10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2005

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

For the transition period from ___________ to _____________

Commission file number 000-27719

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)

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes      No   X  

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:  2,659,475 shares of common stock, $.01 par value per share, were issued and outstanding as of July 27, 2005.

GREENVILLE FIRST BANCSHARES, INC.
PART I. FINANCIAL INFORMATION

      Item 1. Financial Statements

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

GREENVILLE FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2005			2004
	(Unaudited)			(Audited)
Assets
Cash and due from banks	$	4,049,415		$	3,943,877
Federal funds sold		2,523,954			1,394,459
Investment securities available for sale		11,040,654			12,159,674
Investment securities held to maturity-
(fair value $21,635,915 and $13,088,613)		21,861,614			13,138,697
Other investments, at cost		4,943,400			3,863,850
Loans, net		306,843,498			276,630,484
Property and equipment, net		2,655,730			2,013,995
Accrued interest receivable		1,386,614			1,145,810
Other real estate owned		-			28,000
Other assets		1,853,863			1,492,352
Total assets	$	357,158,742		$	315,811,198
Liabilities
Deposits	$	228,875,672		$	204,864,142
Official checks outstanding		1,425,818			1,384,480
Federal funds purchased and repurchase agreements		17,029,000			13,099,999
Federal Home Loan Bank advances		72,500,000			60,660,000
Junior subordinated debentures		6,186,000			6,186,000
Accrued interest payable		1,057,543			620,014
Accounts payable and accrued expenses		529,331			917,975
Total liabilities		327,603,364			287,732,610
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
Authorized, 10,000,000 shares. Issued and outstanding 2,659,475 and
2,647,994 at June 30, 2005 and December 31, 2004, respectively		26,595			26,480
Additional paid-in capital		25,625,075			25,546,259
Accumulated other comprehensive income (loss)		(33,959	)		49,989
Retained earnings		3,937,667			2,455,860
Total shareholders' equity		29,555,378			28,078,588
Total liabilities and shareholders' equity	$	357,158,742		$	315,811,198

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

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GREENVILLE FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME

	For the three months ended
	June 30,
	2005		2004
	(Unaudited)
Interest income
Loans	$	4,771,012	$	2,950,548
Investment securities		429,775		220,364
Federal funds sold		27,509		4,703
Total interest income		5,228,296		3,175,615
Interest expense
Deposits		1,453,248		840,564
Borrowings		853,709		374,606
Total interest expense		2,306,957		1,215,170
Net interest income		2,921,339		1,960,445
Provision for loan losses		265,000		300,000
Net interest income after provision for loan losses		2,656,339		1,660,445
Noninterest income
Loan fee income		49,745		40,789
Service fees on deposit accounts		62,600		72,978
Other income		105,149		86,810
Total noninterest income		217,494		200,577
Noninterest expenses
Compensation and benefits		795,855		600,877
Professional fees		85,683		50,882
Marketing		118,029		74,679
Insurance		36,738		31,146
Occupancy		204,585		149,129
Data processing and related costs		232,597		215,304
Telephone		12,082		6,836
Other		63,008		64,661
Total noninterest expenses		1,548,577		1,193,514
Income before income taxes expense		1,325,256		667,508
Income tax expense		503,598		253,657
Net income	$	821,658	$	413,851
Earnings per common share
Basic	$	.31	$	.24
Diluted	$	.28	$	.21
Weighted average common shares outstanding
Basic		2,659,475		1,725,494
Diluted		2,937,315		1,988,584

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

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GREENVILLE FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME

	For the six months ended
	June 30,
	2005		2004
	(Unaudited)
Interest income
Loans	$	8,942,273	$	5,688,464
Investment securities		834,865		445,178
Federal funds sold		33,320		9,293
Total interest income		9,810,458		6,142,935
Interest expense
Deposits		2,607,934		1,568,286
Borrowings		1,600,595		681,219
Total interest expense		4,208,529		2,249,505
Net interest income		5,601,929		3,893,430
Provision for loan losses		610,000		650,000
Net interest income after provision for loan losses		4,991,929		3,243,430
Noninterest income
Loan fee income		96,369		66,824
Service fees on deposit accounts		136,137		139,728
Other income		198,364		156,348
Total noninterest income		430,870		362,900
Noninterest expenses
Compensation and benefits		1,590,648		1,199,522
Professional fees		163,926		99,815
Marketing		208,308		125,958
Insurance		73,561		61,662
Occupancy		370,310		289,899
Data processing and related costs		447,805		396,775
Telephone		23,034		13,306
Other		155,196		126,159
Total noninterest expenses		3,032,788		2,313,096
Income before income taxes expense		2,390,011		1,293,234
Income tax expense		908,204		491,433
Net income	$	1,481,807	$	801,801
Earnings per common share
Basic	$	.56	$	.46
Diluted	$	.51	$	.40
Weighted average common shares outstanding
Basic		2,653,735		1,725,294
Diluted		2,927,794		1,998,109

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

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GREENVILLE FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(Unaudited)

							Accumulated					Total
					Additional		other					share-
	Common stock				paid in		comprehensive			Retained		holders
	Shares		Amount		capital		income			earnings		equity
December 31, 2003		1,724,994	$	17,250	$	10,629,450	$	96,997		$	443,271	$	11,186,968
Net income		-		-		-		-			801,801		801,801
Comprehensive loss,
net of tax -
Unrealized holding gain
on securities available
for sale		-		-		-		(68,217	)		-		(68,217	)
Comprehensive income		-		-		-		-			-		733,584
Proceeds from exercise of
warrants		3,000		20		19,990		-			-		20,010
June 30, 2004		1,727,994	$	17,270	$	10,649,440	$	28,780		$	1,245,072	$	11,940,562
December 31, 2004		2,647,994	$	26,480	$	25,546,259	$	49,989		$	2,455,860	$	28,078,588
Net income		-		-		-		-			1,481,807		1,481,807
Comprehensive income,
net of tax -
Unrealized holding loss
on securities available
for sale		-		-		-		(83,948	)		-		(83,948	)
Comprehensive income		-		-		-		-			-		1,397,859
Proceeds from exercise of
options and warrants		11,481		115		78,816		-			-		78,931
June 30, 2005		2,659,475	$	26,595	$	25,625,075	$	(33,959	)	$	3,937,667	$	29,555,378

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

5

GREENVILLE FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the six months ended
	June 30,
	2005			2004
Operating activities
Net income	$	1,481,807		$	801,801
Adjustments to reconcile net income to cash
provided by operating activities:
Provision for loan losses		610,000			650,000
Depreciation and other amortization		116,465			73,553
Accretion and amortization of securities discounts and premium, net		62,717			50,756
Decrease (increase) in deferred taxes asset		(253,067	)		320,145
Increase in other assets, net		(349,248	)		(1,344,889	)
Increase (decrease) in other liabilities, net		133,467			(358,699	)
Net cash provided by operating activities		1,802,141			192,667
Investing activities
Increase (decrease) in cash realized from:
Origination of loans, net		(30,823,014	)		(39,285,674	)
Purchase of property and equipment		(758,200	)		(807,209	)
Purchase of investment securities:
Available for sale		-			-
Held to maturity		(10,258,021	)		(5,585,942	)
Other investments		(3,224,250	)		(2,510,000	)
Payments and maturity of investment securities:
Available for sale		960,230			429,286
Held to maturity		1,503,985			1,171,657
Other investments		2,144,700			1,215,000
Proceeds from sale of real estate acquired in settlement of loans		28,000			-
Net cash used for investing activities		(40,426,570	)		(45,372,882	)
Financing activities
Increase in deposits, net		24,011,530			9,023,726
Increase in short-term borrowings		3,929,001			4,268,001
Decrease in other borrowings		-			3,000,000
Proceeds from the exercise of stock options		78,931			-
Proceeds from the exercise of stock warrants		-			20,010
Increase in Federal Home Loan Bank advances		11,840,000			25,900,000
Net cash provided by financing activities		39,859,462			42,211,737
Net increase (decrease) in cash and cash equivalents		1,235,033			(2,968,478	)
Cash and cash equivalents at beginning of the period		5,338,336			6,947,291
Cash and cash equivalents at end of the period	$	6,573,369		$	3,978,813
Supplemental information
Cash paid for
Interest	$	3,771,000		$	2,097,244
Income taxes	$	1,118,000		$	1,266,585
Schedule of non-cash transactions
Foreclosure of real estate	$	-		$	305,485
Unrealized loss on securities, net of income taxes	$	(83,948)		$	(68,217	)

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

6

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

Note 1 - Nature of Business and Basis of Presentation

Business activity

        Greenville First Bancshares, Inc. is a South Carolina corporation that owns all of the capital stock of Greenville First Bank, N.A. 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-Q. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America 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 six-month periods ended June 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. For further information, refer to the consolidated financial statements and footnotes thereto included in the company’s Form 10-KSB for the year ended December 31, 2004 (Registration Number 000-27719) as filed with the Securities and Exchange Commission. The consolidated financial statements include the accounts of Greenville First Bancshares, Inc., and its wholly owned subsidiary Greenville First Bank, N.A. As discussed in Note 3, the financial statements related to the special purpose subsidiary, Greenville First Statutory Trust I, have not been consolidated in accordance with FASB Interpretation No. 46.

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 - Accounting for Variable Interest Entities

        Effective January 1, 2004, the company adopted FASB Interpretation No. 46, (“FIN 46”), “Consolidation of Variable Interest Entities.” In accordance with FIN 46, the $186,000 investment by the parent company, Greenville First Bancshares, Inc, in the special purpose subsidiary, Greenville First Statutory Trust I, results in the special purpose subsidiary being treated as a “variable interest entity” as defined in FIN 46. Therefore, in accordance with the revised rules, the company did not consolidate its special purpose trust subsidiary. Prior to January 1, 2004, the effective date on the adoption of FIN 46, the company had consolidated the special purpose subsidiary. The 2004 consolidated financial statements have been restated, resulting in the “deconsolidation” of this wholly-owned subsidiary. The deconsolidation of this wholly-owned subsidiary increased both the company’s other assets by $186,000 and the debt associated with the junior subordinated debentures. The company’s maximum exposure to loss on this debt is the $186,000 invested in the special purpose subsidiary. However, in addition to the loss exposure related to the investment in the special purpose subsidiary, the company has a full and unconditional guarantee for the $6,000,000 junior subordinated debentures that were issued. The special purpose subsidiary was formed for the sole purpose of issuing the junior subordinated debentures.

7

Note 3 - Note Payable

        The company had an unused $4.5 million revolving line of credit with another bank that mature on March 20, 2006. The line of credit bears interest at a rate of three-month libor plus 2.00%, which at June 30, 2005 was 5.52%. 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 net income and asset quality. As of June 30, 2005, the company believes it is in compliance with all covenants.

Note 4 - Earnings per Share

        The following schedule reconciles the numerators and denominators of the basic and diluted earnings per share computations for the three months and six months ended June 30, 2005 and 2004. Dilutive common shares arise from the potentially dilutive effect of the company’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 average dilutive shares have been computed utilizing the “treasury stock” method.

