# UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

# Washington, D.C. 20549

# FORM 10-QSB

# [X]  QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended September 30, 2003

# [   ]  TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE EXCHANGE ACT OF 1934

For the transition period from ___________ to _____________

Commission file number
333-83851

Greenville First Bancshares, Inc.(Exact name of registrant as specified in its charter)

|South Carolina           |  | 58-2459561                          
|------------------------ |  | ------------------------------------
|(State of Incorporation) |  | (I.R.S. Employer Identification No.)

|112 Haywood Road                         |  |           
|---------------------------------------- |  | ----------
|Greenville, S.C.                         |  | 29607     
|(Address of principal executive offices) |  | (Zip Code)

864-679-9000(Telephone Number)

Not Applicable(Former Name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange
Act during the past 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.  Yes X   No

State the number of shares  outstanding  of each of the  issuer's  classes of common  equity,  as of the latest
practicable  date:  1,150,000 shares of common stock, $.01 par value per share, issued and outstanding as of November 4, 2003.

Transitional Small Business Disclosure
Format (check one):   Yes    NoX

---

# GREENVILLE FIRST
BANCSHARES, INC.

# PART I. FINANCIAL
INFORMATION

# Item 1.    Financial
Statements

The financial  statements of Greenville  First  Bancshares,  Inc. and Subsidiaries are set forth
in the following pages.

2

---

# GREENVILLE FIRST
BANCSHARES, INC. & SUBSIDIARIES CONSOLIDATED BALANCE
SHEETS

|                                                             | September 30, | December 31,
|------------------------------------------------------------ | ------------- | ------------
|
|
|Assets                                                       |               |             
|Cash and due from banks                                      |               |             
|Federal funds sold                                           |               |             
|Investment securities available for sale                     |               |             
|Investments securities held to maturity                      |               |             
|Other investments, at cost                                   |               |             
|Loans, net                                                   |               |             
|Accrued interest                                             |               |             
|Property and equipment                                       |               |             
|Other real estate owned                                      |               |             
|Other assets                                                 |               |             
|                                                             |               |             
|Total assets                                                 |               |             
|                                                             |               |             
|Liabilities and Shareholders' Equity                         |               |             
|Liabilities                                                  |               |             
|Deposits                                                     |               |             
|Official checks outstanding                                  |               |             
|Federal funds purchased and repurchase agreements            |               |             
|Federal Home Loan Bank advances                              |               |             
|Note payable                                                 |               |             
|Trust preferred securities                                   |               |             
|Accrued interest payable                                     |               |             
|Accounts payable and accrued expenses                        |               |             
|                                                             |               |             
|Total liabilities                                            |               |             
|                                                             |               |             
|Commitments and contingencies                                |               |             
|                                                             |               |             
|Shareholders' equity                                         |               |             
|Preferred stock, par value $.01 per share, 10,000,000 shares |               |             
|authorized, no shares issued                                 |               |             
|Common stock, par value $.01 per share, 10,000,000 shares    |               |             
|authorized, 1,150,000 issued                                 |               |             
|Additional paid-in capital                                   |               |             
|Accumulated other comprehensive income                       |               |             
|Retained earnings (deficit)                                  |               |             
|                                                             |               |             
|Total shareholders' equity                                   |               |             
|                                                             |               |             
|Total liabilities and shareholders' equity                   |               |             
|                                                             |               |             

See
notes to consolidated financial statements that are an integral part of these consolidated
statements.

3

---

# GREENVILLE FIRST
BANCSHARES, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS
OF INCOME(Unaudited)

|                                                                        | For the Three Months Ended
|----------------------------------------------------------------------- | --------------------------
|
|
|Interest  income                                                        |                           
|Loans                                                                   |                           
|Investment securities                                                   |                           
|Federal funds sold                                                      |                           
|                                                                        |                           
|Total interest income                                                   |                           
|Interest  expense                                                       |                           
|Deposits                                                                |                           
|Borrowings                                                              |                           
|                                                                        |                           
|Total interest expense                                                  |                           
|                                                                        |                           
|Net interest income before provision for loan losses                    |                           
|Provision for loan losses                                               |                           
|                                                                        |                           
|Net interest income after provision for loan losses                     |                           
|                                                                        |                           
|Noninterest income (loss)                                               |                           
|Loan fee income                                                         |                           
|Service fees on deposit accounts                                        |                           
|Write-down on real estate owned                                         |                           
|Other income                                                            |                           
|                                                                        |                           
|Total noninterest income                                                |                           
|                                                                        |                           
|Noninterest expenses                                                    |                           
|Salaries and benefits                                                   |                           
|Professional fees                                                       |                           
|Marketing                                                               |                           
|Insurance                                                               |                           
|Occupancy                                                               |                           
|Data processing and related costs                                       |                           
|Telephone                                                               |                           
|Other                                                                   |                           
|                                                                        |                           
|Total noninterest expenses                                              |                           
|                                                                        |                           
|Income before income taxes                                              |                           
|Income tax expense                                                      |                           
|                                                                        |                           
|Net income                                                              |                           
|                                                                        |                           
|Income  per common share-adjusted for 3 for 2 stock split:              |                           
|Basic                                                                   |                           
|                                                                        |                           
|Diluted                                                                 |                           
|                                                                        |                           
|Weighted average common shares outstanding -adjusted for 3 for 2 split: |                           
|Basic                                                                   |                           
|                                                                        |                           
|Diluted                                                                 |                           
|                                                                        |                           

See
notes to consolidated financial statements that are an integral part of these consolidated
statements.

4

---

# GREENVILLE FIRST
BANCSHARES, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS
OF INCOME (Unaudited)

|                                                                              | For the Nine Months Ended
|----------------------------------------------------------------------------- | -------------------------
|
|
|Interest income                                                               |                          
|Loans                                                                         |                          
|Investment securities                                                         |                          
|Federal funds sold                                                            |                          
|                                                                              |                          
|Total interest income                                                         |                          
|Interest expense                                                              |                          
|Deposits                                                                      |                          
|Borrowings                                                                    |                          
|                                                                              |                          
|Total interest expense                                                        |                          
|                                                                              |                          
|Net interest income before provision for loan losses                          |                          
|Provision for loan losses                                                     |                          
|                                                                              |                          
|Net interest income after provision for loan losses                           |                          
|                                                                              |                          
|Noninterest income (loss)                                                     |                          
|Loan fee income                                                               |                          
|Service fees on deposit accounts                                              |                          
|Write-down on real estate owned                                               |                          
|Other income                                                                  |                          
|                                                                              |                          
|Total noninterest income                                                      |                          
|                                                                              |                          
|Noninterest expenses                                                          |                          
|Salaries and benefits                                                         |                          
|Professional fees                                                             |                          
|Marketing                                                                     |                          
|Insurance                                                                     |                          
|Occupancy                                                                     |                          
|Data processing and related costs                                             |                          
|Telephone                                                                     |                          
|Other                                                                         |                          
|                                                                              |                          
|Total noninterest expenses                                                    |                          
|                                                                              |                          
|Income before income taxes                                                    |                          
|                                                                              |                          
|Income tax expense                                                            |                          
|                                                                              |                          
|Net income                                                                    |                          
|                                                                              |                          
|Income per common share-adjusted for 3 for 2 stock split:                     |                          
|Basic                                                                         |                          
|                                                                              |                          
|Diluted                                                                       |                          
|                                                                              |                          
|Weighted average common shares outstanding adjusted for 3 for 2 stock split: |                          
|Basic                                                                         |                          
|                                                                              |                          
|Diluted                                                                       |                          
|                                                                              |                          

See
notes to consolidated financial statements that are an integral part of these consolidated
statements.

