EXHIBIT 13
                 PORTIONS OF THE ANNUAL REPORT TO SHAREHOLDERS
                      FOR THE YEAR ENDED DECEMBER 31, 1998

Financial Summary*
<TABLE>
<CAPTION>

                                                                                     Years Ended December 31,
                                                                                     ------------------------
                                                                 1998            1997           1996           1995           1994
                                                                 ----            ----           ----           ----           ----
                                                                            (Dollars in thousands, except per share data)
Financial Condition                                                                                                                 
<S>                                                            <C>             <C>             <C>            <C>            <C>    
     Securities .......................................        $ 38,284        $ 25,510        $26,525        $22,962        $19,809
     Allowance for loan losses ........................             955             890            705            575            460
     Net loans ........................................          66,938          64,948         53,953         43,600         36,725
     Premises and equipment - net .....................           2,871           1,675          1,782          1,562          1,609
     Total assets .....................................         127,127         104,968         98,673         83,995         75,852
     Noninterest bearing deposits .....................          14,798          16,501         10,352         10,534          8,716
     Interest bearing deposits ........................          97,698          75,790         77,108         63,406         58,371
     Total deposits ...................................         112,496          92,291         87,460         73,940         67,087
     Obligation under capital lease ...................               -               -              -              -             28
     Total liabilities ................................         113,524          93,118         88,338         74,770         67,764
     Total shareholders' equity .......................          13,603          11,850         10,335          9,225          8,088

Results of Operations
     Interest income ..................................        $  8,904        $  7,578        $ 6,928        $ 5,919        $ 4,587
     Interest expense .................................           4,518           3,664          3,695          3,171          2,106
                                                               --------        --------        -------        -------        -------
     Net interest income ..............................           4,386           3,914          3,233          2,748          2,481
     Provision for loan losses ........................             213             315            223            153            173
                                                               --------        --------        -------        -------        -------
     Net interest income after provision ..............           4,173           3,599          3,010          2,595          2,308
     Securities gains .................................               -               -              -              -              7
     Other income .....................................             574             522            342            287            212
     Other expenses ...................................           2,155           1,909          1,559          1,549          1,430
                                                               --------        --------        -------        -------        -------
     Income before income taxes .......................           2,592           2,212          1,793          1,333          1,097
     Income tax expense ...............................             928             807            641            476            389
                                                               --------        --------        -------        -------        -------
     Net income .......................................        $  1,664        $  1,405        $ 1,152        $   857        $   708
                                                               ========        ========        =======        =======        =======
     Comprehensive income .............................        $  1,664        $  1,467        $ 1,065        $ 1,117        $   414
                                                               ========        ========        =======        =======        =======

Per Share Data**
     Net income .......................................        $   0.94        $   0.80        $  0.66        $  0.49        $  0.41
     Net income, assuming dilution ....................            0.88            0.77           0.64           0.48           0.40
     Cash dividends declared ..........................               -               -              -              -              -
     Period end book value ............................            7.58            6.69           5.88           5.29           4.65
</TABLE>

*    Community First Bancorporation became the bank holding company of Community
     First Bank effective October 16, 1997 as part of a corporate reorganization
     which  was  accounted  for  as  if  it  were  a  pooling-of-interests.  The
     consolidated  financial  statements  and related  information  for the year
     ended December 31, 1997 are presented as if the reorganization had occurred
     on January 1, 1997. The financial  statements and related  information  for
     the years ended December 31, 1994 through December 31, 1996 are the same as
     the amounts  reported  previously by Community  First Bank,  adjusted for a
     stock split,  stock  dividends and the 1997 change in accounting  principle
     for reporting  earnings per share  requiring the  restatement of prior year
     figures.  Statement of Financial  Accounting  Standards No. 130, "Reporting
     Comprehensive  Income",  effective  for 1998,  requires the  reporting  and
     display  of  comprehensive   income  with   reclassification  of  financial
     statements  for prior periods.  The Company's  other  comprehensive  income
     consists  of  the  change  in  unrealized   holding  gains  and  losses  on
     available-for-sale  securities,  net of applicable  income taxes,  that was
     previously reported only as an adjustment of shareholders' equity.

**   Per share amounts have been retroactively adjusted to reflect a two-for-one
     stock  split  effective  July 31,  1998,  a 15%  stock  dividend  effective
     December 30, 1997 and 5% stock  dividends  effective May 1, 1996,  1995 and
     1994.  Net income per share and net  income per share,  assuming  dilution,
     reflect the adoption of Statement of  Financial  Accounting  Standards  No.
     128,  "Earnings  per Share"  for the year ended  December  31,  1997,  with
     restatement of prior years on a comparable basis.



                                       1
<PAGE>


Market for Common Stock and Dividends

          Although a limited number of shares of common stock of Community First
Bancorporation  (the  "Company")  are traded from time to time on an  individual
basis,  no  established  trading  market has  developed  and none is expected to
develop  in the near  future.  The  common  stock is not  traded  on the  NASDAQ
National  Market  System,  nor are there any market makers known to  management.
During 1998,  management was aware of a few  transactions in which the Company's
common  stock  traded in a price range from $9.00 to $21.00 per share (per share
prices have been adjusted to reflect a two-for-one  stock split  effective  July
31, 1998).  However,  management has not ascertained that these transactions are
the result of arm's  length  negotiations  between  the  parties  involved,  and
because  of the  limited  number of shares  involved,  these  prices  may not be
indicative of the market value of the common stock.