	Three months ended June 30,
	2005		2004
Basic Earnings Per Share
Average common shares		2,659,475		1,725,494
Net income	$	821,658	$	413,851
Earnings per share	$	0.31	$	0.24
Diluted Earnings Per Share
Average common shares		2,659,475		1,725,494
Average dilutive common shares		277,840		263,090
Adjusted average common shares		2,937,315		1,988,584
Net income	$	821,658	$	413,851
Earnings per share	$	0.28	$	0.21

	Six months ended June 30,
	2005		2004
Basic Earnings Per Share
Average common shares		2,653,735		1,725,294
Net income	$	1,481,807	$	801,801
Earnings per share	$	0.56	$	0.46
Diluted Earnings Per Share
Average common shares		2,653,735		1,725,294
Average dilutive common shares		274,059		272,815
Adjusted average common shares		2,927,794		1,998,109
Net income	$	1,481,807	$	801,801
Earnings per share	$	0.51	$	0.40

8

Note 5 - 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”) No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

	For the three months ended June 30,
	2005			2004
Net income, as reported	$	821,658		$	413,851
Deduct: Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related tax effects		(17,992	)		(20,719	)
Pro forma net income	$	803,666		$	393,132
Earnings per common share
Basic - as reported	$	0.31		$	0.24
Basic - pro forma	$	0.30		$	0.23
Diluted - as reported	$	0.28		$	0.21
Diluted - pro-forma	$	0.27		$	0.20

	For the six months ended June 30,
	2005			2004
Net income, as reported	$	1,481,807		$	801,801
Deduct: Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related tax effects		(35,984	)		(41,438	)
Pro forma net income	$	1,445,823		$	760,363
Earnings per common share
Basic - as reported	$	0.56		$	0.46
Basic - pro forma	$	0.54		$	0.44
Diluted - as reported	$	0.51		$	0.40
Diluted - pro-forma	$	0.49		$	0.38

        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 2004, risk-free interest rate of 3.00% for 2004, expected lives of the options 10 years, and the assumed dividend rate was zero. No options were granted during the six months ended June 30, 2005.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

        The following discussion reviews our results of operations and assesses our financial condition. You should read the following discussion and analysis in conjunction with the accompanying consolidated financial statements. The commentary should be read in conjunction with the discussion of forward-looking statements, the financial statements and the related notes and the other statistical information included in this report.

DISCUSSION OF FORWARD-LOOKING STATEMENTS

        This report contains “forward-looking statements” relating to, without limitation, future economic performance, plans and objectives of management for future operations, and projections of revenues and other financial items that are based on the beliefs of management, as well as assumptions made by and information currently available to management. The words “may,” “will,” “anticipate,” “should,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” and “intend,” as well as other similar words and expressions of the future, are intended to identify forward-looking statements. Our actual results may differ materially from the results discussed in the forward-looking statements, and our operating performance each quarter is subject to various risks and uncertainties that are discussed in detail in our filings with the Securities and Exchange Commission, including, without limitation:

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

o changes occurring in business conditions and inflation;

o changes in technology;

o changes in monetary and tax policies;

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 loss of consumer confidence and economic disruptions resulting from terrorist activities;

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.

Overview

        We were incorporated in March 1999 to organize and serve as the holding company for Greenville First Bank, N.A. Since we opened our bank in January 2000, we have experienced consistent growth in total assets, loans, deposits, and shareholders’ equity, which has continued during the first six months of 2005.

        On September 24, 2004 and October 15, 2004, the company sold 800,000 and 120,000 shares, respectively, of common stock. The net proceeds were approximately $15.0 million.

        Like most community banks, we derive the majority of our income from interest received on our loans and investments. Our primary source of funds for making these loans and investments is our deposits, on which we pay interest. Consequently, one of the key measures of our success is our amount of net interest income, or the difference between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing liabilities, such as deposits and borrowings. Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities, which is called our net interest spread.

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

10

        In addition to earning interest on our loans and investments, we earn income through fees and other charges to our customers. We have also included a discussion of the various components of this noninterest income, as well as of our noninterest expense.

        The following discussion and analysis also identifies significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements. We encourage you to read this discussion and analysis in conjunction with our financial statements and the other statistical information included 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 and with general practices within the banking industry in the preparation of our financial statements. Our significant accounting policies are described in the footnotes to our audited consolidated financial statements as of December 31, 2004, as filed in 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 judgment and assumptions we make, actual results could differ from these judgments and estimates that could have a material impact on the carrying values of our assets and liabilities and our results of operations.

        We believe the allowance for loan losses is the critical accounting policy that requires the most significant judgment and estimates used in preparation of our consolidated financial statements. Some of the more critical judgments supporting the amount of our allowance for loan losses include judgments about the credit worthiness of borrowers, the estimated value of the underlying collateral, the assumptions about cash flow, determination of loss factors for estimating credit losses, the impact of current events, and conditions, and other factors impacting the level of probable inherent losses. Under different conditions, the actual amount of credit losses incurred by us may be different from management’s estimates provided in our consolidated financial statements. Refer to the portion of this discussion that addresses our allowance for loan losses for a more complete discussion of our processes and methodology for determining our allowance for loan losses.

Effect of Economic Trends

        During the year ended December 31, 2004, our rates on both short-term or variable rate earning assets and short-term or variable rate interest-bearing liabilities declined primarily as a result of the previous actions taken by the Federal Reserve to lower short-term rates. Our rates on both short-term or variable earning assets and short-term or variable rate interest-bearing liabilities began to increase in the third quarter of 2004 as a result of actions taken by the Federal Reserve to increase short-term rates.

        During the first six months of 2004, many economists believed the economy began to show signs of strengthening. After operating under historically low interest rates during the first half of 2004, the Federal Reserve increased the short-term interest rate five times for a total of 125 basis points. During the first six months of 2005, the Federal Reserve continued to increase rates an additional 100 basis points. Many economists believe that the Federal Reserve will continue to increase rates during the remainder of 2005. However, no assurance can be given that the Federal Reserve will take such action.

11

Results of Operations

Income Statement Review

Summary

        Three months ended June 30, 2005 and 2004

        Our net income was $821,658 and $413,851 for the three months ended June 30, 2005 and 2004, respectively, an increase of $407,807, or 98.5%. The $407,807 increase in net income resulted primarily from an increase of $960,894 in net interest income, partly offset by $355,063 of additional noninterest expense and a $249,941 increase in income tax expense. Our efficiency ratio has continued to improve because our net interest income and other income continue to increase at a higher rate than the increases in our overhead expenses. Our efficiency ratio was 49.3% and 55.2% for the three months ended June 30, 2005 and 2004, respectively.

        Six months ended June 30, 2005 and 2004

        Our net income was $1,481,807 and $801,801for the six months ended June 30, 2005 and 2004, respectively, an increase of $680,006, or 84.8%. The $680,006 increase in net income resulted primarily from an increase of $1,708,499 in net interest income, partly offset by $719,692 of additional noninterest expense and a $416,771 increase in income tax expense. Our efficiency ratio has continued to improve because our net interest income and other income continue to increase at a higher rate than the increases in our overhead expenses. Our efficiency ratio was 50.3% and 54.3% for the six months ended June 30, 2005 and 2004, respectively.

Net Interest Income

        Our level of net interest income is determined by the level of earning assets and the management of our net interest margin. The continuous growth in our loan portfolio is the primary driver of the increase in net interest income. During the six months ended June 30, 2005, our average loan portfolio increased $71.9 million compared to the average for the six months ended June 30, 2004. The growth in the first six months of 2005 was $30.9 million. We anticipate the growth in loans will continue to drive the growth in assets and the growth in net interest income. However, no assurance can be given that we will be able to continue to increase loans at the same levels we have experienced in the past.

        Our decision to grow the loan portfolio at the current pace created the need for a higher level of capital and the need to increase deposits and borrowings. This loan growth strategy also resulted in a significant portion of our assets being in higher earning loans than in lower yielding investments. At June 30, 2005, loans represented 85.9% of total assets, while investments and federal funds sold represented 11.3% of total assets. While we plan to continue our focus on increasing the loan portfolio, as rates on investment securities begin to rise and additional deposits are obtained, we also anticipate increasing the size of the investment portfolio. We also intend to maintain a capital level for the bank that exceeds the OCC requirements to be classified as a “well capitalized” bank.

        The historically low interest rate environment in the last three years allowed us to obtain short-term borrowings and wholesale certificates of deposit at rates that were lower than certificate of deposit rates being offered in our local market. Therefore, we decided not to begin our retail deposit office expansion program until the beginning of 2005. This funding strategy allowed us to continue to operate in one location, maintain a smaller staff, and not incur marketing costs to advertise deposit rates, which in turn allowed us to focus on the fast growing loan portfolio. At June 30, 2005, retail deposits represented $137.7 million, or 38.6% of total assets, borrowings represented $95.7 million, or 26.8% of total assets, and wholesale out-of-market deposits represented $91.2 million, or 25.5% of total assets.

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        In anticipation of rising interest rates, we opened one retail deposit office in March of 2005 and we plan to open a second retail deposit office in October 2005. We plan to focus our efforts in these two locations to obtain low cost transaction accounts that are less affected by rising rates. Also, in anticipation of rising rates, during the first three months of 2005 we offered aggressive rates on retail certificates of deposits. In conjunction with the new retail office, we anticipate offering aggressive rates to obtain checking accounts and new money market accounts. We anticipate that the higher rates being offered may increase our overall cost of funds. Our goal is to increase both the percentage of assets being funded by “in market” retail deposits and to increase the percentage of low-cost transaction accounts to total deposits. No assurance can be given that these objectives will be achieved; however, we anticipate that the two additional retail deposit offices will assist us in meeting these objectives. We also anticipate the current deposit promotion and the opening of the two new offices will have a negative impact on earnings in the years ending 2005 and 2006. However, we believe that these two strategies will provide additional clients in our local market and will provide a lower alternative cost of funding in a higher or rising interest rate environment, which we believe will increase earnings in future periods.

        As more fully discussed in the – “Market Risk” and – “Liquidity and Interest Rate Sensitivity” sections below, at June 30, 2005, 66.1% of our loans had variable rates. In anticipation of rising rates, during the first six months ending June 30, 2005, we extended the maturities on various FHLB advances and wholesale certificates of deposit. This strategy improves our ability to manage the impact on our earnings resulting from anticipated increases in market interest rates. At June 30, 2005, 68.1% of interest-bearing liabilities had a maturity of less than one year. Therefore, we believe that we are positioned to benefit from future increases in short-term rates. At June 30, 2005, we had $91.3 million more assets than liabilities that reprice within the next three months. Accordingly, we believe that our net interest spread may continue to increase if further action is taken by the Federal Reserve to continue to increase short-term rates.

        During the three months and six months ended June 30, 2005, our rates on both short-term or variable rate earning-assets and short-term or variable rate interest-bearing liabilities began to increase primarily as a result of the actions taken by the Federal Reserve over the last twelve months to raise short-term rates. The impact of the Federal Reserve’s actions resulted in an increase in both the yields on our variable rate assets and the rates that we paid for our short-term deposits and borrowings. Our net interest spread increased since more of our rate sensitive assets repriced sooner than our rate sensitive liabilities during the 12 month period ending June 30, 2005. Our net interest spread for the three month and six month periods ended June 30, 2005 was 3.15% and 3.14%, respectively. Because we had more interest-earning assets than interest-bearing liabilities that repriced, our net interest spread increased 13 basis points in the three months ended June 30, 2005 and by 4 basis points in the six months ended June 30, 2005, compared to the same respective periods in 2004.

