Greer Bancshares (GRBS) 10-Q 2006 Q2 Quarterly report

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 June 30, 2006

OR

¨ 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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.    Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer  x

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

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 August 9, 2006
Common Stock, $5.00 par value per share	2,476,710 shares

GREER BANCSHARES INCORPORATED

Index

PART I
FINANCIAL INFORMATION
Item 1
Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005	3
Consolidated Statements of Income for the Three and Six Months Ended June 30, 2006 and 2005	4
Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2006 and 2005	5
Consolidated Statement of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2006	6
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2005	7
Notes to Consolidated Financial Statements	9
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3
Quantitative and Qualitative Disclosures about Market Risk	21
Item 4
Controls and Procedures	21
PART II
OTHER INFORMATION
Item 1           Legal Proceedings	21
Item 1A        Risk Factors	22
Item 2           Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3           Defaults Upon Senior Securities	22
Item 4           Submission of Matters to a Vote of Security Holders	22
Item 5           Other Information	22
Item 6           Exhibits	22
Signatures	23
Index to Exhibits	24

2

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

GREER BANCSHARES INCORPORATED

Consolidated Balance Sheets

(Unaudited)

(Dollars in thousands, except per share and share data)

	June 30, 2006			December 31, 2005 *
ASSETS
Cash and due from banks	$	6,363		$	6,270
Interest bearing deposits in banks		618			564
Investment securities:
Held to maturity		25,847			28,482
Available for sale		46,309			49,543
Loans, net of allowance for loan losses of $1,652 and $1,416, respectively		231,360			197,587
Premises and equipment, net		6,390			5,747
Accrued interest receivable		1,677			1,615
Restricted stock		3,646			3,509
Other assets		6,919			6,130
Total Assets	$	329,129		$	299,447
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities :
Deposits
Non-interest bearing	$	31,212		$	30,014
Interest bearing		194,823			169,173
Total Deposits		226,035			199,187
Notes payable to Federal Home Loan Bank		57,725			58,847
Repurchase Agreements		9,000			8,589
Federal Funds Purchased		4,112			1,931
Long Term Debt		6,186			6,186
Other liabilities		5,017			3,143
Total Liabilities		308,075			277,883
Stockholders’ Equity:
Common stock — par value $5 per share, 10,000,000 shares authorized, 2,459,111 and 2,453,580 shares issued and outstanding at June 30, 2006 and December 31, 2005, respectively		12,296			12,268
Additional paid in capital		2,860			2,741
Retained earnings		6,483			6,751
Accumulated other comprehensive loss		(585	)		(196	)
Total Stockholders’ Equity		21,054			21,564
Total Liabilities and Stockholders’ Equity	$	329,129		$	299,447

* This information is derived from Audited Consolidated Financial Statements.

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

3

GREER BANCSHARES INCORPORATED

Consolidated Statements of Income

(Unaudited)

(Dollars in thousands, except per share data)

	For Three Months Ended				For Six Months Ended
	06/30/06		06/30/05		06/30/06		06/30/05
Interest Income:
Loans (including fees)	$	4,525	$	2,618	$	8,535	$	4,959
Investment securities:
Taxable		649		600		1,310		1,132
Exempt from federal income tax		228		228		459		471
Federal funds sold		5		33		14		75
Other		10		30		18		49
Total interest income		5,417		3,509		10,336		6,686
Interest Expense:
Interest on deposit accounts		1,575		725		2,907		1,345
Interest on short-term borrowings		118		1		253		1
Interest on long-term borrowings		805		667		1,583		1,245
Total interest expense		2,498		1,393		4,743		2,591
Net interest income		2,919		2,116		5,593		4,095
Provision for loan losses		138		90		298		135
Net interest income after provision for loan losses		2,781		2,026		5,295		3,960
Non-interest income:
Customer service fees		255		250		490		479
Gain on sale of investment securities		—		—		19		135
Other operating income		311		244		607		544
Total non-interest income		566		494		1,116		1,158
Non-interest expenses:
Salaries and employee benefits		1,376		1,141		2,766		2,179
Occupancy and equipment		215		169		427		332
Postage and supplies		74		64		143		127
Marketing expenses		101		38		175		97
Directors fees		51		46		102		89
Professional fees		117		101		194		208
Other operating expenses		328		267		657		538
Total non-interest expenses		2,262		1,826		4,464		3,570
Income before income taxes		1,085		694		1,947		1,548
Provision for income taxes:		331		43		547		225
Net income	$	754	$	651	$	1,400	$	1,323
Basic net income per share of common stock	$	0.31	$	0.27	$	0.57	$	0.54
Diluted net income per share of common stock	$	0.30	$	0.26	$	0.56	$	0.53

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

4

GREER BANCSHARES INCORPORATED

Consolidated Statements of Comprehensive Income

(Unaudited)

(Dollars in thousands)

	For Three Months Ended					For Six Months Ended
	06/30/06			06/30/05		06/30/06			06/30/05
Net Income	$	754		$	651	$	1,400		$	1,323
Other comprehensive
Income/(loss), net of tax:
Unrealized holding gains (losses) on investment securities		(398	)		107		(377	)		(139	)
Less reclassification adjustments for gains included in net income		—			—		(12	)		(84	)
Subtotal		(398	)		107		(389	)		(223	)
Comprehensive Income	$	356		$	758	$	1,011		$	1,100

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

5

GREER BANCSHARES INCORPORATED

Consolidated Statement of Changes in Stockholders’ Equity

For the Six Months Ended June 30, 2006

(Unaudited)