          As of  February  28,  1999,  there were  approximately  749 holders of
record of the  Company's  common stock,  excluding  individual  participants  in
security position listings.

          There have been no cash dividends declared or paid since the Company's
inception.  In order to support  the  Company's  continuing  need for capital to
support  anticipated  asset  growth and market  expansion,  management  does not
expect to declare or pay cash dividends in 1999.

          The Board of Directors  declared a two-for-one  stock split  effective
July 31, 1998 and a 15% stock dividend effective December 30, 1997.

Management's Discussion and Analysis

          This   discussion   is  intended  to  assist  in   understanding   the
consolidated  financial  condition and results of operations of Community  First
Bancorporation  and its  wholly-owned  subsidiary,  Community  First  Bank  (the
"Bank"),  which are collectively referred to as the "Company".  This information
should be reviewed in conjunction with the consolidated financial statements and
related notes contained  elsewhere in this report.  Per share net income and net
income,  assuming  dilution,  have been adjusted to reflect a two-for-one  stock
split effective July 31, 1998, a 15% stock dividend effective December 30, 1997,
and a 5% stock dividend effective May 1, 1996.

          Beginning  in  1998,   Statement  of  Financial  Accounting  Standards
("SFAS") No. 130, "Reporting  Comprehensive  Income," requires the reporting and
display of  comprehensive  income and its  components.  This SFAS  provides  for
reclassification  of financial  statements for earlier  periods for  comparative
purposes.  Comprehensive  income  includes  net income  and other  comprehensive
income or loss.  Other  comprehensive  income or loss  consists  of  changes  in
shareholders'  equity, other than those resulting from net income or investments
by or distributions to  shareholders,  that are due to transactions,  events and
circumstances from  non-shareholder  sources.  The Company's other comprehensive
income  consists  of the  change  in  unrealized  holding  gains  and  losses on
available-for-sale   securities,  net  of  applicable  income  taxes,  that  was
previously  reported only as an adjustment of shareholders'  equity.  Because of
the  material   amounts  of   available-for-sale   securities   carried  in  the
consolidated  balance sheet, changes in estimated fair values of such securities
could significantly affect the amount of other comprehensive income or loss used
to compute comprehensive income.

          Community First  Bancorporation  was incorporated on May 23, 1997 as a
bank holding company to effect a plan of corporate  reorganization  in which the
Bank became its wholly-owned  subsidiary on October 16, 1997. The discussion and
figures in this section present information regarding the Company since the date
of  reorganization  and  information and figures of the Bank prior to that date.
Per share information  prior to the  reorganization is presented in terms of the
current  equivalent  of the  number  of  shares of the  Company's  common  stock
outstanding.

Forward Looking Statements

          Statements included in Management's  Discussion and Analysis which are
not  historical  in nature are  intended  to be, and are  hereby  identified  as
"forward looking statements" for purposes of the safe harbor provided by Section
21E of the  Securities  Exchange Act of 1934, as amended.  The Company  cautions
readers that forward looking  statements,  including without  limitation,  those
relating to the Company's planned new office expansion into Anderson County, its
response to the Year 2000 problem, future business prospects,  revenues, working
capital,  liquidity,  capital needs,  interest costs, and income, are subject to
certain  risks and  uncertainties  that  could  cause  actual  results to differ
materially  from those  indicated  in the  forward  looking  statements,  due to
several important factors herein  identified,  among others, and other risks and
factors  identified  from time to time in the  Company's  reports filed with the
Securities and Exchange Commission.

                                       2
<PAGE>

Earnings Performance

1998 Compared with 1997

          For the year ended December 31, 1998, the Company  recorded net income
of $1,664,000,  an increase of $259,000, or 18.4%, over net income of $1,405,000
for 1997.  Net income per share for 1998 was $.94  compared  with $.80 for 1997.
Per share net income,  assuming dilution for unexercised stock options, was $.88
for 1998  compared  with $.77 for 1997.  Return on average  assets was 1.38% for
both 1998 and 1997. Return on average  shareholders'  equity increased to 13.07%
for 1998 from  12.64% for 1997.  Comprehensive  income was  $1,664,000  for 1998
compared with $1,467,000 for 1997. Other comprehensive income was negligible for
1998, and was $62,000 for 1997.

          Net income  continued to increase,  primarily  because of the $472,000
increase in net interest  income and a $102,000  decrease in the  provision  for
loan losses  charged to expense.  The increase in net interest  income  resulted
from the Company's  rapid  deposit  growth and its ability to invest those funds
profitably.  Interest-bearing  deposit  liabilities at the end of 1998 increased
$21,908,000 or 28.9% compared with the end of 1997 amount,  and interest earning
assets increased $22,479,000 or 22.9% over the same period.

          Other income  increased  by $52,000 to $574,000 in 1998,  largely as a
result of continued  increases in deposit account  service  charges  assessed to
customers.  These  charges  increased by $62,000 in 1998 to $369,000.  Partially
offsetting the increase in net interest  income and other income was an increase
of  $246,000 in other  expenses  resulting  mainly  from  hiring new  employees,
expenses relating to upgrading the Bank's computer hardware and software systems
that  were  placed  in  service  for a part of 1997,  and  higher  expenses  for
repairing and maintaining the Bank's equipment and facilities.

