UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

Xx Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, ~~2009~~2010

Commission file no. 33-76644

COMMUNITYCORP

(Exact Name of Registrant as Specified in Its Charter)

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)

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

(843) 549-2265

Registrant’s Telephone Number, Including Area Code

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

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

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

Yes ¨ No x

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

Yes ¨ No x

Indicate by check mark whether the registrant (1) has ~~submitted~~filed ~~electronically~~all ~~and posted on its corporate Web site, if any, every Interactive Data File~~ reports required to be ~~submitted~~filed ~~and~~by ~~posted pursuant to Rule~~Section ~~405~~13 ofor ~~Regulation S-T~~ 15(~~§232.405~~d) of ~~this~~the ~~chapter)~~Securities Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to ~~submit~~file such reports), and ~~post~~(2) has been subject to such ~~files). YES~~filing requirements ¨for past 90 days. NO Yes x No¨

Indicate by check mark whether the registrant ~~(1)~~ has ~~filed~~submitted ~~all~~electronically ~~reports~~and posted on its corporate Web site, if any, every Interactive Data File required to be ~~filed~~submitted byand ~~Section 13~~posted orpursuant ~~15(d)~~to Rule 405 of ~~the~~Regulation ~~Securities~~S-T ~~Exchange~~(§232.405 ~~Act~~of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to ~~file~~submit ~~such reports),~~ and ~~(2) has~~ ~~been~~post ~~subject to~~ such ~~filing requirements for past 90 days~~files). YES ~~Yes~~¨ NO ~~x No~~ ¨

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

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


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

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

The aggregate market value of the voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold was $17,~~749~~647,~~128~~647 as of March 2618, ~~2010~~2011.

The number of shares of common stock outstanding as of March 2625, ~~2010~~2011, was ~~234~~233,003.

DOCUMENTS INCORPORATED BY REFERENCE

Annual Report to Shareholders for the year ended December 31, ~~2009~~2010

Proxy Statement for the Annual Meeting of April 2827, ~~2010~~2011

COMMUNITYCORP

Index

PART I
Item 1	Business	3
Item 1A	Risk Factors	1613
Item 1B	Unresolved Staff Comment	2019
Item 2	Description of Properties	2019
Item 3	Legal Proceedings	2120
Item 4	~~Submission~~Removed ofand ~~Matters to a Vote of Security Holders~~Reserved	2120
PART II
Item 5	Market for Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	2120
Item 6	Selected Financial Data	2120
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operation	2120
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	2120
Item 8	Financial Statements and Supplementary Data	2120
Item 9	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	2120
Item 9A	Controls and Procedures	2120
Item 9B	Other Information	2221
PART III
Item 10	Directors, Executive Officers, and Corporate Governance ~~of the Registrant~~	2221
Item 11	Executive Compensation	2221
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	2221
Item 13	Certain Relationships and Related Transactions, and Director Independence	2322
Item 14	Principal Accountant Fees and Services	2322
PART IV
Item 15	Exhibits and Financial Statement Schedules	2322

~~PART~~CAUTIONARY INOTE REGARDING FORWARD-LOOKING STATEMENTS

~~FORWARD~~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~~looking ~~STATEMENTS~~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.

~~This~~These ~~report, including information included or incorporated by reference in this document, contains “~~forward-looking statements” ~~within~~involve ~~the~~risks ~~meaning~~and ofuncertainties ~~within the meaning of Section 27A of the Securities Act of 1933~~ and ~~Section 21E~~may ofnot ~~the~~be ~~Securities~~realized ~~Exchange~~due ~~Act of 1934 (the “Exchange Act”). Forward-looking statements may relate~~ to ~~our~~a ~~financial~~variety ~~condition, results~~ of operation, plans, objectives, or future performance. Forward-looking statements are based on many assumptions and estimates and are not guarantees of future performance. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many factors ~~about which we are unsure~~, including ~~many factors which are beyond our control. The words “may~~,” “would,” “could,” “should,” “will,” “expect,” “anticipate,” “predict,” “project,” “potential,” “believe,” “continue,” “assume,” “believe,” “intend,” “plan,” and “estimate,” as well as similar expressions, are meant to identify such forward-looking statements. Potential risks and uncertainties that could cause our actual results to differ from those anticipated in any forward-looking statements include, but ~~are~~ not limited to ~~those described below under Risk Factors and~~ the following:

• ~~reduced~~deterioration ~~earnings~~in ~~due~~the tofinancial ~~higher~~condition ~~credit~~of ~~losses~~borrowers ~~generally~~resulting ~~and~~in ~~specifically~~significant ~~because~~increases ~~losses~~ in ~~the sectors of our~~ loan ~~portfolio~~losses ~~secured~~and byprovisions ~~real~~for ~~estate~~those are greater than expected due to economic factors, including, but not limited to, declining real estate values, increasing interest rates, increasing unemployment, or changes in payment behavior or other factorslosses;

• ~~reduced~~changes ~~earnings~~in ~~due~~loan tounderwriting, ~~higher~~ credit ~~losses~~review ~~because~~or ~~our~~loss ~~loans~~reserve ~~are~~policies ~~concentrated~~associated bywith ~~loan~~economic ~~type~~conditions, ~~industry~~examination ~~segment~~conclusions, ~~borrower type,~~ or ~~location~~regulatory ~~of the borrower or collateral~~developments;

• ~~high~~the ~~concentration~~failure of ~~our~~assumptions ~~real~~underlying ~~estate-based~~the ~~loans~~establishment ~~collateralized~~of byreserves ~~real~~for ~~estate~~possible inloan ~~a weak commercial real estate market~~losses;

• ~~adequacy~~changes ofin political and economic conditions, including the ~~level~~political and economic effects of ~~our~~the ~~allowance~~current ~~for~~economic ~~loan~~downturn ~~losses~~and other major developments, including the ongoing war on terrorism and political unrest in the Middle East;

• changes in financial market conditions, either internationally, nationally or locally in areas in which the ~~rate~~Company conducts its operations, including, without limitation, reduced rates of ~~delinquencies~~business formation and ~~amounts~~growth, ofcommercial ~~charge-offs~~and residential real estate development, and real estate prices;

• ~~challenges,~~the ~~costs~~Company’s ~~and~~ability ~~complications~~to ~~associated~~comply with any requirements imposed on it or the ~~continued~~Bank ~~development~~by oftheir ~~our~~respective ~~branches~~regulators, and the potential negative consequences that may result;

• ~~changes~~fluctuations in ~~political~~markets ~~conditions~~for orequity, ~~the~~fixed-income, ~~legislative~~commercial orpaper ~~regulatory~~and ~~environment~~other securities, which could affect availability, market liquidity levels, and pricing;

• ~~significant~~governmental ~~increases~~monetary inand ~~competitive~~fiscal ~~pressure~~policies, inas ~~Bank~~well ofas ~~Walterboro’s~~legislative ~~banking~~ and ~~financial~~regulatory ~~services industries~~changes;

• ~~general~~the ~~economic~~Company’s ~~conditions,~~participation ~~either~~or ~~nationally~~lack orof ~~regionally~~participation in governmental programs implemented under the Emergency Economic Stabilization Act (the “EESA”) and ~~especially~~the inAmerican ~~our~~Recovery ~~primary~~and ~~service~~Reinvestment ~~area,~~Act ~~becoming~~(the ~~less~~“ARRA”), ~~favorable~~including, ~~than~~without ~~expected~~limitation, ~~resulting~~the inCPP administered under the Troubled Asset Relief Program, ~~among~~and ~~other~~the ~~things~~Temporary Liquidity Guarantee Program (the “TLGP”) and the impact of such programs and related regulations on the Company and on international, anational, ~~deterioration~~and inlocal ~~credit~~economic ~~quality~~and financial markets and conditions;

• ~~adverse~~the ~~conditions~~Company’s lack of participation in a “stress test” under the ~~stock~~Federal ~~market,~~Reserve’s Supervisory Capital Assessment Program; the ~~public~~diagnostic ~~debt~~and ~~market~~stress testing we conducted differs from that administered under the Supervisory Capital Assessment Program, and ~~other~~the ~~capital~~results ~~markets~~of our test may be inaccurate;

• ~~changes~~the ~~occurring~~impact inof the EESA and the ARRA and related rules and regulations on the business ~~conditions~~operations and ~~inflation~~competitiveness of the Company and other participating American financial institutions, including the impact of the executive compensation limits of these acts, which may impact the ability of the Company to retain and recruit executives and other personnel necessary for their businesses and competitiveness;

• changes in technology;

• changes in monetary and tax policies;

• the rates of loan growth;

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

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

• changes in the securities markets; and

• other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission (the “SEC”).

These risks are exacerbated by the developments over the past two years in national and international financial markets, and we are unable to predict what effect these uncertain market conditions will have on our Company. During 2008 and 2009, the capital and credit markets experienced unprecedented levels of extended volatility and disruption. There can be no assurance that these unprecedented recent developments will not materially and adversely affect our business, financial condition and results of operations.

All forward-looking statements in this report are based on information available to us as of the date of this report. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee you that these expectations will be achieved. We undertake no obligation to publicly update or otherwise revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

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”)~~. The ~~bank~~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 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~~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 personal loans.

• ~~Deposit~~Loan ~~Services.~~Products - The ~~bank~~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 ofequity ~~deposit.~~lines ~~The~~of ~~transaction~~credit ~~accounts~~and secured and ~~time~~unsecured ~~certificates~~loans ~~are~~for ~~tailored~~financing toautomobiles, ~~our~~home ~~principal~~improvements, ~~market~~education, ~~area~~and atpersonal ~~rates~~investments. ~~competitive~~The toBank ~~those~~also ~~offered~~makes byreal ~~other~~estate ~~banks~~construction inand ~~the~~acquisition ~~area~~loans. InThe ~~addition,~~Bank’s welending ~~offer~~activities ~~certain~~are ~~retirement~~subject ~~account~~to ~~services,~~a ~~such~~variety asof ~~Individual~~lending ~~Retirement~~limits ~~Accounts~~imposed ~~(IRAs)~~by federal law. ~~Deposits~~While differing limits apply in certain circumstances based on the ~~bank~~type ~~are~~of ~~insured~~loan byor the ~~Federal~~nature ~~Deposit~~of ~~Insurance~~the ~~Corporation~~borrower (~~“FDIC”)~~including upthe toborrower’s arelationship ~~maximum~~to ~~amount~~us), ~~which~~in isgeneral ~~currently~~we ~~$250,000~~are ~~for~~subject ~~each~~to ~~non~~a loans-~~retirement~~to-one-borrower ~~depositor~~limit ~~and~~of ~~$250,000~~an ~~for~~amount ~~certain~~equal ~~retirement-account~~to ~~depositors.~~15% of The ~~FDIC~~Bank’s ~~temporary~~unimpaired ~~increase~~capital ofand ~~coverage~~surplus. upWe may not make any loans to ~~$250~~any director,~~000~~ ~~from~~officer, ~~$100~~employee,~~000~~ ~~for~~or ~~each~~10% ~~non-retirement~~shareholder ~~depositor~~of ~~expires~~The onBank ~~December~~unless ~~31,~~the ~~2013.~~loan ~~The~~is ~~bank~~approved isby ~~participating~~our inboard ~~the~~of ~~FDIC’s~~directors ~~Temporary~~and ~~Liquidity~~is ~~Guarantee~~made ~~Program~~on ~~(discussed~~terms ~~below~~not inmore ~~greater~~favorable ~~detail)~~to ~~which,~~such ina ~~part,~~person ~~fully~~than ~~insures~~would ~~non-interest~~be ~~bearing~~available ~~transaction~~to ~~accounts~~a person not affiliated with us.

• ~~Loan~~Deposit ~~Products.~~Services - The ~~bank~~Bank offers a full range of ~~commercial~~deposit ~~and~~services ~~personal~~that ~~loans.~~are ~~Commercial~~typically ~~loans~~available ~~include~~in ~~both~~most ~~secured~~banks and ~~unsecured~~savings ~~loans~~and ~~for~~loan ~~working~~associations, ~~capital (~~including ~~loans~~checking ~~secured~~accounts, byNOW ~~inventory~~accounts, ~~and~~savings accounts ~~receivable)~~, ~~business~~and ~~expansion~~other ~~(including~~time ~~acquisition~~deposits of ~~real~~various ~~estate and improvements)~~types, ~~and~~ranging ~~purchase~~from ofdaily ~~equipment~~money ~~and~~market ~~machinery.~~accounts ~~Consumer~~to ~~loans~~longer-term ~~include~~certificates ~~equity lines~~ of ~~credit and secured and unsecured loans for financing automobiles, home improvements, education, and personal investments~~deposit. The ~~bank~~transaction ~~also~~accounts ~~makes real estate construction~~ and ~~acquisition~~time ~~loans.~~certificates ~~The bank’s lending activities~~ are ~~subject~~tailored to aour ~~variety~~principal ofmarket ~~lending~~area ~~limits~~at ~~imposed~~rates bycompetitive ~~federal~~to ~~law.~~those ~~While~~offered ~~differing~~by ~~limits~~other ~~apply~~banks in ~~certain circumstances based on~~ the ~~type~~area. ofIn ~~loan~~addition, orwe ~~the~~offer ~~nature~~certain ofretirement ~~the~~account ~~borrower~~services, ~~(including~~such ~~the~~as ~~borrower’s~~Individual ~~relationship~~Retirement toAccounts us(IRAs),. inThe ~~general~~Bank wesolicits ~~are~~deposit ~~subject~~accounts tofrom aindividuals, ~~loans-to-one-borrower~~businesses, ~~limit~~associations ofand anorganizations ~~amount~~and, ~~equal~~governmental toauthorities. ~~15%~~All ofdeposit ~~the~~accounts ~~bank’s~~are ~~unimpaired~~insured ~~capital~~by ~~and~~the ~~surplus.~~FDIC Weup ~~may not make any loans~~ to ~~any~~the ~~director,~~maximum ~~officer,~~amount ~~employee,~~allowed orby ~~10%~~law. ~~shareholder~~See of“Supervision ~~the~~and ~~bank~~Regulation.”