5

---

# GREENVILLE FIRST
BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Unaudited)

|                          |  |  |  | Accumulated |  |  
|------------------------- |  |  |  | ----------- |  | -
|
|
|
|
|December 31, 2001         |  |  |  | 1,150,000   |  | $
|                          |  | 
|Net income                |  |  |  | -           |  |  
|                          |  | 
|Comprehensive income      |  | 
|(loss), net of            |  | 
|tax                       |  | 
|Unrealized holding gain   |  | 
|on securities available   |  | 
|for sale                  |  |  |  | -           |  |  
|                          |  |  |  |             |  |  
|                          |  | 
|Comprehensive income      |  |  |  | -           |  |  
|                          |  |  |  |             |  |  
|September 30, 2002        |  |  |  | 1,150,000   |  | $
|                          |  |  |  |             |  |  
|                          |  | 
|December 31, 2002         |  |  |  | 1,150,000   |  | $
|                          |  | 
|Net  income               |  |  |  | -           |  |  
|                          |  | 
|Comprehensive income, net |  | 
|of tax                    |  | 
|Change in unrealized      |  | 
|holding gain on           |  | 
|securities                |  | 
|available for sale        |  |  |  | -           |  |  
|                          |  |  |  |             |  |  
|                          |  | 
|Comprehensive income      |  |  |  | -           |  |  
|                          |  |  |  |             |  |  
|September 30, 2003        |  |  |  | 1,150,000   |  | $
|                          |  |  |  |             |  |  

See
notes to consolidated financial statements that are an integral part of these consolidated
statements.

6

---

# GREENVILLE FIRST
BANCSHARES, INC.AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

|                                                          | For the Nine Months Ended
|--------------------------------------------------------- | -------------------------
|
|
|Operating activities                                      |                          
|Net income                                                |                          
|Adjustments to reconcile net income to cash               |                          
|provided by (used for) operating activities:              |                          
|Provision for loan losses                                 |                          
|Depreciation and other amortization                       |                          
|Accretion and amortization of securities                  |                          
|discounts and premium, net                                |                          
|Increase in other assets, net                             |                          
|Increase (decrease) in other liabilities, net             |                          
|                                                          |                          
|Net cash provided by operating activities                 |                          
|                                                          |                          
|Investing activities                                      |                          
|Increase (decrease) in cash realized from:                |                          
|Origination of loans, net                                 |                          
|Purchase of property and equipment                        |                          
|Purchase of securities available for sale                 |                          
|Purchase of securities held to maturity                   |                          
|Purchase of other investment                              |                          
|Payments and maturity of securities:                      |                          
|Available for sale                                        |                          
|Held to maturity                                          |                          
|Other investments                                         |                          
|                                                          |                          
|Net cash used for investing activities                    |                          
|                                                          |                          
|Financing activities                                      |                          
|Increase in deposits, net                                 |                          
|Decrease in short-term borrowings                         |                          
|Increase(decrease) in other borrowings                    |                          
|Proceeds from trust preferred securities                  |                          
|Increase (decrease) in Federal Home Loan Bank advances    |                          
|                                                          |                          
|Net cash provided by financing activities                 |                          
|                                                          |                          
|Net increase in cash and cash equivalents                 |                          
|                                                          |                          
|Cash and cash equivalents at beginning of  the year       |                          
|                                                          |                          
|Cash and cash equivalents at end of the year              |                          
|                                                          |                          
|Supplemental information                                  |                          
|Cash paid for                                             |                          
|Interest                                                  |                          
|                                                          |                          
|Income taxes                                              |                          
|                                                          |                          
|Supplemental schedule of non-cash transaction             |                          
|Foreclosure of  real estate                               |                          
|                                                          |                          
|Unrealized gain (loss) on securities, net of income taxes |                          
|                                                          |                          

See notes to consolidated financial
statements that are an integral part of these consolidated statements.

7

---

# GREENVILLE FIRST
BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1  Nature of
Business and Basis of Presentation

Business activity

Greenville
First Bancshares, Inc.(the company) is a South Carolina corporation
that owns all of the capital stock of Greenville First Bank, N.A.(the
bank) and all of the stock of Greenville First Statutory Trust I (the
Trust). The bank is a national bank organized under the laws of the United
States located in Greenville County, South Carolina. The bank is primarily engaged in the
business of accepting demand deposits and savings deposits insured by the Federal Deposit
Insurance Corporation, and providing commercial, consumer and mortgage loans to the
general public. The Trust is a special purpose subsidiary for the sole purpose of issuing
trust preferred securities.

Basis of Presentation

The
accompanying financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the instructions to Form
10-QSB. Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three-month and the nine month periods ended September 30, 2003 are not necessarily
indicative of the results that may be expected for the year ending December 31, 2003. For
further information, refer to the consolidated financial statements and footnotes thereto
included in the companys Form 10-KSB (Registration Number 333-83851) as filed with
the Securities and Exchange Commission. The consolidated financial statements include the
accounts of Greenville First Bancshares, Inc., and its wholly owned subsidiaries
Greenville First Bank, N.A., and Greenville Statutory Trust I.

Cash and Cash Equivalents

For
purposes of the Consolidated Statement of Cash Flows, cash and federal funds sold are
included in cash and cash equivalents. These assets have contractual
maturities of less than three months.

Note 2  Note Payable

At
September 30, 2003, the company had an unused $3.5 million revolving line of credit with
another bank with a maturity of March 20, 2004. The line of credit bears interest at a
rate of three-month libor plus 2.00%, which at September 30, 2003 was 3.17%. The company
has pledged the stock of the bank as collateral for this line of credit. The line of
credit agreement contains various covenants related to earnings and asset quality. As of
September 30, 2003, the company was in compliance with all covenants.

Note 3  Trust
Preferred Securities

On
June 26, 2003, Greenville First Bancshares, Inc., through a newly formed wholly-owned
subsidiary, issued $6.0 million floating rate trust preferred securities. The initial
pricing of the transaction calls for a floating rate coupon beginning at 4.16%. The rate
is determined quarterly.

The
company used $3.0 million of the proceeds to repay the outstanding balance on a $3.5
million revolving line of credit. The $3.5 million revolving line of credit will remain
available. The company invested $2.7 million in the companys wholly-owned
subsidiary, Greenville First Bank. The remaining balance will be used by the company to
fund operations.

8

---

Note 4  Stock Split

On
November 17, 2003, shareholders of record as of November 3, 2003, will receive one
additional share of stock for every two shares of stock owned prior to the 3 for 2 stock
split. All factional shares will be paid in cash. The earnings per share amounts for all
periods shown have been adjusted to reflect the 3 for 2 split.

Note 5  Earnings
per Share

The
following schedule reconciles the numerators and denominators of the basic and diluted
earnings per share computations for the three and nine months ended September 30, 2003 and
2002. Dilutive common shares arise from the potentially dilutive effect of Greenville
First Bancshares, Inc.s stock options and warrants that are outstanding. The assumed
conversion of stock options and warrants can create a difference between basic and
dilutive net income per common share. The numbers of shares and the earnings per share
have been adjusted for the 3 for 2 stock split.

|                                  | Three Months | Three Months
|--------------------------------- | ------------ | ------------
|
|
|Basic Earnings Per Share          |              |             
|Average common shares             |              |             
|Net income                        |              |             
|Earnings per share                |              |             
|                                  |              |             
|Diluted Earnings Per Share        |              |             
|Average common shares outstanding |              |             
|Average dilutive common shares    |              |             
|                                  |              |             
|Adjusted average common shares    |              |             
|Net income                        |              |             
|Earnings per share                |              |             

|                                  | Nine Months | Nine Months
|--------------------------------- | ----------- | -----------
|
|
|Basic Earnings Per Share          |             |            
|Average common shares             |             |            
|Net income                        |             |            
|Earnings per share                |             |            
|                                  |             |            
|Diluted Earnings Per Share        |             |            
|Average common shares outstanding |             |            
|Average dilutive common shares    |             |            
|                                  |             |            
|Adjusted average common shares    |             |            
|Net income                        |             |            
|Earnings per share                |             |            