1997 Compared with 1996

          The  Company  achieved  net  income of  $1,405,000  for the year ended
December 31, 1997, up $253,000 or 22.0%, over net income of $1,152,000 for 1996.
Basic per share net income was $.80 for 1997  compared  with $.66 for 1996,  and
net income per share, assuming dilution, was $.77 for 1997 and $.64 for 1996. In
1997,  return on average  assets was  1.38%,  up from 1.19% for 1996.  Return on
average   shareholders'  equity  increased  to  12.64%  from  11.97%  for  1996.
Comprehensive  income was $1,467,000  for 1997,  and $1,065,000 for 1996.  Other
comprehensive  income was $62,000 for 1997, and an other  comprehensive  loss of
$87,000 was recorded for 1996.

          Net income increased  primarily  because of a $681,000 increase in net
interest  income in 1997.  This  increase  was largely the result of steady loan
growth which was achieved with neither a significant  reduction in the Company's
loan yield nor a  significant  increase in the degree of risk assumed in funding
loan requests.  A secondary factor contributing to increased net interest income
was a somewhat lower interest  expense  associated  with deposits.  In 1997, the
Company's  interest  expense was $31,000 less than in 1996.  Noninterest  income
increased  by  $180,000  in 1997 to  $522,000.  Approximately  one-half  of this
increase was from deposit account  service  charges.  Noninterest  expenses also
increased  during  1997,  totaling  $1,909,000,  or $350,000  more than in 1996.
Salaries and employee benefits increased by $149,000.

Net Interest Income

          Net interest income, comprising the difference between interest income
earned and interest expense  incurred,  is the principal source of the Company's
earnings.  Net interest  income is affected by changes in the levels of interest
rates and by  changes  in the  volume  and mix of  interest  earning  assets and
interest bearing liabilities.

          Net interest  income was  $4,386,000,  $3,914,000  and  $3,233,000 for
1998,  1997 and 1996,  respectively.  The $472,000 growth in net interest income
for 1998  resulted  primarily  from the  positive  effects  of higher  levels of
interest  earning  assets  which were  partially  offset by higher rates paid on
increased levels of interest bearing  liabilities.  A relatively stable interest
rate environment during 1998 further  strengthened the Company's results in this
area. During 1998, average interest earning assets increased by $18,121,000,  or
18.5%,  and average interest bearing  liabilities  increased by $14,578,000,  or
19.4%.  Interest  income  increased  by  $1,326,000  to  $8,904,000  in 1998 and
interest expense increased by $854,000 to $4,518,000.


                                       3
<PAGE>

          The table, "Average Balances,  Yields and Rates",  provides a detailed
analysis of the effective yields and rates on the categories of average interest
earning assets and interest bearing liabilities for the years ended December 31,
1998, 1997 and 1996.

       Average Balances, Yields and Rates
<TABLE>
<CAPTION>

                                                                             Years ended December 31,
                                            ----------------------------------------------------------------------------------------
                                                          1998                         1997                           1996
                                            ----------------------------  ----------------------------  ----------------------------
                                            Average      Income/ Yields/   Average     Income/ Yields/  Average      Income/ Yields/
                                            Balances(1)  Expense  Rates    Balances(1) Expense  Rates   Balances(1)  Expense  Rates
                                            ----------------------------  ----------------------------  ----------------------------
                                                                             (Dollars in thousands)
Assets
<S>                                         <C>         <C>       <C>     <C>         <C>        <C>     <C>         <C>       <C>  
Taxable securities ........................ $  30,148   $1,841    6.11%   $  27,024   $1,646     6.09%   $ 25,895    $1,544    5.96%
Federal funds sold ........................    16,882      926    5.49%      10,001      534     5.34%     16,990       911    5.36%
Other investments .........................       343       21    6.12%          19        -     0.00%          -         -    0.00%
Loans(2),(3) ..............................    68,499    6,116    8.93%      60,707    5,398     8.89%     49,952     4,473    8.95%
                                            ---------   ------            ---------   ------             --------    ------
        Total interest earning assets .....   115,872    8,904    7.68%      97,751    7,578     7.75%     92,837     6,928    7.46%
Cash and due from banks ...................     2,791                         2,088                         2,091                  
Allowance for loan losses .................      (975)                         (790)                         (636)                
Premises and equipment ....................     2,116                         1,725                         1,551                 
Other assets ..............................     1,176                           982                           656                 
                                            ---------                     ---------                      --------
        Total assets ...................... $ 120,980                     $ 101,756                      $ 96,499                
                                            =========                     =========                      ========
                                                                                                         