~~unless~~• ~~the~~Other ~~loan~~Services. isOther ~~approved~~bank byservices ~~our~~include ~~board~~cash management services, safe deposit boxes, travelers checks, direct deposit of ~~directors~~payroll and social security checks, and automatic drafts for various accounts. The Bank is ~~made~~associated onwith ~~terms~~Honor ~~not~~and ~~more~~Plus ~~favorable~~networks toof ~~such~~automated ateller ~~person~~machines ~~than~~that ~~would~~may be ~~available~~used toby our customers throughout South Carolina and other regions. The Bank also offers VISA credit card services through a ~~person~~correspondent ~~not~~bank ~~affiliated~~as ~~with~~an agent for us. The Bank offers an Internet banking product accessible via the Bank’s custom website at www.bankofwalterboro.com.

• 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~~ 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 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.

Employees

As of December 31, ~~2009~~2010, the Bank had forty-~~two~~four full time and ~~five~~two part time employees. The Company ~~had~~has no employees.

Supervision and Regulations

Both Communitycorp and ~~The~~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.

Recent Regulatory Developments

The following is a summary of recently enacted laws and regulations that could materially impact our business, financial condition or results of operations. This discussion should be read in conjunction with the remainder of the “Supervision and Regulation” section of this Annual Report on Form 10-K.

Markets in the United States and elsewhere have experienced extreme volatility and disruption over the past two years. These circumstances have exerted significant downward pressure on prices of equity securities and virtually all other asset classes, and have resulted in substantially increased market volatility, severely constrained credit and capital markets, particularly for financial institutions, and an overall loss of investor confidence. Loan portfolio performances have deteriorated at many institutions resulting from, among other factors, a weak economy and a decline in the value of the collateral supporting their loans. Dramatic slowdowns in the housing industry, due in part to falling home prices and increasing foreclosures and unemployment, have created strains on financial institutions. Many borrowers are now unable to repay their loans, and the collateral securing these loans has, in some cases, declined below the loan balance. In response to the challenges facing the financial services sector, several regulatory and governmental actions have been announced including:

• The Emergency Economic Stabilization Act (“EESA”), approved by Congress and signed by President Bush on October 3, 2008, which, among other provisions, allowed the U.S. Treasury to purchase troubled assets from banks, authorized the SEC to suspend the application of marked-to-market accounting, and raised the basic limit of FDIC deposit insurance from $100,000 to $250,000 through December 31, 2013; • On October 7, 2008, the FDIC approved a plan to increase the rates banks pay for deposit insurance; • On October 14, 2008, the U.S. Treasury announced the creation of a new program, the Capital Purchase Program, that encourages and allows financial institutions to build capital through the sale of senior preferred shares to the U.S. Treasury on terms that are non-negotiable; • On October 14, 2008, the FDIC announced the creation of the Temporary Liquidity Guarantee Program (“TLGP”), which seeks to strengthen confidence and encourage liquidity in the banking system. The TLGP has two primary components that are available on a voluntary basis to financial institutions:

• Guarantee of newly-issued senior unsecured debt; the guarantee would apply to new debt issued on or before October 31, 2009 and would provide protection until December 31, 2012; issuers electing to participate would pay a 75 basis point fee for the guarantee; and

• Unlimited deposit insurance for non-interest bearing deposit transaction accounts; financial institutions electing to participate will pay a 10 basis point premium in addition to the insurance premiums paid for standard deposit insurance.

• On February 10, 2009, the U.S. Treasury announced the Financial Stability Plan, which earmarked $350 billion of the TARP funds authorized under EESA. Among other things, the Financial Stability Plan includes:

• A capital assistance program that will invest in mandatory convertible preferred stock of certain qualifying institutions determined on a basis and through a process similar to the Capital Purchase Program;

• A consumer and business lending initiative to fund new consumer loans, small business loans and commercial mortgage asset-backed securities issuances;

• A new public-private investment fund that will leverage public and private capital with public financing to purchase up to $500 billion to $1 trillion of legacy “toxic assets” from financial institutions; and

• Assistance for homeowners by providing up to $75 billion to reduce mortgage payments and interest

rates and establishing loan modification guidelines for government and private programs.

•		On February 17, 2009, the American Recovery and Reinvestment Act (the “Recovery Act”) was signed into law in an effort to, among other things, create jobs and stimulate growth in the United States economy. The Recovery Act specifies appropriations of approximately $787 billion for a wide range of Federal programs and will increase or extend certain benefits payable under the Medicaid, unemployment compensation, and nutrition assistance programs. The Recovery Act also reduces individual and corporate income tax collections and makes a variety of other changes to tax laws. The Recovery Act also imposes certain limitations on compensation paid by participants in the U.S. Treasury’s Troubled Asset Relief Program (“TARP”).
•		On March 23, 2009, the U.S. Treasury, in conjunction with the FDIC and the Federal Reserve, announced the Public-Private Partnership Investment Program for Legacy Assets which consists of two separate plans, addressing two distinct asset groups:

• The first plan is the Legacy Loan Program, which has a primary purpose to facilitate the sale of troubled mortgage loans by eligible institutions, including FDIC-insured federal or state banks and savings associations. Eligible assets are not strictly limited to loans; however, what constitutes an eligible asset will be determined by participating banks, their primary regulators, the FDIC and the U.S. Treasury. Under the Legacy Loan Program, the FDIC has sold certain troubled assets out of an FDIC receivership in two separate transactions relating to the failed Illinois bank, Corus Bank, NA, and the failed Texas bank, Franklin Bank, S.S.B. These transactions were completed in September 2009 and October 2009, respectively.

• The second plan is the Securities Program, which is administered by the U.S. Treasury and involves the creation of public-private investment funds to target investments in eligible residential mortgage-backed securities and commercial mortgage-backed securities issued before 2009 that originally were rated AAA or the equivalent by two or more nationally recognized statistical rating organizations, without regard to rating enhancements (collectively, “Legacy Securities”). Legacy Securities must be directly secured by actual mortgage loans, leases or other assets, and may be purchased only from financial institutions that meet TARP eligibility requirements. The U.S. Treasury received over 100 unique applications to participate in the Legacy Securities PPIP and in July 2009 selected nine public-private investment fund managers. As of December 31, 2009, public-private investment funds have completed initial and subsequent closings on approximately $6.2 billion of private sector equity capital, which was matched 100% by the U.S. Treasury representing $12.4 billion of total equity capital. The U.S. Treasury has also provided $12.4 billion of debt capital, representing $24.8 billion of total purchasing power. As of December 31, 2009, public-private investment funds have drawn-down approximately $4.3 billion of total capital which has been invested in certain non-agency residential mortgage-backed securities and commercial mortgage backed securities and cash equivalents pending investment.

• On May 22, 2009, the FDIC levied a one-time special assessment on all banks due on September 30, 2009; • On November 12, 2009, the FDIC issued a final rule to require banks to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012 and to increase assessment rates effective on January 1, 2011; and • On February 2, 2010, the U.S. President called on the U.S. Congress to create a new Small Business Lending Fund. Under this proposal, $30 billion in TARP funds would be transferred to a new program outside of TARP to support small business lending. As proposed, only small- and medium-sized banks would qualify to participate in the program.

As a result of the enhancements to deposit insurance protection and the expectation that there will be demands on the FDIC’s deposit insurance fund, our deposit insurance costs increased significantly in 2009. We have elected not to participate in the TARP Capital Purchase Program, but will consider participating in similar programs, if any, announced in the future. Regardless of our lack of participation, governmental intervention and new regulations

under these programs could materially and adversely affect our business, financial condition and results of operations.

COMMUNITYCORP

We own 100% of 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 ~~thereunder.~~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.

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:

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banking or managing or controlling banks;

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furnishing services to or performing services for our subsidiaries; and

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any activity that the Federal Reserve determines to be so closely related to banking as to be a proper incident to the business of banking.

Activities that the Federal Reserve has found to be so closely related to banking as to be a proper incident to the business of banking include:

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factoring accounts receivable;

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making, acquiring, brokering or servicing loans and usual related activities;

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leasing personal or real property;

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operating a non-bank depository institution, such as a savings association;

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trust company functions;

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financial and investment advisory activities;

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conducting discount securities brokerage activities;

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underwriting and dealing in government obligations and money market instruments;

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providing specified management consulting and counseling activities;

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performing selected data processing services and support services;

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acting as agent or broker in selling credit life insurance and other types of insurance in connection with credit transactions; and

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performing selected insurance underwriting activities.

As a bank holding company we also can elect to be treated as a “financial holding company,” which would allow us engage in a broader 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 brokerage activities, providing 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 the future as 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).

The Federal Reserve has the authority to order a bank holding company or its subsidiaries to terminate any of these activities or to terminate its ownership or control of any subsidiary when it has reasonable cause to believe that the bank holding company’s continued ownership, activity or control constitutes a serious risk to the financial safety, soundness or stability of it or any of its bank subsidiaries.

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

~~Following~~• the ~~relaxing of these restrictions by the Federal Reserve in September 2008, control will be rebuttably presumed to exist if a person acquires more than 33% of the total equity of a~~ bank ~~or bank~~ holding company, ofhas ~~which~~registered itsecurities ~~may~~under ~~own,~~Section ~~control~~12 orof ~~have~~ the ~~power~~Securities toAct ~~vote not more than 15%~~ of ~~any~~1934; ~~class of voting securities.~~ or

~~Source~~• ofno Strength. In accordance with Federal Reserve Board policy, we are expected to act as a source of financial strength to the bank and to commit resources to support the bank in circumstances in which we might not otherwise do so. If the bank were to become “undercapitalized” (see below “Bank of Walterboro — Prompt Corrective Action”), we would be required to provide a guarantee of the bank’s plan to return to capital adequacy. Additionally, under the bank Holding Company Act, the Federal Reserve Board may require a bank holding company to terminate any activity or relinquish control of a nonbank subsidiary, other ~~than~~person aowns ~~nonbank subsidiary of~~ a ~~bank,~~greater ~~upon~~percentage ~~the Federal Reserve Board’s determination that such activity or control constitutes a serious risk to the financial soundness or stability~~ of any depository institution subsidiary of the bank holding company. Further, federal bank regulatory authorities have additional discretion to require a bank holding company to divest itself of any bank or nonbank subsidiaries if the agency determines that ~~divestiture~~class ~~may aid the depository institution’s financial condition. Further, any loans by a bank holding company to a subsidiary bank are subordinate in right~~ of ~~payment~~voting tosecurities ~~deposits~~immediately ~~and~~after ~~certain other indebtedness of~~ the ~~subsidiary~~ ~~bank~~transaction. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank at a certain level would be assumed by the bankruptcy trustee and entitled to priority payment.

~~Capital~~Our Requirements. The Federal Reserve Board imposes certain capital requirements on the bank holding company under the Bank Holding Company Act, including a minimum leverage ratio and a minimum ratio of “qualifying” capital to risk-weighted assets. These requirements are essentially the same as those that apply to the bank described below under “Bank of Walterboro—Capital Regulations.” 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 outstanding registered with the SEC. Although our class of common stock is registered under Section 12 of the Securities Exchange Act, weof 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 company1934. ~~Nevertheless,~~The ~~our~~regulations ~~Bank~~provide 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~~procedure ~~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~~challenging ~~quantitative~~rebuttable ~~measures~~presumptions of ~~the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices~~control. 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.

~~Subject~~Source toof ~~our~~Strength ~~capital~~- ~~requirements~~Under ~~and~~Federal ~~certain~~Reserve ~~other restrictions~~policy, we are expected ~~able~~to act as a source of financial strength for the Bank and to ~~borrow~~commit ~~money~~resources to ~~make~~support athe ~~capital~~Bank. ~~contribution~~In addition, pursuant to the ~~bank~~Dodd-Frank Wall Street and Consumer Protection Act (the “Dodd-Frank Act”), the federal banking ~~and~~regulators ~~these~~are ~~loans~~required ~~may~~to beissue, ~~repaid~~within ~~from~~two ~~dividends~~years ~~paid~~of ~~from~~enactment, ~~the~~rules that require a bank holding company to ~~the~~serve ~~Company~~as a source of financial strength for any depository institution subsidiary. ~~Our~~This ~~ability~~support tomay ~~pay~~be ~~dividends~~required ~~depends~~at ontimes when, without this Federal Reserve policy or the ~~bank’s~~impending ~~ability~~rules, towe ~~pay~~might ~~dividends~~not be inclined to usprovide it. In addition, ~~which~~any iscapital ~~subject~~loans made by us to ~~regulatory~~the ~~restrictions~~Bank aswill ~~described~~be ~~below~~repaid inonly “after the Bank’s ~~of Walterboro~~deposits —and ~~Dividends.” We~~various other obligations are ~~also~~repaid ~~able~~in tofull. ~~raise~~In ~~capital~~the unlikely ~~for~~event ~~contribution~~of our bankruptcy, any commitment that we give to ~~the~~a bank byregulatory ~~issuing~~agency ~~securities~~to ~~without~~maintain ~~having~~the tocapital ~~receive~~of ~~regulatory~~the ~~approval,~~Bank ~~subject~~will tobe ~~compliance~~assumed ~~with~~by ~~federal~~the bankruptcy trustee and ~~state~~entitled ~~securities~~to ~~laws~~a priority of payment.

