GREER BANCSHARES INC - FORM 10-Q

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EX-32 - SECTION 906 CEO AND CFO CERTIFICATION - GREER BANCSHARES INC	dex32.htm
EX-31.1 - SECTION 302 CEO CERTIFICATION - GREER BANCSHARES INC	dex311.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - GREER BANCSHARES INC	dex312.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

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

For the quarterly period ended September 30, 2010

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

For the transition period from to

Commission file number: 000-33021

GREER BANCSHARES INCORPORATED

(Exact name of registrant as specified in its charter)


South Carolina		57-1126200
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1111 W. Poinsett Street, Greer, South Carolina		29650
(Address of principal executive offices)		(Zip Code)

(864) 877-2000

(Registrant’s telephone number, including area code)

[None]

(Former name, former address and former fiscal year, if changed since last report)

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

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

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.

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at 11/13/10
Common Stock, $5.00 par value per share		2,486,692 shares

GREER BANCSHARES INCORPORATED

Index


PART I - Financial Information

Item 1. Consolidated Financial Statements (Unaudited)

Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009			3
Consolidated Statements of Income (Loss) for the Three and Nine months Ended September 30, 2010 and 2009			4
Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine months Ended September 30, 2010 and 2009			5
Consolidated Statement of Changes in Stockholders’ Equity for the Nine months Ended September 30, 2010			6
Consolidated Statements of Cash Flows for the Nine months Ended September 30, 2010 and 2009			7
Notes to Consolidated Financial Statements			9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			19

Item 3. Quantitative and Qualitative Disclosures about Market Risk			31

Item 4. Controls and Procedures			31

PART II - OTHER INFORMATION

Item 1. Legal Proceedings			32
Item 1A. Risk Factors			32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			32
Item 3. Defaults Upon Senior Securities			32
Item 4. (Intentionally deleted)
Item 5. Other Information			32
Item 6. Exhibits			32

Signatures			33

Index to Exhibits			34

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

GREER BANCSHARES INCORPORATED

Consolidated Balance Sheets

(Unaudited)

(Dollars in thousands, except per share data)


	September 30, 2010			December 31, 2009*
Assets

Cash and due from banks	$	9,043		$	12,222
Interest bearing deposits in banks		2,159			442
Federal funds sold		2,155			—

Cash and cash equivalents		13,357			12,664
Investment securities:
Available for sale		119,053			124,984
Loans, net of allowance for loan losses of $8,669 and $6,315, respectively		277,470			301,078
Loans held for sale		1,619			—
Premises and equipment, net		5,286			5,952
Accrued interest receivable		1,677			2,054
Restricted stock		5,515			5,937
Other real estate owned		9,779			8,494
Deferred tax asset		—			3,441
Other assets		11,471			12,187


Total assets	$	445,227		$	476,791


Liabilities and Stockholders’ Equity

Liabilities:

Deposits:
Noninterest bearing	$	31,226		$	33,656
Interest bearing		274,090			264,990

Total deposits		305,316			298,646
Short term borrowings		—			13,993
Long term borrowings		114,841			132,841
Other liabilities		3,711			3,358


Total Liabilities		423,868			448,838


Stockholders’ Equity:
Preferred stock—no par value 200,000 shares authorized;
Preferred stock, Series 2009-SP, no par value, 9,993 shares issued and outstanding at September 30, 2010 and December 31, 2009		9,540			9,451
Preferred stock, Series 2009-WP, no par value, 500 shares issued and outstanding at September 30, 2010 and December 31, 2009		561			578
Common stock—par value $5 per share, 10,000,000 shares authorized; 2,486,692 shares issued and outstanding at September 30, 2010 and December 31, 2009		12,433			12,433
Additional paid in capital		3,610			3,542
Retained earnings (accumulated deficit)		(6,477	)		735
Accumulated other comprehensive income		1,692			1,214


Total Stockholders’ Equity		21,359			27,953


Total Liabilities and Stockholders’ Equity	$	445,227		$	476,791

*	This information is derived from Audited Consolidated Financial Statements.

The accompanying notes are an integral part of these consolidated financial statements.

GREER BANCSHARES INCORPORATED

Consolidated Statements of Income (Loss)

(Unaudited)

(Dollars in thousands, except per share data)


	For Three Months Ended						For Nine months Ended
	09/30/10			09/30/09			09/30/10			09/30/09
Interest Income:
Loans	$	3,901		$	4,278		$	12,017		$	12,434
Investment securities:
Taxable		723			1,088			2,416			3,225
Exempt from federal income tax		263			249			773			724
Federal funds sold		5			2			18			3
Other		4			4			11			7

Total interest income		4,896			5,621			15,235			16,393

Interest Expense:
Interest on deposit accounts		1,202			1,434			3,620			4,583
Interest on short term borrowings		—			21			5			30
Interest on long term borrowings		940			1,159			2,929			3,485

Total interest expense		2,142			2,614			6,554			8,098

Net interest income		2,754			3,007			8,681			8,295
Provision for loan losses		3,248			475			5,924			2,570

Net interest income (loss) after provision for loan losses		(494	)		2,532			2,757			5,725

Non-interest income:
Customer service fees		201			221			602			669
Gain on sale of investment securities		—			476			1,120			1,083
Impairment loss on restricted stock		—			—			—			(311	)
Impairment loss on investment securities		—			(93	)		—			(93	)
Other noninterest income		781			381			1,571			1,238

Total noninterest income		982			985			3,293			2,586


Non-interest expenses:
Salaries and employee benefits		1,389			1,452			4,221			4,298
Occupancy and equipment		181			212			565			622
Postage and supplies		75			63			201			192
Marketing expenses		12			9			77			99
Directors fees		23			49			89			154
Professional fees		100			104			314			295
FDIC deposit insurance assessments		147			294			449			701
Other real estate owned and foreclosure expense		920			110			2,653			214
Other		324			371			1,072			1,022

Total noninterest expenses		3,171			2,664			9,641			7,597


Income (loss) before income taxes		(2,683	)		853			(3,591	)		714


Provision for income taxes:		3,129			223			3,141			116


Net income (loss)		(5,812	)		630			(6,732	)		598


Preferred stock dividends and net discount accretion		(161	)		(158	)		(480	)		(423	)


Net income (loss) available to common shareholders	$	(5,973	)	$	472		$	(7,212	)	$	175


Basic net income (loss) per share of common stock	$	(2.40	)	$	.19		$	(2.90	)	$	.07


Diluted net income (loss) per share of common stock	$	(2.40	)	$	.19		$	(2.90	)	$	.07

The accompanying notes are an integral part of these consolidated financial statements.

GREER BANCSHARES INCORPORATED

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(Dollars in thousands)


	For Three Months Ended						For Nine months Ended
	09/30/10			09/30/09			09/30/10			09/30/09

Net Income (Loss)	$	(5,812	)	$	630		$	(6,732	)	$	598

Other comprehensive income, net of tax:
Unrealized holding gains on held to maturity investment securities transferred to available for sale		—			166			—			166
Unrealized holding gain (loss) on available for sale investment securities		35			1,471			1,173			2,019
Less reclassification adjustments for gains included in net income (loss)		—			(238	)		(695	)		(614	)

Other comprehensive income		35			1,399			478			1,571


Comprehensive Income (Loss)	$	(5,777	)	$	2,029		$	(6,254	)	$	2,169

The accompanying notes are an integral part of these consolidated financial statements.

GREER BANCSHARES INCORPORATED

Consolidated Statement of Changes in Stockholders’ Equity

for the Nine Months Ended September 30, 2010

(Unaudited)

(Dollars in thousands, except per share data)


	Preferred stock							Additional		Retained Earnings			Accumulated Other		Total
	Series 2009-SP		Series 2009-WP			Common Stock		Paid In capital		(Accumulated Deficit)			Comprehensive Income		Stockholders’ Equity
Balances at December 31, 2009	$	9,451	$	578		$	12,433	$	3,542	$	735		$	1,214	$	27,953

Net loss		—		—			—		—		(6,732	)		—		(6,732	)
Other comprehensive income, net of tax		—		—			—		—		—			478		478
Amortization of premium and discount on preferred stock		89		(17	)		—		—		(72	)		—		—
Preferred stock dividends declared		—		—			—		—		(408	)		—		(408	)
Stock based compensation		—		—			—		68		—			—		68


Balances at September 30, 2010	$	9,540	$	561		$	12,433	$	3,610	$	(6,477	)	$	1,692	$	21,359

The accompanying notes are an integral part of these consolidated financial statements.