Liabilities and shareholders' equity                                                                     
Interest bearing deposits                                                                                
    Interest bearing transaction accounts . $  13,778   $  575    4.17%   $  10,639   $  414     3.89%   $ 10,460    $  378    3.61%
    Savings ...............................    20,443      779    3.81%      16,448      596     3.62%     18,801       738    3.93%
    Time deposits $100M and over ..........    24,977    1,391    5.57%      21,889    1,201     5.49%     19,560     1,026    5.25%
    Other time deposits ...................    30,428    1,773    5.83%      26,065    1,452     5.57%     25,573     1,553    6.07%
                                            ---------   ------            ---------   ------              -------    ------
        Total interest bearing                                                                           
          deposits ........................    89,626    4,518    5.04%      75,041    3,663     4.88%     74,394     3,695    4.97%
Short-term borrowings .....................         -        -    0.00%           7        1    14.29%          -        -     0.00%
                                            ---------   ------            ---------   ------             --------    ------
        Total interest bearing                                                                           
          liabilities .....................    89,626    4,518    5.04%      75,048    3,664     4.88%     74,394     3,695    4.97%
Noninterest bearing demand deposits .......    17,599                        14,790                        11,646                 
Other liabilities .........................     1,018                           799                           835                 
Shareholders' equity ......................    12,737                        11,119                         9,624                 
                                            ---------                     ---------                      --------
        Total liabilities and shareholders'                                                              
        equity ............................ $ 120,980                     $ 101,756                      $ 96,499                 
                                            =========                     =========                      ========
Interest rate spread(4) ...................                       2.64%                          2.87%                         2.49%
Net interest income and net yield                                                                        
    on earning assets(5) ..................             $4,386    3.79%               $3,914     4.00%               $3,233    3.48%
Interest free funds supporting earning                                                                   
    assets(6) ............................. $  26,246                     $  22,703                      $ 18,443
</TABLE>
                                                                               

--------------------------
(1)  Average balances are computed on a daily basis.
(2)  No taxable  equivalent  adjustment has been made because the Company has no
     material amounts of non-taxable interest income.
(3)  Nonaccrual  loans are included in the average  loan  balances and income on
     such loans is recognized on a cash basis.
(4)  Total  interest  bearing  assets  yield  less the  total  interest  bearing
     liabilities rate.
(5)  Net interest income divided by total interest earning assets.
(6)  Total interest earning assets less total interest bearing liabilities.


                                       4
<PAGE>

          Although loan growth  continued to be strong in 1998,  loan demand and
the rate of loan growth decreased toward the end of the year.  Average loans for
the year increased by $7,792,000, or 12.8%, but loans at 1998 year-end increased
by only  $2,055,000,  or 3.1%, over the 1997 year-end amount.  In contrast,  the
Company's average investment in taxable securities  increased by $3,124,000,  or
11.6%,  during 1998,  but the 1998 year-end  amount was  $12,774,000,  or 50.1%,
greater than the 1997 year-end  amount.  Average federal funds sold  investments
increased by  $6,881,000,  or 68.8%,  during 1998 and the year-end  increase was
$7,640,000,  or 117.4%.  Because the largest  changes in average  earning assets
during 1998 were in the lower-yielding  categories, the average yield on earning
assets decreased by 7 basis points to 7.68%.

          Growth in  interest-bearing  deposits was the primary  funding  source
during 1998. Strong growth was experienced in all categories of such liabilities
during the year.  Average  interest  bearing  deposits  increased during 1998 by
$14,585,000,  or 19.4%, over the 1997 average amounts.  The average rate paid on
interest  bearing  liabilities  in 1998  increased  by 16 basis  points over the
average rate paid in 1997.

          Because  growth in funding  sources was greater than loan demand,  the
Company has invested relatively larger amounts in taxable securities and federal
funds sold during  1998.  If loan demand  becomes  stronger in 1999, a source of
funds is readily available to accommodate it.

          The $681,000  increase in net interest  income for 1997  resulted from
increased loan volume and higher levels of interest-free funding sources.  These
funding sources included noninterest bearing demand deposits and equity capital.
Loan  growth was  steady in 1997,  with  average  loans for 1997  increasing  by
$10,755,000,  or 21.5%,  over the 1996 average.  Because average deposit funding
sources grew by only  $3,791,000,  or 4.4% during 1997,  the Company  funded the
growth in loans by  reducing  its federal  funds sold  position.  These  actions
resulted  in a shift in the  earning  assets mix toward  higher  yielding,  less
liquid assets and a 29 basis point increase in the earning asset yield.

          The table, "Volume and Rate Variance Analysis",  provides a summary of
changes in net  interest  income  resulting  from changes in volumes of interest
earning assets and interest bearing  liabilities,  and the rates earned and paid
on such assets and  liabilities.  As reflected in the table,  increased  volumes
accounted for $582,000 of the growth in net interest income for 1998,  which was
partially  offset by a $110,000  decrease  due to higher  rates paid on interest
bearing funding sources.  Increased volumes were responsible for $575,000 of the
growth in net  interest  income  for 1997,  which was  augmented  by a  $106,000
increase due to lower rates paid.

                       Volume and Rate Variance Analysis
<TABLE>
<CAPTION>

                                                                    1998 Compared with 1997            1997 Compared with 1996
                                                                    -----------------------            -----------------------
                                                               Volume (1)    Rate (1)    Total      Volume (1)   Rate (1)     Total
                                                               ----------    --------    -----      ----------   --------     -----
                                                                                     (Dollars in thousands)
<S>                                                           <C>           <C>         <C>           <C>         <C>         <C>  
Taxable securities .....................................      $   191       $   4       $   195       $  69       $  33       $ 102
Federal funds sold .....................................          377          15           392        (373)         (4)       (377)
Other investments ......................................           21           -            21           -           -           -
Loans(2) ...............................................          696          22           718         956         (31)        925
                                                              -------       -----       -------       -----       -----       -----
              Total interest income ....................        1,285          41         1,326         652          (2)        650
                                                              -------       -----       -------       -----       -----       -----
Interest bearing deposits
     Interest bearing transaction accounts .............          129          32           161           7          29          36
     Savings ...........................................          151          32           183         (88)        (54)       (142)
     Time deposits $100M and over ......................          172          18           190         126          49         175
     Other time deposits ...............................          252          69           321          31        (132)       (101)
Short-term borrowings ..................................           (1)          -            (1)          1           -           1
                                                              -------       -----       -------       -----       -----       -----
              Total interest expense ...................          703         151           854          77        (108)        (31)
                                                              -------       -----       -------       -----       -----       -----
              Net interest income ......................      $   582       $(110)      $   472       $ 575       $ 106       $ 681
                                                              =======       =====       =======       =====       =====       =====
</TABLE>