9

---

Note 6  Stock Based
Compensation

The
company has a stock-based employee compensation plan. The company accounts for the plan
under the recognition and measurement principles of Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations. No stock-based employee compensation cost is reflected in net
income, as all stock options granted under these plans had an exercise price equal to the
market value of the underlying common stock on the date of grant. The following table
illustrates the effect on net income and earnings per share if the company had applied the
fair value recognition provisions of Financial Accounting Standards Board
(FASB), Statement of Financial Accounting Standards (SFAS) SFAS
No. 123, Accounting for Stock-Based Compensation, to stock-based employee
compensation.

|                                            | For the Three Months ended
|------------------------------------------- | --------------------------
|
|
|
|Net income, as reported                     |                           
|Deduct:  Total stock-based employee         |                           
|compensation expense determined             |                           
|under fair value based method               |                           
|for all awards,  net of related tax effects |                           
|                                            |                           
|                                            |                           
|Pro forma net income                        |                           
|                                            |                           
|Earnings  per common share-adjusted         |                           
|for 3 for 2 stock split:                    |                           
|Basic - as reported                         |                           
|                                            |                           
|Basic - pro forma                           |                           
|                                            |                           
|Diluted - as reported                       |                           
|                                            |                           
|Diluted - pro-forma                         |                           
|                                            |                           

|                                            | For the Nine Months ended
|------------------------------------------- | -------------------------
|
|
|
|Net income, as reported                     |                          
|Deduct:  Total stock-based employee         |                          
|compensation expense determined             |                          
|under fair value based method               |                          
|for all awards,  net of related tax effects |                          
|                                            |                          
|Pro forma net income                        |                          
|                                            |                          
|Earnings  per common share-adjusted         |                          
|for 3 for 2 stocks split:                   |                          
|Basic - as reported                         |                          
|                                            |                          
|Basic - pro forma                           |                          
|                                            |                          
|Diluted - as reported                       |                          
|                                            |                          
|Diluted - pro-forma                         |                          
|                                            |                          
|                                            |                          

The
fair value of the option grant is estimated on the date of grant using the Black-Scholes
option-pricing model. The following assumptions were used for grants: expected volatility
of 10% for 2003 and 2002, risk-free interest rate of 3.00% for 2003 and 2002,
respectively, and expected lives of the options 10 years and the assumed dividend rate was
zero.

10

---

# Item 2.
Managements Discussion and Analysis or Plan of Operation.

# DISCUSSION OF
FORWARD-LOOKING STATEMENTS

This Report contains statements which
constitute forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and the Securities Exchange Act of 1934. These statements are based on many
assumptions and estimates and are not guarantees of future performance. Our actual results
may differ materially from those projected in any forward-looking statements, as they will
depend on many factors about which we are unsure, including many factors that are beyond
our control. The words may, would, could,
will, expect, anticipate, believe,
intend, plan, and estimate, as well as similar
expressions, are meant to identify such forward-looking statements. Potential risks and
uncertainties include, but are not limited to:

| | o | significant increases in competitive pressure in the banking and financial services industries;
| | - | -----------------------------------------------------------------------------------------------

| | o | changes in the interest rate environment which could reduce anticipated or actual margins;
| | - | ------------------------------------------------------------------------------------------

| | o | changes in political conditions or the legislative or regulatory environment;
| | - | -----------------------------------------------------------------------------

| | o | the level of allowance for loan loss;
| | - | -------------------------------------

| | o | the rate of delinquencies and amounts of charge-offs;
| | - | -----------------------------------------------------

| | o | the rates of loan growth;
| | - | -------------------------

| | o | adverse changes in asset quality and resulting credit risk-related losses and expenses;
| | - | ---------------------------------------------------------------------------------------

| | o | general economic conditions, either nationally or regionally, and especially in primary
service area, becoming less favorable than expected resulting in, among other things, a
deterioration in credit quality;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | changes occurring in business conditions and inflation;
| | - | -------------------------------------------------------

| | o | changes in technology;
| | - | ----------------------

| | o | changes in monetary and tax policies;
| | - | -------------------------------------

| | o | changes in the securities markets; and
| | - | --------------------------------------

| | o | other risks and uncertainties detailed from time to time in our filings with the
Securities and Exchange Commission.
| | - | --------------------------------------------------------------------------------------------------------------------

# CRITICAL ACCOUNTING
POLICIES

We
have adopted various accounting policies that govern the application of accounting
principles generally accepted in the United States in the preparation of our financial
statements. Our significant accounting policies are described in the footnotes to the
consolidated financial statements at December 31, 2002 as filed on our annual report on
Form 10-KSB.

Certain
accounting policies involve significant judgments and assumptions by us that have a
material impact on the carrying value of certain assets and liabilities. We consider these
accounting policies to be critical accounting policies. The judgment and assumptions we
use are based on historical experience and other factors, which we believe to be
reasonable under the circumstances. Because of the nature of the

11

---

judgment and assumptions we make,
actual results could differ from these judgments and estimates that could have a material
impact on our carrying values of assets and liabilities and our results of operations.

We
believe the allowance for loan losses is a critical accounting policy that requires the
most significant judgment and estimates used in preparation of our consolidated financial
statements. Refer to the portion of this discussion that addresses our allowance for loan
losses for a description of our processes and methodology for determining our allowance
for loan losses.

# GENERAL

The
following is a discussion of our financial condition as of September 30, 2003 and the
results of operations for the three months and nine months ended September 30, 2003. These
comments should be read in conjunction with our consolidated financial statements and
accompanying consolidated footnotes appearing in this report. The significant accounting
policies are described throughout the managements discussion section of this
document.

# NATIONAL AND ECONOMIC
EVENTS

During
most of the last three years, the United States experienced a slowing economy following
ten years of expansion. During this period, the economy was affected by lower returns and
expectations of the stock markets. Economic data led the Federal Reserve to begin an
aggressive program of rate cutting, which moved the Federal Funds rate down 11 times
during 2001 for a total reduction of 475 basis points, bringing the Federal Funds rate to
its lowest level in 40 years. During the fourth quarter of 2002, the Federal Reserve
adjusted the Federal Funds rate down an additional 50 basis points. At the end of the
third quarter of 2003, the Federal Reserve again reduced Federal Funds rates by an
additional 25 basis points. During the last three years, the total reduction has been 550
basis points.

Despite
sharply lower short-term rates, stimulus to the economy has been muted because the yield
curve has steepened and consumer demand and business investment activity has been weak.
The financial markets are operating now under very low historical interest rates. Under
these unusual conditions, many observers expect Congress to pass an economic stimulus
plan. Many economists believe the Federal Reserve will begin increasing interest rates in
the last half of 2004. No assurance can be given that the Federal Reserve will take such
action. We continue to believe that the markets we serve generally perform better than
national markets, even in times of recession.

# INCOME STATEMENT REVIEW

Comparison of the three months
ended September 30, 2003 and the three months ended September 30, 2002.

# Net Interest Income

Net
interest income, the largest component of our income, was $1,562,719 for the three months
ended September 30, 2003 compared to $1,285,169 for the same period in 2002, or an
increase of 21.6%. The level of net interest income is determined by the balances of
earning assets and interest-bearing liabilities combined with the banks management
of the net interest margin. The following events affect the changes in net interest
income: interest rates earned on assets and paid on liabilities, the rate of growth of the
asset and liability base, the ratio of interest-earning assets to interest-bearing
liabilities, and the management of the balance sheets interest rate sensitivity.

Interest
income for the third quarter of 2003 was $2,495,104 and consisted of $2,352,898 on loans,
$139,249 in investments and $2,957 on federal funds sold. Interest income for the same
period in 2002 was $2,168,952 and included $1,984,879 on loans, $176,433 on investments
and $7,640 on federal funds sold.

12

---

Interest
expense for the third quarter of 2003 was $932,385 and consisted of $685,441 related to
deposits and $246,944 related to borrowings. Our interest expense of $883,783 during the
third quarter of 2002 consisted of $791,346 related to deposits and $92,437 related to
borrowings.Our interest expense increased $48,602, or 5.5%, while our average
interest-bearing deposits and borrowings increased from $141.3 million for the quarter
ended September 30, 2002 to $189.4 million for the quarter ended September 30, 2003, an
increase of 34.0%. The 5.5% increase in our interest expense compared to the 34.0%
increase in our deposits and borrowings resulted from a 53 basis point reduction in the
rates paid. The lower borrowing rates resulted from the declining interest rate
environment.

