UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

~~THE~~For ~~SECURITIES~~the ~~EXCHANGE~~Fiscal ~~ACT~~Year OFEnded ~~1934~~December 31, 2011

~~For the Fiscal Year Ended December 31, 2010~~ Commission File No. 000-29640

COMMUNITY FIRST BANCORPORATION

(Exact name of registrant as specified in its charter)

South Carolina		58-2322486
(State or Other Jurisdiction of		(IRS Employer Identification Number)
Incorporation or Organization)

449 Highway 123 Bypass, Seneca, South Carolina 29678

(Address of Principal Executive Offices, Zip Code)

Registrant’s Telephone Number, Including Area Code: (864) 886-0206

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock (no par value)

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ o ] No ~~[X]~~ x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ o ] No ~~[X]~~ x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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 [~~ x ]No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ x ] No ~~[ ] (Not yet applicable to Registrant)~~ o

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

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

Large accelerated filer [o ] Accelerated filer [o ] Non-accelerated filer [o ] Smaller Reporting Company ~~[X]~~x (Do not check if smaller reporting company)

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

The aggregate market value of the voting common equity held by non-affiliates on June 30, ~~2010~~2011, which was the last day of the Registrant’s most recently completed second fiscal quarter, based on the average of the bid and asked price on the OTC Bulletin Board, was approximately $126,~~887~~176,~~633~~197. For purposes of the foregoing calculation only, all directors and executive officers of the Registrant have been deemed affiliates.

As of March 12, ~~2011~~2012, there were 34,~~972~~171,~~976~~275 shares of the Registrant’s Common Stock, no par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

(1) Portions of the Registrant’s Annual Report to Shareholders for the year ended December 31, ~~2010~~2011 - Parts I and II

(2) Portions of the Registrant’s Proxy Statement for the ~~2011~~2012 Annual Meeting of Shareholders –— Part III

10-K CROSS REFERENCE INDEX

		Page
Part I
Item 1	Business	2
Item 1A	Risk Factors	10
Item 1B	Unresolved Staff Comments	15
Item 2	Properties	15
Item 3	Legal Proceedings	15
Item 4	(Removed and Reserved)	15
	Part II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	15
Item 6	Selected Financial Data	15
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 7A	Quantitative and Qualitative Disclosures about Market Risk	16
Item 8	Financial Statements and Supplementary Data	16
Item 9	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	16
Item 9A	Controls and Procedures	16
Item 9B	Other Information	16
	Part III
Item 10	Directors, Executive Officers and Corporate Governance	17
Item 11	Executive Compensation	17
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	17
Item 13	Certain Relationships and Related Transactions, and Director Independence	18
Item 14	Principal Accountant Fees and Services	18
Item 15	Exhibits, Financial Statement Schedules	18

Table of Contents

	Part I

Item 1	Business	2
Item 1A	Risk Factors	10
Item 1B	Unresolved Staff Comments	15
Item 2	Properties	15
Item 3	Legal Proceedings	15
Item 4	Mine Safety Disclosures	15

	Part II

Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	15
Item 6	Selected Financial Data	16
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 7A	Quantitative and Qualitative Disclosures about Market Risk	16
Item 8	Financial Statements and Supplementary Data	16
Item 9	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	16
Item 9A	Controls and Procedures	16
Item 9B	Other Information	17

	Part III

Item 10	Directors, Executive Officers and Corporate Governance	17
Item 11	Executive Compensation	18
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	18
Item 13	Certain Relationships and Related Transactions, and Director Independence	18
Item 14	Principal Accountant Fees and Services	19
Item 15	Exhibits, Financial Statement Schedules	19

Table of Contents

CAUTIONARY NOTICE WITH RESPECT TO

FORWARD LOOKING STATEMENTS

This report contains “forward-looking statements” within the meaning of the securities laws. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company’s actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company’s forwarding-looking statements.

All statements that are not historical facts are statements that could be “forward-looking statements.” You can identify these forward-looking statements through the use of words such as “may,” “will,” “should,” “could,” “would,” “expect,” “anticipate,” “assume,” indicate,” “contemplate,” “seek,” “plan,” “predict,” “target,” “potential,” “believe,” “intend,” “estimate,” “project, “ “continue,” or other similar words. Forward-looking statements include, but are not limited to, statements regarding the Company’s future business prospects, revenues, working capital, liquidity, capital needs, interest costs, income, business operations and proposed services.

These forward-looking statements are based on current expectations, estimates and projections about the banking industry, management’s beliefs, and assumptions made by management. Such information includes, without limitation, discussions as to estimates, expectations, beliefs, plans, strategies, and objectives concerning future financial and operating performance. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed or forecasted in such forward-looking statements. The risks and uncertainties include, but are not limited to:

· future economic and business conditions;

· lack of sustained growth and disruptions in the economies of the Company’s market areas, including, but not limited to, declining real estate values and increasing levels of unemployment;

· government monetary and fiscal policies;

· the effects of changes in interest rates on the levels, composition and costs of deposits, loan demand, and the values of loan collateral, securities, and interest sensitive assets and liabilities;

· the effects of credit rating downgrades on the values of investment securities issued or guaranteed by various governments and governmental agencies, including the United States of America;

· the effects of competition from a wide variety of local, regional, national and other providers of financial, investment, and insurance services, as well as competitors that offer banking products and services by mail, telephone, computer and/or the Internet;

· credit risks;

· higher than anticipated levels of defaults on loans;

· perceptions by depositors about the safety of their deposits;

· capital adequacy;

· the failure of assumptions underlying the establishment of the allowance for loan losses and other estimates, including the value of collateral securing loans;

· ability to realize anticipated tax benefits;

· availability of liquidity sources;

· the risks of opening new offices, including, without limitation, the related costs and time of building customer relationships and integrating operations as part of these endeavors and the failure to achieve expected gains, revenue growth and/or expense savings from such endeavors;

· the risks related to the acquisition of other financial institutions;

· changes in laws and regulations, including tax, banking and securities laws and regulations;

· changes in accounting policies, rules and practices;

· changes in requirements of regulatory authorities;

· cost and difficulty of implementing changes in technology or products;

· the effects of war or other conflicts, acts of terrorism or other catastrophic events that may affect general economic conditions and economic confidence;

· ability to continue to weather the current economic downturn;

Table of Contents

· loss of consumer or investor confidence; and

· other factors and information described in this report and in any of the other reports that we file with the Securities and Exchange Commission under the Securities Exchange Act of 1934.

All forward-looking statements are expressly qualified in their entirety by this cautionary notice. The Company has no obligation, and does not undertake, to update, revise or correct any of the forward-looking statements after the date of this report. The Company has expressed its expectations, beliefs and projections in good faith and believes they have a reasonable basis. However, there is no assurance that these expectations, beliefs or projections will result or be achieved or accomplished.

PART I

Item 1. Business

FORM OF ORGANIZATION

Community First Bancorporation (the “Company”) is a South Carolina corporation and a bank holding company incorporated on May 23, 1997. The Company commenced operations on October 16, 1997, upon effectiveness of the acquisition of Community First Bank (the “Bank”) as a wholly owned subsidiary. The principal business of the Company is ownership and operation of the Bank. In November 2011, the Company acquired Bank of Westminster (“Westminster”), Westminster, South Carolina, in an all cash transaction pursuant to the merger of Westminster with and into the Bank. In 2009, the Company organized Upstate Resource Management, Inc. as a wholly owned subsidiary to hold certain troubled assets sold to it by the Bank.

BUSINESS OF BANKING

General

The Bank is a South Carolina state bank which was incorporated in December, 1988, and commenced operations as a commercial bank in March, 1990. The Bank operates from its offices in Walhalla, Seneca, Anderson, Westminster and Williamston, South Carolina. The main office is located at 3685 Blue Ridge Boulevard, in Walhalla, South Carolina; the Seneca offices are located at 449 Highway 123 Bypass, and 1600 Sandifer Boulevard, in Seneca, South Carolina; the Anderson offices are located at 4002 Clemson Boulevard, and 2007 East Greenville Street in Anderson, South Carolina; the Williamston office is located at 208 East Main Street in Williamston, South Carolina; and the Westminster ~~office~~offices isare located at 306 East Windsor Street, and 1101 East Main Street, in Westminster, South Carolina.

Services and Products Offered

The Bank offers a full array of commercial bank services. Deposit services include business and personal checking accounts, NOW accounts, savings accounts, money market accounts, various term certificates of deposit, IRA accounts, and other deposit services. Most of the Bank’s deposits are attracted from individuals and small businesses. The Bank does not offer trust services, and does not accept brokered deposits.

The Bank offers secured and unsecured, short-to-intermediate term loans, with floating and fixed interest rates for commercial and consumer purposes. Consumer loans include generally car loans, home equity improvement loans (secured by first and second mortgages), personal expenditure loans, education loans, and overdraft lines of credit. Commercial loans include generally short term unsecured loans, short and intermediate term real estate mortgage loans, loans secured by listed stocks, loans secured by equipment, inventory, and accounts receivable. Management believes that the credit staff possesses knowledge of the community and lending skills appropriate to enable the Bank to maintain a sufficient volume of high quality loans.

Management of the Bank believes that the loan portfolio is adequately diversified. There are no significant concentrations of loans in any particular individuals, industries or groups of related individuals or industries and the Bank has no foreign loans. The loan portfolio is, however, geographically concentrated because it consists primarily of extensions of credit to businesses and individuals in its service areas within Oconee and Anderson Counties of South Carolina. The economy of this area is, nonetheless, diversified and does not depend on any one industry or group of related industries. Management has established loan policies and practices that include set limitations on loan-to-collateral value for different types of collateral, requirements for appraisals, obtaining and maintaining current credit and financial information on borrowers, and credit approvals.

Other services offered by the Bank include residential mortgage loan origination services, safe deposit boxes, night depository service, VISA and MasterCard credit cards, tax deposits, sale of U.S. Treasury bonds, notes and bills and other U.S. government securities (through a correspondent), travelers checks, and twenty-four hour automated teller service. The ATM is part of the Cirrus network.2

2Table of Contents

AsSouth ofCarolina. The ~~December~~economy ~~31, 2010, local governmental deposits comprised approximately 11%~~ of ~~the~~this ~~Bank’s~~area ~~total~~is, ~~deposits. These~~nonetheless, ~~deposits~~diversified ~~are~~and ~~concentrated~~does ~~among~~not adepend ~~few~~on ~~local~~any ~~governmental~~one ~~entities~~industry ~~and~~or ~~are~~group ~~somewhat~~of ~~volatile~~related industries. Management ofhas ~~the~~established ~~Bank~~loan ~~has,~~policies ~~however,~~and ~~taken~~practices ~~steps~~ that itinclude ~~believes~~set ~~are~~limitations ~~sufficient~~on loan-to-collateral ~~minimize~~value tofor ~~the~~different ~~greatest~~types ~~extent possible the impact~~ of ~~such~~collateral, ~~volatibility~~requirements onfor ~~the Bank’s liquidity position~~appraisals, ~~including~~obtaining and maintaining ~~membership~~current incredit ~~the~~and ~~Federal~~financial ~~Home~~information ~~Loan~~on ~~Bank~~borrowers, ofand ~~Atlanta in order to gain access to its~~ credit ~~programs~~approvals.

~~Employees~~Other services offered by the Bank include residential mortgage loan origination services, safe deposit boxes, night depository service, VISA and MasterCard credit cards, tax deposits, sale of U.S. Treasury bonds, notes and bills and other U.S. government securities (through a correspondent), travelers checks, and twenty-four hour automated teller service. The ATM is part of the Cirrus network.

AtAs ~~December~~of December 31, ~~2010~~2011, local governmental deposits comprised approximately 9% of the ~~Company~~Bank’s ~~employed~~total 86deposits. These ~~people~~deposits are concentrated among a few local governmental entities and are somewhat volatile. Management of the Bank has, however, taken steps that it believes are sufficient to minimize to the greatest extent possible the impact of such volatibility on the Bank’s liquidity position, including maintaining membership in the Federal Home Loan Bank of Atlanta in order to gain access to its credit programs.

~~Competition~~Employees

~~The~~At ~~banking laws of South Carolina allow statewide branching~~December 31, ~~and~~2011, ~~therefore, commercial banking in~~ the ~~state~~Company isemployed ~~highly~~93 ~~competitive~~people. South Carolina law also permits bank holding companies in other states with reciprocal laws to acquire depository institutions in South Carolina, and most of the other financial institutions in the Oconee and Anderson County areas are branch offices of large, regional banks. Further, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 increased the ability of bank holding companies and banks to operate across state lines.

Banks generally compete with other financial institutions through the banking services and products offered, the pricing of services, the level of service provided, the convenience and availability of services, and the degree of expertise and personal concern with which services are offered. The banking industry is significantly affected by prevailing economic conditions as well as by government policies and regulations concerning, among other things, monetary and fiscal affairs, the housing industry and financial institutions. Deposits at banks are influenced by a number of economic factors, including interest rates, competing instruments, levels of personal income and savings, and the extent to which interest on retirement savings accounts is tax deferred. Lending activities are also influenced by a number of economic factors, including demand for and supply of housing, conditions in the construction industry, and availability of funds. Primary sources of funds for lending activities include savings deposits, income from investments, loan principal repayments, and proceeds from sales of loans to conventional participating lenders.Competition

The ~~Bank~~banking ~~encounters~~laws ~~strong competition from most~~ of ~~the~~South ~~financial~~Carolina ~~institutions~~allow instatewide ~~the Bank’s market areas~~branching, ~~which generally encompass Oconee County~~ and ~~the immediately surrounding area and Anderson County and the immediately surrounding area. As of June 30~~, ~~2010~~therefore, ~~the~~commercial ~~most~~banking ~~recent~~in ~~date~~the ~~for~~state ~~which information~~ is ~~available,~~highly ~~there~~competitive. South ~~were~~Carolina 14law ~~banks~~also ~~and~~permits ~~savings~~bank ~~and~~holding ~~loan~~companies ~~associations, including the Bank,~~ in ~~Oconee~~other ~~County,~~states with 28reciprocal ~~branch~~laws ~~locations. Total~~to ~~deposits~~acquire indepository ~~the~~institutions ~~county~~in ~~were~~South ~~approximately~~Carolina, ~~$1.2~~and ~~billion,~~most of ~~which~~ the ~~Bank~~other ~~had~~financial ainstitutions ~~26%~~in ~~market~~the ~~share. As~~Oconee ~~of June 30, 2010 there were 21 banks~~ and ~~savings and loan associations, including the Bank, in~~ Anderson County, ~~with~~areas 63are branch ~~locations. Total~~offices ~~deposits~~of inlarge, ~~Anderson~~regional ~~County were approximately $2~~banks.~~5 billion~~ Further, ~~of which~~ the ~~Bank~~Dodd-Frank ~~had~~Wall aStreet 6%Reform ~~market~~and ~~share. Additionally,~~Consumer inProtection ~~the~~Act ~~conduct~~recently ofincreased ~~certain banking business,~~ the ~~Bank~~ability ~~also~~of ~~competes~~bank ~~with~~holding ~~consumer finance~~ companies, ~~insurance companies, money market mutual funds,~~ and ~~other~~banks ~~financial institutions, some of which are not subject~~ to ~~the~~operate ~~same~~across ~~degree~~state ~~of regulation and restrictions imposed upon the Bank~~lines.

~~Many~~Banks generally compete with other financial institutions through the banking services and products offered, the pricing of services, the ~~Bank’s~~level ~~competitors~~of ~~have~~service ~~substantially~~provided, ~~greater~~the ~~resources~~convenience and ~~lending~~availability ~~limits~~of ~~than~~services, and the ~~Bank~~degree of expertise and ~~offer~~personal ~~certain~~concern with which services, ~~such~~are offered. The banking industry is significantly affected by prevailing economic conditions as ~~international~~well ~~banking~~as by government policies and ~~trust~~regulations ~~services~~concerning, ~~that~~among other things, monetary and fiscal affairs, the ~~Bank~~housing ~~does~~industry ~~not~~and ~~provide~~financial institutions. ~~The~~ Deposits ~~Bank~~at ~~believes~~banks are influenced by a number of economic factors, ~~however~~including interest rates, ~~that~~competing ~~its~~instruments, ~~relatively~~levels ~~small~~of ~~size~~personal ~~permits~~income itand savings, and the extent to ~~offer~~which ~~more~~interest ~~personalized~~on ~~services~~retirement ~~than~~savings ~~many~~accounts ofis ~~its~~tax ~~competitors~~deferred. ~~The~~ Lending ~~Bank~~activities ~~attempts~~are toalso ~~compensate~~influenced by a number of economic factors, including demand for ~~its~~and ~~lower~~supply of housing, conditions in the construction industry, and availability of funds. Primary sources of funds for lending ~~limits~~activities byinclude ~~participating~~savings ~~larger~~deposits, income from investments, loan principal repayments, and proceeds from sales of loans ~~with~~to ~~other~~conventional ~~institutions~~participating lenders.

~~Available~~The ~~Information~~Bank encounters strong competition from most of the financial institutions in the Bank’s market areas, which generally encompass Oconee County and the immediately surrounding area and Anderson County and the immediately surrounding area. As of June 30, 2011, the most recent date for which information is available, there were 13 banks and savings and loan associations, including the Bank, in Oconee County, with 27 branch locations. Total deposits in the county were approximately $1.2 billion, of which the Bank had a 23.5% market share. As of June 30, 2011 there were 21 banks and savings and loan associations, including the Bank, in Anderson County, with 63 branch locations. Total deposits in Anderson County were approximately $2.3 billion, of which the Bank had a 6.3% market share. Additionally, in the conduct of certain banking business, the Bank also competes with consumer finance companies, insurance companies, money market mutual funds, and other financial institutions, some of which are not subject to the same degree of regulation and restrictions imposed upon the Bank.

