~~Table~~UNITED ofSTATES ~~Contents~~SECURITIES AND EXCHANGE COMMISSION

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

~~Washington,~~Form ~~D.C. 20549~~ 10-K

~~Form~~Annual ~~10-K~~Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

~~(Mark~~ For ~~One)~~the fiscal year ended December 31, 2011

x Commission ~~Annual~~file ~~Report~~no. ~~pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934~~33-76644

~~For~~COMMUNITYCORP ~~the~~(Exact ~~fiscal~~Name ~~year~~of ~~ended~~Registrant ~~December 31,~~as ~~2010~~Specified in Its Charter)

Commission file no. 33-76644

South Carolina		57-1019001
(State or Other Jurisdiction		(I.R.S. Employer
of Incorporation or Organization)		Identification No.)

1100 N. Jefferies Blvd.
Walterboro, South Carolina		29488
(Address of Principal Executive Offices)		(Zip Code)

~~COMMUNITYCORP~~ (843) 549-2265

~~(Exact Name of~~ Registrant's asTelephone ~~Specified~~Number, inIncluding Area ~~Its Charter)~~ Code

South Carolina		57-1019001
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
1100 N. Jefferies Blvd. Walterboro, South Carolina		29488
(Address of Principal Executive Offices)		(Zip Code)

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

Securities registered pursuant to Section 12(~~843~~g) ~~549-2265~~ of the Act: Common Stock

~~Registrant’s~~Indicate ~~Telephone~~by ~~Number~~check mark if the registrant is a well-known seasoned issuer, ~~Including~~as ~~Area~~defined ~~Code~~in Rule 405 of the Securities Act.

~~Securities~~Yes ~~registered~~£ ~~pursuant~~No ~~to Section 12(b) of the Act: None~~ S

~~Securities~~Indicate ~~registered~~by check mark if the registrant is not required to file reports pursuant to Section 12 13 or Section 15(gd) of the ~~Act:~~Exchange ~~Common Stock~~ Act.

~~Indicate~~Yes by£ ~~check~~No ~~mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.~~ S

~~Yes~~Indicate ~~¨ No~~by xcheck mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act 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 past 90 days.

~~Indicate~~Yes byS ~~check~~No ~~mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.~~ £

~~Yes~~Indicate ~~¨ No~~by xcheck mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

~~Indicate~~Yes byS 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 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 past 90 days. Yes x No¨ £

Indicate by check mark ~~whether~~if ~~the~~disclosure ~~registrant~~of ~~has~~delinquent ~~submitted~~filers ~~electronically~~pursuant ~~and~~to ~~posted~~Item on405 ~~its~~of ~~corporate~~Regulation ~~Web~~S-K ~~site,~~is ifnot ~~any~~contained herein, ~~every~~and ~~Interactive~~will not ~~Data~~be ~~File~~contained, ~~required~~ to bethe ~~submitted~~best ~~and posted pursuant to Rule 405~~ of ~~Regulation~~registrant's ~~S-T~~knowledge, ~~(§232.405~~in ofdefinitive ~~this~~proxy ~~chapter)~~or ~~during~~information ~~the~~statements ~~preceding~~incorporated 12by reference ~~months~~in ~~(or~~Part ~~for~~III ~~such~~of ~~shorter~~this ~~period~~Form ~~that~~10-K ~~the~~or ~~registrant~~any ~~was~~amendment ~~required~~ to ~~submit~~this ~~and~~Form ~~post~~10-K ~~such files). YES ¨ NO ¨~~ £

Indicate by check mark ifwhether ~~disclosure~~the ofregistrant is ~~delinquent~~a ~~filers~~large ~~pursuant~~accelerated tofiler, ~~Item 405~~an ofaccelerated ~~Regulation~~filer, Sa non-Kaccelerated ~~is not contained herein~~filer, ~~and~~or ~~will not~~a besmaller ~~contained,~~reporting tocompany. ~~the~~See ~~best~~definitions of “large ~~registrant’s~~accelerated ~~knowledge~~filer,” in“accelerated ~~definitive~~filer” ~~proxy~~and or“smaller ~~information~~reporting ~~statements~~company” ~~incorporated by reference~~ in ~~Part~~Rule ~~III~~ 12b-2 of ~~this~~the ~~Form~~Exchange ~~10-K~~Act or(Check ~~any amendment to this Form 10-K ¨~~ one):

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

~~Large~~Indicate ~~accelerated~~by ~~filer~~check ¨mark ~~Accelerated~~whether ~~filer~~the ¨registrant ~~Non~~is a shell company (as defined in Rule 12b-~~accelerated~~2 ~~filer~~of ¨the ~~Smaller~~Exchange ~~reporting~~Act). ~~company~~Yes x£ No S

~~Indicate~~The byaggregate ~~check~~market ~~mark~~value ~~whether~~of the ~~registrant~~voting common isequity aheld ~~shell~~by ~~company~~non-affiliates ~~(as~~computed ~~defined~~by inreference ~~Rule~~to ~~12b-2~~the ofprice at which the ~~Exchange~~common equity was last sold was $14,562,685 ~~Act). Yes~~as ~~¨ No~~of xMarch 19, 2012.

The ~~aggregate~~number ~~market~~of ~~value~~shares of ~~the voting~~ common ~~equity~~stock ~~held by non-affiliates computed by reference to the price at which the common~~outstanding ~~equity was last sold was $17,647,647~~ as of March 18 19, ~~2011.~~2012, was 233,003

~~The~~DOCUMENTS ~~number~~INCORPORATED ofBY ~~shares of common stock outstanding as of March~~REFERENCE ~~25, 2011, was 233,003~~

~~DOCUMENTS~~Annual ~~INCORPORATED~~Report BYto ~~REFERENCE~~Shareholders for the year ended December 31, 2011

~~Annual~~Proxy ~~Report~~Statement ~~to Shareholders~~ for the ~~year~~Annual ~~ended~~Meeting ~~December 31,~~of ~~2010~~April 24, 2012

Proxy Statement for the Annual Meeting of April 27, 2011

	COMMUNITYCORP

	Index

	PART I

Item 1	Business	4
Item 1A	Risk Factors	14
Item 1B	Unresolved Staff Comment	20
Item 2	Description of Properties	20
Item 3	Legal Proceedings	21
Item 4	Mine Safety Disclosures	21

	PART II

Item 5	Market for Registrant’s
	Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	21
Item 6	Selected Financial Data	21
Item 7	Management's Discussion and Analysis of Financial Condition and Results of Operation	21
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	21
Item 8	Financial Statements and Supplementary Data	21
Item 9	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	21
Item 9A	Controls and Procedures	21
Item 9B	Other Information	22

	PART III

Item 10	Directors, Executive Officers, and Corporate Governance	22
Item 11	Executive Compensation	22
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	22
Item 13	Certain Relationships and Related Transactions, and Director Independence	22
Item 14	Principal Accountant Fees and Services	22

	PART IV

Item 15	Exhibits and Financial Statement Schedules	23

~~Table of Contents~~2

~~COMMUNITYCORP~~CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

~~Index~~Some of our statements contained in this Annual Report, including, without limitation, matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to future events or the future financial performance of Communitycorp. (the “Company”) or its wholly-owned subsidiary, Bank of Walterboro (the “Bank”), and include statements about the competitiveness of the banking industry, potential regulatory obligations, our entrance and expansion into other markets, our other business strategies and other statements that are not historical facts. Forward-looking statements are not guarantees of performance or results. When we use words like “may,” “plan,” “contemplate,” “anticipate,” “believe,” “intend,” “continue,” “expect,” “project,” “predict,” “estimate,” “could,” “should,” “would,” “will,” and similar expressions, you should consider them as identifying forward-looking statements, although we may use other phrasing. These forward-looking statements involve risks and uncertainties and are based on our beliefs and assumptions, and on the information available to us at the time that these disclosures were prepared.

PART I
Item 1	Business	3
Item 1A	Risk Factors	13
Item 1B	Unresolved Staff Comment	19
Item 2	Description of Properties	19
Item 3	Legal Proceedings	20
Item 4	Removed and Reserved	20
PART II
Item 5	Market for Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	20
Item 6	Selected Financial Data	20
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operation	20
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	20
Item 8	Financial Statements and Supplementary Data	20
Item 9	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	20
Item 9A	Controls and Procedures	20
Item 9B	Other Information	21
PART III
Item 10	Directors, Executive Officers, and Corporate Governance	21
Item 11	Executive Compensation	21
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	21
Item 13	Certain Relationships and Related Transactions, and Director Independence	22
Item 14	Principal Accountant Fees and Services	22
PART IV
Item 15	Exhibits and Financial Statement Schedules	22

These forward-looking statements involve risks and uncertainties and may not be realized due to a variety of factors, including, but not limited to the following:

1• deterioration in the financial condition of borrowers resulting in significant increases in loan losses and provisions for those losses;

~~Table~~• ofchanges ~~Contents~~in loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments;

~~CAUTIONARY~~• ~~NOTE~~the ~~REGARDING~~failure ~~FORWARD-LOOKING~~of ~~STATEMENTS~~assumptions underlying the establishment of reserves for possible loan losses;

~~Some~~• ofchanges ~~our statements contained~~ in ~~this~~political ~~Annual Report, including, without limitation, matters discussed under the caption “Management’s Discussion~~ and ~~Analysis~~economic ~~of Financial Condition and Results of Operation~~conditions,” ~~are~~including ~~“forward-looking statements” within~~ the ~~meaning~~political of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to future events or the future financial performance of Communitycorp. (the “Company”) or its wholly-owned subsidiary, Bank of Walterboro (the “Bank”), and ~~include~~economic ~~statements~~effects ~~about the competitiveness~~ of the ~~banking industry,~~current ~~potential~~economic ~~regulatory~~downturn ~~obligations, our entrance~~ and ~~expansion into~~ other ~~markets,~~major ~~our other business strategies and other statements that are not historical facts. Forward-looking statements are not guarantees of performance or results. When we use words like “may~~developments,” ~~“plan,”~~including ~~“contemplate,”~~the ~~“anticipate,”~~ongoing ~~“believe,”~~war ~~“intend,”~~on ~~“continue~~terrorism,” ~~“expect,”~~continued ~~“project,”~~tensions ~~“predict,” “estimate,”~~in ~~“could,”~~the ~~“should,”~~Middle ~~“would~~East,” ~~“will,”~~ and similar expressions, you should consider them as identifying forward-looking statements, although we may use other phrasing. These forward-looking statements involve risks and uncertainties and are based on our beliefs and assumptions, and on the ~~information~~ongoing ~~available~~economic tochallenges usfacing at the ~~time~~European ~~that these disclosures were prepared.~~ Union;

~~These~~• ~~forward-looking~~changes ~~statements~~in ~~involve~~financial ~~risks~~market ~~and~~conditions, ~~uncertainties~~either ~~and~~internationally, ~~may~~nationally ~~not~~or belocally ~~realized~~in ~~due~~areas toin awhich ~~variety~~the ofCompany ~~factors~~conducts its operations, including, ~~but~~without ~~not limited~~limitation, toreduced ~~the~~rates ~~following:~~of business formation and growth, commercial and residential real estate development, and real estate prices;

• ~~deterioration~~the inCompany’s ~~the~~ability ~~financial~~to ~~condition~~comply ofwith ~~borrowers~~any ~~resulting~~requirements inimposed ~~significant~~on ~~increases~~it inor ~~loan~~the ~~losses~~Bank by their respective regulators, and ~~provisions~~the ~~for~~potential ~~those~~negative ~~losses~~consequences that may result;

• ~~changes~~fluctuations in ~~loan~~markets ~~underwriting~~for equity, ~~credit~~fixed-income, ~~review~~commercial orpaper ~~loss~~and ~~reserve~~other ~~policies~~securities, ~~associated~~which ~~with~~could ~~economic~~affect ~~conditions~~availability, ~~examination~~market ~~conclusions~~liquidity levels, orand ~~regulatory developments~~pricing;

• ~~the~~governmental ~~failure~~monetary ofand ~~assumptions~~fiscal ~~underlying~~policies, ~~the~~as ~~establishment~~well ofas ~~reserves~~legislative ~~for~~and ~~possible~~regulatory ~~loan losses~~changes;

• ~~changes~~the Company’s participation or lack of participation in ~~political~~governmental programs implemented under the Emergency Economic Stabilization Act (the “EESA”) and ~~economic~~the ~~conditions~~American Recovery and Reinvestment Act (the “ARRA”), including, without limitation, the ~~political~~CPP ~~and~~administered ~~economic~~under ~~effects~~the ofTroubled Asset Relief Program, and the ~~current~~Temporary ~~economic~~Liquidity ~~downturn~~Guarantee Program (the “TLGP”) and ~~other~~the ~~major~~impact ~~developments,~~of ~~including~~such programs and related regulations on the ~~ongoing~~Company ~~war~~and on ~~terrorism~~international, national, and ~~political~~local ~~unrest~~economic inand ~~the~~financial ~~Middle~~markets ~~East~~and conditions;

• ~~changes~~the inCompany’s ~~financial~~lack ~~market~~of ~~conditions,~~participation ~~either~~in ~~internationally,~~a ~~nationally~~“stress ortest” ~~locally~~under inthe ~~areas~~Federal inReserve’s ~~which~~Supervisory Capital Assessment Program; the ~~Company~~diagnostic ~~conducts~~and ~~its~~stress ~~operations,~~testing ~~including,~~we ~~without~~conducted ~~limitation,~~differs ~~reduced~~from ~~rates~~that ofadministered ~~business~~under ~~formation~~the ~~and~~Supervisory ~~growth,~~Capital ~~commercial~~Assessment Program, and ~~residential~~the ~~real~~results ~~estate~~of ~~development,~~our ~~and~~test ~~real~~may ~~estate~~be ~~prices~~inaccurate;

• the ~~Company’s~~impact ~~ability~~of tothe ~~comply~~EESA ~~with~~and ~~any~~the ~~requirements~~ARRA ~~imposed~~and related rules and regulations on itthe orbusiness operations and competitiveness of the ~~Bank~~Company byand ~~their~~other ~~respective~~participating ~~regulators~~American financial institutions, ~~and~~including the ~~potential~~impact ~~negative~~of ~~consequences~~the ~~that~~executive compensation limits of these acts, which may ~~result~~impact the ability of the Company to retain and recruit executives and other personnel necessary for their businesses and competitiveness;

• ~~fluctuations~~the inrisks ~~markets~~of ~~for~~changes ~~equity,~~in ~~fixed-income,~~interest ~~commercial~~rates ~~paper~~on the level and ~~other~~composition ~~securities~~of deposits, ~~which~~loan ~~could~~demand ~~affect~~and ~~availability,~~the ~~market~~values ~~liquidity~~of ~~levels~~loan collateral, securities and ~~pricing~~interest sensitive assets and liabilities;

• ~~governmental~~the ~~monetary~~effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and ~~fiscal~~other ~~policies~~mutual funds and other financial institutions operating in our market area and elsewhere, asincluding ~~well~~institutions asoperating ~~legislative~~regionally, nationally and ~~regulatory~~internationally, ~~changes~~together with such competitors offering banking products and services by mail, telephone and the Internet; and

• the Company’s participation or lack of participation in governmental programs implemented under the Emergency Economic Stabilization Act (the “EESA”) and the American Recovery and Reinvestment Act (the “ARRA”), including, without limitation, the CPP administered under the Troubled Asset Relief Program, and the Temporary Liquidity Guarantee Program (the “TLGP”) and the impact of such programs and related regulations on the Company and on international, national, and local economic and financial markets and conditions;3

• the ~~Company’s~~effect ~~lack~~ of ~~participation~~any inmergers, aacquisitions ~~“stress~~or ~~test”~~other ~~under~~transactions, ~~the~~to ~~Federal~~which ~~Reserve’s~~we ~~Supervisory~~or ~~Capital~~our ~~Assessment~~subsidiary ~~Program;~~may ~~the diagnostic and stress testing we conducted differs~~ from ~~that~~time ~~administered~~to ~~under~~time ~~the~~be ~~Supervisory~~a ~~Capital~~party, ~~Assessment~~including, ~~Program~~without limitation, ~~and~~our ~~the~~ability ~~results~~to ofsuccessfully ~~our~~integrate ~~test~~any ~~may~~businesses bethat ~~inaccurate;~~we acquire.

•Many ~~the impact~~ of ~~the~~these ~~EESA~~risks ~~and~~are ~~the~~beyond ~~ARRA~~our ~~and~~ability ~~related~~to ~~rules~~control or predict, and ~~regulations~~you onare ~~the~~cautioned ~~business~~not ~~operations~~to ~~and~~put ~~competitiveness~~undue ofreliance ~~the~~on ~~Company~~such ~~and~~forward-looking ~~other~~statements. ~~participating~~Communitycorp ~~American~~does ~~financial~~not ~~institutions,~~intend ~~including~~to ~~the~~update ~~impact~~or reissue ofany ~~the~~forward-looking ~~executive~~statements ~~compensation~~contained ~~limits~~in ofthis ~~these~~Annual ~~acts,~~Report ~~which~~as ~~may~~a ~~impact~~result ~~the ability~~ of ~~the~~new ~~Company~~information toor ~~retain and recruit executives and~~ other ~~personnel~~circumstances ~~necessary~~that may ~~for~~become ~~their~~known ~~businesses~~to ~~and~~the ~~competitiveness;~~Company.

2All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by this Cautionary Note. Our actual results may differ significantly from those we discuss in these forward-looking statements.

~~Table~~For other factors, risks and uncertainties that could cause our actual results to differ materially from estimates and projections contained in these forward-looking statements, please read the “Risk Factors” section of ~~Contents~~this Annual Report beginning on page 14.

PART I

Item 1. Description of Business

General

Communitycorp was organized in 1995 to serve as a bank holding company for Bank of Walterboro. The Bank commenced business on May 1, 1989 as a South Carolina state-chartered bank headquartered in Walterboro, South Carolina. The principal business activity of the Company is to provide banking services to to domestic markets, principally in Colleton County, Jasper County and Northern Charleston County, South Carolina. The Company opened an additional branch in 2004 in Ridgeland, South Carolina.

Our primary source of revenue is interest income and fees, which we earn by lending and investing our capital and the funds which are held on deposit. Because loans generally earn higher rates of interest than investments, the bank seeks to employ as many of its deposit funds as possible in the form of loans to individuals and businesses. To ensure sufficient liquidity, we also maintain a portion of the Bank’s deposits in cash, government securities, deposits with other financial institutions, and overnight loans of excess reserves (known as “federal funds sold”) to correspondent banks. The revenue which the bank earns (prior to deducting its overhead expenses) is essentially a function of the amount of the Bank’s loans and deposits, as well as the profit margin (“interest spread”) and fee income.

Marketing Focus

Our bank primarily serves the city of Walterboro and the surrounding area of Colleton County, South Carolina. The bank’s extended market area also includes the north side of Charleston County, South Carolina where the Ravenel branch is located and Jasper County where the Ridgeland branch is located. The Bank strives to maintain its business in these market areas.

Banking Services

The Bank strives to provide its customers with the breadth of products and services comparable to those offered by large regional banks, while maintaining the quick response and personal service of a locally owned and managed bank. We offer a full range of deposit services and originate commercial ~~and~~ and personal loans.

• Loan Products - The Bank offers a full range of commercial and personal loans. Commercial loans include both secured and unsecured loans for working capital (including loans secured by inventory and accounts receivable), business expansion (including acquisition of real estate and improvements), and purchase of equipment and machinery. Consumer loans include equity lines of credit and secured and unsecured loans for financing automobiles, home improvements, education, and personal investments. The Bank also makes real estate construction and acquisition loans. The Bank’s lending activities are subject to a variety of lending limits imposed by federal law. While differing limits apply in certain circumstances based on the type of loan or the nature of the borrower (including the borrower’s relationship to us), in general we are subject to a loans-to-one-borrower limit of an amount equal to 15% of The Bank’s unimpaired capital and surplus. We may not make any loans to any director, officer, employee, or 10% shareholder of The Bank unless the loan is approved by our board of directors and is made on terms not more favorable to such a person than would be available to a person not affiliated with us.4

•· ~~Deposit~~Loan ~~Services~~Products -– The Bank offers a full range of ~~deposit~~commercial ~~services~~and ~~that~~personal ~~are~~loans. ~~typically~~Commercial ~~available~~loans ininclude ~~most~~both ~~banks~~secured and ~~savings~~unsecured ~~and~~loans ~~loan~~for ~~associations,~~working capital (including ~~checking~~loans ~~accounts,~~secured ~~NOW~~by ~~accounts,~~inventory ~~savings~~and accounts receivable), ~~and~~business ~~other~~expansion ~~time~~(including ~~deposits~~acquisition of ~~various~~real ~~types~~estate and improvements), ~~ranging~~and ~~from~~purchase ~~daily~~of ~~money~~equipment ~~market~~and ~~accounts~~machinery. toConsumer ~~longer-term~~loans ~~certificates~~include equity lines of ~~deposit~~credit and secured and unsecured loans for financing automobiles, home improvements, education, and personal investments. The ~~transaction~~Bank ~~accounts~~also makes real estate construction and ~~time~~acquisition ~~certificates~~loans. The Bank's lending activities are ~~tailored~~subject to ~~our~~a ~~principal~~variety ~~market~~of ~~area~~lending atlimits ~~rates~~imposed ~~competitive~~by tofederal ~~those~~law. ~~offered~~While bydiffering ~~other~~limits ~~banks~~apply in certain circumstances based on the ~~area.~~type Inof ~~addition~~loan or the nature of the borrower (including the borrower's relationship to us), in general we ~~offer~~are ~~certain~~subject ~~retirement~~to ~~account~~a ~~services,~~loans-to-one-borrower ~~such~~limit asof ~~Individual~~an ~~Retirement~~amount ~~Accounts~~equal ~~(IRAs).~~to 15% of The Bank's ~~solicits~~unimpaired ~~deposit~~capital ~~accounts~~and ~~from~~surplus. ~~individuals~~We may not make any loans to any director, ~~businesses~~officer, ~~associations~~employee, ~~and~~or ~~organizations~~10% ~~and,~~shareholder ~~governmental~~of ~~authorities.~~The ~~All~~Bank ~~deposit~~unless ~~accounts~~the ~~are~~loan ~~insured~~is approved by ~~the~~our ~~FDIC~~board upof directors and is made on terms not more favorable to ~~the~~such ~~maximum~~a ~~amount~~person ~~allowed~~than bywould ~~law.~~be ~~See~~available ~~“Supervision~~to ~~and~~a ~~Regulation~~person not affiliated with us.”

