SFST 10-Q Quarter ended March 31, 2011

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 March 31, 2011
OR
o 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 000-27719

Southern First Bancshares, Inc.

(Exact name of registrant as specified in its charter)

	South Carolina						58-2459561
	(State or other jurisdiction of incorporation)						(I.R.S. Employer Identification No.)
	100 Verdae Boulevard, Suite 100
	Greenville, S.C.						29606
	(Address of principal executive offices)						(Zip Code)

864-679-9000
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address, and former fiscal year, if changed since last report)

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

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 preceding12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o

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

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

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 3,473,613 shares of common stock, $.01 par value per share, were issued and outstanding as of April 25, 2011.

SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY
March 31, 2011 Form 10-Q

INDEX

	PART I - FINANCIAL INFORMATION						Page
	Item 1.			Financial Statements
				Consolidated Balance Sheets			3
				Consolidated Statements of Income			4
				Consolidated Statements of Shareholders' Equity and Comprehensive Income			5
				Consolidated Statements of Cash Flows			6
				Notes to Consolidated Financial Statements			7
	Item 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations			25
	Item 3.			Quantitative and Qualitative Disclosures about Market Risk			46
	Item 4.			Controls and Procedures			46
	PART II - OTHER INFORMATION
	Item 1.			Legal Proceedings			46
	Item 1A.			Risk Factors			46
	Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			46
	Item 3.			Defaults upon Senior Securities			46
	Item 4.			(Removed and Reserved)			46
	Item 5.			Other Information			46
	Item 6.			Exhibits			46

PART I. CONSOLIDATED FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS

SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)

				March 31, 2011						December 31, 2010
				(Unaudited)						(Audited)
	ASSETS
	Cash and cash equivalents:
	Cash and due from banks		$	8,422					$	4,119
	Federal funds sold			67,124						49,731
	Total cash and cash equivalents			75,546						53,850
	Investment securities:
	Investment securities available for sale			60,114						63,783
	Other investments, at cost			9,070						9,070
	Total investment securities			69,184						72,853
	Loans			579,554						572,392
	Less allowance for loan losses			(8,388	)					(8,386	)
	Loans, net			571,166						564,006
	Bank owned life insurance			14,660						14,528
	Property and equipment, net			15,839						15,884
	Deferred income taxes			3,272						2,994
	Other assets			10,472						12,375
	Total assets		$	760,139					$	736,490
	LIABILITIES AND SHAREHOLDERS' EQUITY
	Deposits		$	560,054					$	536,296
	Federal Home Loan Bank advances and repurchase agreements			122,700						122,700
	Junior subordinated debentures			13,403						13,403
	Other liabilities			4,186						4,875
	Total liabilities			700,343						677,274
	Shareholders' equity:
	Preferred stock, par value $.01 per share, 10,000,000 shares authorized, 17,299 shares issued and outstanding			14,846						14,960
	Common stock, par value $.01 per share, 10,000,000 shares authorized, 3,473,613 and 3,457,877 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively			35						35
	Nonvested restricted stock			(19	)					-
	Additional paid-in capital			37,903						37,625
	Accumulated other comprehensive income			(592	)					(707	)
	Retained earnings			7,623						7,303
	Total shareholders' equity			59,796						59,216
	Total liabilities and shareholders' equity		$	760,139					$	736,490

See notes to consolidated financial statements that are an integral part of these consolidated statements. Paid in capital, retained earnings and common shares outstanding as of December 31, 2010 have been adjusted to reflect the ten percent stock dividend issued in 2011.

SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(dollars in thousands, except share data)