~~The~~Many Company electronically files with the Securities and Exchange Commission (SEC) its annual reports on Form 10-K, its quarterly reports on Form 10-Q, its periodic reports on Form 8-K, amendments to those reports filed or furnished pursuant to Section 13(a) of the ~~Securities~~Bank’s ~~Exchange~~competitors ~~Act~~have ofsubstantially ~~1934~~greater ~~(the~~resources ~~“1934 Act),~~ and ~~proxy~~lending ~~materials~~limits ~~pursuant~~than ~~to Section 14 of~~ the ~~1934~~Bank ~~Act. The~~and ~~SEC~~offer ~~maintains~~certain ~~a site on the Internet~~services, ~~www.sec.gov,~~such ~~that~~as ~~contains~~international ~~reports,~~banking ~~proxy~~ and ~~information~~trust ~~statements~~services, ~~and other information regarding issuers~~ that ~~file electronically with~~ the ~~SEC. The~~Bank ~~Company~~ does not ~~have a website, but the Bank maintains a website at www~~provide.c1stbank.com. As required by SEC rules, the Company’s 2010 Annual Report to Shareholders and Proxy Statement for the 2011 Annual Meeting of Shareholders will be posted on this website upon mailing of such materials to shareholders. Reports of beneficial ownership of securities filed on behalf of the Company’s directors and executive officer pursuant to Section 16 of the Securities Exchange Act of 1934 are also available on the Bank’s website. The ~~Company does not post its other SEC filings on the~~ Bank’s ~~website because the Bank has only a small staff available to update and monitor the website~~believes, ~~and the Company’s filings are readily available on the SEC website~~however, ~~www.sec.gov,~~that ~~without~~its ~~charge. Persons~~relatively ~~who~~small ~~are~~size ~~unable~~permits it to ~~obtain~~offer ~~such~~more ~~filings~~personalized ~~from~~services ~~the~~than ~~SEC~~many ~~website~~of ~~may obtain free copies from the Company upon request.~~its

~~EFFECT~~Table OFof ~~GOVERNMENT REGULATION~~Contents

competitors. The ~~Company and the~~ Bank ~~operate~~attempts ~~in a highly regulated environment, and their business activities are governed by statute, regulation, and administrative policies. Relevant information about the regulatory framework that applies~~ to ~~the~~compensate ~~Company and the Bank is provided below. This regulatory framework is intended primarily~~ for ~~the~~its ~~benefit~~lower ~~and~~lending ~~protection~~limits ofby ~~the~~participating ~~Bank’s~~larger ~~depositors~~loans ~~and~~with ~~the~~other ~~Depository Insurance Fund, and not for the protection of the Company’s shareholders or creditors~~institutions.

~~Financial~~Available institutions are being subjected to increased scrutiny and enforcement activity by state and federal banking agencies, the United States Department of Justice, the Securities and Exchange Commission, and other state and federal regulatory agencies. This increased scrutiny and enforcement activity entails significant potential increases in compliance requirements and associated costs. The federal and state banking regulators periodically examine the Company and the Bank to assess compliance with applicable requirements and the level of risk existing with respect to the Company’s and the Bank’s capital, asset quality, management, earnings, liquidity and sensitivity to market risk. When the results of examinations are less than satisfactory, the regulators are authorized to require the Company and the Bank to take appropriate corrective actions through the mechanisms of agreements with the Company or the Bank, or enforcement orders. The regulators also have the power to enforce compliance with laws, regulations, regulatory policies and agreements as well as regulatory orders by the imposition of civil money penalties.Information

ToThe ~~the~~Company ~~extent~~electronically ~~that~~files with the ~~following~~Securities ~~information~~and ~~describes~~Exchange ~~statutory~~Commission ~~and~~(SEC) ~~regulatory~~its ~~provisions~~annual reports on Form 10-K, itits isquarterly ~~qualified~~reports inon Form 10-Q, its ~~entirety~~periodic byreports ~~reference~~on Form 8-K, amendments to ~~such~~those ~~statutes~~reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 (the “1934 Act), and ~~regulations~~proxy materials pursuant to Section 14 of the 1934 Act. ~~Any~~ The ~~change~~SEC inmaintains ~~applicable~~a ~~law~~site oron ~~regulation~~the ~~may~~Internet, www.sec.gov, that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The Company does not have a ~~material~~website, ~~effect~~but onthe Bank maintains a website at www.c1stbank.com. As required by SEC rules, the ~~business~~Company’s 2011 Annual Report to Shareholders and Proxy Statement for the 2012 Annual Meeting of Shareholders will be posted on this website upon mailing of such materials to shareholders. Reports of beneficial ownership of securities filed on behalf of the Company’s directors and executive officer pursuant to Section 16 of the Securities Exchange Act of 1934 are also available on the Bank’s website. The Company does not post its other SEC filings on the Bank’s website because the Bank has only a small staff available to update and monitor the website, and the Company’s filings are readily available on the SEC website, www.sec.gov, without charge. Persons who are unable to obtain such filings from the SEC website may obtain free copies from the Company upon request.

~~General~~EFFECT OF GOVERNMENT REGULATION

AsThe aCompany ~~bank~~and ~~holding company registered under~~ the Bank ~~Holding~~operate ~~Company~~in ~~Act~~a ~~(“BHCA”),~~highly ~~the~~regulated ~~Company is subject to supervision~~environment, and totheir ~~regular~~business ~~inspection~~activities byare ~~the~~governed ~~Board~~by ofstatute, ~~Governors~~regulation, ofand ~~the~~administrative ~~Federal~~policies. Relevant ~~Reserve~~information ~~System~~about (the ~~“Federal~~regulatory ~~Reserve”). The~~framework ~~Bank~~that isapplies ~~a state bank subject~~ to ~~regulation by~~ the ~~South~~Company ~~Carolina State Board of Financial Institutions (“State Board”)~~ and the ~~FDIC. The~~Bank ~~Company~~ is ~~also~~provided ~~subject to regulation by the State Board~~below. ~~The~~ This ~~following~~regulatory ~~discussion~~framework ~~summarizes~~is ~~certain~~intended ~~aspects~~primarily offor ~~those~~the ~~laws~~benefit and ~~regulations~~protection ~~that~~of ~~affect~~ the ~~Company and the~~ Bank~~. Proposals~~’s todepositors ~~change the laws~~ and ~~regulations governing~~ the ~~banking~~Depository ~~industry~~Insurance ~~are frequently raised in Congress~~Fund, ~~the state legislature~~ and ~~before~~not ~~the~~for ~~various bank regulatory agencies, and such proposals have increased in~~ the ~~wake~~protection of the ~~recent financial crisis. The likelihood and timing of any changes and the impact such changes might have on the~~ Company’s ~~and~~shareholders ~~the~~or ~~Bank are difficult to determine~~creditors.

~~Under~~Financial ~~the~~institutions ~~BHCA,~~are ~~the~~being ~~Company’s~~subjected ~~activities~~to ~~and~~increased ~~those~~scrutiny ofand ~~its~~enforcement ~~subsidiaries~~activity ~~are~~by ~~limited~~state toand federal banking, ~~managing or controlling banks~~agencies, ~~furnishing~~the ~~services~~United toStates orDepartment ~~performing~~of ~~services~~Justice, ~~for~~the ~~its~~Securities ~~subsidiaries~~and orExchange ~~engaging~~Commission, inand ~~any~~ other ~~activity~~state ~~which~~and ~~the~~federal ~~Federal~~regulatory ~~Reserve~~agencies. This ~~determines~~increased toscrutiny beand soenforcement ~~closely~~activity ~~related~~entails tosignificant ~~banking~~potential orincreases ~~managing~~in orcompliance ~~controlling~~requirements ~~banks~~and asassociated ~~to be a proper incident thereto~~costs. The ~~Company~~federal ~~may~~and ~~engage~~state inbanking aregulators ~~broader~~periodically ~~range~~examine ofthe ~~activities~~Company ifand itthe ~~becomes~~Bank ~~a “financial holding company” pursuant~~ to ~~the~~assess ~~Gramm-Leach-Bliley~~compliance ~~Act,~~with ~~which~~applicable isrequirements ~~described~~and ~~below~~the ~~under~~level ~~the~~of ~~caption~~risk ~~“Gramm-Leach-Bliley~~existing ~~Act.” The~~with ~~BHCA~~respect ~~prohibits~~to the Company’s and ~~from~~the ~~acquiring~~Bank’s ~~direct~~capital, orasset ~~indirect~~quality, ~~control~~management, ofearnings, ~~more~~liquidity ~~than~~and 5%sensitivity ofto ~~the~~market ~~outstanding~~risk. When ~~voting stock or substantially all of~~ the ~~assets~~results of ~~any~~examinations ~~bank~~are orless ~~from~~than ~~merging~~satisfactory, orthe ~~consolidating~~regulators ~~with~~are ~~another~~authorized ~~bank~~to ~~holding~~require ~~company without prior approval of~~ the ~~Federal~~Company ~~Reserve. In~~and ~~making such determinations,~~ the ~~Federal~~Bank ~~Reserve~~to istake ~~required~~appropriate tocorrective ~~consider~~actions ~~whether~~through the ~~performance~~mechanisms of ~~such~~agreements ~~activities~~with bythe aCompany ~~bank~~or ~~holding~~the ~~company~~Bank, or ~~its~~enforcement ~~subsidiaries~~orders. The ~~can~~regulators ~~reasonably~~also behave ~~expected~~the topower ~~produce benefits~~ to ~~the~~enforce ~~public~~compliance ~~such~~with aslaws, ~~greater convenience~~regulations, ~~increased~~regulatory ~~competition~~policies orand ~~gains~~agreements inas ~~efficiency~~well ~~that outweigh possible adverse effects, such~~ as ~~undue~~regulatory ~~concentration~~orders ofby ~~resources,~~the ~~decreased~~imposition ~~or unfair competition, conflicts~~ of ~~interest~~civil ormoney ~~unsound banking practices~~penalties.

4To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to such statutes and regulations. Any change in applicable law or regulation may have a material effect on the business of the Company and the Bank.

Additionally, the BHCA prohibits the Company from engaging in, or from acquiring ownership or control of more than 5% of the outstanding voting stock of any company engaged in, a non-banking business unless such business is determined by the Federal Reserve to be so closely related to banking as to be properly incident thereto.General

InAs ~~addition~~a tobank ~~regulation~~holding bycompany registered under the ~~Federal~~Bank ~~Reserve~~Holding ~~under~~Company ~~the~~Act (“BHCA”), the Company is ~~also~~ subject to supervision, and to regular inspection by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Bank is a state bank subject to regulation by the South Carolina State Board of Financial Institutions (“State Board”) and the FDIC. The Company ~~must~~is ~~provide~~also subject to regulation by the State Board. The ~~with~~following ~~information~~discussion ~~with~~summarizes ~~respect~~certain toaspects ~~its~~of ~~financial~~those ~~condition,~~laws ~~operations, management,~~ and ~~inter-company~~regulations ~~relationships~~that ofaffect the Company and ~~its~~the ~~subsidiaries~~Bank. ~~The~~ Proposals ~~State~~to ~~Board~~change ~~may~~the ~~also~~laws ~~require~~and ~~such~~regulations ~~other~~governing ~~information~~the asbanking isindustry ~~necessary~~are tofrequently ~~keep~~raised ~~itself~~in ~~informed~~Congress, ~~about~~the ~~whether~~state ~~the~~legislature ~~provisions~~and ofbefore ~~South~~the ~~Carolina~~various ~~law~~bank regulatory agencies, and ~~the~~such ~~regulations~~proposals ~~and~~have ~~orders~~increased ~~issued~~in ~~thereunder~~the bywake of the ~~State~~recent ~~Board~~financial ~~have~~crisis. The ~~been~~likelihood ~~complied~~and ~~with,~~timing of any changes and the ~~State~~impact ~~Board~~such ~~may~~changes ~~make~~might ~~examinations~~have ofon the Company and ~~its~~the ~~subsidiaries~~Bank are difficult to determine.

~~Obligations of the Company to its Subsidiary Bank~~4

ATable ~~number~~ of obligations and restrictions are imposed on bank holding companies and their depository institution subsidiaries by Federal law and regulatory policy that are designed to reduce potential loss exposure to the depositors of such depository institutions and to the FDIC insurance funds in the event the depository institution is in danger of becoming insolvent or is insolvent. For example, under the policy of the Federal Reserve with respect to bank holding company operations and the Federal Deposit Insurance Act, a bank holding company is required to serve as a source of financial strength to its subsidiary depository institutions and to commit resources to support such institutions in circumstances where it might not do so absent such a requirement. In addition, the “cross-guarantee” provisions of the Federal Deposit Insurance Act, as amended (“FDIA”), require insured depository institutions under common control to reimburse the FDIC for any loss suffered or reasonably anticipated by the Deposit Insurance Fund of the FDIC as a result of the default of a commonly controlled insured depository institution or for any assistance provided by the FDIC to a commonly controlled insured depository institution in danger of default. The FDIC may decline to enforce the cross-guarantee provisions if it determines that a waiver is in the best interest of the Deposit Insurance Fund. The FDIC’s claim for damages is superior to claims of stockholders of the insured depository institution or its holding company but is subordinate to claims of depositors, secured creditors and holders of subordinated debt (other than affiliates) of the commonly controlled insured depository institutions.Contents

~~The~~Under ~~FDIA~~the ~~also~~BHCA, ~~provides~~the ~~that~~Company’s ~~amounts~~activities ~~received~~and ~~from~~those ~~the~~of ~~liquidation~~its subsidiaries are limited to banking, managing or ~~other~~controlling ~~resolution~~banks, offurnishing ~~any~~services ~~insured~~to ~~depository~~or ~~institution~~performing byservices for its subsidiaries or engaging in any ~~receiver~~other ~~must~~activity which the Federal Reserve determines to be ~~distributed~~so ~~(after~~closely ~~payment~~related to banking or managing or controlling banks as to be a proper incident thereto. The Company may engage in a broader range of ~~secured~~activities ~~claims)~~if it becomes a “financial holding company” pursuant to ~~pay~~the Gramm-Leach-Bliley Act, which is described below under the ~~deposit~~caption ~~liabilities~~“Gramm-Leach-Bliley Act.” The BHCA prohibits the Company from acquiring direct or indirect control of more than 5% of the ~~institution~~outstanding ~~prior~~voting tostock ~~payment~~or substantially all of the assets of any ~~other~~bank ~~general~~or from merging or ~~unsecured~~consolidating ~~senior~~with ~~liability,~~another ~~subordinated~~bank ~~liability,~~holding ~~general~~company ~~creditor~~without orprior ~~stockholder. This~~approval ~~provision~~of ~~gives~~the ~~depositors~~Federal aReserve. In ~~preference~~making ~~over~~such ~~general~~determinations, ~~and~~the ~~subordinated~~Federal ~~creditors~~Reserve ~~and~~is ~~stockholders~~required into consider whether the ~~event~~performance of such activities by a ~~receiver~~bank isholding ~~appointed~~company or its subsidiaries can reasonably be expected to ~~distribute~~produce benefits to the ~~assets~~public such as greater convenience, increased competition or gains in efficiency that outweigh possible adverse effects, such as undue concentration of ~~the~~resources, ~~Bank~~decreased or unfair competition, conflicts of interest or unsound banking practices.

~~Any~~Additionally, ~~capital~~the ~~loans~~BHCA byprohibits athe ~~bank~~Company ~~holding~~from ~~company~~engaging toin, ~~any~~or offrom ~~its~~acquiring ~~subsidiary~~ownership ~~banks~~or ~~are~~control ~~subordinate in right~~ of ~~payment~~more tothan ~~deposits~~5% ~~and~~of tothe ~~certain~~outstanding ~~other~~voting ~~indebtedness~~stock of ~~such~~any ~~subsidiary~~company ~~bank. In~~engaged ~~the~~in, ~~event of~~ a ~~bank~~non-banking ~~holding~~business ~~company’s~~unless ~~bankruptcy,~~such ~~any~~business ~~commitment~~is determined by the ~~bank~~Federal ~~holding~~Reserve ~~company~~ to abe ~~federal~~so ~~bank~~closely ~~regulatory~~related ~~agency~~ to ~~maintain~~banking ~~the~~as ~~capital~~to ~~of a subsidiary bank will~~ be ~~assumed~~properly byincident ~~the bankruptcy trustee and entitled to a priority of payment~~thereto.

~~Capital~~As ~~Adequacy~~noted ~~Guidelines~~above, ~~for~~in ~~Bank~~addition ~~Holding~~to ~~Companies~~regulation by the Federal Reserve under the BHCA, the Company is also subject to supervision and regulation by the State ~~Banks~~Board. The Company must provide the State Board with information with respect to its financial condition, operations, management, and inter-company relationships of the Company and its subsidiaries. The State Board may also require such other information as is necessary to keep itself informed about whether the provisions of South Carolina law and the regulations and orders issued thereunder by the State Board have been complied with, and the State Board may make examinations of the Company and its subsidiaries.