The
following table sets forth, for the three months ended September 30, 2003 and 2002,
information related to our average balance sheet and average yields on assets and average
costs of liabilities. We derived these yields by dividing annualized income or expense by
the average balance of the corresponding assets or liabilities. We derived average
balances from the daily balances throughout the periods indicated.

# Average Balances,
Income and Expenses, and Rates (in $000s)

|                                          | For the Three Months Ended September 30,
|----------------------------------------- | ----------------------------------------
|
|
|
|
|
|Federal funds sold                        |                                         
|Investment securities                     |                                         
|Loans                                     |                                         
|                                          |                                         
|Total earning-assets                      |                                         
|                                          |                                         
|Non-interest earning assets               |                                         
|                                          |                                         
|Total assets                              |                                         
|                                          |                                         
|NOW accounts                              |                                         
|Savings & money market                    |                                         
|Time deposits                             |                                         
|                                          |                                         
|Total interest-bearing deposits           |                                         
|FHLB advances                             |                                         
|Other borrowings                          |                                         
|                                          |                                         
|Total interest-bearing liabilities        |                                         
|                                          |                                         
|Non-interest bearing liabilities          |                                         
|Shareholders' equity                      |                                         
|                                          |                                         
|Total liabilities and shareholders'equity |                                         
|                                          |                                         
|Net interest spread                       |                                         
|Net interest income/margin                |                                         
|                                          |                                         

Our
net interest spread was 3.10% for the three months ended September 30, 2003 as compared to
3.36% for the three months ended September 30, 2002. The net interest spread is the
difference between the yield we earn on our interest-earning assets and the rate we pay on
our interest-bearing liabilities.

Our
net interest margin for the quarter ended September 30, 2003 was 3.16% as compared to
3.46% for the three months ended September 30, 2002. The net interest margin is calculated
as the annualized net interest income divided by quarterly average earning assets. The
decline in the net interest margin resulted from the bank having more earning assets than
interest-bearing liabilities that re-priced to lower rates as a result of the 75 basis
point market reduction in short-term rates during the twelve month period ended September
30, 2003.

13

---

# Rate/Volume Analysis

Net
interest income can be analyzed in terms of the impact of changing rates and changing
volume. The following table sets forth the effect which the varying levels of earning
assets and interest-bearing liabilities and the applicable rates have had on changes in
net interest income for the periods presented.

|                       | Three months ended September 30,
|---------------------- | --------------------------------
|
|
|
|
|Interest income        |                                 
|Loans                  |                                 
|Investment securities  |                                 
|Federal funds sold     |                                 
|                       |                                 
|Total interest income  |                                 
|                       |                                 
|Interest expense       |                                 
|Deposits               |                                 
|FHLB advances          |                                 
|Other borrowings       |                                 
|                       |                                 
|Total interest expense |                                 
|                       |                                 
|Net interest income    |                                 
|                       |                                 

As
the above table demonstrates, the change in our net interest income is primarily due to
the increase in our assets and liabilities, reflecting the continued growth of the bank.
These increases are partially offset by the decrease in the rates as a result of the
significant reduction in market rates over the last two years.

# Provision for Loan Losses

Included
in the results of operations for the quarters ended September 30, 2003 and 2002 is a
non-cash expense of $250,000 and $300,000, respectively, related to the provision for loan
losses. The loan loss reserve was $2,461,310 at September 30, 2003 and $1,824,149 at
December 31, 2002. The allowance for loan losses as a percentage of gross loans was 1.31%
at September 30, 2003 and 1.22% at December 31, 2002. The loan portfolio is periodically
reviewed to evaluate the outstanding loans and to measure both the performance of the
portfolio and the adequacy of the allowance for loan losses. For information about how we
determine the provision for loan losses, please see our discussion under Provision
and Allowance for Loan Losses.

For
the three months ended September 30, 2003 and 2002, we reported net charge-offs of
$102,064 and $101,015, respectively. All charge-offs in the third quarter of 2003 were
related to commercial loans. Included in the third quarter of 2002 was a write-down on a
non-accruing commercial loan in the amount of $100,000. The remaining $1,015 of net
charge-offs in the 2002 period relate to consumer loans and credit lines associated with
customer checking accounts.

14

---

# Noninterest Income and
Expenses

Noninterest
income in the third quarter of 2003 was $115,318, a decrease $24,214 compared to
noninterest income of $139,532 in the third quarter of 2002. During the third quarter of
2003, the bank incurred a $70,000 write-down on a house that was previously acquired in
foreclosure that is under construction. Excluding the $70,000 loss on real estate owned,
noninterest income from loan and service fees increased $45,786, or 32.8%. This increase
was primarily due to the increases in the volume of service charges on deposits, increases
in the volume of fees charged on ATM transactions, and additional loan fees received on
the origination of mortgage loans that were sold.

We
incurred general and administrative expenses of $996,614 for the three months ended
September 30, 2003 compared to $865,072 for the same period in 2002. The $131,542 increase
in general and administrative expenses resulted primarily from additional data processing
costs and the additional staff hired to handle the increases in both loans and deposits.
Salaries and benefits in third quarter 2003 were $494,979, or an increase of $43,935.
Salaries and benefits represented 50.0% of the total noninterest expense. Salaries and
benefits in third quarter 2002 were $451,044. All other expenses increased $87,607. This
increase relates primarily to $29,448 additional data processing and related costs,
$14,490 additional professional fees, an additional $16,166 of marketing expense and
$27,720 additional other expense related primarily to higher postage and supplies. The
majority of the increased expense resulted from the higher number of loan and deposit
accounts.

Income
tax expense was $163,941 for three months ended September 30, 2003. No income tax or
benefit was record in the 2002 period.

Comparison of the nine months
ended September 30, 2003 and the nine months ended September 30, 2002.

# Net Interest Income

Net
interest income, the largest component of our income, was $4,328,380 for the nine months
ended September 30, 2003 compared to $3,281,447 for the same period in 2002, or an
increase of 31.9%. The level of net interest income is determined by the balances of
earning assets and interest-bearing liabilities combined with the banks management
of the net interest margin. The following events affect the changes in net interest
income: interest rates earned on assets and paid on liabilities, the rate of growth of the
asset and liability base, the ratio of interest-earning assets to interest-bearing
liabilities, and the management of the balance sheets interest rate sensitivity.

Interest
income for the first nine months of 2003 was $7,013,535 and consisted of $6,660,548 on
loans, $338,362 in investments and $14,625 on federal funds sold. Interest income for the
same period in 2002 was $5,896,030 and included $5,306,493 on loans, $545,836 on
investments and $43,701 on federal funds sold.

Interest
expense for the first nine months of 2003 was $2,685,155 and consisted of $2,097,817
related to deposits and $587,338 related to borrowings. Our interest expense of $2,614,583
during the same period in 2002 consisted of $2,402,466 related to deposits and $212,117
related to borrowings.Our interest expense increased $70,572, or 2.7%, while our
average deposits and borrowings increased from $128.7 million for the quarter ended
September 30, 2002 to $173.4 million for the quarter ended September 30, 2003, an increase
of 34.8%. The increase in our interest expense was proportionately less than the increase
in our deposits and borrowings because of the declining interest rate environment.

15

---

The
following table sets forth, for the nine months ended September 30, 2003 and 2002,
information related to our average balance sheet and average yields on assets and average
costs of liabilities. We derived these yields by dividing annualized income or expense by
the average balance of the corresponding assets or liabilities. We derived average
balances from the daily balances throughout the periods indicated.