        In addition to the growth in both assets and liabilities, and the timing of repricing of our assets and liabilities, net interest income is also affected by the ratio of interest-earning assets to interest-bearing liabilities.

        For the three months and six months ended June 30, 2005, our net interest margin was 3.36% and 3.35%, respectively. The change in our net interest margin was 16 basis points higher than the change in net interest spread for both the three month and six month periods ended June 30, 2005 when compared to the same periods in 2004. The additional 16 basis points resulted primarily because our interest-earning assets exceeded interest-bearing liabilities by over $26.0 million compared to approximately $7.0 million in the same period in 2004. This change resulted primarily from the impact of the secondary offering that was completed in the last half of 2004.

        We have included a number of tables to assist in our description of various measures of our financial performance. For example, the “Average Balances” tables show the average balance of each category of our assets and liabilities as well as the yield we earned or the rate we paid with respect to each category during both the three months ended June 30, 2005 and 2004 and the first six months of 2005 and 2004. A review of these tables shows that our loans typically provide higher interest yields than do other types of interest-earning assets, which is why we direct a substantial percentage of our earning assets into our loan portfolio. Similarly, the “Rate/Volume Analysis” tables help demonstrate the effect of changing interest rates and changing volume of assets and liabilities on our financial condition during the periods shown. A review of these tables shows the significant poriton of the increase in net interest income results from the changes in volume. We also track the sensitivity of our various categories of assets and liabilities to changes in interest rates, and we have included tables to illustrate our interest rate sensitivity with respect to interest-earning accounts and interest-bearing accounts. Finally, we have included various tables that provide detail about our investment securities, our loans, our deposits, and other borrowings.

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        The following tables set forth information related to our average balance sheets, average yields on assets, and average costs of liabilities. We derived these yields by dividing 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. During the six months ended June 30, 2005 and 2004, all investments were taxable. During the same periods, we had no interest-bearing deposits in other banks or any securities purchased with agreements to resell. All investments were owned at an original maturity of over one year. Nonaccrual loans are included in the following tables. Loan yields have been reduced to reflect the negative impact on our earnings of loans on nonaccrual status. The net of capitalized loan costs and fees are amortized into interest income on loans.

Average Balances, Income and Expenses, and Rates For
the Three Months Ended June 30,

	2005							2004
	Average		Income/		Yield/			Average		Income		Yield/
	Balance		Expense		Rate(1)			Balance		Expense		Rate(1)
					(Dollars in thousands)
Earnings
Federal funds sold	$	3,533	$	27		3.07	%	$	1,914	$	5		1.05	%
Investment securities		38,318		430		4.50	%		21,145		220		4.18	%
Loans		306,669		4,771		6.24	%		234,057		2,951		5.07	%
Total earning-assets		348,520		5,228		6.02	%		257,116		3,176		4.97	%
Non-earning assets		6,113							7,566
Total assets	$	354,633						$	264,682
Interest-bearing liabilities:
NOW accounts	$	46,705	$	98	$	0.84	%	$	38,631	$	75		0.78	%
Savings & money market		45,809		202		1.77	%		39,543		143		1.45	%
Time deposits		131,325		1,153		3.52	%		99,392		622		2.52	%
Total interest-bearing deposits		223,839		1,453		2.60	%		177,566		840		1.90	%
FHLB advances		73,016		609		3.35	%		50,131		257		2.06	%
Other borrowings		25,036		245		3.93	%		22,808		118		2.08	%
Total interest-bearing liabilities		321,891		2,307		2.87	%		250,505		1,215		1.95	%
Non-interest bearing liabilities .		3,384							2,427
Shareholders’ equity		29,358							11,750
Total liabilities and
shareholders’ equity	$	354,633						$	264,682
Net interest spread						3.15	%						3.02	%
Net interest income / margin			$	2,921		3.36	%			$	1,961		3.07	%

     (1) Annualized for the three month period.

        Our net interest spread was 3.15% for the three months ended June 30, 2005, compared to 3.02% for the three months ended June 30, 2004.

        Our net interest margin for the three months ended June 30, 2005 was 3.36%, compared to 3.07% for the three months ended June 30, 2004. During the three months ended June 30, 2005, earning assets averaged $348.5 million, compared to $257.1 million in the three months ended June 30, 2004. Interest earning assets exceeded interest bearing liabilities by $26.6 million and $6.6 million for the three month periods ended June 30, 2005 and 2004, respectively. Our higher level of interest-earning assets compared to interest-bearing liabilities in the 2005 period resulted from the proceeds from the secondary offering that was completed in the third and fourth quarters of 2004. Our net interest spread increased 13 basis points in the second quarter of 2005 while the net interest margin increased 29 basis points. Our net margin increased more than the net interest spread primarily as a result of additional capital raised during the second half of 2004.

        Our loan yield increased 117 basis points for the three months ended June 30, 2005 compared to the three months ended June 30, 2004 as a result of approximately two thirds of the loan portfolio having variable rates, combined with the 225 basis point increase in prime rates over the twelve months ended June 30, 2005. Our deposit cost also increased as a result of our decision to aggressively market interest-bearing transaction accounts by paying an above market rate. Also, we extended the maturity dates on various jumbo time deposits. These decisions along with the higher overall market rates resulted in the deposit costs in the second quarter of 2005 being 70 basis points higher than in the second quarter of 2004.

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        We also extended the maturities of various FHLB advances resulting in higher borrowing costs in the second quarter of 2005 compared to 2004. The 185 basis point increase in other borrowed funds in the second quarter of 2005 compared to the same period in 2004 resulted from the 225 basis point increase in short-term market rates. All the other borrowings rates are tied to short-term market interest rates.

        Net interest income, the largest component of our income, was $2.9 million and $2.0 million for the three months ended June 30, 2005 and 2004, respectively. The significant increase in the second quarter of 2005 related to higher levels of both average earning assets and interest-bearing liabilities. Average earning assets were $91.4 million higher during the three months ended June 30, 2005 compared to the same period in 2004.

        The $960,894 increase in net interest income for the three months ended June 30, 2005 compared to the same period in 2004 resulted primarily from a $755,000 increase in net income related to the impact of higher average earning assets and interest-bearing liabilities in the three months ended June 30, 2005 compared to the same period in 2004. The remaining increase is largely a result of higher interest rates.

        Interest income for the three months ended June 30, 2005 was $5.2 million, consisting of $4.8 million on loans, $429,775 on investments, and $27,509 on federal funds sold. Interest income for the three months ended June 30, 2004 was $3.2 million, consisting of $3.0 million on loans, $220,364 on investments, and $4,703 on federal funds sold. Interest on loans for the three months ended June 30, 2005 and 2004 represented 91.3% and 92.9%, respectively, of total interest income, while income from investments and federal funds sold represented only 8.7% and 7.1% of total interest income. The high percentage of interest income from loans relates to our strategy to maintain a significant portion of our assets in higher earning loans compared to lower yielding investments. Average loans represented 88.0% and 91.0% of average interest-earning assets for the three months ended June 30, 2005 and 2004, respectively. Included in interest income on loans for the three months ended June 30, 2005 and 2004, was $158,042 and $131,810, respectively, related to the net amortization of loan fees and capitalized loan origination costs.

        Interest expense for the three months ended June 30, 2005 was $2.3 million, consisting of $1.5 million related to deposits and $853,709 related to borrowings. Interest expense for the three months ended June 30, 2004 was $1.2 million, consisting of $840,564 related to deposits and $374,606 related to borrowings. Interest expense on deposits for the three months ended June 30, 2005 and 2004 represented 63.0% and 69.2%, respectively, of total interest expense, while interest expense on borrowings represented 37.0% and 30.8%, respectively, of total interest expense for the same three month periods. The lower percentage of interest expense on deposits and the higher percentage of interest on borrowings for the three months ended June 30, 2005 compared to the three months ended June 30, 2004 resulted from our decisions to delay our retail deposit office expansion program and instead utilize additional borrowings from the FHLB and from the sale of securities under agreements to repurchase with brokers. During the three months ended June 30, 2005, average interest-bearing deposits increased by $46.3 million over the same period in 2004, while FHLB and other borrowing during the three months ended June 30, 2005 increased $25.1 million over the same period in 2004. During the three months ended June 30, 2005, we were able to pledge additional collateral to the FHLB, allowing us the ability to increase our FHLB borrowings. Both the short-term borrowings from the FHLB and the sale of securities under agreements to repurchase provide us with the opportunity to obtain low cost funding with various maturities similar to the maturities on our loans and investments.

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Average Balances, Income and Expenses, and Rates
For the Six Months Ended June 30,

	2005							2004
	Average		Income/		Yield/			Average		Income		Yield/
	Balance		Expense		Rate(1)			Balance		Expense		Rate(1)
					(Dollars in thousands)
Earnings
Federal funds sold	$	2,270	$	33		2.93	%	$	2,032	$	9		0.89	%
Investment securities		37,534		835		4.49	%		20,824		445		4.30	%
Loans		297,350		8,942		6.06	%		225,469		5,688		5.07	%
Total earning-assets		337,154		9,810		5.87	%		248,325		6,142		4.97	%
Non-earning assets		5,724							6,981
Total assets	$	342,878						$	255,306
Interest-bearing liabilities:
NOW accounts	$	46,267	$	199		0.87	%	$	35,980	$	122		0.68	%
Savings & money market		47,726		398		1.68	%		33,486		202		1.21	%
Time deposits		119,675		2,011		3.39	%		103,489		1,244		2.42	%
Total interest-bearing deposits		213,668		2,608		2.46	%		172,955		1,568		1.82	%
FHLB advances		72,595		1,146		3.18	%		46,988		446		1.91	%
Other borrowings		24,880		454		3.68	%		21,430		235		2.21	%
Total interest-bearing liabilities		311,143		4,208		2.73	%		241,373		2,249		1.87	%
Non-interest bearing liabilities .		2,922							2,369
Shareholders’ equity		28,813							11,564
Total liabilities and
shareholders’ equity	$	342,878						$	255,306
Net interest spread						3.14	%						3.10	%
Net interest income / margin			$	5,602		3.35	%			$	3,893		3.15	%

     (1) Annualized for the six month period.

        Our net interest spread was 3.14% for the six months ended June 30, 2005, compared to 3.10% for the six months ended June 30, 2004.

        Our net interest margin for the six months ended June 30, 2005 was 3.35%, compared to 3.15% for the six months ended June 30, 2004. During the six months ended June 30, 2005, earning assets averaged $337.2 million, compared to $248.3 million in the six months ended June 30, 2004. Interest earning assets exceeded interest bearing liabilities by $26.0 million and $7.0 million for the six month periods ended June 30, 2005 and 2004, respectively. Our higher level of interest-earning assets compared to interest-bearing liabilities in the 2005 period resulted from the proceeds from the secondary offering that was completed in the third and fourth quarters of 2004. The impact of the additional capital contributed to our net interest spread increasing 4 basis points in the first six months of 2005 while the net interest margin increased 20 basis points. Our net margin increased more than the net interest spread primarily as a result of additional capital raised during the second half of 2004.