3· Deposit Services – The Bank offers a full range of deposit services that are typically available in most banks and savings and loan associations, including checking accounts, NOW accounts, savings accounts, and other time deposits of various types, ranging from daily money market accounts to longer-term certificates of deposit. The transaction accounts and time certificates are tailored to our principal market area at rates competitive to those offered by other banks in the area. In addition, we offer certain retirement account services, such as Individual Retirement Accounts (IRAs). The Bank solicits deposit accounts from individuals, businesses, associations and organizations and, governmental authorities. All deposit accounts are insured by the FDIC up to the maximum amount allowed by law. See “Supervision and Regulation.”

~~Table~~· Other Services. Other bank services include cash management services, safe deposit boxes, travelers checks, direct deposit of ~~Contents~~payroll and social security checks, and automatic drafts for various accounts. The Bank is associated with Honor and Plus networks of automated teller machines that may be used by our customers throughout South Carolina and other regions. The Bank also offers VISA credit card services through a correspondent bank as an agent for us. The Bank offers an Internet banking product accessible via the Bank’s custom website at www.bankofwalterboro.com.

•Competition Other Services. Other bank services include cash management services, safe deposit boxes, travelers checks, direct deposit of payroll and social security checks, and automatic drafts for various accounts. The Bank is associated with Honor and Plus networks of automated teller machines that may be used by our customers throughout South Carolina and other regions. The Bank also offers VISA credit card services through a correspondent bank as an agent for us. The Bank offers an Internet banking product accessible via the Bank’s custom website at www.bankofwalterboro.com.

~~Competition~~The Bank of Walterboro generally competes with other financial institutions through the selection of banking products and services offered, the pricing of services, the level of service provided, the convenience and availability of services, and the degree of expertise and the personal manner in which services are offered. South Carolina law permits statewide branching by banks and savings institutions and many financial institutions in the state have branch networks. Consequently, commercial banking in South Carolina is highly competitive. South Carolina law also permits interstate banking whereby out-of-state banks and bank holding companies are allowed to acquire and merge with South Carolina banks and bank holding companies, as long as the South Carolina State Board of Financial Institutions gives prior approval for the acquisition or merger. A number of large banking organizations currently operate in the market areas of the Bank of Walterboro, some of which are controlled by out-of-state ownership. In addition, competition between commercial banks and thrift institutions (savings institutions and credit unions) has been intensified significantly by the elimination of many previous distinctions between the various types of financial institutions and the expanded powers and increased activity of thrift institutions in areas of banking that previously had been the sole domain of commercial banks. See – “Supervision and Regulation.”

The Bank of Walterboro ~~generally~~faces ~~competes~~increased competition ~~with~~from ~~other~~both ~~financial~~federally-chartered ~~institutions~~and ~~through~~state-chartered ~~the~~financial ~~selection of banking products~~ and ~~services~~thrift ~~offered~~institutions, ~~the~~as ~~pricing~~well ofas ~~services~~credit unions, ~~the~~consumer finance ~~level of service provided~~companies, ~~the convenience~~insurance companies and ~~availability~~other ofinstitutions ~~services,~~in ~~and~~ the ~~degree~~Bank of ~~expertise~~Walterboro’s ~~and~~market ~~the~~areas. Some ~~personal~~of these ~~manner~~competitors ~~in which services~~ are ~~offered. South~~not ~~Carolina~~subject ~~law~~to ~~permits~~the ~~statewide~~same ~~branching~~degree byof ~~banks~~regulation and ~~savings~~restriction ~~institutions~~imposed ~~and~~upon ~~many financial institutions in~~ the ~~state~~ ~~have~~Bank ~~branch~~of ~~networks~~Walterboro. ~~Consequently,~~ Many of ~~commercial~~these ~~banking~~competitors ~~in South Carolina is highly competitive. South Carolina law~~ also ~~permits~~have ~~interstate~~broader ~~banking~~geographic ~~whereby~~markets ~~out-of-state banks~~ and ~~bank~~substantially ~~holding~~greater ~~companies~~resources ~~are~~and ~~allowed~~lending tolimits ~~acquire~~than ~~and~~the ~~merge~~Bank ~~with~~of ~~South~~Walterboro ~~Carolina banks~~ and ~~bank~~offer ~~holding~~certain ~~companies,~~services asthat ~~long as~~ the ~~South~~Bank ~~Carolina State Board~~ of ~~Financial~~Walterboro ~~Institutions~~does ~~gives~~not ~~prior~~currently ~~approval~~provide. In ~~for~~addition, ~~the~~some ~~acquisition~~of these orcompetitors ~~merger. A~~have ~~number~~several ofbranch ~~large~~offices ~~banking~~located ~~organizations~~throughout ~~currently~~the ~~operate~~extended ~~in the~~ market areas of the Bank of Walterboro, ~~some~~that ofwe ~~which~~believe may ~~are~~provide ~~controlled~~these bycompetitors ~~out-of-state~~with ~~ownership. In~~an ~~addition,~~advantage ~~competition~~in ~~between~~geographic ~~commercial~~convenience ~~banks~~that ~~and~~the ~~thrift~~Bank ~~institutions~~of ~~(savings~~Walterboro ~~institutions~~does ~~and~~not ~~credit~~have ~~unions)~~at ~~has been intensified~~present. Such ~~significantly~~competitors bymay ~~the~~also ~~elimination~~be ofin ~~many~~a ~~previous~~position ~~distinctions~~to ~~between~~make ~~the~~more ~~various~~effective ~~types~~use of ~~financial~~media ~~institutions~~advertising, ~~and~~support ~~the~~services, ~~expanded powers~~ and ~~increased~~electronic ~~activity~~technology than ofcan ~~thrift~~The ~~institutions~~Bank ~~in areas~~ of ~~banking that previously had been the sole domain of commercial banks~~Walterboro. ~~See - “Supervision and Regulation.”~~

The Bank of Walterboro faces increased competition from both federally-chartered and state-chartered financial and thrift institutions, as well as credit unions, consumer finance companies, insurance companies and other institutions in the Bank of Walterboro’s market areas. Some of these competitors are not subject to the same degree of regulation and restriction imposed upon the Bank of Walterboro. Many of these competitors also have broader geographic markets and substantially greater resources and lending limits than the Bank of Walterboro and offer certain services that the Bank of Walterboro does not currently provide. In addition, some of these competitors have several branch offices located throughout the extended market areas of the Bank of Walterboro that we believe may provide these competitors with an advantage in geographic convenience that the Bank of Walterboro does not have at present. Such competitors may also be in a position to make more effective use of media advertising, support services, and electronic technology than can The Bank of Walterboro. 5

Employees

As of December 31, ~~2010~~2011, the Bank had ~~forty-four~~ 38 full time and ~~two~~three part time employees. The Company has no employees.

Supervision and Regulations

Both Communitycorp and the Bank of Walterboro are subject to extensive state and federal banking regulations that impose restrictions on and provide for general regulatory oversight of their operations. These laws generally are intended to protect depositors and not shareholders. The following summary is qualified by reference to the statutory and regulatory provisions discussed. Changes in applicable laws or regulations may have a material effect on our business and prospects. Our operations may be affected by legislative changes and the policies of various regulatory authorities. We cannot predict the effect that fiscal or monetary policies, economic control, or new federal or state legislation may have on our business and earnings in the future.

The following discussion is not intended to be a complete list of all the activities regulated by the banking laws or of the impact of such laws and regulations on our operations. It is intended only to briefly summarize some material provisions.

4 COMMUNITYCORP

~~Table~~We own 100% of ~~Contents~~the outstanding capital stock of the Bank, and therefore we are considered to be a bank holding company under the federal Bank Holding Company Act of 1956 (the “Bank Holding Company Act”). As a result, we are primarily subject to the supervision, examination and reporting requirements of the Board of Governors of the Federal Reserve (the “Federal Reserve”) under the Bank Holding Company Act and its regulations promulgated there under. As a bank holding company located in South Carolina, the South Carolina Board of Financial Institutions also regulates and monitors all significant aspects of our operations.

~~COMMUNITYCORP~~Permitted Activities – Under the Bank Holding Company Act, a bank holding company is generally permitted to engage in, or acquire direct or indirect control of more than 5% of the voting shares of any company engaged in, the following activities:

We• ~~own~~banking ~~100%~~or ofmanaging ~~the~~or ~~outstanding~~controlling capital stock of the Bank, and therefore we are considered to be a bank holding company under the federal Bank Holding Company Act of 1956 (the “Bank Holding Company Act”). As a result, we are primarily subject to the supervision, examination and reporting requirements of the Board of Governors of the Federal Reserve (the “Federal Reserve”) under the Bank Holding Company Act and its regulations promulgated there under. As a bank holding company located in South Carolina, the South Carolina Board of Financial Institutions also regulates and monitors all significant aspects of our operations. banks;

~~Permitted~~• ~~Activities~~furnishing -services ~~Under the Bank Holding Company Act, a bank holding company is generally permitted~~ to ~~engage in,~~ or ~~acquire~~performing ~~direct~~services orfor ~~indirect~~our ~~control~~subsidiaries; ~~of more than 5% of the voting shares of any company engaged in, the following activities:~~ and

• any activity that the Federal Reserve determines to be so closely related to banking oras ~~managing~~to orbe ~~controlling~~a ~~banks;~~proper incident to the business of banking.

•Activities ~~furnishing~~that ~~services~~the Federal Reserve has found to orbe ~~performing~~so ~~services~~closely ~~for~~related ~~our~~to ~~subsidiaries;~~banking ~~and~~as to be a proper incident to the business of banking include:

• ~~any~~factoring ~~activity~~accounts ~~that the Federal Reserve determines to be so closely related to banking as to be a proper incident to the business of banking.~~receivable;

~~Activities~~• ~~that~~making, ~~the~~acquiring, ~~Federal~~brokering ~~Reserve~~or ~~has~~servicing ~~found~~loans toand beusual ~~so closely~~ related ~~to banking as to be a proper incident to the business of banking include:~~ activities;

• ~~factoring~~leasing ~~accounts~~personal ~~receivable~~or real property;

• ~~making,~~operating ~~acquiring,~~a ~~brokering~~non-bank ordepository ~~servicing~~institution, ~~loans~~such ~~and~~as ~~usual~~a ~~related~~savings ~~activities~~association;

• ~~leasing~~trust ~~personal~~company ~~or real property~~functions;

• ~~operating~~financial aand ~~non-bank~~investment ~~depository~~advisory ~~institution, such as a savings association~~activities;

• ~~trust~~conducting ~~company~~discount ~~functions~~securities brokerage activities;

• ~~financial~~underwriting and ~~investment~~dealing ~~advisory~~in ~~activities~~government obligations and money market instruments;

• ~~conducting~~providing ~~discount~~specified ~~securities~~management ~~brokerage~~consulting and counseling activities;

• ~~underwriting~~performing ~~and~~selected ~~dealing~~data inprocessing ~~government~~services ~~obligations~~ and ~~money~~support ~~market instruments~~services;

• ~~providing~~acting ~~specified~~as ~~management~~agent ~~consulting~~or broker in selling credit life insurance and ~~counseling~~other ~~activities~~types of insurance in connection with credit transactions; and

• performing selected ~~data~~insurance ~~processing~~underwriting ~~services and support services;~~activities.

•As ~~acting~~a bank holding company we also can elect to be treated as ~~agent~~a or“financial ~~broker~~holding company,” which would allow us engage in ~~selling~~a ~~credit~~broader ~~life~~array of activities. In sum, a financial holding company can engage in activities that are financial in nature or incidental or complementary to financial activities, including insurance underwriting, sales and ~~other~~brokerage ~~types~~activities, ofproviding ~~insurance~~financial and investment advisory services, underwriting services and limited merchant banking activities. We have not sought financial holding company status, but may elect such status in ~~connection~~the ~~with~~future ~~credit~~as ~~transactions;~~our business matures. If we were to elect in writing for financial holding company status, each insured depository institution we control would have to be well capitalized, well managed and have at least a satisfactory rating under the CRA (discussed below).

~~• performing selected insurance underwriting activities.~~6

AsThe aFederal ~~bank~~Reserve ~~holding~~has ~~company~~the weauthority ~~also can elect~~ to order ~~be treated as~~ a ~~“financial~~bank holding company,” ~~which~~or ~~would~~its ~~allow~~subsidiaries usto ~~engage~~terminate inany ~~a broader array~~ of ~~activities. In~~these ~~sum, a financial holding company can engage in~~ activities ~~that are financial in nature~~ or ~~incidental or complementary~~ to ~~financial~~terminate ~~activities,~~its ~~including~~ownership ~~insurance~~or ~~underwriting, sales and brokerage activities, providing financial and investment advisory services, underwriting~~control ~~services~~of ~~and~~any ~~limited~~subsidiary ~~merchant~~when ~~banking~~it ~~activities. We~~has ~~have~~reasonable ~~not~~cause ~~sought~~to ~~financial~~believe ~~holding~~that ~~company status, but may elect such status in~~ the ~~future~~bank ~~as our business matures. If we were to elect in writing for financial~~ holding company’s ~~status~~continued ownership, ~~each~~ ~~insured~~activity ~~depository~~or control ~~institution~~constitutes wea ~~control~~serious ~~would~~risk ~~have~~ to bethe ~~well~~financial ~~capitalized~~safety, ~~well~~soundness ~~managed~~or ~~and~~stability ~~have~~of atit ~~least~~or aany ~~satisfactory~~of ~~rating~~its ~~under~~bank ~~the CRA (discussed below)~~subsidiaries.

~~The~~Change ~~Federal~~in ~~Reserve~~Control ~~has~~– Subject to various exceptions, the ~~authority~~Bank toHolding ~~order~~Company aAct ~~bank~~and ~~holding~~the ~~company~~Change orin ~~its~~Bank ~~subsidiaries~~Control toAct, ~~terminate~~together ~~any~~with ofrelated ~~these~~regulations, ~~activities~~require orFederal toReserve ~~terminate~~approval prior ~~its~~to ~~ownership~~any person or company acquiring “control” of ~~any~~a ~~subsidiary~~bank ~~when~~holding itcompany. Control ~~has reasonable~~is ~~cause~~conclusively presumed to ~~believe~~exist ~~that~~if ~~the~~an ~~bank~~individual ~~holding~~or company’s ~~continued~~acquires ~~ownership,~~25% ~~activity~~ or ~~control~~more ~~constitutes~~of aany ~~serious~~class ~~risk~~of tovoting securities of the ~~financial~~bank ~~safety,~~holding ~~soundness~~company. Control is rebuttably presumed to exist if a person or ~~stability~~company ofacquires it10% or ~~any~~more, but less than 25%, of ~~its~~any ~~bank~~class ~~subsidiaries.~~of voting securities and either:

~~Change~~· ~~in Control - Subject to various exceptions,~~ the ~~Bank Holding Company Act and the Change in Bank Control Act, together with related regulations, require Federal Reserve approval prior to any person or company acquiring “control” of a~~ bank holding company~~. Control~~ ishas ~~conclusively~~registered ~~presumed~~securities tounder ~~exist~~Section if12 ~~an individual or company acquires 25% or more~~ of ~~any class of voting securities of~~ the ~~bank~~Securities ~~holding~~Act ~~company. Control is rebuttably presumed to exist if a person or company acquires 10% or more, but less than 25%,~~ of ~~any~~1934; ~~class of voting securities and either:~~ or

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

~~Table~~Our common stock is registered under Section 12 of ~~Contents~~the Securities Exchange Act of 1934. The regulations provide a procedure for challenging rebuttable presumptions of control.

•Source of Strength – Under Federal Reserve policy, we are expected to act as a source of financial strength for the Bank and to commit resources to support the Bank. In addition, pursuant to the Dodd-Frank Wall Street and Consumer Protection Act (the “Dodd-Frank Act”), the federal banking regulators are required to issue, within two years of enactment, rules that require a bank holding company ~~has~~to ~~registered~~serve as ~~securities~~a ~~under~~source ~~Section~~of 12financial ofstrength for any depository institution subsidiary. This support may be required at times when, without this Federal Reserve policy or the ~~Securities~~impending ~~Act~~rules, we might not be inclined to provide it. In addition, any capital loans made by us to the Bank will be repaid only after the Bank’s deposits and various other obligations are repaid in full. In the unlikely event of ~~1934;~~our orbankruptcy, any commitment that we give to a bank regulatory agency to maintain the capital of the Bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.

•Capital noRequirements ~~other~~– ~~person~~The Federal ~~owns~~Reserve Board imposes certain capital requirements on the bank holding company under the Bank Holding Company Act, including a ~~greater~~minimum ~~percentage~~leverage ratio and a minimum ratio of “qualifying” capital to risk-weighted assets. These requirements are essentially the same as those that ~~class~~apply to the bank described below under “Bank of ~~voting~~Walterboro – Prompt Corrective Action.” However, The Federal Reserve guidelines contain an exemption from the capital requirements for “small bank holding companies” which in 2006 were amended to cover most bank holding companies with less than $500 million in total assets that do not have a material amount of debt or equity securities ~~immediately~~outstanding ~~after~~registered with the ~~transaction~~United States Security and Exchange Commission (the “SEC.”) Although our class of common stock is registered under Section 12 of the Securities Exchange Act, we believe that because our stock is not listed on any exchange or otherwise actively traded, the Federal Reserve Board will interpret its new guidelines to mean that we qualify as a small bank holding company. Nevertheless, our Bank remains subject to these capital requirements. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Regardless, our Bank is “well capitalized” under these minimum capital requirements as set per bank regulatory agencies.

~~Our common stock is registered under Section 12 of the Securities Exchange Act of 1934. The regulations provide a procedure for challenging rebuttable presumptions of control.~~ 7

~~Source~~Subject ofto ~~Strength~~our -capital ~~Under~~requirements ~~Federal~~and certain ~~Reserve~~other ~~policy~~restrictions, we are ~~expected~~ able to ~~act~~borrow asmoney ato ~~source~~make ofa ~~financial~~capital ~~strength~~contribution ~~for~~to the Bank, and tothese ~~commit~~loans ~~resources~~may tobe ~~support~~repaid from ~~the~~dividends ~~Bank.~~paid Infrom ~~addition,~~the ~~pursuant~~Bank to the ~~Dodd-Frank~~Company. Our ~~Wall~~ability ~~Street~~to ~~and~~pay ~~Consumer~~dividends ~~Protection~~depends ~~Act~~on (the ~~“Dodd-Frank~~Bank’s ~~Act”),~~ability ~~the~~to ~~federal banking~~pay ~~regulators~~dividends ~~are required~~ to ~~issue~~us, ~~within~~which ~~two~~is ~~years~~subject ofto ~~enactment,~~regulatory ~~rules~~restrictions ~~that~~as ~~require~~described abelow ~~bank~~in ~~holding~~“Bank ~~company to serve as a source~~ of ~~financial~~Walterboro ~~strength~~— ~~for any depository institution subsidiary~~Dividends. ~~This support may be required at times when, without this~~” ~~Federal~~We ~~Reserve~~are ~~policy~~also orable ~~the impending rules, we might not be inclined~~ to ~~provide~~raise ~~it. In addition, any~~ capital ~~loans~~for ~~made~~contribution ~~by us~~ to the ~~Bank~~bank ~~will~~by beissuing ~~repaid~~securities ~~only~~without ~~after~~having ~~the Bank’s deposits and various other obligations are repaid in full. In the unlikely event of our bankruptcy, any commitment that we give~~ to areceive ~~bank~~ regulatory ~~agency~~approval, subject to ~~maintain~~compliance ~~the~~with ~~capital~~federal ~~of the Bank will be assumed by the bankruptcy trustee~~ and ~~entitled~~state tosecurities ~~a priority of payment~~laws.

~~Capital~~South ~~Requirements~~Carolina -State ~~The~~Regulation ~~Federal~~– ~~Reserve~~As ~~Board~~a ~~imposes certain capital requirements on the~~ bank holding company ~~under~~with ~~the Bank~~its ~~Holding~~principal ~~Company~~offices ~~Act,~~in ~~including~~South aCarolina, ~~minimum~~the ~~leverage~~Company ~~ratio~~is ~~and~~subject ~~a minimum ratio of “qualifying” capital~~ to ~~risk-weighted~~limitations ~~assets. These~~on ~~requirements~~sale ~~are~~or ~~essentially~~merger ~~the~~and ~~same as those that apply~~ to ~~the bank described below under~~regulation ~~“Bank~~by ofthe ~~Walterboro~~SC –State ~~Prompt Corrective Action~~Board.~~” However,~~ The ~~Federal~~Company ~~Reserve~~must ~~guidelines~~receive ~~contain~~the anapproval ~~exemption~~of ~~from~~ the ~~capital~~SC ~~requirements~~State ~~for~~Board ~~“small~~prior ~~bank~~to ~~holding~~acquiring ~~companies”~~control ~~which~~of ina ~~2006 were amended to cover most~~bank or bank holding ~~companies~~company ~~with~~or ~~less~~all ~~than~~or ~~$500~~substantially ~~million~~all ~~in total assets that do not have a material amount~~ of ~~debt or equity securities outstanding registered with~~ the ~~United~~assets ~~States Security and Exchange Commission (the “SEC.”) Although our class~~ of ~~common~~a ~~stock~~bank ~~is registered under Section 12 of the Securities Exchange Act, we believe that because our stock is not listed on any exchange~~ or ~~otherwise actively traded, the Federal Reserve Board will interpret its new guidelines to mean that we qualify as~~ a ~~small~~ bank holding company. ~~Nevertheless,~~ The ~~our~~Company ~~Bank remains subject to these capital requirements. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary~~also ~~actions~~must byfile ~~regulators~~with ~~that,~~the ifSC ~~undertaken,~~State ~~could~~Board ~~have~~periodic areports ~~direct~~with ~~material~~respect ~~effect~~to onits ~~the Bank’s~~ financial ~~statements. Under~~condition, ~~capital~~operations ~~adequacy guidelines~~ and ~~the regulatory framework for prompt corrective action~~management, ~~the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities,~~ and ~~certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also~~the ~~subject~~intercompany torelationships ~~qualitative~~between ~~judgments by~~ the ~~regulators~~Company ~~about components, risk weightings,~~ and ~~other~~its ~~factors~~subsidiaries. ~~Regardless, our Bank is “well capitalized” under these minimum capital requirements as set per bank regulatory agencies.~~

~~Subject to our capital requirements and certain other restrictions, we are able to borrow money to make a capital contribution to the~~ Bank, and these loans may be repaid from dividends paid from the Bank to the Company. Our ability to pay dividends depends on the Bank’s ability to pay dividends to us, which is subject to regulatory restrictions as described below in “Bank of Walterboro — Dividends.” We are also able to raise capital for contribution to the bank by issuing securities without having to receive regulatory approval, subject to compliance with federal and state securities laws.