# Average Balances,
Income and Expenses, and Rates (in $000s)

|                                          | For the Nine months Ended September 30,
|----------------------------------------- | ---------------------------------------
|
|
|
|
|
|Federal funds sold                        |                                        
|Investment securities                     |                                        
|Loans                                     |                                        
|                                          |                                        
|Total earning-assets                      |                                        
|                                          |                                        
|Non-interest earning assets               |                                        
|                                          |                                        
|Total assets                              |                                        
|                                          |                                        
|                                          |                                        
|NOW accounts                              |                                        
|Savings & money market                    |                                        
|Time deposits                             |                                        
|                                          |                                        
|Total interest-bearing deposits           |                                        
|FHLB advances                             |                                        
|Other borrowings                          |                                        
|                                          |                                        
|Total interest-bearing liabilities        |                                        
|                                          |                                        
|Non-interest bearing liabilities          |                                        
|Shareholders' equity                      |                                        
|                                          |                                        
|Total liabilities and shareholders'equity |                                        
|                                          |                                        
|Net interest spread                       |                                        
|Net interest income/margin                |                                        
|                                          |                                        

Our
net interest spread was 3.14% for both of the nine months periods ended September 30, 2003
and 2002. The net interest spread is the difference between the yield we earn on our
interest-earning assets and the rate we pay on our interest-bearing liabilities.

Our
net interest margin for the quarter ended September 30, 2003 was 3.21% as compared to
3.26% for the nine months ended September 30, 2002. The net interest margin is calculated
as the annualized net interest income divided by quarterly average earning assets.

In
pricing deposits, we considered our liquidity needs, the direction and levels of interest
rates and local market conditions.

16

---

# Rate/Volume Analysis

Net
interest income can be analyzed in terms of the impact of changing rates and changing
volume. The following table sets forth the effect which the varying levels of earning
assets and interest-bearing liabilities and the applicable rates have had on changes in
net interest income for the periods presented.

|                       | Nine months ended September 30,
|---------------------- | -------------------------------
|
|
|
|
|
|Interest income        |                                
|Loans                  |                                
|Investment securities  |                                
|Federal funds sold     |                                
|                       |                                
|Total interest income  |                                
|                       |                                
|Interest expense       |                                
|Deposits               |                                
|FHLB advances          |                                
|Other borrowings       |                                
|                       |                                
|Total interest expense |                                
|                       |                                
|Net interest income    |                                
|                       |                                

As
the above table demonstrates, the change in our net interest income is primarily due to
the increase in our assets and liabilities, reflecting the continued growth of the bank.
This increase is partially offset by the decrease in the rates as a result of the
significant reduction in market rates over the last two years.

# Provision for Loan Losses

Included
in the results of operations for the nine months ended September 30, 2003 and 2002 is a
non-cash expense of $750,000 and $720,000, respectively, related to the provision for loan
losses. The loan loss reserve was $2,461,310 at September 30, 2003 and $1,824,149 at
December 31, 2002. The allowance for loan losses as a percentage of gross loans was 1.31%
at September 30, 2003 and 1.22% at December 31, 2002. The loan portfolio is periodically
reviewed to evaluate the outstanding loans and to measure both the performance of the
portfolio and the adequacy of the allowance for loan losses. For information about how we
determine the provision for loan losses, please see our discussion under Provision
and Allowance for Loan Losses.

For
the nine months ended September 30, 2003 and 2002, we reported net charge-offs of $112,839
and $258,293, respectively. During the nine months ended September 30, of 2003, the bank
charged-off $102,064 on a commercial loan. During the same period in 2002, the bank
incurred a write-down on a non-accruing commercial loan in the amount of $250,000. The
remaining net charge-offs in each period relate to consumer loans and credit lines
associated with customer checking accounts.

17

---

# Noninterest Income and
Expenses

Noninterest
income in the first nine months of 2003 was $346,424, a decrease of $17,872 compared to
noninterest income of $364,296 in the same period in 2002. During the 2003 period, the
bank incurred a $170,000 write-down on a house that was previously acquired in foreclosure
that is under construction. Excluding the $170,000 loss on real estate owned, noninterest
income from loan and service fees increased $152,128, or 41.8%. This increase was
primarily due to the increases in the volume of service charges on deposits, increases in
the volume of fees charged on ATM transactions, and additional loan fees received on the
origination of mortgage loans that were sold.

We
incurred general and administrative expenses of $2,854,059 for the nine months ended
September 30, 2003 compared to $2,502,175 for the same period in 2002. The $351,884
increase in general and administrative expenses resulted primarily from additional data
processing costs and the additional staff hired to handle the increases in both loans and
deposits. Salaries and benefits for the 2003 period were $1,462,821, or an increase of
$150,230. Salaries and benefits represented 51.3% of the total noninterest expense.
Salaries and benefits in first nine months of 2002 were $1,312,591. All other expenses
increased $201,654. This increase relates primarily to $113,451 additional data processing
and related costs, resulting from the higher number of loan and deposit accounts.

Income
tax expense was $406,882 for nine months ended September 30, 2003. No income tax or
benefit was record in the 2002 period.

# BALANCE SHEET REVIEW

# General

At
September 30, 2003, we had total assets of $214.8 million, consisting principally of
$185.9 million in loans, $19.8 million in investments and $6.3 million in cash and due
from banks. Liabilities at September 30, 2003 totaled $203.9 million, consisting
principally of $156.1 million in deposits, $40.0 million in FHLB advances and $6.0 million
in trust preferred securities. At September 30, 2003, shareholders equity was $10.8
million.

# Investments

At
September 30, 2003, the $3.9 million of investment securities portfolio available for sale
represented approximately 1.8% of our total assets. The $10.0 million of investment
securities held to maturity represented 4.7% of our assets. We invested in U.S. Government
agency securities and mortgage-backed securities with a fair value of $14.0 million and an
amortized cost of $13.8 million for an unrealized gain of $181,998.

Contractual
maturities and yields on our investments available for sale at September 30, 2003 are
shown in the following table (dollars in thousands). Expected maturities may differ from
contractual maturities because issuers may have the right to call or prepay obligations
with or without call or prepayment penalties.

|                |  |  | After one |   |  |  |   | 
|--------------- |  |  | --------- | - |  |  | - | 
|
|
|
|U.S.Government  |  |  |           |   |  |  |   | 
|agencies        |  |  | $         | - |  |  | - | 
|Mortgage-backed |  | 
|securities      |  |  |           | - |  |  | - | 
|                |  |  |           |   |  |  |   | 
|Total           |  |  |           | - |  |  | - | 
|                |  |  |           |   |  |  |   | 

18

---

At
September 30, 2003, the $3.4 million of short-term investments in federal funds sold on an
overnight basis comprised 1.57% of total assets at September 30, 2003, as compared to
$41,736, or .02% of total assets, at December 31, 2002.

# Loans

Since
loans typically provide higher interest yields than do other types of interest earning
assets, it is our intent to channel a substantial percentage of our earning assets into
the loan portfolio. Average loans for the nine months ended September 30, 2003 and 2002
were $167.0 million and $116.7 million, respectively. Total loans outstanding at September
30, 2003 and December 31, 2002 were $185.9 million and $148.1 million, respectively,
before allowance for loan losses.

The
following table summarizes the composition of the loan portfolio:

|                               |  |  |   |            
|------------------------------ |  |  | - | -----------
|
|Real estate:                   |  |  |   |            
|Commercial                     |  | 
|Owner occupied                 |  |  | $ | 35,674,778 
|Non-owner occupied             |  |  |   | 48,580,271 
|Construction                   |  |  |   | 7,033,483  
|                               |  |  |   |            
|                               |  |  |   | 91,288,532 
|                               |  |  |   |            
|Consumer                       |  | 
|Residential                    |  |  |   | 30,541,147 
|Home Equity                    |  |  |   | 22,817,315 
|Construction                   |  |  |   | 4,457,402  
|                               |  |  |   |            
|                               |  |  |   | 57,815,864 
|                               |  |  |   |            
|Total real-estate              |  |  |   | 149,104,396
|Commercial business            |  |  |   | 35,358,273 
|Consumer-other                 |  |  |   | 4,333,797  
|Deferred origination fees, net |  |  |   | (445,272   
|                               |  |  |   |            
|                               |  |  |   | 188,351,194
|                               |  |  |   |            
|Less allowance for loan        |  | 
|Losses                         |  |  |   | (2,461,310 
|                               |  |  |   |            
|Total loans, net               |  |  | $ | 185,889,884
|                               |  |  |   |            

The principal
component of our loan portfolio at September 30, 2003 and at December 31, 2002 was loans
secured by real estate mortgages. Due to the short time the portfolio has existed, the
current mix of loans may not be indicative of the ongoing portfolio mix. Management will
attempt to maintain a relatively diversified loan portfolio to help reduce the risk
inherent in concentration of collateral.