~~South~~Capital ~~Carolina~~Requirements ~~State~~- ~~Regulation. As~~The aFederal ~~South~~Reserve ~~Carolina~~Board imposes certain capital requirements on the bank holding company under the Bank ~~South~~Holding ~~Carolina~~Company ~~Banking~~Act, including a minimum leverage ratio and ~~Branching~~ ~~Efficiency~~a ~~Act,~~minimum weratio ~~are~~of ~~subject~~“qualifying” capital to ~~limitations~~risk-weighted onassets. These ~~sale~~requirements orare ~~merger~~essentially ~~and~~the tosame ~~regulation~~as bythose that apply to the ~~South~~bank ~~Carolina~~described ~~Board~~below under “Bank of ~~Financial~~Walterboro ~~Institutions~~– Prompt Corrective Action.” WeHowever, ~~are~~The ~~not~~Federal ~~required~~Reserve toguidelines ~~obtain~~contain an exemption from the ~~approval~~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 outstanding registered with the ~~South~~United ~~Carolina~~States ~~Board~~Security ~~prior~~and toExchange ~~acquiring~~Commission (the “SEC.”) Although our ~~capital~~class of common stock is registered under Section 12 of athe ~~national~~Securities ~~bank~~Exchange Act, ~~but~~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 ~~must~~qualify ~~notify~~as ~~them~~a atsmall ~~least~~bank 15holding ~~days~~company. Nevertheless, ~~prior~~our Bank remains subject to ~~doing~~these socapital requirements. WeFailure ~~must~~to ~~receive~~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 ~~Board~~Bank’s ~~approval~~financial ~~prior~~statements. Under tocapital ~~engaging~~adequacy inguidelines and the ~~acquisition~~regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of athe ~~South~~Bank’s ~~Carolina~~assets, ~~state~~liabilities, ~~chartered~~and ~~bank~~certain oroff-balance-sheet ~~another~~items ~~South~~as ~~Carolina~~calculated ~~bank~~under regulatory accounting practices. The Bank’s capital amounts and classifications are also ~~holding~~subject ~~company~~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.

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

Bank of Walterboro

Because the Bank is a commercial bank chartered under the laws of the State of South Carolina, it is primarily subject to the supervision, examination and reporting requirements of the FDIC and the SC State Board. The FDIC and the SC State Board regularly examine the Bank’s operations and have the authority to approve or disapprove

mergers, the establishment of branches and similar corporate actions. Both regulatory agencies have the power to prevent the continuance or development of unsafe or unsound banking practices or other violations of law. Additionally, the Bank’s deposits are insured by the FDIC to the maximum extent provided by law. The Bank is also subject to numerous state and federal statutes and regulations that affect our business, activities and operations.

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.

Prompt Corrective Action - As an insured depository institution, the bank is required to comply with the capital requirements promulgated under the Federal Deposit Insurance Act and the regulations thereunder, which set forth five capital categories, each with specific regulatory consequences. Under these regulations, the categories are:

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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.

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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 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.

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Undercapitalized – The institution fails to meet the required minimum level for any relevant capital measure. An undercapitalized institution is one (i) having a total capital ratio of less than 8% or (ii) having a tier 1 capital ratio of less than 4% or (iii) having a leverage capital ratio of less than 4%, or if the institution is rated a composite 1 under the CAMELS rating system, a leverage capital ratio of less than 3%.

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Significantly Undercapitalized – The institution is significantly below the required minimum level for any relevant capital measure. A significantly undercapitalized institution is one (i) having a total capital ratio of less than 6% or (ii) having a tier 1 capital ratio of less than 3% or (iii) having a leverage capital ratio of less than 3%.

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Critically Undercapitalized – The institution fails to meet a critical capital level set by the appropriate federal banking agency. A critically undercapitalized institution is one having a ratio of tangible equity to total assets that is equal to or less than 2%.

If the FDIC determines, after notice and an opportunity for hearing, that the bank is in an unsafe or unsound condition, the regulator is authorized to reclassify the bank to the next lower capital category (other than critically undercapitalized) and require the submission of a plan to correct the unsafe or unsound condition.

If the bank is not well capitalized, it cannot accept brokered deposits without prior FDIC approval and, if approval is granted, cannot offer an effective yield in excess of 75 basis points on interests paid on deposits of comparable size and maturity in such institution’s normal market area for deposits accepted from within its normal 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 bank becomes less than adequately capitalized, it must adopt a capital restoration plan acceptable to the FDIC. The bank also would become subject to increased regulatory oversight, and is increasingly

restricted in the scope of its permissible 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 under limited circumstances consistent with an accepted capital restoration plan, an undercapitalized institution may not grow. An undercapitalized institution may not acquire another institution, establish additional branch offices or engage in any new line of business unless determined by the appropriate Federal banking agency to be consistent with an accepted capital restoration plan, or unless the FDIC determines that the proposed action will further the purpose of prompt corrective action. The appropriate federal banking agency may take any action authorized for a significantly undercapitalized institution if an undercapitalized institution fails to submit an acceptable capital restoration plan or fails in any material respect to implement a plan accepted by the agency. A critically undercapitalized institution is subject to having a receiver or conservator appointed to manage its affairs and for loss of its charter to conduct banking activities.

An insured depository institution may not pay a management fee to a bank holding company controlling that institution or any other person having control of the institution if, after making the payment, the institution, would be undercapitalized. In addition, an institution cannot make a capital distribution, such as a dividend or other distribution that is in substance a distribution of capital to the owners of the 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 dividend to us.

As of December 31, 2010, the bank was deemed to be “well capitalized.”

FDIC Insurance Assessments - The Bank’s deposits are insured by the Deposit Insurance Fund (the “DIF”) of the FDIC up to the maximum amount permitted by law, which was 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 bank or savings association fails. Pursuant to the Dodd-Frank Act, the FDIC must take steps, as necessary, for the DIF reserve ratio to reach 1.35% of estimated insured deposits by September 30, 2020. The Bank is thus subject to FDIC deposit premium assessments.

Currently, 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 long-term debt issuer ratings for large institutions that have such ratings. For institutions assigned to the lowest risk category, the annual assessment rate ranges between 7 and 16 cents per $100 of domestic deposits. For institutions assigned to higher risk categories, assessment rates range from 17 to 77.5 cents per $100 of domestic deposits. These ranges reflect a possible downward adjustment for unsecured debt outstanding and possible upward adjustments for secured liabilities and, in the case of institutions outside the lowest risk category, brokered deposits.

On September 29, 2009, the FDIC announced a uniform three basis points increase effective January 1, 2011, and on November 12, 2009, adopted a rule requiring nearly all FDIC-insured depository institutions, including the Bank, to prepay their DIF assessments for the fourth quarter of 2009 and for the following three years on December 30, 2009. At that time, the FDIC indicated that the prepayment of DIF assessments was in lieu of additional special assessments; however, there can be no guarantee that continued pressures on the DIF will not result in additional special assessments being collected by the FDIC in the future.

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.

The proposed rules retain the FDIC board’s flexibility to, without further notice-and-comment rulemaking, adopt rates that are higher or lower than the stated base assessment rates, provided that the FDIC cannot (i) increase or

~~The~~ decrease ~~Bank~~the ~~operates~~total asrates afrom ~~state~~one ~~bank~~quarter ~~incorporated~~to ~~under~~ the ~~laws~~next ofby ~~the~~more ~~State~~than ofthree ~~South~~basis ~~Carolina and~~points, isor ~~subject~~(ii) deviate toby ~~examination~~more bythan ~~the~~three ~~South~~basis ~~Carolina~~points ~~Board~~from ofthe ~~Financial~~stated ~~Institutions~~assessment rates. ~~Deposits~~Although in the Dodd-Frank ~~bank~~Act ~~are~~requires ~~insured~~that by the ~~Federal~~FDIC ~~Deposit~~eliminate ~~Insurance~~its ~~Corporation~~requirement ~~(“FDIC”)~~to uppay dividends to depository institutions when the reserve ratio exceeds a ~~maximum~~certain ~~amount~~threshold, ~~which~~the isFDIC ~~currently~~proposes ~~$100,000~~a ~~for~~decreasing ~~each~~schedule of assessment rates that would take effect when ~~non-retirement~~the ~~depositor~~DIF ~~and~~reserve ~~$250,000~~ratio ~~for~~first ~~certain~~meets ~~retirement-account~~or ~~depositors~~exceeds 1.15%. ~~However~~As proposed, if the ~~FDIC~~DIF ~~has~~reserve ~~increased~~ratio ~~the~~meets ~~coverage~~or upexceeds 1.15%, base assessment rates would range from 1.5 to ~~$250,000~~40 ~~for~~basis ~~each~~points; ~~non-retirement~~if ~~depositor~~the ~~through~~DIF ~~December 31,~~reserve ~~2013~~ratio meets or exceeds 2%, base assessment rates would range from 1 to 38 basis points; and if the ~~bank~~DIF isreserve ~~participating~~ratio inmeets ~~the FDIC’s~~or ~~Temporary~~exceeds ~~Liquidity~~2.5%, ~~Guarantee~~base ~~Program~~assessment ~~(discussed~~rates ~~below~~would inrange ~~greater~~from ~~detail)~~0.5 ~~which,~~to in35 ~~part,~~basis ~~fully~~points. ~~insures~~All ~~non-interest~~base ~~bearing~~assessment ~~transaction~~rates ~~accounts~~would continue to be subject to adjustments for unsecured debt and brokered deposits.

The ~~South~~FDIC ~~Carolina~~also ~~Board~~collects a deposit-based assessment from insured financial institutions on behalf of ~~Financial~~The Financing ~~Institutions~~Corporation ~~and~~(“FICO”). The funds from these assessments are used to service debt issued by FICO in its capacity as a financial vehicle for the ~~FDIC~~Federal ~~regulate~~Savings & orLoan ~~monitor~~Insurance ~~virtually~~Corporation. ~~all~~The ~~areas~~FICO assessment rate is set quarterly and in 2010 ranged from 1.06 cents to 1.04 cents per $100 of assessable deposits. These assessments will continue until the ~~bank’s~~debt ~~operations,~~matures ~~including:~~between 2017 and 2019.

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

•FDIC ~~adequacy~~Temporary Liquidity Guarantee Program - On October 14, 2008, the FDIC announced that its Board of ~~capitalization~~Directors, under the authority to prevent “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 ~~loss~~encourage ~~reserves;~~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.

•The ~~loans~~Debt Guarantee Program: Under the TLGP, the FDIC guaranteed certain newly issued senior unsecured debt issued by participating financial institutions through October 31, 2009. The annualized fee that the FDIC assessed to guarantee the senior unsecured debt varied by the length of maturity of the debt. For debt with a maturity of 180 days or less (excluding overnight debt), the fee was 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 was 100 basis points. The Bank did not issue any debt pursuant to this program.

•The ~~investments;~~Transaction Account Guarantee Program: 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 on 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 $250,000 held in non-interest bearing transaction 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 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.

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

•Allowance ~~deposits;~~for Loan and Lease Losses - The Allowance for Loan and Lease Losses (the “ALLL”) represents one of the most significant estimates in the Bank’s financial statements and regulatory reports. Because of its significance, the Bank has developed a system by which it develops, maintains and documents a comprehensive, systematic and consistently applied process for determining the amounts of the ALLL and the provision for loan and lease losses.

• mergers;

• issuances of securities;

• payment of dividends;

• interest rates payable on deposits;

• interest rates or fees chargeable on loans;

• establishment of branches;

• corporate reorganizations;

• maintenance of books and records; and

• adequacy of staff training to carry on safe lending and deposit gathering practices.

The South Carolina Board of Financial Institutions requires the bank to maintain specified capital ratios and imposes limitations on the bank’s aggregate investment in real estate, bank premises, and furniture and fixtures. The South Carolina Board of Financial Institutions also requires the bank to prepare quarterly reports on the bank’s financial condition in compliance with its minimum standards and procedures.

All insured institutions must undergo regular on site examinations by their appropriate banking agency. The cost of examinations of insured depository institutions and any affiliates may be assessed by the appropriate agency against each institution or affiliate as it deems necessary or appropriate. Insured institutions are required to submit annual reports to the FDIC, their federal regulatory agency, and their state supervisor when applicable. The FDIC has developed a method for insured depository institutions to provide supplemental disclosure of the estimated fair market value of assets and liabilities, to the extent feasible and practicable, in any balance sheet, financial statement, report of condition or any other report of any insured depository institution. The FDIC Improvement Act also requires the federal banking regulatory agencies to prescribe, by regulation, standards for all insured depository institutions and depository institution holding companies relating, among other things, to the following:

• internal controls;

• information systems and audit systems;

• loan documentation;

• credit underwriting;

• interest rate risk exposure; and

• asset quality.

Prompt Corrective Action. As an insured depository institution, the bank is required to comply with the capital requirements promulgated under the Federal Deposit Insurance Act and the regulations thereunder, which set forth five capital categories, each with specific regulatory consequences. Under these regulations, the 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~~ The Interagency Policy Statement on the Allowance for Loan and ~~(iv)~~Lease ~~that~~Losses, isissued ~~not~~on ~~subject~~December 13, 2006, encourages all banks to ~~any~~ensure ~~order~~controls orare ~~written~~in ~~directive~~place to ~~meet~~consistently determine the ALLL in accordance with GAAP, the Bank’s stated policies and ~~maintain~~procedures, management’s best judgment and relevant supervisory guidance. Consistent with supervisory guidance, the Bank maintains a ~~specific~~prudent ~~capital~~and conservative, but not excessive, ALLL, that is at a level ~~for~~that ~~any~~is ~~capital~~appropriate ~~measure~~to cover estimated credit losses on individually evaluated loans determined to be impaired as well as estimated credit losses inherent in the remainder of the loan and lease portfolio. The Bank’s estimate of credit losses reflects consideration of all significant factors that affect the collectibility of the portfolio as of the evaluation date.

