<PAGE>


                                   EXHIBIT 13

<PAGE>


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                     Page
-------------------------------------------------------------------------------------------
<S>                                                                                 <C>
Report to Stockholders                                                                    1
Selected Consolidated Financial Data                                                  2 - 3
Management's Discussion and Analysis                                                 4 - 17
Independent Auditor's Report                                                             19
Consolidated Financial Statements:
   Statements of financial condition at December 31, 2001 and 2000                       20
   Statements of operations for the years ended December 31, 2001, 2000 and 1999         21
   Statements of stockholders' equity for the years ended December 31, 2001, 2000   22 - 23
      and 1999
   Statements of cash flows for the years ended December 31, 2001, 2000 and 1999    24 - 26
Notes to Consolidated Financial Statements                                          27 - 55
Corporate Information                                                               56 - 57
</TABLE>

This annual report to stockholders contains certain forward-looking statements
consisting of estimates with respect to the financial condition, results of
operations and other business of Coddle Creek Financial Corp. that are subject
to various factors which could cause actual results to differ materially from
those estimates. Factors which could influence the estimates include, but are
not limited to, changes in the national, regional and local market conditions,
managements' business strategy, legislative and regulatory conditions, and an
adverse interest rate environment.

Readers should not place undue reliance on forward-looking statements, which
reflect management's views only as of the date of this report. The Company takes
no obligation to publicly revise these forward-looking statements to reflect
subsequent events or circumstances.

<PAGE>


                             Report to Stockholders

Dear Stockholder:

December 31, 2001 marked the end of our fourth complete year of operations as a
public company. On December 30, 1997, Mooresville Savings Bank converted from a
state chartered mutual savings bank to a state chartered stock savings bank and
became a wholly-owned subsidiary of Coddle Creek Financial Corp.

The Company's consolidated total assets totaled $149.8 million at December 31,
2001. Total stockholders' equity amounted to $21.0 million at December 31, 2001,
resulting in a book value per share of $30. During the 2001 fiscal year, the
Company paid regular cash dividends totaling $0.41 per share and a return of
capital dividend of $20 per share. A detail of financial results and other
information is contained in the accompanying 2001 Annual Report.

The Company is dedicated to providing high quality service for all of our
customers. The Board of Directors continues to study various methods of
increasing the value of your investment. In the future, the Board intends to
consider such issues as regular cash dividends and the Company's repurchase of
outstanding common stock.

On behalf of the Board of Directors, management and staff, we would like to
thank you for your loyalty and confidence as demonstrated by your investment in
Coddle Creek Financial Corp.

                                            Sincerely,


                                            George W. Brawley, Jr.
                                            President and CEO

                                        1

<PAGE>

                   CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY
                      SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                        December 31,
                                               -------------------------------------------------------------
                                                 2001         2000          1999        1998         1997
                                               -------------------------------------------------------------
                                                      (Dollars In Thousands, Except Per Share Data)
<S>                                            <C>          <C>          <C>          <C>          <C>
Financial Condition Data:
Total assets                                   $ 149,849    $ 151,732    $ 143,867    $ 135,811    $ 149,585
Investments securities /(1)/                      25,478       15,942       12,667       20,495       43,441
Loans receivable, net /(4)/                      119,066      130,518      124,863      110,578      101,982
Deposits                                         112,899      104,369       90,563       87,569       99,382
Notes payable and FHLB advances                   12,700        9,000       11,000           --           --
Stockholders' equity /(2, 7)/                     20,998       35,008       34,445       45,119       46,993
Book value per share /(2, 7)/                      30.03        50.07        49.29        66.89        69.67

                                                             For the Years Ended December 31,
                                               -------------------------------------------------------------
                                                 2001         2000          1999         1998         1997
                                               -------------------------------------------------------------
Operating Data:                                       (Dollars in Thousands, Except Per Share Data)

Interest and dividend income                   $  10,889    $  11,405    $  10,188    $  10,316    $   8,997
Interest expense                                   6,497        5,964        4,195        4,096        4,820
                                               -------------------------------------------------------------
Net interest income                                4,392        5,441        5,993        6,220        4,177
Provision for loan losses                             --           --           --          205          335
Noninterest income                                   267          307          217          185          192
Noninterest expense                                5,209        3,741        4,007        2,957        2,993
                                               -------------------------------------------------------------
Income (loss) before income taxes (credits)         (550)       2,007        2,203        3,243        1,041
Income tax expense (credits)                        (119)         757          817        1,039          374
                                               -------------------------------------------------------------
Net income (loss)                                   (431)       1,250        1,386        2,204          667
Other comprehensive income (loss),
 net of tax:
Unrealized gains (losses) on securities,
 net of tax                                           24           20          (67)          21           (3)
                                               -------------------------------------------------------------
Comprehensive income (loss)                    $    (407)   $   1,270    $   1,319    $   2,225    $     664
                                               =============================================================
Basic earnings (loss) per share /(2)/          $   (0.68)   $    1.99    $    2.20    $    3.54    $      --
Diluted earnings (loss) per share /(2)/            (0.68)        1.97         2.20         3.54           --
Dividends per share /(2)/                           0.41         1.91         2.05         1.00           --
Return of capital dividends per share              20.00           --        17.18           --           --
Dividend payout ratio /(6)/                      (300.15%)      95.98%      874.09%       28.25%          --
</TABLE>

                                        2

<PAGE>

<TABLE>
<CAPTION>
                                                                   At or For the Years Ended
                                                                       December 31,
                                             --------------------------------------------------------------
                                             2001 /(5)/   2000 /(5)/   1999 /(5)/   1998 /(5)/   1997 /(5)/
                                             --------------------------------------------------------------
                                                                 (Dollars in Thousands)
<S>                                            <C>          <C>          <C>          <C>          <C>
Selected Other Data:
 Number of outstanding loans                    2,216        2,571        2,474        2,397        2,482
 Number of deposit accounts                     6,983        7,152        6,880        7,109        7,957
 Number of full-service offices                     3            3            3            3            3
Return on average assets                        (0.28%)       0.83%        1.00%        1.62%        0.58%
Return on average equity                        (2.08%)       3.61%        3.40%        4.98%        4.55%
Average equity to average assets                13.38%       23.05%       29.25%       32.59%       12.87%
Interest rate spread                             2.26%        2.41%        2.89%        3.11%        2.87%
Net yield on average interest-earning
 assets                                          2.94%        3.69%        4.38%        4.70%        3.68%
Average interest-earning assets to
 average interest-earning liabilities          115.56%      131.82%      148.65%      151.32%      119.06%
Ratio of noninterest expense to
 average total assets                            3.37%        2.49%        2.88%        2.18%        2.62%
Nonperforming assets to total assets /(3)/       1.08%        1.38%        1.01%        1.02%        1.02%
Nonperforming loans to total loans /(3)/         1.32%        1.55%        1.06%        1.20%        1.36%
Allowance for loan losses to
 nonperforming loans /(3)/                      55.27%       43.24%       64.98%       64.57%       47.83%
Allowance for loan losses to total loans
 receivable                                      0.75%        0.67%        0.69%        0.78%        0.65%
Provision for loan losses to total
 loans receivable, net                           0.00%        0.00%        0.00%        0.19%        0.33%
Net charge-offs to average loans
 outstanding                                     0.00%        0.00%        0.00%        0.00%        0.03%
Stockholders' equity to total assets            14.01%       23.07%       23.94%       33.22%       31.42%
</TABLE>

/(1)/ Includes interest-earning deposits, federal funds sold, certificates of
      deposit, FHLB stock and investment securities.
/(2)/ On December 30, 1997, Mooresville Savings Bank, S.S.B. converted from a
      state chartered mutual savings bank to a state chartered stock savings
      bank and became a wholly-owned subsidiary of Coddle Creek Financial Corp.
      Earnings per share has been calculated in accordance with Statement of
      Financial Accounting Standards No. 128, Earnings Per Share, and is based
      on net income for the year, divided by the weighted average number of
      shares outstanding for the year. In accordance with the AICPA's SOP 93-6,
      unallocated ESOP shares were deducted from outstanding shares used in the
      computation of earnings per share. Diluted earnings per share includes the
      effect of dilutive common stock equivalents in the weighted average number
      of shares outstanding.
/(3)/ Nonperforming assets include mortgage loans and consumer loans 90 days or
      more delinquent and real estate acquired in settlement of loans. Non
      performing loans include nonaccrual loans and accruing loans past due 90
      days or more.
/(4)/ "Loans receivable, net," represents gross loans less net deferred loan
      fees, undisbursed loan funds and allowance for loan losses.
/(5)/ Ratios other than period-end ratios are based on monthly balances.
      Management does not believe the use of month-end balances has caused a
      material difference in the information provided.
/(6)/ The dividend payout ratio represents dividends per share, including the
      return of capital dividend, as a percent of basic earnings per share.
/(7)/ The sharp decline in stockholders equity and book value per share from
      2000 to 2001 is attributable in large part to the return of capital
      dividend paid in 2001.

                                       3

<PAGE>

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                    FINANCIAL CONDITION AND OPERATING RESULTS

     The following discussion and analysis of financial condition and the
results of operations is intended to assist in understanding the financial
condition and changes therein and results of operations of the Company. This
discussion and analysis is intended to compliment, and should be read in
conjunction with, the audited financial statements of the Company and related
notes appearing elsewhere in this annual report to stockholders.

Description of Business

     Coddle Creek Financial Corp. (the "Company") was incorporated under laws of
the State of North Carolina for the purpose of becoming the bank holding company
of Mooresville Savings Bank, Inc. S.S.B. (the "Bank," or "Mooresville Savings")
in connection with the Bank's conversion from a state chartered mutual savings
bank to a state chartered stock savings bank (the "Conversion"), pursuant to the
Plan of Holding Company Conversion of Mooresville Savings Bank, Inc. S.S.B. (the
"Plan of Conversion"). The Company was organized to acquire all of the common
stock of Mooresville Savings upon its conversion to stock form. A subscription
and community offering of the Company's shares closed on December 30, 1997, at
which time the Company acquired all of the shares of the Bank and commenced
operations.

     In accordance with the Plan of Conversion, the Company issued 674,475
shares of common stock at the price of $50 per share which resulted in proceeds
of $32,494,000, net of conversion costs. The Company transferred $14,134,000 of
the net proceeds to Mooresville Savings for the purchase of all of the capital
stock of the Bank.

     The Company has no operations and conducts no business of its own other
than owning Mooresville Savings, investing its portion of the net proceeds
received in the Conversion, and lending funds to the Employee Stock Ownership
Plan (the "ESOP") which was formed in connection with the Conversion. The
principal business of the Bank is accepting deposits from the general public and
using those deposits and other sources of funds to make loans secured by real
estate and other forms of collateral located in the Bank's primary market area
of northern Mecklenburg and southern Iredell counties of North Carolina.

     Mooresville Savings' results of operations depend primarily on its net
interest income, which is the difference between interest income from
interest-earning assets and interest expense on interest-bearing liabilities.
The Bank's operations are also affected by noninterest income, such as
miscellaneous income from loans, customer deposit account service charges, and
other sources of revenue. The Bank's principal operating expenses, aside from
interest expense, consist of compensation and associated benefits, federal
deposit insurance premiums, occupancy costs, and other general and
administrative expenses.

                                        4

<PAGE>

Comparison of Financial Condition at December 31, 2001 and 2000

     Total assets of the Company amounted to $149.8 million, $151.7 million, and
$143.9 million at December 31, 2001, 2000 and 1999 respectively. The decrease
during 2001 is a result of a slowing economy and a related decrease in demand
for new loans as well as a return of capital dividend paid to stockholders. The
increase during 2000 was a result of increased loan demand, funded by increased
deposits.

     The principal category of earnings assets is loans receivable, which
amounted to $119.1 million $130.5 million, and $124.9 million at December 31,
2001, 2000 and 1999, respectively. The loan portfolio decreased in 2001 due to a
decrease in permanent residential 1-4 family mortgages, the result of a slowing
economy and the Bank choosing not to originate loans at very low interest rates.
The Bank also saw a large number of loan payoffs during the year which
contributed to the decrease in the loan portfolio. The Bank was able to increase
the size of its loan portfolio during 2000 primarily through its marketing
efforts in the origination of permanent residential 1-4 family mortgages,
residential construction and home equity loans. Loan originations for the year
ended December 31, 2001 totaled $28.9 million, other net changes totaled $2.9
million, while loan principal repayments totaled $37.4 million as the loan
portfolio decreased by $11.4 million. Loan originations for the year ended
December 31, 2000 totaled $26.1 million, other net changes totaled $0.3 million,
while loan principal repayments totaled $20.7 million as the loan portfolio
increased by $5.7 million. Management believes that its marketing efforts,
competitive rates and contacts within its community contributed to the increased
loan demand. The Bank maintains underwriting and credit standards designed to
maintain the quality of the loan portfolio. Nonperforming loans at December 31,
2001, 2000 and 1999 totaled $1,621,000, $2,093,000, and $1,382,000,
respectively, and were 1.32%, 1.55%, and 1.06% of total loans, respectively.
Management believes that the increase in nonperforming loans is primarily due to
a downturn in the economy resulting in an increase in slow paying borrowers.

     In addition to loans, the Company invests in U.S. Treasury, Government and
federal agency, municipal and equity securities. Management does not engage in
the practice of trading securities; rather, the Company's investment portfolio
consists of securities designated as available for sale or held to maturity.
Investment securities, including interest-bearing deposits, at December 31,
2001, 2000 and 1999 totaled $25.5 million, $15.9 million, and $12.7 million,
respectively. The securities portfolio increased by $9.5 million during 2001 due
to the increase in interest-bearing cash as a result of an increase in the
deposit base as well as proceeds from loans that were refinanced at other
institutions. The securities portfolio increased by $3.2 million during 2000 due
to the increase in interest-bearing cash from an increase in deposits.

     Savings deposits amounted to $112.9 million at December 31, 2001, an
increase of $8.5 million from $104.4 million at December 31, 2000, due primarily
to an increase in money market deposits associated to the declining economy and
customers changing investment strategies from investments in stocks to cash.
Savings deposits increased $13.8 million during 2000 from $90.6 million at
December 31, 1999, due primarily to an increase in certificates of deposits with
competitive interest rates. The Bank has focused its marketing efforts on
building depositor relationships and setting its deposit rates in the local
market to compete favorably with rates offered by competitors.

                                        5

<PAGE>

     Stockholder's equity decreased by $14.0 million during 2001 primarily due
to paying a special return of capital dividend totaling $14.0 million.
Stockholders' equity increased by $0.6 million during 2000 due in part to
vesting of additional MRP shares and net income of $1.3 million, offset by
regular dividends of $1.2 million. The unrealized gain (loss) on securities
available for sale, net of tax, amounted to $23,000, $(1,000) and $(21,000) at
December 31, 2001, 2000 and 1999, respectively.

Market Risk

     The Company's net income is dependent on its net interest income. Net
interest income is susceptible to interest rate risk to the degree that
interest-bearing liabilities mature or reprice on a different basis than
interest-earning assets. When interest-bearing liabilities mature or reprice
more quickly than interest-earning assets in a given period, a significant
increase in market rates of interest could adversely affect net income.
Similarly, when interest-earning assets mature or reprice more quickly than
interest-bearing liabilities, falling interest rates could result in a decrease
in net income.

     In an attempt to manage its exposure to changes in interest rates,
management monitors the Company's interest rate risk. Management meets on a
regular basis to review the Company's interest rate risk position and
profitability and to recommend adjustments for consideration by the Board of
Directors. Management also reviews the Company's securities portfolio,
formulates investment strategies, and oversees the timing and implementation of
transactions to assure attainment of the Board's objectives in the most
effective manner. Notwithstanding the Company's interest rate risk management
activities, the potential for changing interest rates is an uncertainty that can
have adverse effect on net income.

     When adjusting the Company's asset/liability position, the Board and
management attempt to manage the Company's interest rate risk while enhancing
net interest margins. At times, depending on (i) the level of general interest
rates, (ii) the relationship between long and short term interest rates, (iii)
market conditions and (iv) competitive factors, the Board and management may
determine to increase the Company's interest rate risk position somewhat in
order to increase its net interest margin. The Company's results of operations
and net portfolio values remain vulnerable to increases in interest rates and to
fluctuations in the difference between long-and short-term interest rates.