				For the three months ended March 31,
				2011						2010
	Interest income			(Unaudited)
	Loans		$	8,123					$	7,959
	Investment securities			454						887
	Federal funds sold			28						11
	Total interest income			8,605						8,857
	Interest expense
	Deposits			1,977						2,398
	Borrowings			1,227						1,678
	Total interest expense			3,204						4,076
	Net interest income			5,401						4,781
	Provision for loan losses			725						1,400
	Net interest income after provision for loan losses			4,676						3,381
	Noninterest income
	Loan fee income			144						120
	Service fees on deposit accounts			138						146
	Income from bank owned life insurance			132						153
	Gain on sale of investment securities			-						16
	Gain on sale of property and equipment			-						17
	Other income			181						138
	Total noninterest income			595						590
	Noninterest expenses
	Compensation and benefits			2,065						2,132
	Occupancy			539						556
	Real estate owned activity			531						20
	Data processing and related costs			435						385
	Insurance			403						275
	Marketing			170						212
	Professional fees			142						165
	Telephone			78						76
	Other			143						207
	Total noninterest expenses			4,506						4,028
	Income (loss) before income tax expense			765						(57	)
	Income tax expense (benefit)			228						(75	)
	Net income			537						18
	Preferred stock dividend			216						216
	Dividend accretion			113						124
	Net income (loss) available to common shareholders		$	208					$	(322	)
	Earnings (loss) per common share
	Basic		$	0.06					$	(0.09	)
	Diluted		$	0.06					$	(0.09	)
	Weighted average common shares outstanding
	Basic			3,466,698						3,441,396
	Diluted			3,546,726						3,441,396

See notes to consolidated financial statements that are an integral part of these consolidated statements. Earnings per share and common shares outstanding for the 2010 period have been adjusted to reflect the ten percent stock dividend issued in 2011.

SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
(Unaudited)
(dollars in thousands, except share data)

				Common stock						Preferred			Nonvested restricted			Additional paid-in			Accumulated other comprehensive			Retained			Total share- holders'
				Shares			Amount			stock			stock			capital			income(loss)			Earnings			equity
	December 31, 2009			3,094,481		$	31		$	15,432		$	(14	)	$	34,097		$	484		$	9,811		$	59,841
	Net income			-			-			-			-			-			-			18			18
	Comprehensive income, net of tax -
	Unrealized holding gain on securities available for sale			-			-			-			-			-			179			-			179
	Reclassification adjustment included in net income, net of tax																		(11	)					(11	)
	Total comprehensive income			-			-			-			-			-			-			-			186
	Preferred stock transactions:
	Cash dividends on Series T preferred at annual dividend rate of 5%			-			-			-			-			-			-			(216	)		(216	)
	Dividend accretion			-			-			(124	)		-			124			-			-			-
	Proceeds from exercise of stock warrants and options			48,700			-			-			-			295			-			-			295
	Amortization of deferred compensation on restricted stock			-			-			-			4			-			-			-			4
	Compensation expense related to stock options			-			-			-			-			56			-			-			56
	March 31, 2010			3,143,181		$	31		$	15,308		$	(10	)	$	34,572		$	652		$	9,613		$	60,166
	December 31, 2010			3,457,877		$	35		$	14,960		$	-		$	37,625		$	(707	)	$	7,303		$	59,216
	Net income			-			-			-			-			-			-			537			537
	Comprehensive income, net of tax -
	Unrealized holding gain on securities available for sale			-			-			-			-			-			115			-			115
	Total comprehensive income			-			-			-			-			-			-			-			652
	Preferred stock transactions:
	Cash dividends on Series T preferred at annual dividend rate of 5%			-			-			-			-			-			-			(216	)		(216	)
	Dividend accretion			-			-			(114	)		-			114			-			-			-
	Proceeds from exercise of stock options			13,236			-			-			-			77			-			-			77
	Issuance of restricted stock			2,500			-			-			(20	)		20			-			-			-
	Cash in lieu of fractional shares			-			-			-			-			-			-			(1	)		(1	)
	Amortization of deferred compensation on restricted stock			-			-			-			1			-			-			-			1
	Compensation expense related to stock options			-			-			-			-			67			-			-			67
	March 31, 2011			3,473,613		$	35		$	14,846		$	(19	)	$	37,903		$	(592	)	$	7,623		$	59,796

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

SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)