GREER BANCSHARES INCORPORATED

Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)


	For the Nine months Ended
	9/30/10			09/30/09
Operating activities
Net income (loss)	$	(6,732	)	$	598
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation		281			325
Amortization of premiums on mortgage-backed securities		1,115			674
Gain on sale of investment securities		(1,120	)		(1,083	)
Loss on sale of land		4			—
Loss on sale of other real estate owned		32			42
Impairment loss on restricted stock		—			311
Impairment loss on investment securities		—			93
Impairment loss on other real estate owned		2,118			—
Provision for loan losses		5,924			2,570
Origination of loans held for sale		(14,307	)		—
Proceeds from sales of loans held for sale		12,829			—
Gain on sale of loans held for sale		(141	)		—
Deferred income tax provision (benefit)		3,141			(337	)
Decrease in prepaid FDIC deposit insurance		419			—
Stock based compensation		68			97
Decrease (increase) in cash surrender value of life insurance		52			(212	)
Net change in:
Accrued interest receivable		377			162
Other assets		245			(39	)
Accrued interest payable		330			217
Other liabilities		(45	)		128


Net cash provided by operating activities		4,590			3,546


Investing activities
Activity in available-for-sale securities:
Sales		43,003			33,151
Maturities, payment and calls		24,381			13,174
Purchases		(60,670	)		(84,950	)
Activity in held to maturity securities:
Sales		—			5,922
Maturities, payment and calls		—			3,260
Redemption (purchase) of restricted stock		422			(558	)
Net decrease (increase) in loans		12,010			(4,998	)
Proceeds from sale of other real estate owned		2,239			789
Proceeds from sale of land		590			—
Purchase of premises and equipment		(209	)		(51	)


Net cash provided by (used for) investing activities		21,766			(34,261	)

GREER BANCSHARES INCORPORATED

Consolidated Statements of Cash Flows-Continued

(Unaudited)

(Dollars in thousands)


Financing activities
Net increase in deposits		6,670			7,870
Repayment of notes payable to FHLB		(24,000	)		(34,000	)
Proceeds from notes payable to FHLB		6,000			42,500
Net increase (decrease) in short term borrowings		(13,993	)		6,471
Proceeds from issuance of preferred stock		—			9,949
Preferred stock cash dividends paid		(340	)		(296	)


Net cash provided by (used for) financing activities		(25,663	)		32,494


Net increase in cash and cash equivalents		693			1,779
Cash and equivalents, beginning of period		12,664			6,300


Cash and equivalents, end of period	$	13,357		$	8,079


Cash paid for:
Income taxes	$	—		$	390

Interest	$	6,224		$	7,881


Non-cash investing and financing activities
Real estate acquired in satisfaction of loans	$	6,616		$	5,971

Loans to facilitate sale of other real estate owned	$	942		$	125

Transfer of investment securities from held to maturity to available for sale, due to change of intent to sell investment securities	$	—		$	6,795

Unrealized gains on transfer of held to maturity investment securities to available for sale investment securities, net of tax	$	—		$	166

Unrealized gains on available for sale investment securities, net of tax	$	478		$	1,405

Preferred stock dividends declared not paid	$	68		$	69

The accompanying notes are an integral part of these consolidated financial statements.

GREER BANCSHARES INCORPORATED

Notes to Consolidated Financial Statements

Note 1 – Basis of Presentation

Greer Bancshares Incorporated (the “Company”) is a one-bank holding company for Greer State Bank (the “Bank”). The Company currently engages primarily in owning and managing the Bank.

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature. The statements of loss and comprehensive income (loss) for the interim periods are not necessarily indicative of the results that may be expected for the entire year or any other future interim period.

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the Company for the year ended December 31, 2009, which are included in the 2009 Annual Report on Form 10-K.

Note 2 – Net Loss per Common Share

Basic and diluted earnings (loss) per common share is computed by dividing net income (loss) adjusted for cumulative preferred stock dividends by the weighted average number of common shares outstanding during each period presented. The weighted average common shares outstanding were 2,486,692 (basic and diluted) for the three and nine months ended September 30, 2010 and September 30, 2009. Anti-dilutive options totaling 326,947 and 355,530 have been excluded from the loss per share calculation for the three and nine months ended September 30, 2010 and September 30, 2009, respectively.

Note 3 – Income Taxes

The Company files a consolidated federal income tax return and separate state income tax returns. Income taxes are allocated to each company as if filed separately for federal purposes and based on the separate returns filed for state purposes.

Certain items of income and expense for financial reporting are recognized differently for income tax purposes (principally the provision for loan losses, deferred compensation and depreciation). Provisions for deferred taxes are made in recognition of such temporary differences as required by the Income Taxes Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). Current income taxes are recorded based on amounts due with the current income tax returns.

The need for a valuation allowance is considered when it is determined more likely than not that a deferred tax asset will not be realized. In making this determination, management considers all available evidence, including the existence of available reversing temporary differences, the ability to generate future taxable income and available tax planning strategies. Primarily as the result of recent earnings history and the inability to reasonably predict future taxable income caused by the volatility in the loan portfolio, the Company recorded a full valuation allowance on the net deferred tax assets outstanding at the beginning of the period. Also, the Company did not record a deferred tax benefit on the pretax loss generated for the current quarter, resulting in net income tax expense of $3,129,000 and $3,141,000 for the three and nine months ended September 30, 2010, respectively. The valuation allowance on the net deferred tax assets totaled $4,867,000 at September 30, 2010.

Note 4 – Fair Value

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as certain U.S. Treasury, other U.S. Government and agency mortgage-backed debt securities that are highly liquid and are actively traded in over-the-counter markets.

Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes certain U.S. Government and agency mortgage-backed debt securities, corporate debt securities, derivative contracts and residential mortgage loans held-for-sale.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category generally includes collateralized debt obligations, impaired loans and other real estate owned (“OREO”).

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

Investment Securities Available-for-Sale

Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices of like or similar securities, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions.

Impaired Loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with GAAP. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value or discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At September 30, 2010, substantially all of the total impaired loans were evaluated based on either the fair value of the collateral or its liquidation value. In accordance with GAAP, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.

Other Real Estate Owned

Other real estate owned, consisting of properties obtained through foreclosure or in satisfaction of loans, is reported at net realizable value, determined on the basis of current appraisals, comparable sales and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs. At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the allowance for loan losses. Gains or losses on sale and any subsequent adjustments to the value are recorded as a component of foreclosed real estate expense. Other real estate owned is included in Level 3 of the valuation hierarchy.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

Below is a table that presents information about certain assets and liabilities measured at fair value:


(Dollars in thousands)			Fair Value Measurements at Reporting Date Using
Description	Fair Value		Level 1		Level 2		Level 3
September 30, 2010
Available for sale securities:
Municipal securities	$	25,663	$	—	$	25,663	$	—
Mortgage-backed securities		93,021		—		93,021		—
Collateralized debt obligation		369		—		—		369

Total available for sale securities	$	119,053	$	—	$	118,684	$	369

December 31, 2009
Available for sale securities:
United States Government and Other agency obligations	$	1,987	$	—	$	1,987	$	—
Municipal securities		22,787		—		22,787		—
Mortgage-backed securities		99,874		—		99,874		—
Collateralized debt obligation		336		—		—		336

Total available for sale securities	$	124,984	$	—	$	124,648	$	336

Changes in Level 3 Fair Value Measurements

When a determination is made to classify a financial instrument within Level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, since Level 3 financial instruments typically include, in addition to the unobservable or Level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources), the gains and losses below include changes in fair value due in part to observable factors that are part of the valuation methodology.

A reconciliation of the beginning and ending balances of Level 3 assets, which consists of one collateralized debt obligation, and liabilities recorded at fair value on a recurring basis for the nine months ended September 30, 2010 is as follows:


(Dollars in thousands)	Assets		Liabilities
Fair value, December 31, 2009	$	336	$	—
Total unrealized gain included in other comprehensive income		33		—
Impairment charges		—		—
Transfers in and/or out of level 3		—		—

Fair value September 30, 2010	$	369	$	—

There were no Level 3 liabilities recorded at fair value on a recurring basis during the nine months ended September 30, 2010 and 2009.

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below.