     Consistent with the asset/liability management philosophy set forth above,
the Company has taken several steps to manage its market rate risk. In order to
mitigate and manage interest rate risk, the Company has adopted the following
policies: (i) investing its excess liquidity in shorter term or adjustable rate
instruments with maturities or repricing periods of three years or less; (ii)
promoting mortgage loans with ten-year balloons or 15 year amortizations; (iii)
promoting adjustable rate equity line of credit loans; (iv) promoting longer
term certificates of deposit; (v) increasing the level of interest-earning
assets relative to interest-bearing liabilities; and (vi) maintaining a
relatively low level of operating expenses and non-earning assets.

     The following tables provide further information about the Company's
financial instruments that are sensitive to changes in interest rates.

                                        6

<PAGE>

<TABLE>
<CAPTION>
                                                                        December 31, 2001
                                                                        Loans Receivable (A)
                                                                       Expected Maturity Date
                                                                      Years Ending December 31,
                                   ----------------------------------------------------------------------------------------------
                                                                                                                          Fair
                                     2002         2003        2004        2005       2006       Thereafter     Total      Value
                                                                         (Dollars In Thousands)
<S>                                <C>         <C>          <C>         <C>        <C>          <C>          <C>         <C>
Fixed Rate                         $  7,309    $   4,647    $  4,183    $ 4,096    $   3,750    $  78,311    $102,296    $103,933
 Average interest rate                 8.72%        9.03%       8.97%                                8.90%       7.72%       6.80%
Variable Rate                      $ 17,666    $      --    $     --    $    --    $      --    $      --    $ 17,666    $ 17,666
 Average interest rate                6.89%           --%         --%        --%          --%          --%
</TABLE>

<TABLE>
<CAPTION>
                                                                       Investment Securities (B)
                                                                        Expected Maturity Date
                                                                       Years Ending December 31,
                                   ----------------------------------------------------------------------------------------------
                                                                                                                          Fair
                                     2002         2003        2004        2005       2006       Thereafter     Total      Value
                                                                         (Dollars In Thousands)
<S>                                <C>         <C>          <C>         <C>        <C>          <C>          <C>         <C>
Interest-bearing cash              $ 20,869    $      --    $     --    $    --    $      --    $      --    $ 20,869    $ 20,869
 Average interest rate                 3.48%          --%         --%        --%          --%          --%
Certificates of deposit            $    100    $      --    $     --    $    --    $      --    $      --    $    100    $    100
 Average interest rate                 6.67           --%         --%        --%          --%          --%
Securities available for sale      $  1,230    $     858    $     --    $    --    $      --    $      --    $  2,088    $  2,088
 Average interest rate                 5.50%        5.80%         --%        --%          --%          --%
Securities held to maturity        $    150    $      --    $     --    $    --    $     124    $     906    $  1,180    $  1,212
 Average interest rate                 4.80%          --%         --%        --%        4.50%        4.64%
Nonmarketable equity securities    $     --    $      --    $     --    $    --    $      --    $   1,241    $  1,241    $  1,241
 Average interest rate                   --%          --%         --%        --%          --%        6.82%
</TABLE>

<TABLE>
<CAPTION>
                                                                       Expected Maturity Date (C)
                                                                        Years Ending December 31,
                                   ----------------------------------------------------------------------------------------------
                                                                                                                          Fair
                                     2002         2003        2004        2005        2006       Thereafter     Total     Value
                                                        (Dollars In Thousands)
<S>                                <C>         <C>          <C>         <C>         <C>          <C>          <C>        <C>
Deposits                           $ 95,503    $  10,186    $  1,161    $   834     $   3,093    $      --    $110,777   $109,473
 Average interest rate                 3.69%        4.41%       5.70%      5.03%         3.98%          --%
Note payable and FHLB advances     $ 12,700    $      --    $     --    $    --     $      --    $      --    $ 12,700   $ 12,700
 Average interest rate                4.00%           --%         -- %       --%           --%          --%
</TABLE>

(A) For loans receivable the table presents expected principal cash flows by
fixed and adjustable rate. The table includes contractual maturities including
scheduled principal repayments but excluding estimated prepayments for fixed
rate loans. Loans which have adjustable rates are shown as being due in the
period during which rates are next subject to change. The table presents fair
values at December 31, 2001 and weighted average interest rates by maturity
dates.
(B) For investment securities, including securities available for sale,
securities held to maturity, and nonmarketable equity securities, the table
presents contractual maturities. Interest-bearing cash is a due on demand
financial instrument and is presented as due in the one year category.
Nonmarketable equity securities have no contractual maturity and are placed in
the longest expected maturity date. The table presents fair values for
securities available for sale and amortized costs for all other investment
securities at December 31, 2001 and weighted average interest rates by maturity
dates.
(C) For deposits the table presents principal cash flows and weighted average
interest rates by contractual maturity dates.

                                        7

<PAGE>

<TABLE>
<CAPTION>
                                                                         Loans Receivable (A)
                                                                        Expected Maturity Date
                                                                       Years Ending December 31,
                                   ---------------------------------------------------------------------------------------------
                                                                                                                         Fair
                                     2001         2002        2003        2004       2005       Thereafter     Total     Value
                                                                         (Dollars In Thousands)
<S>                                <C>         <C>          <C>         <C>        <C>          <C>          <C>        <C>
Fixed Rate                         $  9,846    $   4,231    $  4,283    $ 3,869    $   3,892    $  84,650    $110,771   $113,281
 Average interest rate                 9.31%        9.54%       9.40%      8.99%        9.47%        7.62%
Variable Rate                      $ 20,652    $      --    $     --    $    --    $      --    $      --    $ 20,652   $ 20,652
 Average interest rate                 9.38%          --%         --%        --%          --%          --%
</TABLE>

<TABLE>
<CAPTION>
                                                                       Investment Securities (B)
                                                                        Expected Maturity Date
                                                                       Years Ending December 31,
                                   ---------------------------------------------------------------------------------------------
                                                                                                                         Fair
                                     2001         2002        2003        2004       2005       Thereafter     Total     Value
                                                                         (Dollars In Thousands)
<S>                                <C>         <C>          <C>         <C>        <C>          <C>          <C>        <C>
Interest-bearing cash              $ 10,405    $      --    $     --    $    --    $      --    $      --    $ 10,405   $ 10,405
 Average interest rate                 6.05%          --%         --%        --%          --%          --%
Certificates of deposit            $     --    $     100    $     --    $    --    $      --    $      --    $    100   $    100
 Average interest rate                   --%        6.67%         --%        --%          --%          --%
Securities available for sale      $  1,000    $     725    $  1,025    $    --    $      --    $     317    $  3,067   $  3,067
 Average interest rate                 7.75%        5.50%       5.84%        --%          --%        6.25%
Securities held to maturity        $     --    $     150    $     --    $    --    $      --    $   1,032    $  1,182   $  1,203
 Average interest rate                   --%        4.80%         --%        --%          --%        4.62%
Nonmarketable equity securities    $     --    $      --    $     --    $    --    $      --    $   1,188    $  1,188   $  1,188
 Average interest rate                   --%          --%         --%        --%          --%        7.75%
</TABLE>

<TABLE>
<CAPTION>
                                                                      Expected Maturity Date (C)
                                                                       Years Ending December 31,
                                   ---------------------------------------------------------------------------------------------
                                                                                                                         Fair
                                     2001        2002         2003        2004       2005       Thereafter     Total     Value
                                                                         (Dollars In Thousands)
<S>                                <C>         <C>          <C>         <C>        <C>          <C>          <C>        <C>
Deposits                           $ 87,535    $  12,430    $  1,262    $ 1,236    $     218    $      --    $102,681   $103,128
 Average interest rate                 5.95%        6.37%       5.82%      5.70%        6.15%          --%
Note payable and FHLB advances     $  9,000    $      --    $     --    $    --    $      --    $      --    $  9,000   $  9,000
 Average interest rate                 7.29%          --%         --%        --%          --%          --%
</TABLE>

(A) For loans receivable the table presents expected principal cash flows by
fixed and adjustable rate. The table includes contractual maturities including
scheduled principal repayments but excluding estimated prepayments for fixed
rate loans. Loans which have adjustable rates are shown as being due in the
period during which rates are next subject to change. The table presents fair
values at December 31, 2000 and weighted average interest rates by maturity
dates.
(B) For investment securities, including securities available for sale,
securities held to maturity, and nonmarketable equity securities, the table
presents contractual maturities. Interest-bearing cash is a due on demand
financial instrument and is presented as due in the one year category.
Nonmarketable equity securities have no contractual maturity and are placed in
the longest expected maturity date. The table presents fair values for
securities available for sale and amortized costs for all other investment
securities at December 31, 2000 and weighted average interest rates by maturity
dates.
(C) For deposits the table presents principal cash flows and weighted average
interest rates by contractual maturity dates.

                                        8

<PAGE>

Comparison of Operating Results for the Years Ended December 31, 2001, 2000, and
1999

     Net Income (Loss). Net income (loss) for the years ended December 31, 2001,
2000 and 1999 amounted to $(0.4) million, $1.3 million and $1.4 million
respectively. The net loss in 2001 is primarily due to a decrease in net
interest income and an increase of compensation expense. Net income decreased in
2000 primarily due to increased interest expense on FHLB advances and notes
payable, offset in part by the decrease in compensation expense from 1999's
adoption of the Management Recognition Plan ("MRP"). Net income decreased in
1999 primarily due to expenses associated with the adoption of the MRP, as
discussed below.

     Net Interest Income. Net interest income amounted to $4.4 million, $5.4
million and $6.0 million during the years ended December 31, 2001, 2000 and
1999, respectively. The average outstanding balance of interest-earning assets
in excess of interest-bearing liabilities amounted to $20.1 million, $35.6
million and $44.7 million during 2001, 2000, and 1999, respectively. The
decrease in 2001 was due primarily to the Company incurring additional interest
expense from borrowing $12.0 million through a note payable to finance the
return of capital dividend approved in 2001. The Bank's interest rate spread
decreased from 2.89% in 1999 to 2.41% in 2000 and to 2.26% in 2001. The decrease
in interest rate spread from 2000 to 2001 was due to a significant increase in
the average balance of certificates of deposit within the deposit base, as well
as a reduction in rates on all interest-earning assets. The decrease in interest
rate spread from 1999 to 2000 was due to the greater increase in the average
balances of interest-bearing liabilities (due mainly to the increase in notes
payable and advances for which funds were used in part to pay the return of
capital dividend late in 1999) over interest-earning assets and the cost of
funds over the average yield in interest-earning assets. The decrease in the
interest rate spread in 1999 was due to a decrease in the average yield on
interest-earning assets, offset by a lesser decrease in the cost of funds.

     Interest Income. Interest income amounted to $10.9, $11.4 million, and
$10.2 million for the years ended December 31, 2001, 2000 and 1999,
respectively. The Company's average yield on interest-earning assets increased
from 7.45% in 1999 to 7.74% in 2000 and decreased to 7.29% in 2001. The primary
interest-earning asset is loans receivable, which experienced a stable average
yield during 2001 along with a decrease of the average outstanding loan balance
of $6.3 million to $126.6 million. The average yield increased 16 basis points
during 2001 and decreased 51 basis points during 2000 and 1999, respectively.
The other significant interest-earning asset in 2001 is interest-bearing
deposits for which the average outstanding balance increased from $9.0 million
in 1999 to $9.7 million in 2000 to $18.6 million in 2001. The average yield on
interest-bearing deposits was 3.4% in 2001 as compared to 6.0% and 4.8% in 2000
and 1999, respectively. The decrease in loan volume was offset in part by an
increase in interest bearing deposits bearing a lower yield resulting in a $0.5
million reduction in interest income in 2001. The increase in loan volume and
average yield, along with the increase in average investment yield was offset
slightly by the decrease in average investments to produce a $1.2 million
increase in interest income in 2000. The increase in loan volume, offset by a
decrease in investment securities volume, resulted in a stable total interest
income in 1999.

     Interest Expense. Interest expense amounted to $6.5 million, $6.0 million
and $4.2 million, for the years ended December 31, 2001, 2000 and 1999,
respectively. Interest expense increased in 2001 due to an increase in average
interest bearing liabilities, which was slightly offset by a 30 basis point
reduction in the cost of funds. Interest expense increased in 2000 due to both
an increase in average interest-bearing liabilities and an increase of 77 basis
points in the cost of funds. The increase in average interest-bearing
liabilities in 2000 is a result of both strong deposit growth and the notes
payable agreement which was entered into late in 1999 to fund the return of
capital dividend approved in fiscal 1999. The modest increase in interest
expense in 1999 is due to increases in the average outstanding balances of
interest-bearing liabilities, including short-term borrowings, offset by a 13
basis point decrease in the cost of funds.

                                        9

<PAGE>

Net Interest Income

Net interest income represents the difference between income derived from
interest-earning assets and interest expense incurred on interest-bearing
liabilities. Net interest income is affected by both (i) the difference between
the rates of interest earned on interest-earning assets and the rates paid on
interest-bearing liabilities ("interest rate spread") and (ii) the relative
amounts of interest-earning assets and interest bearing liabilities ("net
earning balance"). The following table sets forth information relating to
average balances of the Company's assets and liabilities for the years ended
December 31, 2001 and 2000. For the periods indicated, the table reflects the
average yield on interest-earning assets and the average cost of
interest-bearing liabilities (derived by dividing income or expense by the
monthly average balance of interest-earning assets or interest-bearing
liabilities, respectively) as well as the net yield on interest-earning assets
(which reflects the impact of the net earnings balance). Management does not
believe the use of month-end balances has caused a material difference in the
information provided.

<TABLE>
<CAPTION>
                                           At December 31,                    For the Year Ended December 31,
                                                2001                      2001                               2000
                                           --------------------------------------------------------------------------------------
                                            Average Yield/    Average               Average     Average                Average
                                                 Rate         Balance   Interest   Yield/Rate   Balance    Interest    Yield/Rate
                                            -------------------------------------------------------------------------------------
                                                                                  (Dollars in Thousands)
<S>                                              <C>         <C>        <C>           <C>       <C>         <C>        <C>
Interest-earning assets:
 Interest-bearing deposits                       3.48%       $ 18,591   $    636      3.42%     $  9,706    $   585      6.03%
 Investments (1)                                 5.73%          4,141        229      5.53%        4,868        308      6.33%
 Loans receivable, net (4)                       7.39%        126,570     10,024      7.92%      132,862     10,512      7.91%
                                                             -------------------                -------------------
 Total interest-earning assets                   6.78%        149,302     10,889      7.29%      147,436     11,405      7.74%
                                                                        --------                            -------
Other assets                                                    5,433                              2,816
                                                             --------                           --------
Total assets                                                 $154,735                           $150,252
                                                             ========                           ========

Interest-bearing liabilities:
 NOW and Money market                            1.68%       $ 24,438   $    650      2.66%     $ 20,432    $   682      3.34%
 Passbook accounts                               1.99%          9,595        219      2.28%        9,848        230      2.34%
 Certificates of deposit                         4.70%         78,226      4,657      5.95%       63,439      3,652      5.76%
 Note payable and FHLB advances                  4.00%         16,942        971      5.73%       18,129      1,400      7.72%
                                                             -------------------                -------------------
 Total interest-bearing liabilities              3.73%        129,201      6,497      5.03%      111,848      5,964      5.33%
                                                                        --------                            -------
Other liabilities                                               4,833                              3,774
Stockholders' equity                                           20,701                             34,630
                                                             --------                           --------
   Total liabilities and stockholders'
    equity                                                   $154,735                           $150,252
                                                             ========                           ========
Net interest income and interest rate
 spread (2)                                      3.05%                  $  4,392      2.26%                 $ 5,441      2.41%
                                                                        ========                            =======
Net yield on interest-earning assets (3)                                              2.94%                              3.69%
Ratio of average interest-earning assets
to average interest-earning liabilities
 interest-bearing liabilities                                                       115.56%                            131.82%
</TABLE>

(1)  Includes investment securities and FHLB stock.
(2)  Interest rate spread represents the difference between the average yield on
     interest-earning assets and the average cost of interest-bearing
     liabilities.
(3)  Net yield on interest-earning assets represents net interest income divided
     by average interest-earning assets.
(4)  Loans placed on nonaccruing status have been included in the computation of
     average balances.