~~The~~Obligations ~~various~~of ~~federal bank regulators, including~~ the ~~Federal~~Company Reserve and the FDIC, have adopted risk-based capital requirements for assessing bank holding company and bank capital adequacy. These standards define what qualifies as capital and establish minimum capital standards in relation to ~~assets~~its ~~and~~Subsidiary ~~off-balance sheet exposures, as adjusted for credit risks.~~Bank

AsA ~~set~~number ~~forth~~of ~~under~~obligations and restrictions are imposed on bank holding companies and their depository institution subsidiaries by Federal law and regulatory policy that are designed to reduce potential loss exposure to the ~~caption~~depositors ~~“Management’s~~of ~~Discussion~~such depository institutions and ~~Analysis~~to –the ~~Capital~~FDIC ~~Resources”~~insurance funds in the ~~Company’s~~event ~~Annual~~the ~~Report~~depository institution is in danger of becoming insolvent or is insolvent. For example, under the policy of the Federal Reserve with respect to ~~Shareholders~~bank ~~for~~holding company operations and the ~~year~~Federal ~~ended~~Deposit ~~December~~Insurance 31Act, ~~2010,~~a ~~which~~bank holding company is ~~included~~required to serve as ~~Exhibit~~a 13source of financial strength to ~~this~~its ~~Form~~subsidiary 10depository institutions and to commit resources to support such institutions in circumstances where it might not do so absent such a requirement. In addition, the “cross-Kguarantee” provisions of the Federal Deposit Insurance Act, as amended (“FDIA”), require insured depository institutions under common control to reimburse the ~~Company~~FDIC ~~and~~for any loss suffered or reasonably anticipated by the ~~Bank~~Deposit ~~exceeded~~Insurance ~~all~~Fund ~~applicable~~of ~~capital~~the ~~requirements~~FDIC atas ~~December~~a 31result of the default of a commonly controlled insured depository institution or for any assistance provided by the FDIC to a commonly controlled insured depository institution in danger of default. The FDIC may decline to enforce the cross-guarantee provisions if it determines that a waiver is in the best interest of the Deposit Insurance Fund. The FDIC’s claim for damages is superior to claims of stockholders of the insured depository institution or its holding company but is subordinate to claims of depositors, ~~2010~~secured creditors and holders of subordinated debt (other than affiliates) of the commonly controlled insured depository institutions.

5The FDIA also provides that amounts received from the liquidation or other resolution of any insured depository institution by any receiver must be distributed (after payment of secured claims) to pay the deposit liabilities of the institution prior to payment of any other general or unsecured senior liability, subordinated liability, general creditor or stockholder. This provision gives depositors a preference over general and subordinated creditors and stockholders in the event a receiver is appointed to distribute the assets of the Bank.

~~Failure~~Any capital loans by a bank holding company to ~~meet~~any ~~capital~~of ~~guidelines~~its ~~could~~subsidiary ~~subject~~banks ~~the~~are ~~Bank~~subordinate in right of payment to adeposits ~~variety~~and to certain other indebtedness of ~~enforcement~~such ~~remedies,~~subsidiary ~~ranging~~bank. In ~~from,~~the ~~for~~event ~~example,~~of a ~~prohibition~~bank onholding company’s bankruptcy, any commitment by the ~~taking~~bank ofholding ~~brokered~~company ~~deposits~~to a federal bank regulatory agency to maintain the ~~termination~~capital of ~~deposit~~a ~~insurance~~subsidiary bank will be assumed by the ~~FDIC~~bankruptcy ortrustee ~~the~~and ~~appointment~~entitled ofto a ~~receiver~~priority ~~for~~of ~~the Bank~~payment.

The risk-based capital standards of both the Federal Reserve Board and the FDIC explicitly identify concentrations of credit risk and the risk arising from non-traditional activities, as well as an institution’s ability to manage these risks, as important factors to be taken into account by the agency in assessing an institution’s overall capital adequacy. The capital guidelines also provide that an institution’s exposure to a decline in the economic value of its capital due to changes in interest rates be considered by the agency as a factor in evaluating a bank’s capital adequacy. The Federal Reserve Board also has issued additional capital guidelines for bank holding companies that engage in certain trading activities.5

~~Payment~~Table of ~~Dividends~~Contents

~~The~~Capital ~~Company~~Adequacy isGuidelines afor ~~legal entity separate and distinct from its bank subsidiary. Most of the revenues of the Company are expected to result from dividends paid to the Company by the~~ Bank~~. There~~ ~~are~~Holding ~~statutory~~Companies and ~~regulatory~~State requirements applicable to the payment of dividends by subsidiary banks as well as by the Company to its stockholders. It is not anticipated that the Company will pay cash dividends in the near future.Banks

~~Certain~~The ~~Transactions~~various byfederal bank regulators, including the ~~Company~~Federal ~~with~~Reserve ~~its~~and ~~Affiliates~~the FDIC, have adopted risk-based capital requirements for assessing bank holding company and bank capital adequacy. These standards define what qualifies as capital and establish minimum capital standards in relation to assets and off-balance sheet exposures, as adjusted for credit risks.

~~Federal~~Failure ~~law~~to ~~regulates~~meet ~~transactions~~capital ~~between~~guidelines ~~the~~could ~~Company~~subject ~~and its affiliates, including~~ the ~~amount of the~~ Bank’s ~~loans~~ to ora ~~investments~~variety ~~in nonbank affiliates and the amount~~ of ~~advances~~enforcement toremedies, ~~third~~ranging ~~parties~~from, ~~collateralized~~for ~~by securities of an affiliate. Further~~example, a ~~bank~~prohibition ~~holding~~on ~~company~~the ~~and~~taking ~~its~~of ~~subsidiaries~~brokered ~~are~~deposits ~~prohibited~~to ~~from~~the ~~engaging~~termination inof ~~certain~~deposit ~~tie-in~~insurance ~~arrangements~~by inthe ~~connection~~FDIC ~~with~~or ~~any~~the ~~extension~~appointment of ~~credit,~~a ~~lease~~receiver orfor ~~sale~~the ~~of property or furnishing of services~~Bank.

The risk-based capital standards of both the Federal Reserve Board and the FDIC ~~Insurance~~explicitly ~~Assessments~~identify concentrations of credit risk and the risk arising from non-traditional activities, as well as an institution’s ability to manage these risks, as important factors to be taken into account by the agency in assessing an institution’s overall capital adequacy. The capital guidelines also provide that an institution’s exposure to a decline in the economic value of its capital due to changes in interest rates be considered by the agency as a factor in evaluating a bank’s capital adequacy. The Federal Reserve Board also has issued additional capital guidelines for bank holding companies that engage in certain trading activities.

~~The~~As ~~FDIC~~set ~~merged~~forth under the ~~Bank~~caption ~~Insurance~~“Management’s ~~Fund~~Discussion and ~~the~~Analysis ~~Savings~~— ~~Association~~Capital ~~Insurance Fund to form the Deposit Insurance Fund (“DIF~~Resources”) ~~on March 31, 2006~~ in ~~accordance with~~ the ~~Federal~~Company’s ~~Deposit~~Annual ~~Insurance~~Report ~~Reform~~to ~~Act~~Shareholders offor ~~2005. The FDIC maintains~~ the ~~DIF~~year byended ~~assessing~~December 31, ~~depository institutions an insurance premium. The amount each institution is assessed is based upon statutory factors~~2011, which ~~historically~~is ~~have~~ included ~~the balance of insured deposits~~ as ~~well~~Exhibit 13 ~~as the degree of risk the institution poses~~ to ~~the~~this ~~insurance fund. The FDIC uses a risk~~Form 10-~~based~~K, ~~premium system that assesses higher rates on those institutions that pose greater risks to~~ the ~~DIF. Since~~Company ~~January~~and ~~1, 2007,~~ the ~~FDIC~~Bank ~~has~~exceeded ~~placed~~all ~~each~~applicable ~~institution in one of four risk categories using a two-step process based first on~~ capital ~~ratios~~requirements ~~(the~~at ~~capital~~December 31, ~~group assignment) and then on other relevant information (the supervisory group assignment)~~2011.

AsPayment ~~a result~~ of recent bank failures and in order to increase the amount in the DIF to reflect the increased risk of additional bank failures and insurance claims, the FDIC raised its assessments on banks for 2009, and collected a special assessment. The Bank’s portion of the special assessment totaled $215,000, and was paid in September, 2009 based on deposits at June 30, 2009. The FDIC also required insured institutions to pay three years of deposit insurance premiums in advance. On December 30, 2009 the FDIC collected $2,822,265 from the Company for deposit insurance premiums. Of that amount, $177,658 related to the regular quarterly assessment, and $2,644,607 related to the prepayment of premiums for the years 2010, 2011 and 2012. In 2010 and the following two years, on a quarterly basis, the FDIC will continue to calculate the assessment amount with then current financial information, and will deduct the quarterly assessment amount from the prepaid balance. The Bank will expense the current portion as calculated by the FDIC. The amount expensed for 2010 was $1,098,669. Dividends

The ~~Dodd-Frank~~Company ~~Act~~is ~~requires~~a ~~the~~legal ~~FDIC~~entity toseparate ~~change~~and distinct from its bank subsidiary. Most of the ~~way~~revenues ~~assessments~~of the Company are ~~computed~~expected ~~and~~to result from dividends paid to ~~revise~~the ~~its~~Company ~~DIF~~by ~~recapitalization~~the ~~plan~~Bank. In There ~~early~~are ~~2011,~~statutory ~~the~~and ~~FDIC~~regulatory ~~adopted~~requirements ~~rules~~applicable ~~under~~to the ~~Act~~payment ~~pursuant~~of todividends ~~which,~~by ~~beginning~~subsidiary inbanks ~~2011,~~as ~~the~~well ~~Bank’s~~as ~~assessment~~by ~~base~~the ~~for~~Company ~~deposit~~to ~~insurance~~its ~~will~~stockholders. It beis ~~changed~~not ~~from~~anticipated ~~domestic~~that ~~deposits~~the toCompany ~~average~~will ~~assets~~pay ~~minus~~cash ~~average~~dividends ~~tangible~~in ~~equity~~the near future.

6Certain Transactions by the Company with its Affiliates

~~Regulation~~Federal law regulates transactions between the Company and its affiliates, including the amount of the Bank’s loans to or investments in nonbank affiliates and the amount of advances to third parties collateralized by securities of an affiliate. Further, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property or furnishing of services.

~~The~~FDIC ~~Bank~~Insurance is also subject to regulation and examination by the South Carolina state bank examiners. In addition, the Bank is subject to various other state and federal laws and regulations, including state usury laws, laws relating to fiduciaries, consumer credit laws and laws relating to branch banking. The Bank’s loan operations are also subject to certain federal consumer credit laws and regulations promulgated thereunder, including, but not limited to: the federal Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; the Home Mortgage Disclosure Act, requiring financial institutions to provide certain information concerning their mortgage lending; the Equal Credit Opportunity Act and the Fair Housing Act, prohibiting discrimination on the basis of certain prohibited factors in extending credit; and the Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies. The deposit operations of the Bank are also subject to the Truth in Savings Act, requiring certain disclosures about rates paid on savings accounts; the Expedited Funds Availability Act, which deals with disclosure of the availability of funds deposited in accounts and the collection and return of checks by banks; the Right to Financial Privacy Act, which imposes a duty to maintain certain confidentiality of consumer financial records and the Electronic Funds Transfer Act and regulations promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services. The Bank is also subject to the Bank Secrecy Act, dealing with, among other things, the reporting of certain currency transactions; the Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies; and the USA Patriot Act, dealing with, among other things, requiring the establishment of anti-money laundering programs, including standards for verifying customer information at account opening.Assessments

The ~~Bank~~FDIC ismaintains ~~also~~the ~~subject~~Deposit Insurance Fund (“DIF”) by assessing depository institutions insurance premiums. As a result of recent bank failures and in order to increase the ~~requirements~~amount ofin the ~~Community~~DIF ~~Reinvestment~~to ~~Act~~reflect (the ~~“CRA”)~~increased risk of additional bank failures and insurance claims, the FDIC raised its assessments on banks for 2009, and collected a special one-time emergency assessment. The ~~CRA~~Bank ~~imposes~~paid $215,000 in September, 2009, based on ~~financial~~June 30, 2009, deposits for the one-time emergency assessment. On November 12, 2009, the FDIC Board of Directors adopted a final rule requiring insured depository institutions anto ~~affirmative~~prepay their quarterly risk-based deposit insurance assessment for all of 2010, 2011 and ~~ongoing~~2012. ~~obligation~~On toDecember 30, ~~meet~~2009, the ~~credit~~Bank ~~needs~~paid $2,644,607 related to the prepayment of ~~their~~these ~~local~~quarterly ~~communities~~premiums for the years 2010, ~~including~~2011 ~~low-~~and 2012. For 2010 and ~~moderate-income~~the ~~neighborhoods~~following two years, ~~consistent~~on ~~with~~a quarterly basis, the ~~safe~~FDIC continued, and ~~sound~~will ~~operation~~continue, ofto ~~those~~calculate ~~institutions. Each~~the assessment amount with then current financial ~~institution’s~~information, ~~actual~~and ~~performance~~will indeduct ~~meeting~~the ~~community~~quarterly ~~credit~~assessment ~~needs~~amount isfrom ~~evaluated~~the asprepaid ~~part~~balance. ofThe Bank expenses the ~~examination~~current ~~process,~~portion ~~and~~as ~~also~~calculated isby ~~considered~~the inFDIC. The ~~evaluating~~amount ~~mergers~~expensed for 2011 was $923,014. ~~acquisitions~~The ~~and~~FDIC ~~applications~~also voted to ~~open~~adopt a ~~branch~~uniform orthree-basis ~~facility~~point increase in assessment rates effective January 1, 2011.

~~Other~~In ~~Safety~~November 2010, ~~and~~the ~~Soundness~~FDIC ~~Regulations~~approved a regulation, which was effective April 1, 2011, that implements a provision in the Dodd-Frank Act that changes the assessment base from one based on domestic deposits (as it has been since 1935) to one based on assets. The regulation changes the assessment base from adjusted domestic deposits to average consolidated total assets minus average tangible equity. Since the new base would be much

Prompt Corrective Action. The federal banking agencies have broad powers under current federal law to take prompt corrective action to resolve problems of insured depository institutions. The extent of these powers depends upon whether the institutions in question are “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.”6

ATable ~~bank that is “undercapitalized” becomes subject to the “prompt corrective action” provisions~~ of the FDIA restricting payment of capital distributions and management fees; requiring FDIC to monitor the condition of the bank; requiring submission by the bank of a capital restoration plan; prohibiting the acceptance of employee benefit plan deposits; restricting the growth of the bank’s assets and requiring prior approval of certain expansion proposals. A bank that is “significantly undercapitalized” is additionally subject to restrictions on compensation paid to senior management of the bank, and a bank that is “critically undercapitalized” is further subject to restrictions on the activities of the bank and restrictions on payments of subordinated debt of the bank, as well as a requirement that the bank be placed in receivership in most cases. The purpose of these provisions is to require banks with less than adequate capital to act quickly to restore their capital and to have the FDIC move promptly to take over banks that are unwilling or unable to take such steps.Contents

~~Brokered~~larger ~~Deposits. Under~~than the current ~~FDIC regulations~~base, ~~“well~~the ~~capitalized”~~FDIC ~~banks~~will ~~may~~lower ~~accept~~assessment ~~brokered~~rates, ~~deposits~~which ~~without~~achieves ~~restriction,~~the ~~“adequately~~FDIC’s ~~capitalized”~~goal ~~banks~~of ~~may~~not ~~accept~~significantly ~~brokered~~altering ~~deposits~~the ~~with~~total aamount ~~waiver~~of revenue collected from the industry. In December 2010, the FDIC ~~(subject~~voted to ~~certain~~increase ~~restrictions~~the onrequired ~~payment~~amount of ~~rates),~~reserves ~~while~~for ~~“undercapitalized”~~the ~~banks~~designated ~~may~~reserve ~~not~~ratio ~~accept~~to ~~brokered deposits~~2. 0%. The ~~regulations~~ratio ~~provide~~is ~~that~~higher than the ~~definitions~~1.35% ofset ~~“well~~by ~~capitalized”, “adequately capitalized” and “undercapitalized” are~~ the ~~same~~Dodd-Frank asAct ~~the~~in ~~definitions~~July 2010 ~~adopted~~and byis ~~the~~an ~~agencies~~integral topart ~~implement~~of the ~~prompt~~FDIC’s ~~corrective~~comprehensive, ~~action~~long-range ~~provisions~~management ~~described~~plan infor the ~~previous paragraph~~DIF.

7On December 29, 2010 the Dodd-Frank Act was amended to include full FDIC insurance on Interest on Lawyers Trust Accounts (“IOLTAs”). IOLTAs will receive unlimited insurance coverage as non-interest bearing transaction accounts for two years ending December 31, 2012.

~~Interstate~~Regulation ~~Banking~~of the Bank

~~Under~~The ~~the~~Bank ~~Riegle-Neal~~is ~~Interstate~~subject ~~Banking~~to regulation and ~~Branching~~examination ~~Efficiency~~by ~~Act~~the ofSouth ~~1994~~Carolina state bank examiners and the ~~Company~~FDIC, and ~~any~~is ~~other~~further ~~adequately~~subject ~~capitalized~~to ~~bank~~regulation ~~holding~~by ~~company~~the ~~located~~recently increated ~~South~~Consumer ~~Carolina~~Protection ~~can~~Bureau. In ~~acquire~~addition, athe ~~bank~~Bank ~~located~~is insubject ~~any~~to various other state and federal laws and regulations, including state usury laws, laws relating to fiduciaries, consumer credit laws and alaws ~~bank~~relating ~~holding~~to ~~company~~branch ~~located~~banking. The ~~outside~~Bank’s ~~South~~loan ~~Carolina~~operations ~~can~~are ~~acquire~~also ~~any~~subject ~~South~~to ~~Carolina~~certain federal consumer credit laws and regulations promulgated thereunder, including, but not limited to: the federal Truth-~~based~~In-Lending ~~bank~~Act, ingoverning ~~either~~disclosures ~~case~~of ~~subject~~credit terms to consumer borrowers; the Home Mortgage Disclosure Act, requiring financial institutions to provide certain ~~deposit~~information ~~percentage~~concerning their mortgage lending; the Equal Credit Opportunity Act and ~~other~~the ~~restrictions~~Fair Housing Act, prohibiting discrimination on the basis of certain prohibited factors in extending credit; and the Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies. The ~~authority~~deposit operations of athe ~~bank~~Bank are also subject to ~~establish~~the Truth in Savings Act, requiring certain disclosures about rates paid on savings accounts; the Expedited Funds Availability Act, which deals with disclosure of the availability of funds deposited in accounts and ~~operate~~the ~~branches~~collection ~~within~~and areturn ~~state~~of ~~continues~~checks by banks; the Right to beFinancial ~~subject~~Privacy Act, which imposes a duty to ~~applicable~~maintain ~~state~~certain ~~branching~~confidentiality ~~laws~~of consumer financial records and the Electronic Funds Transfer Act and regulations promulgated thereunder, ~~but~~which ~~interstate~~govern ~~branching~~automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services. The Bank is ~~permitted~~also subject to the ~~same~~Bank ~~extent~~Secrecy itAct, ~~would~~dealing bewith, ~~permitted~~among ~~under~~other ~~state~~things, ~~law~~the ifreporting of certain currency transactions; the ~~branching~~Fair ~~bank’s~~Credit ~~home~~Reporting ~~office~~Act, ~~were~~governing ~~located~~the inuse and provision of information to credit reporting agencies; and the ~~state~~USA inPatriot ~~which~~Act, dealing with, among other things, requiring the ~~branch~~establishment ~~will~~of beanti-money ~~located~~laundering programs, including standards for verifying customer information at account opening.