(Dollars in thousands, except per share data)

	Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
Balances at 12/31/2005	$	12,268	$	2,741	$	6,751		$	(196	)	$	21,564
Net Income		—		—		1,400			—			1,400
Other comprehensive loss, net of tax									(389	)		(389	)
Comprehensive income												1,011
Stock exercised pursuant to stock option plan		28		71		—			—			99
Stock based compensation		—		36		—			—			36
Tax benefit of stock options exercised		—		12		—			—			12
Dividends declared ($.68 per share)		—		—		(1,668	)		—			(1,668	)
Balances at 6/30/2006	$	12,296	$	2,860	$	6,483		$	(585	)	$	21,054

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

6

GREER BANCSHARES INCORPORATED

Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)

	For the Six Months Ended
	06/30/06			06/30/05
OPERATING ACTIVITIES
Net income	$	1,400		$	1,323
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		225			176
Gain on sale of OREO		—			(57	)
Gain on sale of securities		(19	)		(135	)
Provision for loan losses		298			135
Deferred income tax benefit		(396	)		(105	)
Stock based compensation		36			—
Net change in:
Accrued interest receivable		(62	)		(83	)
Other assets		(150	)		(1,209	)
Accrued interest payable		535			54
Other liabilities		265			258
Net cash provided by operating activities		2,132			357
INVESTING ACTIVITIES
Activity in available-for-sale securities:
Proceeds from the sale of securities		5,902			4,651
Maturities, payment and calls		2,530			4,041
Purchases		(5,811	)		(23,875	)
Activity in held to maturity securities:
Maturities, payment and calls		2,635			3,438
Proceeds from sale of real estate held for sale		—			404
Net decrease in federal funds sold		—			650
Purchase of FHLB stock		(137	)		(394	)
Net increase in loans		(34,071	)		(19,705	)
Purchase of property and equipment		(868	)		(840	)
Net cash used for investing activities		(29,820	)		(31,630	)
FINANCING ACTIVITIES
Net increase in deposits		26,848			16,772
Proceeds from (repayment of) notes payable FHLB		(881	)		12,373
Net increase in short term borrowings		2,592			8,185
Cash dividends paid		(835	)		(781	)
Tax benefit from stock option exercise		12			5
Proceeds from exercise of stock options		99			118
Net cash provided by financing activities		27,835			36,672
Net increase in cash and due from banks		147			5,399
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD		6,834			5,720
CASH AND DUE FROM BANKS, END OF PERIOD	$	6,981		$	11,119

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GREER BANCSHARES INCORPORATED

Consolidated Statements of Cash Flows-Continued

(Unaudited)

(Dollars in thousands)

	For the Six Months Ended
	6/30/06			6/30/05
CASH PAID FOR
Income taxes	$	726		$	329
Interest	$	4,208		$	2,537
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Change in valuation of fair value hedge	$	241		$	—
Change in other comprehensive income (net of tax)	$	(389	)	$	(223	)
Dividends payable	$	(833	)	$	(781	)

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

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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 in no other business other than owning and managing the Bank and its “alternative investments” subsidiary, Greer Financial Services Corporation (“GFSC”). GFSC offers securities exclusively through Raymond James Financial Services, Inc. The accompanying consolidated financial statements include the accounts of the holding company and its subsidiary.

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 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. All such adjustments are of a normal recurring nature. The statements of income and comprehensive income 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, 2005, which are included in the 2005 Annual Report on Form 10-K.

Note 2 – Net Income per Common Share

Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during each period presented. Diluted net income per common share is computed by dividing net income by the weighted average number of common shares outstanding, as adjusted for the assumed exercise of potential common stock options, using the treasury stock method. The weighted average common shares outstanding for the six months ended June 30, 2006 and June 30, 2005 were 2,456,329 and 2,436,527, respectively (basic) and 2,521,275 and 2,476,230, respectively (diluted). The weighted average common shares outstanding for the three months ended June 30, 2006 and June 30, 2005 were 2,457,953 and 2,439,782, respectively (basic) and 2,516,414 and 2,487,198, respectively (diluted).

Note 3 – Stock Based Compensation

Effective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based Payment,” (“SFAS No. 123R”) which was issued by the FASB in December 2004. SFAS No. 123R revises SFAS No. 123, “Accounting for Stock Based Compensation,” and supersedes APB No. 25, “Accounting for Stock Issued to Employees,” and its related interpretations. SFAS No. 123R requires recognition of the cost of employee services received in exchange for an award of equity instruments in the financial statements over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). SFAS No. 123R also requires measurement of the cost of employee services received in exchange for an award based on the grant-date fair value of the award. SFAS No. 123R also amends SFAS No. 95, “Statement of Cash Flows,” to require that excess tax benefits be reported as financing cash inflows, rather than as a reduction of taxes paid, which is included within operating cash flows.

The Company adopted SFAS No. 123R using the modified prospective application as permitted under SFAS No. 123R. Accordingly, prior period amounts have not been restated. Under this application, the Company is required to record compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards that remain outstanding at the date of adoption.

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Prior to the adoption of SFAS No. 123R, the Company used the intrinsic value method as prescribed by APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), and thus recognized no compensation expense for options granted with exercise prices equal to the fair market value of the Company’s common stock on the date of grant.