# Provision and Allowance
for Loan Losses

We
have developed policies and procedures for evaluating the overall quality of our credit
portfolio and the timely identification of potential credit problems.

We
have established an allowance for loan losses by expensing a provision for loan losses on
our statement of operations. The allowance represents an amount that we believe will be
adequate to absorb probable losses on existing loans that may become uncollectible. Our
judgment in determining the adequacy of the allowance is based on evaluations of the
collectibility of loans, including consideration of factors such as the balance of
impaired loans; the quality, mix and size of our overall loan portfolio; economic
conditions that may affect the borrowers ability to repay; the amount and quality of
collateral securing the loans; our historical loan loss experience and a review of
specific problem loans. We

19

---

increase the allowance periodically
by additional provisions for loan losses. We charge recognized losses to the allowance and
add subsequent recoveries back to the allowance.

Our
evaluation is inherently subjective, as it requires estimates that are susceptible to
significant change. We do not allocate the allowance for loan losses to specific
categories of loans but evaluate the adequacy on an overall portfolio basis utilizing our
credit grading system that we apply to each loan. We have engaged an independent
consultant to review the loan files on a test basis to verify that the lenders have
properly graded each loan. Due to our limited operating history, the provision for loan
losses has been made primarily as a result of managements assessment of general loan
loss risk as compared to banks of similar size and maturity. In addition, regulatory
agencies periodically review our allowance for loan losses as part of their examination
process, and they may require us to record additions to the allowance based on their
judgment about information available to them at the time of their examinations. Our losses
will undoubtedly vary from our estimates, and there is a possibility that charge-offs in
future periods will exceed the allowance for loan losses as estimated at any point in
time.

At
September 30, 2003 and at December 31, 2002, the allowance for loan losses was $2.5
million and $1.8 million, respectively, or 1.31% of outstanding loans at September 30,
2003 and 1.22% at December 31, 2002. During the nine months ended September 30, 2003 and
2002, we charged off loans of $112,839 and $258,293, respectively.

At
September 30, 2003, nonaccrual loans totaled $406,857, which represented .22% of total
loans. Included in the $406,857 are nonaccrual commercial loans of $262,068 and consumer
loans of $144,789. During the third quarter of 2002, we obtained ownership through
foreclosure procedures on the residential construction loan that was on nonaccrual status
at December 31, 2001. At September 30, 2003, we carried this asset as real estate owned
with a carrying value of approximately $691,147. We are in the process of completing the
construction of this home. We carry all real estate acquired through foreclosure at the
lower of cost or market value.

Generally,
a loan is placed on nonaccrual status when it becomes 90 days past due as to principal or
interest, or when management believes, after considering economic and business conditions
and collection efforts, that the borrowers financial condition is such that
collection of the loan is doubtful.

# Maturities and
Sensitivity of Loans to Changes in Interest Rates

The
information in the following table is based on the contractual maturities of individual
loans, including loans, which may be subject to renewal at their contractual maturity.
Renewal of such loans is subject to review and credit approval, as well as modification of
terms upon their maturity. Actual repayments of loans may differ from maturities reflected
below because borrowers have the right to prepay obligations with or without prepayment
penalties.

20

---

The
following table summarizes the loan maturity distribution, by type, and related interest
rate characteristics at September 30, 2003 (dollars in thousands):

|                                    |  | After one but |   |       
|----------------------------------- |  | ------------- | - | ------
|
|
|Commercial                          |  |               | $ | 20,145
|Real estate - construction          |  |               |   | 6,425 
|Real estate-  mortgage              |  |               |   | 21,118
|Consumer and other                  |  |               |   | 1,925 
|                                    |  |               |   |       
|Total loans                         |  |               | $ | 49,613
|                                    |  |               |   |       
|Loans maturing after one year with: |  |              
|Fixed interest rates                |  |               |   |       
|Floating interest rates             |  |               |   |       

# Deposits and Other
Interest-Bearing Liabilities

Our
primary sources of funds for loans and investments are our deposits, advances from the
FHLB, and short-term repurchase agreements. We believe that conditions in 2003 were
favorable for deposit growth and those factors such as the low returns on investments and
mutual funds may have increased traditional deposit inflows during 2003.

The
following is a table of deposits by category (dollars in thousands):

|                                  | September 30, 2003 | December 31, 2002
|--------------------------------- | ------------------ | -----------------
|
|Demand deposit accounts           |                    |                  
|NOW accounts                      |                    |                  
|Money market accounts             |                    |                  
|Savings accounts                  |                    |                  
|Time deposits less than $100,000  |                    |                  
|Time deposits of $100,000 or more |                    |                  
|                                  |                    |                  
|Total deposits                    |                    |                  
|                                  |                    |                  

Core
deposits, which traditionally exclude time deposits of $100,000 or more, provide a
relatively stable funding source for our loan portfolio and other earning assets. Our core
deposits were $89.5 million and $82.7 million at September 30, 2003 and December 31, 2002,
respectively. Our loan-to-deposit ratio was 119.09% and 110.87% at September 30, 2003 and
December 31, 2002, respectively.

A
significant portion of the time deposits over $100,000 relate to deposits that were
obtained outside of our local market. The maturities on these deposits range from three
months to five years. These deposits were obtained at rates that were either comparable to
or lower than rates paid in the local market.

21

---

The
maturity distribution of our time deposits of $100,000 or more is as follows:

|                               | September 30, 2003 | December 31, 2002
|------------------------------ | ------------------ | -----------------
|
|
|Three months or less           |                    |                  
|Over three through nine months |                    |                  
|Over six through twelve months |                    |                  
|Over twelve months             |                    |                  
|                               |                    |                  
|Total                          |                    |                  
|                               |                    |                  

# Borrowings

At
September 30, 2003, we had two unused federal funds purchased line of credit totaling
$6,700,000. These lines of credit are unsecured and bear interest at the daily rate of
federal funds plus 25 basis points (1.25% at September 30, 2003).

At
September 30, 2003, we had $40,000,000 of advances from the FHLB. Included in the $40.0
million of advance outstanding at September 30, 2003, is $14.5 million that reprice daily
with no set maturity. From time to time the bank utilizes short-term borrowings from the
FHLB to fund loan growth or to replace higher yielding short-term borrowings. The rate at
September 30, 2003 was 1.24%. The advances are secured with approximately $79,400,000 of
first mortgage loans and our stock in the FHLB. We had collateral available to borrow an
additional $10,000,000 advances at September 30, 2003. Listed below is a summary of the
term and maturities of the advances:

| | o | The maturity on $5,000,000 of the advances with a weighted rate of 1.63% is July 16, 2004.
The FHLB has the option to re-price this advance as of April 16, 2003.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | The maturity on $7,500,000 of the advances with a weighted rate of 1.21% is March 10,
2006. The FHLB has the option to re-price this advance as of March 10, 2004.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | The maturity on $5,000,000 of the advances with a weighted rate of 1.56% is October 15,
2007. The FHLB has the option to re-price this advance as of October 15, 2003.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | The maturity on $3,000,000 of the advances with a weighted rate of 4.86% is August 24,
2011. The FHLB has the option to re-price this advance as of August 24, 2006.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | The maturity on $5,000,000 of the advances with a weighted rate of 3.36% is January 30,
2013. The FHLB has the option to re-price this advance as of January 30, 2008.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

At
September 30, 2003, we had an unused $3,500,000 revolving line of credit with another bank
with a maturity of September 20, 2004. The line of credit bears interest at a rate of the
three-month libor rate plus 200 basis points, which at September 30, 2003 was 3.30%. We
have pledged all of our stock of our subsidiary, Greenville First Bank, as collateral for
this line of credit. The line of credit agreement contains various covenants related to
net income and asset quality. As of September 30, 2003, we believe we are in compliance
with all covenants.