(Dollars in thousands)			Fair Value Measurements at Reporting Date Using
Description	09/30/2010		Level 1		Level 2		Level 3
Impaired loans	$	8,830	$	—	$	—	$	8,830
OREO		9,779		—		—		9,779


(Dollars in thousands)			Fair Value Measurements at Reporting Date Using
Description	12/31/2009		Level 1		Level 2		Level 3
Impaired loans	$	2,988	$	—	$	—	$	2,988
OREO		8,494		—		—		8,494

The Bank had impaired loans with outstanding balances of approximately $18,658,000 and $4,966,000 at September 30, 2010 and December 31, 2009, respectively. Collateral dependent impaired loans had current balances of $10,245,000 before approximately $1,415,000 of charge-offs at September 30, 2010. Included in this total is $6,411,000 of impaired loans with valuation allowances of $2,479,000. Collateral dependent impaired loans were approximately $4,027,000 at December 31, 2009 with valuation allowances of $1,039,000.

Although the Company did not elect to adopt the fair value option for any financial instruments, accounting standards require disclosure of fair value information, whether or not recognized in the balance sheet, when it is practicable to estimate the fair value. A financial instrument is defined as cash, evidence of an ownership interest in an entity, or contractual obligations that require the exchange of cash or other financial instruments. Certain items are specifically excluded from the disclosure requirements, including common stock, premises and equipment, real estate held for sale and other assets and liabilities. The following methods and assumptions were used in estimating fair values of financial instruments:

•

Fair value approximates carrying amount for cash and due from banks due to the short-term nature of the instruments.

•

Investment securities are valued using quoted fair market prices for actively traded securities, pricing models for investment securities traded in less active markets and discounted future cash flows for securities with no active market.

•

Fair value for variable rate loans that re-price frequently and for loans that mature in less than 90 days is based on the carrying amount. Fair value for mortgage loans, personal loans and all other loans (primarily commercial) is based on the discounted present value of the estimated future cash flows. Discount rates used in these computations approximate the rates currently offered for similar loans of comparable terms, credit quality and adjustments for liquidity related to the current market environment.

•

Due to the redemptive provisions of the restricted stock, fair value equals cost. The carrying amount is adjusted for any other than temporary declines in value.

•

The carrying amount for the cash surrender value of life insurance is a reasonable estimate of fair value.

•

The carrying value for accrued interest receivable and payable is a reasonable estimate of fair value.

•

Fair value for demand deposit accounts and interest-bearing accounts with no fixed maturity date is equal to the carrying amount. Certificate of deposit accounts maturing within ninety days are valued at their carrying amount. Certificate of deposit accounts maturing after ninety days are estimated by discounting cash flows from expected maturities using current interest rates on similar instruments.

•

Fair value for federal funds sold and purchased is based on the carrying amount since these instruments typically mature within three days from the transaction date.

•

Fair value for variable rate long-term debt that re-prices frequently is based on the carrying amount. Fair value for fixed rate debt is based on the discounted present value of the estimated future cash flows. Discount rates used in these computations approximate rates currently offered for similar borrowings of comparable terms and credit quality.

•

Fair values for derivatives are based on the present value of future cash flows based on the interest rate spread between the fixed rate and the floating rate.

Management uses its best judgment in estimating fair value based on the above assumptions. Thus, the fair values presented may not be the amounts that could be realized in an immediate sale or settlement of the instrument. In addition, any income taxes or other expenses that would be incurred in an actual sale or settlement are not taken into consideration in the fair values presented. The estimated fair values of the Company’s financial instruments are as follows:


	September 30, 2010				December 31, 2009
(Dollars in thousands)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets
Cash and cash equivalents	$	13,357	$	13,357	$	12,664	$	12,664
Investment securities		119,053		119,053		124,984		124,984
Loans - net		277,470		271,588		301,078		293,446
Loans held for sale		1,619		1,619		—		—
Restricted stock		5,286		5,286		5,937		5,937
Accrued interest receivable		1,677		1,677		2,054		2,054
Bank owned life insurance		6,918		6,918		6,970		6,970

Financial liabilities
Deposits	$	305,316	$	306,241	$	298,646	$	299,009
Federal funds purchased		—		—		3,993		3,993
Repurchase agreements		15,000		15,000		15,000		15,000
Federal reserve borrowings		—		—		10,000		10,000
Notes payable to FHLB		88,500		91,712		106,500		109,111
Junior subordinated debentures		11,341		11,341		11,341		11,341
Accrued interest payable		1,850		1,850		1,569		1,569

Note 5 – Investment Securities

The amortized cost, gross unrealized gains and losses, and estimated fair value of investment securities are as follows:


	September 30, 2010
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for sale:
Municipal securities	$	24,753	$	929	$	19	$	25,663
Mortgage-backed securities		91,213		1,877		69		93,021
Collateralized debt obligation		336		33		—		369


	$	116,302	$	2,839	$	88	$	119,053


	December 31, 2009
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for sale:
United States Government and other agency obligations	$	2,013	$	—	$	26	$	1,987
Municipal securities		22,548		378		139		22,787
Mortgage-backed securities		98,115		1,951		192		99,874
Collateralized debt obligation		336		—		—		336


	$	123,012	$	2,329	$	357	$	124,984

The amortized cost and estimated fair value of investment securities at September 30, 2010 by contractual maturity for debt securities are shown below. Mortgage backed securities have not been scheduled since expected maturities will differ from contractual maturities because borrowers may have the right to prepay the obligations.


	Available for Sale
(Dollars in thousands)	Amortized Cost		Fair Value

Due in 1 year	$	—	$	—
Over 1 year through 5 years		718		740
After 5 years through 10 years		9,606		9,930
Over 10 years		14,765		15,362

		25,089		26,032
Mortgage backed securities		91,213		93,021


Total	$	116,302	$	119,053

The fair value of securities with temporary impairment at September 30, 2010 and December 31, 2009 is shown below:


(Dollars in thousands)	Less Than Twelve Months				Over Twelve Months
September 30, 2010	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

Description of securities:

Mortgage backed securities	$	12,946	$	69	$	—	$	—
Municipal securities		980		19		—		—


Total	$	13,926	$	88	$	—	$	—


(Dollars in thousands)	Less Than Twelve Months				Over Twelve Months
December 31, 2009	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

Description of securities:

United States Government and other agency obligations	$	1,988	$	26	$	—	$	—
Mortgage backed securities		15,702		192		—		—
Municipal securities		4,399		94		435		45


Total	$	22,089	$	312	$	435	$	45

Management believes all of the unrealized losses as of September 30, 2010 and December 31, 2009 are temporary and as a result of temporary changes in the market. One municipal and five mortgage-backed securities had unrealized losses at September 30, 2010 while at December 31, 2009, nine were municipals and seven were mortgage-backed securities. The temporary impairment is due primarily to changes in the short and long term interest rate environment since the purchase of the securities and is not related to credit issues of the issuer. The Bank has sufficient cash, investments showing unrealized gains and borrowing sources to provide sufficient liquidity to hold the securities with unrealized losses until maturity or a recovery of fair value, if necessary.

The Company reviews its investment portfolio on a quarterly basis, judging each investment for OTTI. For securities for which there is no expectation to sell or it is more likely than not that management will not be required to sell, the OTTI is separated into credit and noncredit components. The credit-related OTTI, represented by the expected loss in principal, is recognized in noninterest income, while the noncredit-related OTTI is recognized in the other comprehensive income (loss) (“OCI”). Noncredit-related OTTI results from other factors, including increased liquidity spreads and extension of the security. For securities for which there is an expectation to sell, all OTTI is recognized in earnings.

The Company owns a collateralized debt obligation for which it would sell prior to fully recovering any unrealized loss. The security is collateralized by subordinated debt issued by approximately forty-two commercial banks located throughout the United States. This security was valued considering multiple stress scenarios using conservative assumptions for underlying collateral defaults, loss severity and prepayments. The present value of the future cash flows was calculated using 10% as a discount rate. The difference in the present value and the carrying value of the security would be OTTI, if any. The security is currently carried at an estimated fair value of approximately $369,000 at September 30, 2010.

The following table presents more detail on the collateralized debt obligation as of September 30, 2010 with an original par value of approximately $1,087,000. These details are listed separately due to the inherent level of risk for continued OTTI on this security.


(Dollars in thousands) Description	Cusip#		Current Credit Rating		Book Value		Fair Value		Unrealized Loss		Present Value Discounted Cash Flow

Collateralized debt obligation
Trapeza 2003-5A		89412RAL9		Ca	$	336	$	369	$	—	$	369

Gross realized gains, gross realized losses and sale proceeds for investment securities for the nine months ended September 30 are summarized as follows. These net gains or losses are shown in noninterest income as gain on sale of available for sale securities.