        Our loan yield increased 99 basis points for the six months ended June 30, 2005 compared to the six months ended June 30, 2004 as a result of approximately two thirds of the loan portfolio having variable rates, combined with the 225 basis point increase in prime rates over the twelve months ending June 30, 2005. Our deposit cost increased as a result of our decision to aggressively market interest-bearing transaction accounts by paying an above market rate. Also, we extended the maturity dates on various jumbo time deposits. These decisions along with the higher overall market rates resulted in the deposit costs in the first and second quarters of 2005 being 64 basis points higher than in the first and second quarters of 2004. We also extended the maturities of various FHLB advances resulting in higher borrowing costs in the first six months of 2005 compared to 2004. The 147 basis point increase in other borrowed funds in the first six months of 2005 compared to the same period in 2004 resulted from the 225 basis point increase in short-term market rates. All the other borrowings rates are tied to short-term market interest rates.

        Net interest income, the largest component of our income, was $5.6 million and $3.9 million for the six months ended June 30, 2005 and 2004, respectively. The significant increase in the first and second quarters of 2005 related to higher levels of both average earning assets and interest-bearing liabilities. Average earning assets were $88.8 million higher during the six months ended June 30, 2005 compared to the same period in 2004.

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        The $1.7 million increase in net interest income for the six months ended June 30, 2005 compared to the same period in 2004 resulted primarily from a $1.5 million increase in net income related to the impact of higher average earning assets and interest-bearing liabilities in the six months ended June 30, 2005 compared to the same period in 2004. The remaining increase is largely a result of higher interest rates.

        Interest income for the six months ended June 30, 2005 was $9.8 million, consisting of $8.9 million on loans, $834,865 on investments, and $33,320 on federal funds sold. Interest income for the six months ended June 30, 2004 was $6.1 million, consisting of $5.7 million on loans, $445,178 on investments, and $9,293 on federal funds sold. Interest on loans for the six months ended June 30, 2005 and 2004 represented 91.1% and 92.6%, respectively, of total interest income, while income from investments and federal funds sold represented only 8.9% and 7.4% of total interest income. The high percentage of interest income from loans relates to our strategy to maintain a significant portion of our assets in higher earning loans compared to lower yielding investments. Average loans represented 88.2% and 90.8% of average interest-earning assets for the six months ended June 30, 2005 and 2004, respectively. Included in interest income on loans for the six months ended June 30, 2005 and 2004, was $276,839 and $232,319, respectively, related to the net amortization of loan fees and capitalized loan origination costs.

        Interest expense for the six months ended June 30, 2005 was $4.2 million, consisting of $2.6 million related to deposits and $1.6 million related to borrowings. Interest expense for the six months ended June 30, 2004 was $2.2 million, consisting of $1.6 million related to deposits and $681,219 related to borrowings. Interest expense on deposits for the six months ended June 30, 2005 and 2004 represented 62.0% and 69.7%, respectively, of total interest expense, while interest expense on borrowings represented 38.0% and 30.3%, respectively, of total interest expense for the same periods. The lower percentage of interest expense on deposits and the higher percentage of interest on borrowings for the six months ended June 30, 2005 compared to the six months ended June 30, 2004 resulted from our decisions to delay our retail deposit office expansion program and instead utilize additional borrowings from the FHLB and from the sale of securities under agreements to repurchase with brokers. During the six months ended June 30, 2005, average interest-bearing deposits increased by $40.7 million over the same period in 2004, while FHLB and other borrowings during the six months ended June 30, 2005 increased $29.1 million over the same period in 2004. During the six months ended June 30, 2005, we were able to pledge additional collateral to the FHLB, allowing us the ability to increase our FHLB borrowings. Both the short-term borrowings from the FHLB and the sale of securities under agreements to repurchase provide us with the opportunity to obtain low cost funding with various maturities similar to the maturities on our loans and investments.

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Rate/Volume Analysis

        Net interest income can be analyzed in terms of the impact of changing interest rates and changing volume. The following tables sets forth the effect which the varying levels of interest-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
	June 30, 2005 vs. 2004								June 30, 2004 vs. 2003
	Increase (Decrease) Due to								Increase (Decrease) Due to
					Rate/									Rate/
	Volume		Rate		Volume		Total		Volume		Rate			Volume			Total
							(Dollars in Thousands)
Interest income
Loans	$	922	$	685	$	213	$	1,820	$	926	$	(131	)	$	(63	)	$	732
Investment securities		179		17		14		210		132		8			16			156
Federal funds sold		4		10		8		22		1		(1	)		-			-
Total interest income		1,105		712		235		2,052		1,059		(124	)		(47	)		888
Interest expense
Deposits		220		311		82		613		203		(34	)		(12	)		157
FHLB advances		118		161		73		352		136		(14	)		(14	)		108
Other borrowings		12		105		10		127		150		(10	)		(51	)		89
Total interest expense		350		577		165		1,092		489		(58	)		(77	)		354
Net interest income	$	755	$	135	$	70	$	960	$	570	$	(66	)	$	30		$	534

			Six Months Ended
	June 30, 2005 vs. 2004								June 30, 2004 vs. 2003
	Increase (Decrease) Due to								Increase (Decrease) Due to
					Rate/									Rate/
	Volume		Rate		Volume		Total		Volume		Rate			Volume			Total
							(Dollars in Thousands)
Interest income
Loans	$	1,800	$	1,103	$	352	$	3,255	$	1,783	$	(291	)	$	(112	)	$	1,380
Investment securities		355		19		16		390		205		20			21			246
Federal funds sold		1		21		2		24		-		(3	)		-			(3	)
Total interest income		2,156		1,143		370		3,669		1,988		(274	)		(91	)		1,623
Interest expense
Deposits		367		545		129		1,041		401		(194	)		(51	)		156
FHLB advances		242		296		162		700		264		(42	)		(42	)		180
Other borrowings		38		156		25		219		164		(1	)		(3	)		160
Total interest expense		647		997		316		1,960		829		(237	)		(96	)		496
Net interest income	$	1,509	$	146	$	54	$	1,709	$	1,159	$	(37	)	$	5		$	1,127

Provision for Loan Losses

        We have established an allowance for loan losses through a provision for loan losses charged as an expense on our statement of income. We review our loan portfolio periodically to evaluate our outstanding loans and to measure both the performance of the portfolio and the adequacy of the allowance for loan losses. Please see the discussion below under “Balance Sheet Review — Provision and Allowance for Loan Losses” for a description of the factors we consider in determining the amount of the provision we expense each period to maintain this allowance.

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         Three months ended June 30, 2005 and 2004

        For the three months ended June 30, 2005 and 2004, there was a noncash expense related to the provision for loan losses of $265,000 and $300,000, respectively. The additional provisions and net recoveries on charged-off loans added to our allowance for loan losses in the three months ended June 30, 2005 and 2004. The net increase in the allowance for loan losses was $303,176 and $132,525 for the three months ended June 30, 2005 and 2004, respectively. The allowance for loan losses increased $38,176 more than the provision for loan losses in the three months ended June 30, 2005 as a result of a $50,220 recovery combined with charge-offs of $12,044 in the three month period. The allowance for loan losses at June 30, 2004 did not increase by the entire amount of the provision for loan losses because we reported net charge-offs of $167,475 for the three months ended June 30, 2004. The $167,475 net charge-offs during the second quarter of 2004 represented 0.07% of the average outstanding loan portfolio for the three months ended June 30, 2004. The $303,176 and the $132,525 increases in the allowance for the three months ended June 30, 2005 and 2004, respectively, related to our decision to increase the allowance in response to the $15.5 million and the $18.0 million growth in loans for the three months ended June 30, 2005 and 2004, respectively. The loan loss reserve was $4.4 million and $3.2 million as of June 30, 2005 and 2004, respectively. The allowance for loan losses as a percentage of gross loans was 1.41% at June 30, 2005 and 1.28% at June 30, 2004, while the percentage of nonperforming loans to gross loans was 0.21% and 0.18% at June 30, 2005 and 2004, respectively.

         Six months ended June 30, 2005 and 2004

        For the six months ended June 30, 2005 and 2004, there was a noncash expense related to the provision for loan losses of $610,000 and $650,000, respectively. The additional provisions and net recoveries on charged-off loans added to our allowance for loan losses in the six months ended June 30, 2005 and 2004. The net increase in the allowance for loan losses was $659,969 and $470,480 for the six months ended June 30, 2005 and 2004, respectively. The allowance for loan losses increased $49,969 more than the provision for loan losses in the six months ended June 30, 2005 as a result of $62,013 in recoveries combined with charge-offs of $12,044 in the six month period. The allowance for loan losses at June 30, 2004 did not increase by the entire amount of the provision for loan losses because we reported net charge-offs of $179,520 for the six months ended June 30, 2004. The $179,520 net charge-offs during the second quarter of 2004 represented 0.08% of the average outstanding loan portfolio for the six months ended June 30, 2004. The $659,969 and the $470,480 increases in the allowance for the six months ended June 30, 2005 and 2004, respectively, related to our decision to increase the allowance in response to the $30.9 million and the $38.8 million growth in loans for the six months ended June 30, 2005 and 2004, respectively. The loan loss reserve was $4.4 million and $3.2 million as of June 30, 2005 and 2004, respectively. The allowance for loan losses as a percentage of gross loans was 1.41% at June 30, 2005 and 1.28% at June 30, 2004, while the percentage of nonperforming loans to gross loans was 0.21% and 0.18% at June 30, 2005 and 2004, respectively.

Noninterest Income

        The following tables set forth information related to our noninterest income.

	Three months ended				Six months ended
	June 30,				June 30,
	2005		2004		2005		2004
Loan fee income	$	49,745	$	40,789	$	96,369	$	66,824
Service fees on deposits		62,600		72,978		136,137		139,728
Other income		105,149		86,810		198,364		156,348
Total noninterest income	$	217,494	$	200,577	$	430,870	$	362,900

         Three months ended June 30, 2005 and 2004

        Noninterest income in the three month period ended June 30, 2005 was $217,494, an increase of 8.4% over noninterest income of $200,577 in the same period of 2004.

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        Loan fee income consists primarily of late charge fees, fees from issuance of letters of credit and mortgage origination fees we receive on residential loans funded and closed by a third party. Loan fees were $49,745 and $40,789 for the three months ended June 30, 2005 and June 30, 2004, respectively. The $8,956 increase for the three months ended June 30, 2005 compared to the same period in 2004 related primarily to an additional $5,641 in mortgage origination fees and an additional $6,179 in high late charge fees which was offset by a $2,864 decrease in fees received from the issuance of letters of credit. Mortgage origination fees were $8,314 and $2,673 for the three months ended June 30, 2005 and 2004, respectively, while income related to amortization of fees on letters of credit was $19,418 and $22,282 for the second quarter of 2005 and 2004, respectively. Late charge fees were $22,013 and $15,834 for the three months ended June 30, 2005 and 2004, respectively.