                                       10

<PAGE>

Rate/Volume Analysis

The following table analyzes the dollar amount of changes in interest income and
interest expense for major components of interest-earning assets and
interest-bearing liabilities. The table distinguishes between (i) changes
attributable to volume (changes in volume multiplied by the prior period's
rate), (ii) changes attributable to rates (changes in rate multiplied by the
prior period's volume), and (iii) changes in rate/volume (change in rate
multiplied the change in volume).

<TABLE>
<CAPTION>
                                        Year Ended December 31,                      Year Ended December 31,
                                            2001 vs. 2000                                 2000 vs. 1999
                                       Increase (Decrease) Due to                   Increase (Decrease) Due to
                                    ------------------------------------------------------------------------------
                                                         Rate/                                    Rate/
                                    Volume     Rate     Volume     Net      Volume      Rate     Volume       Net
                                    ------------------------------------------------------------------------------
                                                                   (In Thousands)
<S>                                 <C>       <C>       <C>      <C>        <C>        <C>       <C>       <C>
Interest income:
   Interest-bearing deposits        $  536    $ (253)   $(232)   $    51    $    33    $  113    $    9    $   155
   Investments                         (46)      (39)       6        (79)      (109)       39       (11)       (81)
    Loans receivable                  (559)       80       (9)      (488)       926       193        24      1,143
                                    ------------------------------------------------------------------------------
        Total interest income       $  (69)   $ (212)   $(235)   $  (516)   $   850    $  345    $   22    $ 1,217
                                    ------------------------------------------------------------------------------
Interest expense:
   NOW and money market
       accounts                     $  134    $ (139)   $ (27)   $   (32)   $    46    $   85    $    7    $   138
   Passbook accounts                    (6)       (6)       1        (11)       (16)      (14)        9        (21)
   Certificates of deposit             852       121       32      1,005        215       232        13        460
   Note payable and FHLB advances      (92)     (361)      24       (429)       983        36       173      1,192
                                    ------------------------------------------------------------------------------
        Total interest expense      $  888    $ (385)   $  30    $   533    $ 1,228    $  339    $  202    $ 1,769
                                    ------------------------------------------------------------------------------

Net Interest Income                 $ (957)   $  173    $(265)   $(1,049)   $  (378)   $    6    $ (180)   $  (552)
                                    ==============================================================================
</TABLE>

                                       11

<PAGE>

     Provision for Loan Losses and Asset Quality. There was no provision for
loan losses in 2001, 2000 or 1999. The provision, which is charged to
operations, and the resulting loan loss allowances are amounts Mooresville
Savings' management believes will be adequate to absorb potential losses on
existing loans that may become uncollectible. Loans are charged off against the
allowance when management believes that collectibility is unlikely. The
evaluation to increase or decrease the provision and resulting allowances is
based on prior loan loss experience and other factors, such as changes in the
nature and volume of the loan portfolio, overall portfolio quality, and current
economic conditions. The Bank has adopted polices to monitor, and increase when
necessary, levels of loan loss allowances. At December 31, 2001, the Bank's
level of general valuation allowances for loan losses amounted to $896,000,
which management believes is currently adequate to absorb potential losses in
its loan portfolio.

     The Bank's level of nonperforming loans, defined as nonaccrual loans and
accruing loans past due 90 days or more, has historically been low as a
percentage of total loans outstanding. Nonperforming loans outstanding were
approximately $2.0 million, $2.1 million, and $1.4 million at December 31, 2001,
2000 and 1999. There was no real estate acquired in settlement of loans at
December 31, 2001, 2000, or 1999.

     Noninterest Income. Noninterest income amounted to $267,000, $307,000 and
$217,000 for the years ended December 31, 2001, 2000 and 1999, respectively.
Noninterest income consists primarily of service charges and fees associated
with the Bank's checking accounts.

     Noninterest Expense. Noninterest expense consists primarily of operating
expenses for compensation and employee benefits, occupancy, federal deposit
insurance premiums, data processing charges and other operating expenses.
Noninterest expense amounted to $5.2 million, $3.7 million and $4.0 million for
the years ended December 31, 2001, 2000 and 1999 respectively. Compensation
expense increased $1.3 million in 2001 due primarily to the return of capital
dividend also being paid to stock option and MRP holders as well as payments to
stock option holders in an amount equal to the return of capital dividend each
option held. Compensation expense decreased by $0.5 million in 2000 as the
Company did not incur as much expense as it did in 1999, when the MRP was
adopted. This decrease was offset by a slight increase in other non-interest
expense. Compensation and employee benefits increased by $1.0 million in 1999
due to the adoption and vesting of the MRP. The MRP reserved for issuance 26,979
shares of common stock to certain officers, directors, and employees. The
Company issued shares to fund the MRP on January 26, 1999, and the restricted
common stock under the MRP vests at the rate of 25% annually beginning at the
date of grant. The expense related to the vesting of the MRP totaled $1.1
million for the year ended December 31, 1999. All other expenses changed
nominally during the years ended December 31, 2001, 2000 and 1999.

     Income Taxes. The Company's effective income tax rate was 21.6 %, 37.7%,
and 37.1% for the years ended December 31, 2001, 2000 and 1999, respectively.
The lower effective income tax rate for 2001 was due to nondeductible expenses
incurred by the Company. The effective rates for 2000 and 1999 reflects normal
expected rates on taxable income.

                                       12

<PAGE>

Capital Resources and Liquidity

     The objective of the Bank's liquidity management is to ensure the
availability of sufficient cash flows to meet all of its financial commitments.
Liquidity management addresses the Bank's ability to meet deposit withdrawals
either on demand or at contractual maturity, to repay borrowings, if any, as
they mature and to originate new loans and make investments as opportunities
arise.

     Significant liquidity sources for the Bank are proceeds from the sale of
stock, cash provided by new savings deposits, operating activities, sale or
maturity of investments, principal and interest payments on loans receivable and
advances from the Federal Home Loan Bank ("FHLB"). Advances from the FHLB have
not historically been a primary source of liquidity for the Bank.

     Operating activities used cash equal to $0.3 million and provided cash
equal to $1.5 million and $1.7 million for the years ended December 31, 2001,
2000 and 1999, respectively. Historically, in addition to cash provided by
operating activities, financing activities have provided the Bank with sources
of funds for asset growth and liquidity. However, financing activities used cash
of $2.0 million during 2001, primarily due to the special return of capital
dividend paid to stockholders amounting to $14.0 million offset by net
additional borrowings of $7.0 million and an increase in the deposit base of
$8.9 million. Financing activities provided $5.7 million and $5.4 million for
the years ended December 31, 2000 and 1999, respectively.

     Cash provided by operating and financing activities is used by the Bank to
originate new loans to customers, to maintain investment portfolios and to meet
liquidity requirements. However, during 2001 loans repayments exceeded
originations by $11.6 million resulting from a decrease in demand for new loans
due to a slowing economy. During 2000 and 1999, loans outstanding increased by
$5.7 million and $14.3 million, respectively.

     In January 2002, the Company paid in full the $12.7 million note payable
incurred in 2001 to fund the return of capital dividend. As a result, the
Company is expected to decrease interest expense, thereby increasing its net
interest income.

     As a state chartered savings bank, Mooresville Savings must meet certain
liquidity requirements which are established by the Administrator of the North
Carolina Savings Institutions Division. The Bank's liquidity ratio at December
31, 2001, as computed under such regulations, was in excess of such
requirements. Given its excess liquidity and its ability to borrow from the
FHLB, the Bank believes that it will have sufficient funds available to meet
anticipated future loan commitments, unexpected deposit withdrawals, or other
cash requirements.

Asset/Liability Management

     The Bank's asset/liability management, or interest rate risk management, is
focused primarily on evaluating and managing the Bank's net interest income
given various risk criteria. Factors beyond the Bank's control, such as the
effects of changes in market interest rates and competition, may also have an
impact on the management of interest rate risk.

     In the absence of other factors, the Bank's overall yield on
interest-earning assets will increase as will its cost of funds on its
interest-bearing liabilities when market rates increase over an extended period
of time. Inversely, the Bank's yields and cost of funds will decrease when
market rates decline. The Bank is able to manage these swings to some extent by
attempting to control the maturity or rate adjustments of its interest-earning
assets and interest-bearing liabilities over given periods of time.

                                       13

<PAGE>

     The Bank's "gap" is typically described as the difference between the
amounts of such assets and liabilities which reprice within a period of time. In
a declining interest rate environment, a negative gap, or a situation where the
Bank's interest-bearing liabilities subject to repricing exceed the level of
interest-earning assets which will mature or reprice during the same period,
will have a favorable impact on the Bank's net interest income. Conversely, an
increase in general market rates over a sustained period of time will tend to
affect the Bank's net interest income adversely under circumstances when the
Bank has a negative gap. At December 31, 2001, the Bank had a negative gap
position of 41.86% as it reinvested its large interest-bearing cash balances
into long-term loans which will be adversely impacted during prolonged periods
of rising interest rates and positively affected during prolonged periods of
interest rate declines. The Bank's asset/liability management program has
generally helped to decrease the exposure of its earnings to interest rate
increases

     In order to minimize the potential effects of adverse material and
prolonged increases or decreases in market interest rates on the Bank's
operations, management has implemented an asset/liability program designed to
stabilize the Bank's interest rate gap. This program emphasizes the investment
of excess cash in (i) short or intermediate term interest-earning assets, (ii)
the solicitation of transaction deposit accounts which are less sensitive to
changes in interest rates and can be repriced rapidly, and (iii) to a lesser
extent, the origination of adjustable rate mortgage loans.

     In addition to shortening the average repricing period of its assets, the
Bank has sought to be price rate competitive in the marketplace on its maturing
certificates of deposit to encourage depositors to reinvest in certificates with
the Bank. The Bank has approximately $59.7 million in certificates maturing in
2002, and management believes that substantially all of the maturing
certificates will be renewed.

     The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 2001, which are
projected to reprice or mature in each of the future time periods shown. The
computations were made without using assumptions for loan prepayments or deposit
decline. Except as stated below, the amounts of assets and liabilities shown
which reprice or mature within a given period were determined in accordance with
contractual terms of the assets or liabilities. In making the computations, all
adjustable rate loans were considered to be due at the end of the next upcoming
adjustment period. Fixed rate loans are reflected at their contractual
maturities with consideration given to scheduled payments. Marketable equity
securities and savings accounts with no stated maturities are subject to
immediate repricing and availability and have been classified in the earliest
category. FHLB stock must be maintained at certain regulatory levels and is
classified in the more than ten years category. The interest rate sensitivity of
the Bank's assets and liabilities illustrated in the following table would vary
substantially if different assumptions were used or if actual experience differs
from that indicated by such assumptions.

                                       14

<PAGE>

<TABLE>
<CAPTION>
                                                             Terms to Repricing at December 31, 2001
                                                   ---------------------------------------------------------
                                                               More than   More than
                                                    1 Year     1 Year to   3 Years to   More than
                                                    or Less     3 Years     5 Years      5 Years     Total
                                                   ---------------------------------------------------------
                                                                        (Dollars in Thousands)
<S>                                                <C>         <C>          <C>         <C>         <C>
Interest-earning assets (1):
  Loans Receivable (2):
    Adjustable rate residential 1-4 family         $   7,472   $     --     $     --    $     --    $  7,472
    Fixed rate residential 1-4 family                  4,136      8,340        7,411      73,965      93,852
    Other real estate loans - adjustable              10,937         --           --          --      10,937
    Other real estate loans fixed                        142        287          255       2,545       3,229
    Construction                                       2,188         --           --          --       2,188
    Other loans                                          100        203          180       1,801       2,284
                                                   ---------------------------------------------------------
            Total loans                               24,975      8,830        7,846      78,311     119,962
Interest-bearing deposits                             20,869                      --          --      20,869
Investments                                            1,480        857          125         906       3,368
FHLB Stock                                                --         --           --       1,241       1,241
                                                   ---------------------------------------------------------
            Total interest-earning assets          $  47,324   $  9,687     $  7,971    $ 80,458    $145,440
                                                   =========================================================

Interest-bearing liabilities:
  Deposits:
    Certificates of deposit                        $  59,677   $ 11,347     $  3,927    $     --    $ 74,951
    Money market deposit accounts                     18,702         --           --          --      18,702
    NOW accounts                                       7,447         --           --          --       7,447
    Passbook savings                                   9,677         --           --          --       9,677
                                                   ---------------------------------------------------------
            Total deposits                            95,503     11,347        3,927          --     110,777
                                                   ---------------------------------------------------------
Note payable and FHLB advances                        12,700         --           --          --      12,700
                                                   ---------------------------------------------------------
            Total interest-bearing liabilities     $ 108,203   $ 11,347     $  3,927    $     --    $123,477
                                                   =========================================================

Interest sensitivity gap per report                $ (60,879)  $ (1,660)    $  4,044    $ 80,458
Cumulative interest sensitivity gap                  (60,879)   (62,539)     (58,495)     21,963
Cumulative gap as a percentage of
 total interest-earning assets                        -41.86%    -43.00%      -40.22%      15.10%
Cumulative interest-earning assets
 as a percentage of interest-bearing liabilities       38.33%     46.17%       52.63%     117.79%
</TABLE>

(1) Interest-earning assets are included in the period in which the balances are
expected to be redeployed and/or repriced as a result of scheduled rate
adjustments and contractual maturities.
(2) Based upon amortization schedules of loan maturities using a weighted
average interest rate for the entire loan portfolio.

                                       15

<PAGE>

Impact of Inflation and Changing Prices

     The financial statements and accompanying footnotes have been prepared in
accordance with accounting principles generally accepted in the United States of
America ("GAAP"), which require the measurement of financial position and
operating results in terms of historical dollars without consideration for
changes in the relative purchasing power of money over time due to inflation.
The assets and liabilities of the Company are primarily monetary in nature, and
changes in market interest rates have a greater impact on its performance than
the effects of inflation, which has not had a significant impact on the Company
during the years ended December 31, 2001, 2000 and 1999.

Impact of New Accounting Standards

     In July, 2001, the Financial Standards Board issued two statements --
Statement 141, Business Combinations, and Statement 142, Goodwill and Other
Intangible Assets -- which will potentially impact the Company's accounting for
its reported goodwill and other intangible assets.

Statement 141:

     .    Eliminates the pooling method for accounting for business
          combinations.
     .    Requires that intangible assets that meet certain criteria be reported
          separately from goodwill.
     .    Requires negative goodwill arising from a business combination to be
          recorded as an extraordinary gain.

Statement 142:

     .    Eliminates the amortization of goodwill and other intangibles that are
          determined to have an indefinite life.
     .    Requires, at a minimum, annual impairment tests for goodwill and other
          intangible assets that are determined to have an indefinite life.

Upon adoption of these Statements, the Company is required to:

     .    Re-evaluate goodwill and other intangible assets that arose from
          business combinations entered into before July 1, 2001. If the
          recorded other intangibles assets do not meet the criteria for
          recognition, they should be reclassified to goodwill. Similarly, if
          there are other intangible assets that meet the criteria for
          recognition but were not separately recorded from goodwill, they
          should be reclassified from goodwill.
     .    Reassess the useful lives of intangible assets and adjust the
          remaining amortization periods accordingly.
     .    Write-off any remaining negative goodwill.

These statements are not expected to have a significant impact on the Company.
The standards will be required to be implemented by the Company on January 1,
2002.

                                       16

<PAGE>

Recapture of Tax Bad Debt Reserves

     Prior to the enactment of the Small Business Job Protection Act of 1996
(the "1996 Act") on August 20, 1996, thrift institutions which met certain
definitional tests were permitted to establish tax reserves for bad debts and to
deduct annual additions to such reserves in arriving at taxable income. The Bank
was permitted to compute the annual bad debt deduction based upon an experience
method or a percentage equal to 8.0% of the Bank's taxable income before such
bad debt deduction (the "PTI Method"), subject to certain limitations. Under the
1996 Act, the PTI Method was repealed, and the Bank is required to use the
experience method for computing its annual bad debt deduction for taxable years
beginning on or after December 31, 1995.