•Commercial ~~Adequately~~Real ~~Capitalized~~Estate —Lending ~~The~~- ~~institution~~Our ~~meets~~lending ~~the~~operations ~~required~~may ~~minimum~~be ~~level~~subject ~~for~~to ~~each~~enhanced ~~relevant~~scrutiny ~~capital~~by ~~measure.~~federal Nobanking ~~capital~~regulators ~~distribution~~based ~~may~~on beits ~~made~~concentration ~~that~~of ~~would~~commercial ~~result~~real inestate ~~the~~loans. ~~institution~~On December 6, ~~becoming~~2006, ~~undercapitalized.~~the Anfederal ~~adequately~~banking ~~capitalized~~regulators ~~institution~~issued isfinal ~~one~~guidance ~~(i)~~to ~~having~~remind afinancial ~~total~~institutions ~~capital~~of ~~ratio~~the ofrisk 8%posed orby ~~greater,~~commercial real estate (ii“CRE”) ~~having~~lending aconcentrations. ~~tier~~CRE 1loans ~~capital~~generally ~~ratio~~include ofland 4%development, construction orloans ~~greater~~and loans secured by multifamily property, and ~~(iii)~~nonfarm, ~~having~~nonresidential areal ~~leverage~~property ~~capital~~where ~~ratio~~the primary source of 4%repayment oris ~~greater~~derived orfrom arental ~~leverage~~income ~~capital~~associated ~~ratio~~with ofthe 3%property. orThe ~~greater~~guidance ifprescribes the ~~institution~~following guidelines isfor ~~rated~~its ~~composite~~examiners 1to ~~under~~help ~~the~~identify ~~CAMELS~~institutions ~~(Capital,~~that ~~Assets,~~are ~~Management,~~potentially ~~Earnings,~~exposed ~~Liquidity~~to significant CRE risk and ~~Sensitivity~~may towarrant ~~market~~greater ~~risk)~~supervisory ~~rating~~scrutiny: ~~system.~~

• ~~Undercapitalized~~total —reported ~~The~~loans ~~institution fails to meet the required minimum level~~ for ~~any~~construction, ~~relevant~~land ~~capital~~development ~~measure.~~and Another ~~undercapitalized~~land ~~institution~~represent ~~is one (i) having a total capital ratio of less than 8~~100% or ~~(ii)~~more ~~having a tier 1 capital ratio~~ of ~~less~~the ~~than~~institutions 4%total ~~or (iii) having a leverage~~ capital ~~ratio of less than 4%~~, or ~~if the institution is rated a composite 1 under the CAMELS rating system, a leverage capital ratio of less than 3%.~~

• ~~Significantly~~total ~~Undercapitalized~~commercial —real ~~The~~estate ~~institution~~loans isrepresent ~~significantly~~300% ~~below~~or ~~the~~more ~~required~~of ~~minimum~~the ~~level for any relevant capital measure. A significantly undercapitalized~~ institution’s ~~is one (i) having a~~ total capital, ~~ratio~~and ofthe ~~less~~outstanding ~~than~~balance 6%of orthe ~~(ii)~~institution’s ~~having~~commercial areal ~~tier~~estate 1loan ~~capital~~portfolio ~~ratio~~has ofincreased ~~less~~by ~~than 3~~50% or ~~(iii) having a leverage capital ratio of less than 3%~~more.

•Enforcement Powers ~~Critically~~- ~~Undercapitalized~~The —Financial ~~The~~Institution 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 ~~fails~~parties.” toInstitution-affiliated ~~meet~~parties primarily include management, employees, and agents of a ~~critical~~financial ~~capital~~institution, ~~level~~as ~~set~~well byas independent contractors and consultants such as attorneys and accountants and others who participate in the ~~appropriate~~conduct ~~federal~~of ~~banking~~the ~~agency~~financial institution’s affairs. AThese ~~critically~~practices ~~undercapitalized~~can include the failure of an institution isto ~~one~~timely ~~having~~file arequired ~~ratio~~reports or the filing of ~~tangible~~false ~~equity~~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 ~~total~~20 ~~assets~~years. ~~that~~In isaddition, ~~equal~~regulators are provided with greater flexibility to commence orenforcement ~~less~~actions ~~than~~against 2%institutions and institution-affiliated parties.

IfPossible enforcement actions include the ~~FDIC~~termination ~~determines~~of deposit insurance. Furthermore, ~~after~~banking ~~notice~~agencies’ ~~and~~power anto ~~opportunity~~issue ~~for~~regulatory ~~hearing~~orders were expanded. Such orders may, ~~that~~among ~~the~~other ~~bank~~things, isrequire inaffirmative anaction ~~unsafe~~to correct any harm resulting from a violation or ~~unsound~~practice, including ~~condition~~restitution, ~~the~~reimbursement, ~~regulator~~indemnifications isor ~~authorized~~guarantees against loss. A financial institution may also be ordered to ~~reclassify~~restrict its growth, dispose of certain assets, rescind agreements or contracts, or take other actions as determined by the ~~bank~~ordering agency to ~~the~~be ~~next~~appropriate. ~~lower~~The ~~capital category~~Dodd-Frank ~~(other~~Act ~~than~~increases ~~critically~~regulatory ~~undercapitalized)~~oversight, supervision and ~~require~~examination ~~the~~of ~~submission~~banks, ofbank aholding ~~plan~~companies toand ~~correct~~their ~~the~~respective ~~unsafe~~subsidiaries orby ~~unsound~~the ~~condition~~appropriate regulatory agency.

IfOther ~~the~~Regulations ~~bank~~- isInterest ~~not well capitalized, it cannot accept brokered deposits without prior FDIC approval~~ and, ifother ~~approval~~charges iscollected granted, cannot offer an effective yield in excess of 75 basis points on interests paid on deposits of comparable size and maturity in such institution’s normal market area for deposits accepted from within its normal market area, or ~~national~~contracted ~~rate paid on deposits of comparable size and maturity~~ for ~~deposits~~by ~~accepted outside~~ the ~~bank’s~~Bank ~~normal~~are ~~market area. Moreover, if the bank becomes less than adequately capitalized, it must adopt a capital restoration plan acceptable to the FDIC. The bank also would become~~ subject to ~~increased~~state ~~regulatory~~usury ~~oversight,~~laws and federal islaws ~~increasingly~~concerning ~~restricted~~interest ~~in the scope of its permissible activities~~rates. ~~Each~~Our ~~company~~loan ~~having~~operations ~~control over an undercapitalized institution also must provide a limited guarantee that the institution~~ will ~~comply~~be ~~with~~subject its capital restoration plan. Except under limited circumstances consistent with an accepted capital restoration plan, an undercapitalized institution may not grow. An undercapitalized institution may not acquire another institution, establish additional branch offices or engage in any new line of business unless determined by the appropriate Federal banking agency to ~~be consistent with an accepted capital restoration plan, or unless the FDIC determines that the proposed action will further the purpose of prompt corrective action. The appropriate~~ federal ~~banking~~laws ~~agency~~applicable ~~may take any action authorized for a significantly undercapitalized institution if an undercapitalized institution fails~~ to ~~submit~~credit antransactions, ~~acceptable~~such ~~capital~~as ~~restoration plan or fails in any material respect to implement a plan accepted by~~ the: ~~agency. A critically undercapitalized institution is subject to having a receiver or conservator appointed to manage its affairs and for loss of its charter to conduct banking activities.~~

An• ~~insured~~Federal depository institution may not pay a management fee to a bank holding company controlling that institution or any other person having control of the institution if, after making the payment, the institution, would be undercapitalized. Truth-In-Lending ~~addition~~Act, angoverning ~~institution~~disclosures ~~cannot make a capital distribution, such as a dividend or other distribution that is in substance a distribution~~ of ~~capital~~credit toterms ~~the owners of the 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~~consumer ~~undercapitalized, it could not pay a management fee or dividend to us.~~ borrowers;

As• Home Mortgage Disclosure Act of ~~December 31~~1975, ~~2009,~~requiring financial institutions to provide information to enable the ~~bank~~public ~~was~~and ~~deemed~~public officials to bedetermine ~~“well~~whether ~~capitalized.~~a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

•

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

•

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

~~Standards~~• ~~for~~Fair ~~Safety~~Debt ~~and~~Collection ~~Soundness. The Federal Deposit Insurance~~ Act ~~(“FDIA”) also requires the federal banking regulatory agencies to prescribe~~, bygoverning regulation or guideline, operational and managerial standards for all insured depository institutions relating to: (i) internal controls, information systems, and internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate risk exposure; and (v) asset growth. The agencies also must prescribe standards for asset quality, earnings, and stock valuation, as well as standards for compensation, fees, and benefits. The federal banking agencies have adopted regulations and Interagency Guidelines Prescribing Standards for Safety and Soundness to implement these required standards. These guidelines set forth the ~~safety~~manner ~~and~~in ~~soundness~~which ~~standards~~consumer ~~that~~debts the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. Under the regulations, if the FDIC determines that the bank fails to meet any standards prescribed by the guidelines, the agency may ~~require~~be ~~the~~collected ~~bank to submit to the agency an acceptable plan to achieve compliance with the standard, as required~~ by ~~the~~collection ~~FDIC. The final regulations establish deadlines for the submission and review of such safety and soundness compliance plans.~~ agencies;

~~Transactions~~• ~~with~~Soldiers’ ~~Affiliates~~ and ~~Insiders. The~~ ~~company~~Sailors’ isCivil aRelief legal entity separate and distinct from the bank and its other subsidiaries. Various legal limitations restrict the bank from lending or otherwise supplying funds to the company or its non-bank subsidiaries. The company and the bank are subject to Section 23A and 23B of the Federal Reserve Act ~~and Federal Reserve Regulation W. Section 23A~~ of ~~the~~1940, ~~Federal~~as ~~Reserve~~amended ~~Act~~by ~~places limits on~~ the ~~amount~~Servicemembers’ ofCivil ~~loans~~Relief ~~or extensions of credit to~~Act, or ~~investments~~governing ~~in, or certain other transactions with, affiliates and on~~ the ~~amount~~repayment ofterms ~~advances to third parties collateralized by the securities or obligations~~ of ~~affiliates. The aggregate of all covered transactions is limited in amount~~, ~~as to any one affiliate, to 10% of the bank’s capital~~ and ~~surplus~~property ~~and,~~rights ~~as to all affiliates combined~~underlying, tosecured ~~20%~~obligations of ~~the~~persons ~~bank’s~~currently ~~capital~~on ~~and~~active ~~surplus.~~duty ~~Furthermore,~~with ~~within~~ the ~~foregoing~~United ~~limitations~~States ~~as to amount, each covered transaction must meet specified collateral requirements. The bank is forbidden to purchase low quality assets from an affiliate.~~ military;

~~Section 23B~~• ofTalent ~~the Federal~~Amendment ~~Reserve Act, among other things, prohibits an institution from engaging~~ in ~~certain~~the ~~transactions~~2007 ~~with~~Defense ~~certain~~Authorization ~~affiliates~~Act, ~~unless~~establishing ~~the~~a ~~transactions~~36% ~~are~~annual onpercentage ~~terms~~rate ~~substantially the same~~ceiling, orwhich atincludes ~~least~~a asvariety ~~favorable~~of tocharges ~~such~~including ~~institution~~late ~~or its subsidiaries~~fees, asfor ~~those~~consumer ~~prevailing~~loans atto ~~the~~military ~~time~~service ~~for~~members ~~comparable~~and ~~transactions~~their ~~with~~dependents; ~~nonaffiliated companies.~~ and

~~Regulation~~• ~~W generally~~rules ~~excludes all non-bank~~ and ~~non-savings~~regulations ~~association subsidiaries~~ of ~~banks from treatment as affiliates, except to~~ the ~~extent~~various ~~that~~federal ~~the~~banking ~~Federal~~regulators ~~Reserve~~charged ~~Board~~with ~~decides to treat these subsidiaries as affiliates. The regulation also limits~~ the ~~amount~~ ofresponsibility ~~loans that can be purchased by a bank from an affiliate to not more than 100%~~ of ~~the~~implementing ~~bank’s~~these ~~capital~~federal ~~and surplus~~laws.

The ~~bank~~Bank’s isdeposit ~~also~~operations are subject to ~~certain~~federal ~~restrictions~~laws onapplicable ~~extensions of credit~~ to ~~executive officers, directors, certain principal shareholders, and their related interests. Such extensions of credit (i) must be made on substantially the same~~depository ~~terms~~accounts, ~~including~~such ~~interest rates and collateral,~~ as: ~~those prevailing at the time for comparable transactions with third parties and (ii) must not involve more than the normal risk of repayment or present other unfavorable features.~~

~~Branching. Under~~• ~~current~~Truth-In-Savings ~~South Carolina law~~Act, werequiring ~~may~~certain ~~open~~disclosures ~~branch offices throughout South Carolina with the prior approval~~ of ~~the~~consumer ~~South~~deposit Carolina Board of Financial Institutions. In addition, with prior regulatory approval, the bank will be able to acquire existing banking operations in South Carolina. Furthermore, federal legislation has been passed that permits interstate branching by banks if allowed by state law, and interstate merging by banks. However, South Carolina law, with limited exceptions, currently permits branching across state lines only through interstate mergers. accounts:

~~Anti-Tying~~• ~~Restrictions. Under~~Right ~~amendments~~ to ~~the~~Financial ~~Bank~~Privacy ~~Holding Company~~ Act ~~and Federal Reserve regulations~~, awhich ~~bank is~~imposes ~~prohibited from engaging in certain tying or reciprocity arrangements with its customers. In general,~~ a ~~bank~~duty may not extend credit, lease, sell property, or furnish any services or fix or vary the consideration for these on the condition that (i) the customer obtain or provide some additional credit, property, or services from or to ~~the~~maintain ~~bank,~~confidentiality the bank holding company or subsidiaries thereof or (ii) the customer may not obtain some other credit, property, or services from a competitor, except to the extent reasonable conditions are imposed to assure the soundness of ~~the~~consumer ~~credit~~financial ~~extended.~~records ~~Certain arrangements are permissible: a bank may offer combined-balance products~~ and ~~may~~prescribes ~~otherwise~~procedures ~~offer~~for ~~more~~complying ~~favorable~~with ~~terms~~administrative ifsubpoenas aof ~~customer~~financial ~~obtains two or more traditional bank products~~records; and certain foreign transactions are exempt from the general rule. A bank holding company or any bank affiliate also is subject to anti-tying requirements in connection with electronic benefit transfer services.