(Dollars in thousands)	2010		2009
	Available for sale		Available for sale		Held to maturity
Gross realized gains	$	1,132	$	958	$	142
Gross realized losses		12		17		—


Net gain on sale of securities	$	1,120	$	941	$	142


Sale proceeds	$	43,003	$	27,229	$	5,922

Note 6 – Loans

A summary of loans outstanding by major classification follows:


(Dollars in thousands)	September 30, 2010					December 31, 2009

Real estate
Construction and land development	$	62,347		21.79	%	$	75,537		24.57	%
Commercial		88,758		31.02	%		76,598		24.92	%
Residential		82,045		28.68	%		85,541		27.83	%
Commercial and industrial (non-real estate)		41,180		14.39	%		58,868		19.15	%
Installment loans to individuals for household, family and other personal expenditures		6,089		2.13	%		8,530		2.77	%
State and political obligations		1,500		.52	%		242		.08	%
All other loans		4,220		1.47	%		2,077		.68	%

		286,139		100.00	%		307,393		100.00	%
Allowance for loan losses		(8,669	)				(6,315	)

Net loans	$	277,470				$	301,078

The change in the allowance for loan losses for the nine months ended September 30 is summarized as follows:


(Dollars in thousands)	2010			2009

Balance, beginning of year	$	6,315		$	5,127
Provision charged to income		5,924			2,570
Recoveries on loans		103			52
Loans charged off		(3,673	)		(1,635	)

Balance, September 30, 2010	$	8,669		$	6,114

Loans totaling approximately $76,000,000 were pledged as collateral for borrowings from the FHLB and Federal Reserve.

Nonaccrual loans are summarized as follows:


(Dollars in thousands)	September 30, 2010		December 31, 2009
Nonaccrual loans	$	17,600	$	6,725

The gross interest income that would have been recorded under the original terms of the non-accrual loans amounted to approximately $300,000 and $276,000 at September 30, 2010 and September 30, 2009, respectively.

Nonperforming loans and impaired loans are defined differently. Nonperforming loans include loans that are 90 days past due and still accruing interest and nonaccrual loans. Impaired loans are loans that based upon current information and events, it is considered probable that the Company will be unable to collect all amounts of contractual interest and principal as scheduled in the loan agreement. Large groups of smaller balance homogenous loans that may meet these criteria are not evaluated individually for impairment, so they are not included in the impaired loan totals. As a result, some loans may be included in both categories, whereas other loans may only be included in one category. Also, a loan may be considered impaired due to a troubled debt restructuring, but because it has performed according to the modified loan terms for a sustained period of time, the loan has been restored to accruing status.

Impaired loans are summarized as follows:


(Dollars in thousands)	September 30, 2010		December 31, 2009
Impaired loans for which there is a related allowance for loan losses	$	6,411	$	4,027
Other impaired loans		12,247		939

Total impaired loans	$	18,658	$	4,966


Average impaired loans	$	11,969	$	6,683
Related allowance for loan losses	$	2,479	$	1,039

The Company may elect to formally restructure the terms of a loan due to the weakening credit status of a borrower in order to facilitate a repayment plan that minimizes the potential losses that the Company may have to otherwise incur. Troubled debt restructures are summarized as follows:


(Dollars in thousands)	September 30, 2010		December 31, 2009

Nonaccrual troubled debt restructurings	$	7,247	$	190
Other troubled debt restructurings		3,177		19

Total troubled debt restructurings	$	10,424	$	209


Charge-offs related to troubled debt restructures	$	695	$	39

Note 7 – New Accounting Pronouncements

In July 2010, Financial Accounting Standards Board (“FASB”) issued new guidance regarding disclosures about the credit quality of financing receivables and the allowance for credit losses ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. This guidance requires additional disclosures about the credit quality of financing receivables, such as aging information and credit quality indicators. In addition, disclosures must be disaggregated by portfolio segment or class based on how a company develops its allowance for credit losses and how it manages its credit exposure. Most of the requirements are effective for the fourth quarter of 2010 with certain additional disclosures required for the first quarter of 2011. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

Note 8 – Investment Transaction

Subsequent to September 30, 2010, the Bank sold mortgaged-backed securities totaling approximately $40,730,000 which resulted in a net gain of approximately $1,076,000, before taxes. The investment securities were substantially replaced with the purchase of primarily mortgage-backed securities totaling approximately $40,333,000. The transactions allowed the Bank to realize a portion of the unrealized gains in the investment portfolio, while minimally changing the duration and yield of the investment portfolio. Management deemed the transaction to be beneficial to the Company considering most economic forecasts call for interest rates to begin to rise in the near term. Higher interest rates would result in a reduction in unrealized gains.

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

CRITICAL ACCOUNTING POLICIES

General

The financial condition and results of operations presented in the consolidated financial statements, the accompanying notes to the consolidated financial statements and this section are, to a large degree, dependent upon the Company’s accounting policies. The selection and application of these accounting policies involve judgments, estimates and uncertainties that are susceptible to change. Those accounting policies that are believed to be the most important to the portrayal and understanding of the Company’s financial condition and results of operations are discussed below. These critical accounting policies require management’s most difficult, subjective and complex judgments about matters that are inherently uncertain. In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of a materially different financial condition or results of operations is a reasonable likelihood.

Income Taxes and Deferred Tax Asset

Income Taxes – The calculation of the provision for federal income taxes is complex and requires the use of estimates and judgments. There are two accruals for income taxes: 1) The income tax receivable represents the estimated amount currently due from the federal government and is reported as a component of “other assets” in the consolidated balance sheet; 2) the deferred federal income tax asset or liability represents the estimated impact of temporary differences between how assets and liabilities are recognized under GAAP, and how such assets and liabilities are recognized under the federal tax code.

The effective tax rate is based in part on interpretation of the relevant current tax laws. Appropriate tax treatment is reviewed of all transactions taking into consideration statutory, judicial and regulatory guidance in the context of our tax positions. In addition, reliance is placed on various tax positions, recent tax audits and historical experience.

Deferred Tax Asset – In considering whether a valuation allowance on deferred tax assets is needed, management considers all available evidence, including the length of time tax net operating loss (“NOL”) carryforwards are available, the existence of available reversing temporary differences, the ability to generate future taxable income and available tax planning strategies. Primarily as the result of recent earnings history and the inability to reasonably predict future taxable income caused by the volatility in the loan portfolio, the Company recorded a full valuation allowance on the net deferred tax assets outstanding at the beginning of the period. Also, the Company did not record a deferred tax benefit on the pretax loss generated for the current quarter, resulting in net income tax expense of $3,129,000 and $3,141,000 for the three and nine months ended September 30, 2010, respectively. The valuation allowance on the net deferred tax assets totaled $4,867,000 at September 30, 2010.

It is possible that management may conclude in future periods that it may have the ability to generate income before income taxes at a sufficient level, which may allow the Company to reverse a portion, or all of the valuation allowance.

Allowance for Loan Losses and Other Real Estate Owned

Allowance for Loan Losses – The allowance for loan losses is based on management’s ongoing evaluation of the loan portfolio and reflects an amount that, based on management’s judgment, is adequate to absorb inherent probable losses in the existing portfolio. Additions to the allowance for loan losses are provided by charges to earnings. Loan losses are charged against the allowance when the ultimate uncollectibility of the loan balance is determined. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a monthly basis by management. The evaluation includes the periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and related impairment and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision.

Management believes that the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, regulatory agencies, as an integral part of the examination process, periodically review the allowance for loan losses. Such agencies may require additions to the allowance based on their judgments about information available to them at the time of their examination.

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Impairment is measured on a loan by loan basis for commercial and commercial real estate loans by the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, individual consumer and residential loans are not separately identified for impairment.

Other Real Estate Owned – The Company values other real estate owned that is acquired in settlement of loans at the net realizable value at the time of foreclosure. Management obtains updated appraisals on such properties as

necessary, and reduces those values for estimated selling costs. While management uses the best information available at the time of the preparation of the financial statements in valuing the other real estate owned, it is possible that in future periods the Company will be required to recognize reductions in estimated fair values of these properties.

Recent Legislation Impacting the Financial Services Industry

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”). This new law will significantly change the current bank regulatory structure and affect the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and reports for Congress. The federal agencies are given significant discretion in drafting the implementing rules and regulations, and consequently, many of the details and much of the impact of the Dodd-Frank Act may not be known for many months or years.