     The Bank is also recapturing its excess tax bad debt reserves which have
accumulated since 1988, amounting to approximately $67,000, over a six year
period. The tax associated with the recaptured reserves was approximately
$26,000. Deferred income taxes have been previously established for the taxes
associated with the recaptured reserves, and the ultimate payment of the related
taxes will not result in a charge to earnings. The amount of reserves recaptured
and associated tax were $11,000 and $4,000 for each of the years ended December
31, 2001, 2000, and 1999.

                                       17

<PAGE>

                      (This page intentionally left blank)

                                       18

<PAGE>

[LOGO] McGLADREY & PULLEN, LLP                                        [LOGO] RSM

                          INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Coddle Creek Financial Corp.
Mooresville, North Carolina

We have audited the accompanying consolidated statements of financial condition
of Coddle Creek Financial Corp. and subsidiary as of December 31, 2001 and 2000,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three year period ended December 31,
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. These standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Coddle Creek
Financial Corp. and subsidiary as of December 31, 2001 and 2000 and the results
of their operations and their cash flows for each of the years in the three year
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.


/s/ McGladrey & Pullen, LLP
---------------------------
Charlotte, North Carolina
January 18, 2002

                                       19

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 2001 and 2000

<TABLE>
<CAPTION>
ASSETS                                                                    2001            2000
--------------------------------------------------------------------------------------------------
<S>                                                                   <C>             <C>
Cash
 Interest-bearing deposits (Note 2)                                   $ 20,869,000    $ 10,405,000
 Noninterest-bearing deposits and cash on hand                             504,000         407,000
Certificates of deposit (Note 2)                                           100,000         100,000
Securities available for sale (Note 2)                                   2,088,000       3,067,000
Securities held to maturity (Fair value 2001 $1,212,000;
 2000 $1,203,000) (Note 2)                                               1,180,000       1,182,000
Federal Home Loan Bank stock (Notes 2 and 6)                             1,241,000       1,188,000
Loans receivable, net (Notes 3 and 6)                                  119,066,000     130,518,000
Office properties and equipment, net (Note 4)                              964,000       1,059,000
Accrued interest receivable:
 Investment securities                                                      59,000          86,000
 Loans receivable                                                          690,000         888,000
Cash value of life insurance (Note 7)                                    1,538,000       1,335,000
Deferred income taxes (Note 9)                                           1,362,000       1,200,000
Income tax refund receivable                                               110,000         223,000
Prepaid expenses and other assets                                           78,000          74,000
                                                                      ----------------------------
          Total assets                                                $149,849,000    $151,732,000
                                                                      ============================

LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------
Liabilities:
 Deposits (Note 5)                                                    $112,899,000    $104,369,000
 Note payable (Note 6)                                                  12,700,000       4,000,000
 Federal Home Loan Bank advances (Note 6)                                       --       5,000,000
 Advances from borrowers for taxes and insurance                            94,000          96,000
 Accounts payable and other liabilities                                    592,000         755,000
 Deferred compensation (Note 7)                                          2,566,000       2,504,000
                                                                      ----------------------------
          Total liabilities                                            128,851,000     116,724,000
                                                                      ----------------------------
Commitments (Notes 7 and 13)
Stockholders' Equity (Notes 6 and 8):
 Preferred stock, authorized 5,000,000 shares; none issued                      --              --
 Common stock, no par value, authorized 20,000,000 shares;
 issued 699,156 shares                                                          --              --
 Additional paid-in capital                                              9,816,000      22,889,000
 Accumulated other comprehensive income (loss)                              23,000          (1,000)
 Unearned ESOP shares (Note 10)                                         (3,107,000)     (3,468,000)
 Management recognition plan (Note 11)                                      (2,000)       (370,000)
 Unearned compensation (Note 10)                                        (1,780,000)       (774,000)
 Retained earnings, substantially restricted (Notes 8 and 9)            16,048,000      16,732,000
                                                                      ----------------------------
          Total stockholders' equity                                    20,998,000      35,008,000
                                                                      ----------------------------
          Total liabilities and stockholders' equity                  $149,849,000    $151,732,000
                                                                      ============================
</TABLE>

See Notes to Consolidated Financial Statements.

                                       20

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                   2001            2000            1999
------------------------------------------------------------------------------------------
<S>                                            <C>             <C>             <C>
Interest income:
  Loans                                        $ 10,024,000    $ 10,512,000    $ 9,369,000
  Investment securities                             229,000         308,000        389,000
  Other                                             636,000         585,000        430,000
                                               -------------------------------------------
                                                 10,889,000      11,405,000     10,188,000
                                               -------------------------------------------
Interest expense:
  Deposits (Note 5)                               5,526,000       4,564,000      3,987,000
  Federal Home Loan Bank advances and
   note payable (Note 6)                            971,000       1,400,000        208,000
                                               -------------------------------------------
                                                  6,497,000       5,964,000      4,195,000
                                               -------------------------------------------
       Net interest income                        4,392,000       5,441,000      5,993,000
Provision for loan losses (Note 3)                       --              --             --
                                               -------------------------------------------
       Net interest income after
        provision for loan losses                 4,392,000       5,441,000      5,993,000
                                               -------------------------------------------
Noninterest income                                  267,000         307,000        217,000
                                               -------------------------------------------
Other expenses:
  Compensation and employee
   benefits (Note 7)                              3,869,000       2,539,000      2,992,000
  Net occupancy                                     319,000         210,000        146,000
  Deposit insurance premiums                         21,000          21,000         56,000
  Data processing                                   210,000         202,000        202,000
  Other                                             790,000         769,000        611,000
                                               -------------------------------------------
                                                  5,209,000       3,741,000      4,007,000
                                               -------------------------------------------
       Income (loss) before income taxes
        (credits)                                  (550,000)      2,007,000      2,203,000

Income taxes (credits) (Note 9)                    (119,000)        757,000        817,000
                                               -------------------------------------------
       Net income (loss)                       $   (431,000)   $  1,250,000    $ 1,386,000
                                               ===========================================

Basic earnings (loss) per share (Note 12)      $      (0.68)   $       1.99    $      2.20
                                               ===========================================
Diluted earnings (loss) per share (Note 12)    $      (0.68)   $       1.97    $      2.20
                                               ===========================================
Regular dividends per share                    $       0.41    $       1.91    $      2.05
                                               ===========================================
Return of capital dividend per share           $      20.00    $         --    $     17.18
                                               ===========================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                       21

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                                            Accumulated
                                                             Additional        Other           Unearned
                                                              Paid-in       Comprehensive        ESOP
                                                              Capital       Income (Loss)       Shares
---------------------------------------------------------------------------------------------------------
<S>                                                         <C>               <C>            <C>
Balance, December 31, 1998                                  $ 32,461,000      $ 46,000       $ (4,021,000)
 Adoption of management recognition plan                       1,542,000            --                 --
 Vesting of management recognition plan                               --            --                 --
 Principal payment received on note receivable from ESOP              --            --            296,000
 Cash dividends                                                       --            --                 --
 Return of capital dividend                                  (10,849,000)           --                 --
 Amortization of unearned compensation                                --            --                 --
 ESOP contribution                                              (144,000)           --                 --
 Tax benefit of ESOP contribution                                 47,000            --                 --
 Net income                                                           --            --                 --
 Other comprehensive income, net of tax:
  Unrealized loss on securities, net of tax $(32,000)                 --       (67,000)                --
 Comprehensive income
                                                            ---------------------------------------------
Balance, December 31, 1999                                    23,057,000       (21,000)        (3,725,000)
 Issuance of shares for management recognition plan               13,000            --                 --
 Vesting of management recognition plan                               --            --                 --
 Principal payment received on note receivable from ESOP              --            --            257,000
 Cash dividends                                                       --            --                 --
 Amortization of unearned compensation                                --            --                 --
 ESOP contribution                                              (255,000)           --                 --
 Tax benefit of ESOP contribution                                 74,000            --                 --
 Net income                                                           --            --                 --
 Other comprehensive income, net of tax:
  Unrealized gain on securities, net of tax $6,000                    --        20,000                 --
 Comprehensive income
                                                            ---------------------------------------------
Balance, December 31, 2000                                    22,889,000        (1,000)        (3,468,000)
 Vesting of management recognition plan                               --            --                 --
 Principal payment received on note receivable from ESOP              --            --            361,000
 Cash dividends                                                       --            --                 --
 Return of capital dividend                                  (12,824,000)           --                 --
 Amortization of unearned compensation                                --            --                 --
 ESOP contribution                                              (308,000)           --                 --
 Tax benefit of ESOP contribution                                 59,000            --                 --
 Net loss                                                             --            --                 --
 Other comprehensive income, net of tax:
  Unrealized gain on securities, net of tax $13,000                   --        24,000                 --
 Comprehensive loss
                                                            ---------------------------------------------
Balance, December 31, 2001                                  $  9,816,000      $ 23,000       $ (3,107,000)
                                                            =============================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                       22

<PAGE>

                                Retained
 Management                     Earnings,         Total
Recognition     Unearned     Substantially    Stockholders'
    Plan      Compensation     Restricted         Equity
-----------------------------------------------------------
$        --   $        --     $ 16,633,000    $ 45,119,000
 (1,542,000)           --               --              --
    814,000            --               --         814,000
         --            --               --         296,000
         --            --       (1,318,000)     (1,318,000)
         --      (860,000)              --     (11,709,000)
         --        21,000               --          21,000
         --            --               --        (144,000)
         --            --               --          47,000
         --            --        1,386,000       1,386,000

         --            --               --         (67,000)
                                             -------------
                                                 1,319,000
----------------------------------------------------------
   (728,000)     (839,000)      16,701,000      34,445,000
    (13,000)           --               --              --
    371,000            --               --         371,000
         --            --               --         257,000
         --            --       (1,219,000)     (1,219,000)
         --        65,000               --          65,000
         --            --               --        (255,000)
         --            --               --          74,000
         --            --        1,250,000       1,250,000

         --            --               --          20,000
                                             -------------
                                                 1,270,000
----------------------------------------------------------
   (370,000)     (774,000)      16,732,000      35,008,000
    368,000            --               --         368,000
         --            --               --         361,000
         --            --         (253,000)       (253,000)
         --    (1,159,000)     (13,983,000)
         --       153,000               --         153,000
         --            --               --        (308,000)
         --            --               --          59,000
         --            --         (431,000)       (431,000)

         --            --               --          24,000
                                             -------------
                                                  (407,000)
----------------------------------------------------------
$    (2,000)  $(1,780,000)    $ 16,048,000    $ 20,998,000
==========================================================

                                       23

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2001, 2000 and 1999
<TABLE>
<CAPTION>
                                                        2001        2000         1999
----------------------------------------------------------------------------------------
<S>                                                  <C>         <C>          <C>
Cash Flows From Operating Activities
 Net income (loss)                                   $(431,000)  $1,250,000   $1,386,000
 Adjustments to reconcile net income (loss) to net
  cash provided by (used in) operating activities:
  Provision for loan losses                                 --           --           --
  Provision for depreciation                           127,000      125,000      102,000
  Provision for deferred income taxes                 (175,000)      13,000        6,000
  ESOP contribution, net of tax                       (249,000)    (181,000)     (97,000)
  Amortization of deferred loan fees                  (134,000)    (140,000)    (202,000)
  Amortization of premiums and discounts on
   investments                                          18,000           --           --
Gain on sale of equipment                                   --      (13,000)          --
Gain on sale of real estate owned                           --       (4,000)          --
Vesting of management recognition plan                 368,000      371,000      814,000
Amortization of unearned compensation                  153,000       65,000       21,000
Changes in assets and liabilities:
  (Increase) decrease in:
   Interest receivable                                 225,000     (149,000)      83,000
   Cash value of life insurance                       (203,000)    (159,000)    (101,000)
   Income tax refund claim receivable                  113,000      163,000     (350,000)
   Prepaid expenses and other assets                    (4,000)     (22,000)      36,000
  Increase (decrease) in:
   Interest payable                                   (419,000)     121,000      (19,000)
   Accounts payable and other liabilities              208,000       (8,000)       7,000
   Deferred compensation                                62,000       28,000      (15,000)
                                                     -----------------------------------
     Net cash provided by (used in)
      operating activities                            (341,000)   1,460,000    1,671,000
                                                     -----------------------------------
</TABLE>

                                  (Continued)

                                       24

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                    2001           2000          1999
------------------------------------------------------------------------------------------
<S>                                              <C>            <C>           <C>
Cash Flows From Investing Activities
 Proceeds from maturities of
   certificates of deposit                       $         --   $   100,000   $    100,000
 Purchases of certificates of deposit                      --      (100,000)      (100,000)
 Purchases of securities available for sale                --            --       (500,000)
 Proceeds from maturities of securities
   available for sale                               1,000,000       372,000      7,231,000
 Proceeds from maturities of securities
   held to maturity                                        --            --        200,000
 Purchase of Federal Home Loan Bank stock             (53,000)     (128,000)       (96,000)
 (Originations) and principal payments on
   loans receivable, net                           11,586,000    (5,515,000)   (14,148,000)
 Proceeds from the sale of equipment                       --        21,000             --
 Purchases of office properties and equipment         (32,000)      (80,000)      (215,000)
 Proceeds from the sale of real estate owned               --        69,000             --
                                                 -----------------------------------------
   Net cash provided by (used in)
     investing activities                          12,501,000    (5,261,000)    (7,528,000)
                                                 -----------------------------------------
Cash Flows From Financing Activities
 Net increase in deposits                           8,949,000    13,717,000      3,013,000
 Proceeds from Federal Home
  Loan Bank advances                                       --     8,000,000      5,000,000
 Payments on Federal Home
  Loan Bank advances                               (5,000,000)   (8,000,000)            --
 Proceeds from note payable                        12,000,000             -     12,000,000
 Payments on note payable                          (3,300,000)   (6,500,000)    (1,500,000)
 Increase (decrease) in advances from
  borrowers for taxes and insurance                    (2,000)       20,000        (34,000)
 Principal payment received on note receivable
  from ESOP                                           361,000       257,000        296,000
 Cash dividends paid                              (14,607,000)   (1,295,000)   (12,749,000)
                                                 -----------------------------------------
   Net cash provided by (used in)
     financing activities                          (1,599,000)    6,199,000      6,026,000
                                                 -----------------------------------------
   Increase  in cash
     and cash equivalents                          10,561,000     2,398,000        169,000
Cash and cash equivalents:
 Beginning                                         10,812,000     8,414,000      8,245,000
                                                 -----------------------------------------
 Ending                                          $ 21,373,000   $10,812,000   $  8,414,000
                                                 =========================================
</TABLE>

                                   (Continued)

                                       25

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                     2001          2000         1999
----------------------------------------------------------------------------------------
<S>                                               <C>           <C>           <C>
Supplemental Schedule of Cash and
 and Cash Equivalents
   Interest-bearing                               $20,869,000   $10,405,000   $6,912,000
   Noninterest-bearing                                504,000       407,000    1,502,000
                                                  --------------------------------------
                                                  $21,373,000   $10,812,000   $8,414,000
                                                  ======================================
Supplemental Schedule of
 Cash Flow Information
   Cash payments for (receipt of):
   Interest                                       $ 6,916,000   $ 5,843,000   $4,214,000
   Income taxes                                       (57,000)      581,000    1,161,000
Supplemental Disclosures of Noncash
 Transactions
 Change in unrealized gain (loss) on
   available for sale securities, net of
   deferred taxes                                      24,000        20,000      (67,000)
 Real estate acquired in the settlement of loans           --            --       65,000
 Change in dividends accrued                         (371,000)       76,000      278,000
 Adoption of management recognition plan                   --            --    1,542,000
 Additional shares purchased under management
   recognition plan                                        --        13,000           --
</TABLE>

See Notes to Consolidated Financial Statements.