        Service fees on deposits consist primarily of income from NSF fees and service charges on transaction accounts. Service fees on deposits were $62,600 and $72,978 for the three months ended June 30, 2005 and 2004, respectively. While the number of client accounts continues to grow, the $10,378 decrease is primarily related to a significant amount of NSF fees incurred by and charged to one individual customer in the prior year. NSF income was $37,825 and $44,575 for the three months ended June 30, 2005 and 2004, respectively, representing 60.4% of total service fees on deposits in the 2005 period compared to 61.1% of total service fees on deposits in the 2004 period.

        Other income consisted primarily of fees received on ATM transactions and sale of customer checks. Other income was $105,149 and $86,810 for the three months ended June 30, 2005 and 2004, respectively. The $18,339 increase resulted primarily from an increase in the volume of ATM transactions for which we receive fees. ATM transaction fees were $93,647 and $79,310 for the three months ended June 30, 2005 and 2004, respectively. ATM transaction fees represented 89.1% and 91.4% of total other income for the three months ended June 30, 2005 and 2004, respectively. Included in noninterest outside service expense is $77,589 and $68,852 related to corresponding transaction costs associated with ATM transaction fees for the three months ended June 30, 2005 and 2004, respectively. The net impact of the fees received and the related cost of the ATM transactions on earnings for the three months ended June 30, 2005 and 2004 was $16,058 and $10,458, respectively.

        Six months ended June 30, 2005 and 2004

        Noninterest income in the six month period ended June 30, 2005 was $430,870, an increase of 18.7% over noninterest income of $362,900 in the same period of 2004.

        Loan fees income consist primarily of late charge fees, fees from issuance of letters of credit and mortgage origination fees we receive on residential loans funded and closed by a third party. Loan fees were $96,369 and $66,824 for the six months ended June 30, 2005 and June 30, 2004, respectively. The $29,545 increase for the six months ended June 30, 2005 compared to the same period in 2004 related primarily to an additional $14,784 in mortgage origination fees and an $8,801 increase in fees received from the issuance of letters of credit. Mortgage origination fees were $18,207 and $3,423 for the six months ended June 30, 2005 and 2004, respectively, while income related to amortization of fees on letters of credit was $40,522 and $31,721 for the second quarter of 2005 and 2004, respectively. Late charge fees were $37,640 and $31,680 for the six months ended June 30, 2005 and 2004, respectively.

        Service fees on deposits consist primarily of income from NSF fees and service charges on transaction accounts. Service fees on deposits were $136,137 and $139,728 for the six months ended June 30, 2005 and 2004, respectively. While the number of client accounts continues to grow, the $3,591 decrease is primarily related to a significant amount of NSF fees incurred by and charged to one individual customer in the prior year. NSF income was $82,948 and $84,955 for the six months ended June 30, 2005 and 2004, respectively, representing 60.9% of total service fees on deposits in the 2005 period compared to 60.8% of total service fees on deposits in the 2004 period.

        Other income consisted primarily of fees received on ATM transactions and sale of customer checks. Other income was $198,364 and $156,348 for the six months ended June 30, 2005 and 2004, respectively. The $42,016 increase resulted primarily from an increase in the volume of ATM transactions for which we receive fees. ATM transaction fees were $172,772 and $140,141 for the six months ended June 30, 2005 and 2004, respectively. ATM transaction fees represented 87.1% and 89.6% of total other income for the six months ended June 30, 2005 and 2004, respectively. Included in noninterest outside service expense is $142,231 and $123,860 related to corresponding transaction costs associated with ATM transaction fees for the six months ended June 30, 2005 and 2004, respectively. The net impact of the fees received and the related cost of the ATM transactions on earnings for the six months ended June 30, 2005 and 2004 was $30,541 and $16,281, respectively.

20

Noninterest expenses

         The following tables set forth information related to our noninterest expenses.

	Three months ended				Six months ended
	June 30,				June 30,
	2005		2004		2005		2004
Compensation and benefits	$	795,855	$	600,877	$	1,590,648	$	1,199,522
Professional fees		85,683		50,882		163,926		99,815
Marketing		118,029		74,679		208,308		125,958
Insurance		36,738		31,146		73,561		61,662
Occupancy		204,585		149,129		370,310		289,899
Data processing and related costs		232,597		215,304		447,805		396,775
Telephone		12,082		6,836		23,034		13,306
Other		63,008		64,661		155,196		126,159
Total noninterest expense	$	1,548,577	$	1,193,514	$	3,032,788	$	2,313,096

        Three months ended June 30, 2005 and 2004

        We incurred noninterest expenses of $1.5 million for the three months ended June 30, 2005 compared to $1.2 million for the three months ended June 30, 2004. Average interest-earning assets increased 35.5% during this period, while general and administrative expense increased only 29.7%.

        For the three months ended June 30, 2005, compensation and benefits, occupancy, and data processing and related costs represented 79.6% of the total noninterest expense compared to 80.9% for the same period in 2004.

        Six months ended June 30, 2005 and 2004

        We incurred noninterest expenses of $3.0 million for the six months ended June 30, 2005 compared to $2.3 million for the six months ended June 30, 2004. Average interest-earning assets increased 35.8% during this period, while general and administrative expense increased only 31.1%.

        For the six months ended June 30, 2005, compensation and benefits, occupancy, and data processing and related costs represented 79.4% of the total noninterest expense compared to 81.5% for the same period in 2004.

        The following tables set forth information related to our compensation and benefits.

	Three months ended						Six months ended
	June 30,						June 30,
	2005			2004			2005			2004
Base compensation	$	554,544		$	409,918		$	1,092,107		$	811,087
Incentive compensation		165,000			150,000			295,500			270,000
Total compensation		719,544			559,918			1,387,607			1,081,087
Benefits		110,526			73,009			268,766			179,095
Capitalized loan origination costs .		(34,215	)		(32,050	)		(65,725	)		(60,660	)
Total compensation and benefits	$	795,855		$	600,877		$	1,590,648		$	1,199,522

        Three months ended June 30, 2005 and 2004

        Compensation and benefits expense was $795,855 and $600,877 for the three months ended June 30, 2005 and 2004, respectively. Compensation and benefits represented 51.4% and 50.3% of our total noninterest expense for the three months ended June 30, 2005 and 2004, respectively. The $194,978 increase in compensation and benefits in the second quarter of 2005 compared to the same period in 2004 resulted from increases of $144,626 in base compensation, $15,000 in additional incentive compensation, and $37,517 higher benefits expense. These amounts were partly offset by an increase of $2,165 in loan origination compensation expense, which is required to be capitalized and amortized over the life of the loan as a reduction of loan interest income.

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        The $144,626 increase in base compensation expense related to the cost of 12 additional employees as well as annual salary increases. Five of the new employees relate to the staff that was hired for the new retail office that was opened in the first quarter of 2005. The remaining seven employees were hired primarily to support the growth in both loans and deposit operations. Incentive compensation represented 20.7% and 25.0% of total compensation and benefits for the three months ended June 30, 2005 and 2004, respectively. The incentive compensation expense recorded for the second quarter of 2005 and 2004 represented an accrual of the portion of the estimated incentive compensation earned during the second quarter of the respective year. Benefits expense increased $37,517 in the second quarter of 2005 compared to the same period in 2004. Benefits expense represented 15.4% and 13.0% of the total compensation for the three months ended June 30, 2005 and 2004, respectively.

        Six months ended June 30, 2005 and 2004

        Compensation and benefits expense was $1,590,648 and $1,199,522 for the six months ended June 30, 2005 and 2004, respectively. Compensation and benefits represented 52.4% and 51.9% of our total noninterest expense for the six months ended June 30, 2005 and 2004, respectively. The $391,126 increase in compensation and benefits in the first six months of 2005 compared to the same period in 2004 resulted from increases of $281,020 in base compensation, $25,500 in additional incentive compensation, and $89,671 higher benefits expense. These amounts were partly offset by an increase of $5,065 in loan origination compensation expense, which is required to be capitalized and amortized over the life of the loan as a reduction of loan interest income.

        The $391,126 increase in base compensation expense related to the cost of 12 additional employees as well as annual salary increases. Five of the new employees relate to the staff that was hired for the new retail office that was opened in the first quarter of 2005. The remaining seven employees were hired primarily to support the growth in both loans and deposit operations. Incentive compensation represented 18.6% and 22.5% of total compensation and benefits for the six months ended June 30, 2005 and 2004, respectively. The incentive compensation expense recorded for the first six months of 2005 and 2004 represented an accrual of the portion of the estimated incentive compensation earned during the first six months of the respective year. Benefits expense increased $89,671 in the six months ended June 30, 2005 compared to the same period in 2004. Benefits expense represented 19.4% and 16.6% of the total compensation for the six months ended June 30, 2005 and 2004, respectively.

        The following tables set forth information related to our data processing and related costs.

	Three months ended				Six months ended
	June 30,				June 30,
	2005		2004		2005		2004
Data processing costs	$	111,811	$	108,312	$	224,184	$	204,348
ATM transaction expense		77,589		68,852		142,231		123,860
Courier expense		21,055		19,282		40,012		36,023
Other expenses		22,142		18,858		41,378		32,544
Total data processing
and related costs	$	232,597	$	215,304	$	447,805	$	396,775

        Data processing and related costs were $232,597 and $215,304 for the three months ended June 30, 2005 and 2004, respectively. During the first six months of 2005 and the same period of 2004, our data processing and related costs were $447,805 and $396,775, respectively.

        During the three months ended June 30, 2005, our data processing costs for our core processing system were $111,811 compared to $108,312 for the three months ended June 30, 2005. We have contracted with an outside computer service company to provide our core data processing services. During the six months ended June 30, 2005 and 2004, data processing costs were $224,184 and $204,348.

        Data processing costs increased $3,499, or 3.2%, for the three months ended June 30, 2005 compared to the same period in 2004. For the six months ended June 30, 2005, data processing costs increased $19,836, or 9.7%, compared to the same period in 2004. The increases in costs were caused by the higher number of loan and deposit accounts. A significant portion of the fee charged by the third party processor is directly related to the number of loan and deposit accounts and the related number of transactions.

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        We receive ATM transaction income from transactions performed by our clients. Since we also outsource this service, we are charged related transaction fees from our ATM service provider. ATM transaction expense was $77,589 and $68,852 for the three months ended June 30, 2005 and 2004, respectively. During the first six months of 2005 and 2004, ATM transaction expense was $142,231 and $123,860, respectively. The increase relates to the higher transaction volume during the respective periods.

        Occupancy expense, which represented 13.2% and 12.5% of total noninterest expense for the three months ended June 30, 2005 and 2004, respectively, increased $55,456. Occupancy expense was $204,585 and $149,129 for the three months ended June 30, 2005 and 2004, respectively. For the six months ended June 30, 2005, occupancy expense increased $80,411 and represented 12.2% and 12.5% of total noninterest expense for the first six months of 2005 and 2004, respectively. During the six months ended June 30, 2005 and 2004, occupancy expense was $370,310 and $289,899. The increases resulted primarily from the annual increase in rent expense on the Haywood Road office and the increased depreciation expense related to additional computer equipment.