~~Gramm~~The Bank is also subject to the requirements of the Community Reinvestment Act (the “CRA”). The CRA imposes on financial institutions an affirmative and ongoing obligation to meet the credit needs of their local communities, including low-~~Leach~~ and moderate-~~Bliley~~income ~~Act~~neighborhoods, consistent with the safe and sound operation of those institutions. Each financial institution’s actual performance in meeting community credit needs is evaluated as part of the examination process, and also is considered in evaluating mergers, acquisitions and applications to open a branch or facility.

~~The~~Other ~~Gramm-Leach-Bliley~~Safety ~~Act expanded the activities in which a bank holding company~~ and aSoundness bank can engage through affiliations created under a holding company structure or through a financial subsidiary if certain conditions are met. Significantly, the permitted financial activities for financial holding companies include authority to engage in merchant banking and insurance activities, including insurance portfolio investing. The Act also established a minimum federal standard of privacy to protect the confidentiality of a consumer’s personal financial information and gives the consumer the power to choose how personal financial information may be used by financial institutions. The regulations adopted pursuant to the Act govern the consumer’s right to opt-out of further disclosure of nonpublic personal financial information and require the Bank to provide initial and annual privacy notices. The Act and regulations also required the Bank to develop and maintain a comprehensive plan for the safeguarding of customer information which encompasses all aspects of the Bank’s technological environment, business practices, and Bank facilities.Regulations

~~Although~~Prompt ~~the~~Corrective ~~Act~~Action. The ~~and~~federal ~~the~~banking ~~regulations~~agencies ~~create~~have ~~new~~broad ~~opportunities~~powers ~~for~~under ~~the~~current ~~Company~~federal tolaw ~~offer expanded services~~ to ~~customers~~take inprompt ~~the~~corrective ~~future,~~action ~~the~~to ~~Company~~resolve ~~has~~problems ~~not~~of ~~determined~~insured ~~what~~depository ~~the~~institutions. The ~~nature~~extent of ~~the~~these ~~expanded~~powers ~~services~~depends ~~might~~upon ~~be or~~ whether ~~and when~~ the ~~Company might find it feasible to offer them. The Act has increased competition from larger financial~~ institutions ~~that~~in question are ~~currently~~“well ~~more~~capitalized,” ~~capable~~“adequately ~~than the Company of taking advantage of the opportunity to provide a broader range of services. However~~capitalized,” ~~the Company continues to believe that its commitment to providing high quality~~“undercapitalized,” ~~personalized~~“significantly ~~service~~undercapitalized” toor ~~customers~~“critically ~~will permit it to remain competitive in its market area~~undercapitalized.”

~~Sarbanes-Oxley~~A ~~Act~~bank that is “undercapitalized” becomes subject to the “prompt corrective action” provisions of ~~2002~~the FDIA restricting payment of capital distributions and management fees; requiring FDIC to monitor the condition of the bank; requiring submission by the bank of a capital restoration plan; prohibiting the acceptance of employee benefit plan deposits; restricting the growth of the bank’s assets and requiring prior approval of certain expansion proposals. A bank that is “significantly undercapitalized” is additionally subject to restrictions on compensation paid to senior management of the bank, and a bank that is “critically undercapitalized” is further subject to restrictions on the activities of the bank and restrictions on payments of subordinated debt of the bank, as well as a requirement that the bank be placed in receivership within 90 days in most cases. The purpose of these provisions is to require banks with less than adequate capital to act quickly to restore their capital and to have the FDIC move promptly to take over banks that are unwilling or unable to take such steps.

The Sarbanes-Oxley Act became effective in 2002, and mandated extensive reforms and requirements for public companies. The SEC has adopted extensive regulations pursuant to the requirements of the Sarbanes-Oxley Act. The Sarbanes-Oxley Act and the SEC’s regulations have increased the Company’s cost of doing business, particularly its fees for internal and external audit services and legal services, and the law and regulations are expected to continue to do so. However, the Company does not believe that it is affected by Sarbanes-Oxley and the regulations in ways that are materially different or more onerous than those of other public companies of similar size and in similar businesses.7

~~Governmental~~Table ~~Response~~of ~~to 2008 Financial Crisis~~Contents

~~During~~Brokered ~~the~~Deposits. Under ~~fourth~~current ~~quarter~~FDIC ofregulations, ~~2008~~“well ~~and~~capitalized” ~~continuing~~banks ~~into~~may ~~2009~~accept ~~the~~brokered ~~FDIC,~~deposits ~~the~~without ~~Federal Reserve~~restriction, ~~the~~“adequately ~~Department~~capitalized” ofbanks ~~the~~may ~~Treasury~~accept ~~and~~brokered ~~Congress~~deposits ~~took~~with a ~~number~~waiver offrom ~~actions~~the ~~designed~~FDIC (subject to ~~alleviate~~certain orrestrictions ~~correct~~on ~~mounting~~payment ~~problems~~of inrates), ~~the~~while ~~financial~~“undercapitalized” ~~services~~banks ~~industry~~may not accept brokered deposits. A The ~~number~~regulations provide that the definitions of ~~these~~“well ~~initiatives~~capitalized”, ~~were~~“adequately ~~directly~~capitalized” ~~applicable~~and “undercapitalized” are the same as the definitions adopted by the agencies to ~~community~~implement ~~banks~~the prompt corrective action provisions described in the previous paragraph.

~~Congress~~Interstate enacted the Emergency Economic Stabilization Act of 2008 which, among other things, temporarily increased the maximum amount of FDIC deposit insurance from $100,000 to $250,000 (which increase was recently made permanent by the Dodd-Frank Act discussed below), and created a Troubled Assets Relief Program (“TARP”) administered by Treasury. In October, 2008, Treasury announced a Capital Purchase Program (“CPP”) under TARP to increase the capital of healthy banks. Under the CPP, Treasury would purchase preferred stock with warrants from qualified banks and bank holding companies in an amount up to 3% of the seller’s risk-weighed assets as of September 30, 2008. Institutions wishing to participate in the CPP were required to file an application with their principal federal regulators. The Company filed such an application and received preliminary approval to sell preferred stock to the Treasury, but ultimately elected not to participate in the CPP because of (i) the cost of the preferred stock, (ii) the open-ended administrative burdens associated with the preferred stock, including having to agree to allow Treasury to amend unilaterally the stock purchase agreement to comply with subsequent changes in applicable federal statutes, (iii) the fact that the Company and the Bank were already well capitalized under regulatory guidelines and expected to continue to be so, and (iv) management’s belief that other sources of capital were, and would continue to be, available should additional capital be needed.Banking

8Under federal law, the Company and any other adequately capitalized bank holding company located in South Carolina can acquire a bank located in any other state, and a bank holding company located outside South Carolina can acquire any South Carolina-based bank, in either case subject to certain deposit percentage and other restrictions. The authority of a bank to establish and operate branches within a state continues to be subject to applicable state branching laws, but interstate branching is permitted to the same extent it would be permitted under state law if the branching bank’s home office were located in the state in which the branch will be located.

The FDIC also implemented in October, 2008 a Temporary Liquidity Guarantee Program consisting of a deposit insurance component pursuant to which it undertook to provide deposit insurance in an unlimited amount for nonGramm-~~interest~~Leach-Bliley bearing transaction accounts, and a debt guarantee component pursuant to which it undertook to fully guarantee senior, unsecured debt issued by banks or bank holding companies. Coverage of both components was automatic until December 5, 2008, at which time covered institutions could opt out of one or both of the components. Institutions not opting out would be charged fees for their participation in the components. The Bank did not opt out of either component.Act

AnThe ~~unfortunate~~Gramm-Leach-Bliley ~~consequence~~Act ofexpanded the ~~difficulties~~activities ~~that~~in ~~have~~which ~~beset~~a ~~the~~bank ~~banking~~holding ~~industry~~company inand ~~the~~a ~~last~~bank ~~three~~can ~~years~~engage ~~has~~through ~~been~~affiliations created under a ~~large~~holding ~~increase~~company instructure ~~bank~~or ~~failures~~through a financial subsidiary if certain conditions are met. Significantly, ~~which~~the ~~has~~permitted ~~led~~financial activities for financial holding companies include authority to ~~substantial~~engage ~~claims~~in ~~being~~merchant ~~made~~banking ~~against~~and insurance activities, including insurance portfolio investing. The Act also established a minimum federal standard of privacy to protect the ~~FDIC~~confidentiality of a consumer’s ~~Deposit~~personal ~~Insurance~~financial ~~Fund~~information and gives the consumer the power to choose how personal financial information may be used by financial institutions. ~~See “~~ The regulations adopted pursuant to the Act govern the consumer’s right to opt--out ~~FDIC~~of ~~Insurance~~further ~~Assessments"~~disclosure ~~above~~of nonpublic personal financial information and require the Bank to provide initial and annual privacy notices. The Act and regulations also required the Bank to develop and maintain a comprehensive plan for ~~additional~~the safeguarding of customer information which encompasses all aspects of the Bank’s technological environment, business practices, and Bank facilities.

~~Dodd-Frank~~Although ~~Wall~~the ~~Street~~Act ~~Reform~~and the regulations create opportunities for the Company to offer expanded services to customers in the future, the Company has not determined what the nature of the expanded services might be or whether and ~~Consumer~~when ~~Protection~~the Company might find it feasible to offer them. The Act has increased competition from larger financial institutions that are currently more capable than the Company of taking advantage of the opportunity to provide a broader range of services. However, the Company continues to believe that its commitment to providing high quality, personalized service to customers will permit it to remain competitive in its market area.

OnGovernmental ~~July~~Response 21, 2010, the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which significantly changes the regulation of financial institutions and the financial services industry. The Dodd-Frank Act will have extensive effects on all financial institutions, and includes provisions that will affect how community banks, thrifts, and small bank and thrift holding companies will be regulated in the future. Among other things, these provisions abolish the Office of Thrift Supervision and transfer its functions to ~~the~~2008 other federal banking agencies, relax rules regarding interstate branching, allow financial institutions to pay interest on business checking accounts, change the scope of federal deposit insurance coverage, and impose new capital requirements on bank and thrift holding companies. The Dodd-Frank Act also establishes the Bureau of Consumer Financial Protection as an independent entity within the Federal Reserve, which will be given the authority to promulgate consumer protection regulations applicable to all entities offering consumer financial services or products, including banks. Additionally, the Dodd-Frank Act includes a series of provisions covering mortgage loan origination standards affecting originator compensation, minimum repayment standards, and pre-payments.Crisis

~~The~~During ~~Dodd-Frank Act requires regulatory agencies to implement new regulations that will establish~~ the ~~parameters~~fourth quarter of ~~the~~2008 ~~new regulatory framework~~ and ~~provide~~continuing ainto ~~clearer~~2009 ~~understanding~~the ofFDIC, the ~~legislation’s~~Federal ~~effect~~Reserve, ~~on banks. We are in~~ the ~~process~~Department of ~~evaluating this new legislation and determining~~ the ~~impact~~Treasury ~~it will have on our current~~ and ~~future~~Congress ~~operations. However,~~took ~~the~~a ~~manner~~number ~~and~~of ~~degree~~actions designed to ~~which~~alleviate itor ~~affects~~correct ~~our~~mounting ~~business~~problems ~~will~~in ~~be significantly impacted by~~ the ~~implementing~~financial ~~regulations~~services ~~that are ultimately adopted~~industry. ~~Accordingly,~~ A atnumber ~~the present time we cannot fully assess the impact that the act will have on us, though we are confident it will increase our cost~~ of ~~doing~~these ~~business~~initiatives ~~and~~were ~~the~~directly ~~time~~applicable ~~spent~~to bycommunity ~~management on regulatory compliance matters~~banks.

~~Legislative~~Congress ~~Proposals~~enacted the Emergency Economic Stabilization Act of 2008 which, among other things, temporarily increased the maximum amount of FDIC deposit insurance from $100,000 to $250,000 (which increase was subsequently made permanent by the Dodd-Frank Act discussed below), and created a Troubled Assets Relief Program (“TARP”) administered by Treasury. In October, 2008, Treasury announced a Capital Purchase Program (“CPP”) under TARP to increase the capital of healthy banks. Under the CPP, Treasury would purchase preferred stock with warrants from qualified banks and bank holding companies in an amount up to 3% of the seller’s risk-weighed assets as of September 30, 2008. Institutions wishing to participate in the CPP were required to file an application with their principal federal regulators. The Company filed such an application and received preliminary approval to sell preferred stock to the Treasury, but ultimately elected not to participate in the CPP because of (i) the cost of the preferred stock, (ii) the open-ended administrative burdens associated with the preferred stock, including having to agree to allow Treasury to amend unilaterally the stock purchase agreement to comply with subsequent changes in applicable federal statutes, (iii) the fact that the Company and the Bank were already well capitalized

Additional governmental efforts to ameliorate the problems afflicting the banking industry have been adopted or proposed, or are being considered by Congress and various governmental entities. The Company is presently unable to predict the impact of any such changes, although it appears that they are likely to increase operating expenses in the near term without creating completely offsetting benefits.8

9Table of Contents

~~Fiscal~~under regulatory guidelines and ~~Monetary~~expected ~~Policy~~to continue to be so, and (iv) management’s belief that other sources of capital were, and would continue to be, available should additional capital be needed.

~~Banking~~The isFDIC aalso ~~business~~implemented ~~which~~in ~~depends~~October, to2008 a ~~large~~Temporary ~~extent~~Liquidity onGuarantee ~~interest~~Program ~~rate~~consisting ~~differentials. In~~of ~~general,~~a ~~the~~deposit ~~difference~~insurance ~~between~~component ~~the~~pursuant ~~interest~~to ~~paid~~which byit aundertook ~~bank~~to onprovide ~~its~~deposit ~~deposits~~insurance ~~and~~in ~~its~~an ~~other~~unlimited ~~borrowings~~amount ~~and~~for ~~the~~ non-interest ~~received~~bearing bytransaction aaccounts, ~~bank on its loans~~ and ~~securities holdings constitutes the major portion of~~ a ~~bank’s~~debt ~~earnings. Thus,~~guarantee ~~the~~component ~~earnings~~pursuant ~~and~~to ~~growth~~which ofit ~~the~~undertook ~~Company and the Bank are subject~~ to ~~the~~fully ~~influence~~guarantee ~~of economic conditions generally~~senior, ~~both~~unsecured ~~domestic~~debt ~~and~~issued ~~foreign,~~by ~~and~~banks ~~also~~or tobank ~~the~~holding ~~monetary~~companies. Coverage ~~and fiscal policies~~ of ~~the~~both ~~United~~components ~~States~~was ~~and~~automatic ~~its~~until ~~agencies~~December 5, ~~particularly~~2008, ~~the~~at ~~Federal~~which ~~Reserve. The~~time ~~Federal~~covered ~~Reserve~~institutions ~~regulates~~could ~~the~~opt ~~supply~~out of ~~money~~one ~~through~~or ~~various~~both ~~means,~~of ~~including open-market dealings in United States government securities,~~ the ~~discount~~components. Institutions ~~rate~~not atopting ~~which~~out ~~banks~~would ~~may~~be ~~borrow~~charged ~~from~~fees ~~the~~for ~~Federal~~their ~~Reserve,~~participation ~~and~~in the ~~reserve requirements on deposits~~components. The ~~nature~~Bank ~~and~~did ~~timing~~not ofopt ~~any~~out ~~changes~~of ineither ~~such policies and their impact on the Company and the Bank cannot be predicted~~component.

~~Further~~An ~~Information~~unfortunate consequence of the difficulties that have beset the banking industry in the last four years has been a large increase in bank failures, which has led to substantial claims being made against the FDIC’s Deposit Insurance Fund. See “— FDIC Insurance Assessments” above for additional information.

~~Further~~Additional ~~information~~governmental ~~about~~efforts to ameliorate the ~~business~~problems ofafflicting the ~~Company~~banking ~~and~~industry ~~the~~have ~~Bank~~been isadopted ~~set~~or ~~forth~~proposed, inor ~~this~~are ~~Form~~being ~~10-K~~considered ~~under~~by ~~Item~~Congress 7and various governmental entities. See also “Dodd-~~”Management’s~~Frank ~~Discussion~~Wall Street Reform and ~~Analysis~~Consumer ofProtection ~~Financial~~Act.” The ~~Condition~~Company ~~and~~is ~~Results~~presently unable to predict the impact of ~~Operations~~many of such changes, although it appears that they are likely to increase operating expenses in the near term without creating completely offsetting benefits.”