                                       26

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 1. Nature of Business and Summary of Significant Accounting Policies

Conversion and organization of holding company: On December 30, 1997, pursuant
----------------------------------------------
to a Plan of Conversion which was approved by its members and regulators,
Mooresville Savings Bank, S.S.B. ("Mooresville Savings" or the "Bank") converted
from a North Carolina-chartered mutual savings bank to a North
Carolina-chartered stock savings bank (the "Conversion") and became a
wholly-owned subsidiary of Coddle Creek Financial Corp. (the "Company"). The
Company was formed to acquire all of the common stock of the Bank upon its
conversion to stock form. The Company has no operations and conducts no business
of its own other than owning the Bank, investing capital which originated as net
proceeds received in the Conversion, and lending funds to the Employee Stock
Ownership Plan (the "ESOP") which was formed in connection with the Conversion.

Nature of business: The Bank is primarily engaged in the business of obtaining
------------------
savings deposits and originating single-family residential loans within its
primary lending area of Northern Mecklenburg and Southern Iredell Counties.
These loans are secured by the underlying properties. The Bank's primary
regulators are the Federal Deposit Insurance Company ("FDIC") and the
Administrator of the North Carolina Savings Institutions Division (the "NC
Administrator"). The Bank's deposits are insured by the Savings Association
Insurance Fund ("SAIF") of the FDIC.

The following is a description of the significant accounting policies used in
the preparation of the accompanying financial statements.

Principles of consolidation: The consolidated financial statements include the
---------------------------
accounts of Coddle Creek Financial Corp. and its wholly-owned subsidiary,
Mooresville Savings Bank, S.S.B. All significant intercompany transactions and
balances have been eliminated in consolidation.

Basis of financial statement presentation: The accounting and reporting policies
-----------------------------------------
of the Company conform to accounting principles generally accepted in the United
States of America and general practices within the financial services industry.
In preparing the financial statements, management is required 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 statement
of financial condition and revenues and expenses for the period. Actual results
could differ from those estimates.

Cash and cash equivalents: For purposes of reporting the statements of cash
-------------------------
flows, the Company includes all interest and noninterest-bearing cash accounts,
which are not subject to withdrawal restrictions or penalties, as cash
equivalent and considers all highly liquid debt instruments with original
maturities when purchased of three months or less to be cash equivalents. The
Company also maintains deposits with financial institutions which are in excess
of the federally-insured amounts. Cash flows from loans and deposits are
reported on a net basis.

                                       27

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 1. Nature of Business and Summary of Significant Accounting Policies
        (Continued)

Investment securities: The Company and the Bank have investments in debt and
---------------------
equity securities, which consist primarily of obligations of the U.S. Government
and federal agencies and municipal obligations.

SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities,
requires that management classify all securities as trading, available for sale,
or held to maturity as individual investment securities are acquired, and that
the appropriateness of such classification be reassessed at each statement of
financial condition date.

Since the Company and the Bank do not buy investment securities in anticipation
of short-term fluctuations in market prices, none of the investment securities
are classified as trading in accordance with Statement No. 115. All investment
securities have been classified as either held to maturity or available for
sale.

Securities available for sale: Securities classified as available for sale are
-----------------------------
those securities that the Company and the Bank intend to hold for an indefinite
period of time but not necessarily to maturity. Any decision to sell a security
classified as available for sale could be based on various factors, including
significant movements in interest rates, changes in the maturity mix of the
Company and the Bank's assets and liabilities, liquidity needs, regulatory
capital considerations, and other similar factors. Securities available for sale
are carried at their fair market value. Premiums and discounts are amortized
using a method that approximates the interest method over the contractual lives.
Unrealized gains or losses are reported as increases or decreases in equity, net
of the related deferred tax effect. Realized gains or losses, determined on the
basis of the cost of specific securities sold, are included in income.

Securities held to maturity: Securities classified as held to maturity are those
---------------------------
securities that the Company has both the intent and ability to hold to maturity
regardless of changes in market conditions, liquidity needs or changes in
general economic conditions. These securities are carried at cost adjusted for
amortization of premium and accretion of discount, computed by a method that
approximates the interest method over their contractual lives. Based on the
Company and the Bank's financial position and liquidity, management believes the
Company and the Bank have the ability to hold these securities to maturity.

Declines in the fair value of individual securities classified as either held to
maturity or available for sale below their amortized cost that are determined to
be other than temporary result in write-downs of the individual securities to
their fair value with the resulting write-downs included in current earnings as
realized losses.

Investment in Federal Home Loan Bank stock: The Bank, as a member of the Federal
------------------------------------------
Home Loan Bank ("FHLB") system, is required to maintain an investment in capital
stock of the FHLB in an amount equal to the greater of 1% of its outstanding
home loans or 5% of advances from the FHLB. No ready market exists for the FHLB
stock, and it has no quoted market value.

                                       28

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 1. Nature of Business and Summary of Significant Accounting Policies
        (Continued)

Loans receivable: Loans receivable are stated at unpaid principal balances, less
----------------
undisbursed loan funds and the allowance for loan losses, and net deferred
loan-origination fees and discounts. The Bank's loan portfolio consists
principally of long-term conventional loans collateralized by first deeds of
trust on single-family residences, other residential property, nonresidential
property and land. Interest income is accrued and credited to interest income as
it is earned, using the interest method.

Allowance for loan losses: The allowance for loan losses is increased by charges
-------------------------
to income and decreased by charge-offs (net of recoveries). The allowance is an
amount that management believes will be adequate to absorb estimated losses on
existing loans. Management's periodic evaluation of the adequacy of the
allowance is based on the Bank's past loan loss experience, known and inherent
risks in the portfolio, adverse situations that may affect the borrower's
ability to pay, the estimated value of any underlying collateral, and current
economic conditions. The loan portfolio is further analyzed by each loan type
and delinquency status to determine the risk category for each loan that is used
in calculating the allowance for loan losses. Loans delinquent greater than 90
days are evaluated individually for loss exposure, while other loans are
evaluated aggregately by type. Allocated and unallocated portions are determined
in the same manner. While management uses the best information to make
evaluations, future adjustments may be necessary, if economic or other
conditions differ substantially from the assumptions used.

Impaired loans: The Bank assesses loans delinquent greater than 90 days for
--------------
impairment. SFAS No. 114 requires that the Bank establish specific loan loss
allowances on impaired loans if it is doubtful that all principal and interest
due, according to the loan terms, will be collected. An allowance on an impaired
loan is required if the present value of the future cash flows discounted using
the loan's effective interest rate is less than the carrying value of the loan.
An impaired loan can also be valued based upon its fair value in the market
place or on the basis of its underlying collateral if the loan is collateral
dependent. If foreclosure is imminent, and the loan is collateral dependent, the
loan must be valued based upon the fair value of the underlying collateral.

Real estate owned: Real estate owned is initially recorded at the estimated fair
-----------------
value at the date of foreclosure, which establishes a new cost basis. Based on
periodic evaluations by management, the carrying values are reduced where they
exceed fair value minus estimated costs to sell. Costs relating to the
development and improvement of the property are capitalized, while holding costs
of the property are charged to expense in the period incurred.

                                       29

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 1. Nature of Business and Summary of Significant Accounting Policies
        (Continued)

Interest income: The Bank continues to accrue interest on loans, including loans
---------------
delinquent 90 days or more, when collectibility of interest is not in doubt. At
the time a loan becomes nonperforming and collectibility of principal is in
doubt, the loan is placed on nonaccrual status by establishing an allowance for
uncollected interest. When a loan is on nonaccrual status, interest income is
recognized only to the extent cash payments are received. If and when management
determines that the collectibility of principal and interest is no longer in
doubt, the loan is returned to performing status and the reserve for uncollected
interest is reversed. The Bank accounts for interest on impaired loans in a
similar fashion.

Loan-origination fees and related costs: Loan fees and certain direct loan
---------------------------------------

origination costs are deferred, and the net fee or cost is recognized as an
adjustment to interest income using the interest method over the contractual
life of the loans, adjusted for actual prepayments.

Office properties and equipment: Office properties and equipment are stated at
-------------------------------
cost less accumulated depreciation, which is computed principally by the
straight-line method.

Benefit plans: The Bank has a 401(k) plan covering substantially all of its
-------------
employees. The Bank matches 50% of the qualified employees contributions,
limited to 6% of the employee's salary.

The Bank has deferred compensation and retirement agreements for the benefit of
the Board of Directors and several key employees. The plans are unfounded, and
the liabilities are being accrued over the term of active service of the
participants. The Bank has also purchased life insurance policies in amounts
sufficient to discharge its obligation under the agreements in the event of
death.

The Bank has an ESOP which covers substantially all of its employees.
Contributions to the plan are based upon the amortization requirement of the
ESOP's debt to the Company, subject to compensation limitations, and are
expensed in accordance with the AICPA's Statement of Position 93-6, Employer's
Accounting for Employee Stock Ownership Plans.

Accounting for Stock Based Compensation: SFAS No. 123, Accounting for
---------------------------------------
Stock-Based Compensation, defines a fair value based method of accounting for an
employee stock option or similar equity instrument. However, SFAS No. 123 allows
an entity to continue to measure compensation costs for those plans using the
intrinsic value based method of accounting prescribed by APB Opinion No. 25,
Accounting for Stock Issued to Employees. Entities electing to remain with the
accounting in Opinion No. 25 must make pro forma disclosures of net income and
earnings per share as if the fair value based method of accounting defined in
SFAS No. 123 had been applied. Under the fair value based method, compensation
cost is measured at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting period. Under
the intrinsic value method, compensation cost is the excess, if any, of the
quoted market price of the stock at the grant date or other measurement date
over the amount an employee must pay to acquire the stock. The Bank has elected
to continue to measure compensation cost for its stock option plans under the
provisions in APB Opinion 25.

Advance payments by borrowers for taxes and insurance: Certain borrowers make
-----------------------------------------------------
monthly payments, in addition to principal and interest payments, in order to
accumulate funds from which the Bank can pay the borrowers' property taxes and
insurance premiums.

                                       30

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 1. Nature of Business and Summary of Significant Accounting Policies
        (Continued)

Income taxes: Deferred taxes are provided on a liability method whereby deferred
------------
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.

Earnings per share: SFAS No. 128, Earnings Per Share, requires the presentation
------------------
of earnings per share by all entities that have common stock or potential common
stock (such as options, warrants and convertible securities) outstanding that
trade in a public market. Basic per share amounts are computed by dividing net
income (the numerator) by the weighted-average number of common shares
outstanding (the denominator). Diluted per share amounts assume the conversion,
exercise or issuance of all potential common stock instruments unless the effect
is to reduce the loss or increase the income per common share from continuing
operations. For purposes of this computation, the number of shares of common
stock purchased by the Bank's ESOP which have not been allocated to participant
accounts are not assumed to be outstanding.

Comprehensive income: SFAS No. 130, Reporting Comprehensive Income, establishes
--------------------
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general purpose
financial statements. This statement requires that all items that are recognized
under accounting standards as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements.

Fair value of financial instruments: The estimated fair values required under
-----------------------------------
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, have been
determined by the Company using available market information and appropriate
valuation methodologies. However, considerable judgment is required to develop
the estimates of fair value. Accordingly, the estimates presented for the fair
value of the Company's financial instruments are not necessarily indicative of
the amounts the Company could realize in a current market exchange. The use of
different market assumptions or estimation methodologies may have a material
effect on the estimated fair market value amounts.

The fair value estimates presented are based on pertinent information available
to management as of December 31, 2001 and 2000. Although management is not aware
of any factors that would significantly affect the estimated fair value amount,
such amounts have not been comprehensively revalued for purposes of these
financial statements since that date, and therefore, current estimates of fair
value may differ significantly from the amounts presented here.

Off-statement of financial condition risk: The Company is a party to financial
-----------------------------------------
instruments with off-statement of financial condition risk such as commitments
to extend credit and lines of credit. Such financial instruments are recorded
when they are funded.

                                       31

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 2. Securities

The amortized cost and fair values of securities as of December 31, 2001 and
2000 are summarized as follows:

<TABLE>
<CAPTION>
                                                        2001
                                 ---------------------------------------------------
                                                  Gross        Gross
                                  Amortized    Unrealized   Unrealized       Fair
                                    Cost          Gains       Losses        Value
                                 ---------------------------------------------------
<S>                              <C>            <C>         <C>          <C>
Securities available for sale:
U.S. Government and federal
 agencies obligations            $ 1,202,000    $33,000     $      --    $ 1,235,000
Municipal obligations                350,000      3,000            --        353,000
Equity securities                    500,000         --            --        500,000
                                 ---------------------------------------------------
                                 $ 2,052,000    $36,000     $      --    $ 2,088,000
                                 ===================================================
Securities held to maturity:
Municipal obligations            $ 1,180,000    $32,000     $      --    $ 1,212,000
                                 ===================================================
Other investments:
Interest-earning deposits        $20,869,000    $    --     $      --    $20,869,000
Certificates of deposit              100,000         --            --        100,000
Federal Home Loan Bank stock       1,241,000         --            --      1,241,000
                                 ---------------------------------------------------
                                 $22,210,000    $    --     $      --    $22,210,000
                                 ===================================================
</TABLE>

<TABLE>
<CAPTION>
                                                        2000
                                 ---------------------------------------------------
                                                 Gross        Gross
                                  Amortized    Unrealized   Unrealized      Fair
                                    Cost          Gains       Losses        Value
                                 ---------------------------------------------------
<S>                              <C>            <C>         <C>          <C>
Securities available for sale:
U.S. Government and federal
 agencies obligations            $ 1,900,000    $    --     $      --    $ 1,900,000
Municipal obligations                668,000         --        (1,000)       667,000
Equity securities                    500,000         --            --        500,000
                                 ---------------------------------------------------
                                 $ 3,068,000    $    --     $  (1,000)   $ 3,067,000
                                 ===================================================
Securities held to maturity:
Municipal obligations            $ 1,182,000    $21,000     $      --    $ 1,203,000
                                 ===================================================

Other investments:
Interest-earning deposits        $10,405,000    $    --     $      --    $10,405,000
Certificates of deposit              100,000         --            --        100,000
Federal Home Loan Bank stock       1,188,000         --            --      1,188,000
                                 ---------------------------------------------------
                                 $11,693,000    $    --     $      --    $11,693,000
                                 ===================================================
</TABLE>

                                       32

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 2. Securities (Continued)

The amortized cost and fair value of securities at December 31, 2001 by
contractual maturity are shown below:

                                                        Amortized       Fair
                                                           Cost         Value
                                                        ------------------------
Securities available for sale:
Due in one year or less                                 $  727,000    $  730,000
Due after one year through five years                      825,000       858,000
Due after five years through ten years                          --            --
Equity securities                                          500,000       500,000
                                                        ------------------------
                                                        $2,052,000    $2,088,000
                                                        ========================

Securities held to maturity:
Due in one year or less                                 $  150,000    $  151,000
Due after one year through five years                      124,000       128,000
Due after five years through ten years                     898,000       925,000
Due after ten years                                          8,000         8,000
                                                        ------------------------
                                                        $1,180,000    $1,212,000
                                                        ========================

The Company has investments with a carrying value of $325,000 pledged at
December 31, 2001.

There were no sales of investment securities for the years ended December 31,
2001, 2000 and 1999.