        The remaining $87,336 increase in noninterest expense for the three month period June 30, 2005 compared to the same period in 2004, resulted primarily from a $43,350 increase in marketing expenses and an additional $34,801 in professional fees. For the six month period ended June 30, 2005, remaining noninterest expenses increased $197,125 from the same period in 2004. Of this amount, marketing expenses represented $82,350 of the increase, professional fees represented $64,111, and other expenses increased $29,037. The increase in marketing expenses relates to expanding our market awareness in the Greenville market, while the additional professional fees relates primarily to additional legal and accounting fees related to the new SEC reporting requirements. A significant portion of the increase in other expenses was due to increased costs of postage and office supplies, additional staff education and training, and higher dues and subscription costs.

        Income tax expense was $503,598 for the three months ended June 30, 2005 compared to $253,657 during the same period in 2004. For the six months ended June 30, 2005, income tax expense was $908,204 compared to $491,433 for the same period in 2004. The increase related to the higher level of income before taxes.

Balance Sheet Review

General

        At June 30, 2005, we had total assets of $357.2 million, consisting principally of $306.8 million in loans, $37.8 million in investments, $2.5 million in federal funds sold, and $4.0 million in cash and due from banks. Our liabilities at June 30, 2005 totaled $327.6 million, which consisted principally of $228.9 million in deposits, $72.5 million in FHLB advances, $17.0 million in short-term borrowings, and $6.2 million in junior subordinated debentures. At June 30, 2005, our shareholders’ equity was $29.6 million.

        At December 31, 2004, we had total assets of $315.8 million, consisting principally of $276.6 million in loans, $29.2 million in investments, $1.4 million in federal funds sold, and $3.9 million in cash and due from banks. Our liabilities at December 31, 2004 totaled $287.7 million, consisting principally of $204.9 million in deposits, $60.7 million in FHLB advances, $13.1 million of short-term borrowings, and $6.2 million of junior subordinated debentures. At December 31, 2004, our shareholders’ equity was $28.1 million.

Federal Funds Sold

        At June 30, 2005, our federal funds sold were $2.5 million, or 0.7% of total assets. At December 31, 2004, our $1.4 million in short-term investments in federal funds sold on an overnight basis comprised 0.4% of total assets. As a result of the historically low yields paid for federal funds sold during the last two years, we have maintained a lower than normal level of federal funds.

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Investments

        Contractual maturities and yields on our investments that are available for sale and are held to maturity at June 30, 2005 are shown in the following table. 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. At June 30, 2005, we had no securities with a maturity of less than one year.

	One to Five Years					Five to Ten Years					Over Ten Years					Total
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
								(Dollars in thousands)
Available for Sale
U.S. Government
sponsored agency	$	1,028		5.47	%	$	-		-		$	-		-		$	1,028		5	.47%
Mortgage-backed
securities		-		-			1,437		4.45	%		8,576		4.32	%		10,013		4	.34%
Total	$	1,028		5.47	%	$	1,437		4.45	%	$	8,576		4.32	%	$	11,041		4	.44%
Held to Maturity
Mortgage-backed
securities	$	-		-		$	664		3.69	%	$	21,198		4.54	%	$	21,862		4	.52%

        At June 30, 2005, our investments included securities issued by Federal Home Loan Bank, Federal Home Loan Mortgage Corporation, and Federal National Mortgage Association with carrying values of $1.0 million, $4.6 million, and $27.3 million, respectively.

        The amortized costs and the fair value of our investments at June 30, 2005 and December 31, 2004 are shown in the following table.

	June 30, 2005				December 31, 2004
	Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value
			(Dollars in thousands)
Available for Sale
U.S. Government /
government sponsored
agencies	$	1,010	$	1,028	$	1,014	$	1,053
Mortgage-backed
Securities		10,083		10,013		11,070		11,107
Total	$	11,093	$	11,041	$	12,084	$	12,160
Held to Maturity
Mortgage-backed
Securities	$	21,862	$	21,636	$	13,139	$	13,089

        Other investments totaled $5.0 million at June 30, 2005. Other investments at June 30, 2005 consisted of Federal Reserve Bank stock with a cost of $863,700, an investment in Greenville First Statutory Trust I of $186,000, and Federal Home Loan Bank stock with a cost of $3.9 million.

        At June 30, 2005, we had $37.8 million in our investment securities portfolio which represented approximately 10.6% of our total assets. Included in our investment securities portfolio were U.S. Government agency securities and mortgage-backed securities with a fair value of $32.7 million and an amortized cost of $33.0 million for an unrealized loss of $278,000. At December 31, 2004, the $29.2 million in our investment securities portfolio represented approximately 9.2% of our total assets. We held U.S. Government agency securities and mortgage-backed securities with a fair value of $25.2 million and an amortized cost of $25.2 million for an unrealized gain of $75,739. As a result of the strong growth in our loan portfolio and the historical low fixed rates that were available during the last two and one-half years, we have maintained a lower than normal level of investments. As rates on investment securities rise and additional capital and deposits are obtained, we anticipate increasing the size of the investment portfolio.

24

        Contractual maturities and yields on our available for sale and held to maturity investments at December 31, 2004 are shown in the following table. 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. At December 31, 2004, we had no securities with a maturity of less than one year.

	One to Five Years					Five to Ten Years					Over Ten Years					Total
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
								(Dollars in thousands)
Available for Sale
U.S. Government
sponsored agency	$	1,053		5.45	%	$	-		-		$	-		-		$	1,053		5	.45%
Mortgage-backed
securities		-		-			1,708		4.04	%		9,399		4.14	%		11,107		4	.14%
Total	$	1,053		5.45	%	$	1,708		4.04	%	$	9,399		4.14	%	$	12,160		4	.24%
Held to Maturity
Mortgage-backed
securities	$	-		-		$	758		3.77	%	$	12,381		4.31	%	$	13,139		4	.28%

        At December 31, 2004, our investments included securities issued by Federal Home Loan Bank, Federal Home Loan Mortgage Corporation, and Federal National Mortgage Association with carrying values of $1.1 million, $4.9 million, and $19.3 million, respectively.

        Other investments totaled $3.9 million at December 31, 2004. Other investments at December 31, 2004 consisted of Federal Reserve Bank stock with a cost of $485,150, an investment in Greenville First Statutory Trust I of $186,000, and Federal Home Loan Bank stock with a cost of $3.2 million.

Loans

        Since loans typically provide higher interest yields than other types of interest earning assets, a substantial percentage of our earning assets are invested in our loan portfolio. For the six months ended June 30, 2005 and 2004, average loans were $297.4 million and $225.5 million, respectively. Before allowance for loan losses, total loans outstanding at June 30, 2005 were $311.2 million. Average loans for the year ended December 31, 2004 were $248.1 million. Before allowance for loan losses, total loans outstanding at December 31, 2004 were $280.3 million.

        The principal component of our loan portfolio is loans secured by real estate mortgages. Most of our real estate loans are secured by residential or commercial property. We do not generally originate traditional long term residential mortgages, but we do issue traditional second mortgage residential real estate loans and home equity lines of credit. We obtain a security interest in real estate whenever possible, in addition to any other available collateral. This collateral is taken to increase the likelihood of the ultimate repayment of the loan. Generally, we limit the loan-to-value ratio on loans we make to 80%. Due to the short time our portfolio has existed, the current mix may not be indicative of the ongoing portfolio mix. We attempt to maintain a relatively diversified loan portfolio to help reduce the risk inherent in concentration in certain types of collateral.

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        The following table summarizes the composition of our loan portfolio at June 30, 2005 and December 31, 2004.

	June 30, 2005						December 31, 2004
	Amount			% of Total			Amount			% of Total
				(Dollars in thousands)
Real estate:
Commercial:
Owner occupied	$	56,798			18.3	%	$	54,323			19.4	%
Non-owner occupied		89,817			28.9	%		76,284			27.2	%
Construction		15,725			5.0	%		12,212			4.4	%
Total commercial real estate		162,340			52.2	%		142,819			51.0	%
Residential		50,091			16.1	%		46,240			16.5	%
Home equity		36,822			11.8	%		35,085			12.5	%
Construction		7,090			2.3	%		5,938			2.1	%
Total consumer real estate		94,003			30.2	%		87,263			31.1	%
Total real estate		256,343			82.4	%		230,082			82.1	%
Commercial business		48,884			15.7	%		44,872			16.0	%
Consumer-other		6,739			2.1	%		6,035			2.1	%
Deferred origination fees, net		(746	)		(0.2	)%		(642	)		(0.2	)%
Total gross loans, net of
deferred fees		311,220			100.0	%		280,347			100.0	%
Less--allowance for loan losses		(4,377	)					(3,717	)
Total loans, net	$	306,843					$	276,630

Maturities and Sensitivity of Loans to Changes in Interest Rates

        The information in the following tables 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 maturity. Actual repayments of loans may differ from the maturities reflected below because borrowers have the right to prepay obligations with or without prepayment penalties.

        The following table summarizes the loan maturity distribution by type and related interest rate characteristics at June 30, 2005.

				After one
	One year			but within			After five
	or less			five years			years			Total
				(Dollars in thousands)
Real estate - mortgage	$	48,476		$	152,246		$	32,681		$	233,403
Real estate - construction		7,460			12,629			2,851			22,940
Total real estate		55,936			164,875			35,532			256,343
Commercial business		34,241			14,288			355			48,884
Consumer-other		4,690			1,639			410			6,739
Deferred origination fees, net .		(192	)		(457	)		(97	)		(746	)
Total gross loans, net of
deferred fees	$	94,675		$	180,345		$	36,200		$	311,220
Loans maturing after one
year with:
Fixed interest rates										$	73,344
Floating interest rates										$	143,201

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        The following table summarizes the loan maturity distribution by type and related interest rate characteristics at December 31, 2004.

				After one
	One year			but within			After five
	or less			five years			years			Total
				(Dollars in thousands)
Real estate - mortgage	$	36,665		$	147,199		$	28,058		$	211,922
Real estate - construction		6,093			8,560			3,507			18,160
Total real estate		42,758			155,759			31,565			230,082
Commercial business		27,927			16,532			413			44,872
Consumer - other		3,328			2,367			340			6,035
Deferred origination fees, net		(132	)		(425	)		(85	)		(642	)
Total gross loans, net of
deferred fees	$	73,881		$	174,233		$	32,233		$	280,347
Loans maturing after one
year with:
Fixed interest rates										$	70,356
Floating interest rates										$	136,110

Provision and Allowance for Loan Losses

        We have established an allowance for loan losses through a provision for loan losses charged to expense on our statement of income. The allowance for loan losses represents an amount which we believe will be adequate to absorb probable losses on existing loans that may become uncollectible. Our judgment as to the adequacy of the allowance for loan losses is based on a number of assumptions about future events, which we believe to be reasonable, but which may or may not prove to be accurate. Our determination of the allowance for loan losses 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 also consider subjective issues such as changes in the lending policies and procedures, changes in the local/national economy, changes in volume or type of credits, changes in volume/severity of problem loans, quality of loan review and board of director oversight, concentrations of credit, and peer group comparisons. Due to our limited operating history, the provision for loan losses has been made primarily as a result of our assessment of general loan loss risk compared to banks of similar size and maturity. Due to the rapid growth of our bank over the past several years and our short operating history, a large portion of the loans in our loan portfolio and of our lending relationships are of relatively recent origin. In general, loans do not begin to show signs of credit deterioration or default until they have been outstanding for some period of time, a process known as seasoning. As a result, a portfolio of older loans will usually behave more predictably than a newer portfolio. Because our loan portfolio is relatively new, the current level of delinquencies and defaults may not be representative of the level that will prevail when the portfolio becomes more seasoned, which may be higher than current levels. If delinquencies and defaults increase, we may be required to increase our provision for loan losses, which would adversely affect our results of operations and financial condition. Periodically, we adjust the amount of the allowance based on changing circumstances. We charge recognized losses to the allowance and add subsequent recoveries back to the allowance for loan losses. There can be no assurance that charge-offs of loans in future periods will not exceed the allowance for loan losses as estimated at any point in time or that provisions for loan losses will not be significant to a particular accounting period.