-------------------------------
(1)  The  rate/volume  variance  for  each  category  has  been  allocated  on a
     consistent  basis between rate and volume variances based on the percentage
     of rate or volume variance to the sum of the two absolute  variances except
     in categories having balances in only one period. In such cases, the entire
     variance is attributed to volume variances.
(2)  No taxable  equivalent  adjustment has been made because the Company has no
     material amounts of non-taxable interest income.


                                       5
<PAGE>

          During 1999, management expects that interest rates will move within a
narrow range,  and  management  has not  identified any factors that might cause
interest  rates to increase or decrease  sharply in a short period of time.  Any
improvements  in net interest  income for 1999 are  expected,  therefore,  to be
largely the result of  increases  in the volume of interest  earning  assets and
liabilities.   Management  expects  to  continue  to  use  aggressive  marketing
strategies to increase the Company's  market share for both deposits and quality
loans  within  its  service  areas in  Oconee  and  Anderson  counties  of South
Carolina.  These  strategies  involve  offering  attractive  interest  rates and
continuing the Company's commitment to providing outstanding customer service.

Interest Rate Sensitivity

          Interest  rate  sensitivity  measures the timing and  magnitude of the
repricing  of  assets  compared  with the  repricing  of  liabilities  and is an
important  part of  asset/liability  management.  The objective of interest rate
sensitivity  management is to generate stable growth in net interest income, and
to  control  the risks  associated  with  interest  rate  movements.  Management
constantly  monitors interest rate risk exposures and the expected interest rate
environment so that adjustments in interest rate sensitivity can be timely made.

          The table,  "Interest  Sensitivity  Analysis",  indicates  that,  on a
cumulative basis through twelve months, rate sensitive liabilities exceeded rate
sensitive  assets at the end of 1998 by  $59,553,000,  resulting in a cumulative
gap ratio of .37.  When interest  sensitive  assets  exceed  interest  sensitive
liabilities for a specific repricing  "horizon," a positive interest sensitivity
gap results.  The gap is negative when  interest  sensitive  liabilities  exceed
interest  sensitive  assets,  as was the case at the end of 1998 with respect to
the one-year time  horizon.  For a bank with a negative  gap,  falling  interest
rates  would be expected to have a positive  effect on net  interest  income and
rising rates would be expected to have the opposite effect.

          The table  "Interest  Sensitivity  Analysis"  reflects the balances of
interest earning assets and interest bearing liabilities at the earlier of their
repricing or maturity  dates.  Amounts of fixed rate loans are  reflected at the
loans' final maturity dates. Variable rate loans are reflected at the earlier of
their  contractual  maturity date or the date at which the loans may be repriced
contractually.   Taxable  securities  are  reflected  at  the  earlier  of  each
instrument's  ultimate maturity or contractual repricing date. Overnight federal
funds sold are reflected in the earliest  contractual  repricing interval due to
the immediately  available nature of these funds.  Interest bearing  liabilities
with no contractual maturity,  such as interest bearing transaction accounts and
savings  deposits  are  reflected  in the  earliest  repricing  interval  due to
contractual arrangements which give management the opportunity to vary the rates
paid on these  deposits  within a thirty-day  or shorter  period.  However,  the
Company is not  obligated  to vary the rates paid on those  deposits  within any
given period. Fixed rate time deposits, principally certificates of deposit, are
reflected at their  contractual  maturity  dates.  Variable rate time  deposits,
principally  individual  retirement  accounts,  are  reflected at the earlier of
their next repricing or maturity dates.

          During 1999, management plans, where possible, to reduce the Company's
liability  sensitive  position by  attempting  to  increase  the mix of variable
versus  fixed  rate loans and by  extending  the  maturities  of fixed rate time
deposits.  This  strategy,  if  successful,  would  help to provide a stable net
interest  spread and soften the  negative  effects of any  increase  in interest
rates that might occur.


                                       6
<PAGE>

                         Interest Sensitivity Analysis
<TABLE>
<CAPTION>

                                                                                           December 31, 1998
                                                                                           -----------------
                                                                  Within           4-12         Over 1-5      Over 5
                                                                 3 Months         Months         Years        Years          Total
                                                                 --------         ------         -----        -----          -----
                                                                                         (Dollars in thousands)
Interest earning assets
<S>                                                             <C>             <C>             <C>           <C>           <C>     
     Taxable securities .................................       $     24        $  1,003        $11,452       $25,805       $ 38,284
     Other investments ..................................            345               -              -             -            345
     Federal funds sold .................................         14,150               -              -             -         14,150
     Loans (1) ..........................................         13,243           6,127         41,368         6,789         67,527
                                                                --------        --------        -------       -------       --------
              Total interest earning assets .............         27,762           7,130        $52,820       $32,594       $120,306
                                                                --------        --------        =======       =======       ========