                                       33

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 2. Securities (Continued)

The following table sets forth certain information regarding the carrying value
and contractual maturities of the Company's investment portfolio at December 31,
2001:

<TABLE>
<CAPTION>
                                                                  Carrying Value
                                   ---------------------------------------------------------------------------
                                                    After One       After Five
                                                   Year Through    Years Through       After
                                    One Year        Five Years       Ten Years       Ten Years        Total
                                   ---------------------------------------------------------------------------
<S>                                <C>               <C>             <C>            <C>            <C>
Securities available for sale:
 Federal Home Loan
   Bank bonds                      $   504,000       $731,000        $     --       $       --     $ 1,235,000
 Municipal bonds                       226,000        127,000              --               --         353,000
 Equity securities                     500,000             --              --               --         500,000
Securities held to maturity:
 Municipal bonds                       150,000        124,000         898,000            8,000       1,180,000
Other investments:
 Interest-earning deposits          20,869,000             --              --               --      20,869,000
 Certificates of deposit               100,000             --              --               --         100,000
 Federal Home Loan
   Bank stock                               --             --              --        1,241,000       1,241,000
                                   ---------------------------------------------------------------------------
                                   $22,349,000       $982,000        $898,000       $1,249,000     $25,478,000
                                   ===========================================================================
</TABLE>

The following table sets forth the weighted average yield by maturity (tax
exempt obligations have not been computed on a tax equivalent basis) of the
Company's investment portfolio at December 31, 2001:

<TABLE>
<CAPTION>
                                                                  Carrying Value
                                   ---------------------------------------------------------------------------
                                                    After One       After Five
                                                   Year Through    Years Through       After
                                    One Year        Five Years       Ten Years       Ten Years        Total
                                   ---------------------------------------------------------------------------
<S>                                   <C>              <C>             <C>             <C>            <C>
Securities available for sale:
 Federal Home Loan
   Bank bonds                         5.95%            6.03%             --              --           6.00%
 Municipal bonds                      4.50%            4.50%             --              --           4.50%
 Equity securities                      --               --              --              --             --
Securities held to maturity:
 Municipal bonds                      4.80%            4.50%           4.64%             --           4.61%
Other investments:
 Interest-earning deposits            3.48%              --              --              --           3.48%
 Certificates of deposit              6.67%              --              --              --           6.67%
 Federal Home Loan
   Bank stock                           --               --              --            6.82%          6.82%
                                   ---------------------------------------------------------------------------
                                      3.57%            5.64%           4.64%           6.82%          3.78%
                                   ===========================================================================
</TABLE>

                                       34

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 3. Loans Receivable

Loans receivable at December 31, 2001 and 2000 consist of the following:

<TABLE>
<CAPTION>
                                              2001                        2000
                                   -------------------------------------------------------
                                                   Percentage                   Percentage
                                       Amount       of Total        Amount       of Total
                                   -------------------------------------------------------
<S>                                <C>               <C>        <C>              <C>
Real estate loans:
 One-to-four family residential    $ 100,697,000      84.57%    $ 109,631,000     84.00%
 Multi-family residential              1,002,000       0.87           909,000      0.70
 Nonresidential                        3,563,000       2.95         3,857,000      2.95
 Construction                          4,126,000       3.47         6,970,000      5.34
 Equity line                          10,079,000       8.47        10,088,000      7.73
                                   -------------------------------------------------------
     Total real estate loans         119,467,000     100.33       131,455,000    100.72
                                   -------------------------------------------------------
Consumer Loans:
 Installment loans                     2,394,000       2.01         2,455,000      1.88
 Other                                   864,000       0.73         1,144,000      0.88
                                   -------------------------------------------------------
     Total consumer loans              3,258,000       2.74         3,599,000      2.76
                                   -------------------------------------------------------
     Total gross loans               122,725,000     103.07       135,054,000    103.48
                                   -------------------------------------------------------
Less:
 Construction loans in process        (1,938,000)     (1.63)       (2,672,000)    (2.05)
 Net deferred loan fees                 (825,000)     (0.69)         (959,000)    (0.74)
 Allowance for loan losses              (896,000)     (0.75)         (905,000)    (0.69)
                                   -------------------------------------------------------
                                      (3,659,000)     (3.07)       (4,536,000)    (3.48)
                                   -------------------------------------------------------
                                   $ 119,066,000     100.00%    $ 130,518,000    100.00%
                                   =======================================================
</TABLE>

The following is an analysis of the allowance for loan losses for the years
ended December 31, 2001, 2000 and 1999:

                                                  2001        2000       1999
                                                -------------------------------
Balance at beginning of year                    $905,000    $898,000   $895,000
                                                -------------------------------
 Loans charged off:
   Real Estate                                        --          --         --
   Consumer                                       (9,000)         --         --
                                                -------------------------------
     Total loans charged off                      (9,000)         --         --
                                                -------------------------------
 Recoveries:
   Real Estate                                        --       7,000      3,000
   Consumer                                           --          --         --
                                                -------------------------------
     Total recoveries                                 --       7,000      3,000
                                                -------------------------------
 Provision for loan losses                            --          --         --
                                                -------------------------------
Balance at end of year                          $896,000    $905,000   $898,000
                                                ===============================
Ratio of net charge-offs to average loans
 outstanding                                        0.01%       0.00%      0.00%
                                                ===============================

                                       35

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 3. Loans Receivable (Continued)

The allocation of the allowance for loan losses applicable to each category of
loans at December 31, 2001 and 2000 is as follows:

                                                           2001
                                            ------------------------------------
                                                        Percent of
                                                        Allowance    Percent of
                                            Amount of    to Total      Loans to
                                            Allowance   Allowance    Gross Loans
                                            ------------------------------------
Real estate loans:
 One-to-four family residential              $832,000      92.86%      82.06%
 Multi-family residential                          --         --        0.82
 Nonresidential                                    --         --        2.90
 Construction                                      --         --        3.36
 Equity line                                   23,000       2.57        8.21
                                            ------------------------------------
   Total real estate loans                    855,000      95.43       97.35
                                            ------------------------------------
Consumer loans:
 Installment loans                             32,000       3.57        1.95
 Other                                          9,000       1.00        0.70
                                            ------------------------------------
   Total consumer loans                        41,000       4.57        2.65
                                            ------------------------------------
                                             $896,000     100.00%     100.00%
                                            ====================================

                                                           2000
                                            ------------------------------------
                                                        Percent of
                                                        Allowance    Percent of
                                            Amount of    to Total     Loans to
                                            Allowance   Allowance    Gross Loans
                                            ------------------------------------
Real estate loans:
 One-to-four family residential              $403,000      44.53%      81.18%
 Multi-family residential                          --         --        0.67
 Nonresidential                                    --         --        2.86
 Construction                                      --         --        5.16
 Equity line                                   40,000       4.42        7.47
                                            ------------------------------------
   Total real estate loans                    443,000      48.95       97.34
                                            ------------------------------------
Consumer loans:
 Installment loans                             25,000       2.77        1.82
 Other                                          7,000       0.77        0.84
                                            ------------------------------------
   Total consumer loans                        32,000       3.54        2.66
                                            ------------------------------------
Unallocated                                   430,000      47.51          --
                                            ------------------------------------
                                             $905,000     100.00%     100.00%
                                            ====================================

                                       36

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 3. Loans Receivable (Continued)

The Bank assesses loans delinquent more than 90 days for impairment. Such loans
amounted to approximately $1,621,000 and $2,093,000 at December 31, 2001 and
2000, respectively, and had an average outstanding balance of approximately
$2,351,000 and $1,540,000 for the years ended December 31, 2001 and 2000,
respectively. These loans are primarily collateral dependent, and management has
determined that the underlying collateral value is in excess of the carrying
amounts. As a result, the Bank has determined that specific allowances on these
loans are not required.

Nonperforming loans for which interest has been reduced totaled approximately
$985,000 and $1,436,000 at December 31, 2001 and 2000, respectively. The
differences between interest income that would have been recorded under the
original terms of such loans and the interest income actually recognized totaled
$70,000, $41,000 and $44,000 for the years ended December 31, 2001, 2000 and
1999, respectively.

The following table sets forth information with respect to nonperforming assets
identified by the Bank, including nonaccrual loans and accruing loans past due
90 days or more at the date indicated:

<TABLE>
<CAPTION>
                                                          At December 31,
                                           --------------------------------------------
                                               2001            2000            1999
                                           --------------------------------------------
<S>                                        <C>             <C>             <C>
Nonaccrual loans                           $    985,000    $  1,436,000    $  1,237,000
Accruing loans past due 90 days or more         636,000         657,000         145,000
Troubled debt restructuring                          --              --              --
Foreclosed real estate                               --              --          65,000
                                           --------------------------------------------
Total nonperforming assets                 $  1,621,000    $  2,093,000    $  1,447,000
                                           ============================================

Nonperforming loans to total gross loans           1.32%           1.55%           1.06%
                                           ============================================

Nonperforming assets to total assets               1.08%           1.38%           1.01%
                                           ============================================

Total assets                               $149,849,000    $151,732,000    $143,867,000

Total gross loans                          $122,725,000    $135,054,000    $130,523,000
</TABLE>

                                       37

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 4. Office Properties and Equipment

Office properties and equipment at December 31, 2001 and 2000 consist of the
following:

                                                       2001              2000
                                                    ----------------------------
Cost:
 Land                                               $  364,000        $  364,000
 Buildings                                             879,000           879,000
 Building improvements                                 175,000           175,000
 Furniture and fixtures                                796,000           764,000
 Automobiles                                            54,000            54,000
                                                    ----------------------------
                                                     2,268,000         2,236,000
Less accumulated depreciation                        1,304,000         1,177,000
                                                    ----------------------------
                                                    $  964,000        $1,059,000
                                                    ============================

Note 5. Deposits

Deposits at December 31, 2001 and 2000 consist of the following:

<TABLE>
<CAPTION>
                                              2001                                2000
                               ---------------------------------------------------------------------
                                              Weighted                            Weighted
                                              Average                              Average
                                  Amount       Rate      Percent      Amount         Rate    Percent
                               ---------------------------------------------------------------------
<S>                            <C>              <C>       <C>      <C>              <C>       <C>
Noninterest-bearing deposits   $  2,122,000       --       1.9%    $  1,269,000       --        1.2%
NOW accounts                      7,447,000     0.50%      6.7%       6,736,000     0.89%       6.5%
Money market                     18,702,000     2.42%     16.6%      11,381,000     5.46%      10.9%
Passbook savings                  9,677,000     1.99%      8.5%       9,552,000     2.47%       9.2%
                               ---------------------------------------------------------------------
                                 37,948,000               33.7%      28,938,000                27.8%

Certificates of deposit          74,951,000     4.70%     66.3%      75,012,000     6.26%      72.2%
                               ---------------------------------------------------------------------
                                112,899,000              100.0%     103,950,000               100.0%
                                                         =======                              ======
Accrued interest payable                 --                             419,000
                               -----------------------             -----------------------
                               $112,899,000     3.72%              $104,369,000     5.40%
                               =======================             =======================
</TABLE>

The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was approximately $17,045,000 and $17,701,000 at December 31, 2001 and
December 31, 2000, respectively.

                                       38

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 5. Deposits (Continued)

The aggregate amount of certificates of deposit by maturity with a minimum
denomination of $100,000 at December 31, 2001 is as follows:

Maturity Period:
 Within 3 months or less                                            $  3,241,000
 Over 3 months through 6 months                                        2,679,000
 Over 6 months through 12 months                                       6,685,000
 Over 12 months                                                        4,440,000
                                                                    ------------
                                                                    $ 17,045,000
                                                                    ============

At December 31, 2001, the scheduled maturities of certificates of deposits are
as follows:

Year Ending December 31,                                                Amount
------------------------                                            ------------
2002                                                                $ 59,677,000
2003                                                                  10,186,000
2004                                                                   1,161,000
2005                                                                     834,000
2006                                                                   3,093,000
                                                                    ------------
                                                                    $ 74,951,000
                                                                    ============

Interest expense on deposits for the years ended December 31, 2001, 2000 and
1999 is summarized as follows:

                                             2001          2000          1999
                                          --------------------------------------
NOW and money market                      $  651,000    $  682,000    $  544,000
Passbook savings                             219,000       230,000       251,000
Certificates of deposit                    4,656,000     3,652,000     3,192,000
                                          --------------------------------------
                                          $5,526,000    $4,564,000    $3,987,000
                                          ======================================

Eligible savings accounts are insured up to $100,000 by the SAIF which is
administered by the FDIC.

                                       39

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 6. Note Payable and Federal Home Loan Bank Advances

The Company has a note payable outstanding for $12,700,000 and $4,000,000 at
December 31, 2001 and 2000, respectively. The note is due in monthly interest
only installments at the prime rate (5.0% at December 31, 2001) less 1.00%, with
the principal balance due July 24, 2003. The average balance was $13,608,000,
and the maximum amount outstanding at any month end was $16,000,000 during the
year ended December 31, 2001. The note is collateralized by the Bank's common
stock, which is owned by the Company. The note was paid in full in January 2002.

The Bank has advances from the FHLB outstanding of $-0- and $5,000,000 at
December 31, 2001 and 2000, respectively. Advances are collateralized by the
Bank's stock in the FHLB and qualifying first mortgage loans.

Interest expense on the note payable and FHLB advances totaled $971,000,
$1,400,000 and $208,000 for the years ended December 31, 2001, 2000 and 1999,
respectively.

Note 7. Employee Benefit Plans

The Bank has adopted a savings plan under Section 401(k) of the Internal Revenue
Code. This plan allows employees, who meet certain service and age requirements,
to defer a percentage of their income through contributions to the plan. In
accordance with provisions of the plan, the Bank matches 50% of the employee's
contribution, limited to 6.0% of the employee's salary. The expense for the plan
was $103,000, $86,000 and $72,000 for the years ended December 31, 2001, 2000
and 1999, respectively.

The Bank has also entered into unfunded deferred compensation agreements and a
salary continuation agreement providing retirement and death benefits for the
directors and several key employees. Vested benefits under the agreements are
payable in installments upon death or retirement. The retirement age for these
plans was changed from 65 to 70 years old during the year ended December 31,
1999. The Bank has insured the lives of the directors and employees for amounts
sufficient to discharge its obligation under such agreements in the event of
death. The collective cash surrender value of these policies is $1,538,000 and
$1,335,000 at December 31, 2001 and 2000, respectively. The present value of the
liability for the benefits is being accrued over the expected term of active
service of the directors and employees. The amount accrued was $2,566,000 and
$2,504,000 at December 31, 2001 and 2000, respectively. The expense related to
the agreements for the years ended December 31, 2001, 2000 and 1999 amounted to
$165,000, $109,000 and $44,000, respectively. The discount rate of 7% was used
in determining the present value of the future obligation at December 31, 2001
and 2000, respectively.

                                       40

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 8. Stockholders' Equity

On December 30, 1997, the Company completed and closed its stock offering. Gross
proceeds from the sale of 674,475 shares amounted to $33,724,000 and were
reduced by conversion costs of $1,230,000. $4,216,000 of these net proceeds were
loaned to the ESOP to purchase 53,958 shares in the open market. The Company
transferred $14,134,000 of the net proceeds to the Bank for the purchase of its
common stock and retained the remaining net proceeds.

Concurrent with the Conversion, the Bank established a liquidation account in an
amount equal to its net worth as reflected in its latest statement of financial
condition contained in the definitive prospectus used in connection with the
Company's initial public offering. The liquidation account will be maintained
for the benefit of eligible deposit account holders and supplemental eligible
deposit account holders who continue to maintain their deposit accounts in the
Bank after the Conversion. Only in the event of a complete liquidation will
eligible deposit account holders and supplemental eligible deposit account
holders be entitled to receive a liquidation distribution from the liquidation
account in the amount of the then current adjusted sub-account balance for
deposit accounts then held. This payment will be made before any liquidation
distribution may be made with respect to common stockholders. Dividends paid by
the Bank subsequent to the Conversion cannot be paid from this liquidation
account.

Subject to applicable law, the Board of Directors of the Company or the Bank may
each provide for the payment of dividends. Future declarations of cash
dividends, if any, by the Company may depend upon dividend payments by the Bank
to the Company. Subject to regulations promulgated by the NC Administrator, the
Bank will not be permitted to pay dividends on its common stock if its
stockholders' equity would be reduced below the amount required for the
liquidation account or its capital requirement. The Company has declared regular
dividends totaling $0.41, $1.91 and $2.05 per share for the years ended December
31, 2001, 2000 and 1999, respectively.

For a period of five years after its conversion from mutual to stock form, the
Bank must obtain the written approval from the NC Administrator before declaring
or paying a cash dividend to the Company on its capital stock in an amount in
excess of one-half of the greater of (i) the Bank's net income for the most
recent fiscal year end or (ii) the average of the Bank's net income after
dividends for the most recent fiscal year end and not more than two of the
immediately preceding fiscal year ends. During 2001, 2000 and 1999, the Bank
upstreamed $287,000, $1,407,000 and $1,295,000, respectively, in regular
dividends to the Company.