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        The following table summarizes the activity related to our allowance for loan losses for the six months ended June 30, 2005 and 2004:

	June 30,
	2005			2004
	(Dollars in thousands)
Balance, beginning of period	$	3,717		$	2,705
Loans charged-off		(12	)		(192	)
Recoveries of loans previously charged-off		62			13
Net loans (charged-off) recovery	$	50		$	(179	)
Provision for loan losses		610			650
Balance, end of period	$	4,377		$	3,176
Allowance for loan losses to gross loans		1.41	%		1.28	%
Net charge-offs to average loans		0.00	%		0.08	%

        We do not allocate the allowance for loan losses to specific categories of loans. Instead, we evaluate the adequacy of the allowance for loan losses on an overall portfolio basis utilizing our credit grading system which we apply to each loan. We have retained an independent consultant to review the loan files on a test basis to confirm the grading of each loan.

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Nonperforming Assets

        The following table shows the nonperforming assets, percentages of net charge-offs, and the related percentage of allowance for loan losses for the six months ended June 30, 2005 and the year ended December 31, 2004. All loans over 90 days past due are on and included in loans on nonaccrual.

	June 30,			December 31,
	2005			2004
	(Dollars in thousands)
Loans over 90 days past due	$	581		$	683
Loans on nonaccrual:
Mortgage		195			339
Commercial		465			385
Consumer		1			15
Total nonaccrual loans		661			739
Troubled debt restructuring		-			-
Total of nonperforming loans		661			739
Other nonperforming assets		6			28
Total nonperforming assets	$	667		$	767
Percentage of total assets		0.19	%		0.27	%
Percentage of nonperforming loans
and assets to gross loans		0.21	%		0.30	%
Allowance for loan losses to gross loans		1.41	%		1.33	%
Net charge-offs to average loans		0.00	%		0.12	%

        At June 30, 2005 and December 31, 2004, the allowance for loan losses was $4.4 million and $3.0 million, respectively, or 1.41% and 1.33% of outstanding loans, respectively. During the year ended December 31, 2004, we had net charged off loans of $298,505. During the six months ended June 30, 2005 we had a net recovery of $49,969. During the first six months of 2004, our net charged-off loans were $179,520.

        At June 30, 2005 and December 31, 2004, nonaccrual loans represented 0.22% and 0.27% of total loans, respectively. At June 30, 2005 and December 31, 2004, we had $660,857and $739,126 of loans, respectively, on nonaccrual status. Generally, a loan is placed on nonaccrual status when it becomes 90 days past due as to principal or interest, or when we believe, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that collection of the loan is doubtful. A payment of interest on a loan that is classified as nonaccrual is recognized as income when received.

        The amount of foregone interest income on the nonaccrual loans in the first six months of 2005 was approximately $18,000. The amount of interest income recorded in the first six months of 2005 for loans that were on nonaccrual at June 30, 2005 was $0.

29

Deposits and Other Interest-Bearing Liabilities

        Our primary source of funds for loans and investments is our deposits, advances from the FHLB, and short-term repurchase agreements. National and local market trends over the past several years suggest that consumers have moved an increasing percentage of discretionary savings funds into investments such as annuities, stocks, and fixed income mutual funds. Accordingly, it has become more difficult to attract deposits. We have chosen to obtain a portion of our certificates of deposits from areas outside of our market. The deposits obtained outside of our market area generally have comparable rates compared to rates being offered for certificates of deposits in our local market. We also utilize out-of-market deposits in certain instances to obtain longer-term deposits than are readily available in our local market. We anticipate that the amount of out-of-market deposits will decline after our new retail deposit offices become established. The amount of out-of-market deposits was $77.3 million at December 31, 2004 and $91.2 at June 30, 2005.

        We anticipate being able to either renew or replace these out-of-market deposits when they mature, although we may not be able to replace them with deposits with the same terms or rates. Our loan-to-deposit ratio was 134% and 135% at June 30, 2005 and December 31, 2004, respectively.

        The following table shows the average balance amounts and the average rates paid on deposits held by us for the six months ended June 30, 2005 and 2004.

	2005					2004
	Amount		Rate			Amount		Rate
			(Dollars in thousands)
Noninterest bearing demand deposits	$	17,150		-	%	$	14,948		-	%
Interest bearing demand deposits		29,013		1.38	%		21,032		1.17	%
Money market accounts		46,389		1.72	%		32,068		1.25	%
Saving accounts		1,337		0.34	%		1,418		0.34	%
Time deposits less than $100,000		23,967		3.11	%		30,227		2.62	%
Time deposits greater than $100,000		95,812		3.45	%		73,262		2.33	%
Total deposits	$	213,668		2.46	%	$	172,955		1.82	%

        Core deposits, which exclude time deposits of $100,000 or more, provide a relatively stable funding source for our loan portfolio and other earning assets. Our core deposits were $113.1 million and $107.8 million at June 30, 2005 and December 31, 2004, respectively.

        All of our time deposits are certificates of deposits. The maturity distribution of our time deposits of $100,000 or more at June 30, 2005 (in thousands) is as follows:

	June 30, 2005
Three months or less	$	17,091
Over three through six months		26,765
Over six through twelve months		23,545
Over twelve months		48,367
Total	$	115,768

        The increase in time deposits of $100,000 or more for the six months ended June 30, 2005 resulted from both additional wholesale deposits and from an 18 month retail CD promotion that raised approximately $14.0 million.

Capital Resources

        Total shareholders’ equity was $28.1 million at December 31, 2004. At June 30, 2005, total shareholders’ equity was $29.6 million. The increase during the first six months of 2005 resulted primarily from the $1.5 million of net income earned.

30

        The following table shows the return on average assets (net income divided by average total assets), return on average equity (net income divided by average equity), and equity to assets ratio (average equity divided by average total assets) for the six months ended June 30, 2005 and the year ended December 31, 2004. Since our inception, we have not paid cash dividends.

	June 30, 2005			December 31, 2004
Return on average assets		0	.87%		0	.73%
Return on average equity		10	.36%		12	.37%
Equity to assets ratio		8	.40%		5	.87%

        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, regulatory 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 shareholders’ equity, excluding the unrealized gain or loss on securities available for sale, 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 to be inherent in the type of asset. Tier 2 capital consists of Tier 1 capital plus the general reserve for loan losses, subject to certain limitations. We are also required to maintain capital at a minimum level based on total average assets, which is known as the Tier 1 leverage ratio.

        At both the holding company and bank level, we are subject to various regulatory capital requirements administered by the federal banking agencies. To be considered “adequately capitalized” 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%.

        The following table sets forth the holding company’s and the bank’s various capital ratios at June 30, 2005 and at December 31, 2004. For all periods, the bank was considered “well capitalized” and the holding company met or exceeded its applicable regulatory capital requirements.

	June 30, 2005						December 31, 2004
	Holding						Holding
	Company			Bank			Company			Bank
Total risk-based capital		13	.7%		13	.0%		14	.6%		13	.7%
Tier 1 risk-based capital .		12	.5%		11	.7%		13	.4%		12	.4%
Leverage capital		10	.0%		9	.4%		11	.0%		10	.2%

31

Borrowings

        The following table outlines our various sources of borrowed funds during the six months ended June 30, 2005 and the year ended December 31, 2004, the amounts outstanding at the end of each period, at the maximum point for each component during the periods and on average for each period, and the average interest rate that we paid for each borrowing source. The maximum month-end balance represents the high indebtedness for each component of borrowed funds at any time during each of the periods shown.

						Maximum
	Ending		Period-			Month-end		Average for the Period
	Balance		End Rate			Balance		Balance		Rate
			(Dollars in thousands)
At or for the Six Months
ended June 30, 2005
Federal Home Loan Bank advances	$	72,500		3.49	%	$	77,030	$	72,595		3.18	%
Securities sold under agreement to
repurchase		17,029		3.25	%		18,947		17,562		2.88	%
Federal funds purchased		-		-	%		433		1,132		1.66	%
Junior subordinated debentures		6,186		6.57	%		6,186		6,186		6.14	%
At or for the Year
ended December 31, 2004
Federal Home Loan Bank advances	$	60,660		2.82	%	$	58,400	$	54,515		2.21	%
Securities sold under agreement to
repurchase		13,100		2.25	%		14,637		13,643		1.43	%
Federal funds purchased		-		2.44	%		-		332		1.46	%
Correspondent bank line of credit		-		4.40	%		3,000		1,214		3.38	%
Junior subordinated debentures		6,186		5.65	%		6,186		6,186		4.88	%

Effect of Inflation and Changing Prices

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

        Unlike most industrial companies, our assets and liabilities 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.

32

Off-Balance Sheet Risk

        Commitments to extend credit are agreements to lend to a client as long as the client has not violated 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 December 31, 2004, unfunded commitments to extend credit were $51.6 million, of which $17.6 million was at fixed rates and $34.0 million was at variable rates. At June 30, 2005, unfunded commitments to extend credit were $69.8 million, of which $23.6 million was at fixed rates and $46.2 million was at variable rates. A significant portion of the unfunded commitments related to consumer equity lines of credit. Based on historical experience, we anticipate that a significant portion of these lines of credit will not be funded. We evaluate each client’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by us upon extension of credit, is based on our credit evaluation of the borrower. The type of collateral varies but may include accounts receivable, inventory, property, plant and equipment, and commercial and residential real estate.

        At December 31, 2004, there was a $2.5 million commitment under a letter of credit. At June 30, 2005, there was a $3.4 million commitment under a letter of credit. The credit risk and collateral involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Since most of the letters of credit are expected to expire without being drawn upon, they do not necessarily represent future cash requirements.

        Except as disclosed in this document, we are not involved in off-balance sheet contractual relationships, unconsolidated related entities that have off-balance sheet arrangements or transactions that could result in liquidity needs or other commitments that 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 generally arise in the normal course of our business. Our asset/liability management committee (“ALCO”) monitors and considers methods of managing exposure to interest rate risk. We have both an internal ALCO consisting of senior management that meets at various times during each month and a board ALCO that meets monthly. The ALCOs are responsible for maintaining the level of interest rate sensitivity of our interest sensitive assets and liabilities within board-approved limits.

        We actively monitor and manage our interest rate risk exposure principally by measuring 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.