•

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

•

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

The Consumer 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-Frank Act permits states to adopt consumer protection laws and regulations that are more stringent than those regulations promulgated by the Bureau and state attorneys general are permitted to enforce consumer protection rules adopted by the Bureau against state-chartered institutions.

Payment of Dividends

The Company is a legal entity separate and distinct from the Bank. The principal sources of our cash flow, including cash flow to pay dividends to 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 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 common stock.

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

Any future determination relating to our dividend policy will be made at the discretion of the Board of Directors and

~~Community Reinvestment Act. The Community Reinvestment Act~~ ~~(“CRA”)~~will ~~requires~~depend ~~that,~~on inmany ~~connection with examinations~~ of ~~financial institutions within their respective jurisdictions, a financial institution’s primary regulator, which is~~ the ~~FDIC~~statutory ~~for the bank, shall evaluate the record of each financial institution in meeting the credit needs of its local community, including low~~ and ~~moderate~~regulatory ~~income neighborhoods. These~~ factors ~~are~~mentioned ~~also considered in evaluating mergers, acquisitions, and applications to open a branch or facility~~above. Failure to adequately meet these criteria could impose additional requirements and limitations on our bank. Additionally, we must publicly disclose the terms of various Community Reinvestment Act-related agreements.

~~Finance~~Restrictions Subsidiaries. Under the Gramm-Leach-Bliley Act (the “GLBA”), subject to certain conditions imposed by their respective banking regulators, national and state-chartered banks are permitted to form “financial subsidiaries” that may conduct financial or incidental activities, thereby permitting bank subsidiaries to engage in certain activities that previously were impermissible. The GLBA imposes several safeguards and restrictions on ~~financial~~Transactions ~~subsidiaries,~~with ~~including~~Affiliates that the parent bank’s equity investment in the financial subsidiary be deducted from the bank’s assets and tangible equity for purposes of calculating the bank’s capital adequacy. In addition, the GLBA imposes new restrictions on transactions between a bank and its financial subsidiaries similar to restrictions applicable to transactions between banks and non-bank affiliates.

~~Consumer~~The ~~Protection~~Company ~~Regulations. Activities~~and of the ~~bank~~Bank are subject to athe ~~variety~~provisions of ~~statutes and regulations designed to protect consumers.~~Section ~~Interest~~23A ~~and~~of ~~other charges collected or contracted for by~~ the ~~bank~~Federal ~~are~~Reserve ~~subject to state usury laws and federal laws concerning interest rates~~Act. ~~The bank’s~~Section 23A ~~loan~~places ~~operations~~limits ~~are~~on ~~also~~the ~~subject~~amount ~~to federal laws applicable to credit transactions, such as the~~of:

• ~~The~~a ~~federal~~bank’s ~~Truth-In-Lending~~loans ~~Act,~~or ~~governing~~extensions ~~disclosures~~ of credit ~~terms~~ to ~~consumer borrowers~~affiliates;

• ~~The Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether~~ a ~~financial~~bank’s ~~institution~~investment isin ~~fulfilling its obligation to help meet the housing needs of the community it serves~~affiliates;

• ~~The~~assets ~~Equal~~a ~~Credit~~bank ~~Opportunity~~may ~~Act,~~purchase ~~prohibiting~~from ~~discrimination~~affiliates, onexcept ~~the~~for ~~basis~~real ofand ~~race,~~personal ~~creed~~property orexempted ~~other~~by ~~prohibited~~the ~~factors~~Federal ~~in extending credit~~Reserve;

• ~~The~~loans ~~Fair~~or ~~Credit~~extensions ~~Reporting~~of ~~Act~~credit ofto ~~1978,~~third asparties ~~amended~~collateralized by the ~~Fair~~securities ~~and~~or ~~Accurate~~obligations ~~Credit Transactions Act, governing the use and provision~~ of ~~information~~affiliates; ~~to credit reporting agencies, certain identity theft protections~~ and ~~certain credit and other disclosures;~~

• ~~The~~a ~~Fair~~bank’s ~~Debt Collection Act~~guarantee, ~~governing~~acceptance ~~the~~or ~~manner~~letter inof ~~which~~credit ~~consumer~~issued ~~debts~~on ~~may~~behalf beof ~~collected~~an ~~by collection agencies;~~affiliate.

• The ~~Credit~~total ~~Card~~amount ~~Accountability~~of the above transactions is limited in amount, ~~Responsibility~~as to any one affiliate, to 10% of a bank’s capital and ~~Disclosure~~surplus and, ~~Act~~as ofto ~~2009~~all affiliates combined, ~~governing~~to ~~interest~~20% ~~rate~~of ~~increases~~a bank’s capital and ~~fee~~surplus. ~~limits;~~In ~~and~~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.

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

The ~~deposit~~Dodd-Frank ~~operations~~Act enhances the requirements for certain transactions with affiliates under Section 23A and 23B, including an expansion of the ~~bank~~definition ~~also~~of ~~are~~“covered ~~subject~~transactions” ~~to:~~and increasing the amount of time for which collateral requirements regarding covered transactions must be maintained.

•The ~~the~~Bank is ~~Right~~also subject to ~~Financial~~restrictions ~~Privacy~~on ~~Act~~extensions of credit to its executive officers, ~~which~~directors, ~~imposes~~principal ashareholders, ~~duty~~and totheir ~~maintain~~related ~~confidentiality~~interests. These extensions of ~~consumer~~credit ~~financial~~(1) must ~~records~~be made on substantially the same terms, including interest rates and ~~prescribes~~collateral, ~~procedures~~as those prevailing at the time for ~~complying~~comparable transactions with ~~administrative~~third ~~subpoenas~~parties, and (2) must not involve more than the normal risk of ~~financial~~repayment ~~records;~~or present other unfavorable features. 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 on market terms and, if the transaction represents greater than 10% of the capital and surplus of the bank, has been approved by a majority of the disinterested directors.

•Limitations ~~the~~on Senior ~~Electronic~~Executive ~~Funds~~Compensation Transfer Act and Regulation E issued by the Federal Reserve Board to implement that Act, which governs automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services.

In June of 2010, federal banking regulators issued guidance designed to help ensure that incentive compensation policies at banking organizations do not encourage excessive risk-taking or undermine the safety and soundness of the organization. In connection with this guidance, the regulatory agencies announced that they will review incentive compensation arrangements as part of the regular, risk-focused supervisory process. Regulatory authorities may also take enforcement action against a banking organization if its incentive compensation arrangement or related risk management, control, or governance processes pose a risk to the safety and soundness of the organization and the organization is not taking prompt and effective measures to correct the deficiencies. To ensure that incentive compensation arrangements do not undermine safety and soundness at insured depository institutions, the incentive compensation guidance sets forth the following key principles:

•

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;

•

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

•

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

~~Enforcement Powers.~~ The ~~Bank and its “institution~~Dodd-~~affiliated parties,”~~Frank ~~including~~Act its management, employees, agents, independent contractors, and consultants such as attorneys and accountants and others who participate in the conduct of the financial institution’s affairs, are subject to potential civil and criminal penalties for violations of law, regulations or written orders of a government agency. These practices can include the failure of 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 $1,000,000 a 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. Possible enforcement actions include the termination of deposit insurance. Furthermore, banking agencies’ power to issue cease-and-desist orders were expanded. Such orders may, among other things, require affirmative action to correct any harm resulting from a violation or practice, including restitution, reimbursement, indemnifications or guarantees 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 agency to be appropriate.

~~Anti-Money~~The ~~Laundering. Financial institutions must maintain anti~~Dodd-~~money~~Frank ~~laundering~~Act ~~programs~~has ~~that~~had ~~include established internal policies, procedures, and controls;~~ a ~~designated~~broad ~~compliance~~impact ~~officer;~~on ~~an ongoing employee training program; and testing of~~ the ~~program~~financial byservices anindustry, ~~independent~~including ~~audit~~significant ~~function.~~regulatory ~~The company~~ and ~~the~~compliance ~~bank are also prohibited from entering into~~changes ~~specified~~previously ~~financial~~discussed ~~transactions~~ and ~~account~~including, ~~relationships~~among ~~and~~other ~~must~~things, ~~meet~~ (i) enhanced ~~standards~~resolution ~~for~~authority ~~due~~of ~~diligence~~troubled and ~~“knowing~~failing ~~your~~banks ~~customer”~~and in their ~~dealings~~holding ~~with~~companies; ~~foreign~~(ii) increased ~~financial~~regulatory ~~institutions~~examination fees; and ~~foreign customers.~~(iii) ~~Financial institutions~~numerous ~~must~~other ~~take~~provisions designed ~~reasonable steps~~ to ~~conduct~~improve ~~enhanced~~supervision ~~scrutiny of account relationships to guard against money laundering~~ and tooversight ~~report any suspicious transactions~~of, and ~~recent~~strengthening ~~laws~~safety ~~provide~~and ~~law~~soundness ~~enforcement~~for, ~~authorities~~the ~~with increased access to~~ financial ~~information~~services ~~maintained by banks~~sector. ~~Anti-money~~ ~~laundering~~Additionally, ~~obligations~~the ~~have~~Dodd-Frank ~~been~~Act ~~substantially~~establishes ~~strengthened as~~ a ~~result~~new offramework ~~the~~for ~~USA~~systemic ~~Patriot~~risk ~~Act,~~oversight ~~enacted~~within inthe ~~2001~~financial ~~and~~system ~~renewed~~to ~~in 2006. Bank regulators routinely examine institutions for~~be ~~compliance~~distributed ~~with~~among ~~these~~new ~~obligations~~ and ~~are~~existing ~~required~~federal toregulatory ~~consider~~agencies, ~~compliance~~including ~~in connection with~~ the ~~regulatory~~Financial ~~review~~Stability ofOversight ~~applications. The~~Council, ~~regulatory~~the ~~authorities~~Federal ~~have~~Reserve ~~been~~Board, ~~active~~the inOCC ~~imposing “cease~~ and ~~desist”~~the ~~orders and money penalty sanctions against institutions found to be violating these obligations~~FDIC.

~~USA~~Many ~~Patriot~~of ~~Act. The~~the ~~USA PATRIOT~~requirements ~~Act~~called ~~became~~for ~~effective on October 26, 2001, amended,~~ in ~~part,~~ the ~~Bank~~Dodd-Frank ~~Secrecy~~ Act, ~~and~~will ~~provides,~~be inimplemented ~~part,~~over ~~for~~time ~~the~~and ~~facilitation~~most ofwill ~~information~~be ~~sharing~~subject ~~among~~to ~~governmental~~implementing ~~entities~~regulations ~~and~~over ~~financial institutions for~~ the ~~purpose~~course of ~~combating terrorism~~several ~~and~~years. ~~money~~Given ~~laundering~~the byuncertainty associated ~~enhancing~~with ~~anti-money~~the ~~laundering~~manner ~~and~~in ~~financial~~which ~~transparency~~the ~~laws,~~provisions asof ~~well~~the asDodd-Frank ~~enhanced~~Act ~~information~~will ~~collection~~be ~~tools~~implemented ~~and~~by ~~enforcement~~the ~~mechanics~~various ~~for~~regulatory ~~the~~agencies ~~U.S.~~and ~~government~~through regulations, ~~including:~~the ~~(i) requiring~~full ~~standards~~extent ~~for verifying~~of ~~customer~~the ~~identification~~impact atsuch ~~account~~requirements ~~opening;~~will ~~(ii) rules to~~have ~~promote~~on ~~cooperation among~~ financial institutions,’ operations ~~regulators,~~is ~~and~~unclear. ~~law~~The ~~enforcement~~changes ~~entities~~resulting infrom ~~identifying~~the ~~parties~~Dodd-Frank ~~that~~Act may beimpact ~~involved~~the inprofitability ~~terrorism~~of orour ~~money~~business ~~laundering; (iii) reports~~activities, byrequire ~~nonfinancial~~changes ~~trades~~to ~~and~~certain ~~businesses~~of ~~filed~~our ~~with~~business ~~the~~practices, ~~Treasury~~impose ~~Department’s~~upon ~~Financial~~us ~~Crimes~~more ~~Enforcement~~stringent ~~Network for transactions exceeding $10~~capital,~~000;~~ ~~and~~liquidity ~~(iv) filing suspicious activities reports by brokers~~ and ~~dealers~~leverage ifratio ~~they~~requirements ~~believe~~or aotherwise ~~customer~~adversely ~~may~~affect beour ~~violating U~~business.S. ~~laws~~These ~~and~~changes ~~regulations~~may ~~and~~also ~~requires~~require ~~enhanced~~us ~~due~~to ~~diligence~~invest ~~requirements~~significant ~~for~~management ~~financial~~attention ~~institutions~~and ~~that~~resources ~~administer,~~to ~~maintain,~~evaluate orand ~~manage~~make ~~private~~necessary ~~bank~~changes ~~accounts~~in ororder ~~correspondent~~to ~~accounts~~comply ~~for non-U.S. persons. Bank regulators routinely examine institutions for compliance~~ with ~~these~~new ~~obligations~~statutory and ~~are required to consider compliance in connection with the~~ regulatory ~~review of applications~~ requirements.