On
September 26, 2003, we issued $6.0 million floating rate trust preferred securities. The
initial pricing of the transaction calls for a floating rate coupon beginning at 4.16%.
The rate is determined quarterly.

We
used $3.0 million of the proceeds to repay the outstanding balance on a $3.5 million
revolving line of credit. The $3.5 million revolving line of credit will remain available.
We will invest $2.7 million in our wholly-owned subsidiary, Greenville First Bank. We plan
to use the remaining balance to fund operations at the holding company level, or for
potential future investments in the bank.

22

---

# CAPITAL RESOURCES

Total
shareholders equity amounted to $10.8 million at September 30, 2003 and $10.2
million at December 31, 2002. The increase during the nine months ended September 30, 2003
resulted from $663,863 of net income partly offset by $68,408 decrease in the unrealized
gains on investment securities.

The
following table shows the annualized return on average assets (annualized net income
divided by average total assets), return on average equity (annualized net income divided
by average equity), and equity to assets ratio (average equity divided by average total
assets). Since our inception, we have not paid any cash dividends.

|                         | September 30, 2003 | December 31, 2002
|------------------------ | ------------------ | -----------------
|
|Return on average assets |                    |                  
|Return on average equity |                    |                  
|Equity to assets ratio   |                    |                  

The
Federal Reserve Board and bank regulatory agencies require bank holding companies and
financial institutions to maintain capital at adequate levels based on a percentage of
assets and off-balance sheet exposures, adjusted for risk weights ranging from 0% to 100%.

Under
the capital adequacy guidelines, capital is classified into two tiers. These guidelines
require an institution to maintain a certain level of Tier 1 and Tier 2 capital to
risk-weighted assets. Tier 1 capital consists of common stockholders equity,
excluding the unrealized gain or loss on securities available for sale, plus a portion of
trust preferred securities subject to certain limitations, minus certain intangible
assets. In determining the amount of risk-weighted assets, all assets, including certain
off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 100% based on
the risks believed inherent in the type of asset. Tier 2 capital consists of Tier 1
capital plus the remaining portion of trust preferred securities not included in Tier 1,
plus the general reserve for loan losses subject to certain limitations. The bank is also
required to maintain capital at a minimum level based on total average assets, which is
known as the Tier 1 leverage ratio.

The
bank is subject to various regulatory capital requirements administered by the federal
banking agencies. Under these capital guidelines, we must maintain a minimum total
risk-based capital of 8%, with at least 4% being Tier 1 capital. In addition, we must
maintain a minimum Tier 1 leverage ratio of at least 4%. To be considered
well-capitalized, we must maintain total risk-based capital of at least 10%,
Tier 1 capital of at least 6%, and a leverage ratio of at least 5%.

23

---

The
following table sets forth the companys and the banks various capital ratios
at September 30, 2003 and December 31, 2002. At September 30, 2003 and December 31, 2002,
both the company and the bank were in compliance with each of the applicable regulatory
capital requirements and were both considered to be well capitalized.

|                          | September 30, 2003 | December 31, 2002
|------------------------- | ------------------ | -----------------
|
|
|
|Total risk-based capital  |                    |                  
|Tier 1 risk-based capital |                    |                  
|Leverage capital          |                    |                  

Our
objective is to maintain the capital levels such that the bank will continue to be
considered well capitalized.

# EFFECT OF INFLATION AND
CHANGING PRICES

The
effect of relative purchasing power over time due to inflation has not been taken into
effect in our financial statements. Rather, the statements have been prepared on an
historical cost basis in accordance with generally accepted accounting principles in the
United States of America.

Unlike
most industrial companies, the assets and liabilities of financial institutions such as
our company and bank are primarily monetary in nature. Therefore, the effect of changes in
interest rates will have a more significant impact on our performance than will the effect
of changing prices and inflation in general. In addition, interest rates may generally
increase as the rate of inflation increases, although not necessarily in the same
magnitude. As discussed previously, we seek to manage the relationships between interest
sensitive assets and liabilities in order to protect against wide rate fluctuations,
including those resulting from inflation.

# OFF-BALANCE SHEET RISK

Commitments
to extend credit are agreements to lend to a customer as long as there is no violation of
any material condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require the payment of a fee. At
September 30, 2003, unfunded commitments to extend credit were $47.6 million, of which
approximately $12.4 million was at fixed rates and $35.2 million was at variable rates.
The significant portion of the unfunded commitments relates to consumer equity lines of
credit. The bank anticipates, based on historical experience, that the significant portion
of these lines of credit will not be funded. The bank evaluates each customers
credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the bank upon extension of credit, is based on managements credit
evaluation of the borrower. Collateral varies but may include accounts receivable,
inventory, property, plant and equipment, and commercial and residential real estate.

At
September 30, 2003, there was a $1.5 million commitment under a letter of credit. The
credit risk involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. Collateral varies but may include accounts
receivable, inventory, equipment, marketable securities and property. Since most of the
letters of credit are expected to expire without being drawn upon, they do not necessarily
represent future cash requirements.

24

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Except
as disclosed in this report, we are not involved in off-balance sheet contractual
relationships, unconsolidated related entities that have off-balance sheet arrangements,
or transactions that result in liquidity needs or other commitments that we believe are
likely to significantly impact earnings.

# MARKET RISK

Market
risk is the risk of loss from adverse changes in market prices and rates, which
principally arises from interest rate risk inherent in our lending, investing, deposit
gathering and borrowing activities. Other types of market risks, such as foreign currency
exchange rate risk and commodity price risk, do not normally arise in the normal course of
our business. We actively monitor and manage our interest rate risk exposure.

The
principal interest rate risk monitoring technique we employ is the measurement of our
interest sensitivity gap, which is the positive or negative dollar difference
between assets and liabilities that are subject to interest rate repricing within a given
period of time. Interest rate sensitivity can be managed by repricing assets or
liabilities, selling securities available-for-sale, replacing an asset or liability at
maturity, or adjusting the interest rate during the life of an asset or liability.
Managing the amount of assets and liabilities repricing in this same time interval helps
to hedge the risk and minimize the impact on net interest income of rising or falling
interest rates. We generally would benefit from increasing market rates of interest when
we have an asset-sensitive gap position and generally would benefit from decreasing market
rates of interest when we are liability-sensitive.

Because
approximately 74% of our loans are variable rate loans at September 30, 2003, we are
currently asset sensitive over the one-year time frame. However, our gap analysis is not a
precise indicator of our interest sensitivity position. The analysis presents only a
static view of the timing of maturities and repricing opportunities, without taking into
consideration that changes in interest rates do not affect all assets and liabilities
equally. For example, rates paid on a substantial portion of core deposits may change
contractually within a relatively short time frame, but those rates are viewed by
management as significantly less interest-sensitive than market-based rates such as those
paid on non-core deposits. Net interest income may be impacted by other significant
factors in a given interest rate environment, including changes in the volume and mix of
earning assets and interest-bearing liabilities.

# LIQUIDITY & INTEREST
RATE SENSITIVITY

Liquidity
management involves monitoring our sources and uses of funds in order to meet our
day-to-day cash flow requirements while maximizing profits. Liquidity represents the
ability of a company to convert assets into cash or cash equivalents without significant
loss and to raise additional funds by increasing liabilities. Liquidity management is made
more complicated because different balance sheet components are subject to varying degrees
of management control. For example, the timing of maturities of the investment portfolio
is fairly predictable and subject to a high degree of control at the time the investment
decisions are made. However, net deposit inflows and outflows are far less predictable and
are not subject to nearly the same degree of control.