				For the three months ended March 31,
				2011						2010
				(Unaudited)
	Operating activities
	Net income		$	537					$	18
	Adjustments to reconcile net income to cash
	provided by operating activities:
	Provision for loan losses			725						1,400
	Depreciation and other amortization			216						223
	Accretion and amortization of securities discounts and premium, net			274						133
	Gain on sale of investment securities			-						(16	)
	Gain on sale of property and equipment			-						(18	)
	Loss on sale of real estate owned			276						-
	Write-down of real estate owned			236						-
	Compensation expense related to stock options and grants			68						60
	Increase in cash surrender value of bank owned life insurance			(132	)					(153	)
	Increase in deferred tax asset			(333	)					(76	)
	Decrease in other assets, net			142						437
	Decrease in other liabilities, net			(689	)					(331	)
	Net cash provided by operating activities			1,320						1,677
	Investing activities
	Increase (decrease) in cash realized from:
	Origination of loans, net			(7,885	)					(10,835	)
	Purchase of property and equipment			(165	)					(92	)
	Purchase of investment securities:
	Available for sale			-						(19,500	)
	Payments and maturity of investment securities:
	Available for sale			3,565						4,322
	Held to maturity			-						570
	Other investments			-						(343	)
	Proceeds from sale of investment securities			-						7,500
	Proceeds from sale of property and equipment			-						18
	Proceeds from sale of real estate owned			1,243						95
	Net cash used for investing activities			(3,242	)					(18,265	)
	Financing activities
	Increase (decrease) in cash realized from:
	Increase in deposits, net			23,758						23,477
	Cash dividend on preferred stock			(216	)					(216	)
	Cash in lieu of fractional shares			(1	)					-
	Proceeds from the exercise of stock options and warrants			77						295
	Net cash provided by financing activities			23,618						23,556
	Net increase in cash and cash equivalents			21,696						6,968
	Cash and cash equivalents at beginning of the period			53,850						12,082
	Cash and cash equivalents at end of the period		$	75,546					$	19,050
	Supplemental information
	Cash paid for
	Interest		$	3,317					$	3,624
	Income taxes			525						-
	Schedule of non-cash transactions
	Real estate acquired in settlement of loans			-						-
	Unrealized gain on securities, net of income taxes			115						168

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

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

NOTE 1 - Nature of Business and Basis of Presentation

Business activity

Southern First Bancshares, Inc. (the "Company") is a South Carolina corporation that owns all of the capital stock of Southern First Bank, N.A. (the "Bank") and all of the stock of Greenville First Statutory Trust I and II (collectively, the "Trusts"). On July 2, 2007, the Company and Bank changed their names to Southern First Bancshares, Inc. and Southern First Bank, N.A., respectively. The Bank is a national bank organized under the laws of the United States located in Greenville County, South Carolina and operates as Greenville First Bank in Greenville County. The Bank is primarily engaged in the business of accepting demand deposits and savings deposits insured by the Federal Deposit Insurance Corporation (the "FDIC"), and providing commercial, consumer and mortgage loans to the general public. The Trusts are special purpose non-consolidated entities organized for the sole purpose of issuing trust preferred securities.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010 (Registration Number 000-27719) as filed with the Securities and Exchange Commission on March 7, 2011. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank. In accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 810, "Consolidation," the financial statements related to the special purpose subsidiaries, the Trusts, have not been consolidated.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amount of income and expenses during the reporting periods. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, fair value of financial instruments, evaluating other-than-temporary-impairment of investment securities and valuation of deferred tax assets.

Reclassifications

Certain amounts, previously reported, have been reclassified to state all periods on a comparable basis that had no effect on shareholders' equity or net income.

Formal Agreement with the Office of the Comptroller of the Currency

On June 8, 2010, the Bank entered into a formal agreement (the "Formal Agreement") with its primary regulator, the Office of the Comptroller of the Currency (the "OCC"). The Formal Agreement seeks to enhance the Bank's existing practices and procedures in the areas of credit risk management, credit underwriting, liquidity, and funds management. The Board of Directors and management of the Bank have aggressively worked to address the findings of the exam and believe the Company is currently in compliance with substantially all of the requirements of the Formal Agreement. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for more discussion of the Formal Agreement.

Subsequent Events

Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. Management performed an evaluation to determine whether there have been any subsequent events since the balance sheet date and determined that no subsequent events occurred requiring accrual or disclosure.

Accounting Developments

In July 2010, the Receivables topic of the Accounting Standards Codification ("ASC") was amended by Accounting Standards Update ("ASU") 2010-20 to require expanded disclosures related to a company's allowance for credit losses and the credit quality of its financing receivables. The amendments require the allowance disclosures to be provided on a disaggregated basis. The Company is required to include these disclosures in their interim and annual financial statements. See Note 3.