~~Under~~Proposed ~~the~~Legislation USA Patriot Act, the Federal Bureau of Investigation (“FBI”) can send our banking regulatory agencies lists of the names of persons suspected of involvement in terrorist activities. The bank can be requested, to search its records for any relationships or transactions with persons on those lists. If the bank finds any relationships or transactions, it must file a suspicious activity report and ~~contact~~Regulatory ~~the~~Action ~~FBI.~~

~~The~~New ~~Office~~regulations ofand ~~Foreign~~statutes ~~Assets~~are ~~Control~~regularly ~~(“OFAC”),~~proposed ~~which~~that iscontain ~~a division~~wide-ranging ofproposals ~~the~~for ~~U.S.~~altering ~~Department of~~ the ~~Treasury~~structures, isregulations ~~responsible~~and competitive ~~for~~relationships ~~helping~~of tofinancial ~~insure~~institutions ~~that~~operating ~~United~~and ~~States~~doing ~~entities~~business ~~do not engage~~ in ~~transactions with “enemies” of~~ the United States~~, as defined by various Executive Orders and Acts of Congress~~. ~~OFAC~~ ~~has~~We ~~sent,~~cannot ~~and~~predict ~~will~~whether ~~send, our banking regulatory agencies lists of names of persons and organizations suspected of aiding, harboring~~ or ~~engaging~~ in ~~terrorist~~what ~~acts. If~~form ~~the bank finds a name on~~ any ~~transaction,~~proposed ~~account~~regulation or ~~wire transfer~~statute ~~that~~will isbe onadopted anor ~~OFAC list, it must freeze such account, file a suspicious activity report and notify~~ the ~~FBI. The~~extent ~~Bank has appointed an OFAC compliance officer~~ to oversee the inspection of its accounts and the filing of any notifications. The Bank actively checks high-risk OFAC areas such as new accounts, wire transfers and customer files. The Bank performs these checks utilizing software, which isour ~~updated~~business ~~each~~may ~~time~~be ~~a modification is made to the lists~~affected ~~provided~~ by ~~OFAC~~any ~~and~~new ~~other~~regulation ~~agencies~~or ~~of Specially Designated Nationals and Blocked Persons~~statute.

Effect of Governmental Monetary Policies

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

Item 1A Risk Factors

Our business, financial condition, and results of operations could be harmed by any of the following risks, or other risks that have not been identified or which we believe are immaterial or unlikely. Shareholders should carefully consider the risks described below in conjunction with the other information in this Form 10-K and the information incorporated by reference in this Form 10-K, including our consolidated financial statements and related notes

The impact of the current economic environment on performance of other financial institutions in our market areas, actions taken by our competitors to address the current economic downturn, and public perception of and confidence in the economy generally, and the banking industry specifically, may present significant challenges for us and could adversely affect our performance.

We are operating in a challenging and uncertain economic environment, including 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 constrained financial markets. While we are taking steps to decrease and limit our exposure to real estate construction loans, we nonetheless retain direct exposure to the 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 of recent events relating to housing and commercial real estate markets has not been limited to those

~~Privacy and Credit Reporting. Financial institutions are required~~ todirectly ~~disclose~~involved ~~their~~in ~~policies~~the ~~for~~real ~~collecting~~estate ~~and~~industry, ~~protecting~~but ~~confidential~~rather ~~information. Customers~~it ~~generally~~has ~~may~~impacted ~~prevent~~a ~~financial~~number ~~institutions~~of ~~from~~related ~~sharing~~businesses ~~nonpublic personal financial information with nonaffiliated third parties except under narrow circumstances,~~ such as ~~the~~building ~~processing~~materials ofsuppliers, ~~transactions~~equipment ~~requested~~leasing byfirms, ~~the~~and ~~consumer~~real orestate ~~when~~attorneys, among ~~the financial institution is jointly sponsoring a product or service with a nonaffiliated third party~~others. ~~Additionally,~~ ~~financial~~All ~~institutions~~of ~~generally~~these ~~may not~~affected ~~disclose~~businesses ~~consumer~~have ~~account~~banking ~~numbers~~relationships toand ~~any~~when ~~nonaffiliated~~their ~~third~~businesses ~~party~~suffer ~~for~~from ~~use in telemarketing~~recession, ~~direct mail marketing or other marketing to consumers. It is~~ the ~~bank’s~~banking ~~policy~~relationship ~~not~~suffers toas ~~disclose any personal information unless required by law~~well.

~~Like~~In ~~other~~addition, ~~lending~~the ~~institutions,~~market value of the ~~bank~~real ~~utilizes~~estate ~~credit~~securing ~~bureau~~our ~~data~~loans as collateral has been adversely affected by the slowing economy and unfavorable changes in ~~its~~economic ~~underwriting~~conditions ~~activities. Use~~in ofour ~~such~~market areas and ~~data~~could isbe ~~regulated~~further ~~under~~adversely affected in the ~~Federal~~future. ~~Credit~~As ~~Reporting~~of ~~Act~~December 31, on2010, a ~~uniform,~~significant ~~nationwide~~portion ~~basis,~~of ~~including~~our ~~credit~~loans ~~reporting,~~receivable ~~prescreening,~~were ~~sharing~~secured by real estate. Any sustained period of ~~information~~increased ~~between~~payment ~~affiliates~~delinquencies, ~~and~~foreclosures ~~the~~or ~~use~~losses ofcaused ~~credit~~by ~~data. The~~the adverse ~~Fair~~market and ~~Accurate~~economic ~~Credit~~conditions, ~~Transactions Act~~including ofthe ~~2003~~downturn (in the ~~“FACT~~real ~~Act”)~~estate ~~authorizes~~market, ~~states~~in our markets will continue to ~~enact~~adversely ~~identity~~affect ~~theft~~the ~~laws~~value ~~that~~of our assets, revenues, results of operations and financial condition. Currently, our market areas are ~~not~~experiencing ~~inconsistent~~such ~~with~~an ~~the~~economic ~~conduct~~downturn, ~~required~~and byif ~~the~~it ~~provisions~~continues, ofour ~~the~~earnings ~~FACT~~could ~~Act~~be further adversely affected.

~~Payment~~The overall ofdeterioration ~~Dividends. A~~in ~~South~~economic ~~Carolina~~conditions ~~state~~may ~~bank~~subject ~~may~~us ~~not~~to ~~pay~~increased ~~dividends~~regulatory ~~from~~scrutiny ~~its~~in ~~capital~~the current environment. ~~All~~ ~~dividends~~In ~~must~~addition, befurther ~~paid~~deterioration ~~out~~in ofnational ~~undivided~~and ~~profits~~local ~~then~~economic onconditions in our markets could drive losses beyond that which ~~hand,~~is ~~after~~provided ~~deducting~~for ~~expenses,~~in ~~including~~our ~~reserves~~allowance for loan losses, ~~and~~resulting ~~bad~~in ~~debts. The~~the ~~bank~~following isother ~~authorized~~consequences: toincreased ~~pay~~loan ~~cash~~delinquencies, ~~dividends~~problem upassets toand ~~100%~~foreclosures; ofdecline ~~net~~in ~~income~~demand infor ~~any~~our ~~calendar~~products ~~year~~and ~~without~~services; ~~obtaining~~decrease ~~the~~in ~~prior~~deposits, ~~approval~~adversely affecting ofour ~~the~~liquidity ~~South~~position; ~~Carolina~~and ~~Board~~decline in value of ~~Financial~~ ~~Institutions~~collateral, ~~provided~~reducing ~~that~~our ~~the~~customers’ ~~bank~~borrowing ~~received~~power aand ~~composite~~the ~~rating~~value of ~~one~~assets orand ~~two~~collateral atassociated ~~the~~with ~~last~~our ~~federal~~existing orloans. ~~state~~As ~~regulatory~~a ~~examination. The~~community bank, ~~must~~we ~~obtain~~are ~~approval~~less ~~from~~able ~~the~~to ~~South~~spread ~~Carolina~~the ~~Board~~risk of unfavorable ~~Financial~~economic ~~Institutions~~conditions ~~prior~~than tolarger ~~the payment~~or ofmore ~~any~~regional ~~other cash dividends~~banks. In ~~addition~~Moreover, ~~under~~we ~~the~~cannot ~~FDIC~~give ~~Improvement~~any ~~Act,~~assurance ~~the~~that ~~bank~~we ~~may~~will ~~not~~benefit ~~pay~~from aany ~~dividend~~market ~~if,~~growth ~~after~~or ~~paying~~favorable ~~the~~economic ~~dividend,~~conditions ~~the~~in ~~bank~~our ~~would~~primary bemarket ~~undercapitalized~~areas even if they do occur.

~~Check~~Recent ~~21. The~~negative ~~Check~~developments ~~Clearing~~in ~~for~~ the ~~21st~~financial ~~Century~~industry ~~Act~~and ~~gives~~the ~~“substitute~~domestic ~~checks,”~~and ~~such~~international ascredit amarkets ~~digital~~may ~~image~~adversely ofaffect aour operations ~~check~~ and ~~copies made from that image, the same legal standing as the original paper check~~results. ~~Some~~ ~~of the major provisions include:~~

•Negative ~~allowing~~developments ~~check~~during ~~truncation~~2008 ~~without~~in ~~making~~the itglobal ~~mandatory;~~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.

•We ~~demanding~~are ~~that~~subject ~~every financial institution communicate~~ to ~~accountholders~~extensive regulation inthat ~~writing~~could alimit ~~description~~or ofrestrict ~~its~~our ~~substitute~~activities. ~~check processing program and their rights under the law;~~

•We ~~legalizing~~operate ~~substitutions~~in ~~for~~a highly regulated industry and ~~replacements~~are subject to examination, supervision, and comprehensive regulation by various regulatory agencies. Our compliance with these regulations is costly and restricts certain of ~~paper~~our ~~checks~~activities, ~~without~~including ~~agreement~~payment ~~from~~of ~~consumers;~~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 ~~retaining~~laws inand ~~place~~regulations applicable to the ~~previously~~banking ~~mandated~~industry ~~electronic~~have ~~collection~~recently changed and ~~return~~may continue to change, and we cannot predict the effects of ~~checks~~these ~~between~~changes on our business and profitability. Because government regulation greatly affects the business and financial ~~institutions~~results ~~only~~of ~~when~~all ~~individual~~commercial ~~agreements~~banks ~~are~~and inbank ~~place;~~holding companies, our cost of compliance could adversely affect our ability to operate profitably.

•The ~~requiring~~Dodd-Frank ~~that~~Act ~~when~~was ~~accountholders~~enacted ~~request~~on ~~verification~~July 21, ~~financial~~2010. ~~institutions~~The ~~produce~~implications of the ~~original~~Dodd-Frank ~~check~~Act, (or aits ~~copy~~implementing ~~that~~regulations, ~~accurately~~on ~~represents~~our ~~the~~business ~~original)~~are ~~and~~unclear ~~demonstrate~~at ~~that~~this ~~the~~time, ~~account~~but ~~debit~~it ~~was~~may ~~accurate~~adversely ~~and~~affect ~~valid;~~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 ~~requiring~~or all of the ~~re-crediting~~changes ofmay ~~funds~~result toin angreater ~~individual’s~~reporting ~~account~~requirements, onassessment ~~the~~fees, ~~next~~operational ~~business~~restrictions, ~~day~~capital ~~after~~requirements, aand ~~consumer~~other ~~proves~~regulatory ~~that~~burdens for either, or both, the ~~financial~~Bank ~~institution~~and ~~has~~the ~~erred~~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.

Effect of Governmental Monetary Policies. Our earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The Federal Reserve bank’s monetary policies have had, and are likely to continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession. The monetary policies of the Federal Reserve Board have major effects upon the levels of bank loans, investments and deposits through its open market operations in United States government securities and through its regulation of the discount rate on borrowings of member banks and the reserve requirements against member bank deposits. It is not possible to predict the nature or impact of future changes in monetary and fiscal policies.

Insurance of Accounts and Regulation by the FDIC. Deposits at the bank are insured up to applicable limits by the Deposit Insurance Fund of the FDIC. The Deposit Insurance Fund is the successor to the Bank Insurance Fund and the Savings Association Insurance Fund, which were merged effective March 31, 2006. As insurer, the FDIC

~~imposes~~Congress ~~deposit~~may ~~insurance~~consider ~~premiums~~additional ~~and~~proposals isto ~~authorized~~substantially tochange ~~conduct~~the ~~examinations~~financial ofinstitution regulatory system and to ~~require~~expand ~~reporting~~or bycontract ~~FDIC~~the ~~insured~~powers ~~institutions. It~~of ~~also~~banking ~~may~~institutions ~~prohibit~~and ~~any~~bank ~~FDIC~~holding ~~insured~~companies. ~~institution~~Such ~~from engaging~~legislation inmay ~~any~~change ~~activity~~existing ~~the~~banking ~~FDIC~~statutes ~~determines~~and byregulations, ~~regulation~~as orwell ~~order~~as toour ~~pose~~current aoperating ~~serious~~environment ~~risk~~significantly. toIf ~~the~~enacted, such ~~insurance~~legislation ~~fund. The~~could ~~FDIC~~increase ~~also~~or ~~has~~decrease the ~~authority~~cost toof ~~initiate~~doing ~~enforcement~~business, ~~actions~~limit ~~against~~or ~~savings~~expand ~~institutions~~our permissible activities, ~~after~~or ~~giving~~affect the ~~Office~~competitive ofbalance ~~Thrift Supervision~~among anbanks, ~~opportunity~~savings toassociations, ~~take~~credit ~~such action~~unions, and ~~may~~other ~~terminate~~financial ~~the~~institutions. ~~deposit~~We ~~insurance~~cannot predict ifwhether itnew ~~determines~~legislation ~~that~~will ~~the~~be ~~institution~~enacted ~~has~~and, ~~engaged~~if inenacted, ~~unsafe~~the oreffect ~~unsound~~that ~~practices~~it, or isany inregulations, anwould ~~unsafe~~have oron ~~unsound~~our business, financial condition, or results of operations.