~~South~~Because ~~Carolina~~the ~~State~~Bank ~~Regulation~~is ~~- As~~ a commercial bank ~~holding~~chartered under ~~company~~the ~~with~~laws ~~its~~of ~~principal~~the ~~offices~~State in of South Carolina, ~~the~~it ~~Company~~ is primarily subject to ~~limitations~~the onsupervision, ~~sale~~examination orand ~~merger~~reporting ~~and~~requirements of tothe ~~regulation~~FDIC byand the SC State Board. The ~~Company~~FDIC ~~must~~and ~~receive~~ the ~~approval~~SC ofState Board regularly examine the SCBank’s ~~State~~operations ~~Board~~and ~~prior~~have the authority to ~~acquiring~~approve ~~control~~or ofdisapprove amergers, ~~bank~~the orestablishment ~~bank~~of ~~holding~~branches ~~company~~and orsimilar ~~all~~corporate oractions. Both regulatory agencies ~~substantially~~have ~~all~~the ofpower to prevent the ~~assets~~continuance or development of aunsafe ~~bank~~or unsound banking practices or aother ~~bank~~violations ~~holding~~of ~~company~~law. ~~The~~ ~~Company~~Additionally, the ~~also~~Bank’s ~~must~~deposits ~~file~~are ~~with~~insured by the SCFDIC ~~State~~to ~~Board~~the ~~periodic~~maximum ~~reports~~extent ~~with~~provided ~~respect~~by tolaw. ~~its~~The ~~financial~~Bank ~~condition,~~is ~~operations~~also subject to numerous state and ~~management,~~federal statutes and ~~the~~regulations ~~intercompany~~that ~~relationships between~~affect ~~the~~our ~~Company~~business, activities and ~~its subsidiaries~~operations.

South Carolina Law – Commercial banks chartered in South Carolina have only those powers granted by law or by the regulations of the SC State Board. State law sets specific requirements for bank capital and regulates deposits in and loans and investments by banks, including the amounts, types, and, in some cases, rates. In addition, the SC State Board regulates, among other activities, the payment of dividends, the opening of branches, loans to officers and directors, record keeping, and the use of automated teller machines. The SC State Board periodically examines state banks to determine their compliance with the law and regulations, and state banks must make periodic reports of their condition to the SC State Board. Prior to the enactment of the Dodd-Frank Act, the Bank and any other national or state-chartered bank were generally permitted to branch across state lines by merging with banks in other states if allowed by the applicable states’ laws. As a result of ~~Walterboro~~the Dodd-Frank Act, however, interstate branching is now permitted for all national- and state-chartered banks, provided that a state bank chartered by the state in which the branch is to be located would also be permitted to establish a branch.

~~Because~~Prompt ~~the~~Corrective ~~Bank~~Action is– As aan ~~commercial~~insured ~~bank~~depository ~~chartered~~institution, ~~under~~ the ~~laws~~bank ~~of the State of South Carolina, it~~ is ~~primarily~~required ~~subject~~ to ~~the supervision,~~comply ~~examination~~with ~~and~~the ~~reporting~~capital requirements ofpromulgated ~~the~~under ~~FDIC and~~ the Federal SCDeposit ~~State~~Insurance ~~Board.~~Act ~~The FDIC~~ and the SCregulations ~~State~~thereunder, ~~Board~~which ~~regularly~~set ~~examine~~forth ~~the~~five ~~Bank’s~~capital ~~operations~~categories, ~~and~~each ~~have~~with ~~the~~specific regulatory ~~authority~~consequences. Under tothese ~~approve~~regulations, orthe ~~disapprove~~ categories are:

· Well Capitalized — The institution exceeds the required minimum level for each relevant capital measure. A well capitalized institution is one (i) having a total capital ratio of 10% or greater, (ii) having a tier 1 capital ratio of 6% or greater, (iii) having a leverage capital ratio of 5% or greater and (iv) that is not subject to any order or written directive to meet and maintain a specific capital level for any capital measure.

~~Table~~· Adequately Capitalized — The institution meets the required minimum level for each relevant capital measure. No capital distribution may be made that would result in the institution becoming undercapitalized. An adequately capitalized institution is one (i) having a total capital ratio of ~~Contents~~8% or greater, (ii) having a tier 1 capital ratio of 4% or greater and (iii) having a leverage capital ratio of 4% or greater or a leverage capital ratio of 3% or greater if the institution is rated composite 1 under the CAMELS (Capital, Assets, Management, Earnings, Liquidity and Sensitivity to market risk) rating system.

~~mergers,~~· Undercapitalized — The institution fails to meet the ~~establishment~~required ofminimum ~~branches~~level ~~and~~for ~~similar~~any ~~corporate~~relevant ~~actions~~capital measure. ~~Both~~An ~~regulatory~~undercapitalized ~~agencies~~institution ~~have~~is ~~the~~one ~~power~~(i) tohaving ~~prevent~~a ~~the~~total ~~continuance~~capital orratio ~~development~~ of ~~unsafe~~less than 8% or ~~unsound~~(ii) ~~banking~~having ~~practices~~a ~~or other~~tier ~~violations~~1 ofcapital ~~law.~~ratio ~~Additionally,~~of ~~the~~less ~~Bank’s~~than ~~deposits~~4% ~~are~~or ~~insured~~(iii) byhaving ~~the~~a ~~FDIC~~leverage tocapital ~~the~~ratio ~~maximum~~of ~~extent~~less ~~provided~~than by4%, ~~law.~~or ~~The~~if ~~Bank~~the institution is ~~also~~rated ~~subject~~a tocomposite ~~numerous~~1 ~~state~~under ~~and~~the ~~federal~~CAMELS ~~statutes~~rating ~~and~~system, ~~regulations~~a ~~that~~leverage ~~affect~~capital ~~our~~ratio ~~business,~~of ~~activities~~less ~~and operations.~~than 3%.

South Carolina Law - Commercial banks chartered in South Carolina have only those powers granted by law or the regulations of the SC State Board. State law sets specific requirements for bank capital and regulates deposits in and loans and investments by banks, including the amounts, types and, in some cases, rates. In addition, the SC State Board regulates, among other activities, the payment of dividends, the opening of branches, loans to officers and directors, record keeping and the use of automated teller machines. The SC State Board periodically examines state banks to determine their compliance with the law and regulations, and state banks must make periodic reports of their condition to the SC State Board. Prior to the enactment of the Dodd-Frank Act, the Bank and any other national or state-chartered bank were generally permitted to branch across state lines by merging with banks in other states if allowed by the applicable states’ laws. However, interstate branching is now permitted for all national- and state-chartered banks as a result of the Dodd-Frank Act, provided that a state bank chartered by the state in which the branch is to be located would also be permitted to establish a branch. 8

~~Prompt~~· ~~Corrective~~Significantly ~~Action~~Undercapitalized -— AsThe aninstitution ~~insured~~is ~~depository~~significantly ~~institution,~~below the ~~bank~~required minimum level for any relevant capital measure. A significantly undercapitalized institution is ~~required~~one to(i) ~~comply~~having ~~with~~a ~~the~~total capital ~~requirements~~ratio ~~promulgated~~of ~~under~~less ~~the~~than ~~Federal~~6% ~~Deposit~~or ~~Insurance~~(ii) ~~Act~~having ~~and~~a ~~the regulations~~tier ~~thereunder,~~1 ~~which~~capital ~~set~~ratio ~~forth~~of ~~five~~less ~~capital~~than ~~categories,~~3% ~~each~~or ~~with~~(iii) ~~specific~~having ~~regulatory~~a ~~consequences. Under~~leverage ~~these~~capital ~~regulations,~~ratio ~~the~~of ~~categories~~less ~~are:~~than 3%.

•· ~~Well~~Critically ~~Capitalized~~Undercapitalized –— The institution ~~exceeds~~fails ~~the~~to ~~required~~meet ~~minimum~~a critical capital level ~~for~~set ~~each~~by ~~relevant~~the ~~capital~~appropriate ~~measure~~federal banking agency. A ~~well~~critically ~~capitalized~~undercapitalized institution is one ~~(i)~~ having a ~~total capital~~ ratio of ~~10%~~tangible orequity ~~greater,~~to ~~(ii)~~total ~~having~~assets ~~a tier 1 capital ratio of 6% or greater, (iii) having a leverage capital ratio of 5% or greater and (iv)~~ that is ~~not~~equal ~~subject~~ to ~~any order~~ or ~~written~~less ~~directive~~than ~~to meet and maintain a specific capital level for any capital measure~~2%.

•If ~~Adequately~~the ~~Capitalized~~FDIC –determines, ~~The~~after ~~institution~~notice ~~meets~~and an ~~the~~opportunity ~~required minimum level~~ for ~~each~~hearing, ~~relevant~~that ~~capital~~the ~~measure.~~bank Nois ~~capital~~in ~~distribution~~an ~~may~~unsafe beor ~~made~~unsound ~~that~~condition, ~~would result in~~ the ~~institution~~regulator ~~becoming~~is ~~undercapitalized.~~authorized Anto ~~adequately~~reclassify ~~capitalized~~the ~~institution~~bank to isthe ~~one~~next ~~(i)~~lower ~~having a total~~ capital ~~ratio~~category of(other 8%than orcritically ~~greater, (ii~~undercapitalized) ~~having a tier 1 capital ratio of 4% or greater~~ and ~~(iii)~~require ~~having~~the asubmission ~~leverage capital ratio~~ of ~~4% or greater or~~ a ~~leverage~~plan ~~capital~~to ~~ratio~~correct ofthe unsafe 3% or ~~greater~~unsound ~~if the institution is rated composite 1 under the CAMELS (Capital, Assets, Management, Earnings, Liquidity and Sensitivity to market risk) rating system~~condition.

•If ~~Undercapitalized~~the –bank ~~The~~is ~~institution~~not ~~fails~~well tocapitalized, ~~meet~~it cannot ~~the~~accept ~~required~~brokered ~~minimum~~deposits ~~level~~without ~~for~~prior ~~any~~FDIC ~~relevant~~approval ~~capital~~and, ~~measure.~~if Anapproval ~~undercapitalized institution~~ is ~~one~~granted, ~~(i)~~cannot ~~having~~offer aan ~~total~~effective ~~capital~~yield ~~ratio~~in excess of ~~less~~75 ~~than~~basis 8%points oron ~~(ii)~~interests ~~having~~paid aon ~~tier~~deposits 1of ~~capital~~comparable ~~ratio~~size ofand ~~less~~maturity ~~than~~in 4%such orinstitution’s ~~(iii)~~normal ~~having~~market aarea for ~~leverage~~deposits ~~capital~~accepted ~~ratio~~from ofwithin ~~less~~its ~~than~~normal 4%market area, or national rate paid on deposits of comparable size and maturity for deposits accepted outside the bank’s normal market area. Moreover, if the ~~institution~~bank isbecomes ~~rated~~less than adequately capitalized, it must adopt a ~~composite~~capital 1restoration ~~under~~plan acceptable to the ~~CAMELS~~FDIC. The ~~rating~~bank ~~system~~also would become subject to increased regulatory oversight, aand ~~leverage~~is ~~capital~~increasingly ~~ratio~~restricted in the scope of ~~less~~its ~~than~~permissible 3%activities. Each company having control over an undercapitalized institution also must provide a limited guarantee that the institution will comply with its capital restoration plan.

•Except ~~Significantly~~under ~~Undercapitalized~~limited –circumstances ~~The~~consistent with an accepted capital restoration plan, an undercapitalized institution ismay ~~significantly~~not ~~below~~grow. An ~~the~~undercapitalized ~~required~~institution may ~~minimum~~not ~~level~~acquire ~~for~~another institution, establish additional branch offices or engage in any ~~relevant~~new line of business unless determined by the appropriate Federal banking agency to be consistent with an accepted capital ~~measure~~restoration plan, or unless the FDIC determines that the proposed action will further the purpose of prompt corrective action. The Aappropriate federal banking agency may take any action authorized for a significantly undercapitalized institution isif ~~one~~an ~~(i)~~undercapitalized ~~having~~institution afails ~~total~~to submit an acceptable capital ~~ratio~~restoration ofplan ~~less~~or ~~than~~fails 6%in orany ~~(ii)~~material ~~having~~respect to implement a ~~tier~~plan 1accepted ~~capital~~by ~~ratio~~the ofagency. A ~~less~~critically undercapitalized ~~than~~institution 3%is orsubject ~~(iii)~~to having a ~~leverage~~receiver ~~capital~~or ~~ratio~~conservator appointed to manage its affairs and for loss of ~~less~~its charter ~~than~~to 3%conduct banking activities.

•An ~~Critically~~insured ~~Undercapitalized~~depository –institution ~~The~~may ~~institution~~not pay ~~fails~~a tomanagement ~~meet~~fee to a ~~critical~~bank ~~capital~~holding ~~level~~company ~~set~~controlling bythat institution or any other person having control of the ~~appropriate~~institution if, ~~federal~~after ~~banking~~making ~~agency.~~the Apayment, ~~critically~~the institution, would be undercapitalized. In addition, an institution cannot make a capital distribution, such as a dividend or other distribution that is ~~one~~in ~~having~~substance a ~~ratio~~distribution of ~~tangible~~capital ~~equity~~ to ~~total~~the ~~assets~~owners ~~that~~of isthe ~~equal~~institution if following such a distribution the institution would be undercapitalized. Thus, if payment of such a management fee or the making of such would cause the bank to become undercapitalized, it could not pay a management fee or ~~less~~dividend ~~than~~to 2%us.

IfAs ~~the~~of ~~FDIC~~December ~~determines~~31, ~~after notice and an opportunity for hearing~~2011, ~~that~~ the bank iswas indeemed ~~an unsafe or unsound condition, the regulator is authorized~~ to ~~reclassify~~be ~~the bank to the next lower capital~~“well ~~category (other than critically undercapitalized) and require the submission of a plan to correct the unsafe or unsound condition~~capitalized.

If FDIC Insurance ~~the~~Assessments. The ~~bank~~Bank’s isdeposits ~~not~~are ~~well~~insured ~~capitalized,~~by itthe ~~cannot~~Deposit ~~accept~~Insurance ~~brokered~~Fund ~~deposits~~(the ~~without~~“DIF”) ~~prior~~of the FDIC ~~approval~~up ~~and,~~to ifthe ~~approval~~maximum isamount ~~granted,~~permitted ~~cannot~~by ~~offer~~law, anwhich ~~effective~~was ~~yield~~permanently inincreased ~~excess~~to of$250,000 75by ~~basis~~the ~~points~~Dodd-Frank onAct. ~~interests~~The FDIC ~~paid~~uses onthe ~~deposits~~DIF ofto ~~comparable~~protect ~~size~~against ~~and~~the ~~maturity~~loss inof ~~such~~insured ~~institution’s~~deposits ~~normal~~if ~~market~~an ~~area~~FDIC-insured ~~for~~bank ~~deposits~~or ~~accepted~~savings ~~from~~association ~~within~~fails. ~~its~~Pursuant ~~normal~~to the ~~market~~Dodd-Frank ~~area~~Act, orthe ~~national~~FDIC ~~rate~~must ~~paid~~take onsteps, ~~deposits~~as ofnecessary, ~~comparable size and maturity~~ for ~~deposits~~the ~~accepted~~DIF ~~outside the~~reserve ~~bank’s~~ratio ~~normal~~to ~~market~~reach ~~area~~1. ~~Moreover,~~35% ifof ~~the~~estimated ~~bank~~insured ~~becomes~~deposits by ~~less~~September ~~than adequately capitalized~~30, ~~it must adopt a capital restoration plan acceptable to the FDIC~~2020. The ~~bank~~Bank ~~also~~is ~~would~~thus ~~become~~ subject to ~~increased~~FDIC ~~regulatory~~deposit ~~oversight,~~premium ~~and is increasingly~~ assessments.

7Currently, the FDIC uses a risk-based assessment system that assigns insured depository institutions to one of four risk categories based on three primary sources of information – supervisory risk ratings for all institutions, financial ratios for most institutions, including the Bank, and a “scorecard” calculation for large institutions. The FDIC adopted new rules, effective April 1, 2011, redefining the assessment base and adjusting the assessment rates. Under the old rules; the assessment base was domestic deposits; the new rule uses an assessment base of average consolidated total assets minus tangible equity, which is defined as Tier 1 Capital. Under the new rules, institutions assigned to the lowest risk category must pay an annual assessment rate ranging between 2.5 and 9 cents per $100 of the assessment base. For institutions assigned to higher risk categories, assessment rates now range from 9 to 45 cents per $100 of the assessment base. These ranges reflect a possible downward adjustment for unsecured debt outstanding and, in the case of institutions outside the lowest risk category, a possible upward adjustment for brokered deposits.

~~Table of Contents~~9

The new rules retain ~~restricted~~the inFDIC board’s flexibility to, without further notice-and-comment rulemaking, adopt rates that are higher or lower than the ~~scope~~stated ofbase ~~its~~assessment ~~permissible~~rates, ~~activities.~~provided that the FDIC cannot (i) ~~Each~~increase ~~company~~or ~~having~~decrease ~~control~~the ~~over~~total anrates ~~undercapitalized~~from ~~institution~~one ~~also~~quarter to ~~must~~the ~~provide~~next by more than two basis points, or (ii) deviate by more than two basis points from the stated assessment rates. Although the Dodd-Frank Act requires that the FDIC eliminate its requirement to pay dividends to depository institutions when the reserve ratio exceeds a ~~limited~~certain ~~guarantee~~threshold, the FDIC proposes a decreasing schedule of assessment rates that would take effect when the ~~institution~~DIF ~~will~~reserve ~~comply~~ratio first meets or exceeds 1.15%. As proposed, if the DIF reserve ratio meets or exceeds 1.15% but is less than ~~with~~2%, ~~its~~base ~~capital~~assessment ~~restoration~~rates ~~plan~~would range from 1.5 to 40 basis points; if the DIF reserve ratio meets or exceeds 2% but is less than 2.5%, base assessment rates would range from 1 to 38 basis points; and if the DIF reserve ratio meets or exceeds 2.5%, base assessment rates would range from 0.5 to 35 basis points.

~~Except~~On ~~under~~November ~~limited circumstances consistent with an accepted capital restoration plan~~12, an2009, ~~undercapitalized~~the ~~institution~~FDIC ~~may~~adopted ~~not~~a ~~grow. An~~rule ~~undercapitalized~~requiring ~~institution~~nearly ~~may~~all ~~not~~FDIC-insured ~~acquire~~depository ~~another institution~~institutions, ~~establish~~including ~~additional~~the ~~branch~~Bank, ~~offices~~to orprepay ~~engage~~their inDIF ~~any~~assessments for ~~new~~the ~~line~~fourth quarter of ~~business~~2009 ~~unless~~and ~~determined~~for by the ~~appropriate~~following ~~Federal~~three ~~banking agency~~years toon beDecember ~~consistent~~30, ~~with~~2009. anAt ~~accepted~~that ~~capital restoration plan~~time, ~~or unless~~ the FDIC ~~determines~~indicated that the prepayment ~~proposed~~of ~~action~~DIF ~~will~~assessments ~~further~~was ~~the~~in ~~purpose~~lieu of ~~prompt~~additional ~~corrective~~special ~~action. The~~assessments; ~~appropriate~~however, ~~federal~~there ~~banking~~can ~~agency~~be ~~may~~no ~~take~~guarantee ~~any~~that ~~action~~continued ~~authorized~~pressures ~~for~~on athe ~~significantly~~DIF ~~undercapitalized~~will ~~institution~~not ifresult ~~an undercapitalized institution fails to submit an acceptable capital restoration plan or fails~~ in ~~any~~additional ~~material~~special ~~respect~~assessments tobeing ~~implement~~collected ~~a plan accepted~~ by the ~~agency. A~~FDIC ~~critically undercapitalized~~in ~~institution~~the ~~is subject to having a receiver or conservator appointed to manage its affairs and for loss of its charter to conduct banking activities~~future.

AnOn ~~insured~~October ~~depository~~19, ~~institution~~2010, the ~~may~~FDIC ~~not~~adopted ~~pay~~ a ~~management~~new ~~fee~~DIF toRestoration aPlan ~~bank holding company controlling~~ that ~~institution~~foregoes orthe ~~any~~uniform ~~other~~three ~~person~~basis ~~having~~point-increase ~~control~~previously ofscheduled ~~the~~to ~~institution~~take ~~if,~~effect on ~~after~~January ~~making the payment~~1, ~~the~~ ~~institution, would be undercapitalized~~2011. In ~~addition,~~The anFDIC ~~institution~~indicated ~~cannot make a capital distribution, such as a dividend or other distribution~~ that isthis inchange ~~substance~~was abased ~~distribution~~on ofrevised ~~capital~~projections tocalling ~~the~~for ~~owners~~lower ofthan ~~the~~previously ~~institution if following~~expected ~~such~~DIF alosses ~~distribution~~for the ~~institution~~period ~~would~~2010 bethrough ~~undercapitalized. Thus~~2014, ifcontinued ~~payment~~stresses ofon ~~such a management fee or~~ the ~~making~~earnings of ~~such~~insured ~~would~~depository ~~cause~~institutions, and the ~~bank~~additional time afforded to ~~become~~reach ~~undercapitalized,~~the itDIF ~~could~~reserve ~~not~~ratio ~~pay~~required aby ~~management~~the ~~fee~~Dodd-Frank ~~or dividend to us~~Act.