NOTE 2 - Investment Securities

The amortized costs and fair value of investment securities available for sale and held to maturity are as follows:

				March 31, 2011
				Amortized			Gross Unrealized						Fair
	(dollars in thousands)			Cost			Gains			Losses			Value
	Available for sale
	State and political subdivisions		$	11,321			81			123			11,279
	Mortgage-backed securities:
	FHLMC			16,297			-			171			16,126
	FNMA			29,864			134			515			29,483
	GNMA			725			77			-			802
	Private-label collateralized mortgage obligations			2,803			-			379			2,424
	Total mortgage-backed securities			49,689			211			1,065			48,835
	Total investment securities available for sale		$	61,010			292			1,188			60,114
				December 31, 2010
				Amortized			Gross Unrealized						Fair
				Cost			Gains			Losses			Value
	Available for sale
	State and political subdivisions		$	11,331			12			177			11,166
	Mortgage-backed securities:
	FHLMC			17,985			-			288			17,697
	FNMA			31,780			112			463			31,429
	GNMA			888			88			-			976
	Private-label collateralized mortgage obligations			2,865			-			350			2,515
	Total mortgage-backed securities			53,518			200			1,101			52,617
	Total investment securities available for sale		$	64,849			212			1,278			63,783

Other investments are comprised of the following and are recorded at cost which approximates fair value.

	(dollars in thousands)			March 31, 2011			December 31, 2010
	Federal Reserve Bank stock		$	1,485			1,485
	Federal Home Loan Bank stock			6,333			6,333
	Certificates of deposit			849			849
	Investment in Trust Preferred securities			403			403
	Total other investments		$	9,070			9,070

Contractual maturities and yields on our investments that are available for sale and are held to maturity at March 31, 2011 and December 31, 2010 are shown in the following table. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. We had no securities with maturities less than one year at March 31, 2011 or December 31, 2010.

																												March 31, 2011
							One to Five Years						Five to Ten Years									Over Ten Years						Total
	(dollars in thousands)						Amount			Yield			Amount			Yield						Amount			Yield			Amount			Yield
	Available for Sale
	State and political subdivisions					$	-			-	%		5,772			3.10				%		5,507			3.66	%		11,279			3.37	%
	Mortgage-backed securities						80			3.92	%		-			-				%		48,755			2.76	%		48,835			2.76	%
	Total					$	80			3.92	%		5,772			3.10				%		54,262			2.86	%		60,114			2.89	%
																												December 31, 2010
				One to Five Years									Five to Ten Years									Over Ten Years						Total
				Amount						Yield			Amount						Yield			Amount			Yield			Amount			Yield
	Available for Sale
	State and political subdivisions		$	-						-	%		5,719						3.10	%		5,447			3.66	%		11,166			3.37	%
	Mortgage-backed securities			95						3.98	%		-						-	%		52,522			2.58	%		52,617			2.59	%
	Total		$	95						3.98	%		5,719						3.10	%		57,969			2.71	%		63,783			2.74	%

The tables below summarize gross unrealized losses on investment securities and the fair market value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

																						March 31, 2011
				Less than 12 months									12 months or longer									Total
	(dollars in thousands)			#			Fair value			Unrealized losses			#			Fair value			Unrealized losses			#			Fair value			Unrealized losses
	Available for sale
	State and political subdivisions			15		$	7,208			123			-			-			-			15			7,208			123
	Mortgage-backed
	FHLMC			5			16,126			171			-			-			-			5			16,126			171
	FNMA			5			20,664			515			-			-			-			5			20,664			515
	Collateral mortgage obligations			-			-			-			1			2,424			379			1			2,424			379
	Total			25		$	43,998			809			1			2,424			379			26			46,422			1,188
																									December 31, 2010
				Less than 12 months												12 months or longer									Total
				#			Fair value			Unrealized losses			#			Fair value			Unrealized losses			#			Fair value			Unrealized losses
	Available for sale
	State and political subdivisions			16		$	8,101			177			-			-			-			16			8,101			177
	Mortgage-backed
	FHLMC			5			17,697			288			-			-			-			5			17,697			288
	FNMA			6			24,301			463			-			-			-			6			24,301			463
	Collateral mortgage obligations			-			-			-			1			2,515			350			1			2,515			350
	Total			27		$	50,099			928			1			2,515			350			28			52,614			1,278

Other-than-temporary impairment ("OTTI")

As prescribed by FASB ASC 320-10-35, the Company recognizes the credit component of OTTI on debt securities through earnings and the non-credit component in other comprehensive income ("OCI") for those securities in which the Company does not intend to sell the security and it is more-likely-than-not that the Company will not be required to sell the security in the foreseeable future.