~~Under~~Our ~~regulations~~financial ~~effective~~condition ~~January 1,~~and ~~2007,~~results ~~the FDIC adopted a new risk-based premium system that provides for quarterly assessments based on an insured institution’s ranking in one~~ of ~~four~~operations ~~risk~~are ~~categories~~affected ~~based~~by ~~upon~~credit ~~supervisory~~policies ~~and capital evaluations. For deposits held as~~ of ~~March 31,~~monetary ~~2009~~authorities, ~~institutions~~particularly ~~were~~the ~~assessed at annual rates ranging from 12 to 50 basis~~Federal ~~points,~~Reserve ~~depending~~Board. onActions ~~each institution’s risk of default as measured~~ by ~~regulatory~~monetary ~~capital ratios~~ and ~~other~~fiscal ~~supervisory measures. Effective April 1~~authorities, ~~2009,~~including ~~assessments also took into account each institution’s reliance on secured liabilities and brokered deposits. This resulted in assessments ranging from 7 to 77.5 basis points. In May 2009,~~ the ~~FDIC~~Federal ~~issued a final rule which levied a special assessment applicable to all insured depository institutions totaling 5 basis points of each institution’s total assets less Tier 1 capital as of June 30~~Reserve, ~~2009,~~could ~~not~~have toan ~~exceed~~adverse 10effect ~~basis~~on ~~points~~our ofdeposit ~~domestic deposits. This special assessment was part of the FDIC’s efforts to rebuild the Deposit Insurance Fund. We paid this one-time special assessment in the amount of $72~~levels,~~425~~ toloan ~~the~~demand ~~FDIC~~or atbusiness ~~the~~and ~~end of the third quarter 2009~~earnings.

InThe ~~November 2009,~~Emergency ~~the~~Economic ~~FDIC~~Stabilization ~~issued~~Act ~~a rule that required all insured depository institutions, with limited exceptions, to prepay their estimated quarterly risk-based assessments for the fourth quarter~~ of ~~2009~~2008 ~~and~~(“EESA”) ~~for~~or ~~all~~other ofgovernmental ~~2010, 2011~~actions ~~and~~may ~~2012. The~~not ~~FDIC~~stabilize also adopted a uniform three-basis point increase in assessment rates effective on January 1, 2011. In December 2009, we paid $897,168 in prepaid risk-based assessments, which included $109,650 related to the fourth quarter of 2009 that would have been otherwise payable in the first quarter of 2010. This amount is included in deposit insurance expense for 2009. The remaining $787,518 million in prepaid deposit insurance is included infinancial ~~accrued~~services ~~prepaid expenses for 2009~~industry. As ~~a result, we incurred increased insurance costs during 2009 than in previous periods.~~

~~FDIC~~The ~~insured~~EESA, ~~institutions~~which ~~are~~was ~~required~~signed tointo ~~pay~~law aon ~~Financing~~October 3, ~~Corporation assessment~~2008, inis ~~order~~intended to ~~fund~~alleviate the financial ~~interest~~crisis onaffecting ~~bonds~~the ~~issued~~United toStates ~~resolve~~banking ~~thrift~~system. A ~~failures~~number inof ~~the~~programs ~~1980s~~have been, and are being, developed and implemented under EESA. ~~For~~The EESA may not have the ~~first~~intended ~~quarter~~effect, ofhowever, ~~2009~~and as a result, the ~~Financing~~condition ~~Corporation~~of the ~~assessment~~financial ~~equaled~~services ~~1.14~~industry ~~basis~~could ~~points~~decline ~~for~~instead ~~domestic~~of ~~deposits~~improve. ~~These~~The ~~assessments,~~failure ~~which~~of ~~may~~the beEESA ~~revised~~to ~~based~~improve ~~upon~~the condition of the ~~level~~United States banking system could significantly adversely affect our access to funding or capital, the trading price of ~~deposits~~our stock, ~~will~~and ~~continue~~other ~~until~~elements ~~the~~of ~~bonds~~our ~~mature~~business, infinancial ~~the~~condition, ~~years~~and ~~2017~~results ~~through~~of ~~2019~~operations.

~~The~~In ~~FDIC~~addition ~~may~~to ~~terminate~~EESA, ~~the~~a ~~deposit~~variety ~~insurance~~ of ~~any insured depository institution~~ legislative, ~~including the bank~~regulatory, ifand itother ~~determines~~proposals ~~after~~have abeen ~~hearing that~~discussed ~~the institution has engaged in unsafe~~ or ~~unsound~~may ~~practices,~~be isintroduced in an ~~unsafe~~effort ~~or unsound condition~~ to ~~continue~~address ~~operations or has violated any applicable law, regulation, rule, order or condition imposed by~~ the ~~FDIC~~financial ~~or the OCC~~crisis. ~~It also may~~Depending ~~suspend~~on ~~deposit insurance temporarily during~~ the ~~hearing~~scope ~~process for the permanent termination~~ of ~~insurance~~such proposals, if ~~the~~they ~~institution~~are ~~has~~adopted noand ~~tangible~~applied ~~capital. If~~to ~~insurance~~the ~~of accounts is terminated~~Company, ~~the~~our ~~accounts at the institution at the time of~~financial ~~the termination~~condition, ~~less~~results ~~subsequent withdrawals, shall continue to be insured for a period~~ of ~~six~~operations ~~months~~or toliquidity ~~two years~~could, asdirectly ~~determined~~or byindirectly, ~~the~~benefit ~~FDIC. Management~~or ofbe ~~the~~adversely ~~bank~~affected isin ~~not~~a ~~aware~~manner ~~of any practice, condition or violation~~ that ~~might~~could ~~lead~~be material to ~~termination~~ ofour ~~the bank’s deposit insurance~~business.

~~Proposed~~We ~~Legislation~~face ~~and~~strong ~~Regulatory Action. Legislative~~competition ~~and~~for ~~regulatory proposals regarding changes in banking~~customers, ~~and~~which the regulation of banks, federal savings institutions, and other financial institutions and bank and bank holding company powers are being considered by the executive branch of the federal government, Congress and various state governments. Certain of these proposals, if adopted, could ~~significantly~~prevent ~~change~~us ~~the~~from ~~regulation~~obtaining orcustomers ~~operations of banks~~ and ~~the~~may ~~financial~~cause ~~services~~us ~~industry.~~to ~~New regulations~~pay ~~and~~higher ~~statutes~~interest ~~are~~rates ~~regularly~~to ~~proposed~~attract ~~that contain wide-ranging proposals for altering the structures, regulations, and competitive relationships of the nation’s financial institutions~~customers. On June 17, 2009, the U.S. Treasury released a white paper entitled “Financial Regulatory Reform — A New Foundation: Rebuilding Financial Supervision and Regulation” (the “Proposal”) which calls for sweeping regulatory and supervisory reforms for the entire financial sector and seeks to advance the following five key objectives: (i) promote robust supervision and regulation of financial firms, (ii) establish comprehensive supervision of financial markets, (iii) protect consumers and investors from financial abuse, (iv) provide the government with

~~additional~~The ~~powers~~banking tobusiness ~~monitor~~is ~~systemic~~highly ~~risks~~competitive, ~~supervise~~ and ~~regulate~~we experience competition in our market from many other financial ~~products~~institutions. We compete with commercial banks, credit unions, savings and ~~markets~~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 ~~resolve~~our ~~firms~~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 ~~threaten~~we do not currently provide. There is a risk that we will not be able to compete successfully with other financial ~~stability~~institutions in our market, and ~~(v)~~that we may have to pay higher interest rates to attract deposits, resulting in reduced profitability. ~~raise~~In ~~international~~addition, ~~regulatory~~competitors ~~standards~~that ~~and~~are ~~improve~~not ~~international~~depository ~~cooperation~~institutions are generally not subject to the extensive regulations that apply to us.

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

We target the banking and financial services needs of 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.

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

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

~~The~~We ~~Proposal~~manage ~~also~~our ~~includes~~credit ~~the~~exposure ~~creation~~through ofcareful amonitoring ~~new~~of ~~federal~~loan ~~agency~~applicants ~~designed~~and toloan concentrations ~~enforce~~in ~~consumer protection~~particular ~~laws.~~industries, ~~The~~and ~~Consumer~~through ~~Financial~~loan ~~Protection~~approval ~~Agency~~and ~~(“CFPA”)~~review ~~would~~procedures. We have ~~authority~~established an evaluation process designed to ~~protect~~determine ~~consumers~~the adequacy of ~~financial~~our ~~products~~allowance ~~and~~for ~~services~~loan ~~and~~losses. While tothis ~~regulate~~evaluation ~~all~~process ~~providers~~uses historical ~~(bank~~ and ~~non-bank)~~other ofobjective ~~such~~information, ~~services.~~the ~~The~~classification ~~CFPA~~of ~~would~~loans ~~be authorized~~and tothe ~~adopt~~establishment ~~rules for~~of ~~all~~loan ~~providers~~losses ofis ~~consumer~~an ~~financial~~estimate ~~services~~based on experience, ~~supervise~~judgment and ~~examine~~expectations ~~such~~regarding ~~institutions~~our ~~for compliance~~borrowers, ~~and~~the ~~enforce~~economies ~~compliance~~in ~~through~~which ~~orders,~~we ~~fines~~and our borrowers operate, as ~~and~~well ~~penalties.~~as ~~The~~the ~~rules~~ judgment of ~~the~~our ~~CFPA~~regulators. We ~~would~~cannot ~~serve~~assure asyou ~~a “floor”~~that ~~and~~our ~~individual~~loan ~~states~~loss ~~would~~reserves will be ~~permitted~~sufficient to ~~adopt~~absorb ~~and~~future ~~enforce~~loan ~~stronger~~losses ~~consumer~~or ~~protection~~prevent ~~laws~~a material adverse effect on our business, profitability or financial condition.

On November 10, 2009, Senate Banking Committee chairman Christopher Dodd proposed a significant regulatory reform bill that includes many of the features of the Proposal, including consolidating financial regulators, imposing higher capital requirements on financial institutions, remaking the derivatives industry, and shifting consumer protection from an overlapping patchwork of regulators to a single new commission, the CFPA. This bill is still pending approval of the US Congress and many subsequent amendments have been proposed. If this bill is adopted as proposed, we may become subject to multiple laws affecting its provision of loans and other credit services to consumers, which may substantially increase the cost of providing such services.

On February 2, 2 010, the U.S. President called on the U.S. Congress to create a new Small Business Lending Fund. Under this proposal, $30 billion in TARP funds would be transferred to a new program outside of TARP to support small business lending. As proposed, only small- and medium-sized banks would qualify to participate in the program.

New regulations and statutes are regularly proposed that contain wide-ranging proposals for altering the structures, regulations, and competitive relationships of the nation’s financial institutions. 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.

Item 1A Risk Factors

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

Negative developments from the latter half of 2007 through 2009 in the global credit and securitization markets have resulted in uncertainty in the financial markets in general with the expectation of the general economic downturn continuing into 2010. 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. As a result, significant new federal laws and regulations relating to financial institutions, including, without limitation, the EESA and the U.S. Treasury Department’s CPP, have been adopted. Furthermore, the potential exists for additional federal or state laws and regulations regarding, among other matters, lending and funding practices and liquidity standards, and bank regulatory agencies are expected to be active in responding to concerns and trends identified in examinations, including the expected issuance of many formal enforcement orders. Negative developments in the financial industry and the domestic and international credit markets, and the impact of new legislation in response to those developments, may negatively impact our operations by restricting our business operations, including our ability to originate or sell loans, and adversely impact our financial performance. We can provide no assurance regarding the manner in which any new laws and regulations will affect us.

There can be no assurance that recently enacted legislation will help stabilize the U.S. financial system.

As described above under “Supervision and Regulation,” in response to the challenges facing the financial services sector, a number of regulatory and governmental actions have been enacted or announced. There can be no assurance that these government actions will achieve their purpose. The failure of the financial markets to stabilize, or a continuation or worsening of the current financial market conditions, could have a material adverse affect on our business, our financial condition, the financial condition of our customers, our common stock trading price, as well as our ability to access credit. It could also result in declines in our investment portfolio which could be “other-than-temporary impairments.”

Continuation of the economic downturn could reduce our customer base, our level of deposits, and demand for financial products such as loans.

Our success significantly depends upon the growth in population, income levels, deposits, and housing starts in our markets. The current economic downturn has negatively affected the markets in which we operate and, in turn, the quality of our loan portfolio. If the communities in which we operate do not grow or if prevailing economic conditions locally or nationally remain unfavorable, our business may not succeed. A continuation of the economic downturn or prolonged recession would likely result in the continued deterioration of the quality of our loan portfolio and reduce our level of deposits, which in turn would hurt our business. If the economic downturn continues or a prolonged economic recession occurs in the economy as a whole, borrowers will be less likely to repay their loans as scheduled. Moreover, in many cases the value of real estate or other collateral that secures our loans has been adversely affected by the economic conditions and could continue to be negatively affected. Unlike many larger institutions, we are not able to spread the risks of unfavorable local economic conditions across a large number of diversified economies. A continued economic downturn could, therefore, result in losses that materially and adversely affect our business.

