employment
      Agreement with F. R. Saunders, Jr., dated November 24, 2006. 810.8*
                
                Salary
      Continuation Agreement with F. R. Saunders, Jr., dated November 24, 2006.
      810.9*
                
                Endorsement
      Split Dollar Agreement with F. R. Saunders, Jr., dated November 24, 2006.
      810.10*
                
                Amended
      Supplemental Life Insurance Agreement with F. R. Saunders, Jr., dated
      December 28, 2007. 910.11*
                
                Employment
      Agreement with Jeffrey A. Paolucci, dated November 24, 2006. 810.12*
                
                Salary
      Continuation Agreement with Jeffrey A. Paolucci, dated November 24, 2006.
      810.13*
                
                Endorsement
      Split Dollar Agreement with Jeffrey A. Paolucci, dated November 24, 2006.
      810.14*
                
                Employment
      Agreement with Paul Saunders, dated November 24, 2006. 810.15*
                
                Salary
      Continuation Agreement with Paul Saunders, dated November 24, 2006. 810.16*
                
                Endorsement
      Split Dollar Agreement with Paul Saunders, dated November 24, 2006. 810.17*
                
                Form
      of Director Retirement Agreement, with Schedule. 810.18*
                
                Amended
      and Restated Employment Agreement with Dale Porter. 810.19*
                
                Employment
      Agreement with Thomas C. Ewart, Sr. 610.20
                
                Letter
      Agreement, dated March 6, 2009, including Securities Purchase Agreement –
      Standard Terms, incorporated by reference therein, between the Company and
      the United States Department of the Treasury210.21
                
                Side
      Letter Agreement, dated March 6, 20092
 
 1
Incorporated by reference to Quarterly Report on Form 10-QSB, for the quarter
ended September 30, 2007.
 2
Incorporated by reference to Current Report on Form 8-K, dated March 10,
2009
 3
Incorporated by reference to Current Report on Form 8-K, dated July 1,
2005.
 4
Incorporated by reference to Quarterly Report on Form 10-QSB, for the quarter
ended March 31, 2002.
 5
Incorporated by reference to Quarterly Report on Form 10-QSB, for the quarter
ended June 30, 2002.
 6
Incorporated by reference to Annual Report on Form 10-KSB for the year ended
December 31, 2003.
 7
Incorporated by reference to Annual Report on Form 10-KSB for the year ended
December 31, 2005.
 8
Incorporated by reference to Annual Report on Form 10-K for the year ended
December 31, 2006.
 9
Incorporated by reference to Current Report on Form 8-K, dated December 28,
2007.




10.22*
            
            Form
      of Waiver210.23*
            
            Form
      of Senior Executive Officer Agreement213.1
            
            First
      Reliance Bancshares, Inc. 2008 Annual Report to
      Shareholders.  Except with respect to those portions
      specifically incorporated by reference into this Report, the Company’s
      2007 Annual Report to Shareholders is not deemed to be filed as part of
      this Report.21.1
            
            Subsidiaries
      of First Reliance Bancshares, Inc. 723.1
            
            Consent
      of Elliot Davis, LLC.24.1
            
            Power
      of Attorney (appears on the signature page to this Annual Report on Form
      10-K.31.1
            
            Certification
      of Chief Executive Officer pursuant to Rule
      13a-14(a)/15(d)-14(a).31.2
            
            Certification
      of Chief Financial Officer pursuant to Rule
      13a-14(a)/15(d)-14(a).32.1
            
            Certification
      of Chief Executive and Financial Officers pursuant to 18 U.S.C. Section
      1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.


*Indicates
management contract or compensatory plan or arrangement.