At
September 30, 2003 and December 31, 2002, our liquid assets, consisting of cash, due from
banks and federal funds sold, amounted to $9.7 million and $4.5 million, representing 4.5%
and 2.6% of total assets, respectively. Investment securities at September 30, 2003 and
December 31, 2002 amounted to $16.4 million and $15.5 million, representing 7.7% and 9.1%
of total assets, respectively; these securities provide a secondary source of liquidity
since they can be converted into cash in a timely manner. Our ability to maintain and
expand our deposit base and borrowing capabilities also serves as a source of liquidity.

We
plan to meet our future cash needs through the liquidation of temporary investments,
maturities and sale of loans, maturity of investment securities, generation of deposits
and additional borrowings. During 2003, we have utilized proceeds from the short-term
advances from the FHLB and

25

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short-term repurchase agreements from
brokerage firms, proceeds from sales of participations in loans originated, and an
increase in deposits to fund the significant portion of the 2003 loan production. By
utilizing the various short-term sources of funding, we have been able to reduce the
banks level of interest sensitivity while obtaining low cost funds. The bank is a
member of the Federal Home Loan Bank of Atlanta from which applications for borrowings can
be made for leverage purposes, if so desired. The FHLB requires securities, qualifying
single family and commercial mortgage loans, and stock of the FHLB owned by the bank is
pledged to secure any advances from the FHLB. The unused borrowing capacity at September
30, 2003 that is currently available from the FHLB based on the amount of collateral
pledged is approximately $10.0 million. In addition, we maintain two federal funds
purchased line of credit with a correspondent bank, totaling $6.7 million. At September
30, 2003, the unused portion of the lines was $6.7 million. We have also obtained a $10.0
million line of credit that is available from a brokerage firm based on the amount of
collateral held by the firm. At September 30, 2003, the firm held $10.0 million of
investment securities as collateral. As of September 30, 2003, we had no outstanding
borrowings from the brokerage firm.

During
the second quarter of 2003, we announced our intention to open two branch locations. The
two branches are expected to open during the second half of 2004 or the first half of
2005. We anticipate being able to fund this expansion program from operations.

We
believe that our existing stable base of core deposits, borrowings from the FHLB, and
short-term repurchase agreements will enable us to successfully meet our liquidity needs
for the foreseeable future.

Asset/liability
management is the process by which we monitor and control the mix and maturities of our
assets and liabilities. The essential purposes of asset/liability management are to ensure
adequate liquidity and to maintain an appropriate balance between interest sensitive
assets and liabilities to minimize potentially adverse impacts on earnings from changes in
market interest rates. The banks asset/liability management committee
(ALCO) monitors and considers methods of managing exposure to interest rate
risk. The ALCO consists of members of the board of directors and senior management of the
bank and meets at least quarterly. The ALCO is charged with the responsibility to maintain
the level of interest rate sensitivity of the banks interest sensitive assets and
liabilities within board-approved limits. With historical low levels of interest rates,
the bank has invested a significant portion of its assets in variable rate loans, which
has resulted in an asset sensitive position.

26

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The
following table presents our rate sensitivity at each of the time intervals indicated as
of September 30, 2003. The table may not be indicative of our rate sensitivity position at
other points in time. In addition, the tables maturity distribution may differ from
the contractual maturities of the earning assets and interest bearing liabilities
presented due to consideration of prepayment speeds under various interest rate change
scenarios in the application of the interest rate sensitivity methods described above.

|                           | Within | After three but | After one but | After   |  
|-------------------------- | ------ | --------------- | ------------- | ------- | -
|
|
|
|
|Interest-earning assets:   |        |                 |               |         |  
|Federal funds sold         |        |                 | $             | 3,378   |  
|Investment securities      |        |                 |               | 889     |  
|Loans                      |        |                 |               | 140,237 |  
|                           |        |                 |               |         |  
|Total earning assets       |        |                 | $             | 144,504 |  
|                           |        |                 |               |         |  
|Interest-bearing           |        |                
|liabilities:               |        |                
|Money market and NOW       |        |                 | $             | 39,608  |  
|Regular savings            |        |                 |               | 1,726   |  
|Time deposits              |        |                 |               | 22,162  |  
|Trust preferred securities |        |                 |               | 6,000   |  
|FHLB advances              |        |                 |               | 24,500  |  
|                           |        |                 |               |         |  
|Total interest-bearing     |        |                
|liabilities                |        |                 | $             | 93,996  |  
|                           |        |                 |               |         |  
|Period gap                 |        |                 | $             | 50,508  |  
|Cumulative gap             |        |                 | $             | 50,508  |  
|Ratio of cumulative gap to |        |                
|total earning assets       |        |                 |               | 24.5    | %

# ACCOUNTING, REPORTING
AND REGULATORY MATTERS

Accounting
standards have been issued or proposed by the Financial Accounting Standards Board and are
not required to be adopted until a future date and are not expected to have a material
impact on the consolidated financial statements upon adoption.

# Item 3. Controls and
Procedures

As
of the end of the period covered by this report, we carried out an evaluation, under the
supervision and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures as defined in Exchange Act Rule 13a-15(e). Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that our current
disclosure controls and procedures are effective as of September 30, 2003.

The
design of any system of controls and procedures is based in part upon certain assumptions
about the likelihood of future events. There can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions, regardless of
how remote.

27

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# PART II. OTHER
INFORMATION

# Item 1. Legal Proceedings

| | There
are no material pending legal proceedings to which the company is a party or of which any
of its property is the subject.
| | -------------------------------------------------------------------------------------------------------------------------------

# Item 2. Changes in
Securities

| | None
| | ----

# Item 3. Defaults Upon
Senior Securities

| | Not applicable
| | --------------

# Item 4.    Submission of Matters to a Vote of Security Holders

| | None
| | ----

# Item 5. Other Information

| | None
| | ----

# Item 6. Exhibits and
Reports on Form 8-K

| | (a)       
           Exhibits:   See Exhibit Index attached hereto.
| | --------------------------------------------------------------------

| | Exhibit             Description
| | -------------------------------

|31 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
|-- | --------------------------------------------------------------------------------------------------------------------------------

|32 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002. This exhibit is not filed for purposes
of Section 18 of the Securities Exchange Act of 1934 but is instead furnished as provided
by applicable rules of the Securities and Exchange Commission.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Reports on Form 8-K
|--- | -------------------

| | The following reports were filed on Form 8-K during the third quarter ended September 30,
2003.
| | -----------------------------------------------------------------------------------------------

| |  | The
Company filed a Form 8-K on July 10, 2003 to announce the issuance of $6.0 million in
floating rate trust preferred securities.
| |  | -----------------------------------------------------------------------------------------------------------------------------------

| |  | The
Company filed a Form 8-K on July 15, 2003 to disclose the issuance of a press release
announcing its financial results for the second quarter ended June 30, 2003.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

28

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# SIGNATURES

Pursuant
to the requirements of the Exchange Act, the registrant caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

| |  | GREENVILLE FIRST BANCSHARES, INC.
| |  | ---------------------------------

|Date:  November 13, 2003 |  | /s/  R. Arthur Seaver, Jr.
|------------------------ |  | --------------------------
|                         |  | R. Arthur Seaver, Jr.     
|                         |  | Chief Executive Officer   

|Date:  November 13, 2003 |  | /s/  James M. Austin, III
|------------------------ |  | -------------------------
|                         |  | James M. Austin, III     
|                         |  | Chief Financial Officer  

29

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INDEX TO EXHIBITS

Exhibit Number
          Description

|31 | Certifications of Chief Executive
Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|-- | --------------------------------------------------------------------------------------------------------------------------------

|32 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002. This exhibit is not filed for purposes
of Section 18 of the Securities Exchange Act of 1934 but is instead furnished as provided
by applicable rules of the Securities and Exchange Commission.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

30