At March 31, 2011, the Company had 25 individual investments that were in an unrealized loss position for less than 12 months.  The unrealized losses were primarily attributable to changes in interest rates, rather than deterioration in credit quality.  The majority of these securities are government or agency securities currently rated AA or AAA by Moody's or Standard and Poor's, and therefore, pose minimal credit risk.  The Company considers the length of time and extent to which the fair value of available-for-sale debt securities have been less than cost to conclude that such securities were not other-than-temporarily impaired. We also consider other factors such as the financial condition of the issuer including credit ratings and specific events affecting the operations of the issuer, volatility of the security, underlying assets that collateralize the debt security, and other industry and macroeconomic conditions. As the Company has no intent to sell securities with unrealized losses and it is not more-likely-than-not that the Company will be required to sell these securities before recovery of amortized cost, we have concluded that the securities are not impaired on an other-than-temporary basis.

At March 31, 2011, we held one private label collateralized mortgage obligation ("CMO") which has been in an unrealized loss position for 12 months or longer, with a book value of $2.8 million. A majority of "structured" investments within all credit markets have been impacted by volatility and credit concerns and economic stresses throughout 2008, 2009, 2010 and continuing into 2011. The result has been that the market for these investments has become significantly less liquid and the spread as compared to alternative investments has widened dramatically.

The company evaluates this security quarterly based on the methodology outlined below and based on this evaluation, currently believes that it will receive all of the principal and interest in accordance with the original contractual terms of the security. Also, since the company has no intent to sell securities with unrealized losses and it is not more-likely-than-not that we will be required to sell this security before recovery of amortized cost, we have concluded that this security is not impaired on an other-than-temporary basis. However, no assurance can be given that market conditions and certain characteristics of the security will continue to support this determination.

CMO Evaluation Methodology

The primary cause of mortgage delinquency and foreclosure is the loss of household income due to unemployment. Therefore, the change in unemployment rates is a predictor of the likelihood of mortgage loan delinquency and foreclosures. Prime mortgage borrowers, with secure or steady employment tend to stay current on their mortgages, even if home prices drop significantly, as in a period of severe home price depreciation. Subprime borrowers, on the other hand, who only marginally sustained their initial home purchase, are more likely to become delinquent when home prices dropped precipitously. There is evidence to support the premise that increases in unemployment rates and home price depreciation has a positive correlation with foreclosure rates.

In the non agency mortgage-backed securities ("MBS") sector, FICO scores that measure the credit worthiness of the mortgage borrower are a good indicator of future mortgage delinquency and foreclosure rates. In addition, the level of documentation that was obtained at the time the loan was originated is also a strong indicator of future loan performance. Loans that have limited or reduced documentation have proven to result in higher delinquency and foreclosures. An additional indicator of the likelihood of delinquency and foreclosures is the occupancy type. Generally speaking, loans on owner occupied properties tend to be less likely to default than loans on vacation or investment properties.

The company evaluates its private label CMO for other-than-temporary impairment quarterly based on a Bloomberg Default model which uses relevant assumptions such as prepayment rate, default rate and loss severity in determining the expected recovery of the contractual cash flows.  Listed below is various historical data related to our private label CMO:

				March 31, 2011			December 31, 2010
	Book value (in thousands)			$2,803			$2,865
	Year of origination			2006			2006
	Original credit rating			Aaa			Aaa
	Current credit rating			Caa1			Caa1
	Deal Percentage of loans 60+ delinquent			27.9%			26.3%
	Group Percentage of loans 60+ delinquent			13.7%			12.2%
	12 month prepayment rate			14.3%			17.6%
	12 month default rate			1.9%			1.9%
	12 month severity rate			72.4%			72.4%
	Average prepayment rate			6.5%			6.4%
	Average default rate			1.4%			1.5%
	Average severity rate			17.3%			38.1%
	Weighted average:
	Coupon			6.2%			6.2%
	Months remaining			301			302
	Loan size			$302,000			$301,000
	Current loan to value			79.0%			79.0%
	FICO scores:
	Original			736			736
	Current			733			733
	Current percentage of limited documents			42.0%			41.0%
	Current percentage - owner occupied			90.0%			90.0%
	Geographic concentration:
	Highest percentage			GA 79.7%			GA 79.9%
	Second highest percentage			FL 16.6%			FL 16.5%