The Company currently has an Equity Incentive Plan and a Director’s Incentive Stock Option Plan, which are described below. The compensation cost that has been charged against income for the plans was approximately $36,000 for the six months ended June 30, 2006 and $18,000 for the three-months ended June 30, 2006. The income tax benefit recognized for share-based compensation arrangements was approximately $1,200 and $600 for the six and three months ended June 30, 2006, respectively.

At the 1996 Annual Meeting, Stockholders of the Company approved a Directors’ Incentive Stock Option Plan (the” Directors’ Incentive Plan”). Beginning with the adjournment of the 1996 Annual Meeting of Shareholders of the Company, and at the adjournment of the annual meetings for each of the succeeding years during the term of the Directors’ Incentive Plan in which the “return on average equity” of the Company for the fiscal year preceding the annual meeting, as reported by the Company in its earnings release for such prior fiscal year is twelve percent (12%) or greater, each Director (who was not an employee of the Company) serving in such capacity as of December 31 of the preceding year shall be granted an option to purchase one thousand five hundred (1,500) shares (subject to adjustment as provided in Section 6 of the Incentive Plan) of the Company’s common stock, provided that no Director may receive grants of options for shares of common stock under the Directors’ Incentive Plan in excess of fifteen thousand (15,000) shares. The maximum number of shares of Common Stock for which options may be granted under the Directors’ Incentive Plan is one hundred thirty-five thousand (135,000).

The option price for each option granted under the Directors’ Incentive Plan is the fair market value on the day such option is granted. Each option granted under the Directors’ Incentive Plan shall, to the extent not previously exercised, terminate and expire on the date ten (10) years after the date of grant of the option. Each option granted under the Directors’ Incentive Plan becomes immediately vested and exercisable on the date six (6) months and one day following the date of grant.

Effective April 28, 2005, the Greer State Bank Employee Incentive Stock Option Plan (the “Plan”) was terminated. Outstanding options issued under the former Plan will be honored in accordance with the terms and conditions in effect at the time they were granted, except that they are not subject to reissuance. At June 30, 2006, there were 41,028 options outstanding that had been issued under the terminated Plan.

Effective April 28, 2005, the Company adopted the 2005 Equity Incentive Plan (the “Incentive Plan”). The Incentive Plan provides for the granting of statutory incentive stock options within the meaning of Section 422 of the Internal Revenue Code as well as non-statutory stock options. The Incentive Plan authorized the initial issuance of options and restricted stock to acquire up to 250,000 shares of common stock of the Company. The Incentive Plan provides that beginning with the annual meeting of the shareholders in 2006 and continuing for the next eight annual meetings, the aggregate number of shares of common stock that can be issued under the Incentive Plan will automatically be increased by a number of shares equal to the least of (1) 2% of the diluted shares outstanding, (2) 20,000 shares or (3) a lesser number of shares determined by the Board. Diluted shares outstanding means the sum of (a) the number of shares of common stock outstanding on the date of the applicable annual meeting of shareholders, (b) the number of shares of common stock issuable on such date assuming all outstanding shares of preferred stock and convertible notes are then converted, and (c) the additional number of shares of common stock that would be outstanding as a result of any outstanding options or warrants during the fiscal year of such meeting using the treasury stock method.

Under the Incentive Plan, awards may be granted for a term of up to ten years from the effective date of grant. The Board of Directors has sole discretion as to the exercise date of any awards granted. The per-share exercise price of incentive stock options may not be less than the fair value of a share of common

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stock on the date the option is granted. The per-share exercise price of nonqualified stock options may not be less than 85% of the fair value of a share on the effective date of grant. Any options that expire unexercised or are canceled become available for reissuance. No awards may be granted more than ten (10) years after the date the Incentive Plan was approved by the Board of Directors, which was September 24, 2004. At June 30, 2006, the Company had 88,700 awards available for grant under the 2005 Equity Incentive Plan.

Vesting under the plan is discretionary based upon a determination by the Board of Directors.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. The risk-free interest rate is based on the U.S. Treasury rate for the expected life at the time of grant. Volatility is based on the average long-term implied volatilities of the Company. The expected life is based on previous option exercise experience. The following table illustrates the assumptions for the Black-Scholes model used in determining the fair value of options granted to employees for the six months ended June 30, 2006 and 2005, respectively.

	June 30, 2006	June 30, 2005
Dividend yield	1.90%	3.93%
Risk-free interest rate	4.70%	4.15%
Volatility	12.5	12.5
Expected life	7.5 years	7.23 years

A summary of option activity under the stock option plans discussed above as of June 30, 2006, and changes during the six month period ended June 30, 2006, is presented below:

	Options Available		Options Outstanding		Price Range		Average Exercise Price
Balance at December 31, 2005	133,200		248,209		$	6.83-27.50	$	19.56
Exercised	—		(5,531	)		9.58-17.00		17.59
Authorized	—		—			—		—
Forfeited	—		—			—		—
Granted	(19,000	)	19,000			24.50-26.50		25.95
Balance at June 30, 2006	114,200		261,678		$	6.83-27.50	$	17.24

The following table sets forth the exercise prices, the number of options outstanding and the number of options exercisable at June 30, 2006:

	Options Outstanding			Options Exercisable
Range of Exercise Prices	Number of Options Outstanding	Weighted Average Exercise Price		Weighted Average Contractual Life Remaining (Years)	Number of Options Exercisable	Weighted Average Exercise Price
$6.58-12.58	20,332	$	9.31	1.82	13,731	$	9.53
$15.50-18.67	159,046		16.30	7.53	58,070		16.76
$19.30-27.50	82,300		21.02	7.72	49,300		25.66
Total/ Wtd Avg	261,678	$	17.24	7.15	121,101	$	19.56

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The following table sets forth information pertaining to the Company’s exercisable options and options expected to vest:

	Six Months Ended June 30, 2006
Aggregate intrinsic value of options outstanding	$	1,302,362
Aggregate intrinsic value of exercisable options		541,947
Weighted average remaining life of all options		7.15

The weighted-average grant-date fair value of options granted during the three and six month periods ended June 30, 2006 was $4.65 and $4.82, respectively. The total intrinsic value of options exercised during the three and six month period ended June 30, 2006 was approximately $25,000 and $48,000, respectively.