AsThe FDIC also collects a deposit-based assessment from insured financial institutions on behalf of ~~December 31,~~The ~~2010,~~Financing Corporation (“FICO”). The funds from these assessments are used to service debt issued by FICO in its capacity as a financial vehicle for the ~~bank~~Federal ~~was~~Savings & ~~deemed~~Loan Insurance Corporation. The FICO assessment rate is set quarterly and in 2011 ranged from 0.68 cents to be1.00 ~~“well~~cents ~~capitalized~~per $100 of assessable deposits.” These assessments will continue until the debt matures between 2017 and 2019.

The FDIC ~~Insurance~~may ~~Assessments~~terminate its -insurance ~~The~~of ~~Bank’s~~ deposits ~~are~~if ~~insured~~it byfinds ~~the~~that ~~Deposit Insurance Fund (~~the ~~“DIF”)~~institution ~~of the~~has ~~FDIC~~engaged upin tounsafe ~~the~~and ~~maximum~~unsound ~~amount permitted by law~~practices, ~~which~~is ~~was~~in ~~permanently increased to $250,000 by the Dodd-Frank Act. The FDIC uses the DIF to protect against the loss of insured deposits if~~ an ~~FDIC-insured~~unsafe ~~bank~~ or ~~savings association fails.~~unsound ~~Pursuant~~condition to ~~the~~continue ~~Dodd-Frank Act~~operations, ~~the~~or ~~FDIC~~has ~~must~~violated ~~take~~any ~~steps~~applicable law, asregulation, ~~necessary~~rule, ~~for~~order, ~~the~~or ~~DIF~~condition ~~reserve~~imposed ~~ratio to reach 1.35% of estimated insured deposits~~ by ~~September 30,~~the ~~2020. The Bank is thus subject to~~ FDIC ~~deposit premium assessments~~.

~~Currently,~~Community ~~the~~Reinvestment ~~FDIC~~Act ~~uses~~– The aCommunity ~~risk-based~~Reinvestment ~~assessment~~Act ~~system~~requires that, ~~assigns~~in ~~insured~~connection ~~depository~~with ~~institutions~~examinations ~~to one~~ of ~~four~~financial ~~risk~~institutions ~~categories~~within ~~based~~their respective onjurisdictions, ~~three~~the ~~primary~~federal ~~sources~~banking ofregulators ~~information~~shall –evaluate ~~supervisory~~the ~~risk~~record ~~ratings~~of ~~for~~each ~~all institutions,~~ financial ~~ratios~~institution ~~for~~in ~~most~~meeting ~~institutions, including~~ the ~~Bank,~~credit ~~and long-term debt issuer ratings for large institutions that have such ratings. For~~needs ~~institutions~~of ~~assigned~~its tolocal ~~the lowest risk category~~community, ~~the~~including ~~annual~~low ~~assessment rate ranges between 7~~ and 16moderate-income ~~cents per $100 of domestic deposits~~neighborhoods. ~~For~~These ~~institutions~~facts ~~assigned~~are toalso ~~higher~~considered ~~risk~~in ~~categories~~evaluating mergers, acquisitions ~~assessment~~and ~~rates~~applications ~~range from 17~~ to ~~77.5~~open ~~cents~~a ~~per~~branch ~~$100~~or ~~of domestic deposits~~facility. ~~These~~Failure ~~ranges~~to ~~reflect~~adequately ameet ~~possible~~these ~~downward~~criteria ~~adjustment~~could ~~for~~impose ~~unsecured~~additional ~~debt outstanding~~ requirements and ~~possible~~limitations ~~upward~~on ~~adjustments~~the ~~for~~Bank. ~~secured~~Additionally, ~~liabilities~~we ~~and,~~must inpublicly disclose the ~~case~~terms of ~~institutions~~various ~~outside~~Community ~~the~~Reinvestment ~~lowest~~Act-related ~~risk category, brokered deposits~~agreements.

OnAllowance ~~September 29,~~for ~~2009,~~Loan and Lease Losses – The Allowance for Loan and Lease Losses (the ~~FDIC~~“ALLL”) ~~announced~~represents aone ~~uniform~~of ~~three~~the ~~basis~~most ~~points~~significant ~~increase~~estimates in ~~effective~~the ~~January 1,~~Bank’s ~~2011,~~financial statements and ~~on November 12,~~regulatory ~~2009~~reports. Because of its significance, ~~adopted~~the aBank ~~rule~~has ~~requiring~~developed ~~nearly~~a ~~all~~system ~~FDIC-insured~~by which ~~depository~~it ~~institutions~~develops, ~~including~~maintains ~~the~~and ~~Bank~~documents a comprehensive, tosystematic ~~prepay~~and ~~their~~consistently ~~DIF~~applied ~~assessments~~process for determining the ~~fourth quarter~~ amounts of ~~2009~~the ALLL and the provision for loan and lease losses. The Interagency Policy Statement on the ~~following~~Allowance ~~three~~for ~~years~~Loan and Lease Losses, issued on December 30 13, ~~2009.~~2006, Atencourages ~~that~~all banks to ensure controls are in place to consistently determine the ALLL in accordance ~~time~~with GAAP, the ~~FDIC~~Bank’s ~~indicated~~stated ~~that~~policies ~~the~~and ~~prepayment~~procedures, ofmanagement’s ~~DIF~~best ~~assessments~~judgment ~~was~~and inrelevant ~~lieu~~supervisory ofguidance. Consistent ~~additional~~with ~~special~~supervisory ~~assessments;~~guidance, ~~however~~the Bank maintains a prudent and conservative, ~~there~~but ~~can~~not beexcessive, noALLL, ~~guarantee~~that is at a level that ~~continued~~is ~~pressures~~appropriate to cover estimated credit losses on ~~the~~individually ~~DIF~~evaluated ~~will~~loans ~~not~~determined ~~result~~to inbe ~~additional~~impaired ~~special~~as ~~assessments~~well ~~being~~as ~~collected~~estimated bycredit ~~the~~losses ~~FDIC~~inherent in the ~~future~~remainder of the loan and lease portfolio. The Bank’s estimate of credit losses reflects consideration of all significant factors that affect the collectibility of the portfolio as of the evaluation date.

Pursuant to the Dodd-Frank Act, the FDIC issued proposed regulations, which are anticipated to become effective April 1, 2011, that amend current regulations to redefine the “assessment base” used for calculating deposit insurance assessments. Rather than the current system, whereby the assessment base is calculated by using an insured depository institution’s domestic deposits less a few allowable exclusions, the new assessment base will be calculated using the average consolidated total assets of an insured depository institution less the average tangible equity of such institution. In the proposed regulations, the FDIC defines tangible equity as Tier 1 capital. The FDIC continues to utilize a risk-based assessment system in which institutions will be subject to assessment rates ranging from 2.5 to 45 basis points, subject to adjustments for unsecured debt and, in the case of institutions outside the lowest risk category, brokered deposits. The proposed rules eliminate adjustments for secured liabilities. 10

~~The~~Commercial ~~proposed~~Real ~~rules~~Estate ~~retain~~Lending – Our lending operations may be subject to enhanced scrutiny by federal banking regulators based on its concentration of commercial real estate loans. On December 6, 2006, the ~~FDIC~~federal ~~board’s~~banking ~~flexibility~~regulators issued final guidance to remind financial institutions of the risk posed by commercial real estate (“CRE”) lending concentrations. CRE loans generally include land development, construction ~~without~~loans ~~further~~and ~~notice-~~loans secured by multifamily property, and~~-comment~~ ~~rulemaking~~nonfarm, ~~adopt~~nonresidential ~~rates~~real ~~that~~property ~~are~~where the primary source ~~higher~~of orrepayment ~~lower~~is ~~than~~derived from rental income associated with the ~~stated~~property. ~~base~~The ~~assessment~~guidance ~~rates,~~prescribes ~~provided~~the following guidelines for its examiners to help identify institutions that ~~the~~are ~~FDIC~~potentially ~~cannot~~exposed ~~(i) increase~~to orsignificant CRE risk and may warrant greater supervisory scrutiny:

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

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

Enforcement Powers ~~decrease~~– ~~the~~The ~~total~~Financial ~~rates~~Institution ~~from~~Reform ~~one~~Recovery ~~quarter~~and toEnforcement ~~the~~Act ~~next by more than three basis points, or~~ (ii“FIRREA”) ~~deviate~~ byexpanded ~~more~~and ~~than~~increased ~~three~~civil and ~~basis~~criminal ~~points~~penalties ~~from~~available ~~the~~for ~~stated~~use ~~assessment~~by ~~rates. Although~~ the ~~Dodd-Frank~~ ~~Act~~federal ~~requires~~regulatory ~~that~~agencies ~~the~~against ~~FDIC eliminate its requirement to pay dividends to~~ depository institutions ~~when~~and ~~the~~certain ~~reserve~~“institution-affiliated parties.” ~~ratio~~Institution-affiliated ~~exceeds~~parties aprimarily ~~certain~~include ~~threshold~~management, ~~the~~employees, ~~FDIC~~and ~~proposes~~agents of a ~~decreasing~~financial ~~schedule~~institution, as ofwell ~~assessment~~as ~~rates~~independent ~~that~~contractors ~~would~~and ~~take~~consultants ~~effect~~such ~~when the~~as ~~DIF~~attorneys ~~reserve~~and ~~ratio~~accountants ~~first~~and ~~meets~~others orwho ~~exceeds~~participate ~~1.15%.~~in Asthe ~~proposed,~~conduct of if the ~~DIF~~financial ~~reserve~~institution’s ~~ratio~~affairs. ~~meets~~These orpractices ~~exceeds~~can ~~1.15%,~~include ~~base~~the ~~assessment~~failure ~~rates~~of ~~would~~an ~~range~~institution ~~from 1.5~~ to 40timely ~~basis~~file ~~points;~~required reports ifor the ~~DIF~~filing ~~reserve~~of ~~ratio~~false ~~meets~~ or ~~exceeds~~misleading ~~2%,~~information ~~base~~or ~~assessment~~the ~~rates would~~submission ~~range~~of ~~from~~inaccurate 1reports. toCivil 38penalties ~~basis~~may ~~points;~~be ~~and~~as ifhigh as ~~the~~$1,100,000 ~~DIF~~per ~~reserve~~day ~~ratio~~for ~~meets~~such orviolations. ~~exceeds~~Criminal ~~2.5%,~~penalties ~~base~~for ~~assessment~~some ~~rates~~financial ~~would~~institution ~~range~~crimes ~~from~~have ~~0.5~~been increased to 3520 ~~basis points~~years. In ~~All~~addition, ~~base~~regulators ~~assessment~~are ~~rates~~provided ~~would~~with ~~continue~~greater toflexibility ~~be subject~~ to ~~adjustments~~commence ~~for~~enforcement ~~unsecured~~actions ~~debt~~against institutions and ~~brokered~~ ~~deposits~~institution-affiliated parties.

~~The~~Possible ~~FDIC~~enforcement actions ~~also~~include ~~collects~~the atermination of deposit~~-based~~ ~~assessment~~insurance. ~~from~~Furthermore, ~~insured~~banking ~~financial~~agencies’ ~~institutions~~power onto ~~behalf~~issue ofregulatory ~~The~~orders were ~~Financing~~expanded. ~~Corporation~~Such ~~(“FICO”).~~orders ~~The~~may, ~~funds~~among ~~from~~other ~~these~~things, ~~assessments~~require ~~are~~affirmative ~~used~~action to ~~service~~correct ~~debt~~any ~~issued~~harm byresulting ~~FICO~~from ina ~~its~~violation ~~capacity~~or aspractice, including arestitution, reimbursement, indemnifications or guarantees against loss. A financial ~~vehicle~~institution ~~for~~may ~~the~~also ~~Federal~~be ~~Savings &~~ordered to ~~Loan~~restrict ~~Insurance~~its ~~Corporation.~~growth, ~~The~~dispose ~~FICO~~of ~~assessment~~certain ~~rate~~assets, isrescind ~~set quarterly~~agreements ~~and~~or incontracts, ~~2010~~or ~~ranged~~take ~~from~~other ~~1.06~~actions ~~cents~~as determined by the ordering agency to 1be appropriate.04 ~~cents~~The ~~per~~Dodd-Frank ~~$100~~Act ofincreases ~~assessable~~regulatory ~~deposits.~~oversight, ~~These~~supervision ~~assessments~~and ~~will~~examination ~~continue~~of ~~until~~banks, ~~the~~bank holding ~~debt~~companies ~~matures~~and ~~between~~their ~~2017~~respective ~~and~~subsidiaries ~~2019.~~by the appropriate regulatory agency.

~~The~~Other ~~FDIC~~Regulations ~~may~~– ~~terminate~~Interest and ~~its~~other ~~insurance~~charges ofcollected ~~deposits~~or ifcontracted itfor ~~finds~~by ~~that~~ the ~~institution~~Bank ~~has~~are ~~engaged~~subject into ~~unsafe~~state ~~and~~usury ~~unsound~~laws ~~practices,~~and isfederal inlaws anconcerning ~~unsafe~~interest rates. orOur ~~unsound~~loan ~~condition~~operations towill ~~continue~~be ~~operations,~~subject orto ~~has~~federal ~~violated any~~laws applicable ~~law,~~to ~~regulation,~~credit ~~rule~~transactions, ~~order,~~such oras ~~condition imposed by~~ the ~~FDIC.~~ :

~~FDIC~~· ~~Temporary~~Federal ~~Liquidity Guarantee Program~~ Truth-In-Lending ~~On October 14~~Act, ~~2008,~~governing ~~the~~disclosures ~~FDIC announced that its Board~~ of ~~Directors,~~credit ~~under~~terms ~~the authority~~ to ~~prevent~~consumer “systemic risk” in the U.S. banking system, approved the Temporary Liquidity Guarantee Program (“TLGP”). The purpose of the TLGP is to strengthen confidence and encourage liquidity in the banking system. The TLGP is composed of two components, the Debt Guarantee Program and the Transaction Account Guarantee Program, and institutions had the opportunity to opt-out of either or both components of the TLGP. borrowers;

~~The~~· ~~Debt~~Home ~~Guarantee~~Mortgage ~~Program:~~Disclosure ~~Under~~Act ~~the~~of ~~TLGP~~1975, ~~the FDIC~~requiring ~~guaranteed certain newly issued senior unsecured debt issued by participating~~ financial institutions ~~through~~to ~~October 31,~~provide ~~2009.~~information ~~The annualized fee that the FDIC assessed~~ to ~~guarantee~~enable the ~~senior~~public ~~unsecured~~and ~~debt~~public ~~varied~~officials byto ~~the~~determine ~~length~~whether ~~of maturity of the debt. For debt with~~ a ~~maturity~~financial ofinstitution ~~180~~is ~~days~~fulfilling orits ~~less~~obligation ~~(excluding~~to ~~overnight~~help ~~debt),~~meet the ~~fee~~housing ~~was~~needs ~~50 basis points; for debt with a maturity between 181 days and 364 days, the fee was 75 basis points, and for debt with a maturity~~ of ~~365 days or longer,~~ the ~~fee~~community ~~was~~it ~~100 basis points. The Bank did not issue any debt pursuant to this program.~~ serves;

~~The~~· ~~Transaction Account~~Equal ~~Guarantee~~Credit ~~Program:~~Opportunity Under the TLGP, the FDIC fully guaranteed funds in non-interest bearing deposit accounts held at participating FDIC-insured institutions, regardless of dollar amount. The temporary guarantee was originally scheduled to expire at the end of 2009, but was subsequently extended to December 31, 2010. Pursuant to the Dodd-Frank Act, ~~beginning~~prohibiting ondiscrimination the scheduled termination date for the Transaction Account Guarantee Program, or TAGP, and continuing through December 31, 2012, unlimited insurance coverage will be provided for funds held in non-interest bearing transaction accounts, including Interest on ~~Lawyer Trust Accounts (IOLTAs). During~~ the ~~TAGP extension period, the FDIC imposed a surcharge between 15 and 25~~ basis ~~points on the daily average balance in excess~~ of ~~$250~~race,~~000~~ ~~held~~creed inor ~~non-interest~~other ~~bearing~~prohibited ~~transaction~~factors ~~accounts. Pursuant to the Dodd-Frank Act, however, institutions are no longer separately assessed for the additional coverage, and the unlimited insurance is included~~ in ~~assessments~~extending ~~for the overall insurance program. One distinction from this new insurance and the TAGP, is the exclusion of minimal interest-bearing NOW accounts, which were previously covered under the TAGP.~~ credit;

~~Community~~· ~~Reinvestment~~Fair ~~Act~~Credit -Reporting ~~The Community Reinvestment~~ Act ~~requires~~of ~~that~~1978, inas ~~connection~~amended ~~with examinations~~by ofthe ~~financial~~Fair ~~institutions~~and ~~within~~Accurate ~~their~~Credit ~~respective~~Transactions ~~jurisdictions~~Act, governing the ~~federal~~use ~~banking~~and ~~regulators~~provision ~~shall evaluate the record~~ of ~~each~~information ~~financial~~to ~~institution in meeting the~~ credit ~~needs~~reporting ~~of its local community~~agencies, ~~including~~certain ~~low~~identity ~~and moderate-income~~theft ~~neighborhoods. These facts are also considered in evaluating mergers~~protections, ~~acquisitions~~ and ~~applications~~certain tocredit ~~open a branch or facility. Failure to adequately meet these criteria could impose additional requirements~~ and ~~limitations~~other ~~on the Bank. Additionally, we must publicly disclose the terms of various Community Reinvestment Act-related agreements.~~ disclosures;

~~Allowance~~· ~~for~~Fair ~~Loan~~Debt ~~and~~Collection ~~Lease~~Act, ~~Losses~~governing ~~- The Allowance for Loan and Lease Losses (~~the ~~“ALLL”)~~manner ~~represents one of the most significant estimates~~ in ~~the~~which ~~Bank’s~~consumer ~~financial~~debts ~~statements~~may ~~and~~be ~~regulatory~~collected ~~reports. Because of its significance, the Bank has developed a system~~ by ~~which~~collection ~~it develops, maintains and documents a comprehensive, systematic and consistently applied process for determining the amounts of the ALLL and the provision for loan and lease losses.~~ agencies;

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

~~Table of Contents~~11

~~The~~· ~~Interagency~~Talent ~~Policy~~Amendment ~~Statement on the Allowance for Loan and Lease Losses, issued on December 13, 2006, encourages all banks to ensure controls are~~ in ~~place to consistently determine~~ the ~~ALLL~~ in2007 ~~accordance~~Defense ~~with~~Authorization ~~GAAP~~Act, ~~the~~establishing ~~Bank’s~~a ~~stated~~36% ~~policies~~annual ~~and~~percentage ~~procedures,~~rate ~~management’s best judgment and relevant supervisory guidance. Consistent with supervisory guidance~~ceiling, ~~the~~which ~~Bank~~includes ~~maintains~~ a ~~prudent~~variety ~~and~~of ~~conservative,~~charges ~~but~~including ~~not~~late ~~excessive~~fees, ~~ALLL,~~ ~~that~~for isconsumer ~~at a level that is appropriate to cover estimated credit losses on individually evaluated~~ loans ~~determined~~ to bemilitary ~~impaired~~service asmembers ~~well as estimated credit losses inherent in the remainder of the loan~~ and ~~lease~~their ~~portfolio.~~dependents; ~~The Bank’s estimate of credit losses reflects consideration of all significant factors that affect the collectibility of the portfolio as of the evaluation date.~~ and

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

•The ~~total~~Bank’s ~~reported~~deposit ~~loans~~operations ~~for~~are subject ~~construction,~~to ~~land~~federal ~~development~~laws ~~and~~applicable ~~other~~to ~~land~~depository ~~represent 100% or more of the institutions total capital~~accounts, orsuch as:

•· ~~total~~Truth-In-Savings ~~commercial real estate loans represent 300% or more of the institution’s total capital~~Act, ~~and~~requiring ~~the~~certain ~~outstanding~~disclosures ~~balance~~ of ~~the~~consumer ~~institution’s~~deposit ~~commercial real estate loan portfolio has increased by 50% or more.~~accounts:

~~Enforcement Powers~~· -Right ~~The~~to Financial ~~Institution~~Privacy ~~Reform Recovery and Enforcement~~ Act (“FIRREA”) expanded and increased civil and criminal penalties available for use by the federal regulatory agencies against depository institutions and certain “institution-affiliated parties.” Institution-affiliated parties primarily include management, ~~employees,~~which ~~and~~imposes ~~agents of~~ a ~~financial~~duty ~~institution,~~to asmaintain ~~well~~confidentiality ~~as independent contractors and consultants such as attorneys and accountants and others who participate in the conduct~~ of ~~the~~consumer financial ~~institution’s~~records ~~affairs.~~and ~~These~~prescribes ~~practices~~procedures ~~can~~for ~~include~~complying ~~the~~with ~~failure~~administrative ofsubpoenas ~~an institution to timely file required reports or the filing~~ of ~~false or misleading information or the submission of inaccurate reports. Civil penalties may be as high as $1,100,000 per day for such violations. Criminal penalties for some~~ financial institution crimes have been increased to 20 years. In addition, regulators are provided with greater flexibility to commence enforcement actions against institutions and institution-affiliated parties. records;

~~Possible~~· ~~enforcement~~Electronic ~~actions~~Funds ~~include the~~Transfer ~~termination~~Act ofand ~~deposit~~Regulation ~~insurance.~~E ~~Furthermore,~~issued ~~banking~~by ~~agencies’~~the ~~power~~Federal Reserve to ~~issue~~implement ~~regulatory~~that ~~orders were expanded. Such orders may~~act, ~~among~~which ~~other~~govern ~~things,~~automatic ~~require~~deposits ~~affirmative action~~ to ~~correct~~and ~~any~~withdrawals ~~harm resulting~~ from adeposit ~~violation~~accounts orand ~~practice, including~~customers’ ~~restitution,~~rights ~~reimbursement,~~and ~~indemnifications~~liabilities orarising ~~guarantees~~from ~~against loss. A financial institution may also be ordered to restrict its growth, dispose of certain assets, rescind agreements or contracts, or take other actions as determined by~~ the ~~ordering~~use ~~agency to be appropriate. The Dodd-Frank Act increases regulatory oversight, supervision and examination~~ of ~~banks,~~automated ~~bank~~teller ~~holding~~machines ~~companies~~ and ~~their~~other ~~respective~~electronic ~~subsidiaries~~banking byservices; ~~the appropriate regulatory agency.~~ and

~~Other~~· ~~Regulations~~rules ~~- Interest~~ and ~~other~~regulations ~~charges~~of ~~collected or contracted for by~~ the ~~Bank~~various ~~are subject to state usury laws and~~ federal ~~laws~~banking ~~concerning~~regulators ~~interest~~charged ~~rates.~~with ~~Our~~the ~~loan~~responsibility ~~operations~~of ~~will~~implementing bethese ~~subject to~~ federal laws ~~applicable to credit transactions, such as the:~~ .