~~Item~~Dodd-Frank ~~1A. Risk~~Wall ~~Factors~~Street Reform and Consumer Protection Act

~~RISK~~On ~~FACTORS~~July 21, 2010, the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which significantly changes the regulation of financial institutions and the financial services industry. The Dodd-Frank Act has had, and will continue to have, extensive effects on all financial institutions, and includes provisions that will affect how community banks, thrifts, and small bank and thrift holding companies will be regulated in the future. The Dodd-Frank Act includes changes to the financial regulatory systems, enhances bank capital requirements, creates the Financial Stability Oversight Council, provides for mortgage reform provisions regarding a customer’s ability to repay, changes the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less tangible capital, makes permanent the $250,000 limit for federal deposit insurance, provides for unlimited federal deposit insurance for noninterest-bearing transaction accounts until December 31, 2012, implements corporate governance requirements for public companies with regard to executive compensation including providing shareholders the right to vote on executive compensation, repeals the federal prohibitions on the payment of interest on demand deposits, and amends the Electronic Funds Transfer Act to give the Federal Reserve the authority to establish rules regarding interchange fees charged for electronic debit transactions, among other measures. The Dodd-Frank Act also establishes the Bureau of Consumer Financial Protection as an independent entity within the Federal Reserve, which has been given the authority to promulgate consumer protection regulations applicable to all entities offering consumer financial services or products, including banks. Additionally, the Dodd-Frank Act includes a series of provisions covering mortgage loan origination standards affecting originator compensation, minimum repayment standards, and pre-payments.

~~Risks~~The ~~Related~~Dodd-Frank Act requires regulatory agencies to ~~Our~~implement ~~Industry~~new regulations that establish the parameters of the new regulatory framework and provide a clearer understanding of the legislation’s effect on banks. The Company continues to evaluate proposed and final regulations related to the Dodd-Frank Act as they are implemented in order to determine the impact each will have on current and future operations. The majority of the resulting regulations affecting the Company have been implemented, and the Company has experienced a moderate loss of income associated with debit transactions and moderate increased compliance costs associated with other provisions of the Dodd-Frank Act.

~~There~~Legislative ~~can be no assurance that recent government actions will help stabilize the U.S. financial system.~~Proposals

InProposed ~~response~~legislation towhich ~~the~~could ~~financial~~significantly ~~crises~~affect ~~affecting~~ the ~~banking~~business ~~system~~of ~~and~~banking ~~financial~~is ~~markets~~introduced ~~and~~in ~~going~~Congress ~~concern threats to investment banks~~ and ~~other~~the ~~financial~~General ~~institutions,~~Assembly ~~various branches and agencies~~ of ~~the~~South ~~U.S. government~~Carolina ~~have~~from ~~put~~time ~~in place laws, regulations and programs~~ to ~~address capital and liquidity issues in the banking system~~time. ~~There~~ For ~~can be no assurance~~example, ~~however,~~numerous asbills toare ~~the~~pending ~~actual~~in ~~long-term~~Congress ~~impact that such laws, regulations~~ and ~~programs will have on~~ the ~~financial~~South ~~markets,~~Carolina ~~including~~Legislature ~~the extreme levels of volatility, liquidity and confidence issues, and limited credit availability recently experienced. The failure of such laws, regulations and programs~~ to ~~continue~~provide tovarious ~~help~~forms ~~stabilize the financial markets and a continuation or worsening~~ of ~~current~~relief ~~financial market conditions could materially and adversely affect our business, financial condition, results of operations, access~~ to ~~credit~~homeowners orfrom ~~the~~foreclosure ~~trading price~~ of ~~our common stock.~~mortgages

~~Recent levels of market volatility are unprecedented.~~9

~~The~~Table ~~volatility and disruption~~ of financial and credit markets has reached unprecedented levels for recent times. In some cases, the markets have produced downward pressure on stock prices and credit availability for certain issuers without regard to those issuers’ underlying financial strength. If recent and current levels of market disruption and volatility continue or worsen, there can be no assurance that we will not experience an adverse effect, which may be material, on our ability to access capital and on our business, financial condition and results of operations.Contents

~~The~~as ~~soundness~~a result of ~~other~~publicity surrounding economic problems resulting from subprime mortgage lending and the economic adjustments in national real estate markets. Broader problems in the financial ~~institutions~~sector ~~could~~of ~~adversely~~the ~~affect~~economy uswhich became apparent in 2008 have led to numerous calls for legislative restructuring of the regulation of the sector. The Company is presently unable to predict the impact of any such changes, although it appears that they are likely to increase operating expenses in the near term without creating completely offsetting benefits.

~~Financial~~Fiscal ~~services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. We have exposure to many different industries~~ and ~~counterparties,~~Monetary and we routinely execute transactions with counterparties in the financial services industry, including brokers, dealers, commercial banks, investment banks, and government sponsored enterprises. Many of these transactions expose us to credit risk in the event of default of our counterparty. In addition, our credit risk may be exacerbated when the collateral we hold cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or other obligation due us. There is no assurance that any such losses would not materially and adversely affect our results of operations or earnings.Policy

10Banking is a business which depends to a large extent on interest rate differentials. In general, the difference between the interest paid by a bank on its deposits and its other borrowings and the interest received by a bank on its loans and securities holdings constitutes the major portion of a bank’s earnings. Thus, the earnings and growth of the Company and the Bank are subject to the influence of economic conditions generally, both domestic and foreign, and also to the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve. The Federal Reserve regulates the supply of money through various means, including open-market dealings in United States government securities, the discount rate at which banks may borrow from the Federal Reserve, and the reserve requirements on deposits. The nature and timing of any changes in such policies and their impact on the Company and the Bank cannot be predicted.

~~Our~~Further primary source of funding for our operations is deposits from customers in our local market areas. Should other banks in or near our market areas fail, it could cause our deposit customers to lose confidence in banks and cause them to withdraw or substantially restrict their deposits with us. If such activity reached a high enough level, it could substantially disrupt our business. There is no assurance that such disruptions, were they to occur, would not materially and adversely affect our results of operations or earnings.Information

~~Current~~Further ~~market~~information ~~developments~~about ~~may~~the ~~adversely~~business ~~affect~~of ~~our~~the ~~industry,~~Company ~~business~~and the Bank is set forth in this Form 10-K under Item 7 -”Management’s Discussion and ~~results~~Analysis of ~~operations~~Financial Condition and Results of Operations.”

~~Dramatic~~Item declines in the housing market during the prior three years, with falling home prices and increasing foreclosures and unemployment, have resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities and major commercial and investment banks1A. ~~These~~ ~~write-downs,~~Risk initially of mortgage-backed securities but spreading to credit default swaps, other derivative securities, and mortgage loans, have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail. Reflecting concern about the stability of the financial markets generally and the strength of counterparties, many lenders and institutional investors have reduced, and in some cases, ceased to provide funding to borrowers, including other financial institutions. The resulting lack of available credit, lack of confidence in the financial sector, increased volatility in the financial markets and reduced business activity could materially and adversely, directly or indirectly, affect our business, financial condition and results of operations.Factors

WeRISK ~~are subject to governmental regulation which could change and increase our cost of doing business or have an adverse affect on our business.~~FACTORS

WeRisks ~~operate~~Related ~~in a highly regulated industry and are subject~~ to examination, supervision and comprehensive regulation by various federal and state agencies. Most of this regulation is designed to protect our depositors and other customers, and not our shareholders. Our compliance with the requirements of these agencies is costly and may limit our growth and restrict certain of our activities, including payment of dividends, mergers and acquisitions, investments, loans and interest rates charged, and locations of offices. We are also subject to capitalization guidelines established by federal authorities and our failure to meet those guidelines could result, in an extreme case, in our bank’s being placed in receivership.Industry

~~Various~~There ~~laws,~~can including the Federal Deposit Insurance Act, the Emergency Economic Stabilization Act of 2008 (“EESA”), and the Dodd-Frank Act, and related regulations are structured to spread the governmental costs of problems in the financial industry broadly over the financial industry in order to prevent the taxpayers from having to pay such costs. As a result, assessments by the FDIC to pay for deposit insurance have increased, and will likely continue to increase, substantially, and the total our bank will be ~~required~~no toassurance ~~pay~~that ~~could~~recent increase enough to materially affect our income and our ability to operate profitably. Additionally, EESA contains a provision for the financial industry to be required to absorb, in an as yet undetermined fashion, any losses suffered by the government onactions ~~account~~will ofhelp ~~its~~stabilize ~~acquiring troubled assets under~~ the ~~Troubled Assets Relief Program of EESA~~U. ~~The Dodd-Frank Act makes numerous changes in the way~~ S. financial ~~institutions are regulated, and creates a new agency to regulate consumer protection as well as expanding and modifying consumer protection laws~~system.

WeIn ~~are~~response ~~also~~to ~~subject~~the financial crises affecting the banking system and financial markets and going concern threats to investment banks and other financial institutions, various branches and agencies of the ~~extensive~~U.S. government have put in place laws, regulations and ~~expensive~~programs ~~requirements~~to ~~imposed~~address oncapital ~~public~~and ~~companies~~liquidity byissues in the ~~Sarbanes~~banking system. There can be no assurance, however, as to the actual long-~~Oxley~~term ~~Act~~impact that such laws, regulations and programs will have on the financial markets, including the extreme levels of ~~2002~~volatility, liquidity and ~~related~~confidence issues, and limited credit availability recently experienced. The failure of such laws, regulations and programs to continue to help stabilize the financial markets and a continuation or worsening of current financial market conditions could materially and adversely affect our business, financial condition, results of operations, access to credit or the trading price of our common stock.

~~The~~Current ~~laws~~levels ~~and~~of ~~regulations~~market ~~applicable~~volatility ~~to the banking industry could change at any time, and numerous regulations required by the Dodd-Frank Act~~ are ~~yet to be adopted~~unprecedented. Therefore, we cannot predict the impact of these changes on our business or profitability. Because government regulation greatly affects the business and financial results of all commercial banks and bank holding companies, such regulation may not put us at a competitive disadvantage with respect to other similarly situated banks and holding companies, but our cost of compliance could adversely affect our ability to operate profitably.

11The volatility and disruption of financial and credit markets has reached unprecedented levels for recent times. In some cases, the markets have produced downward pressure on stock prices and credit availability for certain issuers without regard to those issuers’ underlying financial strength. If recent and current levels of market disruption and volatility continue or worsen, there can be no assurance that we will not experience an adverse effect, which may be material, on our ability to access capital and on our business, financial condition and results of operations.

WeThe ~~are~~soundness ~~susceptible~~of ~~to changes in monetary policy and~~ other ~~economic~~financial ~~factors~~institutions ~~which~~could ~~may~~ adversely affect ~~our ability to operate profitably~~us.

~~Changes~~Financial inservices ~~governmental,~~institutions ~~economic~~are ~~and~~interrelated ~~monetary~~as ~~policies~~a ~~may~~result ~~affect the ability~~ of ~~our~~trading, ~~bank~~clearing, tocounterparty, ~~attract~~or ~~deposits~~other ~~and~~relationships. We ~~make~~have ~~loans. The~~exposure ~~rates~~to ofmany ~~interest~~different ~~payable~~industries onand ~~deposits~~counterparties, and ~~chargeable~~we onroutinely ~~loans~~execute ~~are~~transactions ~~affected~~with bycounterparties ~~governmental~~in ~~regulation~~the ~~and~~financial ~~fiscal~~services ~~policy~~industry, asincluding ~~well~~brokers, asdealers, bycommercial ~~national~~banks, ~~state~~investment banks, and ~~local~~government ~~economic~~sponsored ~~conditions~~enterprises. ~~All~~ Many of these ~~matters~~transactions ~~are~~expose ~~outside~~us ofto ~~our~~credit ~~control~~risk ~~and~~in ~~affect our ability to operate profitably.~~the

~~Risks Related to our Business~~10

~~Our~~Table ~~growth~~of ~~strategy or regulatory requirements could require future increases in capital that we may not be able to accomplish.~~Contents

Weevent ~~are~~of ~~required~~default ~~by banking regulators to maintain various ratios~~ of ~~capital~~our ~~to assets~~counterparty. As In addition, our ~~assets~~credit ~~grow~~risk wemay ~~expect~~be ~~our~~exacerbated ~~capital~~when ~~ratios~~the tocollateral ~~decline unless~~ we ~~can~~hold ~~increase~~cannot ~~our~~be ~~earnings~~realized or ~~raise~~is ~~sufficient~~liquidated ~~new~~at ~~capital~~prices tonot ~~keep~~sufficient ~~pace with asset growth. Our ability~~ to ~~raise~~recover ~~additional~~the ~~capital,~~full ifamount ~~needed,~~of ~~will~~the ~~depend,~~loan ~~among~~or other ~~things,~~obligation ondue ~~conditions~~us. There inis ~~the~~no ~~capital~~assurance ~~markets at~~ that ~~time,~~any ~~which~~such ~~are~~losses ~~outside~~would ~~our~~not ~~control,~~materially and onadversely ~~our~~affect ~~financial condition and performance. If we are unable to limit a capital ratio decline by increasing~~ our ~~capital,~~results weof ~~will~~operations ~~have~~or ~~to restrict our asset growth as we approach the minimum required capital to asset ratios~~earnings.

WeOur ~~may~~primary besource ~~unable~~of funding for our operations is deposits from customers in our local market areas. Should other banks in or near our market areas fail, it could cause our deposit customers to ~~successfully~~lose ~~manage~~confidence in banks and cause them to withdraw or substantially restrict their deposits with us. If such activity reached a high enough level, it could substantially disrupt our ~~future~~business. There ~~growth~~is no assurance that such disruptions, were they to occur, would not materially and adversely affect our results of operations or earnings.

~~Our~~Current ~~future~~market ~~profitability~~developments ~~will~~may ~~depend~~adversely inaffect ~~part on~~ our ability to manage growth successfully. Our ability to manage growth successfully will depend on our ability to maintain cost controls and asset quality while attracting additional loans and depositsindustry, asbusiness ~~well as on factors beyond our control, such as economic conditions~~ and ~~interest~~results ~~rate~~of ~~trends~~operations. ~~If we grow too quickly and are not able to control costs and maintain asset quality, growth could materially adversely affect our financial performance.~~

WeDramatic ~~depend~~declines onin the ~~services~~housing market during the prior four years, with falling home prices and increasing foreclosures and unemployment, have resulted in significant write-downs of aasset ~~number~~values by financial institutions, including government-sponsored entities and major commercial and investment banks. These write-downs, initially of ~~key~~mortgage-backed ~~personnel~~securities but spreading to credit default swaps, other derivative securities, and amortgage ~~loss~~loans, have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail. Reflecting concern about the stability of ~~any~~the financial markets generally and the strength of ~~those~~counterparties, ~~personnel~~many ~~could~~lenders ~~disrupt~~and ~~our~~institutional ~~operations~~investors have reduced, and ~~result~~in some cases, ceased to provide funding to borrowers, including other financial institutions. The resulting lack of available credit, lack of confidence in the financial sector, increased volatility in the financial markets and reduced ~~revenues~~business activity could materially and adversely, directly or indirectly, affect our business, financial condition and results of operations.

We are asubject ~~relationship-driven organization. Our growth and development~~ to ~~date~~governmental ~~have~~regulation ~~depended~~which incould ~~large~~change ~~part on the efforts of our senior management team. These senior officers have primary contact with our customers~~ and ~~are~~increase ~~extremely important in maintaining personalized relationships with~~ our ~~customer~~cost ~~base, which are key aspects~~ of ~~our~~doing business ~~strategy, and in increasing our market presence. The unexpected loss of services of one~~ or ~~more of these key employees could~~ have aan ~~material~~ adverse ~~effect~~affect on our ~~operations and possibly result in reduced revenues if we were unable to find suitable replacements promptly~~business.

IfWe operate in a highly regulated industry and are subject to examination, supervision and comprehensive regulation by various federal and state agencies. Most of this regulation is designed to protect our ~~loan~~depositors and other customers, doand not ~~pay~~our usshareholders. Our ascompliance ~~they~~with ~~have~~the ~~contracted~~requirements of these agencies is costly and may limit our growth and restrict certain of our activities, including payment of dividends, mergers and acquisitions, investments, loans and interest rates charged, and locations of offices. We are also subject to capitalization guidelines established by federal authorities and our failure to meet those guidelines could result, wein ~~may~~an ~~experience~~extreme ~~losses~~case, in our bank’s being placed in receivership.

~~Our~~Various ~~principal~~laws, ~~revenue~~including ~~producing~~the ~~business~~Federal isDeposit ~~making~~Insurance ~~loans. When~~Act, ~~our~~the ~~customers~~Emergency doEconomic ~~not~~Stabilization ~~repay~~Act ~~loans~~of 2008 (“EESA”), weand ~~suffer~~the ~~losses. Even~~Dodd-Frank ~~though~~Act, weand ~~maintain~~related anregulations ~~allowance~~are ~~for~~structured ~~loan~~to ~~losses,~~spread the ~~amount~~governmental costs of problems in the ~~allowance~~financial ~~may~~industry ~~not~~broadly beover ~~adequate~~the financial industry in order to ~~cover~~prevent the ~~losses~~taxpayers wefrom ~~experience~~having to pay such costs. We As ~~attempt~~a result, assessments by the FDIC to ~~mitigate~~pay ~~this~~for ~~risk~~deposit byinsurance ahave ~~thorough~~increased, ~~review~~and ofwill ~~the~~likely ~~creditworthiness~~continue ofto ~~loan~~increase, ~~customers. Nevertheless~~substantially, ~~there~~and isthe ~~risk~~total ~~that~~our bank will be required to pay could increase enough to materially affect our ~~credit~~income ~~evaluations~~and ~~will~~our ~~prove~~ability to beoperate ~~inaccurate~~profitably. Additionally, ~~due~~EESA contains a provision for the financial industry to ~~changed~~be ~~circumstances~~required to absorb, ~~unanticipated~~in ~~economic~~an ~~conditions~~as yet undetermined fashion, orany ~~otherwise~~losses suffered by the government on account of its acquiring troubled assets under the Troubled Assets Relief Program of EESA. The Dodd-Frank Act makes numerous changes in the way financial institutions are regulated, and creates a new agency to regulate consumer protection as well as expanding and modifying consumer protection laws.