Based on the independent calculations and assumptions, management currently anticipates receiving all of the outstanding principal and the related interest for this CMO security. Management has reviewed the independent assumptions utilized, compared them to current actual results and believes that they are reasonable. However, there is no precise method to predict if credit losses in the future periods will exceed our current predictions. If actual results significantly vary from the assumptions noted above, we may be required to recognize losses that are later deemed to not be only temporary in nature. The valuation change has been recorded as a change in the unrealized gain/loss recognized in other comprehensive income.

NOTE 3 - Loans and Allowance for Loan Losses

The following table summarizes the composition of our loan portfolio.

				March 31, 2011									December 31, 2010
	(dollars in thousands)			Amount			% of Total						Amount			% of Total
	Commercial
	Owner occupied RE		$	148,179			25.6	%					137,873			24.1	%
	Non-owner occupied RE			161,271			27.8	%					163,971			28.6	%
	Construction			13,549			2.3	%					11,344			2.0	%
	Business			109,496			18.9	%					109,450			19.1	%
	Total commercial loans			432,495			74.6	%					422,638			73.8	%
	Consumer
	Real estate			51,444			8.9	%					54,161			9.5	%
	Home equity			80,515			13.9	%					79,528			13.9	%
	Construction			6,616			1.1	%					8,569			1.5	%
	Other			9,036			1.6	%					8,079			1.4	%
	Total consumer loans			147,611			25.5	%					150,337			26.3	%
	Deferred origination fees, net			(552	)		(0.1	)%					(583	)		(0.1	)%
	Total gross loans, net of deferred fees			579,554			100.0	%					572,392			100.0	%
	Less—allowance for loan losses			(8,388	)								(8,386	)
	Total loans, net		$	571,166									564,006

Maturities and Sensitivity of Loans to Changes in Interest Rates

The information in the following tables summarizes the loan maturity distribution by type and related interest rate characteristics based on the contractual maturities of individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon maturity. Actual repayments of loans may differ from the maturities reflected below, because borrowers have the right to prepay obligations with or without prepayment penalties.

																			March 31, 2011
	(dollars in thousands)						One year or less						After one but within five years						After five years						Total
	Commercial
	Owner occupied RE					$	21,625						104,961						21,593						148,179
	Non-owner occupied RE						52,808						101,581						6,882						161,271
	Construction						7,587						2,943						3,019						13,549
	Business						56,224						50,813						2,459						109,496
	Total commercial loans						138,244						260,298						33,953						432,495
	Consumer
	Real estate						12,825						26,447						12,172						51,444
	Home equity						9,971						29,093						41,451						80,515
	Construction						5,327						476						813						6,616
	Other						5,373						3,055						608						9,036
	Total consumer loans						33,496						59,071						55,044						147,611
	Deferred origination fees, net						(169				)		(298				)		(85				)		(552				)
	Total gross loans, net of deferred fees					$	171,571						319,071						88,912						579,554
	Loans maturing after one year with:
	Fixed interest rates																							$	210,844
	Floating interest rates																								197,139

																									December 31, 2010
							One year or less						After one but within five years						After five years						Total
	Commercial:
	Owner occupied RE					$	19,214						98,712						19,946						137,872
	Non-owner occupied RE						55,593						100,253						8,126						163,972
	Construction						6,661						4,010						673						11,344
	Business						53,677						53,933						1,840						109,450
	Total commercial loans						135,145						256,908						30,585						422,638
	Consumer
	Real estate						14,813						27,286						12,062						54,161
	Home equity						9,406						31,398						38,724						79,528
	Construction						7,139						649						781						8,569
	Other						4,162						3,338						579						8,079
	Total consumer						35,520						62,671						52,146						150,337
	Deferred origination fees, net						(180				)		(319				)		(84				)		(583			)
	Total gross loan, net of deferred fees					$	170,485						319,260						82,647						572,392
	Loans maturing after one year with:
	Fixed interest rates																							$	200,230
	Floating interest rates																								201,677

Portfolio Segment Methodology

Commercial

Commercial loans are assessed for estimated losses by grading each loan using various risk factors identified through periodic reviews. We apply historic grade-specific loss factors to each funded loan. In the development of our statistically derived loan grade loss factors, we observe historical losses over a relevant period for each loan grade. These loss estimates are adjusted as appropriate based on additional analysis of external loss data or other risks identified from current economic conditions and credit quality trends. The allowance also includes an amount for the estimated impairment on nonaccrual commercial loans and commercial loans modified in a troubled debt restructuring ("TDR"), whether on accrual or nonaccrual status.