•The ~~Federal~~Consumer ~~Truth~~Financial Protection Bureau – The Dodd-Frank Act creates the Consumer Financial Protection Bureau (the “Bureau”) within the Federal Reserve Board. The Bureau is tasked with establishing and implementing rules and regulations under certain federal consumer protection laws with respect to the conduct of providers of certain consumer financial products and services. The Bureau has rulemaking authority over many of the statutes governing products and services offered to bank consumers. In addition, the Dodd-~~Lending~~Frank Act, permits ~~governing~~states ~~disclosures~~to ofadopt ~~credit~~consumer ~~terms~~protection laws and regulations that are more stringent than those regulations promulgated by the Bureau and state attorneys general are permitted to enforce consumer ~~borrowers;~~protection rules adopted by the Bureau against state-chartered institutions.

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

•The ~~Equal~~Company ~~Credit~~is ~~Opportunity~~a ~~Act,~~legal ~~prohibiting~~entity ~~discrimination~~separate and ondistinct from the ~~basis~~Bank. The principal sources of ~~race~~our cash flow, ~~creed~~including orcash ~~other~~flow ~~prohibited~~to ~~factors~~pay individends ~~extending~~to ~~credit;~~shareholders, are dividends that we receive from the Bank. Statutory and regulatory limitations apply to the payment of dividends by a subsidiary bank to its bank holding company.

•Under ~~Fair~~South ~~Credit~~Carolina law, ~~Reporting~~the ~~Act~~Bank is authorized to upstream to the Company, by way of ~~1978~~a cash dividend, asup ~~amended~~to by100% of the ~~Fair~~Bank’s ~~and~~net ~~Accurate~~income ~~Credit~~in any ~~Transactions~~calendar ~~Act~~year without obtaining the prior approval of the SC State Board, ~~governing~~provided that the ~~use~~Bank ~~and~~received ~~provision~~a composite rating of ~~information~~one toor ~~credit~~two ~~reporting~~at ~~agencies,~~the ~~certain~~last ~~identity~~examination ~~theft~~conducted ~~protections,~~by ~~and~~a ~~certain~~state ~~credit~~or ~~and~~federal regulatory authority. All other ~~disclosures;~~cash dividends require prior approval by the SC State Board. South Carolina law requires each state nonmember bank to maintain the same reserves against deposits as are required for a state member bank under the Federal Reserve Act. This requirement is not expected to limit the ability of the Bank to pay dividends on its common stock.

10The payment of dividends by the Company and the Bank may also be affected by other factors, such as the requirement to maintain adequate capital above regulatory guidelines. If, in the opinion of the FDIC, the Bank were engaged in or about to engage in an unsafe or unsound practice, the FDIC could require, after notice and a hearing, that the Bank stop or refrain engaging in the practice. The federal banking agencies have indicated that paying dividends that deplete a depository institution’s capital base to an inadequate level would be an unsafe and unsound banking practice. Under the Federal Deposit Insurance Corporation Improvement Act of 1991, a depository institution may not pay any dividend if payment would cause it to become undercapitalized or if it already is undercapitalized. Moreover, the federal agencies have issued policy statements that provide that bank holding companies and insured banks should generally only pay dividends out of current operating earnings.

~~Table~~Any future determination relating to our dividend policy will be made at the discretion of ~~Contents~~the Board of Directors and will depend on many of the statutory and regulatory factors mentioned above.

•Restrictions on ~~Fair~~Transactions ~~Debt~~with ~~Collection Act, governing the manner in which consumer debts may be collected by collection agencies;~~Affiliates

•The ~~Soldiers’~~Company and ~~Sailors’ Civil Relief Act of 1940, as amended by~~ the ~~Servicemembers’~~Bank ~~Civil~~are ~~Relief~~subject ~~Act,~~to ~~governing~~ the ~~repayment~~provisions ~~terms~~ of, ~~and~~Section 23A ~~property~~of ~~rights~~the ~~underlying,~~Federal ~~secured~~Reserve ~~obligations~~Act. ofSection ~~persons~~23A ~~currently~~places limits on ~~active duty with~~ the ~~United~~amount ~~States military;~~of:

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

~~• rules and regulations of the various federal banking regulators charged with the responsibility of implementing these federal laws.~~12

~~The~~· ~~Bank~~a bank’s ~~deposit~~investment ~~operations~~in ~~are subject to federal laws applicable to depository accounts, such as:~~ affiliates;

•· ~~Truth-In-Savings~~assets ~~Act~~a bank may purchase from affiliates, ~~requiring~~except ~~certain~~for ~~disclosures~~real ofand ~~consumer~~personal ~~deposit~~property ~~accounts:~~exempted by the Federal Reserve;

•· ~~Right~~loans toor ~~Financial~~extensions ~~Privacy~~of ~~Act,~~credit ~~which imposes a duty~~ to ~~maintain~~third ~~confidentiality~~parties ofcollateralized ~~consumer~~by ~~financial~~the ~~records~~securities ~~and~~or ~~prescribes~~obligations ~~procedures for complying with administrative subpoenas~~ of ~~financial records~~affiliates; and

•· ~~Electronic~~a ~~Funds~~bank’s ~~Transfer Act and Regulation E issued by the Federal Reserve to implement that act~~guarantee, ~~which~~acceptance ~~govern~~or ~~automatic~~letter ~~deposits~~of tocredit ~~and~~issued ~~withdrawals~~on ~~from~~behalf ~~deposit accounts and customers’ rights and liabilities arising from the use~~ of ~~automated~~an ~~teller machines and other electronic banking services; and~~affiliate.

•The ~~rules~~total amount of the above transactions is limited in amount, as to any one affiliate, to 10% of a bank’s capital and ~~regulations~~surplus and, as to all affiliates combined, to 20% of ~~the~~a ~~various~~bank’s ~~federal~~capital ~~banking~~and ~~regulators~~surplus. ~~charged~~In ~~with~~addition to the ~~responsibility~~limitation ofon ~~implementing~~the amount of these ~~federal~~transactions, ~~laws~~each of the above transactions must also meet specified collateral requirements. We must also comply with other provisions designed to avoid the taking of low-quality assets.

The ~~Consumer~~Company ~~Financial~~and ~~Protection~~the Bank ~~Bureau~~are -also ~~The~~subject ~~Dodd-Frank~~to ~~Act creates~~ the ~~Consumer~~provisions ~~Financial Protection~~of ~~Bureau~~Section 23B ~~(the~~of ~~“Bureau”) within~~ the Federal Reserve ~~Board.~~Act ~~The~~which, ~~Bureau~~among isother ~~tasked~~things, ~~with~~prohibit ~~establishing~~an ~~and~~institution from ~~implementing~~engaging ~~rules~~in ~~and~~the ~~regulations~~above ~~under~~transactions ~~certain federal consumer protection laws~~ with ~~respect~~affiliates tounless the ~~conduct~~transactions ofare ~~providers~~on ~~of certain~~terms ~~consumer~~substantially ~~financial products and services. The Bureau has rulemaking authority over many of~~ the ~~statutes~~same, ~~governing~~or ~~products~~at ~~and~~least as ~~services~~favorable ~~offered~~ to ~~bank consumers. In addition,~~ the ~~Dodd-Frank~~institution ~~Act~~or ~~permits~~its ~~states~~subsidiaries, toas ~~adopt consumer protection laws and regulations that are more stringent than~~ those ~~regulations~~prevailing ~~promulgated~~at by the ~~Bureau~~time ~~and~~for ~~state~~comparable ~~attorneys~~transactions ~~general~~with ~~are permitted to enforce consumer protection rules adopted by the Bureau against state-chartered institutions~~nonaffiliated companies.

~~Payment~~The Dodd-Frank Act enhances the requirements for certain transactions with affiliates under Section 23A and 23B, including an expansion of ~~Dividends~~the definition of “covered transactions” and increasing the amount of time for which collateral requirements regarding covered transactions must be maintained.

The ~~Company~~Bank is aalso ~~legal~~subject to ~~entity~~restrictions ~~separate~~on ~~and~~extensions ~~distinct~~of ~~from~~credit ~~the~~to ~~Bank.~~its ~~The~~executive officers, directors, principal ~~sources~~shareholders, and their related interests. These extensions of ~~our~~credit ~~cash~~(1) ~~flow~~must be made on substantially the same terms, including ~~cash~~interest ~~flow~~rates toand ~~pay~~collateral, ~~dividends~~as tothose prevailing ~~shareholders~~at the time for comparable transactions with third parties, ~~are~~and ~~dividends~~(2) must ~~that~~not weinvolve ~~receive~~more ~~from~~than the normal risk ~~Bank~~of repayment or present other unfavorable features. ~~Statutory~~Within one year of enactment of the Dodd-Frank Act, an insured depository institution will be prohibited from engaging in asset purchases or sales transactions with its officers, directors, or principal shareholders unless (1) the transaction is on market terms and ~~regulatory~~(2) ~~limitations~~if ~~apply~~the totransaction represents greater than 10% of the ~~payment~~capital and surplus of ~~dividends~~the bybank, a ~~subsidiary~~majority ~~bank~~of tothe ~~its~~disinterested ~~bank~~directors ~~holding~~has ~~company.~~approved the transaction.

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

~~The~~In ~~payment~~June of ~~dividends~~2010, federal bybanking ~~the~~regulators ~~Company~~issued ~~and~~guidance ~~the~~designed ~~Bank~~to ~~may~~help ~~also~~ensure bethat ~~affected~~incentive bycompensation ~~other~~policies ~~factors,~~at ~~such~~banking asorganizations ~~the~~do ~~requirement~~not encourage toexcessive ~~maintain~~risk-taking ~~adequate~~or ~~capital~~undermine ~~above~~the ~~regulatory~~safety ~~guidelines. If,~~and insoundness ~~the opinion~~ of the ~~FDIC,~~organization. ~~the~~In ~~Bank~~connection ~~were~~with ~~engaged~~this inguidance, orthe regulatory ~~about~~agencies toannounced ~~engage~~that inthey anwill ~~unsafe~~review ~~or unsound~~incentive ~~practice,~~compensation ~~the~~arrangements ~~FDIC~~as ~~could~~part ~~require,~~of ~~after~~the ~~notice and a hearing~~regular, ~~that~~risk-focused ~~the~~supervisory process. ~~Bank~~Regulatory ~~stop~~authorities ormay ~~refrain~~also ~~engaging~~take inenforcement ~~the~~action ~~practice. The~~against ~~federal~~a banking ~~agencies~~organization ~~have~~if ~~indicated~~its ~~that~~incentive ~~paying~~compensation ~~dividends that deplete a depository institution’s capital~~arrangement ~~base~~or torelated anrisk ~~inadequate~~management, ~~level~~control, ~~would~~or begovernance anprocesses ~~unsafe~~pose ~~and~~a ~~unsound~~risk ~~banking~~to ~~practice. Under~~ the ~~Federal~~safety ~~Deposit~~and ~~Insurance~~soundness ~~Corporation Improvement Act~~ of ~~1991,~~the aorganization ~~depository~~and ~~institution~~the organization ~~may~~is not ~~pay~~taking ~~any~~prompt ~~dividend~~and ifeffective ~~payment~~measures ~~would cause it~~ to ~~become undercapitalized~~correct orthe ~~if it already is undercapitalized~~deficiencies. ~~Moreover,~~ ~~the~~To ~~federal~~ensure ~~agencies~~that ~~have~~incentive ~~issued~~compensation ~~policy~~arrangements do ~~statements~~not ~~that~~undermine ~~provide~~safety ~~that~~and ~~bank~~soundness ~~holding~~at ~~companies and~~ insured ~~banks~~depository ~~should~~institutions, ~~generally~~the ~~only~~incentive ~~pay~~compensation ~~dividends~~guidance ~~out~~sets offorth ~~current~~the ~~operating~~following ~~earnings.~~key principles:

~~Any~~· ~~future~~Incentive ~~determination~~compensation ~~relating~~arrangements toshould ~~our~~provide ~~dividend~~employees ~~policy~~incentives ~~will~~that beappropriately ~~made~~balance atrisk ~~the~~and ~~discretion~~financial ofresults in a manner that does not encourage employees to expose the ~~Board~~organization ofto ~~Directors and~~imprudent risk;

11· Incentive compensation arrangements should be compatible with effective controls and risk management; and

~~Table~~· Incentive compensation arrangements should be supported by strong corporate governance, including active and effective oversight by the board of ~~Contents~~directors.

~~will~~The ~~depend~~Dodd-Frank ~~on many of the statutory and regulatory factors mentioned above.~~ Act

~~Restrictions~~The Dodd-Frank Act has had a broad impact on ~~Transactions~~the ~~with~~financial ~~Affiliates~~services industry, including significant regulatory and compliance changes previously discussed and including, among other things, (i) enhanced resolution authority of troubled and failing banks and their holding companies; (ii) increased regulatory examination fees; and (iii) numerous other provisions designed to improve supervision and oversight of, and strengthening safety and soundness for, the financial services sector. Additionally, the Dodd-Frank Act establishes a new framework for systemic risk oversight within the financial system to be distributed among new and existing federal regulatory agencies, including the Financial Stability Oversight Council, the Federal Reserve Board, the OCC and the FDIC.

~~The Company and the Bank are subject to the provisions of Section 23A of the Federal Reserve Act. Section 23A places limits on the amount of:~~ 13

•Many aof ~~bank~~the requirements called for in the Dodd-Frank Act will be implemented over time and most will be subject to implementing regulations over the course of several years. Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies and through regulations, the full extent of the impact such requirements will have on financial institutions’s ~~loans~~operations oris ~~extensions~~unclear. The changes resulting from the Dodd-Frank Act may impact the profitability of ~~credit~~our business activities, require changes to ~~affiliates;~~certain of our business practices, impose upon us more stringent capital, liquidity and leverage ratio requirements or otherwise adversely affect our business. These changes may also require us to invest significant management attention and resources to evaluate and make necessary changes in order to comply with new statutory and regulatory requirements.

•Proposed aLegislation ~~bank’s~~and ~~investment~~Regulatory ~~in affiliates;~~Action

•New ~~assets~~regulations aand ~~bank~~statutes ~~may~~are ~~purchase~~regularly proposed ~~from~~that ~~affiliates,~~contain ~~except~~wide-ranging proposals for ~~real~~altering the structures, regulations and ~~personal~~competitive ~~property~~relationships ~~exempted~~of byfinancial institutions operating and doing business in the ~~Federal~~United ~~Reserve;~~States. We cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which our business may be affected by any new regulation or statute.

•Effect ~~loans or extensions~~ of ~~credit~~Governmental toMonetary ~~third parties collateralized by the securities or obligations of affiliates; and~~Policies

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

~~The~~Item ~~total~~1A Risk amount of the above transactions is limited in amount, as to any one affiliate, to 10% of a bank’s capital and surplus and, as to all affiliates combined, to 20% of a bank’s capital and surplus. In addition to the limitation on the amount of these transactions, each of the above transactions must also meet specified collateral requirements. We must also comply with other provisions designed to avoid the taking of low-quality assets. Factors

~~The~~Our ~~Company~~business, ~~and~~financial ~~the~~condition, ~~Bank~~and results ~~are~~of ~~also~~operations ~~subject~~could tobe ~~the provisions~~harmed ofby ~~Section 23B~~any of the ~~Federal~~following ~~Reserve Act which~~risks, ~~among~~or other ~~things,~~risks ~~prohibit~~that anhave ~~institution~~not ~~from~~been ~~engaging~~identified inor ~~the~~which ~~above~~we ~~transactions~~believe are ~~with~~immaterial ~~affiliates~~or ~~unless~~unlikely. Shareholders ~~the~~should ~~transactions~~carefully ~~are~~consider onthe ~~terms~~risks ~~substantially~~described ~~the~~below ~~same,~~in orconjunction atwith ~~least~~the asother ~~favorable~~information toin ~~the~~this ~~institution~~Form 10-K orand ~~its~~the ~~subsidiaries,~~information asincorporated ~~those~~by ~~prevailing~~reference atin ~~the~~this ~~time~~Form 10-K, ~~for~~including ~~comparable~~our ~~transactions~~consolidated financial ~~with~~statements ~~nonaffiliated~~and ~~companies.~~related notes

The ~~Dodd-Frank~~impact ~~Act~~of ~~enhances~~ the ~~requirements~~current ~~for~~economic ~~certain~~environment ~~transactions~~on ~~with~~performance of ~~affiliates~~other ~~under~~financial ~~Section 23A~~institutions ~~and~~in ~~23B~~our market areas, ~~including~~actions antaken ~~expansion~~by ofour competitors to address the ~~definition~~current economic downturn, and public perception of ~~“covered~~and ~~transactions”~~confidence in the economy generally, and ~~increasing~~ the ~~amount~~banking ofindustry ~~time~~specifically, ~~for~~may ~~which~~present ~~collateral~~significant challenges ~~requirements~~for ~~regarding~~us ~~covered~~and ~~transactions~~could ~~must~~adversely beaffect ~~maintained.~~our performance.

~~The~~We ~~Bank is~~are ~~also~~operating ~~subject~~in toa ~~restrictions~~challenging onand ~~extensions~~uncertain economic ofenvironment, ~~credit~~including togenerally ~~its~~uncertain ~~executive~~national ~~officers,~~conditions ~~directors,~~and ~~principal~~local ~~shareholders,~~conditions ~~and~~in ~~their~~our ~~related interests~~markets. ~~These~~Financial ~~extensions~~institutions continue ofto ~~credit~~be ~~(1) must~~affected beby ~~made~~sharp ondeclines ~~substantially~~in the ~~same~~real ~~terms,~~estate ~~including~~market ~~interest rates~~ and ~~collateral,~~constrained asfinancial ~~those~~markets. ~~prevailing~~While atwe ~~the~~are ~~time~~taking ~~for~~steps to ~~comparable~~decrease ~~transactions with third parties,~~ and ~~(2) must~~limit ~~not~~our ~~involve~~exposure ~~more~~to ~~than~~real ~~the~~estate ~~normal~~construction ~~risk~~loans, ofwe ~~repayment~~nonetheless orretain ~~present~~direct ~~other~~exposure ~~unfavorable~~to ~~features.~~the ~~Within~~real ~~one year of enactment of the~~estate ~~Dodd-Frank Act~~markets, anand ~~insured~~we ~~depository~~are ~~institution~~affected ~~will~~by bethese ~~prohibited~~events. ~~from~~Continued ~~engaging~~declines in ~~asset~~real ~~purchases~~estate orvalues ~~sales~~and ~~transactions~~financial ~~with~~stress ~~its~~on ~~officers,~~borrowers ~~directors~~as ora ~~principal~~result of ~~shareholders~~the ~~unless~~uncertain oneconomic ~~market terms and~~environment, ifincluding ~~the~~job ~~transaction~~losses, ~~represents~~could ~~greater~~have ~~than 10%~~an ofadverse ~~the~~effect ~~capital~~on ~~and~~our ~~surplus~~borrowers ofor ~~the~~their ~~bank~~customers, which ~~has~~could ~~been~~adversely ~~approved~~affect byour afinancial ~~majority~~condition ofand ~~the~~results ~~disinterested~~of ~~directors~~operations.

~~Limitations~~The onimpact of recent events relating to ~~Senior~~housing ~~Executive~~and ~~Compensation~~commercial real estate markets has not been limited to those directly involved in the real estate industry, but rather it has impacted a number of related businesses such as building materials suppliers, equipment leasing firms, and real estate attorneys, among others. All of these affected businesses have banking relationships and when their businesses suffer from recession, the banking relationship suffers as well.

In ~~June of 2010~~addition, ~~federal~~the ~~banking~~market ~~regulators~~value ~~issued~~of ~~guidance~~the ~~designed to help ensure that~~real ~~incentive~~estate ~~compensation~~securing ~~policies~~our atloans ~~banking~~as ~~organizations~~collateral dohas ~~not~~been ~~encourage~~adversely ~~excessive~~affected ~~risk-taking~~by ~~or undermine~~ the ~~safety~~slowing economy and ~~soundness~~unfavorable ofchanges ~~the~~in ~~organization.~~economic conditions Inin ~~connection~~our ~~with~~market ~~this~~areas ~~guidance,~~and ~~the~~could ~~regulatory~~be ~~agencies~~further ~~announced~~adversely ~~that~~affected ~~they~~in ~~will~~the ~~review incentive~~future. ~~compensation~~As ~~arrangements as part~~ of ~~the~~December ~~regular~~31, ~~risk-focused~~2011, ~~supervisory~~a ~~process.~~significant ~~Regulatory~~portion of ~~authorities~~our ~~may~~loans ~~also~~receivable ~~take~~were ~~enforcement~~secured ~~action~~by ~~against~~real aestate. ~~banking~~Any ~~organization~~sustained ifperiod ~~its~~of ~~incentive~~increased ~~compensation~~payment ~~arrangement~~delinquencies, foreclosures or ~~related risk~~losses ~~management,~~caused ~~control,~~by orthe ~~governance~~adverse ~~processes~~market ~~pose~~and aeconomic ~~risk~~conditions, toincluding the ~~safety~~downturn ~~and~~in ~~soundness of~~ the ~~organization~~real ~~and~~estate ~~the~~market, ~~organization~~in isour ~~not~~markets ~~taking~~will ~~prompt~~continue to ~~and~~adversely ~~effective~~affect ~~measures~~the tovalue ~~correct~~of ~~the~~our ~~deficiencies.~~assets, Torevenues, ~~ensure~~results ~~that~~of ~~incentive~~operations ~~compensation~~and ~~arrangements do~~financial ~~not~~condition. ~~undermine~~Currently, ~~safety~~our ~~and~~market ~~soundness~~areas are atexperiencing ~~insured~~such ~~depository~~an ~~institutions~~economic downturn, ~~the~~and ~~incentive~~if ~~compensation~~it ~~guidance~~continues, ~~sets~~our ~~forth~~earnings ~~the~~could ~~following~~be ~~key~~further ~~principles:~~adversely affected.