~~Our~~We ~~assets~~are ~~include~~also ~~substantial~~subject ~~amounts~~to some of ~~real~~the ~~estate~~extensive ~~acquired~~and ~~through~~expensive ~~foreclosure~~requirements orimposed inon ~~settlement~~public ofcompanies ~~loans,~~by ~~which~~the weSarbanes-Oxley ~~may~~Act ~~not~~of be2002 ~~able~~and torelated ~~sell without incurring additional losses.~~regulations

WeThe ~~have~~laws ~~acquired,~~ and ~~expect~~regulations applicable to ~~continue~~the tobanking ~~acquire~~industry could change at any time, ~~substantial~~and ~~amounts~~numerous ofregulations ~~real~~required ~~estate~~by ~~through~~the ~~foreclosure~~Dodd-Frank orAct ~~settlement~~are ofyet ~~loans~~to inbe ~~default~~adopted. Therefore, ~~When~~ we ~~acquire~~cannot ~~such~~predict ~~real~~the ~~estate,~~impact itof isthese ~~written~~changes ~~down~~on toour ~~its~~business ~~estimated~~or ~~fair~~profitability. Because ~~market~~government ~~value~~regulation ~~less~~greatly affects the ~~estimated~~business ~~costs~~and financial results of ~~selling. If~~all wecommercial ~~cannot~~banks ~~sell~~and ~~the~~bank ~~property~~holding ~~for~~companies, ~~that~~such ~~amount~~regulation wemay ~~will~~not ~~incur~~put ~~additional~~us ~~loss~~at ~~which,~~a ~~for~~competitive ~~one~~disadvantage orwith ~~more~~respect ~~properties~~to other similarly situated banks and holding companies, but our cost of compliance could ~~materially~~adversely ~~reduce~~affect our ~~earnings~~ability to operate profitably.

1211

~~Our~~Table ~~business is concentrated in the Upstate area~~ of South Carolina, and, as has been the case over the prior two years, a downturn in the economy of the area, a decline in area real estate values, or other events in our market area may adversely affect our business.Contents

~~Substantially~~We ~~all of our business is located in the Upstate area of South Carolina. As a result, our financial condition and results of operations~~ are ~~affected~~susceptible byto changes in ~~the~~monetary ~~Upstate~~policy ~~economy. Over the past three years, we have experienced the adverse effects of the economic recession in the form of increased nonpayment~~ and delinquent payment of loans, and decreases in the value of collateral securing loans and of real estate acquired through foreclosures. If the economic recession and general decline in Upstate area real estate values or other ~~adverse~~ economic ~~conditions~~factors ~~continue,~~which wemay ~~would~~adversely ~~expect~~affect ~~continuing decreases in demand for~~ our ~~services,~~ability ~~increases~~to inoperate ~~nonpayment of loans and decreases in the value of collateral securing loans~~profitably. The existence of adverse economic conditions, declines in real estate values or the occurrence of other adverse economic conditions in the Upstate and South Carolina could have a material adverse effect on our business, future prospects, financial condition or results of operations. The longer such adverse economic conditions persist, the greater the adverse impact on us will be.

WeChanges ~~face~~in ~~strong~~governmental, ~~competition~~economic ~~from~~and ~~larger~~monetary policies may affect the ability of our bank to attract deposits and make loans. The rates of interest payable on deposits and chargeable on loans are affected by governmental regulation and fiscal policy as well as by national, ~~more~~state ~~established~~and ~~competitors~~local ~~which~~economic ~~may~~conditions. All ~~adversely~~of these matters are outside of our control and affect our ability to operate profitably.

WeRisks ~~encounter~~Related strong competition from financial institutions operating in the Upstate area of South Carolina. In the conduct of our business, we also compete with credit unions, insurance companies, money market mutual funds and other financial institutions, some of which are not subject to the same degree of regulation as we are. Many of these competitors have substantially greater resources and lending abilities than we have and offer services, such as investment banking, trust and international banking services that we do not provide. We believe that we have been able to, and will continue to be able to, compete effectively with these institutions because of our experienced bankers and personalized service, as well as through loan participations and other strategies and techniques. However, we cannot promise that we are correct in our belief. If we are wrong, our ability to operate profitably may be negatively affected.Business

~~Technological~~Our ~~changes~~growth ~~affect~~strategy ~~our~~or ~~business,~~regulatory ~~and~~requirements wecould ~~may~~require ~~have~~future ~~fewer~~increases ~~resources~~in ~~than~~capital ~~many~~that ofwe ~~our~~may ~~competitors~~not tobe ~~invest~~able into ~~technological improvements~~accomplish.

~~The~~We ~~financial~~are ~~services~~required ~~industry~~by ~~continues~~banking regulators to ~~undergo~~maintain ~~rapid~~various ~~technological~~ratios ~~changes with frequent introductions~~ of ~~new~~capital ~~technology-driven~~to ~~products~~assets. As ~~and~~our ~~services. In~~assets ~~addition~~grow towe ~~enabling~~expect ~~financial~~our ~~institutions~~capital ratios to ~~serve~~decline ~~customers~~unless ~~better,~~we ~~the~~can ~~effective~~increase ~~use~~our ofearnings ~~technology~~or ~~may~~raise ~~increase~~sufficient ~~efficiency~~new ~~and~~capital ~~may~~to ~~enable~~keep ~~financial~~pace ~~institutions~~with toasset ~~reduce costs~~growth. Our ~~future~~ability ~~success~~to ~~may~~raise ~~depend~~additional capital, inif ~~part~~needed, ~~upon~~will ~~our~~depend, ~~ability~~among toother ~~use~~things, ~~technology~~on toconditions ~~provide~~in ~~products~~the ~~and~~capital ~~services~~markets at that ~~provide~~time, ~~convenience~~which toare ~~customers~~outside ~~and~~our tocontrol, ~~create~~and ~~additional~~on ~~efficiencies~~our infinancial ~~our~~condition ~~operations~~and performance. We If ~~may~~we ~~need~~are unable to ~~make~~limit ~~significant~~a ~~additional~~ capital ~~investments~~ratio indecline ~~technology~~by inincreasing ~~the~~our ~~future~~capital, ~~and~~ we ~~may~~will ~~not~~have ~~be able~~ to ~~effectively~~restrict ~~implement~~our ~~new~~asset ~~technology-driven~~growth ~~products~~as ~~and~~we ~~services. Many~~approach ofthe ~~our~~minimum ~~competitors~~required ~~have~~capital ~~substantially greater resources~~ to ~~invest~~asset ~~in technological improvements~~ratios.

~~Our~~We ~~profitability~~may ~~and~~be ~~liquidity~~unable ~~are~~to ~~affected~~successfully bymanage ~~changes~~our infuture ~~interest rates and economic conditions~~growth.

Our future profitability ~~depends~~will ~~upon~~depend ~~our~~in ~~net~~part ~~interest income, which is the difference between interest earned~~ on our ~~interest~~ability ~~earning~~to ~~assets,~~manage ~~such~~growth ~~as loans and investment securities, and interest expense on interest bearing liabilities, such as deposits and borrowings~~successfully. Our ~~net~~ability ~~interest~~to ~~income~~manage isgrowth ~~adversely~~successfully ~~affected~~will ~~when~~depend ~~market~~on ~~interest~~our ~~rates~~ability ~~change~~to ~~such~~maintain ~~that~~cost ~~the~~controls ~~interest we pay on deposits~~ and ~~borrowings~~asset ~~increases~~quality ~~faster~~while ~~than~~attracting ~~the~~additional ~~interest earned on~~ loans and ~~investments~~deposits, ~~or,~~as ~~conversely,~~well ~~when~~as ~~the interest earned~~ on ~~loans~~factors ~~and~~beyond ~~investments decreases faster than the interest we pay on deposits and borrowings. Interest rates, and consequently~~ our ~~results of operations~~control, ~~are~~such ~~affected~~as ~~by general~~ economic conditions ~~(domestic~~ and ~~foreign)~~interest ~~and~~rate ~~fiscal and monetary policies~~trends. If ~~Monetary~~we ~~and~~grow ~~fiscal~~too ~~policies~~quickly ~~may materially affect the level~~ and ~~direction~~are ofnot ~~interest~~able ~~rates. Increases~~to incontrol ~~interest~~costs ~~rates generally decrease the market values of interest earning investments~~ and ~~loans~~maintain ~~held~~asset ~~and~~quality, ~~therefore~~growth ~~may~~could materially adversely affect our ~~liquidity~~financial ~~and earnings~~performance. Increased interest rates also generally affect the volume of mortgage loan originations, the resale value of mortgage loans originated for resale, and the ability of borrowers to perform under existing loans of all types. Decreases in interest rates generally have the opposite effect on market values of interest-bearing assets, the volume of mortgage loan originations, the resale value of mortgage loans originated for resale, and the ability of borrowers to perform under existing loans of all types from the effect of increases in interests rates.

13We depend on the services of a number of key personnel, and a loss of any of those personnel could disrupt our operations and result in reduced revenues.

~~Risks~~We ~~Related~~are toa relationship-driven organization. Our ~~Common~~growth ~~Stock~~and development to date have depended in large part on the efforts of our senior management team. These senior officers have primary contact with our customers and are extremely important in maintaining personalized relationships with our customer base, which are key aspects of our business strategy, and in increasing our market presence. The unexpected loss of services of one or more of these key employees could have a material adverse effect on our operations and possibly result in reduced revenues if we were unable to find suitable replacements promptly.

~~Our~~If ~~common~~our ~~stock~~loan ~~has~~customers ado ~~limited~~not ~~trading~~pay ~~market,~~us ~~which~~as ~~may~~they ~~make~~have ~~the~~contracted ~~prompt~~to, ~~execution~~we ofmay ~~sale~~experience ~~transactions difficult~~losses.

~~Although~~Our ~~our~~principal ~~common~~revenue ~~stock~~producing ~~may~~business beis ~~traded~~making ~~from~~loans. When ~~time~~our tocustomers ~~time~~do onnot anrepay ~~individual~~loans, ~~basis~~we orsuffer onlosses. Even ~~the~~though ~~OTCBB,~~we nomaintain ~~active~~an ~~trading~~allowance ~~market~~for ~~has~~loan ~~developed~~losses, ~~and~~the ~~none~~amount of the allowance may ~~develop~~not inbe adequate to cover the ~~foreseeable~~losses ~~future~~we experience. ~~Our~~ We ~~common~~attempt ~~stock~~to ismitigate ~~not~~this ~~traded~~risk onby ~~any~~a ~~exchange. Accordingly,~~thorough ifreview ~~you~~of ~~wish~~the tocreditworthiness ~~sell~~of ~~shares~~loan ~~you~~customers. Nevertheless, ~~may~~there ~~experience~~is arisk ~~delay~~that orour ~~have~~credit toevaluations ~~sell~~will ~~them~~prove atto abe ~~lower~~inaccurate ~~price~~due into ~~order~~changed tocircumstances, ~~sell~~unanticipated ~~them~~economic ~~promptly~~conditions, ifor ~~at all~~otherwise.

~~The~~Our ~~market~~assets ~~price~~include substantial amounts of ~~our~~real ~~common~~estate ~~stock~~acquired through foreclosure or in settlement of loans, which we may ~~continue~~not be able to ~~decline~~sell without incurring additional losses.

~~The~~We ~~market~~have ~~prices~~acquired, ofand ~~many~~expect ~~financial~~to ~~institution~~continue ~~equity~~to ~~securities~~acquire, ~~including~~substantial ~~ours,~~amounts ~~have~~of ~~declined~~real ~~significantly~~estate ~~over~~through ~~the~~foreclosure ~~past~~or ~~three~~settlement ~~years~~of loans in ~~response~~default. When we acquire such real estate, it is written down to ~~the~~its ~~financial~~estimated ~~crises~~fair ~~affecting~~market ~~the~~value ~~banking~~less ~~system~~the ~~and~~estimated ~~financial~~costs ~~markets~~of selling. ~~There~~ If ~~can~~we becannot nosell ~~assurance~~the property for that ~~such~~amount ~~declines~~we will ~~not~~incur ~~continue~~additional loss which, for one or more properties, could materially reduce our earnings.

~~We may issue additional securities, which could affect the market price of our common stock and dilute your ownership.~~12

WeTable ~~may issue additional securities to raise additional capital, to support growth, or to make acquisitions. Sales~~ of a substantial number of shares of our common stock, or the perception by the market that those sales could occur, could cause the market price of our common stock to decline or could make it more difficult for us to raise capital through the sale of common stock or to use our common stock in future acquisitions. The issuance of substantial amounts of additional securities could reduce shareholders’ proportionate ownership of the Company.Contents

WeOur dobusiness ~~not~~is ~~plan~~concentrated toin ~~pay~~the ~~cash~~Upstate ~~dividends~~area of South Carolina, and, as has been the case over the prior three years, a downturn in the ~~foreseeable~~economy ~~future~~of the area, a decline in area real estate values, or other events in our market area may adversely affect our business.

WeSubstantially ~~have~~all ~~never~~of ~~paid~~our ~~cash~~business ~~dividends~~is located in the Upstate area of South Carolina. As a result, our financial condition and doresults ~~not~~of ~~plan~~operations toare ~~pay~~affected ~~cash~~by ~~dividends~~changes in the ~~foreseeable~~Upstate ~~future~~economy. We Over ~~plan~~the topast ~~use~~several years, we have experienced the ~~funds~~adverse ~~that~~effects ~~might~~of ~~otherwise~~the beeconomic ~~available~~recession toin ~~pay~~the ~~dividends~~form toof ~~expand~~increased nonpayment and delinquent payment of loans, and decreases in the value of collateral securing loans and of real estate acquired through foreclosures. If the economic recession and general decline in Upstate area real estate values or other adverse economic conditions continue, we would expect continuing decreases in demand for our ~~business~~services, increases in nonpayment of loans and ~~increase~~decreases in the value of collateral securing loans. The existence of adverse economic conditions, declines in real estate values or the occurrence of other adverse economic conditions in the Upstate and South Carolina could have a material adverse effect on our ~~capital~~business, future prospects, financial condition or results of operations. The longer such adverse economic conditions persist, the greater the adverse impact on us will be.

~~Declaration~~We ~~and~~face ~~payment~~strong ofcompetition ~~dividends~~from ~~are~~larger, ~~within~~more ~~the~~established ~~discretion~~competitors ofwhich ~~our~~may ~~board~~adversely ofaffect ~~directors. Our bank will be~~ our ~~most~~ability ~~likely source of funds with which~~ to ~~pay~~operate ~~cash dividends~~profitably. Our bank’s declaration and payment of future dividends to us are within the discretion of the bank’s board of directors, and are dependent upon its earnings, financial condition, its need to retain earnings for use in the business and any other pertinent factors. The bank’s payment of dividends is also subject to various regulatory requirements and considerations.

~~Provisions~~We encounter strong competition from financial institutions operating in the Upstate area of South Carolina. In the conduct of our ~~articles~~business, we also compete with credit unions, insurance companies, money market mutual funds and other financial institutions, some of ~~incorporation~~which are not subject to the same degree of regulation as we are. Many of these competitors have substantially greater resources and ~~South~~lending ~~Carolina~~abilities ~~law~~than ~~may~~we ~~discourage~~have orand ~~prevent~~offer ~~takeover~~services, ~~attempts~~such as investment banking, trust and ~~these~~international ~~provisions~~banking ~~may~~services that we do not provide. We believe that we have ~~the~~been ~~effect~~able to, and will continue to be able to, compete effectively with these institutions because of ~~reducing~~our ~~the~~experienced ~~market~~bankers ~~price~~and ~~for~~personalized service, as well as through loan participations and other strategies and techniques. However, we cannot promise that we are correct in our ~~stock~~belief. If we are wrong, our ability to operate profitably may be negatively affected.

~~Our~~Technological ~~articles~~changes ofaffect ~~incorporation~~our ~~include several provisions that may have the effect of discouraging or preventing hostile takeover attempts~~business, and ~~therefore~~we of making the removal of incumbent management difficult. The provisions include staggered terms for our board of directors and requirements that make it difficult to remove our directors. In addition, South Carolina law contains several provisions that may ~~make~~have itfewer ~~more~~resources ~~difficult~~than ~~for~~many ~~a third party to acquire control~~ of ~~us without the approval of~~ our ~~board~~competitors ~~of directors, and may make it more difficult or expensive for a third party~~ to ~~acquire~~invest ~~a majority of our outstanding common stock. To the extent that these provisions are effective~~ in ~~discouraging~~technological ~~or preventing takeover attempts, they may tend to reduce the market price for our stock~~improvements.

The financial services industry continues to undergo rapid technological changes with frequent introductions of new technology-driven products and services. In addition to enabling financial institutions to serve customers better, the effective use of technology may increase efficiency and may enable financial institutions to reduce costs. Our ~~directors~~future ~~have~~success may depend, in part, upon our ability to use technology to provide products and services that provide convenience to customers and to create additional efficiencies in our operations. We may need to make significant ~~voting~~additional ~~power~~capital investments in technology in the future, and we may not be able to effectively implement new technology-driven products and services. Many of our competitors have substantially greater resources to invest in technological improvements.