As of June 30, 2006, there was approximately $283,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Company’s stock option plans. That cost is expected to be recognized over a weighted-average period of 3.80 years. The total fair value of shares vested during the three and six month period ended June 30, 2006 was approximately $18,000 and $36,000, respectively.

Cash received from option exercises under all share-based payment arrangements for the three and six month period ending June 30, 2006 was approximately $38,000 and $99,000, respectively. The actual tax benefit realized for the tax deductions from option exercise of the share-based payment arrangements totaled approximately $3,000 and $12,000 for the three and six month period ended June 30, 2006, respectively.

The adoption of SFAS 123R and its fair value compensation cost recognition provisions are different from the nonrecognition provisions under SFAS 123 and the intrinsic value method for compensation cost allowed APB 25.

The effect of the adoption of SFAS 123R is as follows:

	Three Months Ended June 30, 2006			Six Months Ended June 30, 2006
Income before income tax expense	$	(18,000	)	$	(36,000	)
Net income	$	(18,000	)	$	(35,000	)
Cash flow from operating activities	$	(9,000	)	$	(12,000	)
Cash flow from financing activities	$	9,000		$	12,000
Basic earnings per share	$	(.01	)	$	(.01	)
Diluted earnings per share	$	(.01	)	$	(.01	)

For purposes of disclosures pursuant to SFAS No. 123, the estimated fair value of the options is amortized to expense over the options’ vesting period using the straight line method. The following table illustrates the effect on net income available to common stockholders if the Company had applied the fair value recognition provisions of SFAS No. 123 with respect to the six and three month periods ended June 30, 2005.

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	Six Months Ended June 30, 2005			Three Months Ended June 30, 2005
Net income, as reported	$	1,323		$	651
Add: Stock-based employee compensation expense included in reported net income, net of related income tax effects		—			—
Less: Stock-based employee compensation expense determined under fair value based method of all awards, net of related income tax effects		(6	)		(3	)
Pro forma net income	$	1,317		$	648
Earnings per share — basic, as reported	$	0.54		$	0.27
Earnings per share — diluted, as reported	$	0.53		$	0.26
Earnings per share — basic, proforma	$	0.54		$	0.27
Earnings per share — diluted, proforma	$	0.53		$	0.26

Note 4 - Reclassifications

Certain amounts in the 2005 financial statements have been reclassified to conform to the 2006 presentation. The reclassifications had no effect on net income or stockholders’ equity, as previously reported.

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

RESULTS OF OPERATIONS

Overview

The following discussion describes our results of operations for the quarter ended June 30, 2006 as compared to the quarter ended June 30, 2005, as well as results for the six months ended June 30, 2006 and 2005. It also analyzes our financial condition as of June 30, 2006, as compared to December 31, 2005. Throughout this discussion, amounts are rounded to the nearest thousand, except per share data or percentages. Like most community banks, we derive most of our income from interest we receive on our loans and investments. Our primary source of funds for making these loans and investments is our deposits, most of which are interest-bearing. Consequently, one of the key measures of our success is our net interest income, or the difference between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing liabilities, such as deposits and Federal Home Loan Bank advances. Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities.

Of course, there are risks inherent in all loans, so we maintain an allowance for loan losses to absorb probable losses on existing loans that may become uncollectible. We establish and maintain this allowance by charging a provision for loan losses against our operating earnings. In the following section we have included a detailed discussion of this process.

In addition to earning interest on our loans and investments, we earn income through fees and other charges to our customers. We describe the various components of this non-interest income, as well as our non-interest expense, in the following discussion.

The following discussion and analysis also identifies significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements. We encourage you to read this discussion and analysis in conjunction with the financial statements and the related notes included in this report.

The Company reported consolidated net income of $754,000, or $.30 per diluted share, for the quarter ended June 30, 2006, compared to $651,000, or $.26 per diluted share, for the quarter ended June 30, 2005, an increase of $103,000, or 15.8%. For the six months ended June 30, 2006, the Company reported consolidated net income of $1,400,000, or $.56 per diluted share, compared to $1,323,000 or $.53 per diluted share for the six months ended June 30, 2005, an increase of $77,000, or 5.8%.