A significant portion of our loan portfolio is secured by real estate, and events that negatively impact the real estate market could hurt our business.

A 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 required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values, our 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.

Our ~~small-~~use of appraisals in deciding whether to ~~medium-sized~~make ~~business~~a ~~target~~loan ~~markets~~on ~~may~~or ~~have~~secured ~~fewer~~by ~~financial~~real ~~resources~~property toor ~~weather~~how ato ~~continued~~value ~~downturn~~such loan in the ~~economy.~~future may not accurately describe the net value of the real property collateral that we can realize.

WeIn ~~target~~considering whether to make a loan secured by real property, we generally require an appraisal of the ~~banking~~property. ~~and~~However, ~~financial~~an ~~services~~appraisal ~~needs~~is only an estimate of ~~small-~~the value of the property at the time the appraisal is made, and, ~~medium-sized~~as ~~businesses. These~~real ~~businesses generally~~estate values in our market area have experienced ~~fewer~~changes ~~financial~~in ~~resources~~value in ~~terms~~relatively short periods of ~~capital~~time, ~~borrowing~~this ~~capacity~~estimate ~~than~~might ~~larger~~not ~~entities. If~~accurately ~~general~~describe ~~economic~~the ~~conditions~~net ~~continue~~value toof ~~negatively~~the ~~impact~~real ~~these~~property ~~businesses~~collateral inafter the ~~markets~~loan inhas ~~which~~been weclosed. ~~operate,~~If ~~our~~the ~~business,~~appraisal ~~financial~~does not reflect the amount that may be ~~condition~~obtained upon any sale or foreclosure of the property, ~~and~~we ~~results~~may not realize an amount equal to the indebtedness secured by the property. The valuation of ~~operation~~the property may benegatively impact the continuing value of such loan and could adversely ~~affected~~affect our operating results and financial condition.

We are exposed to changes in the regulation of financial services companies.

Proposals for further regulation of the financial services industry are continually being introduced in the Congress of the United States of America and the General Assembly of the State of South Carolina. The agencies regulating the financial services industry also periodically adopt changes to their regulations. On September 7, 2008, the Treasury Department announced that Fannie Mae (along with Freddie Mac) has been placed into conservatorship under the control of the newly created Federal Housing Finance Agency. On October 3, 2008, EESA was signed into law, and on October 14, 2008 the U.S. Treasury Department announced the CPP under EESA. It is possible that additional legislative proposals may be adopted or regulatory changes may be made that would have an adverse effect on our business.

Our FDIC Deposit Insurance premiums have risen significantly in the recent past and may continue to increase in the future as a result of increased assessment rates imposed by the FDIC.

As a member institution of the FDIC, we are required to pay semi-annual deposit insurance premium assessments to the FDIC. Due to the recent failure of several unaffiliated FDIC insurance depository institutions, and the FDIC’s new TLGP, the deposit insurance premium assessments paid by all banks has increased. In addition, new FDIC requirements shift a greater share of any increase in such assessments onto institutions with higher risk profiles, including banks with heavy reliance on brokered deposits, such as our bank. In the fourth quarter of 2009, the FDIC collected prepaid insurance assessments for the three years ending December 31, 2012 in an effort to restore fund balances. Continued increases in this expense would have a material adverse effect on our financial condition.

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

We are required by 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 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.

We are exposed to the possibility of technology failure.

We rely on our computer systems and the technology of outside 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.

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

We may not 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.

Our decisions regarding credit risk and reserves for loan losses may materially and adversely affect our business.

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:

•

the duration of the credit;

•

credit risks of a particular customer;

•

changes in economic and industry conditions; and

•

in the case of a collateralized loan, risks resulting from uncertainties about the future value of the collateral.

We attempt to maintain an appropriate allowance for loan losses to provide for potential losses in our loan portfolio. We periodically determine the amount of the allowance based on consideration of several factors, including:

•

an ongoing review of the quality, mix, and size of our overall loan portfolio;

•

our historical loan loss experience;

•

evaluation of economic conditions;

•

regular reviews of loan delinquencies and loan portfolio quality; and

•

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

There is no precise method of predicting credit losses; therefore, we face the risk that charge-offs in future periods will exceed our allowance for loan losses and that additional increases in the allowance for loan losses will be ~~required. Additions to the allowance for loan losses would result in a decrease of our net income, and possibly our capital.~~

~~Changes~~16 ~~in prevailing interest rates may reduce our profitability.~~

OurTable results of operations depend in large part upon the level of our net interest income, which is the difference between interest income from interest-earning assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits and other borrowings. Depending on the terms and maturities of our assets and liabilities, a significant change in interest rates could have a material adverse effect on our profitability. Many factors cause changes in interest rates, including governmental monetary policies and domestic and international economic and political conditions. While we intend to manage the effects of changes in interest rates by adjusting the terms, maturities, and pricing of our assets and liabilities, our efforts may not be effective and our financial condition and results of operations could suffer. During the second half of 2007, the Federal Reserve began to reduce short-term interest rates, which had an adverse effect on our earnings in 2008 and 2009 and may continue to negatively impact our earnings in 2010. Contents

required. Additions to the allowance for loan losses would result in a decrease of our net income, and possibly our capital.

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

The 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.

As a member institution of 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.

On April 1, 2009, the FDIC modified the risk-based assessments to account for each institution’s unsecured debt, secured liabilities and use of brokered deposits. Starting with the second quarter of 2009, assessment rates were increased and currently range from 7 to 77.5 basis points (annualized).

On October 19, 2010, the FDIC adopted a new DIF Restoration Plan, which requires the DIF to attain a 1.35% reserve ratio by September 30, 2020 and foregoes the uniform three basis point-increase scheduled to take effect on January 1, 2011. In addition, the FDIC modified the method by 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 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 classification, emergency assessments, or implementation of the modified DIF reserve ratio, could adversely impact our earnings.

Changes in the interest rate environment could reduce our net interest income, which could reduce our profitability.

As a financial institution, our earnings significantly depend on our net interest income, which is the difference between the interest income that we earn on interest-earning assets, such as investment securities and loans, and the interest expense that we pay on interest-bearing liabilities, such as deposits and borrowings. Therefore, any change in general market interest rates, including changes 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.

Additionally, we cannot predict whether interest rates will continue to 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 and investments, our results of operations may be adversely affected by changes in interest rates.

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

We are subject to liquidity 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 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 decrease in the level of our business activity due to a market downturn or adverse regulatory action against us. Our ability to borrow could also be impaired by factors that are not specific to us, such as a severe disruption in the financial markets or negative views and expectations about the prospects for the financial services industry as a whole, given the recent turmoil faced by banking organizations in the domestic and worldwide credit markets. 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 ability to pay cash dividends on 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 future. Any future determination relating to dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including our future earnings, 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 future 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 needs and financial condition. Further, our principal source of funds to pay dividends is cash dividends that we receive from the Bank; however, statutory and regulatory limitations apply to the payment of dividends by a subsidiary bank to its bank holding company.

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.

We are exposed to the possibility of technology failure.

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.

Our president and chief executive officer, has extensive and long-standing ties within our primary market area and he has contributed significantly to our growth. If we lose his services it could be difficult to replace him, and our business and development could be materially and adversely affected.

Our 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.

We are subject to extensive regulation that could limit or restrict our activities.

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

The Sarbanes-Oxley Act of 2002, and the related rules and regulations promulgated by the Securities and Exchange Commission that are now applicable to us, have increased the scope, complexity, and cost of corporate governance, reporting, and disclosure practices. We have experienced, and we expect to continue to experience, greater compliance costs, including costs related to internal controls, as a result of the Sarbanes-Oxley Act.

We face strong competition for customers, which could prevent us from obtaining customers and may cause us to pay higher interest rates to attract customers.

The 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 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.

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

If we ever decide 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:

•

taking additional time and creating expense associated with identifying and evaluating potential acquisitions and merger partners;

•

using inaccurate estimates and judgments to evaluate credit, operations, management, and market risks with respect to the target institution or assets;

•

diluting our existing shareholders in an acquisition;

•

taking additional time and creating expense associated with 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;

•

taking a significant amount of time negotiating a transaction or working on expansion plans, resulting in management’s attention being diverted from the operation of our existing business;

•

taking time and creating expense integrating the operations and personnel of the combined businesses;

•

creating an adverse short-term effect on our results of operations; and

•

losing key employees and customers as a result of an acquisition that is poorly received.

We 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.

Item 1B Unresolved Staff Comments

Not applicable

Item 2. Description of Property

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.

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

The Company acquired a 5500 square foot building at 110 Forest Hills Road in Walterboro, South Carolina on November 16, 2000 and began using it as a branch location in 2001. The total cost of the facility, including land, was $485,000.

The Company opened its fourth banking location at 398 East Main street Ridgeland, South Carolina. This 3,800 square foot facility opened for business on December 6, 2004 and provides traditional banking services. The total ~~cost of this facility, including land, and furniture and fixtures was $1,105,257.~~

2019

cost of this facility, including land, and furniture and fixtures was $1,105,257.

Item 3. Legal Proceedings

~~The~~None Company may from time to time be a party to various legal proceedings arising in the ordinary course of business, but management of the Company is not aware of any pending or threatened litigation or unasserted claims or assessments that are expected to result in losses, if any, that would be material to the Company’s business and operations.

Item 4. ~~Submission~~ Removed and ofReserved. ~~Matters to a Vote of Security Holders~~

No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

Part II

Item 5. Market for Common Equity and Related Stockholder Matters

(a) In response to this Item, the information contained on page 5054 of the Company’s Annual Report to ~~Shareholders for the year ended December 31, 2009 is incorporated herein by reference.~~

Shareholders for the year ended December 31, 2010 is incorporated herein by reference.

(b)

Not Applicable.

(c)

Not Applicable.

Item 6. Selected Financial Data

In response to this Item, the information contained on page 3 of the Company’s Annual Report to Shareholders for the year ended December 31, ~~2009~~2010 is incorporated herein by reference.

Item 7. Management’s Discussion and Analysis orof ~~Plan~~Financial Condition and Results of Operation

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, ~~2009~~2010 is incorporated herein by reference.

Item 7A. Quantitative and Qualitative disclosure about Market Risk

InPursuant ~~response~~ to ~~this Item,~~ the ~~information~~revised ~~contained~~disclosure onrequirements ~~pages 8 through 24 of the Company’s Annual Report to Shareholders~~ for ~~the~~smaller reporting ~~year~~companies ~~ended~~effective ~~December~~February 314, ~~2009~~2008, isno ~~incorporated~~disclosure ~~herein~~under bythis ~~reference~~Item is required.

Item 8. Financial Statements and Supplementary Data

In response to this Item, the information contained on pages 2625 through 5052 of the Company’s Annual Report to Shareholders for the ~~year~~ year ended December 31, ~~2009~~2010 is incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable

Item 9A. Control and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and 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, ~~2009~~2010. There have been no significant changes in our internal controls over financial reporting during the fourth fiscal quarter ended December 31, ~~2009~~2010 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

2120

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

Management’s Annual Report on Internal Controls Over Financial Reporting

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.

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, ~~2009~~ 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, ~~2009~~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 ~~of the Registrant~~

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 ~~28,~~ ~~2010~~27, 2011 is incorporated herein by reference.

Item 11. Executive Compensation

In response to this Item, the information contained on page 67 of the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 28 27, ~~2010~~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 5 6 of the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 2827, ~~2010~~2011 is incorporated herein by reference.

2221

Item 13. Certain Relationships and Related Transactions

In response to this Item, the information contained on page 56 of the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 2827, ~~2010~~2011 is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services.

In response to this Item, the information contained on page 45 of the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 2827, ~~2010~~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, 2009 (Incorporated by reference)


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

~~21.1~~22 ~~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 26, 2010

By:

/s/ W. Roger Crook

Date: March 25, 2011

By:

/s/ W. Roger Crook

W. Roger Crook.

W. Roger Crook President and Chief Executive Officer

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
/s/ W. Roger Crook W. Roger Crook	President, Director (CEO)	March 25, 2011
W. Roger Crook	President, Director (CEO)	March 26, 2010
/s/ Gwendolyn P. Bunton Gwendolyn P. Bunton	Vice President (CFO)	March 25, 2011
/s/ Gwendolyn P. Bunton
/s/ Peden B. McLeod Peden B. McLeod	Director & Chairman of the Board	March 25, 2011
Gwendolyn P. Bunton	Vice President (CFO)	March 26, 2010
/s/ George W. Cone George W. Cone	Director & Corporate Secretary	March 25, 2011
/s/ Peden B. McLeod
/s/ J. Barnwell Fishburne J. Barnwell Fishburne	Director	March 25, 2011
Peden B. McLeod	Director & Chairman of the Board	March 26, 2010
/s/ Harry L. Hill Harry L. Hill	Director	March 25, 2011
/s/ George W. Cone
/s/ Steven D. Murdaugh Steven D. Murdaugh	Director	March 25, 2011
George W. Cone	Director & Corporate Secretary	March 26, 2010
/s/ Harold M. Robertson Harold M. Robertson	Director	March 25, 2011
/s/ J. Barnwell Fishburne
/s/ J. Reaves McLeod J. Reaves McLeod	Director	March 25, 2011
J. Barnwell Fishburne	Director	March 26, 2010
/s/ Harry L. Hill
Harry L. Hill	Director	March 26, 2010
/s/ Steven D. Murdaugh
Steven D. Murdaugh	Director	March 26, 2010
/s/ Harold M. Robertson
Harold M. Robertson	Director	March 26, 2010
/s/ J. Reaves McLeoad
J. Reaves McLeoad	Director	March 26, 2010

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Index To Exhibits

Exhibit No. Description


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

13		Annual Report of Shareholders for the year ended December 31, 2009 (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 Certifications

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