Among other things, the Dodd-Frank Act creates a new Consumer Financial Protection Bureau (“CFPB”) with broad powers to supervise and enforce consumer protection laws. The CFPB has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks with $10 billion or less in assets, like Greer State Bank, will continue to be examined for compliance with the consumer laws by their primary bank regulators. Despite this limitation, the CFPB still has broad powers over community banks. The CFPB has the authority to promulgate rules applicable to all banks and non-banks with respect to consumer financial law, including the authority to prohibit “unfair, deceptive or abusive” acts and practices.

The Dodd-Frank Act contains several important changes regarding deposit insurance. The standard maximum deposit insurance amount for banks, savings institutions and credit unions amount has been permanently increased to $250,000 per depositor. Unlimited insurance for funds held in non-interest bearing transaction accounts will be extended through January 1, 2013. The Federal Deposit Insurance Corporation (“FDIC”) is directed to redefine the base for deposit insurance assessments paid by banks so that assessments will be based on a depository institution’s average consolidated total assets less average tangible equity, as opposed to the current calculation based on the amount of an institution’s insured deposits. The prohibition on paying interest on demand deposits is repealed effective July 21, 2011. Finally, the minimum deposit insurance fund rate will increase from 1.15% to 1.35% by September 30, 2020. The FDIC will have discretion to determine whether to pay rebates to insured depository institutions when its reserves exceed certain thresholds.

The Dodd-Frank Act also contains a number of provisions addressing corporate governance and executive compensation at public companies. Included in these changes are proxy access requirements for shareholders, disclosures about the failure to separate the role of the chair of the board and CEO, shareholder voting on executive compensation, the establishment of an independent compensation committee and additional executive compensation and clawback disclosures.

It is difficult to predict what specific impact the Dodd-Frank Act and the yet to be written implementing rules and regulations will have on the Company and the Bank. Changes promulgated under the Dodd-Frank Act may require us to invest significant management attention and resources to make any necessary changes to our operations in order to comply, and could materially adversely affect our business, results of operations and financial condition.

RESULTS OF OPERATIONS

Overview

The following discussion describes and analyzes our results of operations and financial condition for the quarter ended September 30, 2010 as compared to the quarter ended September 30, 2009, as well as results for the nine months ended September 30, 2010 and September 30, 2009. You are encouraged to read this discussion and analysis in conjunction with the financial statements and the related notes included in this report. Throughout this discussion, amounts are rounded to the nearest thousand, except per share data or percentages.

Like most community banks, most of our income is derived from interest received on loans and investments. The primary source of funds for making these loans and investments is deposits, most of which are interest-bearing. Consequently, one of the key measures of our success is net interest income, or the difference between the income on interest-earning assets, such as loans and investments, and the expense on interest-bearing liabilities, such as deposits and Federal Home Loan Bank advances. Another key measure is the spread between the yield earned on interest-earning assets and the rate paid on interest-bearing liabilities.

Of course, there are risks inherent in all loans, so an allowance for loan losses is maintained to absorb probable losses inherent in the loan portfolio. This allowance is established and maintained by charging a provision for loan losses against current operating earnings. (See “Provision for Loan Losses” for a detailed discussion of this process.)

In addition to earning interest on loans and investments, income is also earned through fees and other charges to the Bank’s customers. The various components of this noninterest income, as well as noninterest expense, are described in the following discussion.

The Company reported a consolidated net loss of $(5,973,000) attributed to common shareholders, or $(2.40) per diluted common share, for the quarter ended September 30, 2010, compared to consolidated net income of $472,000, or $.19 per diluted common share, for the quarter ended September 30, 2009. The results for the third quarter of 2010 were impacted by provisions for loan losses that totaled $3,248,000 and a provision for income taxes resulting from establishing a net deferred tax asset valuation allowance of $4,867,000. The third quarter of 2010 was impacted by further broad deterioration in the loan portfolio resulting in increased impaired loans and decreased property values. For the nine months ended September 30, 2010, the Company reported a consolidated net loss of $(7,212,000) attributed to common shareholders, or $(2.90) per diluted common share, compared to consolidated net income available to common shareholders of $175,000 or $.07 per diluted common share for the nine months ended September 30, 2009.

Interest Income, Interest Expense and Net Interest Income

The Company’s total interest income for the quarter ended September 30, 2010 was $4,896,000, compared to $5,621,000 for the quarter ended September 30, 2009, a decrease of $725,000, or 12.9%. Total interest income for the nine months ended September 30, 2010 decreased by $1,158,000, or 7.1%, to $15,235,000 compared to $16,393,000 for the nine months ended September 30, 2009. Interest and fees on loans is the largest component of total interest income and decreased $377,000, or 8.8% to $3,901,000 for the quarter ended September 30, 2010, compared to $4,278,000 for the quarter ended September 30, 2009 and $417,000, or 3.4%, to $12,017,000 for the nine months ended September 30, 2010 compared to $12,434,000 for the nine months ended September 30, 2009. The decrease in interest and fees on loans was primarily the result of reductions of $18,307,000 and $11,903,000 in average loan balances for the three and nine months ending September 30, 2010, compared to the same periods in 2009, respectively. Average yields on the Company’s loan portfolio were 5.39% and 5.36% for the nine months ended September 30, 2010 and September 30, 2009, respectively.

Interest income on investment securities decreased by $351,000 and $760,000 in the three and nine months ended September 30, 2010, respectively, compared to the three and nine months ended September 30, 2009. The decline was due primarily to reductions in the tax equivalent yields from 4.67% at September 30, 2009 to 3.89% at September 30, 2010 combined with reductions of $3,368,000 in the average balance of investments in the three months ended September 30, 2010 compared to the same period in 2009. The yield decline is primarily the result of falling market rates, as securities purchased in 2010 had yields less than the average weighted yield of the portfolio. Average investment securities increased approximately $1,014,000 during the nine month period ended September 30, 2010, compared to the nine months ended September 30, 2009, primarily as the result of net investment purchases of $18,787,000 in the first nine months of 2010, which were partially offset by accelerated principal paydowns on mortgage-backed securities, as well as investment securities that matured or were called.

The accelerated principal paydowns were the result of a decline in market interest rates along the three to five year section of the yield curve.

The Company’s total interest expense declined for the three and nine months ended September 30, 2010 by $472,000 and $1,544,000, or 18.1% and 19.1%, respectively, compared to the same periods in 2009. The largest component of the Company’s interest expense is interest expense on deposits. Interest expense declined despite increases in average balances of interest bearing deposits of $18,588,000 and $17,478,000 for the three and nine months ended September 30, 2010, respectively, compared to the same periods in 2009. Market interest rate decreases resulted in the weighted average rate on interest bearing deposits declining from 2.35% at September 30, 2009 to 1.74% at September 30, 2010.

Interest on long term borrowings declined $219,000, or 18.9%, and $556,000, or 16.0% for the three and nine month periods ending September 30, 2010 compared to the same periods in 2009. The decline in long term interest expense was the result of decreases in average long term borrowings outstanding and decreases in average yields on long term borrowings for the three and nine months ended September 30, 2010 compared to the same periods in 2009. Average long term borrowings outstanding declined by $16,483,000 and $9,503,000 for the three and nine month periods ending September 30, 2010 compared to the same periods in 2009. Average yields on long term borrowings declined to 3.30% from 3.64% for the nine months ended September 30, 2010 compared to the same period in 2009. See “Deposits” and “Liquidity and Capital” below for further discussion of reductions in borrowings.

Net interest income, which is the difference between interest earned on assets and the interest paid for the liabilities used to fund those assets, measures the spread earned on lending and investing activities and is the primary contributor to the Company’s earnings. Net interest income before provision for loan losses decreased $253,000, or 8.4%, for the three months ended September 30, 2010, compared to the same period in 2009. Net interest income increased $386,000, or 4.7%, for the nine months ended September 30, 2010 compared to the same period in 2009.

The Company’s balance sheet was asset sensitive as of September 30, 2010. Interest rate sensitivity can be adjusted by changing the term or type of an asset or liability at maturity. Managing the amount of assets and liabilities repricing in the same time interval helps to minimize the impact of rising or falling rates on net interest income. A reduction in short term funding in 2010 has resulted in the balance sheet changing from being liability sensitive to asset sensitive. The Company utilizes an interest rate risk model that estimates the Company’s exposure to interest rate risk. As of September 30, 2010, the results of the model indicate the exposure to interest rate risk was within the Company’s policy limits. Balance sheets that are asset sensitive typically produce more earnings as interest rates rise and likewise, earnings decrease as interest rates fall. The results of the Bank’s interest rate risk model indicate the Bank’s balance sheet is positioned so that earnings increase as rates rise.