The Company paid return of capital dividends in 2001 and 1999 in the amounts of
$20.00 per share and $17.18 per share, respectively. These dividends resulted in
$12,824,000 and $10,849,000 decreases in equity in 2001 and 1999, respectively.

The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory -- and possibly additional discretionary -- actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative regulatory accounting practices.
The Bank's capital amounts and classifications are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.

                                       41

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 8. Stockholders' Equity (Continued)

The FDIC requires the Company (on a consolidated basis) and the Bank to have a
minimum leverage ratio of Tier I Capital (principally consisting of retained
earnings and any other common stockholders' equity, less any intangible assets)
to all assets of at least 3%, provided that it receives the highest rating
during the examination process. For institutions that receive less than the
highest rating, the Tier I capital requirement is 1% to 2% above the stated
minimum. The FDIC also requires the Company and the Bank to have a ratio of
total capital to risk-weighted assets of 8%, of which at least 4% must be in the
form of Tier I capital. The NC Administrator requires a net worth equal to at
least 5% of total assets. The Company and the Bank complied with all of the
capital requirements at December 31, 2001 and 2000.

The Company's and Bank's capital amount and ratio compared to required
regulatory amounts and ratios are presented below:

<TABLE>
<CAPTION>
                                                                                  Minimum To Be Well
                                                                  Minimum         Capitalized Under
                                                                  Capital         Prompt Corrective
                                                 Actual         Requirement       Action Provisions
                                            ---------------   -----------------   ------------------
                                             Amount   Ratio   Amount      Ratio   Amount   Ratio
                                                            (Dollars in thousands)
<S>                                         <C>       <C>     <C>           <C>   <C>       <C>
December 31, 2001:
-----------------
Total Capital to Risk
   Weighted Assets:
      Consolidated                          $21,871           $6,605        8%       N/A    N/A
      Mooresville Savings Bank               32,583            6,589        8%    $8,237    10%
Tier 1 Capital to Risk
   Weighted Assets:
      Consolidated                          $20,975           $3,303        4%       N/A    N/A
      Mooresville Savings Bank               31,687            3,295        4%    $4,942     6%
Tier 1 Capital to
   Average Assets:
      Consolidated                          $20,975           $6,189        4%       N/A    N/A
      Mooresville Savings Bank               31,687            4,642        3%    $7,737     5%

December 31, 2000:
-----------------
Total Capital to Risk
   Weighted Assets:
      Consolidated                          $35,913           $6,581        8%       N/A    N/A
      Mooresville Savings Bank               32,607            6,557        8%    $8,196    10%
Tier 1 Capital to Risk
   Weighted Assets:
      Consolidated                          $35,008           $3,290        4%       N/A    N/A
      Mooresville Savings Bank               31,702            3,278        4%    $4,918     6%
Tier 1 Capital to
   Average Assets:
      Consolidated                          $35,008           $6,010        4%       N/A    N/A
      Mooresville Savings Bank               31,702            4,571        3%    $7,619     5%
</TABLE>

                                       42

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 8. Stockholders' Equity (Continued)

As of December 31, 2001, the most recent notification from the FDIC categorized
the Company and Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Company and
the Bank must maintain total capital to risk weighted assets of 10%, Tier I
Capital to risk weighted assets of 6% and Tier I Capital to average assets of 5%
or $8,237,000, $4,942,000 and $7,737,000, respectively. There are no conditions
or events since the notification that management believes have changed the
Company or the Bank's category.

Note 9. Income Tax Matters

Under the Internal Revenue Code, the Bank is allowed a special bad debt
deduction related to additions to the tax bad debt reserve established for the
purpose of absorbing losses. The Bank is required to compute such deductions
using an experience method. The Bank did not receive a tax bad debt deduction
2001, 2000 or 1999.

The Bank is also recapturing its excess tax bad debt reserves which have
accumulated since 1988, amounting to approximately $67,000, over a six year
period. The tax associated with the recaptured reserve was approximately
$26,000. Deferred income taxes have been previously established for the taxes
associated with the recaptured reserves and the ultimate payment of the related
taxes will not result in a charge to earnings. The amount of reserve recaptured
was $11,000, and the associated tax was $4,000 for each of the years ended
December 31, 2001, 2000, and 1999.

Deferred taxes have been provided for certain increases in the Bank's tax bad
debt reserves subsequent to 1987 which are in excess of recorded book loan loss
allowances. At December 31, 2001 and 2000, retained earnings contain certain
historical additions to the bad debt reserve for income tax purposes of
approximately $3,816,000, the balance prior to 1988, for which no deferred taxes
have been provided because the Bank does not intend to use these reserves for
purposes other than to absorb losses. If this pre-1988 reserve is used for
purposes other than to absorb losses or adjustments arising from the carryback
of net operating losses, income taxes may be imposed at the then existing rates.
The unrecorded deferred income tax liability on the above amount was
approximately $1,493,000 as of December 31, 2001 and 2000.

                                       43

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 9. Income Tax Matters (Continued)

The tax effects of temporary differences that gave rise to significant portions
of the net deferred tax asset in the statement of financial condition were as
follows at December 31, 2001 and 2000:

                                                        2001          2000
                                                     ------------------------
Deferred tax assets:
  Interest income on non performing assets           $    16,000   $   16,000
  Deferred compensation                                  989,000      965,000
  Allowance for loan losses                              346,000      350,000
  Pension plan contribution                              139,000      105,000
  Accrued expenses                                            --        4,000
  Management recognition plan                             55,000       97,000
  AMT credit carryforward                                  9,000           --
  NOL carryforward                                       182,000           --
  State NEL carryforward                                  29,000           --
                                                     ------------------------
                                                       1,765,000    1,537,000

  Valuation allowance                                    (29,000)          --
                                                     ------------------------
                                                       1,736,000    1,537,000
                                                     ------------------------
Deferred tax liabilities:
  Unrealized gain on securities                           13,000           --
  Property and equipment                                 164,000      124,000
  FHLB stock dividends                                   135,000      135,000
  Deferred loan fees                                      47,000       55,000
  Tax bad debt reserves                                    7,000       14,000
  FHLB accrued dividend                                    8,000        9,000
                                                     ------------------------
                                                         374,000      337,000
                                                     ------------------------
     Net deferred tax asset                          $ 1,362,000   $1,200,000
                                                     ========================

A valuation allowance has been provided for the amount of the deferred tax
assets the Company does not consider more likely than not to be realized. The
increase in the valuation allowance was $29,000 and $-0- for the years ended
December 31, 2001 and 2000, respectively.

Income tax expense (credits) for the year ended December 31, 2001, 2000 and 1999
consists of the following:

                                           2001         2000          1999
                                         ------------------------------------
Current                                  $  56,000   $   744,000   $  811,000
Deferred                                  (175,000)       13,000        6,000
                                         ------------------------------------
                                         $(119,000)  $   757,000   $  817,000
                                         ====================================

                                       44

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 9. Income Tax Matters (Continued)

A reconciliation of the federal income tax rate to the effective tax rate for
the year ended December 31, 2001, 2000 and 1999 is as follows:

                                                    2001    2000    1999
                                                   ---------------------
Statutory federal income tax rate                   34.0%   34.0%   34.0%
Increases (decreases) in taxes resulting from:
Nontaxable income                                  (10.8%)  (4.1%)  (3.3%)
Nondeductible expense                                1.6%    5.0%    3.0%
State income tax, net of federal benefit             0.4%    2.3%    2.6%
Other                                               (3.6%)   0.5%    0.8%
                                                   ---------------------
Effective tax rate                                  21.6%   37.7%   37.1%
                                                   =====================

The effective income tax rate is lower than expected in 2001, primarily due to
the tax expense recorded in relation to the fair market value adjustment on ESOP
shares.

Note 10. Employee Stock Ownership Plan

The Bank has established an ESOP to benefit all qualified employees. The ESOP
purchased 53,958 shares of common stock in the open market subsequent to the
Conversion with proceeds received from a loan from the Company. The ESOP
purchased 40,327 and 21,240 additional shares with proceeds from the return of
capital dividends paid by the Company in 2001 and 1999, respectively.

The Company's note receivable is to be repaid based upon 15 annual installments
of principal and interest on December 31 of each year through December 31, 2012.
Interest is based upon the prime rate, which will be adjusted and paid annually.
The note may be prepaid without penalty. The unallocated shares of stock held by
the ESOP are pledged as collateral for the debt. The ESOP is funded by
contributions made by the Bank in amounts sufficient to retire the debt. The
note receivable is presented as a reduction of stockholders' equity and had an
outstanding balance of $3,107,000 and $3,468,000 at December 31, 2001 and
December 31, 2000, respectively.

Shares are released as the debt is repaid and earnings from the common stock
held by the ESOP are allocated among participants on the basis of compensation
in the year of allocation. Benefits become 100% vested after five years of
credited service. Forfeitures of nonvested benefits will be reallocated among
remaining participating employees in the same proportion as contributions.

Dividends on unallocated shares may be used by the ESOP to repay the debt to the
Company and are not reported as dividends but as additional compensation expense
in the financial statements. Dividends on allocated or committed to be allocated
shares may also be used to repay the debt to the Company and are reported as
dividends in the financial statements. During the years ended December 31, 2001,
2000 and 1999, $153,000, $65,000 and $21,000, respectively, was amortized as
compensation expense that related to the unearned compensation recorded as a
result of the return of capital dividends paid on unallocated shares in 2001 and
1999.

                                       45

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 10. Employee Stock Ownership Plan (Continued)

Expenses of $206,000, $67,000 and $173,000 have been incurred during 2001, 2000,
and 1999, respectively, in connection with the ESOP. The expenses include, in
addition to the cash contribution necessary to fund the ESOP, $(308,000),
$(255,000) and $(144,000) for 2001, 2000, and 1999, respectively, which
represents the difference between the fair value of the shares which have been
released or committed to be released to participants, and the cost of these
shares to the ESOP. The Bank has debited this amount to paid-in capital and
reduced the expense in accordance with the provisions of AICPA Statement of
Position 93-6. The related income tax benefit of $59,000, $74,000 and $47,000
for 2001, 2000 and 1999, respectively, has been credited to paid-in capital.

The ESOP has a put option which requires the Company to repurchase its common
stock from participants in the ESOP who are eligible to receive benefits under
the terms of the plan and elect to receive cash in exchange for their common
stock. The potential commitment for the put option is $824,000 at December 31,
2001 based on the fair value of the 27,451 shares released at $30.00 per share.
The fair value of the unallocated shares is $2,642,000 at December 31, 2001.
This commitment will fluctuate based on the fair value of the shares.

Note 11. Management Recognition Plan and Stock Option Plan

The Company's stockholders approved the Company's Stock Option Plan and the
Bank's Management Recognition Plan and Trust (the "MRP") on January 26, 1999.
The Stock Option Plan reserves for issuance up to 67,447 stock options to
certain officers, directors, and employees either in the form of incentive stock
options or nonqualified stock options. The exercise price of the stock options
may not be less than the fair value of the Company's common stock at date of
grant. The options granted to employees, which vest at the rate of 25% annually
beginning at the date of grant, were all granted in 1999 and expire in 2009.
Options granted to non-employee directors vested immediately on the date of
grant. The weighted average fair value of the options on the grant date was
$31.00 per share. As permitted under the generally accepted accounting
principles, grants under the plan will be accounted for following the provisions
of APB Opinion No. 25 and its related interpretations. Accordingly, no
compensation cost has been recognized for grants made to date. Had compensation
cost been determined based on the fair value method prescribed in FASB Statement
No. 123, the pro forma effect on reported net income would be as follows for the
years ended December 31:

                                     2001           2000          1999
                                  -----------------------------------------
Net income (loss)
 As reported                      $  (431,000)  $  1,250,000   $  1,386,000
 Pro forma                           (546,000)     1,127,000      1,179,000
Earnings (loss) per share
 As reported
  Basic                           $     (0.68)  $       1.99   $       2.20
  Diluted                               (0.68)          1.97           2.20
 Pro forma
  Basic                           $     (0.87)  $       1.79   $       1.86
  Diluted                               (0.87)          1.77           1.86

                                       46

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 11. Management Recognition Plan and Stock Option Plan (Continued)

In determining the fair value of the option grant as prescribed in Statement No.
123, the Black-Scholes option pricing model was used with the following
assumptions: a risk-free interest rate of 6.43%, expected lives of 10 years,
expected volatility of 54.55% and expected dividends of $2.00 per year.

At December 31, 2001, 58,131 options have been granted at an exercise price of
$31.00, of which 46,125 options are currently exercisable. No options have been
exercised to date, and all options granted are outstanding at December 31, 2001.

The MRP reserved for issuance 26,979 shares of common stock to certain officers,
directors, and employees at the time of the adoption. The Company issued 24,281
shares and 400 shares to fund the MRP on January 26, 1999 and January 26, 2000,
respectively. The restricted common stock under the MRP vests at the rate of 25%
annually beginning at the date of grant. The expense related to the vesting of
the MRP totaled $603,000, $371,000 and $1,109,000 for the years ended December
31, 2001, 2000 and 1999, respectively. The expense includes $235,000 and
$295,000 for return of capital dividends paid in cash on unvested MRP shares in
2001 and 1999, respectively.

Note 12. Earnings Per Share

Earnings per share has been calculated in accordance with FASB Statement No.
128, Earnings Per Share. For purposes of this computation, the number of shares
of common stock purchased by the Bank's employee stock ownership plan which have
not been allocated to participant accounts are not assumed to be outstanding.
The following are reconciliations of the amounts used in the per share
calculations for 2001, 2000, and 1999, which are the years the Company was in
operation:

                                     For the Year Ended December 31, 2001
                                    ---------------------------------------
                                    Income (Loss)     Shares      Per Share
                                     (Numerator)   (Denominator)   Amount
                                    ---------------------------------------
Basic and Dilutive EPS
Loss available to stockholders       $(431,000)       630,768      $(0.68)
                                    ======================================

                                       47

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 12. Earnings Per Share (Continued)

                                         For the Year Ended December 31, 2000
                                       -----------------------------------------
                                         Income          Shares        Per Share
                                       (Numerator)    (Denominator)     Amount
                                       -----------------------------------------
Basic EPS
Income available to stockholders       $ 1,250,000        629,049       $ 1.99
                                                                        ======
Effect of dilutive securities
Stock options                                   --          6,137
                                       --------------------------
Dilutive EPS
Income available to stockholders       $ 1,250,000        635,186       $ 1.97
                                       =======================================

                                        For the Year Ended December 31, 1999
                                       -----------------------------------------
                                         Income          Shares        Per Share
                                       (Numerator)    (Denominator)     Amount
                                       -----------------------------------------
Basic EPS
Income available to stockholders       $ 1,386,000        630,442       $ 2.20
                                                                        ======
Effect of dilutive securities
Stock options                                   --            233
                                       --------------------------
Dilutive EPS
Income available to stockholders       $ 1,386,000        630,675       $ 2.20
                                       =======================================

                                       48

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 13. Commitments, Contingencies and Related Party Transactions

In addition to undisbursed loan funds outstanding, the Bank has mortgage loan
commitments and unused home equity loans and lines of credit outstanding at
December 31, 2001. Commitments, which are disbursed subject to certain
limitations, extend over varying periods of time with the majority subject to
disbursement over a 6-month period. A summary of these commitments, except for
undisbursed loan funds, is as follows:

<TABLE>
<CAPTION>
                                               Fixed Rate   Variable Rate     Total
                                               ---------------------------------------
<S>                                            <C>          <C>             <C>
Commitments to extend credit, mortgage loans   $ 589,400    $        --     $  589,400
Unused home equity loans and lines of credit          --      7,744,000      7,744,000
</TABLE>

The Bank has made loans to its officers and directors in the normal course of
business. The following is an analysis of the loans to officers and directors
for the year ended December 31, 2001:

Balance, beginning                                           $ 1,411,000
Originations                                                      30,000
Payments                                                         (50,000)
                                                             -----------
Balance, ending                                              $ 1,391,000
                                                             ===========

Additionally, officers and directors maintain deposits with the Bank in the
normal course of business. Such deposits amounted to approximately $2,445,000 at
December 31, 2001.