• Incentive compensation arrangements should provide employees incentives that appropriately balance risk and financial results in a manner that does not encourage employees to expose the organization to imprudent risk;14

•The ~~Incentive~~overall ~~compensation~~deterioration ~~arrangements~~in ~~should~~economic beconditions may ~~compatible~~subject ~~with~~us ~~effective~~to ~~controls~~increased regulatory scrutiny in the current environment. In addition, further deterioration in national and local ~~risk~~economic ~~management~~conditions in our markets could drive losses beyond that which is provided for in our allowance for loan losses, resulting in the following other consequences: increased loan delinquencies, problem assets and foreclosures; decline in demand for our products and services; decrease in deposits, adversely affecting our liquidity position; and decline in value of collateral, reducing our customers’ borrowing power and the value of assets and collateral associated with our existing loans. As a community bank, we are less able to spread the risk of unfavorable economic conditions than larger or more regional banks. Moreover, we cannot give any assurance that we will benefit from any market growth or favorable economic conditions in our primary market areas even if they do occur.

•Recent ~~Incentive~~negative ~~compensation~~developments ~~arrangements~~in ~~should~~the befinancial ~~supported~~industry and bythe ~~strong~~domestic ~~corporate~~and ~~governance,~~international ~~including~~credit ~~active~~markets ~~and~~may ~~effective~~adversely ~~oversight~~affect byour ~~the~~operations ~~board~~and ~~of directors~~results.

12Negative developments during 2008 in the global credit and derivative markets have resulted in uncertainty in the financial markets in general with the expectation of the general economic downturn continuing through 2011. As a result of this “credit crunch,” commercial as well as consumer loan portfolio performances have deteriorated at many institutions and the competition for deposits and quality loans has increased significantly. In addition, the values of real estate collateral supporting many commercial loans and home mortgages have declined and may continue to decline. Global securities markets and bank holding company stock prices in particular, have been negatively affected, as has the ability of banks and bank holding companies to raise capital or borrow in the debt markets. If these negative trends continue, our business operations and financial results may be negatively affected.

~~Table~~We ofare ~~Contents~~subject to extensive regulation that could limit or restrict our activities.

~~The~~We ~~Dodd-Frank~~operate ~~Act~~in a highly regulated industry and are subject to examination, supervision, and comprehensive regulation by various regulatory agencies. Our compliance with these regulations is costly and restricts certain of our activities, including payment of dividends, mergers and acquisitions, investments, loans and interest rates charged, interest rates paid on deposits, and locations of offices. We are also subject to capitalization guidelines established by our regulators, which require us to maintain adequate capital to support our growth.

The ~~Dodd-Frank~~laws ~~Act~~and ~~has~~regulations ~~had~~applicable ato ~~broad impact on~~ the banking ~~financial services~~ industry, ~~including~~have ~~significant~~recently ~~regulatory~~changed and ~~compliance~~may ~~changes previously~~continue ~~discussed~~to ~~and including~~change, ~~among~~and ~~other~~we ~~things,~~cannot ~~(i) enhanced~~predict ~~resolution~~the ~~authority~~effects of ~~troubled~~these ~~and~~changes ~~failing~~on ~~banks~~our ~~and their holding companies; (ii) increased regulatory examination fees; and (iii) numerous other provisions~~business ~~designed to improve supervision~~ and ~~oversight~~profitability. ~~of,~~Because ~~and~~government ~~strengthening~~regulation ~~safety~~greatly ~~and~~affects ~~soundness for,~~ the ~~financial~~business ~~services~~and ~~sector. Additionally, the Dodd-Frank Act establishes a new framework for systemic risk oversight within the~~ financial ~~system~~results toof ~~be distributed~~all ~~among~~commercial ~~new~~banks and bank ~~existing~~holding ~~federal regulatory agencies~~companies, ~~including~~our ~~the~~cost ~~Financial~~of ~~Stability~~compliance ~~Oversight~~could ~~Council,~~adversely ~~the~~affect ~~Federal~~our ~~Reserve~~ability ~~Board,~~to ~~the~~operate ~~OCC and the FDIC~~profitably.

~~Many~~The ~~of the requirements called for in the~~ Dodd-Frank Act ~~will~~was beenacted ~~implemented~~on ~~over~~July ~~time and most will be subject to implementing regulations over the course of several years~~21, 2010. ~~Given~~The ~~the~~implications ~~uncertainty associated with the manner in which the provisions~~ of the Dodd-Frank Act, ~~will~~or beits ~~implemented~~implementing ~~by the various regulatory agencies and through~~ regulations, ~~the full extent of the impact such requirements will have~~ on ~~financial~~our ~~institutions’ operations~~business isare unclear. ~~The~~at ~~changes~~this ~~resulting~~time, ~~from~~but ~~the Dodd-Frank Act~~ it may ~~impact~~adversely ~~the~~affect ~~profitability of~~ our business ~~activities~~, ~~require~~results ~~changes to certain~~ of ~~our~~operations ~~business practices, impose upon us more stringent capital, liquidity~~ and ~~leverage~~the ~~ratio requirements~~underlying orvalue ~~otherwise~~of ~~adversely affect~~ our ~~business~~common stock. ~~These~~The ~~changes~~full ~~may~~effect ~~also~~of ~~require~~this legislation uswill tonot ~~invest~~be ~~significant~~even ~~management~~reasonably ~~attention~~certain ~~and~~until ~~resources~~implementing toregulations ~~evaluate~~are ~~and~~promulgated, ~~make~~which ~~necessary~~could ~~changes~~take years in ~~order to comply with new statutory and regulatory~~some ~~requirements~~cases.

~~Proposed~~Some ~~Legislation~~or all of the changes may result in greater reporting requirements, assessment fees, operational restrictions, capital requirements, and ~~Regulatory~~other ~~Action~~regulatory burdens for either, or both, the Bank and the Company, and many of our non-bank competitors may remain free from such limitations. This could affect our ability to attract and maintain depositors, to offer competitive products and services, and to expand our business.

~~New~~Congress ~~regulations~~may ~~and~~consider ~~statutes~~additional ~~are~~proposals to ~~regularly~~substantially ~~proposed~~change ~~that~~the ~~contain~~financial ~~wide-ranging~~institution ~~proposals~~regulatory ~~for~~system ~~altering~~and ~~the~~to ~~structures,~~expand ~~regulations~~or ~~and competitive~~contract ~~relationships~~the powers of ~~financial~~banking institutions and ~~operating~~bank holding companies. Such legislation may change existing banking statutes and regulations, as well as our current operating environment significantly. If enacted, such legislation could increase or decrease the cost of doing business, inlimit or expand our permissible activities, or affect the ~~United~~competitive ~~States~~balance among banks, savings associations, credit unions, and other financial institutions. We cannot predict whether ornew inlegislation ~~what~~will ~~form~~be ~~any~~enacted ~~proposed~~and, ~~regulation~~if orenacted, ~~statute~~the ~~will~~effect bethat ~~adopted~~it, or ~~the~~any ~~extent~~regulations, would tohave ~~which~~on our business, ~~may~~financial becondition, ~~affected by~~or ~~any~~results ~~new~~of ~~regulation or statute~~operations.

~~Effect of Governmental Monetary Policies~~ 15

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

~~Item 1A Risk~~The ~~Factors~~Emergency Economic Stabilization Act of 2008 (“EESA”) or other governmental actions may not stabilize the financial services industry.

~~Our~~The ~~business~~EESA, ~~financial~~which ~~condition,~~was signed ~~and~~into ~~results~~law ofon ~~operations~~October ~~could~~3, be2008, ~~harmed~~is byintended ~~any~~to ofalleviate the ~~following~~financial ~~risks,~~crisis oraffecting ~~other~~the ~~risks~~United ~~that~~States ~~have~~banking ~~not~~system. A ~~been~~number ~~identified~~of orprograms ~~which~~have webeen, ~~believe~~and are ~~immaterial~~being, ordeveloped ~~unlikely~~and implemented under EESA. ~~Shareholders~~ The ~~should~~EESA ~~carefully~~may ~~consider~~not have the ~~risks~~intended effect, ~~described~~however, ~~below~~and inas ~~conjunction~~a ~~with~~result, the ~~other~~condition ~~information~~of inthe ~~this~~financial ~~Form 10-K~~services ~~and~~industry could decline instead of improve. The failure of the ~~information~~EESA ~~incorporated~~to byimprove ~~reference~~the incondition of the United States banking system could significantly adversely affect our access ~~this~~to ~~Form 10-K~~funding or capital, ~~including~~the trading price of our ~~consolidated~~stock, and other elements of our business, financial ~~statements~~condition, and ~~related~~results ~~notes~~ of operations.

~~The~~In ~~impact~~addition ofto ~~the current~~EESA, ~~economic~~a ~~environment~~variety onof ~~performance~~legislative, ofregulatory, and other ~~financial~~proposals ~~institutions~~have inbeen ~~our~~discussed ~~market~~or ~~areas,~~may ~~actions~~be ~~taken~~introduced byin ~~our~~an ~~competitors~~effort to address the financial ~~current~~crisis. Depending ~~economic~~on ~~downturn~~the scope of such proposals, ~~and~~if ~~public~~they ~~perception~~are ofadopted and ~~confidence~~applied into the ~~economy~~Company, ~~generally~~our financial condition, ~~and~~results ~~the~~of ~~banking industry~~operations ~~specifically~~or liquidity could, ~~may~~directly ~~present~~or ~~significant~~indirectly, ~~challenges~~benefit ~~for~~or usbe ~~and~~adversely affected in a manner that could ~~adversely~~be ~~affect~~material to our ~~performance~~business.

We ~~are operating~~face instrong acompetition ~~challenging~~for ~~and uncertain economic environment~~customers, ~~including~~which ~~generally uncertain national conditions and local conditions in our markets. Financial institutions continue to be affected by sharp declines in the real estate market and~~could ~~constrained~~prevent ~~financial~~us ~~markets.~~from ~~While~~obtaining wecustomers ~~are taking steps to decrease~~ and ~~limit~~may ~~our~~cause ~~exposure~~us to ~~real~~pay ~~estate~~higher ~~construction~~interest ~~loans,~~rates ~~we nonetheless retain direct exposure~~ to ~~the~~attract real estate markets, and we are affected by these events. Continued declines in real estate values and financial stress on borrowers as a result of the uncertain economic environment, including job losses, could have an adverse effect on our borrowers or their customers~~, which could adversely affect our financial condition and results of operations~~.

The ~~impact~~banking business is highly competitive, and we experience competition in our market from many other financial institutions. We compete with commercial banks, credit unions, savings and loan associations, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds, and other mutual funds, as well as other super-regional, national, and international financial institutions that operate offices in our primary market areas and elsewhere. We compete with these institutions both in attracting deposits and in making loans. In addition, we have to attract our client base from other existing financial institutions and from new residents. Many of ~~recent~~our ~~events~~competitors ~~relating~~are well-established, larger financial institutions. These institutions offer some services, such as extensive and established branch networks, that we do not currently provide. There is a risk that we will not be able to ~~housing~~compete successfully with other financial institutions in our market, and ~~commercial~~that ~~real~~we ~~estate~~may ~~markets~~have ~~has~~to pay higher interest rates to attract deposits, resulting in reduced profitability. In addition, competitors that are not ~~been~~depository institutions ~~limited~~are generally not subject to ~~those~~the extensive regulations that apply to us.

13Our small- to medium-sized business target markets may have fewer financial resources to weather a continued downturn in the economy.

~~Table~~We target the banking and financial services needs of ~~Contents~~small- and medium-sized businesses. These businesses generally have fewer financial resources in terms of capital borrowing capacity than larger entities. If general economic conditions continue to negatively impact these businesses in the markets in which we operate, our business, financial condition, and results of operation may be adversely affected.

~~directly~~As ~~involved in the real estate industry, but rather it has impacted~~ a ~~number~~community ~~of related businesses such as building materials suppliers~~bank, ~~equipment~~we ~~leasing~~have ~~firms,~~different ~~and~~lending ~~real~~risks ~~estate attorneys,~~than ~~among~~larger ~~others~~banks. ~~All of these affected businesses have banking relationships and when their businesses suffer from recession, the banking relationship suffers as well.~~

InWe ~~addition,~~provide ~~the~~services to ~~market~~our ~~value~~local ofcommunities. Our ~~the~~ability ~~real~~to ~~estate~~diversify ~~securing~~ our ~~loans~~economic asrisks ~~collateral~~is ~~has~~limited ~~been adversely affected~~ by ~~the slowing economy and unfavorable changes in economic conditions in~~ our ~~market~~own ~~areas~~local markets and ~~could~~ ~~be further adversely affected in the future~~economies. We lend Asprimarily ofto ~~December 31,~~individuals ~~2010, a significant portion of our loans receivable were secured by real estate. Any sustained period of increased payment delinquencies, foreclosures or losses caused by the adverse market~~ and ~~economic~~to ~~conditions,~~small ~~including~~to ~~the~~medium-sized ~~downturn in the real estate market~~businesses, inwhich ~~our~~may ~~markets~~expose ~~will~~us ~~continue~~ to ~~adversely~~greater ~~affect~~lending ~~the~~risks ~~value~~than those of ~~our~~banks ~~assets,~~lending ~~revenues,~~to ~~results of operations and financial condition. Currently~~larger, ~~our~~better-capitalized ~~market~~businesses ~~areas are~~with ~~experiencing~~longer ~~such~~operating ~~an economic downturn, and if it continues, our earnings could be further adversely affected~~histories.

~~The overall~~We ~~deterioration~~manage inour ~~economic~~credit exposure ~~conditions~~through ~~may~~careful ~~subject~~monitoring usof toloan ~~increased~~applicants ~~regulatory~~and ~~scrutiny~~loan concentrations in ~~the~~particular ~~current environment. In addition~~industries, ~~further~~and ~~deterioration~~through inloan ~~national~~ approval and ~~local~~review ~~economic~~procedures. We ~~conditions~~have inestablished ~~our~~an ~~markets~~evaluation ~~could~~process ~~drive~~designed ~~losses~~to ~~beyond~~determine ~~that~~the ~~which is~~adequacy ~~provided~~of ~~for in~~ our allowance for loan losses,. While ~~resulting~~this inevaluation ~~the~~process ~~following~~uses ~~other~~historical ~~consequences:~~and ~~increased~~other ~~loan~~objective ~~delinquencies~~information, ~~problem~~the ~~assets~~classification of loans and ~~foreclosures;~~the ~~decline~~establishment inof ~~demand~~loan ~~for~~losses ~~our~~is ~~products~~an ~~and~~estimate ~~services;~~based ~~decrease~~on ~~in deposits~~experience, ~~adversely affecting~~judgment ~~our liquidity position;~~ and ~~decline~~expectations inregarding ~~value~~our ~~of collateral~~borrowers, the ~~reducing~~economies ~~our~~in ~~customers’~~which ~~borrowing~~we ~~power~~ and ~~the value of assets and collateral associated with~~ our ~~existing~~borrowers ~~loans. As a community bank~~operate, weas ~~are~~well ~~less~~as ~~able to spread~~ the ~~risk~~judgment of ~~unfavorable~~ ~~economic~~our ~~conditions than larger or more regional banks~~regulators. We ~~Moreover, we~~ cannot ~~give~~assure ~~any~~you that ~~assurance~~our ~~that~~loan weloss reserves will ~~benefit~~be ~~from~~sufficient ~~any~~to ~~market~~absorb ~~growth~~future orloan ~~favorable~~losses ~~economic~~or ~~conditions~~prevent ina ~~our~~material ~~primary~~adverse ~~market~~effect ~~areas~~on ~~even~~our ifbusiness, profitability ~~they~~or dofinancial ~~occur~~condition.

~~Recent negative developments in the financial industry and the domestic and international credit markets may adversely affect our operations and results.~~ 16

~~Negative~~A ~~developments~~significant ~~during~~portion ~~2008 in the global credit and derivative markets have resulted in uncertainty in the financial markets in general with the expectation~~ of ~~the~~our ~~general economic downturn continuing through 2011. As a result of this “credit crunch,” commercial as well as consumer~~ loan portfolio ~~performances~~is ~~have~~secured ~~deteriorated~~by ~~at many institutions and the competition for deposits and quality loans has increased significantly. In addition, the values of~~ real estate, ~~collateral supporting many commercial loans~~ and ~~home~~events ~~mortgages~~that ~~have declined and may continue to decline. Global securities markets and bank holding company stock prices in particular, have been~~ negatively ~~affected,~~impact ~~as has~~ the ~~ability~~real ofestate ~~banks~~market ~~and~~could ~~bank~~hurt ~~holding companies to raise capital or borrow in the debt markets. If these negative trends continue,~~ our business ~~operations and financial results may be negatively affected~~.

WeA significant portion of our loan portfolio is secured by real estate as a primary or secondary component of collateral. The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended. The recent weakening of the real estate market could result in an increase in the number of borrowers who default on their loans and a reduction in the value of the collateral securing their loans, which in turn could have an adverse effect on our profitability and asset quality. If we are ~~subject~~required to ~~extensive~~liquidate the collateral securing a loan to satisfy the debt ~~regulation~~during ~~that~~a ~~could~~period ~~limit~~of orreduced ~~restrict~~real estate values, our ~~activities~~earnings and capital could be adversely affected. Acts of nature, including hurricanes, tornados, earthquakes, fires and floods, which may cause uninsured damage and other loss of value to real estate that secures these loans, may also negatively impact our financial condition.

WeOur ~~operate~~use inof aappraisals ~~highly~~in ~~regulated~~deciding ~~industry~~whether ~~and~~to ~~are~~make ~~subject~~a toloan ~~examination,~~on ~~supervision,~~or ~~and~~secured ~~comprehensive regulation~~ by ~~various~~real ~~regulatory~~property ~~agencies. Our~~or ~~compliance~~how ~~with~~to ~~these~~value ~~regulations~~such isloan ~~costly~~in ~~and~~the ~~restricts~~future ~~certain~~may ofnot ~~our~~accurately ~~activities,~~describe ~~including~~the ~~payment~~net value of ~~dividends,~~the ~~mergers~~real ~~and acquisitions,~~property ~~investments,~~collateral ~~loans~~that ~~and~~we ~~interest~~can ~~rates charged, interest rates paid on deposits, and locations of offices~~realize. We ~~are also subject to capitalization guidelines established by our regulators, which require us to maintain adequate capital to support our growth.~~

~~The~~In ~~laws~~considering ~~and~~whether to ~~regulations~~make ~~applicable~~a toloan secured by real property, we generally require an appraisal of the ~~banking~~property. ~~industry~~However, ~~have~~an ~~recently~~appraisal ~~changed~~is ~~and~~only ~~may~~an ~~continue~~estimate of tothe ~~change~~value of the property at the time the appraisal is made, and, as real estate values in our market area have experienced wechanges ~~cannot~~in ~~predict~~value in relatively short periods of time, this estimate might not accurately describe the ~~effects~~net value of ~~these~~the ~~changes~~real onproperty collateral ~~our~~after ~~business~~the ~~and~~loan ~~profitability~~has been closed. ~~Because~~If ~~government~~the ~~regulation~~appraisal ~~greatly~~does ~~affects~~not reflect the ~~business~~amount ~~and~~that ~~financial~~may ~~results~~be ofobtained ~~all~~upon ~~commercial~~any ~~banks~~sale ~~and~~or ~~bank~~foreclosure of ~~holding~~the ~~companies~~property, ~~our~~we ~~cost~~may not realize an amount equal to the indebtedness secured by the property. The valuation of ~~compliance~~the ~~could~~property may negatively impact the continuing value of such loan and could adversely affect our ~~ability~~operating toresults ~~operate~~and ~~profitably.~~financial condition.

~~The~~Our ~~Dodd-Frank~~decisions ~~Act~~regarding ~~was~~credit ~~enacted~~risk onand ~~July 21,~~reserves ~~2010.~~for ~~The implications of~~loan ~~the~~losses ~~Dodd-Frank~~may ~~Act,~~materially orand ~~its implementing regulations, on our business are unclear at this time, but it may~~ adversely affect our business~~, results of operations and the underlying value of our common stock~~. ~~The full effect of this legislation will not be even reasonably certain until implementing regulations are promulgated, which could take years in some cases.~~

~~Some~~Making orloans ~~all of~~and ~~the~~other ~~changes~~extensions ~~may~~of ~~result~~credit is inan ~~greater~~essential ~~reporting~~element ~~requirements,~~of ~~assessment~~our ~~fees,~~business. Although ~~operational~~we ~~restrictions,~~seek ~~capital~~to ~~requirements,~~mitigate ~~and~~risks ~~other~~inherent ~~regulatory~~in ~~burdens~~lending ~~for~~by ~~either,~~adhering orto ~~both~~specific underwriting practices, ~~the~~our ~~Bank~~loans and ~~the~~other ~~Company,~~extensions ~~and many~~ of ~~our~~credit ~~non-bank competitors~~ may ~~remain free~~not ~~from~~be ~~such limitations~~repaid. The ~~This~~risk ~~could~~of ~~affect~~nonpayment ~~our~~is ~~ability~~affected toby ~~attract~~a ~~and~~number ~~maintain depositors~~of factors, ~~to offer competitive products and services, and to expand our business.~~ including:

14· the duration of the credit;

~~Table~~· credit risks of ~~Contents~~a particular customer;

~~Congress~~· ~~may~~changes ~~consider~~in ~~additional~~economic ~~proposals to substantially change the financial institution regulatory system~~ and toindustry ~~expand~~conditions; ~~or contract the powers of banking institutions~~ and bank holding companies. Such legislation may change existing banking statutes and regulations, as well as our current operating environment significantly. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand our permissible activities, or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. We cannot predict whether new legislation will be enacted and, if enacted, the effect that it, or any regulations, would have on our business, financial condition, or results of operations.