Provision for Loan Losses

The Company has developed policies and procedures for evaluating the overall quality of its credit portfolio and the timely identification of potential problem credits. On a quarterly basis, the Bank’s Board of Directors reviews and approves the appropriate level for the allowance for loan losses based upon management’s recommendations and the results of the internal monitoring and reporting system. Management also monitors historical statistical data for both the Bank and other financial institutions. The adequacy of the allowance for loan losses and the effectiveness of the monitoring and analysis system are also reviewed by the Bank’s regulators and the Company’s internal auditor.

The Bank’s allowance for loan losses is based upon judgments and assumptions of risk elements in the portfolio, economic conditions and other factors affecting borrowers. The process includes identification and analysis of loss inherent in various portfolio segments utilizing a credit risk grading process and specific reviews and evaluations of significant problem credits. In addition, management monitors the overall portfolio quality through observable trends in delinquency, charge-offs and general conditions in the Company’s market area.

The provision for loan losses during the three and nine months ended September 30, 2010 was $3,248,000, compared to $475,000, and $5,924,000, compared to $2,570,000, for the same periods in 2009, respectively. Additional loans considered to be impaired, updated appraisals obtained during the Bank’s recent impaired loan valuation analysis indicating declines in market values of certain properties held as collateral, loans charged off and continued credit weakness in the loan portfolio resulted in significant increases to the loan loss provision in the three and nine months ended September 30, 2010. The amount of provision is based on the results of the loan loss model. Also see the discussion below under “Allowance for Loan Losses.”

Noninterest Income

Noninterest income decreased slightly for the three months ended September 30, 2010 compared to the three months ended September 30, 2009. Noninterest income increased $707,000, or 27.3%, to $3,293,000 for the nine months ended September 30, 2010 compared to $2,586,000 for the same period in 2009. The slight decline in noninterest income during the three months ended September 30, 2010 compared to the same period in 2009 is due to reduced gains on the sale of investment securities partially offset by net insurance proceeds of $263,000 related to the death of one of the Company’s directors. The primary reason for the increase in noninterest income in the first nine months of 2010 compared to the same period in 2009 is the death benefit previously mentioned. Also contributing to the increase in the noninterest income in 2010 was the impairment loss of $311,000 related to the restricted stock impairment in the first quarter of 2009, which did not recur in 2010.

Noninterest Expenses

Total noninterest expenses increased $507,000, or 19.0%, for the three months ended September 30, 2010, to $3,171,000 compared to $2,664,000 for the three months ended September 30, 2009. Total noninterest expenses increased $2,044,000, or 26.9%, during the nine months ending September 30, 2010, to $9,641,000 compared to $7,597,000 for the same period in 2009. The primary cause of increased noninterest expense for the three and nine months ended September 30, 2010 relates to other real estate owned and foreclosure expenses to maintain bank-owned real estate and properly value the assets as updated information becomes available. Salaries and employee benefits, the largest component of noninterest expenses, remained stable for three and nine months ended September 30, 2010 compared to the same periods in 2009. Occupancy and equipment declined for the three and nine months ended September 30, 2010 compared to the same periods in 2009 as the result of closing of a loan production office in October 2009. Marketing expense and directors fees declined slightly as the result of continued budget control. The FDIC deposit insurance assessments declined for the three and nine months periods ended September 30, 2010 as the result of a special assessment imposed by the FDIC equating to $212,000 for the Bank in the second quarter of 2009 to further boost the FDIC’s deposit insurance reserve combined with reduced assessments related to balance declines in brokered certificates of deposits in 2010.

Income Tax Expense

Income tax expense for the three and nine months ended September 30, 2010, was $3,129,000 and $3,141,000 compared to $223,000 and $116,000 during the same periods in 2009, respectively. The increase in income tax expense is solely the result of a full valuation allowance on temporary tax differences and net operating loss carryforwards.

The net deferred tax asset was approximately $4.9 million at September 30, 2010 prior to the valuation allowance. In evaluating whether the full benefit of the net deferred tax asset will be realized, both positive and negative evidence was considered including recent earnings trends, projected earnings and asset quality. As of September 30, 2010, management concluded that the negative evidence outweighed any positive evidence in determining realization of any deferred tax temporary differences and recorded a full valuation allowance. The Company will continue to monitor deferred tax assets closely to evaluate future realization of the full benefit of the net deferred tax asset and the potential need to reduce the valuation allowance. Significant positive trends in credit quality and pre-tax income from operation could impact the level of valuation allowances deemed necessary on deferred tax assets in the future.

BALANCE SHEET REVIEW

Loans

Outstanding loans represent the largest component of earning assets at 67.6% of total earning assets as of September 30, 2010. Gross loans totaled $286,139,000 as of September 30, 2010, a decline of $21,254,000, or 6.9%, from gross loans of $307,393,000 as of December 31, 2009. As a result of the adverse economic environment, management has intentionally slowed loan growth and enhanced underwriting requirements. Adjustable rate loans totaled 70.3% of the loan portfolio as of September 30, 2010, which allows the Company to be in a favorable position as interest rates rise. The Company’s loan portfolio consists primarily of real estate mortgage loans, commercial loans and consumer loans with concentrations in commercial real estate, including construction and land development loans. Substantially all of these loans are to borrowers located in South Carolina, with the majority in the Company’s local market area.

Given the negative asset and credit quality trends within the loan portfolio since 2008, management continues to work aggressively to identify and quantify potential losses and execute plans to reduce problem assets. The analyses included internal and external loan reviews that required detailed, written summaries of the loans reviewed and vetting of the risk rating, accrual status and collateral valuation of the loans by the loan officers, credit administration and an external loan review firm.

The credit administration function was also enhanced in 2010 with the addition of three personnel. A credit administrative assistant, credit analyst and OREO manager were hired to address the extensive time needed to manage the credit portfolio and Bank owned real estate. In addition, a special assets committee was formed in August 2010 which meets monthly to form strategies on problem loans and the disposition of OREO. The members include the chief executive officer, the chief credit officer, the chief credit administrator and two members of the board of directors.

Allowance for Loan Losses

The allowance for loan losses at September 30, 2010 was $8,669,000, or 3.03% of gross loans outstanding, compared to $6,315,000 or 2.05% of gross loans outstanding at December 31, 2009. The net increase of .98% in the allowance was primarily a result of the increase in loans with weakening credit quality at September 30, 2010 compared to December 31, 2009, offset by loan charge-offs of approximately $3,673,000 in the first nine months of 2010. The allowance at September 30, 2010 includes an allocation of $2,479,000 related to specifically identified impaired loans compared to $1,039,000 at December 31, 2009.

Internal reviews and evaluations of the Company’s loan portfolio for the purpose of identifying potential problem loans, external reviews by federal and state banking examiners, management’s consideration of current economic conditions, historical loan losses and other relevant risk factors are used in evaluating the adequacy of the allowance for loan losses. The level of loan loss reserves is monitored on an on-going basis. The evaluation is inherently subjective as it requires estimates that are susceptible to significant change. Actual losses will undoubtedly vary from the estimates. Also, there is a possibility that charge-offs in future periods will exceed the allowance for loan losses as estimated at any point in time. If delinquencies and defaults increase, additional loan loss provisions may be required which would adversely affect the Company’s results of operations and financial condition.

At September 30, 2010, the Company had $27,379,000 in non-performing assets, comprised of non-accruing loans of $17,600,000 and $9,779,000 in OREO. This compares to $6,725,000 in non-accruing loans, $561,000 in loans more than 90 days past due and still accruing interest and $8,494,000 in OREO at December 31, 2009. Non-performing loans consisted of $14,887,000 in real estate loans, $2,520,000 in commercial loans and $193,000 in consumer loans at September 30, 2010. The nonperforming real estate loans have had appraisals within the past twelve months to support the loan balances.

Net charge-offs for the first nine months of 2010 and 2009 were approximately $3,570,000 and $1,583,000, respectively. The allowance for loan losses as a percentage of non-performing loans was 49.26% and 86.67% as of September 30, 2010 and December 31, 2009, respectively.

Potential problem loans, which are not included in non-performing or impaired loans, amounted to approximately $34,451,000, or 12.03%, of total loans outstanding at September 30, 2010. Potential problem loans represent those loans with a well-defined weakness and where information about possible credit problems of borrowers or the performance of construction or development projects has caused management to have concerns about the borrower’s ability to comply with present repayment terms. Ten residential construction and land development loans totaling approximately $7,921,000 were included in potential problem loans at September 30, 2010. While these loans are currently performing under the contract terms, due to slowed lot sales, the construction or development projects are not performing as the Bank had originally planned. These loans have current appraisals of collateral that exceed the related loan balances by at least 10%.