Interest bearing liabilities
     Interest bearing deposits
          Interest bearing transaction accounts .........       $ 17,240        $      -        $     -       $     -       $ 17,240
          Savings .......................................         16,872               -              -             -         16,872
          Time deposits $100M and over ..................         19,430           8,891            736             -         29,057
          Other time deposits ...........................          9,909          22,083          2,537             -         34,529
                                                                --------        --------        -------       -------       --------
              Total interest bearing liabilities ........       $ 63,451        $ 30,974        $ 3,273       $     -       $ 97,698
                                                                ========        ========        =======       =======       ========

Interest sensitivity gap ................................       $(35,689)       $(23,844)
Cumulative interest sensitivity gap .....................       $(35,689)       $(59,533)
Gap ratio ...............................................           0.44            0.23
Cumulative gap ratio ....................................           0.44            0.37
</TABLE>

(1) Loans are net of nonaccruing loans totaling $366,000.

Provision for Loan Losses

          The  provision  for  loan  losses  is  charged  to  earnings  based on
management's  continuing review and evaluation of the loan portfolio and general
economic  conditions.  Provisions  for loan losses were  $213,000,  $315,000 and
$223,000 for the years ended December 31, 1998, 1997 and 1996, respectively. The
decreased  provision in 1998 is  attributable to a slower rate of loan growth as
compared with prior years,  and no material  increases in the ratios of net loan
charge-offs  to average loans  outstanding  or net  charge-offs to allowance for
loan losses.  The  allowance  for loan losses as a percentage  of total loans at
year end was 1.41% for 1998  compared  with  1.35% at the end of 1997.  Net loan
charge-offs  were  $148,000 in 1998  compared with $130,000 and $93,000 for 1997
and 1996, respectively. See "Impaired Loans" and "Allowance for Loan Losses" for
a discussion of the factors  management  considers in its review of the adequacy
of the allowance and provision for loan losses.

Other Income

          Noninterest  income for 1998 increased  $52,000 or 10.0% compared with
an increase of $180,000 or 52.6% for 1997.  Service charges on deposit  accounts
increased  $62,000 in 1998 and $94,000 in 1997.  These  increases were primarily
due to increased  chargeable account activity.  Credit life insurance commission
income was static at $39,000  for both 1998 and 1997,  while such income in 1997
increased  $15,000.  There were no realized  securities gains or losses in 1998,
1997 or 1996. Other  noninterest  income decreased $10,000 in 1998 compared with
the previous year. In 1997,  other  noninterest  income  included a $44,000 gain
from  the sale of  foreclosed  real  estate  with no such  transaction  in 1998.
Categories  of other  noninterest  income that  increased  included  commissions
earned on customer  check orders  (increase of $6,000),  merchant  discounts and
other fees earned on credit card  transactions  (increase  of $23,000) and other
miscellaneous fees (increase of $6,000).


                                       7
<PAGE>

Other Expenses

          Noninterest  expenses for 1998 increased  $246,000 or 12.9%,  compared
with an increase of $350,000 or 22.5% for 1997.  Salaries and employee  benefits
increased  $130,000 in 1998 and  $149,000 in 1997.  The 1998  increase  resulted
primarily from personnel  added in anticipation of the opening of the Bank's new
branch office in Anderson, South Carolina.  Hiring for this branch began in 1998
so that training in the Company's systems and procedures could be completed well
before the branch's opening date on January 4, 1999. Incentive and other bonuses
and the Company's 401(k) plan expenses were largely  unchanged for 1998 compared
with 1997.

          Net  occupancy  and  furniture  and  equipment  expenses  increased by
$43,000,  or 16.1%, for 1998. This increase  resulted  principally from a $9,000
increase in  building  maintenance  and repair  expenses,  a $7,000  increase in
expenses  of  equipment   maintenance   contracts  and  a  $22,000  increase  in
depreciation  expense  associated with the new computer system placed in service
only during part of 1997.

          Other expense increased $73,000, or 11.5%, for 1998. Increases in many
categories of other expense were related to an increasing  customer base and the
associated processing of larger transaction volumes. In addition,  the Company's
product lines have been broadened in an attempt to make banking more  convenient
and  accessible  to the Bank's  customers  through  electronic,  card-based  and
telebanking  transaction  services.  Some categories with significant  increases
were stationery, printing and postage (up $14,000) and advertising and promotion
(up  $13,000).  Data  processing  expenses  were up  $40,000,  primarily  due to
increased costs associated with operating the Bank's ATM, providing for disaster
recovery  contingencies  and  amortization  of  software  costs.  Some  expenses
decreased,  however,  including  professional  service  fees (down  $23,000) and
expenses associated with other real estate (down $31,000).  Professional service
fees were higher in 1997 because of the corporate  reorganization  and formation
of the bank holding company.  During 1998, the Company held no significant other
real estate.