~~Our~~· ~~financial~~in ~~condition~~the ~~and~~case ~~results~~ of ~~operations~~a ~~are~~collateralized ~~affected~~loan, byrisks ~~credit~~resulting ~~policies~~from ofuncertainties ~~monetary~~about ~~authorities, particularly~~ the ~~Federal Reserve~~future ~~Board.~~value ~~Actions~~of ~~by monetary and fiscal authorities, including~~ the ~~Federal Reserve, could have an adverse effect on our deposit levels, loan demand or business and earnings~~collateral.

~~The~~We ~~Emergency~~attempt ~~Economic~~to ~~Stabilization~~maintain ~~Act~~an ofappropriate ~~2008~~allowance for ~~(“EESA”)~~loan orlosses ~~other~~to ~~governmental~~provide ~~actions~~for ~~may~~potential ~~not~~losses ~~stabilize~~in our loan portfolio. We periodically determine the ~~financial~~amount of the allowance ~~services~~based ~~industry.~~on consideration of several factors, including:

~~The~~· ~~EESA,~~an ~~which~~ongoing ~~was~~review ~~signed into law on October 3, 2008, is intended to alleviate the financial crisis affecting the United States banking system. A number~~ of ~~programs have been, and are being, developed and implemented under EESA. The EESA may not have~~ the ~~intended effect~~quality, ~~however~~mix, and assize ~~a result, the condition~~ of ~~the financial services industry could decline instead of improve. The failure of the EESA to improve the condition of the United States banking system could significantly adversely affect~~ our ~~access~~overall toloan ~~funding or capital, the trading price of our stock, and other elements of our business, financial condition, and results of operations.~~ portfolio;

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

We· ~~face~~evaluation ~~strong~~of ~~competition~~economic ~~for customers, which could prevent us from obtaining customers and may cause us to pay higher interest rates to attract customers.~~ conditions;

~~The~~· ~~banking~~regular ~~business~~reviews isof ~~highly~~loan ~~competitive,~~delinquencies and ~~we experience competition in our market from many other financial institutions. We compete with commercial banks, credit unions, savings and~~ loan ~~associations,~~portfolio ~~mortgage~~quality; ~~banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds,~~ and other mutual funds, as well as other super-regional, national, and international financial institutions that operate offices in our primary market areas and elsewhere. We compete with these institutions both in attracting deposits and in making loans. In addition, we have to attract our client base from other existing financial institutions and from new residents. Many of our competitors are well-established, larger financial institutions. These institutions offer some services, such as extensive and established branch networks, that we do not currently provide. There is a risk that we will not be able to compete successfully with other financial institutions in our market, and that we may have to pay higher interest rates to attract deposits, resulting in reduced profitability. In addition, competitors that are not depository institutions are generally not subject to the extensive regulations that apply to us.

~~Our~~· ~~small-~~the toamount ~~medium-sized~~and ~~business~~quality ~~target~~of ~~markets~~collateral, ~~may~~including ~~have~~guarantees, ~~fewer~~securing ~~financial resources to weather a continued downturn in~~ the ~~economy~~loans.

WeThere ~~target~~is ~~the~~no ~~banking~~precise ~~and~~method ~~financial~~of ~~services~~predicting credit ~~needs~~losses; oftherefore, ~~small-~~we ~~and~~face ~~medium-sized~~the ~~businesses. These~~risk ~~businesses~~that ~~generally~~charge-offs ~~have~~in ~~fewer financial~~future ~~resources~~periods inwill ~~terms~~exceed ofour ~~capital~~allowance ~~borrowing~~for ~~capacity~~loan ~~than~~losses ~~larger~~and ~~entities. If~~that additional ~~general~~increases ~~economic~~in ~~conditions~~the ~~continue~~allowance tofor ~~negatively~~loan ~~impact~~losses ~~these~~will ~~businesses~~be inrequired. Additions to the ~~markets~~allowance for loan losses would result in ~~which~~a wedecrease ~~operate,~~of our ~~business,~~net ~~financial condition~~income, and ~~results~~possibly ~~of operation~~our ~~may be adversely affected~~capital.

AsAdditionally, afederal ~~community~~and ~~bank~~state regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize further loan charge-offs, webased ~~have~~on judgments different ~~lending~~than ~~risks~~those ~~than~~of ~~larger~~our ~~banks~~management. Any increase in our allowance for loan losses or loan charge-offs as required by these regulators could have a negative effect on our operating results.

We provide services to our local communities. Our ability to diversify our economic risks is limited by our own local markets and economies. We lend primarily to individuals and to small to medium-sized businesses, which may expose us to greater lending risks than those of banks lending to larger, better-capitalized businesses with longer operating histories. 17

15The FDIC Deposit Insurance assessments that we are required to pay may continue to materially increase in the future, which would have an adverse effect on our earnings.

~~Table~~As a member institution of ~~Contents~~the FDIC, we are assessed a quarterly deposit insurance premium. Failed banks nationwide have significantly depleted the insurance fund and reduced the ratio of reserves to insured deposits. As a result, we may be required to pay significantly higher premiums or additional special assessments that could adversely affect our earnings.

WeOn ~~manage~~October ~~our~~19, ~~credit~~2010, ~~exposure~~the ~~through~~FDIC ~~careful~~adopted ~~monitoring of loan applicants and loan~~a ~~concentrations~~new inDIF ~~particular~~Restoration ~~industries~~Plan, ~~and~~which ~~through~~requires ~~loan~~the ~~approval~~DIF ~~and~~to ~~review~~attain ~~procedures~~a 1. We35% ~~have~~reserve ~~established~~ratio anby ~~evaluation~~September ~~process~~30, ~~designed~~2020 toand ~~determine~~foregoes the ~~adequacy~~uniform three ofbasis ~~our~~point-increase ~~allowance~~scheduled ~~for~~to ~~loan~~take ~~losses. While~~effect ~~this~~on ~~evaluation~~January ~~process~~1, ~~uses historical~~2011. ~~and~~In ~~other~~addition, ~~objective~~the ~~information,~~FDIC modified the ~~classification~~method ofby ~~loans~~which assessments are determined and, ~~the~~effective ~~establishment~~April of1, ~~loan~~2011, ~~losses~~adjusted isassessment anrates, ~~estimate~~which ~~based~~will onrange ~~experience,~~from ~~judgment~~2.5 ~~and~~to ~~expectations~~45 ~~regarding~~basis ~~our~~points ~~borrowers~~(annualized), subject ~~the~~to ~~economies~~adjustments infor ~~which~~unsecured wedebt and, ~~our~~in ~~borrowers~~the ~~operate, as~~case ~~well~~of assmall institutions outside the ~~judgment~~lowest ofrisk ~~our~~category ~~regulators. We~~and ~~cannot~~certain ~~assure~~large and ~~you~~highly ~~that~~complex ~~our~~institutions, ~~loan~~brokered ~~loss~~deposits. ~~reserves~~Further ~~will~~increased beFDIC ~~sufficient~~assessment premiums, due to ~~absorb~~our ~~future~~risk ~~loan~~classification, emergency ~~losses~~assessments, or ~~prevent~~implementation aof ~~material~~the ~~adverse~~modified ~~effect~~DIF onreserve ~~our business~~ratio, ~~profitability~~could oradversely ~~financial~~impact ~~condition.~~our earnings.

AChanges ~~significant~~in ~~portion~~the ofinterest ~~our~~rate ~~loan~~environment ~~portfolio~~could isreduce our ~~secured~~net byinterest ~~real estate~~income, ~~and~~which ~~events that negatively impact the real estate market~~ could ~~hurt~~reduce our ~~business~~profitability.

AAs ~~significant~~a ~~portion~~financial of institution, our ~~loan~~earnings ~~portfolio~~significantly isdepend ~~secured~~on byour ~~real~~net ~~estate~~interest asincome, awhich ~~primary~~is ~~or secondary~~the ~~component~~difference ofbetween ~~collateral. The~~the ~~real~~interest ~~estate~~income ~~collateral~~that inwe ~~each~~earn on ~~case~~interest-earning ~~provides~~assets, ansuch ~~alternate~~as ~~source~~investment ofsecurities ~~repayment~~and inloans, ~~the~~and ~~event of default by~~ the ~~borrower~~interest ~~and~~expense ~~may~~that ~~deteriorate~~we inpay ~~value~~on ~~during~~interest-bearing ~~the~~liabilities, such ~~time~~as ~~the~~deposits ~~credit~~and ~~is extended~~borrowings. ~~The~~ ~~recent weakening~~Therefore, ofany ~~the~~change ~~real~~in ~~estate~~general market ~~could~~interest ~~result~~rates, inincluding anchanges ~~increase~~ in the ~~number~~Federal ofReserve Board’s ~~borrowers~~fiscal ~~who default on their loans~~ and amonetary ~~reduction~~policies, inaffects ~~the~~us ~~value~~more ofthan ~~the~~non-financial ~~collateral~~institutions ~~securing~~and ~~their~~can ~~loans, which in turn could~~ have ana ~~adverse~~significant effect on ~~our~~ ~~profitability~~our ~~and~~net ~~asset~~interest ~~quality. If~~income weand ~~are~~total ~~required~~income. toOur ~~liquidate~~assets ~~the~~and ~~collateral~~liabilities ~~securing~~may areact ~~loan~~differently to ~~satisfy~~changes ~~the~~in ~~debt~~overall ~~during~~market arates ~~period~~or conditions ofbecause ~~reduced~~there ~~real~~may ~~estate~~be ~~values,~~mismatches ~~our~~between ~~earnings~~the ~~and~~repricing ~~capital~~or ~~could~~maturity becharacteristics ~~adversely affected. Acts~~ of ~~nature, including~~the ~~hurricanes,~~assets ~~tornados,~~and ~~earthquakes,~~liabilities. ~~fires~~As a ~~and floods~~result, ~~which~~an ~~may~~increase ~~cause~~or ~~uninsured~~decrease ~~damage~~in ~~and~~market ~~other~~interest ~~loss~~rates ofcould ~~value~~have tomaterial ~~real~~adverse ~~estate~~effects ~~that~~on ~~secures~~our ~~these~~net ~~loans,~~interest ~~may~~margin ~~also~~and ~~negatively~~results of ~~impact our financial condition~~operations.

~~Our~~Additionally, ~~use~~we ofcannot ~~appraisals~~predict inwhether interest ~~deciding~~rates ~~whether~~will continue to ~~make~~remain aat ~~loan~~present onlevels. orChanges ~~secured~~in byinterest ~~real~~rates ~~property~~may cause significant changes, up or ~~how~~down, in toour ~~value~~net ~~such~~interest ~~loan~~income. inDepending ~~the~~on ~~future~~our ~~may not~~portfolio ~~accurately~~of ~~describe~~loans ~~the~~and ~~net~~investments, ~~value~~our results of ~~the~~operations ~~real~~may ~~property~~be ~~collateral~~adversely ~~that~~affected by wechanges ~~can~~in ~~realize.~~interest rates.

InOur ~~considering~~recent ~~whether~~operating ~~to make~~results a loan secured by real property, we generally require an appraisal of the property. However, an appraisal is only an estimate of the value of the property at the time the appraisal is made, and, as real estate values in our market area havemay ~~experienced changes in value in relatively short periods of time, this estimate might~~ not ~~accurately describe the net value of the real property collateral after the loan has been closed. If the appraisal does not reflect the amount that may~~ be ~~obtained~~ ~~upon~~indicative ~~any sale or foreclosure~~ of the property, we may not realize an amount equal to the indebtedness secured by the property. The valuation of the property may negatively impact the continuing value of such loan and could adversely affect our future operating results ~~and financial condition~~.

~~Our~~We ~~decisions~~may ~~regarding~~not ~~credit~~be ~~risk~~able to sustain our historical rates of growth of assets and ~~reserves~~earnings, and we may not be able to grow our business at all. Although we have plans for ~~loan~~continued expansion ~~losses~~of our company, our historical results of operation will not necessarily be indicative of our future operations. Various factors, such as economic conditions, regulatory and legislative considerations, and competition, may also impede our ability ~~materially~~to expand our market presence. If we experience a significant decrease in our historical rate of growth, our results of operations and financial condition may be adversely ~~affect~~affected because a high percentage of our ~~business.~~operating costs are fixed expenses.

Making loans and other extensions of credit is an essential element of our business. Although we seek to mitigate risks inherent in lending by adhering to specific underwriting practices, our loans and other extensions of credit may not be repaid. The risk of nonpayment is affected by a number of factors, including: 18

•We ~~the~~are ~~duration~~subject ofto ~~the~~liquidity ~~credit;~~risk in our operations.

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

•Our ~~changes~~ability into ~~economic~~pay ~~and~~cash ~~industry~~dividends on ~~conditions;~~common stock is limited and we may be unable to pay future dividends.

•While we have been paying annual dividends, we make no assurances that we will continue to pay any dividends in the ~~case~~future. Any future determination relating to dividend policy will be made at the discretion of our Board of Directors and will depend on a ~~collateralized~~number of ~~loan~~factors, ~~risks~~including ~~resulting~~our future earnings, capital requirements, financial condition, future prospects, regulatory restrictions, and other factors that our Board of Directors may deem relevant. The holders of our common stock are entitled to receive dividends when, and if declared by our Board of Directors out of funds legally available for that purpose. As part of our consideration to pay cash dividends, we intend to retain adequate funds from ~~uncertainties~~future ~~about~~earnings to support the development and growth of our business. In addition, our ability to pay dividends is restricted by federal policies and regulations. It is the policy of the Federal Reserve Board that bank holding companies should pay cash dividends on common stock only out of net income available over the past year and only if prospective earnings retention is consistent with the organization’s expected future ~~value~~needs and financial condition. Further, our principal source of funds to pay dividends is cash dividends that we receive from the ~~collateral~~Bank; however, statutory and regulatory limitations apply to the payment of dividends by a subsidiary bank to its bank holding company.

We ~~attempt~~may be required to ~~maintain~~raise additional ancapital ~~appropriate~~in ~~allowance~~the ~~for~~future, ~~loan~~but ~~losses~~that tocapital ~~provide~~may not ~~for~~be ~~potential~~available ~~losses~~when init ~~our~~is ~~loan~~needed ~~portfolio. We periodically~~and ~~determine~~could ~~the~~be ~~amount~~dilutive ofto ~~the~~our ~~allowance~~existing shareholders, ~~based~~which oncould ~~consideration~~adversely ofaffect ~~several~~our ~~factors,~~financial ~~including:~~condition and results of operations.

•We anare ~~ongoing~~required ~~review~~by regulatory authorities to maintain adequate levels of capital to support our operations. To support our continued growth, we may need to raise additional capital. Our ability to raise additional capital, if needed, will depend in part on conditions in the ~~quality~~capital markets at that time, which ~~mix~~are outside our control. Accordingly, ~~and~~we ~~size~~cannot assure you of our ~~overall~~ability ~~loan~~to ~~portfolio;~~raise additional capital, if needed, on terms acceptable to us. If we cannot raise additional capital when needed, our ability to further expand our operations through internal growth and acquisitions could be materially impaired. In addition, if we decide to raise additional equity capital, your interest could be diluted.

•We ~~our~~are ~~historical~~exposed ~~loan~~to ~~loss~~the ~~experience;~~possibility of technology failure.

•We ~~evaluation~~rely on our computer systems and the technology of ~~economic~~outside ~~conditions;~~service providers. Our daily operations depend on the operational effectiveness of their technology. We rely on our systems to accurately track and record our assets and liabilities. If our computer systems or outside technology sources become unreliable, fail, or experience a breach of security, our ability to maintain accurate financial records may be impaired, which could materially affect our business operations and financial condition.

•We ~~regular~~are ~~reviews~~dependent ofon ~~loan~~key ~~delinquencies~~individuals and ~~loan~~the ~~portfolio~~loss ~~quality;~~of one or more of these key individuals could curtail our growth and adversely affect our prospects.

~~• the amount and quality of collateral, including guarantees, securing the loans.~~19

~~There~~Our isacting nopresident ~~precise~~and ~~method~~chief ofexecutive officer ~~predicting~~have ~~credit~~extensive ~~losses;~~and ~~therefore,~~long-standing weties ~~face~~within ~~the~~our ~~risk~~primary ~~that~~market ~~charge-offs~~area inand ~~future~~they ~~periods~~have ~~will~~contributed ~~exceed~~significantly to our growth. ~~allowance~~If ~~for~~we ~~loan~~lose ~~losses~~their ~~and~~services ~~that~~it ~~additional~~could ~~increases~~be indifficult ~~the~~to ~~allowance~~replace ~~for~~them, ~~loan~~and ~~losses~~our ~~will~~business and development could be materially and adversely affected.

16Our success also depends, in part, on our continued ability to attract and retain experienced loan originators, as well as other management personnel. The loss of the services of several of such key personnel could adversely affect our growth strategy and prospects to the extent we are unable to replace such personnel.

~~Table~~We ofwill ~~Contents~~face risks with respect to future expansion and acquisitions or mergers.

~~required. Additions~~If we ever decide to ~~the~~acquire ~~allowance~~other ~~for~~financial ~~loan~~institutions, ~~losses~~expand into ~~would~~new ~~result~~markets, inopen anew ~~decrease~~lines of ~~our~~business, ~~net~~offer ~~income~~new products or services, ~~and~~these ~~possibly~~activities ~~our~~would ~~capital.~~involve a number of risks, including:

~~Additionally,~~• ~~federal~~taking ~~and~~additional ~~state~~time ~~regulators~~and ~~periodically~~creating ~~review~~expense ~~our~~associated ~~allowance~~with ~~for~~identifying ~~loan losses~~ and ~~may~~evaluating ~~require~~potential usacquisitions toand ~~increase~~merger our provision for loan losses or recognize further loan charge-offs, based on judgments different than those of our management. Any increase in our allowance for loan losses or loan charge-offs as required by these regulators could have a negative effect on our operating results. partners;

~~The~~• ~~FDIC~~using ~~Deposit~~inaccurate ~~Insurance~~estimates ~~assessments~~and ~~that~~judgments ~~we are required~~ to ~~pay~~evaluate ~~may~~credit, ~~continue~~operations, ~~to materially increase in the future~~management, ~~which~~and ~~would~~market ~~have~~risks anwith ~~adverse~~respect ~~effect~~to onthe ~~our~~target ~~earnings.~~institution or assets;

As• adiluting ~~member~~our ~~institution~~existing ofshareholders ~~the~~in ~~FDIC,~~an we are assessed a quarterly deposit insurance premium. Failed banks nationwide have significantly depleted the insurance fund and reduced the ratio of reserves to insured deposits. As a result, we may be required to pay significantly higher premiums or additional special assessments that could adversely affect our earnings. acquisition;

On• ~~April 1,~~taking ~~2009,~~additional ~~the~~time ~~FDIC~~and ~~modified~~creating ~~the risk-based~~expense ~~assessments~~associated towith ~~account~~evaluating ~~for~~new ~~each~~markets ~~institution’s~~for ~~unsecured debt~~expansion, ~~secured~~hiring ~~liabilities~~experienced local management, and ~~use~~opening ofnew ~~brokered~~offices, ~~deposits.~~as ~~Starting~~there ~~with~~may ~~the~~be ~~second~~a ~~quarter~~substantial oftime ~~2009,~~lag ~~assessment~~between ~~rates~~these ~~were~~activities ~~increased~~before ~~and~~we ~~currently~~generate ~~range~~sufficient ~~from~~assets 7and deposits to ~~77.5~~support ~~basis~~the ~~points (annualized).~~costs of the expansion;

On• ~~October 19,~~taking ~~2010, the FDIC adopted~~ a ~~new~~significant ~~DIF~~amount ~~Restoration~~of ~~Plan,~~time ~~which~~negotiating ~~requires the DIF to attain~~ a ~~1.35% reserve~~transaction ~~ratio~~or byworking ~~September 30, 2020 and foregoes the uniform three basis point-increase scheduled to take effect~~ on ~~January 1,~~expansion ~~2011. In addition~~plans, ~~the~~resulting ~~FDIC~~in ~~modified~~management’s ~~the~~attention ~~method~~being bydiverted ~~which assessments are determined and, effective April 1, 2011, adjusted assessment rates, which will range~~ from ~~2.5 to 45 basis points (annualized), subject to adjustments for unsecured debt and, in~~ the ~~case~~operation of ~~small institutions outside the lowest risk category and certain large and highly complex institutions, brokered deposits. Further increased FDIC assessment premiums, due to~~ our ~~risk~~existing ~~classification, emergency assessments, or implementation of the modified DIF reserve ratio, could adversely impact our earnings.~~ business;

~~Changes~~• intaking ~~the~~time ~~interest~~and ~~rate~~creating ~~environment~~expense ~~could~~integrating ~~reduce~~the ~~our~~operations ~~net~~and ~~interest~~personnel ~~income,~~of ~~which~~the ~~could~~combined ~~reduce our profitability.~~ businesses;

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

~~Additionally,~~• ~~we cannot~~losing ~~predict~~key ~~whether~~employees ~~interest~~and ~~rates~~customers ~~will~~as ~~continue~~a toresult ~~remain at present levels. Changes in interest rates may cause significant changes, up or down, in our net interest income. Depending on our portfolio~~ of ~~loans~~an ~~and~~acquisition ~~investments,~~that ~~our~~is ~~results~~poorly ~~of operations may be adversely affected by changes in interest rates~~received.