Securities

The investment portfolio is an important contributor to the earnings of the Company. The Company strives to maintain a portfolio that provides necessary liquidity for the Company while maximizing income consistent with the ability of the Company’s capital structure to accept nominal amounts of investment risk. During years when loan demand has not been strong, the Company has utilized the investment portfolio as a means for investing “excess” funds for higher yields, instead of accepting low overnight investment rates. The investment portfolio also provides securities that can be pledged against borrowings as a source of funding for loans. It is management’s intent to maintain a significant percentage of the Company’s earning assets in the loan portfolio as loan demand allows.

As of September 30, 2010, investment securities totaled $119,053,000 or 28.0% of total earning assets. Investment securities decreased $5,931,000, or 4.7%, from $124,984,000 as of December 31, 2009, due to the sale of $41,883,000 in mortgage backed securities, the call of two municipal securities totaling $325,000 and one agency bond of $2,000,000 and cash inflows from principal prepayments on mortgage backed securities, offset by the purchase of $57,165,000 in mortgage backed securities and $3,505,000 in municipal securities.

Cash and Cash Equivalents

The Company’s cash and cash equivalents were $13,357,000 at September 30, 2010, compared to $12,664,000 at December 31, 2009, an increase of $693,000. Balances in due from bank accounts vary depending on the settlement of cash letters and other transactions.

Deposits

The Company receives its primary source of funding for loans and investments from its deposit accounts. Total deposits increased $6,670,000, or 2.2%, to $305,316,000 as of September 30, 2010 compared to $298,646,000 as

of December 31, 2009. The increase in deposits during the nine months ending September 30, 2010 was primarily the result of an increase of approximately $19,345,000 in retail deposits, of which $4,472,000 was in retail certificates of deposit, $14,035,000 was in interest bearing transaction or savings accounts and $838,000 was in noninterest bearing accounts. The increase in retail certificates of deposit was partially offset by a decline of $12,680,000 in brokered deposits. Total core deposits have increased by approximately $17,949,000 in the nine months ended September 30, 2010.

At September 30, 2010 and December 31, 2009, interest bearing deposits comprised 89.8% and 88.7% of total deposits, respectively. Noninterest bearing deposits decreased by $2,430,000 through the first nine months of 2010. Included in the interest bearing total were brokered deposits of $17,025,000, or 5.6%, and $29,681,000, or 9.9%, of total deposits at September 30, 2010 and December 31, 2009, respectively. The Company takes into consideration liquidity needs, direction and level of interest rates and market conditions when pricing deposits. The reduction in brokered deposits was primarily the result of management’s efforts to raise core deposits and reduce alternative funding, coupled with the use of cash inflows from the investment and loan portfolios.

Borrowings

The Company’s borrowings are comprised of repurchase agreements, long-term advances from the Federal Home Loan Bank of Atlanta, and junior subordinated debentures. At September 30, 2010, total borrowings were $114,841,000, compared with $146,834,000 as of December 31, 2009. Federal funds purchased were $13,993,000 at December 31, 2009. There were no federal funds purchased at September 30, 2010. At September 30, 2010 and December 31, 2009, long term repurchase agreements were $15,000,000. Notes payable to the Federal Home Loan Bank of Atlanta and the Federal Reserve Bank totaled $88,500,000 and $0, respectively, as of September 30, 2010, compared to $106,500,000 and $10,000,000, respectively, as of December 31, 2009. The weighted average rate of interest for the Company’s portfolio of Federal Home Loan Bank of Atlanta advances was 3.23% and 3.37% as of September 30, 2010 and December 31, 2009, respectively. The weighted average remaining maturity for Federal Home Loan Bank of Atlanta advances was 2.18 years and 2.36 years as of September 30, 2010 and December 31, 2009, respectively.

In October 2004 and December 2006, the Company issued $6,186,000 and $5,155,000 of junior subordinated debentures to its wholly-owned capital trusts, Greer Capital Trust I and Greer Capital Trust II, respectively, to fully and unconditionally guarantee the trust preferred securities issued by the capital trusts.

The junior subordinated debentures issued in October 2004 mature in October 2034. Interest payments are due quarterly to Greer Capital Trust I at the three-month LIBOR plus 220 basis points.

The junior subordinated debentures issued in December 2006 mature in December 2036, but include an option to call the debt in December 2011. Interest payments are due quarterly to Greer Capital Trust II at the three-month LIBOR plus 173 basis points.

Liquidity and Capital Resources

Liquidity represents the ability of a company to convert assets into cash or cash equivalents without significant loss, and the ability to raise additional funds by increasing liabilities. Liquidity management involves monitoring sources and uses of funds in order to meet day-to-day cash flow requirements while maximizing profits. Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities in the investment portfolio is fairly predictable and subject to a high degree of control at the time investment decisions are made. However, net deposit inflows and outflows are far less predictable and are not subject to the same degree of control. Liquidity is also a measure of the Company’s ability to provide funds to meet the needs of depositors and borrowers. The Company’s primary goal is to meet these needs at all times. In addition to these basic cash needs, the Company must meet liquidity requirements created by daily operations and regulatory requirements. Liquidity requirements of the Company are met primarily through two categories of funding: core deposits and borrowings. In the first nine months of 2010, liquidity needs were met through the significant increase in core deposits.

Core deposits include checking and savings accounts, as well as retail certificates of deposit less than $250,000. These deposits, which are generally the result of stable consumer and commercial banking relationships, are considered to be a relatively stable component of the Company’s mix of liabilities. At September 30, 2010, core deposits totaled approximately $220,667,000, or 72.3%, of the Company’s total deposits, compared to approximately $202,717,000, or 67.9%, of the Company’s total deposits as of December 31, 2009.

Secure and unsecured lines of credit with correspondent banks are also sources of liquidity. At September 30, 2010, the Bank had unsecured and secured federal funds lines of credit with correspondent banks totaling $8,500,000 and $7,000,000, respectively. Of the total lines of credit of $30,500,000 at September 30, 2010 and December 31, 2009, approximately $15,500,000 and $16,500,000 were available for use as of each of those dates, respectively. The Bank also has a collateralized borrowing capacity of 30% of total assets from the FHLB. Outstanding FHLB borrowings totaled $88,500,000 and $106,500,000 at September 30, 2010 and December 31, 2009, respectively. Unused available FHLB borrowings totaled approximately $24,364,000 and $24,150,000 at September 30, 2010 and December 31, 2009, respectively, and were subject to collateral availability. The Bank has additional borrowing capacity through the Federal Reserve Bank “discount window” and has pledged its consumer and commercial loan portfolio as collateral for approximately $28,722,000 in unused available credit.

In addition to the primary funding sources discussed above, secondary sources of liquidity include sales of investment securities which are not held for pledging purposes, approximately $15,000,000 at September 30, 2010, and sales of other classes of assets.

Greer Bancshares Incorporated, the parent holding company generally has liquidity needs to pay limited operating expenses and dividends. These liquidity needs include interest on junior subordinated debt and dividends on preferred stock issued as a part of the Troubled Asset Relief Program. Any cash dividends paid to shareholders, as well as the Company’s other liquidity needs, are typically funded by dividends from the Company’s banking subsidiary. However, the Company has not received dividends from the banking subsidiary since August 2009. Since that time, the Company has funded interest payments on its junior subordinated debt and dividends on the TARP preferred stock from $993,000 which was held at the holding company level from the total TARP investment proceeds of $9,993,000. As previously disclosed, the Company also sold a parcel of land for $590,000 before selling costs which had been held for future expansion. The Company has approximately $350,000 in cash remaining as of September 30, 2010 to meet short term liquidity needs.

Under S.C. banking law, the Bank is authorized to pay cash dividends up to 100% of net income in any calendar year without obtaining the prior approval of the South Carolina Board of Financial Institutions (the “S.C. Bank Board”) provided that the Bank received a composite rating of one or two at the last federal or state regulatory examination. Otherwise, the Bank must obtain approval from the S.C. Bank Board prior to the payment of any cash dividends. In addition, under the FDIC Improvement Act, the Bank may not pay a dividend if, after paying the dividend, the Bank would be undercapitalized. Further, under memorandums of understanding with the FDIC and the S.C. Bank Board, and the Federal Reserve Bank of Richmond, as discussed under “Regulatory Capital” below, the Bank and the Company must seek the approval of their respective regulators prior to paying any cash dividends. In the case of the Company, this includes payments on the TARP preferred stock and interest on the junior subordinated debt. The Company has received permission to make the required trust preferred interest payments and TARP preferred stock dividends through the remainder of 2010. The Company’s ability to pay dividends on its common stock is also limited by the Company’s participation in TARP.