Our ~~present~~profitability ~~directors~~and ~~beneficially~~liquidity ~~own~~are ~~over~~affected ~~40%~~by ofchanges ~~our~~in ~~stock. Because~~interest ~~they~~rates ~~own~~and ~~over~~economic 33 1/3%, if they vote together, they will be able to prevent any merger, consolidation, share exchange, sale of substantial assets, dissolution, removal of directors or amendment to the articles of incorporation they do not wantconditions.

14Our profitability depends upon our net interest income, which is the difference between interest earned on our interest earning assets, such as loans and investment securities, and interest expense on interest bearing liabilities, such as deposits and borrowings. Our net interest income is adversely affected when market interest rates change such that the interest we pay on deposits and borrowings increases faster than the interest earned on loans and investments, or, conversely, when the interest earned on loans and investments decreases faster than the interest we pay on deposits and borrowings. Interest rates, and consequently our results of operations, are affected by general economic conditions (domestic and foreign) and fiscal and monetary policies. Monetary and fiscal policies may materially affect the level and direction of interest rates. Increases in interest rates generally decrease the market values of interest earning investments and loans held and therefore may adversely affect our liquidity and earnings. Increased interest rates also generally affect the volume of mortgage loan originations, the resale value of mortgage loans originated for resale, and the ability of borrowers to perform under existing loans of all types. Decreases in interest rates generally have the opposite effect on market values of interest-bearing assets, the volume of mortgage loan originations, the resale value of mortgage loans originated for resale, and the ability of borrowers to perform under existing loans of all types from the effect of increases in interests rates.

~~Our common stock is not insured, so you could lose your total investment.~~13

~~Our~~Table ~~common~~of stock is not a deposit or savings account, and is not insured by the Federal Deposit Insurance Corporation or any other government agency. Should our business fail you could lose your total investment.Contents

~~Item~~Risks ~~1B. Unresolved~~Related ~~Staff~~to ~~Comments.~~Our Common Stock

~~Not~~Our ~~Applicable~~common stock has a limited trading market, which may make the prompt execution of sale transactions difficult.

~~Item~~Although 2trades of our common stock may occur from time to time on an individual basis or be reported on the OTC Bulletin Board, no active trading market has developed and none may develop in the foreseeable future. ~~Properties~~ Our common stock is not traded on any exchange. Accordingly, if you wish to sell shares you may experience a delay or have to sell them at a lower price in order to sell them promptly, if at all.

The ~~Bank~~market ~~owns~~price in fee simple with no major encumbrances, the real property where its corporate offices and banking offices are located at 3685 Blue Ridge Boulevard, Walhalla, South Carolina; 449 Highway 123 Bypass in Seneca, South Carolina; 1600 Sandifer Boulevard in Seneca, South Carolina; 4002 Clemson Boulevard in Anderson, South Carolina; 2007 East Greenville Street in Anderson, South Carolina; 208 East Main Street in Williamston, South Carolina; and 1101 East Main Street in Westminster, South Carolina. The Westminster branch is currently operating in a modular facility. Management of ~~the~~our ~~Bank~~common ~~believes~~stock ~~the~~may ~~Bank’s~~continue ~~facilities~~to ~~are suitable and adequate for the Company’s needs~~decline.

The ~~Company~~market ~~also~~prices ~~holds~~of 47many ~~properties~~financial ~~acquired~~institution ~~through~~equity ~~foreclosure~~securities, orincluding ours, have declined significantly over the past four years in ~~settlement~~response ofto ~~loans. All~~the offinancial crises affecting the ~~properties~~banking ~~are~~system ~~being~~and ~~marketed~~financial ~~for~~markets. There ~~sale~~can be no assurance that such declines will not continue.

InWe ~~2007,~~may ~~the~~issue ~~Company~~additional ~~purchased real property near Powdersville~~securities, ~~South~~which ~~Carolina,~~could toaffect bethe ~~used~~market ~~for~~price ~~future~~of ~~expansion. The~~our ~~Company~~common ~~has~~stock ~~not~~and ~~established~~dilute ayour ~~budget or a schedule for construction on the property~~ownership.

~~Item~~We 3may issue additional securities to raise additional capital, to support growth, or to make acquisitions. ~~Legal~~ Sales ~~Proceedings~~of a substantial number of shares of our common stock, or the perception by the market that those sales could occur, could cause the market price of our common stock to decline or could make it more difficult for us to raise capital through the sale of common stock or to use our common stock in future acquisitions. The issuance of substantial amounts of additional securities could reduce shareholders’ proportionate ownership of the Company.

~~The~~We ~~Bank~~do isnot ~~from~~plan ~~time~~ to ~~time~~pay acash ~~party~~dividends ~~to various legal proceedings arising~~ in the ~~ordinary~~foreseeable course of business, but management of the Bank is not aware of any pending or threatened litigation or unasserted claims or assessments that are expected to result in losses, if any, that would be material to the Bank’s business and operationsfuture.

~~Item~~We 4have never paid cash dividends and do not plan to pay cash dividends in the foreseeable future. ~~(Removed~~ We plan to use the funds that might otherwise be available to pay dividends to expand our business and ~~Reserved)~~increase our capital.

~~PART~~Declaration IIand payment of dividends are within the discretion of our board of directors. Our bank will be our most likely source of funds with which to pay cash dividends. Our bank’s declaration and payment of future dividends to us are within the discretion of the bank’s board of directors, and are dependent upon its earnings, financial condition, its need to retain earnings for use in the business and any other pertinent factors. The bank’s payment of dividends is also subject to various regulatory requirements and considerations.

~~The~~Provisions ~~portions~~in our articles of ~~the~~incorporation ~~2010~~and ~~Annual~~South ~~Report~~Carolina tolaw ~~Shareholders~~may ~~incorporated~~discourage byor ~~reference~~prevent ~~into~~takeover ~~this~~attempts, ~~Form~~and ~~10-K~~these ~~are~~provisions ~~set~~may ~~forth~~have inthe ~~Exhibit~~effect 13of ~~hereto~~reducing the market price for our stock.

~~Item~~Our 5articles of incorporation include several provisions that may have the effect of discouraging or preventing hostile takeover attempts, and therefore of making the removal of incumbent management difficult. ~~Market~~ The provisions include staggered terms for ~~Registrant’s~~our ~~Common~~board ~~Equity~~of directors and requirements that make it difficult to remove our directors. In addition, ~~Related~~South ~~Stockholder~~Carolina ~~Matters~~law contains several provisions that may make it more difficult for a third party to acquire control of us without the approval of our board of directors, and ~~Issuer~~may ~~Purchases~~make it more difficult or expensive for a third party to acquire a majority of ~~Equity~~our ~~Securities~~outstanding common stock. To the extent that these provisions are effective in discouraging or preventing takeover attempts, they may tend to reduce the market price for our stock.

~~The~~Our ~~information~~directors ~~set~~have ~~forth~~significant ~~under~~voting the caption “Market for Common Stock and Dividends” and in Note I to the Company’s Consolidated Financial Statements under the caption “Restrictions on Subsidiary Dividends, Loans or Advances” in the Company’s Annual Report to Shareholders for the year ended December 31, 2010 (the “2010 Annual Report”) is incorporated herein by referencepower. ~~The information set forth in Part I, Item 1 of this Form 10-K under the caption “Effect of Government Regulation -- Payment of Dividends” is also incorporated herein by reference.~~

~~The~~Our ~~information~~present ~~required~~directors bybeneficially ~~Item~~own ~~201(d)~~over 40% of ~~Regulation~~our ~~S-K~~stock. Because isthey ~~set~~own ~~forth~~over in33 ~~Item~~1/3%, 12if they vote together, they will be able to prevent any merger, consolidation, share exchange, sale of ~~this~~substantial ~~Form~~assets, ~~10-K~~dissolution, removal of directors or amendment to the articles of incorporation they do not want.

~~The Company did not sell any equity securities during the period covered by this report that were not registered under the Securities Act of 1933.~~14

~~The~~Table ~~Company did not purchase any equity securities during the fourth quarter~~ of ~~2010.~~Contents

15Our common stock is not insured, so you could lose your total investment.

~~Item~~Our 6common stock is not a deposit or savings account, and is not insured by the Federal Deposit Insurance Corporation or any other government agency. ~~Selected~~ Should ~~Financial~~our ~~Data~~business fail you could lose your total investment.

~~The~~Item ~~information~~1B. ~~set~~Unresolved ~~forth~~Staff ~~under the caption “Financial Summary” in the 2010 Annual Report is incorporated herein by reference~~Comments.

~~Item~~Not 7Applicable. ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

~~The~~Item ~~information set forth under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2010 Annual Report is incorporated herein by reference~~2. Properties

~~Item~~The 7ABank owns in fee simple with no major encumbrances, the real property where its corporate offices and banking offices are located at 3685 Blue Ridge Boulevard, Walhalla, South Carolina; 449 Highway 123 Bypass in Seneca, South Carolina; 1600 Sandifer Boulevard in Seneca, South Carolina; 4002 Clemson Boulevard in Anderson, South Carolina; 2007 East Greenville Street in Anderson, South Carolina; 208 East Main Street in Williamston, South Carolina; 306 East Windsor Street in Westminster, South Carolina; and 1101 East Main Street in Westminster, South Carolina. ~~Quantitative~~ Management of the Bank believes the Bank’s facilities are suitable and ~~Qualitative~~adequate ~~Disclosures~~for ~~about~~the ~~Market~~Company’s ~~Risk~~needs.

~~Not~~The ~~Applicable~~Company also holds 75 properties acquired through foreclosure or in settlement of loans. All of the properties are being marketed for sale.

~~Item~~In 82007, the Company purchased real property near Powdersville, South Carolina, to be used for future expansion. ~~Financial~~ The ~~Statements~~Company ~~and~~has ~~Supplementary~~not ~~Data~~established a budget or a schedule for construction on the property.

~~The~~Item ~~Consolidated~~3. ~~Financial~~Legal ~~Statements, including Notes thereto, and Report of Independent Registered Public Accounting Firm thereon, set forth in the 2010 Annual Report are incorporated herein by reference.~~Proceedings

~~Item~~The ~~9. Changes~~Bank Inis ~~and~~from ~~Disagreements~~time ~~with~~to ~~Accountants~~time ona ~~Accounting~~party ~~and~~to ~~Financial~~various ~~Disclosure~~legal proceedings arising in the ordinary course of business, but management of the Bank is not aware of any pending or threatened litigation or unasserted claims or assessments that are expected to result in losses, if any, that would be material to the Bank’s business and operations.

~~None~~Item 4. Mine Safety Disclosures.

~~Item~~Not 9Aapplicable. ~~Controls and Procedures.~~

~~Effectiveness of Disclosure Controls and Procedures~~PART II

~~Based~~The onportions ~~the evaluation required by 17 C.F.R. Section 240.13a-15(b) or 240.15d-15(b)~~ of the ~~Company’s~~2011 ~~disclosure~~Annual ~~controls~~Report ~~and~~to ~~procedures~~Shareholders ~~(as~~incorporated ~~defined~~by inreference 17into ~~C.F.R. Sections~~this ~~240.13a~~Form 10-~~15(e)~~K orare ~~240.15d-15(e)), the~~set ~~Company’s~~forth ~~chief~~in ~~executive~~Exhibit 13 ~~officer and chief financial officer concluded that such controls and procedures, as of the end of the period covered by this annual report, were effective~~hereto.

The ~~report~~information set forth under the caption “~~Management~~Market for Common Stock and Dividends” and in Note J to the Company’s ~~Report~~Consolidated Financial Statements under the caption “Restrictions on ~~Internal~~Subsidiary ~~Control~~Dividends, ~~Over~~Loans ~~Financial~~or ~~Reporting~~Advances” in the Company’s Annual Report to Shareholders for the year ended December 31, 2011 (the “2011 Annual Report”) is incorporated herein by reference. The information set forth in Part I, Item 1 of this Form 10-K under the ~~2010~~caption ~~Annual~~“Effect ~~Report~~of Government Regulation — Payment of Dividends” is also incorporated herein by reference.

~~Changes~~The information required by Item 201(d) of Regulation S-K is set forth in ~~Internal~~Item ~~Control~~12 ~~Over~~of ~~Financial~~this ~~Reporting~~Form 10-K.

The Company isdid ~~continually~~not ~~seeking~~sell toany ~~improve~~equity ~~the~~securities efficiency and effectiveness of its operations and of its internal controls. This results in modifications to its processes throughout the Company. However, there has been no change in the Company’s internal control over financial reporting during the ~~most~~period ~~recent~~covered ~~fiscal~~by ~~quarter~~this report that ~~has~~were ~~materially~~not ~~affected,~~registered orunder ~~is reasonably likely to materially affect,~~ the ~~Company’s~~Securities ~~internal~~Act ~~control~~of ~~over financial reporting~~1933.

~~Item 9B. Other Information.~~15

NoTable ~~information was required to be disclosed in a Form 8-K during the fourth quarter~~ of ~~2010 that was not so disclosed.~~Contents

16The following table sets for the information about repurchases of the Company’s equity securities during the fourth quarter of 2011.

PART III

Period	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or approximate dollar value) of Shares that May Yet Be Purchased Under the Plans or Programs
October 1 - October 31, 2011	16,200	$	4.27	—	—
November 1 - November 30, 2011	900	4.32		—	—
December 1 - December 31, 2011
Total	17,100

~~Item~~These 10securities were purchased by the Company’s subsidiary, Upstate Resource Management, Inc. ~~Directors~~, ~~Executive~~in ~~Officers~~isolated transactions, and ~~Corporate~~not ~~Governance~~as a part of any program or plan. The number of shares and share prices in the table above have not been adjusted to reflect the 5% stock dividend effective December 16, 2011.

~~The~~Item ~~information~~6. ~~set~~Selected ~~forth~~Financial under the captions “Management of the Company” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement to be used in conjunction with the 2011 Annual Meeting of Shareholders (the “Proxy Statement”), which will be filed within 120 days of the Corporation’s fiscal year end, is incorporated herein by reference.Data

~~Code~~The ofinformation ~~Ethics~~set forth under the caption “Financial Summary” in the 2011 Annual Report is incorporated herein by reference.

~~The~~Item ~~Company has adopted a code of ethics (as defined by 17 C~~7.~~F.R. 229.406)~~ ~~that~~Management’s ~~applies~~Discussion ~~to its principal executive officer~~ and ~~principal~~Analysis ~~financial officer. The Company will provide a copy~~ of ~~the~~Financial ~~code~~Condition ofand ~~ethics,~~Results ~~free~~ of ~~charge, to any person upon written request to Benjamin L. Hiott, Senior Vice President, Community First Bancorporation, 449 Highway 123 Bypass, Seneca, South Carolina 29678.~~Operations

~~Audit~~The ~~Committee~~information set forth under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2011 Annual Report is incorporated herein by reference.

~~The~~Item ~~Company has an Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934~~7A. ~~The~~ ~~Audit~~Quantitative Committee is responsible for seeing that audits of the Company’s financial statements are conducted annually. An independent registered public accounting firm is employed for that purpose by the Board of Directors upon recommendation of the Audit Committee. Reports on these audits are reviewed by the Committee upon receipt and aQualitative ~~report~~Disclosures ~~thereon~~about isMarket ~~made to the Board at its next meeting~~Risk. The Audit Committee is comprised of Messrs. Edwards, Hamrick, Thrift and Winchester, each of whom is independent as defined in the Nasdaq Rules. The Audit Committee does not have a written charter.

~~Audit~~Not ~~Committee Financial Expert~~Applicable

~~The Company’s board of directors has determined that the Company does not have an “audit committee financial expert,” as that term is defined by~~ Item ~~407(d)(5) of Regulation S-K promulgated by the Securities and Exchange Commission, serving on its audit committee~~8. ~~The~~ ~~Company’s~~Financial ~~audit~~Statements ~~committee is a committee of directors who are independent of the Company~~ and ~~its~~Supplementary management. After reviewing the experience and training of all of the Company’s independent directors, the board of directors has concluded that no independent director meets the SEC’s very demanding definition. Therefore, it would be necessary to find a qualified individual willing to serve as both a director and member of the audit committee and have that person elected by the shareholders in order to have an “audit committee financial expert” serving on the Company’s audit committee. The Company’s audit committee is, however, authorized to use consultants to provide financial accounting expertise in any instance where members of the committee believe such assistance would be useful. Accordingly, the Company does not believe that it needs to have an “audit committee financial expert” on its audit committee.Data

~~Item~~The ~~11. Executive~~Consolidated ~~Compensation~~Financial Statements, including Notes thereto, and Report of Independent Registered Public Accounting Firm thereon, set forth in the 2011 Annual Report are incorporated herein by reference.

~~The~~Item ~~information~~9. ~~set~~Changes ~~forth~~In ~~under the captions “Management Compensation”~~ and ~~“Compensation~~Disagreements ofwith ~~Directors”~~Accountants inon ~~the~~Accounting ~~Proxy~~and ~~Statement~~Financial ~~is incorporated herein by reference.~~Disclosure

~~Item~~Not 12Applicable. ~~Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters~~

~~The~~Item ~~information~~9A. ~~set~~Controls ~~forth under the caption “Security Ownership of Certain Beneficial Owners~~ and ~~Management” in the Proxy Statement is incorporated herein by reference~~Procedures.