Interest Income, Interest Expense and Net Interest Income

The Company’s total interest income for the quarter ended June 30, 2006 was $5,417,000, compared to $3,509,000 for the quarter ended June 30, 2005, an increase of $1,908,000, or 54.4%. Total interest income for the six months ended June 30, 2006 increased by $3,650,000, or 54.6%, from $6,686,000 on June 30, 2005. Interest and fees on loans is the largest component of total interest income and increased $1,907,000, or 72.8%, to $4,525,000 for the quarter ended June 30, 2006, compared to $2,618,000 for the quarter ended June 30, 2005. The increase in interest and fees on loans was due primarily to an increase of approximately $74,519,000 in average loans outstanding during the three months ended June 30, 2006, compared with the three month period ended June 30, 2005. For the six months ended June 30, 2006, average loans outstanding were approximately $69,680,000 more than in the six months ended June 30, 2005. Increases in interest rates during the last half of 2005 and first half of 2006 also directly affected the increase in interest income. The average yield on the Company’s loan portfolio for the three months ended June 30, 2006 was 7.80%, compared to 6.40% for the three months ended June 30, 2005. For the six months ended June 30, 2006, the average yield on the Company’s loan portfolio was 7.64%, compared to 6.29% for the six months ended June 30, 2005. At June 30, 2006, the Company had approximately $137,000,000 in loans indexed to the prime rate. The Federal Open Market Committee has raised short term interest rates 200 basis points since June 30, 2005, resulting in increases in the yield on loans indexed to the prime rate.

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Interest income on investment securities increased by $49,000 in the three months ended June 30, 2006 compared to the three months ended June 30, 2005, and was approximately $166,000 more in the six months ended June 30, 2006 than in the six months ended June 30, 2005. These increases occurred despite a decline of $5,869,000 in the amount of investment securities from December 31, 2005 until June 30, 2006. Even though the balance in investment securities was less at June 30, 2006 than at December 31, 2005, the average amount of investment securities during the six months ended June 30, 2006 was $3,373,000 more than in the these months ended June 30, 2005. The increase in interest income on investment securities was also partially due to a decline of approximately $54,000 in premium amortization, which was a result of a slow down in principal repayments caused by the increase in market interest rates as discussed above.

Interest income on fed funds sold was $5,000 for the three months ended June 30, 2006, compared to $33,000 for the three months ended June 30, 2005, and was $14,000 for the six months ended June 30, 2006, compared to $75,000 for the same period in 2005. The decrease in interest income on fed funds was due primarily to a decline of approximately $5,406,000 in average fed funds sold during the second quarter of 2006, compared to the same period in 2005, and a decrease of approximately $5,665,000 in average fed funds sold in the six months ended June 30, 2006, compared to the same period in 2005. Interest income on deposits at other banks was $10,000 for the three months ended June 30, 2006, compared to $30,000 for the three months ended June 30, 2005, and was $18,000 for the six months ended June 30, 2006, compared to $49,000 for the six months ended June 30, 2005. The decline in interest income on deposits at other banks was due primarily to a decline in the average balance maintained at the Federal Home Loan Bank of Atlanta (FHLB). The decrease in average fed funds sold and in the average balance at the FHLB was due to the strong loan growth experienced by the Company that allowed funds to be shifted from lower-yielding overnight deposits into loans, which are higher yielding.

The Company’s total interest expense for the three months ended June 30, 2006 was $2,498,000, compared to $1,393,000 for the three months ended June 30, 2005, an increase of $1,105,000, or 79.3%. For the six months ended June 30, 2006 and June 30, 2005, total interest expense was $4,743,000 and $2,591,000, respectively, which was an increase of $2,152,000, or 83.1%. The largest component of the Company’s interest expense is interest expense on deposits. For the three months ended June 30, 2006, interest expense on deposits was $1,575,000, compared to $725,000 for the three months ended June 30, 2005, an increase of $850,000, or 117.2%. For the six months ended June 30, 2006 and June 30, 2005, interest expense on deposits was $2,907,000 and $1,345,000, respectively, which was an increase of $1,562,000, or 116.1%. The increase in interest expense on deposits is attributable to growth in deposits and an increase in market interest rates paid on deposits at the Company during the past twelve months, which resulted in a 96 basis point increase in the Company’s cost of funds in the past twelve months (from June 30, 2005 to June 30, 2006).

For the three months ended June 30, 2006, interest expense on short-term borrowings was $118,000, compared to $1,000 for the three months ended June 30, 2005, and was $253,000 for the six months ended June 30, 2006, compared to $1,000 for the six months ended June 30, 2005. The primary reason for the increase in interest expense on short-term borrowings during the three and six months periods is the Bank began using reverse repurchase lines in July of 2005. The average balance outstanding on the line was approximately $8,422,000 for the six months ended June 30, 2006 and approximately $8,186,000 for the three months ended June 30, 2006. Interest expense on long-term borrowings increased by $138,000, or 20.7%, in the three months ended June 30, 2006, to $805,000, and increased by $338,000, or 27.1%, in the six months ended June 30, 2006. The increase is primarily the result of the repricing of $6,000,000 in Federal Home Loan Bank advances that matured or were called and replaced during the six months ended June 30, 2006. In addition, an increase in expense relating to the Company’s interest rate swaps, which increased by approximately $104,000 in the six months ended June 30, 2006 over the same period in 2005 due to the increase in short-term interest rates during the period, contributed to the increase in interest expense on long term borrowings. The interest rates on the swaps are indexed to three month LIBOR.

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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 increased $803,000, or 37.9%, to $2,919,000 for the quarter ended June 30, 2006, compared to $2,116,000 for the quarter ended June 30, 2005. For the six months ended June 30, 2006, net interest income before provision for loan losses increased $1,498,000, or 36.6%, to $5,593,000 compared to $4,095,000 at June 30, 2005. The Company’s balance sheet is asset sensitive (which means assets reprice faster than liabilities), largely due to the amount of variable rate loans in the loan portfolio. Balance sheets that are asset sensitive typically produce more earnings as interest rates rise. As stated earlier, the prime interest rate increased 200 basis points in the twelve month period ending June 30, 2006.