        Approximately 68% and 66% of our loans were variable rate loans at December 31, 2004 and June 30, 2005, respectively, and we were asset sensitive during most of the year ended December 31, 2004 and the six months ended June 30, 2005. As of June 30, 2005, we expect to be asset sensitive for the next 12 months. The ratio of cumulative gap to total earning assets after 12 months was 7.0% because $24.1 million more assets will reprice in a 12 month period than liabilities. 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 us as significantly less interest-sensitive than market-based rates such as those paid on noncore deposits. Net interest income may be affected by other significant factors in a given interest rate environment, including changes in the volume and mix of interest-earning assets and interest-bearing liabilities.

33

Liquidity and Interest Rate Sensitivity

        Liquidity represents the ability of a company to convert assets into cash or cash equivalents without significant loss, and the ability to raise additional funds by increasing liabilities. 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 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 our investment portfolio is fairly predictable and subject to a high degree of control at the time investment decisions are made. However, net deposit inflows and outflows are far less predictable and are not subject to the same degree of control.

        At June 30, 2005, our liquid assets, consisting of cash and due from banks and federal funds sold, amounted to $6.6 million, or 1.8% of total assets. Our investment securities at June 30, 2005 amounted to $37.8 million, or 10.6% of total assets. Investment securities traditionally provide a secondary source of liquidity since they can be converted into cash in a timely manner. However, $20.9 million of these securities are pledged against outstanding debt. Therefore, the related debt would need to be repaid prior to the securities being sold in order for these securities to be converted to cash. At December 31, 2004, our liquid assets amounted to $5.3 million, or 1.7% of total assets. Our investment securities at December 31, 2004 amounted to $29.2 million, or 9.2% of total assets. However, $17.0 million of these securities are pledged against outstanding debt.

        Our ability to maintain and expand our deposit base and borrowing capabilities serves as our primary source of liquidity. We plan to meet our future cash needs through the liquidation of temporary investments, the generation of deposits, and from additional borrowings. In addition, we will receive cash upon the maturity and sale of loans and the maturity of investment securities. During most of 2004 and the first six months of 2005, as a result of historically low rates that were being earned on short-term liquidity investments, we chose to maintain a lower than normal level of short-term liquidity securities. In addition, we maintain three lines of credit with correspondent banks totaling $17.5 million for which there were no borrowings against the lines at June 30, 2005. We are also a member of the Federal Home Loan Bank of Atlanta, from which applications for borrowings can be made for leverage purposes. The FHLB requires that securities, qualifying mortgage loans, and stock of the FHLB owned by the bank be pledged to secure any advances from the FHLB. The unused borrowing capacity currently available from the FHLB at June 30, 2005 was $21.6 million, based on the bank’s $4.3 million investment in FHLB stock, as well as qualifying pledged mortgages.

        Prior to June 30, 2005, the company entered into a commitment to construct a new office for approximately $700,000. As of June 30, 2005, approximately $208,000 has been paid. The office is expected to be completed in the late third quarter or early fourth quarter of 2005.

        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 long-term liquidity needs.

        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 in order to minimize potentially adverse impacts on earnings from changes in market interest rates. We have both an internal ALCO consisting of senior management that meets at various times during each month and a board ALCO that meets monthly. The ALCOs are responsible for maintaining the level of interest rate sensitivity of our interest sensitive assets and liabilities within board-approved limits.

34

        The following table sets forth information regarding our rate sensitivity as of June 30, 2005 for each of the time intervals indicated. The information in the table may not be indicative of our rate sensitivity position at other points in time. In addition, the maturity distribution indicated in the table 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
	three			within twelve			within five			five
	months			months			years			years			Total
							(Dollars in thousands)
Interest-earning assets:
Federal funds sold	$	2,524		$	-		$	-		$	-		$	2,524
Investment securities		1,257			3,771			19,819			8,055			32,902
Loans		213,044			11,420			61,028			25,821			311,313
Total earning assets	$	216,825		$	15,191		$	80,847		$	33,876		$	346,739
Interest-bearing liabilities:
Money market and NOW	$	69,008		$	-		$	-		$	-		$	69,008
Regular savings		1,237			-			-			-			1,237
Time deposits		19,597			64,818			51,912			3,122			139,449
Repurchase agreements		17,029			-			-			-			17,029
FHLB advances		12,500			17,500			29,500			13,000			72,500
Junior subordinated
debentures		6,186			-			-			-			6,186
Total interest-bearing
liabilities	$	125,557		$	82,318		$	91,412		$	6,122		$	305,409
Period gap	$	91,268		$	(67,127	)	$	(10,565	)	$	27,754
Cumulative gap		91,268			24,141			13,576			41,330
Ratio of cumulative gap total
assets
total earning assets		26.3	%		7.0	%		3.9	%		11.9	%

        The following table sets forth information regarding our rate sensitivity, as of December 31, 2004, at each of the time intervals.

	Within			After three but			After one but			After
	three			within twelve			within five			five
	months			months			years			years			Total
				(Dollars in thousands)
Interest-earning assets:
Federal funds sold	$	1,394		$	-		$	-		$	-		$	1,394
Investment securities		1,572			4,716			15,511			3,500			25,299
Loans		196,066			10,374			54,704			19,105			280,249
Total earning assets	$	199,032		$	15,090		$	70,215		$	22,605		$	306,942
Interest-bearing liabilities:
Money market and NOW	$	87,081		$	-		$	-		$	-		$	87,081
Regular savings		1,244			-			-			-			1,244
Time deposits		23,369			39,845			29,927			5,834			98,975
Repurchase agreements		13,100			-			-			-			13,100
FHLB advances		30,660			8,000			5,000			17,000			60,660
Junior subordinated
debentures		6,186			-			-			-			6,186
Total interest-bearing
liabilities	$	161,640		$	47,845		$	34,927		$	22,834		$	267,246
Period gap	$	37,392		$	(32,755	)	$	35,288		$	(229	)
Cumulative gap		37,392			4,637			39,925			39,696
Ratio of cumulative gap total
assets
total earning assets		12.2	%		1.5	%		13.0	%		12.9	%

35

Accounting, Reporting, and Regulatory Matters

Recently Issued Accounting Standards

        The following is a summary of recent authoritative pronouncements that affect accounting, reporting, and disclosure of financial information by us:

        In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123(R)”). SFAS No.123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. SFAS No. 123(R) will require companies to measure all employee stock-based compensation awards using a fair value method and record such expense in its financial statements. In addition, the adoption of SFAS No. 123(R) requires additional accounting and disclosure related to the income tax and cash flow effects resulting from share-based payment arrangements. SFAS No. 123 (R) is effective beginning with the first interim or annual reporting period of a company’s first fiscal year beginning on or after June 15, 2005.

        Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

        See “Market Risk” and “Liquidity and Interest Rate Sensitivity” in Item 2, Management Discussion and Analysis of Financial Condition and Results of Operations for quantitative and qualitative disclosures about market risk, which information is incorporated herein by reference.

Item 4. 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 June 30, 2005. There have been no significant changes in our internal controls over financial reporting during the fiscal quarter ended June 30, 2005 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

        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.

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. Unregistered Sales of Equity Securities and Use of Proceeds.

        Not applicable

Item 3. Defaults Upon Senior Securities.

        Not applicable

36

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

        At the company’s annual meeting of shareholders held May 17, 2005, the election of four members of the board of directors as Class III directors for a three-year term was the only matter submitted to a vote of secuiry holders during the three months ended June 30, 2005. The following paragraph describes the matter voted upon at the annual meeting and sets forth the number of votes cast for, against or withheld and the number of abstentions as to the matter (except as provided below, there were no broker non-votes).

        Our board of directors is divided into three classes with each class to be nearly equal in number as possible. The tree classes of directors are to have staggered terms, so that the terms of only approximately one-third of the board members will expire at each annual meeting of shareholders. The current Class I directors are Mark A. Cothran, Rudolph G. Johnstone, III, M.D., Keith J. Marrero, and R. Arthur Seaver, Jr. The current Class II directors are Leighton M. Cubbage, David G. Ellison, James B. Orders, and Willam B. Sturgis. The current Class III directors are Andrew B. Cajka, Anne S. Ellefson, Fred Gilmer, Jr. and Tecumseh Hooper, Jr.

        The previous terms of the Class III directors expired at the annualmMeeting. Each of the four current Class III directors was nominated for election and stood for election at the annualmeeting on May 17, 2005 for a three-year term. The number of votes for the election of the Class III directors were as follows: For Mr. Cajka – 2,390,466; for Ms. Ellefson – 2,390,466; for Mr. Gilmer – 2,390,466; and for Mr. Hooper – 2,390,466. The number of votes against the directors were as follows: Mr. Cajka – 0; Ms. Ellefson – 0; Mr. Gilmer – 0; and Mr. Hooper – 0. No shareholders voted to abstain.

        Since a plurality of the votes were attained for the directors that stood for re-election, the approval of the Class III directors to serve a three-year term, expiring at the 2007 annual meeting of sharehlders was recorded in our minute book from the annual meeting of shareholders. There were no other matters voted on by the company’s shareholders at our annual meeting held on May 17, 2005.

Item 5. Other Information.

              Not applicable

Item 6. Exhibits.

31.1        Rule 13a-14(a) Certification of the Principal Executive Officer.

31.2        Rule 13a-14(a) Certification of the Principal Financial Officer.

32           Section 1350 Certifications.

37

SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

GREENVILLE FIRST BANCSHARES, INC
                   Registrant

Date:  August 15, 2005	/s/  R. Arthur Seaver, Jr.
	R. Arthur Seaver, Jr.
	Chief Executive Officer

Date:  August 15, 2005	/s/  James M. Austin, III
	James M. Austin, III
	Chief Financial Officer

38

INDEX TO EXHIBITS

Exhibit
Number      Description

31.1     Rule 13a-14(a) Certification of the Principal Executive Officer.

31.2     Rule 13a-14(a) Certification of the Principal Financial Officer.

32        Section 1350 Certifications.

39

EX-31

Exhibit 31.1 Rule 13a-14(a) Certification of the Principal Executive Officer.

Exhibit 31.1

Rule 13a-14(a) Certification of the Principal Executive Officer.

I, R. Arthur Seaver, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Greenville First Bancshares, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants’s internal control over financial reporting.

Date:  August 15, 2005	/s/  R. Arthur Seaver, Jr.
	R. Arthur Seaver, Jr.
	President and Chief Executive Officer

EX-31

Exhibit 31.2

Rule 13a-14(a) Certification of the Principal Financial Officer.

Exhibit 31.2

Rule 13a-14(a) Certification of the Principal Financial Officer.

I, James M. Austin, III, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Greenville First Bancshares, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants’s internal control over financial reporting.

Date:  August 15, 2005	/s/  James M. Austin, III
	James M. Austin, III
	Chief Financial Officer

EX-32

Exhibit 32

Section 1350 Certifications.

Exhibit 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, the Chief Executive Officer and the Chief Financial Officer of Greenville First Bancshares, Inc. (the “Company”), each certify that, to his knowledge on the date of this certification:

1. The quarterly report of the Company for the period ended June 30, 2005 as filed with the Securities and Exchange Commission on this date (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/  R. Arthur Seaver, Jr.

R. Arthur Seaver, Jr.

Chief Executive Officer
August 15, 2005

/s/  James M. Austin, III

James M. Austin, III

Chief Financial Officer
August 15, 2005