          The 1997  increase in  noninterest  expenses  included a new incentive
bonus totaling $81,000,  which was divided among all employees.  Retirement plan
expense  increased  in 1997 as the  number  of  employees  participating  in the
Company's  401(k) plan  expanded.  Net  occupancy  and  furniture  and equipment
expenses  combined for a 1997 increase of $19,000 or 7.7%.  The 1997 increase is
attributable to higher  depreciation  expense  related to the Company's  placing
into service a new mainframe  computer  system and other  peripheral  equipment.
Other  noninterest  expenses  increased a net total of $181,000 or 40.1% in 1997
compared with 1996. Included in this net increase in expenses were:  stationery,
printing  and postage - $21,000  increase,  advertising  and  promotion - $3,000
increase,  FDIC insurance - $6,000 increase, and expenses incurred in connection
with the  reorganization  of Community  First Bank into the present bank holding
company  structure  totaling  approximately  $44,000.  Expenses  associated with
holding  other real  estate  totaled  $32,000  in 1997 while  there were no such
expenses in 1996.

          Noninterest  overhead  expenses  for 1999  are  expected  to  increase
significantly as compared with 1998 in many categories  because of the Company's
de novo expansion into the adjacent Anderson County market. Until the new office
acquires a sufficiently  large customer base and attains volumes of deposits and
interest  earning  assets that would enable it to  contribute  to the  Company's
profitability,  management  expects  that the new  office  will have a  negative
effect on net  income.  A  temporary  office  has been  obtained  and opened for
business on January 4, 1999. At December 31, 1998,  $1,233,000 had been expended
on  land  and  construction  for  the  project.  Management  estimates  that  an
additional  $697,000  will be  required  to complete  the new  permanent  office
building with occupancy  expected by September,  1999. The Company plans to sell
approximately  $600,000 of surplus land  associated  with the original  property
acquisition  that would reduce the overall cost of the project.  However,  plans
for dividing and marketing of the surplus land have not been  finalized,  and no
contracts  for sales have been entered  into.  The success of the project may be
affected  adversely if the Company is unable to attract a substantial  number of
new customers, or if facilities or personnel costs are higher than projected.

          The Company's  FDIC  insurance  rates are assessed based on the lowest
rate available under  regulations and are expected to continue at relatively low
levels for the near  future.  Increases  in  noninterest  expenses  are  closely
monitored and cost control will  continue to be  emphasized by management  where
possible  in order to achieve  profitability  objectives  and attain the goal of
growth in the Company's market share in Oconee and Anderson counties.


                                       8
<PAGE>

Income Taxes

          For 1998,  federal and state income tax expenses increased to $928,000
from $807,000 in 1997 and $641,000 in 1996.  The increases in income tax expense
are due to higher  earnings.  The effective  income tax rate (income tax expense
divided by income before  income taxes) was 35.8% for 1998,  compared with 36.5%
and 35.8% for 1997 and 1996,  respectively.  The  effective  income tax rate for
1997 was higher than for 1998 and 1996 because of the  non-deductible  corporate
reorganization  expenses incurred that year in conjunction with the formation of
the bank holding company.

Securities

          The  following   table   summarizes  the  carrying  value  amounts  of
securities held by the Company at each of the dates indicated.

                        Securities Portfolio Composition

                                                       December 31,
                                                       ------------
                                             1998          1997          1996
                                             ----          ----          ----
                                          Available-    Available-    Available-
                                           for-Sale      for-Sale      for-Sale
                                           --------      --------      --------
                                                 (Dollars in thousands)

U. S. Treasury ........................    $     -        $ 2,003        $ 5,025
U. S. Government agencies .............     30,919         18,932         16,355
Mortgage-backed securities ............      7,365          4,575          5,145
                                           -------        -------        -------
                             Total ....    $38,284        $25,510        $26,525
                                           =======        =======        =======

          The following table presents maturities and weighted average yields of
securities at December 31, 1998.

                   Securities Portfolio Maturities and Yields

                                                            December 31, 1998
                                                            -----------------
                                                         Available-
                                                          for-Sale         Yield
                                                          --------         -----
                                                         (Dollars in thousands)
U. S. Government agencies
      Within one year .................                     $     -          . %
      After one through five years ....                       8,034        6.21%
      After five through ten years ....                      21,900        6.14%
      After ten years .................                         985        6.40%
                                                            -------
                                                             30,919        6.17%
                                                            -------
Mortgage-backed securities                                  
      Within one year .................                       1,027        6.66%
      After one through five years ....                       3,418        6.05%
      After five through ten years ....                       2,920        5.47%
                                                            ------
                                                              7,365        5.91%
                                                            ------
Total                                                       
      Within one year .................                       1,027        6.66%
      After one through five years ....                      11,452        6.16%
      After five through ten years ....                      24,820        6.06%
      After ten years .................                         985        6.40%
                                                            -------
        Total .........................                     $38,284        6.12%
                                                            =======

          On an ongoing basis,  management assigns securities upon purchase into
one of three categories (trading,  available-for-sale or held-to-maturity) based
on intent,  taking into consideration  other factors including  expectations for
changes in market rates of interest, liquidity needs, asset/liability management
strategies, and capital requirements.  The Company has never held securities for
trading  purposes.  During  1998,  1997 and  1996,  there  have been no sales of
securities or any transfers of available-for-sale or held-to-maturity securities
to other categories.

          All mortgage-backed  securities held by the Company were issued by yhe
Federal  Home  Loan  Mortgage  Corporation  or  the  Federal  National  Mortgage
Association.


                                       9
<PAGE>

Loan Portfolio

          Management  believes  the loan  portfolio is  adequately  diversified.
There are no significant  concentrations of loans in any particular  individual,
industry  or groups  of  related  individuals  or  industries,  and there are no
foreign loans.