~~Equity~~Effectiveness ~~Compensation~~of ~~Plan~~Disclosure ~~Information~~Controls and Procedures

~~The~~Based ~~following~~on ~~table~~the ~~sets~~evaluation ~~forth~~required ~~aggregated~~by ~~information~~17 asC.F.R. Section 240.13a-15(b) or 240.15d-15(b) of ~~December~~the ~~31,~~Company’s ~~2010~~disclosure ~~about~~controls ~~all~~and ofprocedures (as defined in 17 C.F.R. Sections 240.13a-15(e) or 240.15d-15(e)), the Company’s ~~compensation~~chief ~~plans~~executive ~~(including~~officer ~~individual~~and ~~compensation~~chief ~~arrangements)~~financial ~~under~~officer ~~which~~concluded ~~equity~~that ~~securities~~such controls and procedures, as of the ~~Company~~end ~~are~~of ~~authorized~~the ~~for~~period ~~issuance:~~covered by this annual report, were effective.

1716

~~Plan~~Table ~~category Number~~ of securities to be issued upon exercise of outstanding options, warrants and rights (a)(1) Weighted-average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a)) (c)(2)Contents

Equity compensation plans approved by security holders	309,089	$	11.82
Equity compensation plans not approved by security holders	0		0
Total	309,089	$	11.82

Management’s Report on Internal Control Over Financial Reporting

~~(1)~~The ~~These~~report ~~include~~set ~~shares~~forth ~~that may be issued upon exercise of options outstanding at December 31, 2010~~ under the ~~1998~~caption ~~Stock Option Plan (see note 2 below). The Company~~“Management’s ~~1989~~Report ~~Stock~~on ~~Option~~Internal ~~Plan~~Control ~~previously~~Over ~~expired,~~Financial ~~and~~Reporting” ~~all~~set ~~remaining~~forth ~~options thereunder expired~~ in ~~2010.~~the No2011 ~~further~~Annual ~~options~~Report ~~may~~is beincorporated ~~issued~~herein orby ~~exercised under the 1989 Plan~~reference.

~~(2)~~Changes The 1998 Plan terminated March 19, 2008 according to its terms, and no further options may be issued pursuant to the 1998 Plan. Options outstanding under the 1998 Plan may continue to be exercised until the earlier of their termination dates (as set forth in ~~individual~~Internal ~~grant~~Control ~~agreements)~~Over orFinancial ~~ten years from the date of grant.~~Reporting

~~Item~~The ~~13. Certain Relationships~~ Company is continually seeking to improve the efficiency and ~~Related Transactions,~~ effectiveness of its operations and ~~Director~~of ~~Independence~~its internal controls. This results in modifications to its processes throughout the Company. However, there has been no change in the Company’s internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

~~The~~Item information set forth under the captions “Certain Relationships and Related Transactions” and “Governance Matters -- Director Independence” in the Proxy Statement is incorporated herein by reference9B. ~~The~~ ~~members~~Other ~~of our Audit and Compensation Committees are all independent as defined in the Nasdaq Stock Market, Inc~~Information. Marketplace Rules. Our entire Board of Directors serves as our Nominating Committee. Frederick D. Shepherd, Jr., our President and Chief Executive Officer, is the only member of our Board of Directors who is not independent as defined by such rules.

~~PART~~No IVinformation was required to be disclosed in a Form 8-K during the fourth quarter of 2011 that was not so disclosed.

~~Item 14. Principal Accountant Fees and Services~~PART III

~~The~~Item ~~information~~10. ~~set~~Directors, ~~forth~~Executive ~~under~~Officers ~~the~~and ~~caption~~Corporate ~~“Independent Registered Public Accounting Firm” in the Proxy Statement is incorporated herein by reference~~Governance.

~~Item~~The ~~15. Exhibits,~~information ~~Financial~~set forth under the captions “Management of the Company” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement ~~Schedules~~to be used in conjunction with the 2012 Annual Meeting of Shareholders (the “Proxy Statement”), which will be filed within 120 days of the Corporation’s fiscal year end, is incorporated herein by reference.

~~(a)(1)~~Code ~~and~~of ~~(2) Financial Statements and Financial Schedules~~Ethics

-The ~~Report~~Company has adopted a code of ~~Independent~~ethics ~~Registered~~(as ~~Public~~defined ~~Accounting~~by ~~Firm~~17 C.F.R. 229.406) that applies to its principal executive officer and principal financial officer. The Company will provide a copy of the code of ethics, free of charge, to any person upon written request to Benjamin L. Hiott, Senior Vice President, Community First Bancorporation, 449 Highway 123 Bypass, Seneca, South Carolina 29678.

-Audit ~~Consolidated Balance Sheets - December 31, 2010 and 2009~~Committee

-The ~~Consolidated~~Company ~~Statements~~has an Audit Committee established in accordance with Section 3(a)(58)(A) of ~~Income~~the -Securities ~~Years~~Exchange ~~ended~~Act ~~December~~of 311934. The Audit Committee is responsible for seeing that audits of the Company’s financial statements are conducted annually. An independent registered public accounting firm is employed for that purpose by the Board of Directors upon recommendation of the Audit Committee. Reports on these audits are reviewed by the Committee upon receipt and a report thereon is made to the Board at its next meeting. The Audit Committee is comprised of Messrs. Edwards, ~~2010~~Hamrick, ~~2009~~Thrift and ~~2008~~Winchester, each of whom is independent as defined in the Nasdaq Rules. The Audit Committee does not have a written charter.

-Audit ~~Consolidated~~Committee ~~Statements~~Financial ~~of Changes in Shareholders’ Equity - Years ended December 31, 2010, 2009 and 2008~~Expert

-The ~~Consolidated~~Company’s ~~Statements~~board of ~~Cash~~directors ~~Flows~~has determined that the Company does not have an “audit committee financial expert,” as that term is defined by Item 407(d)(5) of Regulation S-K promulgated ~~Years~~by ~~ended~~the ~~December~~Securities 31and Exchange Commission, ~~2010~~serving on its audit committee. The Company’s audit committee is a committee of directors who are independent of the Company and its management. After reviewing the experience and training of all of the Company’s independent directors, ~~2009~~the board of directors has concluded that no independent director meets the SEC’s very demanding definition. Therefore, it would be necessary to find a qualified individual willing to serve as both a director and ~~2008~~member of the audit committee and have that person elected by the shareholders in order to have an “audit committee financial expert” serving on the Company’s audit committee. The Company’s audit committee is, however, authorized to use consultants to provide financial accounting expertise in any instance where members of the committee believe such assistance would be useful. Accordingly, the Company does not believe that it needs to have an “audit committee financial expert” on its audit committee.

~~- Notes to Consolidated Financial Statements~~17

~~(3) Exhibits~~Table of Contents

18Item 11. Executive Compensation

Exhibit No (from item 601 of Regulation S-K)	Description
3.1	Articles of Incorporation, as amended (Incorporated by reference to the Annual Report on Form 10-KSB for the year ended December 31, 1998, and Current Report on Form 8-K, filed February 9, 2009.)
3.2	By-laws (Incorporated by reference to the Annual Report on Form 10-KSB for the year ended December 31, 1997 (the “1997 10-KSB”))
4	Specimen Stock certificate (Incorporated by reference to the 1997 10-KSB)
10.1	Community First Bank Incentive Stock Agreement with Frederick D.Shepherd, Jr. (Incorporated by reference to the 1997 10-KSB)
10.2	Community First Bancorporation 1998 Stock Option Plan (Incorporated by reference to Proxy Statement filed in connection with the 1998 Annual Meeting of Shareholders)
10.3	Employment Agreement between the Company, Community First Bank and Frederick D. Shepherd, Jr., dated July 31, 2007 (Incorporated by reference to Report on Form 8-K filed August 6, 2007)
10.4	Salary Continuation Agreement between the Company and Frederick D. Shepherd, Jr., dated July 31, 2007 (Incorporated by reference to Report on Form 8-K filed August 6, 2007)
13	Portions of the Annual Report to Shareholders for the Year Ended December 31, 2010
21	Subsidiaries of the registrant
23	Consent of J. W. Hunt & Company, L.L.P.
31	Rule 13a-14(a)/15d-14(a) Certifications
32	18 U.S.C. Section 1350 Certifications

The information set forth under the captions “Management Compensation” and “Compensation of Directors” in the Proxy Statement is incorporated herein by reference.

19Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

~~SIGNATURES~~The information set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement is incorporated herein by reference.

~~Pursuant~~Equity toCompensation ~~the~~Plan ~~requirements of Section 13 or 15(d) 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.~~Information

		COMMUNITY FIRST BANCORPORATION
Date: March 31, 2011	By:	s/Frederick D. Shepherd, Jr.
		Frederick D. Shepherd, Jr.
		Its President

The following table sets forth aggregated information as of December 31, 2011 about all of the Company’s compensation plans (including individual compensation arrangements) under which equity securities of the Company are authorized for issuance:

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)(1)	Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a)) (c)(2)
Equity compensation plans approved by security holders	235,212	$	11.62	0

Equity compensation plans not approved by security holders	0	0		0

Total	235,212	$	11.62	0

Signature	Capacity	Date
s.Larry S. Bowman	Vice Chairman and Director	March 31, 2011
(Larry S. Bowman)
s/William M. Brown	Director and Secretary	March 31, 2011
(William M. Brown)
s/Robert H. Edwards	Director	March 31, 2011
(Robert H. Edwards)
s/Blake L. Griffith	Director	March 31, 2011
(Blake L. Griffith)
s/John R. Hamrick	Director	March 31, 2011
(John R. Hamrick)
s/James E. McCoy	Chairman and Director	March 31, 2011
(James E. McCoy)
s/Frederick D. Shepherd, Jr.	Director, President, Chief	March 31, 2011
(Frederick D. Shepherd, Jr.)	Executive Officer, Treasurer and
	Principal Financial Officer
s/Gary V. Thrift	Director	March 31, 2011
(Gary V. Thrift)
s/James E. Turner	Director	March 31, 2011
(James E. Turner)
s/Charles L. Winchester	Director	March 31, 2011
(Charles L. Winchester)

(1) These include shares that may be issued upon exercise of options outstanding at December 31, 2011 under the 1998 Stock Option Plan (see note 2 below). The Company’s 1989 Stock Option Plan previously expired, and all remaining options thereunder expired in 2010. No further options may be issued or exercised under the 1989 Plan.

20(2) The 1998 Plan terminated March 19, 2008 according to its terms, and no further options may be issued pursuant to the 1998 Plan. Options outstanding under the 1998 Plan may continue to be exercised until the earlier of their termination dates (as set forth in individual grant agreements) or ten years from the date of grant.

3.1	Articles of Incorporation, as amended (Incorporated by reference to the Annual Report on Form 10-KSB for the year ended December 31, 1998, and Current Report on Form 8-K, filed February 9, 2009.)
3.2	By-laws (Incorporated by reference to the Annual Report on Form 10-KSB for the year ended December 31, 1997 (the “1997 10-KSB”))
4	Specimen Stock certificate (Incorporated by reference to the 1997 10-KSB)
10.1	Community First Bank Incentive Stock Agreement with Frederick D.Shepherd, Jr. (Incorporated by reference to the 1997 10-KSB)
10.2	Community First Bancorporation 1998 Stock Option Plan (Incorporated by reference to Proxy Statement filed in connection with the 1998 Annual Meeting of Shareholders)
10.3	Employment Agreement between the Company, Community First Bank and Frederick D. Shepherd, Jr., dated July 31, 2007 (Incorporated by reference to Report on Form 8-K filed August 6, 2007)
10.4	Salary Continuation Agreement between the Company and Frederick D. Shepherd, Jr., dated July 31, 2007 (Incorporated by reference to Report on Form 8-K filed August 6, 2007)
13	Portions of the Annual Report to Shareholders for the Year Ended December 31, 2010
21	Subsidiaries of the registrant
23	Consent of J. W. Hunt & Company, L.L.P.
31	Rule 13a-14(a)/15d-14(a) Certifications
32	18 U.S.C. Section 1350 Certifications

The information set forth under the captions “Certain Relationships and Related Transactions” and “Governance Matters — Director Independence” in the Proxy Statement is incorporated herein by reference. The members of our Audit and Compensation Committees are all independent as defined in the Nasdaq Stock Market, Inc. Marketplace Rules. Our entire Board of Directors serves as our Nominating Committee. Frederick D. Shepherd, Jr., our President and Chief Executive Officer, is the only member of our Board of Directors who is not independent as defined by such rules.

2118

Table of Contents

PART IV

Item 14. Principal Accountant Fees and Services

The information set forth under the caption “Independent Registered Public Accounting Firm” in the Proxy Statement is incorporated herein by reference.

Item 15. Exhibits, Financial Statement Schedules

(a)(1) and (2) Financial Statements and Financial Schedules

· Report of Independent Registered Public Accounting Firm.

· Consolidated Balance Sheets - December 31, 2011 and 2010

· Consolidated Statements of Income - Years ended December 31, 2011, 2010 and 2009

· Consolidated Statements of Changes in Shareholders’ Equity - Years ended December 31, 2011, 2010 and 2009

· Consolidated Statements of Cash Flows - Years ended December 31, 2011, 2010 and 2009

· Notes to Consolidated Financial Statements

(3) Exhibits

Exhibit No (from item 601 of Regulation S-K)		Description

3.1		Articles of Incorporation, as amended (Incorporated by reference to the Annual Report on Form 10-KSB for the year ended December 31, 1998, and Current Report on Form 8-K, filed February 9, 2009.)

3.2		By-laws (Incorporated by reference to the Annual Report on Form 10-KSB for the year ended December 31, 1997 (the “1997 10-KSB”))

4		Specimen Stock certificate (Incorporated by reference to the 1997 10-KSB)

10.1		Community First Bank Incentive Stock Agreement with Frederick D.Shepherd, Jr. (Incorporated by reference to the 1997 10-KSB)

10.2		Community First Bancorporation 1998 Stock Option Plan (Incorporated by reference to Proxy Statement filed in connection with the 1998 Annual Meeting of Shareholders)

10.3		Employment Agreement between the Company, Community First Bank and Frederick D. Shepherd, Jr., dated July 31, 2007 (Incorporated by reference to Report on Form 8-K filed August 6, 2007)

10.4		Salary Continuation Agreement between the Company and Frederick D. Shepherd, Jr., dated July 31, 2007 (Incorporated by reference to Report on Form 8-K filed August 6, 2007)

13		Portions of the Annual Report to Shareholders for the Year Ended December 31, 2011

21		Subsidiaries of the registrant

23		Consent of J. W. Hunt & Company, L.L.P.

31		Rule 13a-14(a)/15d-14(a) Certifications

32		18 U.S.C. Section 1350 Certifications

101.INS*		XBRL Instance Document.

101.SCG*		XBRL Taxonomy Extension Schema.

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase.

101.LAB*		XBRL Taxonomy Extension Label Linkbase.

101.ORE*		XBRL Taxonomy Extension Presentation Linkbase.

101.DEF*		XBRL Taxonomy Definition Linkbase.

* As provided in Rule 406T of Regulation S-T, this information and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

	COMMUNITY FIRST BANCORPORATION


Date: April 19, 2012	By:	/s/ Frederick D. Shepherd, Jr.
		Frederick D. Shepherd, Jr.
		Its President

Signature	Capacity	Date

	Vice Chairman and Director	April , 2012
(Larry S. Bowman)

/s/ William M. Brown	Director and Secretary	April 19, 2012
(William M. Brown)

/s/ Robert H. Edwards	Director	April 19, 2012
(Robert H. Edwards)

	Director	April , 2012
(Blake L. Griffith)

	Director	April , 2012
(John R. Hamrick)

/s/ James E. McCoy	Chairman and Director	April 19, 2012
(James E. McCoy)

/s/ Frederick D. Shepherd, Jr.	Director, President, Chief	April 19, 2012
(Frederick D. Shepherd, Jr.)	Executive Officer, Treasurer and
	Principal Financial Officer

/s/ Gary V. Thrift	Director	April 19, 2012
(Gary V. Thrift)

	Director	April , 2012
(James E. Turner)

/s/ Charles L. Winchester	Director	April 19, 2012
(Charles L. Winchester)

Table of Contents

EXHIBIT INDEX

	3.1		Articles of Incorporation, as amended (Incorporated by reference to the Annual Report on Form 10-KSB for the year ended December 31, 1998, and Current Report on Form 8-K, filed February 9, 2009.)

	3.2		By-laws (Incorporated by reference to the Annual Report on Form 10-KSB for the year ended December 31, 1997 (the “1997 10-KSB”))

	4		Specimen Stock certificate (Incorporated by reference to the 1997 10-KSB)

	10.1		Community First Bank Incentive Stock Agreement with Frederick D.Shepherd, Jr. (Incorporated by reference to the 1997 10-KSB)

	10.2		Community First Bancorporation 1998 Stock Option Plan (Incorporated by reference to Proxy Statement filed in connection with the 1998 Annual Meeting of Shareholders)

	10.3		Employment Agreement between the Company, Community First Bank and Frederick D. Shepherd, Jr., dated July 31, 2007 (Incorporated by reference to Report on Form 8-K filed August 6, 2007)

	10.4		Salary Continuation Agreement between the Company and Frederick D. Shepherd, Jr., dated July 31, 2007 (Incorporated by reference to Report on Form 8-K filed August 6, 2007)

	13		Portions of the Annual Report to Shareholders for the Year Ended December 31, 2011

	21		Subsidiaries of the registrant

	23		Consent of J. W. Hunt & Company, L.L.P.

	31		Rule 13a-14(a)/15d-14(a) Certifications

	32		18 U.S.C. Section 1350 Certifications

	101.INS*	XBRL Instance Document.

	101.SCG*	XBRL Taxonomy Extension Schema.

	101.CAL*	XBRL Taxonomy Extension Calculation Linkbase.

	101.LAB*	XBRL Taxonomy Extension Label Linkbase.

	101.ORE*	XBRL Taxonomy Extension Presentation Linkbase.

	101.DEF*	XBRL Taxonomy Definition Linkbase.

* As provided in Rule 406T of Regulation S-T, this information and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

Filing Compare · COMMUNITY FIRST BANCORP