Management believes that it will need to request permission for the Bank to pay a cash dividend to the Company in order to fund the Company’s liquidity needs in 2011. The Company can give no assurances as to whether such approval would be granted, given the recent losses reported by the Company. The Bank owns a parcel of land that is currently being leased to the Bank. Subject to

regulatory approval, the Company may in the future sell this land to the Bank or to a third party to generate liquidity in the short term. Barring approval by regulators for such a sale or for a cash dividend from the Bank, it appears that the Company would not be able to pay the dividends on its TARP preferred stock or trust preferred interest in the first quarter of 2011.

Management believes that the Company’s available borrowing capacity and efforts to grow deposits are adequate to provide the necessary funding for its banking operations for the remainder of 2010. However, management is prepared to take other actions, including potential asset sales, if necessary to maintain appropriate liquidity.

Regulatory Capital

The Federal Reserve Board and bank regulatory agencies require bank holding companies and financial institutions to maintain capital at adequate levels based on a percentage of assets and off-balance-sheet exposures, adjusted for risk weights ranging from 0% to 100%. Under the risk-based standard, capital is classified into two tiers. Tier 1 capital of the Company consists of equity minus unrealized gains plus unrealized losses on securities available for sale and less a disallowed portion of our deferred tax assets. In addition to Tier 1 capital requirements, Tier 2 capital consists of the allowance for loan losses subject to certain limitations. A bank holding company’s qualifying capital base for purposes of its risk-based capital ratio consists of the sum of its Tier 1 and Tier 2 capital. The regulatory minimum requirements are 4% for Tier 1 and 8% for total risk-based capital. The holding company and banking subsidiary are also required to maintain capital at a minimum level based on average assets, which is known as the leverage ratio. Only the strongest bank holding companies and banks are allowed to maintain capital at the minimum requirement, which is 4%. All others are subject to maintaining ratios 100 to 200 basis points above the minimum.

The Bank exceeded regulatory capital requirements at September 30, 2010 and December 31, 2009 as set forth in the following table:


						For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
Bank:	Actual					Minimum					Minimum
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of September 30, 2010
Total risk-based capital (to risk-weighted assets)	$	33,898		10.5	%	$	25,746		8.0	%	$	32,183		10.0	%
Tier 1 capital (to risk-weighted assets)	$	29,809		9.3	%	$	12,821		4.0	%	$	19,310		6.0	%
Tier 1 capital (leverage) (to average assets)	$	29,809		6.5	%	$	18,318		4.0	%	$	22,897		5.0	%

As of December 31, 2009
Total risk-based capital (to risk-weighted assets)	$	39,985		11.5	%	$	27,824		8.0	%	$	34,780		10.0	%
Tier 1 capital (to risk-weighted assets)	$	35,614		10.2	%	$	13,912		4.0	%	$	20,867		6.0	%
Tier 1 capital (leverage) (to average assets)	$	35,614		7.6	%	$	18,809		4.0	%	$	23,511		5.0	%

The Holding Company is also subject to certain capital requirements. At September 30, 2010, the Tier 1 risk-based capital ratio, Tier 1 capital (leverage) ratio and the total risk-based capital ratio were 8.5%, 5.9% and 10.9%, respectively. At December 31, 2009, the Tier 1 risk-based capital ratio, Tier 1 capital ratio and the total risk-based capital ratio were 10.3%, 7.7% and 12.1%, respectively.

On September 8, 2010, the Bank entered into an informal Memorandum of Understanding (the “Bank MOU”) with the FDIC and the S.C. Bank Board. The Bank MOU was based on the findings of the FDIC during its on-sight visitation as of February 1, 2010. The Bank MOU instructs the Bank to engage in corrective action and enhance the Bank’s existing practices and procedures in the areas of credit risk management and liquidity. The Bank is also to structure a plan to increase its regulatory capital. Management has responded and continues to respond periodically to regulators with respect to the requirements of the Bank MOU.

On September 23, 2010, the Company entered into an informal Memorandum of Understanding (the “FRB MOU”) with the Federal Reserve Bank of Richmond (the “FRB”). Among other things, the FRB MOU requires the Company to seek permission prior to paying any dividends or trust preferred interest. The Company has received permission from the FRB to make the required trust preferred interest payments in October and November of 2010 and the preferred stock dividend due in November, 2010. The Bank otherwise has responded and continues to coordinate with the FRB with respect to the FRB MOU.

Forward-looking and Cautionary Statements

This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements relate to, among other things, future economic performance, plans and objectives of management for future operations, and projections of revenues and other financial items that are based on the beliefs of management, as well as assumptions made by, and information currently available to, management. The words “may,” “will,” “anticipate,” “should,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “may,” and “intend,” as well as other similar words and expressions, are intended to identify forward-looking statements. Actual results may differ materially from the results discussed in the forward-looking statements. The Company’s operating performance is subject to various risks and uncertainties including, without limitation:

•

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

•

reduced earnings due to higher credit losses owing to economic factors, including declining home values, increasing interest rates, increasing unemployment, or changes in payment behavior or other causes;

•

the concentration of our portfolio in real estate based loans and the weakness in the commercial real estate market;

•

increased funding costs due to market illiquidity, increased competition for funding or other regulatory requirements;

•

market risk and inflation;

•

level, composition and re-pricing characteristics of our securities portfolios;

•

availability of wholesale funding;

•

adequacy of capital and future capital needs;

•

our reliance on secondary sources of liquidity such as FHLB advances, federal funds lines of credit from correspondent banks and brokered time deposits, to meet our liquidity needs;

•

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

•

changes in political conditions or the legislative or regulatory environment, including recently enacted and proposed legislation;

•

adequacy of the level of our allowance for loan losses;

•

the rate of delinquencies and amounts of charge-offs;

•

the rates of loan growth;

•

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

•

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

•

changes occurring in business conditions and inflation;

•

changes in technology;

•

changes in monetary and tax policies;

•

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

•

changes in the securities markets;

•

ability to generate future taxable income to realize deferred tax assets;

•

ability to have sufficient liquidity at the parent holding company level to pay preferred stock dividends and interest expense on junior subordinated debt; and

•

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

For a description of factors which may cause actual results to differ materially from such forward-looking statements, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, and other reports from time to time filed with or furnished to the Securities and Exchange Commission. Investors are cautioned not to place undue reliance on any forward-looking statements as these statements speak only as of the date when made. The Company undertakes no obligation to update any forward-looking statements made in this report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

As of the end of the period covered by this report, an evaluation was carried out, under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the current disclosure controls and procedures are effective as of September 30, 2010. There have been no changes in our internal control over financial reporting during the fiscal quarter ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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

PART II-OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved in various legal actions arising in the normal course of business. Management believes that these proceedings will not result in a material loss to the Company.

Item 1A. Risk Factors

Information regarding risk factors appears in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Forward-looking and Cautionary Statements,” in Part I-Item 2 of this Form 10-Q. More detailed information concerning our risk factors may be found in Part I-Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (the “Form 10-K”).

There have been no material changes in the risk factors previously disclosed in Part I-Item 1A of our Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable

Item 3. Defaults Upon Senior Securities

Not applicable

Item 5. Other Information

None

Item 6. Exhibits


31.1*		Certification of the Chief Executive Officer pursuant to Rule 13a-14 of the Securities Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of the Chief Financial Officer pursuant to Rule 13a-14 of the Securities Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32*		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 USC §1350, as adopted pursuant to the Sarbanes-Oxley Act of 2002.

*	Filed herewith.

SIGNATURES

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


		GREER BANCSHARES INCORPORATED

Dated: November 15, 2010		/s/ Kenneth M. Harper
		Kenneth M. Harper
		President and Chief Executive Officer

Dated: November 15, 2010		/s/ J. Richard Medlock, Jr.
		J. Richard Medlock, Jr.
		Chief Financial Officer

INDEX TO EXHIBITS


31.1*		Certification of the Chief Executive Officer pursuant to Rule 13a-14 of the Securities Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of the Chief Financial Officer pursuant to Rule 13a-14 of the Securities Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32*		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 USC §1350, as adopted pursuant to the Sarbanes-Oxley Act of 2002.

*	Filed herewith.

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