The Bank has entered into employment agreements with certain key employees in
order to establish their duties and compensation and to provide for their
continued employment with the Bank. The agreements will provide for an initial
term of employment of three years. Commencing on the first anniversary date and
continuing on each anniversary date thereafter, following a performance
evaluation of the employee, each agreement may be extended for an additional
year so that the remaining term shall be three years, unless written notice of
non-renewal is given by the Board of Directors. In the event of a change in
control of the Company, the employees are to receive a minimum 6% salary
increase plus an amount equal to the average bonus from the two previous years.

                                       49

<PAGE>

CODDLE CREEK FINANCIAL CORP. AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 14. Fair Value of Financial Instruments

The following table reflects a comparison of carrying amounts and the fair
values of the financial instruments as of December 31, 2001 and 2000:

<TABLE>
<CAPTION>
                                              2001                         2000
                                  ---------------------------------------------------------
                                    Carrying         Fair         Carrying         Fair
                                     Value          Value          Value          Value
                                  ---------------------------------------------------------
<S>                               <C>            <C>            <C>            <C>
Financial assets:
  Cash
   Interest-bearing deposits      $ 20,869,000   $ 20,869,000   $ 10,405,000   $ 10,405,000
   Noninterest-bearing deposits        504,000        504,000        407,000        407,000
  Certificates of deposit              100,000        100,000        100,000        100,000
  Investments                        3,268,000      3,300,000      4,249,000      4,270,000
  Loans receivable                 119,066,000    121,599,000    130,518,000    133,933,000
  Accrued interest receivable          749,000        749,000        974,000        974,000
  Cash surrender value of life
   insurance                         1,538,000      1,538,000      1,335,000      1,335,000
  FHLB stock                         1,241,000      1,241,000      1,188,000      1,188,000

Financial liabilities:
  Deposits                         112,899,000    111,595,000    104,369,000    104,816,000
  Advances from borrowers
   for taxes and insurance              94,000         94,000         96,000         96,000
  Note payable                      12,700,000     12,700,000      4,000,000      4,000,000
  FHLB advances                             --             --      5,000,000      5,000,000
  Accounts payable and other
   liabilities                         592,000        592,000        755,000        755,000
</TABLE>

The fair values utilized in the table were derived using the information
described below for the group of instruments listed. It should be noted that the
fair values disclosed in this table do not represent market values of all assets
and liabilities of the Company and, thus, should not be interpreted to represent
the market or liquidation value of the Company.

                                       50

<PAGE>

CODDLE CREEK FINANCIAL CORP.AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 14. Fair Value of Financial Instruments (Continued)

The following methods and assumptions were used by the Company in estimating the
fair value of its financial instruments:

Cash and certificates of deposits: The carrying amounts for cash and short-term
---------------------------------
instruments approximate their fair values.

Investment securities: Fair values for securities are based on quoted market
---------------------
prices, where available. If quoted market prices are not available, fair values
are based on quoted market prices of similar securities.

Loans receivable: The fair value of fixed rate loans is estimated by discounting
----------------
the future cash flows, adjusted for prepayments, using the current rates at
which similar loans would be made to borrowers with similar credit ratings and
for the same remaining maturities. For variable rate loans that reprice
frequently and with no significant change in credit risk, fair values are equal
to carrying amounts. Management believes that the allowance for loan losses is
an appropriate indication of the applicable credit risk associated with
determining the fair value of its loan portfolio and has been deducted from the
estimated fair value of loans.

Accrued interest receivable, advances from borrowers for taxes and insurance,
----------------------------------------------------------------------------
accounts payable and other liabilities: The fair value is the amount receivable
--------------------------------------
or payable on demand at the statement of financial condition date.

Deposits: The fair value of demand deposits, savings accounts, and certain money
--------
market deposits is the amount payable on demand at the statement of financial
condition. The fair value of fixed maturity certificates of deposit are
estimated based upon the discounted value of contractual cash flows using rates
currently offered for deposits with similar remaining maturities.

Note payable and FHLB advances: The fair values of the note payable and FHLB
------------------------------
advances are equal to their recorded book values due to the market rates of
interest and short-term nature.

Off-statement of financial condition instruments: Fair values for the Bank's
------------------------------------------------
off-statement of financial condition instruments (loan commitments) are based on
fees currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties' credit standings. The
fair value for such commitments is nominal.

                                       51

<PAGE>

CODDLE CREEK FINANCIAL CORP.AND SUBSIDIARY

NOTE TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 15. Parent Company Financial Data

The following are condensed financial statements for Coddle Creek Financial
Corp. as of and for the years ended December 31, 2001 and 2000:

                   Condensed Statements of Financial Condition
                           December 31, 2001 and 2000

                                                       2001            2000
                                                   ----------------------------
Assets:
 Cash                                              $    771,000    $  5,961,000
 Certificates of Deposit                                100,000         100,000
 Investment in Mooresville Savings Bank, S.S.B       31,687,000      31,702,000
 Securities available for sale                          911,000       1,418,000
 Other assets                                           229,000         198,000
                                                   ----------------------------
    Total assets                                   $ 33,698,000    $ 39,379,000
                                                   ============================

Note payable                                       $ 12,700,000    $  4,000,000
Accounts payable and other liabilities                       --         371,000
                                                   ----------------------------
    Total liabilities                                12,700,000       4,371,000
                                                   ----------------------------
Stockholders' Equity:
 Additional paid-in capital                           9,816,000      22,889,000
 Accumulated other comprehensive income (loss)           23,000          (1,000)
 Unearned ESOP shares                                (3,107,000)     (3,468,000)
 Management recognition plan                             (2,000)       (370,000)
 Unearned compensation                               (1,780,000)       (774,000)
 Retained earnings                                   16,048,000      16,732,000
                                                   ----------------------------
    Total stockholders' equity                       20,998,000      35,008,000
                                                   ----------------------------
    Total liabilities and stockholders' equity     $ 33,698,000    $ 39,379,000
                                                   ============================

                       Condensed Statements of Operations
                 For the Years Ended December 31, 2001 and 2000

<TABLE>
<S>                                                             <C>          <C>
Equity in earnings (loss) of Mooresville Savings Bank, S.S.B    $ (20,000)   $ 1,492,000
Interest income                                                   299,000        362,000
Interest expense                                                 (810,000)      (647,000)
Other income                                                      206,000        134,000
Other expense                                                    (106,000)       (91,000)
                                                                ------------------------
Net income (loss)                                               $(431,000)   $ 1,250,000
                                                                ========================
</TABLE>

                                       52

<PAGE>

CODDLE CREEK FINANCIAL CORP.AND SUBSIDIARY

NOTE TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 15.      Parent Company Financial Data (Continued)

                       Condensed Statements of Cash Flows
                     Years Ended December 31, 2001 and 2000

<TABLE>
<CAPTION>
                                                                    2001            2000
                                                                ----------------------------
<S>                                                             <C>             <C>
Cash Flows from Operating Activities:
Net income (loss)                                               $   (431,000)   $  1,250,000
Adjustments to reconcile net income to net cash used in
 operating activities:
 Equity in (earnings) loss of Mooresville Savings Bank, S.S.B         20,000      (1,492,000)
 Changes in assets and liabilities:
  Increase in other assets                                           (31,000)        (44,000)
                                                                ----------------------------
    Net cash used in operating activities                           (442,000)       (286,000)
                                                                ----------------------------
Cash Flows from Investing Activities:
 Upstream dividend from Mooresville Savings Bank, S.S.B              287,000       1,407,000
 Purchases of certificates of deposit                                     --        (100,000)
 Proceeds from maturities of securities available for sale           515,000         365,000
                                                                ----------------------------
    Net cash provided by investing activities                        802,000       1,929,000
                                                                ----------------------------
Cash Flows from Financing Activities,
 Proceeds from note payable                                       12,000,000              --
 Payments on note payable                                         (3,300,000)     (6,500,000)
 Cash dividends paid                                             (14,607,000)     (1,295,000)
 Principal payment received on note receivable from ESOP             361,000         257,000
                                                                ----------------------------
    Net cash used in financing activities                         (5,907,000)     (7,795,000)
                                                                ----------------------------
Net increase decrease in cash                                     (5,547,000)     (6,152,000)
 Cash - beginning                                                  5,961,000      12,113,000
                                                                ----------------------------
 Cash - ending                                                  $    414,000    $  5,961,000
                                                                ============================
Supplemental Disclosures of Noncash Transactions
 Changes in dividends accrued                                   $   (371,000)   $     76,000
</TABLE>

                                       53

<PAGE>

CODDLE CREEK FINANCIAL CORP.AND SUBSIDIARY

NOTE TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 16. Selected Quarterly Financial Data (Unaudited)

The following tables present summarized quarterly data for the years ended
December 31, 2001 and 2000:

<TABLE>
<CAPTION>
                                           Year Ended December 31, 2001
                                               Three Months Ended
                              March 31         June 30      September 30   December 31
                            ----------------------------------------------------------
<S>                         <C>               <C>            <C>            <C>
Net interest income         $ 1,108,000       $1,075,000     $1,127,000     $1,082,000
Other income                     60,000           60,000         63,000         84,000
Other expense                 1,861,000/(1)/   1,027,000      1,040,000      1,162,000
                            ----------------------------------------------------------
Net income (loss)           $  (693,000)      $  108,000     $  150,000     $    4,000
                            ==========================================================
Earnings (loss) per share   $     (1.09)      $     0.17     $     0.24     $     0.01
                            ==========================================================
</TABLE>

<TABLE>
<CAPTION>

                                           Year Ended December 31, 2000
                                               Three Months Ended
                              March 31         June 30      September 30   December 31
                            ----------------------------------------------------------
<S>                         <C>               <C>            <C>            <C>
Net interest income         $ 1,362,000       $1,411,000     $1,343,000     $1,325,000
Other income                    117,000           57,000         73,000         60,000
Other expense                 1,148,000        1,197,000      1,120,000      1,033,000
                            ----------------------------------------------------------
Net income                  $   331,000       $  271,000     $  296,000     $  352,000
                            ==========================================================
Earnings per share          $      0.53       $     0.43     $     0.47     $     0.56
                            ==========================================================
</TABLE>

/(1)/Compensation expense for the quarter ended March 31, 2001 included $1.2
     million and $235,000, respectively, related to in-kind payments comparable
     to the special return of capital dividends that were paid on unexercised
     stock options and unvested MRP shares. The quarter also includes a $400,000
     income tax benefit in other expense.

                                       54

<PAGE>

CODDLE CREEK FINANCIAL CORP.AND SUBSIDIARY

NOTE TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 17. Future Reporting Requirements

In July, 2001, the Financial Standards Board issued two statements, Statement
141, Business Combinations, and Statement 142, Goodwill and Other Intangible
Assets, which will potentially impact the Company's accounting for its reported
goodwill and other intangible assets.

Statement 141:
     .    Eliminates the pooling method for accounting for business
          combinations.
     .    Requires that intangible assets that meet certain criteria be reported
          separately from goodwill. o Requires negative goodwill arising from a
          business combination to be recorded as an extraordinary gain.

Statement 142:
     .    Eliminates the amortization of goodwill and other intangibles that are
          determined to have an indefinite life.
     .    Requires, at a minimum, annual impairment tests for goodwill and other
          intangible assets that are determined to have an indefinite life.

Upon adoption of these Statements, the Company is required to:
     .    Re-evaluate goodwill and other intangible assets that arose from
          business combinations entered into before July 1, 2001. If the
          recorded other intangibles assets do not meet the criteria for
          recognition, they should be reclassified to goodwill. Similarly, if
          there are other intangible assets that meet the criteria for
          recognition but were not separately recorded from goodwill, they
          should be reclassified from goodwill.
     .    Reassess the useful lives of intangible assets and adjust the
          remaining amortization periods accordingly.
     .    Write-off any remaining negative goodwill.

These statements are not expected to have a significant impact on the Company.
The standards will be required to be implemented by the Company on January 1,
2002.

                                       55

<PAGE>

                              CORPORATE INFORMATION

                               EXECUTIVE OFFICERS:

<TABLE>
<S>                                      <C>                           <C>
       George W. Brawley, Jr.                  Dale W. Brawley            Billy R. Williams
        President and CEO                 Executive Vice President       Secretary/Controller

                                               DIRECTORS:
       George W. Brawley, Jr.                Dale W. Brawley             Claude U. Voils, Jr.
Chairman of the Board, President and     Executive Vice President of        Retired Chemist
  CEO of Mooresville Savings Bank          Mooresville Savings Bank       of National Starch

          Jack G. Lawler                        Don E. Mills                 Donald R. Belk
       Retired President of                     Optometrist            President of E.F. Belk & Son
           Taltronics                    Optometric Eye Care Center       Electrical Contractors

       Stock Transfer Agent                                       Annual Meeting
   Registrar and Transfer Company                   The 2001 annual meeting of stockholders of
         10 Commerce Drive                         Coddle Creek Financial Corp. will be held at
        Cranford, NJ 07016                        11:00 A.M. on April 25, 2002 at the Company's
                                                    corporate office at 347 North Main Street,
                                                                  Mooresville, NC.

      Special Legal Counsel                                   Form 10-K
     Brooks, Pierce, McLendon,           A copy of Form 10-K, including the attached financial
     Humphrey & Leonard, LLP             statements and financial statement schedules, for
      2000 Renaissance Plaza             the year ended December 31, 2001, as filed with
       230 North Elm Street              the Securities and Exchange Commission will be
       Greensboro, NC 27420              furnished without charge to the Company's stockholders
                                         upon written request to Coddle Creek Financial Corp., 347
                                         Main Street, P.O. Box 117, Mooresville, NC 28115
       Independent Auditors              Attn: George Brawley, President
     McGladrey & Pullen, LLP
      One Morrocroft Centre                                  Corporate Office
  6805 Morrison Boulevard, Suite 200                      347 North Main Street
       Charlotte, NC 28211                                      P.O. Box 117
                                                           Mooresville, NC 28115
</TABLE>

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<PAGE>

                            Common Stock Information

The Company had 699,156 shares of common stock outstanding at March 1, 2002,
which are held by 414 shareholders of record, not including the number of
persons or entities where stock is held in nominee or "street" name through
various brokerage firms or banks. The Company's common stock began trading on
December 31, 1997 and is traded on the over the counter market with quotations
available through the OTC Bulletin Board under the symbol "CDLC". Payment of
dividends by the Bank to the Company is subject to various restrictions. Under
applicable banking regulations, the Bank may not declare or pay a cash dividend
if the effect thereof would be to reduce its net worth to an amount less than
the minimum amount required by applicable federal and state regulations. In
addition, for the five year period following the consummation of the Bank's
stock conversion, which occurred on December 30, 1997, the Bank must obtain
written approval from the Administrator of the Savings Institution Division,
North Carolina Department of Commerce, before it can declare a cash dividend in
an amount in excess of one-half of the greater of (i) its net income for the
most recent fiscal year or (ii) the average of its net income for the most
recent fiscal year and not more than two of the immediately preceding fiscal
years, as applicable. Also, the Bank is not permitted to declare a cash dividend
of the effect thereof would be to cause its net worth to be reduced below the
amount required for the liquidation account established in connection with the
Bank's conversion from mutual to stock form.

The following table reflects the stock trading and dividend payment frequency of
the Company for the years ended December 31, 2001 and 2000.

                     Dividends        Stock Price (1)
                 -------------------------------------
                 Regular   Special     High      Low
                 -------------------------------------
2001
First Quarter    $    --   $ 20.00   $ 29.38   $ 24.25
Second Quarter        --        --     29.00     26.00
Third Quarter       0.17        --     29.50     26.10
Fourth Quarter      0.24        --     31.90     28.77

2000
First Quarter    $  0.34   $    --   $ 33.00   $ 39.50
Second Quarter      0.61        --     34.00     31.00
Third Quarter       0.43        --     39.50     33.75
Fourth Quarter      0.53        --     41.25     37.00

(1)  Note that the stock prices listed above have been adjusted to reflect the
     return of capital dividend in 2001.

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