~~Our~~We ~~recent~~have ~~operating~~never ~~results~~acquired ~~may~~another ~~not~~institution before, beso ~~indicative of~~we ~~our~~lack ~~future~~experience ~~operating~~in ~~results~~handling any of these risks. There is also a risk that any expansion effort will not be successfully.

WeItem ~~may~~1B Unresolved ~~not~~Staff be able to sustain our historical rates of growth of assets and earnings, and we may not be able to grow our business at all. Although we have plans for continued expansion of our company, our historical results of operation will not necessarily be indicative of our future operations. Various factors, such as economic conditions, regulatory and legislative considerations, and competition, may also impede our ability to expand our market presence. If we experience a significant decrease in our historical rate of growth, our results of operations and financial condition may be adversely affected because a high percentage of our operating costs are fixed expenses. Comments

17Not applicable

~~Table~~Item 2. Description of ~~Contents~~Property

WeThe ~~are~~Company ~~subject~~owns toa ~~liquidity~~5,400 ~~risk~~square foot facility located at 1100 North Jefferies Boulevard, Walterboro, South Carolina, which is its corporate banking office. Construction on this facility was completed in ~~our~~1989 at a total cost, including land, furniture and fixtures of $775,345. All corporate headquarters as well as normal banking services and operations are housed at this location. The facility has a second floor which would allow for expansion consisting of 2,700 square feet. The existing building was built to adequately serve the anticipated needs of the Bank for the foreseeable future.

~~Liquidity~~The ~~risk~~Company isopened ~~the~~its ~~possibility~~second ofbanking ~~being unable,~~ location at a6225 ~~reasonable~~Savannah ~~cost and within acceptable risk tolerances~~Highway, ~~to pay obligations as they come due~~Ravenel, toSouth ~~capitalize on growth opportunities as they arise, or to pay regular dividends because of an inability to liquidate assets or obtain adequate funding on a timely basis~~Carolina. ~~Liquidity~~This ~~is required to fund various obligations~~3,622 ~~including~~square ~~credit obligations~~foot tofacility ~~borrowers,~~opened ~~withdrawals~~for bybusiness depositors, repayment of debt, dividends to shareholders, operating expenses, and capital expenditures. Liquidity is derived primarily from retail deposit growth and retention, principal and interest payments on ~~loans~~October ~~and investment securities~~6, ~~net~~1997 ~~cash provided from operations~~ and ~~access to other funding sources. Our access to funding sources in amounts adequate to finance our activities could be impaired by factors that affect us specifically or the~~provides ~~financial~~traditional ~~services~~banking ~~industry in general~~services. ~~Factors~~The ~~that~~total ~~could~~cost ~~detrimentally affect our access to liquidity sources include a decrease in the level~~ of ~~our~~this ~~business activity due to a market downturn or adverse regulatory action against us. Our ability to borrow could also be impaired by factors that are not specific to us~~facility, ~~such~~including ~~as a severe disruption in the financial markets or negative views and expectations about the prospects for the financial services industry as a whole~~land, ~~given the recent turmoil faced by banking organizations in the domestic~~ and ~~worldwide~~furniture ~~credit markets. Currently, we have access to liquidity to meet our current anticipated needs; however, our access to additional borrowed funds could become limited in the future,~~ and wefixtures ~~may~~was ~~be required to pay above market rates for additional borrowed funds~~$930, ~~if we are able to obtain them at all, which may adversely affect our results of operations~~344.

~~Our~~The ~~ability~~Company toacquired ~~pay~~a ~~cash~~5500 ~~dividends~~square onfoot building ~~common~~at ~~stock~~110 isForest ~~limited~~Hills Road in Walterboro, South Carolina on November 16, 2000 and webegan ~~may~~using beit ~~unable~~as toa ~~pay~~branch ~~future~~location ~~dividends~~in 2001. The total cost of the facility, including land, was $485,000.

~~While~~The weCompany ~~have~~opened ~~been~~its ~~paying~~fourth ~~annual~~banking ~~dividends,~~location at we398 ~~make~~East noMain ~~assurances~~street ~~that~~Ridgeland, weSouth ~~will continue to pay any dividends in the future~~Carolina. ~~Any~~This ~~future~~3,800 ~~determination~~square ~~relating~~foot tofacility ~~dividend~~opened ~~policy~~for ~~will~~business ~~be made at the discretion of our Board of Directors and will depend~~ on aDecember ~~number of factors~~6, ~~including~~2004 ~~our future earnings, capital requirements, financial condition, future prospects, regulatory restrictions,~~ and provides ~~other~~traditional ~~factors~~banking ~~that our Board of Directors may deem relevant~~services. The ~~holders~~total ofcost ~~our common stock are entitled to receive dividends when, and if declared by our Board~~ of ~~Directors~~this ~~out of funds legally available for that purpose. As part of our consideration to pay cash dividends~~facility, weincluding ~~intend to retain adequate funds from future earnings to support the development and growth of our business. In addition~~land, ~~our ability to pay dividends is restricted by federal policies~~ and ~~regulations.~~furniture ~~It is the policy of the Federal Reserve Board that bank holding companies should pay cash dividends on common stock only out of net income available over the past year~~ and ~~only~~fixtures ifwas ~~prospective earnings retention is consistent with the organization’s expected future needs and financial condition. Further~~$1, ~~our principal source of funds to pay dividends is cash dividends that we receive from the Bank; however~~105, ~~statutory and regulatory limitations apply to the payment of dividends by a subsidiary bank to its bank holding company~~257.

We may be required to raise additional capital in the future, but that capital may not be available when it is needed and could be dilutive to our existing shareholders, which could adversely affect our financial condition and results of operations. 20

WeItem ~~are required by regulatory authorities to maintain adequate levels of capital to support our operations~~3. To ~~support~~Legal our continued growth, we may need to raise additional capital. Our ability to raise additional capital, if needed, will depend in part on conditions in the capital markets at that time, which are outside our control. Accordingly, we cannot assure you of our ability to raise additional capital, if needed, on terms acceptable to us. If we cannot raise additional capital when needed, our ability to further expand our operations through internal growth and acquisitions could be materially impaired. In addition, if we decide to raise additional equity capital, your interest could be diluted. Proceedings

~~We are exposed to the possibility of technology failure.~~ None

WeItem ~~rely on our computer systems and the technology of outside service providers~~4. ~~Our~~Mine ~~daily~~Safety operations depend on the operational effectiveness of their technology. We rely on our systems to accurately track and record our assets and liabilities. If our computer systems or outside technology sources become unreliable, fail, or experience a breach of security, our ability to maintain accurate financial records may be impaired, which could materially affect our business operations and financial condition. Disclosures

~~We are dependent on key individuals and the loss of one or more of these key individuals could curtail our growth and adversely affect our prospects.~~ None

18Part II

~~Our~~(a) ~~president~~In ~~and~~response ~~chief~~to ~~executive~~this ~~officer~~Item, ~~has~~the ~~extensive~~information ~~and~~contained ~~long-standing~~on ~~ties~~page ~~within~~51 ~~our primary~~of ~~market~~the ~~area~~Company’s ~~and~~Annual heReport ~~has contributed significantly~~ to ~~our~~Shareholders ~~growth. If~~for wethe ~~lose~~year ~~his~~ended ~~services~~December ~~it could be difficult to replace him~~31, ~~and~~2011 ~~our~~is ~~business~~incorporated ~~and~~herein ~~development~~by ~~could be materially and adversely affected~~reference.

~~Our~~(b) ~~success~~Not ~~also depends, in part, on our continued ability to attract and retain experienced loan originators, as well as other management personnel~~Applicable. ~~The loss of the services of several of such key personnel could adversely affect our growth strategy and prospects to the extent we are unable to replace such personnel.~~

We(c) ~~will~~Not ~~face risks with respect to future expansion and acquisitions or mergers~~Applicable.

IfItem we6. ~~ever~~Selected ~~decide~~Financial ~~to acquire other financial institutions, expand into new markets, open new lines of business, offer new products or services, these activities would involve a number of risks, including:~~ Data

•In ~~taking~~response ~~additional~~to ~~time~~this ~~and~~Item, ~~creating~~the ~~expense~~information contained ~~associated~~on ~~with~~page ~~identifying~~3 ~~and~~of ~~evaluating~~the ~~potential~~Company’s ~~acquisitions~~Annual ~~and~~Report ~~merger~~to ~~partners;~~Shareholders for the year ended December 31, 2011 is incorporated herein by reference.

•Item ~~using~~7. ~~inaccurate~~Management's ~~estimates~~Discussion and ~~judgments~~Analysis toof ~~evaluate~~Financial ~~credit,~~Condition ~~operations, management,~~ and ~~market~~Results ~~risks~~of ~~with respect to the target institution or assets;~~Operation

•In ~~diluting~~response ~~our~~to ~~existing~~this ~~shareholders~~Item, inthe aninformation contained ~~acquisition;~~on pages 8 through 23 of the Company’s Annual Report to Shareholders for the year ended December 31, 2011 is incorporated herein by reference.

•Item ~~taking~~7A. ~~additional~~Quantitative ~~time~~ and ~~creating~~Qualitative ~~expense~~disclosure ~~associated~~about ~~with~~Market evaluating new markets for expansion, hiring experienced local management, and opening new offices, as there may be a substantial time lag between these activities before we generate sufficient assets and deposits to support the costs of the expansion;Risk

•Pursuant ~~taking~~to athe ~~significant~~revised disclosure ~~amount~~requirements offor ~~time~~smaller ~~negotiating~~reporting acompanies ~~transaction~~effective orFebruary ~~working~~4, ~~on expansion plans~~2008, ~~resulting~~no indisclosure ~~management’s~~under ~~attention~~this ~~being~~Item ~~diverted~~is ~~from the operation of our existing business;~~required.

•Item ~~taking~~8. ~~time~~Financial ~~and~~Statements ~~creating expense integrating the operations~~ and ~~personnel~~Supplementary ~~of the combined businesses;~~Data

•In ~~creating~~response anto ~~adverse~~this ~~short-term~~Item, ~~effect~~the information contained on ~~our~~pages ~~results~~25 through 49 of ~~operations;~~the ~~and~~Company’s Annual Report to Shareholders for the year ended December 31, 2011 is incorporated herein by reference.

•Item ~~losing~~9. ~~key~~Changes ~~employees~~in and ~~customers~~Disagreements aswith aAccountants ~~result~~on ofAccounting anand ~~acquisition~~Financial ~~that is poorly received.~~Disclosure

WeNot ~~have never acquired another institution before, so we lack experience in handling any of these risks. There is also a risk that any expansion effort will not be successfully.~~ applicable

Item ~~1B Unresolved Staff~~ ~~Comments~~9A. Control and Procedures

~~Not~~As ~~applicable~~of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and acting Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based upon that evaluation, our Chief Executive Officer and acting Chief Financial Officer have concluded that our current disclosure controls and procedures are effective as of December 31, 2011. There have been no significant changes in our internal controls over financial reporting during the fourth fiscal quarter ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

~~Item 2~~The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. ~~Description~~ There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of ~~Property~~how remote.

The Company owns a 5,400 square foot facility located at 1100 North Jefferies Boulevard, Walterboro, South Carolina, which is its corporate banking office. Construction on this facility was completed in 1989 at a total cost, including land, furniture and fixtures of $775,345. All corporate headquarters as well as normal banking services and operations are housed at this location. The facility has a second floor which would allow for expansion consisting of 2,700 square feet. The existing building was built to adequately serve the anticipated needs of the Bank for the foreseeable future. 21

~~The~~Management’s ~~Company~~Annual ~~opened~~Report ~~its second banking location at 6225 Savannah Highway, Ravenel, South Carolina. This 3,622 square foot facility opened for business~~ on ~~October 6,~~Internal ~~1997~~Controls ~~and provides traditional~~over ~~banking~~Financial ~~services. The total cost of this facility, including land, and furniture and fixtures was $930,344.~~ Reporting

~~The~~Management ~~Company~~is responsible for establishing ~~acquired~~and amaintaining ~~5500~~adequate ~~square~~internal ~~foot~~control ~~building~~over atfinancial ~~110~~reporting, ~~Forest~~as ~~Hills~~such ~~Road~~term inis ~~Walterboro,~~defined ~~South~~in ~~Carolina~~the onExchange ~~November~~Act Rules ~~16,~~13a-15(f). A ~~2000~~system ~~and~~of ~~began~~internal ~~using~~control itover asfinancial reporting is a ~~branch~~process ~~location~~designed into ~~2001.~~provide ~~The~~reasonable ~~total~~assurance ~~cost~~regarding the reliability of financial reporting and the ~~facility,~~preparation ~~including~~of ~~land,~~financial ~~was~~statements ~~$485,000.~~for external purposes in accordance with generally accepted accounting principles.

~~The~~Under the supervision and with the participation of management, including the principal executive officer and the principal financial officer, the Company’s ~~opened~~management has evaluated the effectiveness of its ~~fourth~~internal ~~banking~~control ~~location~~over atfinancial ~~398~~reporting ~~East~~as ~~Main~~of ~~street~~December ~~Ridgeland~~31, ~~South~~2011 ~~Carolina.~~based ~~This~~on ~~3,800~~the ~~square~~criteria ~~foot~~established in ~~facility~~a ~~opened~~report entitled “Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations ~~for~~of ~~business~~the onTreadway ~~December~~Commission” and the interpretive guidance issued by the Commission in Release No. 634-55929. Based on this evaluation, ~~2004~~the Company’s management has evaluated and ~~provides~~concluded ~~traditional~~that ~~banking~~the ~~services.~~Company’s ~~The~~internal ~~total~~control over financial reporting was effective as of December 31, 2011.

19The Company is continuously seeking to improve the 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 its internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

~~Table~~This annual report does not include an attestation report of ~~Contents~~the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.

~~cost~~Item ~~of this facility, including land, and furniture and fixtures was $1,105,257~~9B. Other Information

~~Item 3. Legal~~Not ~~Proceedings~~ applicable

~~None~~Part III

Item ~~4. Removed and~~ ~~Reserved~~10. Directors, Executive Officers, Corporate Governance

~~Part~~In IIresponse to this Item, the information contained on pages 2 through 4 of the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 24, 2012 is incorporated herein by reference.

Item 5 11. ~~Market~~ ~~for~~Executive ~~Common Equity and Related Stockholder Matters~~ Compensation

~~(a)~~ In response to this Item, the information contained on ~~page~~pages 546 and 7 of the Company’s Proxy Statement for the Annual ~~Report~~Meeting of Shareholders to be held on April 24, 2012 is incorporated herein by reference.

~~Shareholders~~Item ~~for~~12. ~~the~~Security ~~year~~Ownership ~~ended~~of ~~December 31,~~Certain ~~2010~~Beneficial isOwners ~~incorporated~~and ~~herein by reference.~~ Management

~~(b)~~In ~~Not~~response ~~Applicable~~to this Item, the information contained on page 5 of the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 24, 2012 is incorporated herein by reference.

In response to this Item ~~6. Selected~~, ~~Financial~~the ~~Data~~information contained on page 5 of the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 24, 2012 is incorporated herein by reference.

~~In response to this~~ Item, ~~the~~14. ~~information~~Principal ~~contained~~Accountant onFees ~~page~~and ~~3 of the Company’s Annual Report to Shareholders for the year ended December 31, 2010 is incorporated herein by reference~~Services.

In response to this Item ~~7. Management~~, the information contained on page 4 of the Company’s ~~Discussion~~Proxy ~~and~~Statement ~~Analysis~~for the Annual Meeting of ~~Financial~~Shareholders ~~Condition~~to ~~and~~be held on April 24, 2012 ~~Results~~is ofincorporated ~~Operation~~herein by reference.

~~In response to this Item, the information contained on pages 8 through 24 of the Company’s Annual Report to Shareholders for the year ended December 31, 2010 is incorporated herein by reference.~~ 22

~~Item 7A. Quantitative~~Part ~~and Qualitative disclosure about Market Risk~~ IV

Pursuant to the revised disclosure requirements for smaller reporting companies effective February 4, 2008, no disclosure under this Item is required.

Item 15.	Exhibits and Financial Statement Schedules

13	Annual Report of Shareholders for the year ended December 31, 2011 (Incorporated by reference)

21.1	Subsidiaries of the Company

31.1	Rule 15d-14(a) Certifications

31.2	Rule 15d-14(a) Certifications

32	Section 1350 Certification

~~Item 8. Financial Statements and Supplementary Data~~ 23

~~In response to this Item, the information contained on pages 25 through 52 of the Company’s Annual Report to Shareholders for the year ended December 31, 2010 is incorporated herein by reference.~~ SIGNATURES

~~Item 9. Changes~~In inaccordance ~~and~~with ~~Disagreements~~Section ~~with~~13 ~~Accountants~~or on15(d) ~~Accounting~~of ~~and~~the Securities Exchange ~~Financial~~Act ~~Disclosure~~of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Not applicable

	BANK OF WALTERBORO

Date: March 23, 2012	By:	/s/ Peden B. McLeod
		Peden B. McLeod Chief Executive Officer

~~Item 9A~~KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Peden P. ~~Control~~ McLeod, his true and ~~Procedures~~lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

AsIn ofaccordance ~~the~~with ~~end of~~ the ~~period~~Exchange ~~covered~~Act, by this report, wehas ~~carried~~been ~~out~~signed below anby ~~evaluation, under~~ the ~~supervision~~following ~~and~~persons ~~with~~on ~~the~~behalf ~~participation~~ of ~~our management, including our Chief Executive Officer and acting Chief Financial Officer, of~~ the ~~effectiveness~~registrant ~~of our disclosure controls and procedures as defined~~ in ~~Exchange~~the ~~Act~~capacities ~~Rule 13a-15(e). Based upon that evaluation, our Chief Executive Officer~~ and ~~acting~~on Chief Financial Officer have concluded that our current disclosure controls and procedures are effective as of December 31, 2010. There have been no significant changes in our internal controls over financial reporting during the ~~fourth~~dates ~~fiscal quarter ended December 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting~~indicated.

Signature	Title	Date

/s/ Gwendolyn P. Bunton	Acting President	March 23, 2012
Gwendolyn P. Bunton	Vice President and Acting
	Chief Financial Officer

/s/ Peden B. McLeod	Director,	March 23, 2012
Peden B. McLeod	Chairman of the Board
	& Chief Executive Officer
/s/ George W. Cone
George W. Cone	Director & Corporate Secretary	March 23, 2012

/s/ J. Barnwell Fishburne
J. Barnwell Fishburne	Director	March 23, 2012

/s/ Harry L. Hill
Harry L. Hill	Director	March 23, 2012

/s/ Steven D. Murdaugh
Steven D. Murdaugh	Director	March 23, 2012

/s/ Harold M. Robertson
Harold M. Robertson	Director	March 23 2012

/s/ J. Reaves McLeod
J. Reaves McLeod	Director	March 23, 2012

~~Table of Contents~~24

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

Management’s Annual Report on Internal Controls Over Financial Reporting

Exhibit No.	Description

13	Annual Report of Shareholders for the year ended December 31, 2011 (Incorporated by reference)

21.2	Subsidiaries of the Company

31.2	Rule 15d-14(a) Certifications

31.2	Rule 15d-14(a) Certifications

32	Section 1350 Certifications

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Exchange Act Rules 13a-15(f). A system of internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. 25

Under the supervision and with the participation of management, including the principal executive officer and the principal financial officer, the Company’s management has evaluated the effectiveness of its internal control over financial reporting as of December 31, 2010 based on the criteria established in a report entitled “Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission” and the interpretive guidance issued by the Commission in Release No. 34-55929. Based on this evaluation, the Company’s management has evaluated and concluded that the Company’s internal control over financial reporting was effective as of December 31, 2010.

The Company is continuously seeking to improve the 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 its internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.

Item 9B. Other Information

Not applicable

Part III

Item 10. Directors, Executive Officers, Corporate Governance

In response to this Item, the information contained on pages 2 through 3 of the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 27, 2011 is incorporated herein by reference.

Item 11. Executive Compensation

In response to this Item, the information contained on page 7 of the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 27, 2011 is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

In response to this Item, the information contained on page 6 of the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 27, 2011 is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

Item 14. Principal Accountant Fees and Services.

In response to this Item, the information contained on page 5 of the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 27, 2011 is incorporated herein by reference.

Part IV

Item 15. Exhibits and Financial Statement Schedules

13		Annual Report of Shareholders for the year ended December 31, 2010 (Incorporated by reference)
21.1		Subsidiaries of the Company
31.1		Rule 15d-14(a) Certifications
31.2		Rule 15d-14(a) Certifications
32		Section 1350 Certification

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

BANK OF WALTERBORO

Date: March 25, 2011				By:		/s/ W. Roger Crook
						W. Roger Crook President and Chief Executive Officer

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints W. Roger Crook, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

Signature	Title	Date
/s/ W. Roger Crook W. Roger Crook	President, Director (CEO)	March 25, 2011
/s/ Gwendolyn P. Bunton Gwendolyn P. Bunton	Vice President (CFO)	March 25, 2011
/s/ Peden B. McLeod Peden B. McLeod	Director & Chairman of the Board	March 25, 2011
/s/ George W. Cone George W. Cone	Director & Corporate Secretary	March 25, 2011
/s/ J. Barnwell Fishburne J. Barnwell Fishburne	Director	March 25, 2011
/s/ Harry L. Hill Harry L. Hill	Director	March 25, 2011
/s/ Steven D. Murdaugh Steven D. Murdaugh	Director	March 25, 2011
/s/ Harold M. Robertson Harold M. Robertson	Director	March 25, 2011
/s/ J. Reaves McLeod J. Reaves McLeod	Director	March 25, 2011

Index To Exhibits

Exhibit No.		Description
13		Annual Report of Shareholders for the year ended December 31, 2010
21.2		Subsidiaries of the Company
31.2		Rule 15d-14(a) Certifications
31.2		Rule 15d-14(a) Certifications
32		Section 1350 Certifications

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