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 Loan Committee of the Board of Directors reviews and approves the appropriate level for the Bank’s allowance for loan losses based upon management’s recommendations, the results of the internal monitoring and reporting system, and a review of historical statistical data for both the Bank and other financial institutions.

The Bank’s allowance for loan losses is based upon judgments and assumptions of risk elements in the portfolio and other factors affecting borrowers. The process includes identification and analysis of loss potential 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 service area. The adequacy of the allowance for loan losses and the effectiveness of our monitoring and analysis system are also reviewed periodically by the banking regulators and our internal auditor.

The provision for loan losses charged to operations during the three months ended June 30, 2006 was $138,000, compared to $90,000 for the same period in 2005. For the six months ended June 30, 2006, the loan loss provision was $298,000, compared with $135,000 for the same period in 2005. The Company’s loan portfolio grew by $34,009,000 during the first six months of 2006, with $15,957,000 of that growth occurring in the three months ended June 30, 2006. Provisions have been made based on the results of the loan loss reserve model used by management. See the discussion below under “Allowance for Loan Losses.”

Non-Interest Income

Non-interest income increased $72,000, or 14.6%, to $566,000 for the quarter ended June 30, 2006 compared to $494,000 for the quarter ended June 30, 2005 and decreased $42,000, or 3.7% to $1,116,000 for the six months ended June 30, 2006, compared with $1,158,000 at June 30, 2005. The primary reason for the increase in the three months ended June 30, 2006 was an increase of $34,500 in income from the Bank’s investment subsidiary, Greer Financial Services Corporation. Included in this category is the net amount of gains on sale of investment securities which totaled approximately $19,000 during the first quarter of 2006, compared to approximately $135,000 in the first quarter of 2005. The decrease in gains on the sale of investment securities was the primary reason for the decline in non-interest income for the six months ended June 30, 2006. There were no gains or losses on the sale of investment securities during the second quarter of 2006 or 2005. Income resulting from gains on the sale of investment securities is non-recurring.

Service charges for deposit accounts is the largest component of non-interest income and increased $5,000, or 2.0%, to $255,000 for the three months ended June 30, 2006, compared to $250,000 for the three months ended June 30, 2005. For the six months ended June 30, 2006, service charges on deposit accounts were $490,000, compared to $479,000 for the same period in 2005. This is an increase of $11,000, or 2.3%. This moderate increase is primarily attributable to a change made in the pricing of the Bank’s business checking accounts.

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Non-Interest Expenses

Total non-interest expenses for the three months ended June 30, 2006 increased $436,000, or 23.9%, to $2,262,000, compared to $1,826,000 for the three months ended June 30, 2005. For the six months ended June 30, 2006, total non-interest expenses increased to $4,464,000, from $3,570,000 for the same period in 2005. The increase was $894,000, or 25.0%. The largest component of non-interest expenses, salaries and employee benefits, increased $235,000, or 20.6%, to $1,376,000 for the three months ended June 30, 2006, compared to $1,141,000 for the three months ended June 30, 2005. Salaries and benefits increased approximately $587,000, or 26.9%, from $2,179,000 to $2,766,000 in the six months ended June 30, 2006, compared to the same period in 2005. The increase in salaries and benefits is primarily attributable to annual salary adjustments and the addition of personnel to support the growth of the Company. The Company adopted SFAS No. 123R during the first quarter of 2006 (see Note 3 – Stock Based Compensation.) The compensation cost that was charged in the three months and six months ended June 30, 2006 was approximately $18,000 and $36,000, respectively. These amounts would not have been expensed before the adoption of SFAS No. 123R.

Occupancy and equipment expense increased $46,000, or 27.2%, to $215,000, compared to $169,000 for the three months ended June 30, 2006, and increased $95,000 in the six month period ended June 30, 2006, compared to the same period in 2005. The increase is attributed to expenses relating to the operation of an additional branch office which was opened by the Company in August 2005. The Company presently operates four offices.

The Company’s income tax expense for the three months ended June 30, 2006 was $331,000 compared with $43,000 for the same period in 2005, and was $547,000 for the six months ended June 30, 2006, compared with $225,000 for the comparable period in 2005. Income before income taxes was $1,085,000 for the three months ended June 30, 2006, compared to $694,000 for the three months ended June 30, 2005. For the six months ended June 30, 2006 income before income taxes was $1,947,000, compared to $1,548,000 for the six months ended June 30, 2005. During the second quarter of 2005 management evaluated the adequacy of the valuation allowance that had been provided in deferred taxes. It was determined that the valuation allowance which related to the Allowance for Loan Losses (ALLL) was no longer necessary. The valuation allowance in the amount of $130,500 was then reversed, the effect of which was to lower income tax expense by that amount. Had the adjusting entry not been made, income tax expense for the three months and six months ended June 30,2005 would have been $173,500 and $355,500, respectively.

BALANCE SHEET REVIEW

Loans

Outstanding loans represent the largest component of earning assets at 73.8% of total earning assets as of June 30, 2006. Gross loans totaled $233,012,000 as of June 30, 2006, which is an increase of $34,009,000 or 17.1% over the total as of December 31, 2005, which was $199,003,000. The increase was due to the continued strong loan demand in the Bank’s market area. Adjustable rate loans totaled 73.9% of the loan portfolio as of June 30, 2006, which allows the Company to be in a favorable position as interest rates rise. The Company’s loan portfolio consists primarily of mortgage loans, commercial loans and consumer loans. Substantially all of these loans are to borrowers located in South Carolina and are concentrated in the Company’s local market area.