Consumer

For consumer loans, we determine the allowance on a collective basis utilizing forecasted losses to represent our best estimate of inherent loss. We pool loans, generally by product types with similar risk characteristics. In addition, we further stratify the pools risk grade and then apply a combination of historical and peer loss rates to the stratified loan pools. In addition, we establish an allowance for consumer loans that have been modified in a TDR, whether on accrual or nonaccrual status.

Credit Quality Indicators

Commercial

We manage a consistent process for assessing commercial loan credit quality by monitoring our loan grading trends and past due statistics. All loans are subject to individual risk assessment. Our categories include Pass, Special Mention, Substandard, and Doubtful, each of which are defined by banking regulatory agencies. Delinquency statistics are also an important indicator of credit quality in the establishment of our allowance for credit losses.

The tables below provide a breakdown of outstanding commercial loans by risk category.

																			March 31, 2011
	(dollars in thousands)			Owner occupied RE			Non-owner occupied RE						Construction						Business						Total
	Pass			138,398			138,457						11,092						98,757						386,704
	Special Mention			4,512			6,587						-						2,875						13,974
	Substandard			5,269			16,227						2,457						7,864						31,817
	Doubtful			-			-						-						-						-
	Loss			-			-						-						-						-
			$	148,179			161,271						13,549						109,496						432,495
																			December 31, 2010
				Owner occupied RE			Non-owner occupied RE						Construction						Business						Total
	Pass		$	127,958			145,167						8,887						101,985						383,997
	Special Mention			4,762			3,365						-						2,774						10,901
	Substandard			5,152			15,314						2,457						4,691						27,614
	Doubtful			-			126						-						-						126
	Loss			-			-						-						-						-
			$	137,872			163,972						11,344						109,450						422,638

The following tables provide past due information for outstanding commercial loans.

																									March 31, 2011
	(dollars in thousands)						Owner occupied RE						Non-owner occupied RE						Construction						Business			Total
	Current					$	142,247						157,769						12,172						105,279			417,467
	30-59 days past due						4,080						93						-						1,841			6,014
	60-89 days past due						648						285						-						632			1,565
	Greater than 90 Days						1,204						3124						1,377						1,744			7,449
						$	148,179						161,271						13,549						109,496			432,495
																									December 31, 2010
							Owner occupied RE						Non-owner occupied RE						Construction						Business			Total
	Current					$	132,829						160,634						9,967						107,603			411,033
	30-59 days past due						2,093						-						-						532			2,625
	60-89 days past due						2,027						143						-						646			2,816
	Greater than 90 Days						923						3,195						1,377						669			6,164
						$	137,872						163,972						11,344						109,450			422,638

Consumer

We manage a consistent process for assessing consumer loan credit quality by monitoring our loan grading trends and past due statistics. All loans are subject to individual risk assessment. Our categories include Pass, Special Mention, Substandard, and Doubtful, each of which are defined by banking regulatory agencies. Delinquency statistics is also an important indicator of credit quality in the establishment of our allowance for credit losses.

The tables below provide a breakdown of outstanding consumer loans by risk category.

													March 31, 2011
	(dollars in thousands)			Real estate			Home equity			Construction			Other			Total
	Pass		$	48,423			77,859			6,616			8,560			141,458
	Special Mention			297			1,431			-			289			2,017
	Substandard			2,724			1,225			-			187			4,136
	Doubtful			-			-			-			-			-
	Loss			-			-			-			-			-
			$	51,444			80,515			6,616			9,036			147,611
													December 31, 2010
				Real estate			Home equity			Construction			Other			Total
	Pass		$	51,468			77,064			8,569			7,526			144,627
	Special Mention			477			1,237			-			395			2,109
	Substandard			2,216			1,227			-			158			3,601
	Doubtful			-			-			-			-			-
	Loss			-			-			-			-			-
			$	54,161			79,528			8,569			8,079			150,337