Allowance for Loan Losses

The allowance for loan losses at June 30, 2006 was $1,652,000, or .71% of gross loans outstanding, compared to $1,416,000 or .71% of gross loans outstanding at December 31, 2005. The Company continues to use a loan loss reserve model as discussed above in the paragraph entitled “Provision for loan Losses.” The amount of the allowance was adequate based on the results of loan loss model.

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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, and other relevant risk factors are also used in evaluating the adequacy of the allowance for loan losses. We monitor the level of loan loss reserves on an on-going basis. Our evaluation is inherently subjective as it requires estimates that are susceptible to significant change. Our losses will undoubtedly vary from our estimates, and 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, we may be required to increase our provision for loan losses, which would adversely affect our results of operations and financial condition.

At June 30, 2006, the Company had $276,000 in non-accruing loans, no restructured loans, no loans more than 90 days past due and still accruing interest and no Other Real Estate Owned. This compares to $484,000 in non-accruing loans, no restructured loans, $32,000 loans more than 90 days past due and still accruing interest and no Other Real Estate Owned at December 31, 2005. Non-performing loans consisted of $62,000 in mortgage loans, $178,000 in commercial loans and $36,000 in consumer loans at June 30, 2006. Non-performing assets and Other Real Estate Owned as a percentage of average assets were 0.09% and 0.17% at June 30, 2006 and December 31, 2005, respectively.

Net charge-offs for the first six months of 2006 were approximately $56,000. Non-performing loans as a percentage of net loan loss reserve were 16.7% and 36.4% as of June 30, 2006 and December 31, 2005, respectively.

Securities

The investment portfolio is an important contributor to the earnings of the Company. While liquidity needs are important, the Company strives to maintain a portfolio that provides necessary liquidity for the Company and yet maximizes income consistent with the ability of the Company’s capital structure to accept nominal amounts of investment risk. During past 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. It is management’s intent, however, to channel a significant percentage of the Company’s earning assets into the loan portfolio as loan demand allows. As of June 30, 2006, investment securities totaled $72,156,000, or 22.8% of total earning assets. Investment securities decreased $5,869,000 or 7.5% from $78,025,000 as of December 31, 2005, due primarily to cash flow from mortgage backed securities and maturities not being replaced due to the Company’s strong loan demand.

At June 30, 2006 the Company’s investment securities classified as Available for Sale had an amortized cost of $47,261,000 and a market value of $46,309,000 for an aggregate unrealized loss of $952,000. This compares to an amortized cost of $49,862,000 and a market value of $49,543,000 for an unrealized loss of $319,000 as of December 31, 2005 for those investment securities classified as Available for Sale.

Cash and Due From Banks

The Company’s cash and due from banks increased $93,000, or 1.5%, to $6,363,000 at June 30, 2006, compared to $6,270,000 at December 31, 2005. 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 $26,848,000, or 13.5%, to $226,035,000 as of June 30, 2006 compared to $199,187,000 as of December 31, 2005. The increase can be attributed to management’s continued effort to obtain funding for strong loan demand by offering special rates on certificates of deposit, obtaining brokered certificates of deposit and offering new prime-indexed deposit products.

The Company had brokered deposits totaling $30.5 million as of June 30, 2006 compared to $22.4 million as of December 31, 2005.

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At June 30, 2006 and December 31, 2005, interest-bearing deposits comprised 86.2% and 84.9% of total deposits, respectively. The Company takes into consideration liquidity needs, direction and level of interest rates and market conditions when pricing deposits.

Borrowings

The Company’s borrowings are comprised of federal funds purchased, repurchase agreements and both short-term and long-term advances from the Federal Home Loan Bank of Atlanta. At June 30, 2006, total borrowings were $77,023,000, compared with $75,553,000 as of December 31, 2005. Total borrowings increased by $1,470,000 as the Company continued to experience strong loan growth during the six months ended June 30, 2006, (as discussed above.) At June 30, 2006, federal funds purchased totaled $4,112,000, compared to $1,931,000 as of December 31, 2005. At June 30, 2006 and December 31, 2005, repurchase agreements were $9,000,000 and $8,589,000, respectively. Notes payable to the Federal Home Loan Bank of Atlanta totaled $57,725,000 as of June 30, 2006 compared to $58,847,000 as of December 31, 2005. The weighted rate of interest for the Company’s portfolio of Federal Home Loan Bank of Atlanta advances was 4.32% and 4.22% as of June 30, 2006 and December 31, 2005, respectively. The weighted maturity for Federal Home Loan Bank of Atlanta advances was 3.41 years and 3.92 years as of June 30, 2006 and December 31, 2005, respectively. In an effort to reposition the balance sheet for falling interest rates, as borrowings have matured or been called in recent months, any new borrowings have been either short term or have had variable rates.

The Company has $6,186,000 of junior subordinated debentures outstanding, which were issued in 2004 to its wholly-owned capital trust, Greer Capital Trust I (the “Trust”), to fully and unconditionally guarantee the trust preferred securities issued by the Trust. These long-term obligations currently qualify as Tier I capital for the Company. The junior subordinated debentures mature in October 2034. Interest payments are due quarterly to the Trust at three-month LIBOR plus 220 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 our sources and uses of funds in order to meet our 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 of our 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. Core deposits include checking and savings accounts, as well as retail certificates of deposit less than $100,000. These are considered to be a relatively stable component of the Company’s mix of liabilities since they are generally the result of stable consumer and commercial banking relationships. At June 30, 2006, core deposits totaled $148.1 million, or 67.7%, of the Company’s total deposits, compared to $135.0 million, or 67.8%, of the Company’s total deposits as of December 31, 2005.

Greer Bancshares Incorporated, the parent holding company, has very limited liquidity needs, generally requiring liquidity only to pay limited operating expenses and dividends. In January 2006, the Company’s board of directors declared a $.68 per share dividend to be paid at a rate of $.17 per share per quarter in 2006. The cash dividends paid to shareholders will be funded by dividends from the Company’s banking subsidiary. In addition, the Company received a dividend of $500,000 in January 2006 that was used to purchase land on which to build an operations center. Plans for the building are not complete at the time of this filing; therefore the cost has not been determined. The cost of the building will be funded internally or possibly with a borrowing from the Bankers Bank.

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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. Our actual results may differ materially from the results discussed in the forward-looking statements, and our operating performance is subject to various risks and uncertainties including, without limitation:

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

• changes in political conditions or the legislative or regulatory environment;

• the level of 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; 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 our Annual Report on Form 10-K for the year ended December 31, 2005, and other reports from time to time filed with or furnished to the Securities and Exchange Commission. We caution investors not to place undue reliance on any forward-looking statements as these statements speak only as of the date when made. We undertake no obligation to update any forward-looking statements made in this report.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss from adverse changes in market prices and interest rates. The Company’s market risk arises principally from interest rate risk inherent in its lending, deposit and borrowing activities. Management actively monitors and manages its interest rate risk exposure. Although the Company manages certain other risks such as credit quality and liquidity risk in the normal course of business, management considers interest rate risk to be its most significant market risk and the risk that could potentially have the largest material effect on the Company’s financial condition and results of operations. Other types of market risks, such as foreign currency risk and commodity price risk, do not arise in the normal course of the Company’s business activities.

The primary objective of asset and liability management at the Company is to manage interest rate risk and achieve reasonable stability in net interest income throughout interest rate cycles. This is achieved by maintaining the proper balance of rate-sensitive earning assets and rate-sensitive interest-bearing liabilities. The relationship of rate-sensitive earning assets to rate-sensitive interest-bearing liabilities is the principal factor in projecting the effect that fluctuating interest rates will have on future net interest income. Rate-sensitive assets and liabilities are those that can be re-priced to current market rates within a relatively short time period. Management monitors the rate sensitivity of earning assets and interest-bearing liabilities over the entire life of these instruments, but places particular emphasis on the first year. At June 30, 2006, on a cumulative basis through three months, rate-sensitive assets exceeded rate-sensitive liabilities by $36.7 million; however, through twelve months rate-sensitive liabilities exceeded rate-sensitive assets by $53,000. This asset-sensitive position at three months is primarily attributable to the portion of the Company’s loan portfolio that re-prices with changes in the prime lending rate and the mortgage-backed securities held in the portfolio, which have significant cash flow in the next twelve months. In January 2006 the Company purchased a floor contract as a hedge against falling interest rates. The floor contract hedges expected total cash flows from $50 million in prime indexed loans against the prime lending rate falling below 6%. The floor expires in January 2009. Management has begun to reposition the balance sheet to enhance the performance of the Company in a falling interest rate environment. The Company has focused on attracting shorter term deposits and fixed rate loans, while replacing matured or called borrowings with variable rate or short term borrowings.

Item 4. Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) or 15d-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 our current disclosure controls and procedures are effective as of June 30, 2006. There have been no changes in our internal controls over financial reporting during the fiscal quarter ended June 30, 2006 that have materially affected, or are reasonably likely to materially affect, our internal controls 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 claims and legal actions arising in the normal course of business. Management believes that these proceedings will not result in a material loss to the Company.

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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, 2005 (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

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

(a) Our Annual Meeting of Shareholders was held on Thursday April 27, 2006.

(b) Not applicable.

(c) The common stockholders voted for the election of two (2) directors to serve for terms of three (3) years each, expiring on the date of the annual meeting in 2009 or until their successors are elected. The results of the voting in these elections are set forth below.

Nominee	Votes For	Votes Against	Votes Withheld	Abstentions	Broker Non- Votes
Mark S. Ashmore	1,695,607		4,227		169
Harold K. James	1,693,220		6,614		169

The terms of office of the following directors continued after the meeting:

Class of 2007	Class of 2008
Walter M. Burch	Gary M. Griffin
Paul D. Lister	Kenneth M. Harper
C. Don Wall	R. Dennis Hennett
Theron C. Smith, III	David M. Rogers

Item 5. Other Information

None

Item 6. Exhibits

(a) Exhibits

31.1	Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.
31.2	Rule 13a-14(a) /15d-14(a) Certification of the Chief Financial Officer.
32	Section 1350 Certifications.

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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: August 21, 2006	/s/ R. Dennis Hennett
	R. Dennis Hennett
	Chief Executive Officer

Dated: August 21, 2006	/s/ J. Richard Medlock, Jr.
	J. Richard Medlock, Jr.
	Chief Financial Officer

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INDEX TO EXHIBITS

Exhibit Number and Description

31.1	Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.
31.2	Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.
32	Section 1350 Certifications.

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