          The amounts of loans  outstanding at December 31, 1998,  1997 and 1996
are shown in the following  table  according to type of loan, and the percentage
of each category to total loans:

                           Loan Portfolio Composition
<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                          ------------
                                                                    1998                      1997                       1996
                                                                    ----                      ----                       ----
                                                           Amount            %        Amount        %           Amount          %
                                                           ------            -        ------        -           ------          -
                                                                                     (Dollars in thousands)
Commercial, financial and industrial
<S>                                                       <C>            <C>        <C>            <C>        <C>            <C>  
     Commercial and industrial ....................       $ 9,255         13.6%     $ 9,685         14.7%     $ 7,600         13.9%
     Purchasing or carrying securities ............           282           .4%          79           .1%          66           .1%
Real estate - construction ........................            51           .1%          78           .1%         146           .3%
Real estate - mortgage
     1-4 family residential .......................        30,187         44.5%      29,835         45.3%      24,423         44.7%
     Multifamily (5 or more) residential ..........            90           .1%         104           .2%         198           .4%
     Nonfarm, nonresidential ......................        11,376         16.8%      11,357         17.2%      10,300         18.8%
Consumer instalment
     Credit card and checking credit ..............         1,022          1.5%         838          1.3%         766          1.4%
     Other ........................................        15,630         23.0%      13,862         21.1%      11,159         20.4%
                                                          -------        -----      -------        -----      -------        -----
                         Total loans ..............       $67,893        100.0%     $65,838        100.0%     $54,658        100.0%
                                                          =======        =====      =======        =====      =======        =====
</TABLE>

          A  certain  degree of risk  taking is  inherent  in the  extension  of
credit.  Management has established loan and credit policies designed to control
both the types and  amounts  of risks  assumed,  and to  minimize  losses.  Such
policies include limitations on  loan-to-collateral  values for various types of
collateral,  requirements for appraisals of real estate collateral, problem loan
management  practices and collection  procedures,  and nonaccrual and charge-off
guidelines.

          Commercial  and industrial  loans  primarily  represent  loans made to
businesses,  and may be made on either a secured  or an  unsecured  basis.  When
taken,  collateral  consists of liens on  receivables,  equipment,  inventories,
furniture and fixtures.  Unsecured business loans are generally  short-term with
emphasis on repayment strengths and low debt-to-worth ratios. During 1998, total
commercial and industrial  loans  decreased  $227,000 or 2.3%.  Loans mainly for
business  and  investment  purposes  that are secured by real  estate  (nonfarm,
nonresidential)  increased  by $19,000 or .2% during  1998.  Commercial  lending
involves  significant risk because  repayment  usually depends on the cash flows
generated by a borrower's business,  and the debt service capacity of a business
can deteriorate because of downturns in national and local economic  conditions.
To control risk, more in-depth  initial and continuing  financial  analysis of a
borrower's cash flows and other financial information is generally required.

          Real estate  construction  loans  generally  consist of financing  the
construction  of 1-4 family  dwellings  and some  nonfarm,  nonresidential  real
estate. Usually,  loan-to-cost ratios are limited to 75% and permanent financing
commitments are usually required prior to the advancement of loan proceeds.

          Loans secured by real estate mortgages comprised approximately 61% and
63% of the Company's loan  portfolio at the end of 1998 and 1997,  respectively.
Real estate mortgage loans of all types grew $357,000  during 1998.  Residential
real estate loans consist mainly of first and second  mortgages on single family
homes, with some multifamily loans.  Loan-to-value  ratios for these instruments
are  generally  limited to 80%.  Nonfarm,  nonresidential  loans are  secured by
business and commercial  properties with loan-to-value  ratios generally limited
to 70%. The  repayment  of both  residential  and business  real estate loans is
dependent primarily on the income and cash flows of the borrowers, with the real
estate serving as a secondary or liquidation source of repayment.


                                       10
<PAGE>

Maturity Distribution of Loans

   The  following  table sets forth the maturity  distribution  of the Company's
loans,  by type,  as of  December  31,  1998,  as well as the  type of  interest
requirement on such loans.

<TABLE>
<CAPTION>
                                                                                                December 31, 1998
                                                                                                -----------------
                                                                            One Year          One to        Five Years
                                                                             or Less        Five Years        or More          Total
                                                                             -------        ----------        -------          -----
                                                                                              (Dollars in thousands)
                                             
<S>                                                                          <C>             <C>             <C>             <C>    
Commercial, financial and industrial ...............................         $ 4,509         $ 4,605         $   423         $ 9,537
Real estate - construction .........................................               -              51               -              51
Real estate - mortgage .............................................           5,708          11,306          24,639          41,653
Consumer instalment loans ..........................................           3,583          12,194             875          16,652
                                                                             -------         -------         -------         -------
              Total loans ..........................................         $13,800         $28,156         $25,937         $67,893
                                                                             =======         =======         =======         =======


Predetermined rate, maturity greater than one year .................                         $24,804         $ 6,607         $31,411
                                                                                             =======         =======         =======

Variable rate or maturity within one year ..........................         $13,800         $ 3,352         $19,330         $36,482
                                                                             =======         =======         =======         =======
</TABLE>

Impaired Loans

          Impaired loans are those loans on which, based on current  information
and  events,  it is  probable  that the  Company  will be unable to collect  all
amounts due  according to the  contractual  terms of the loan  agreement.  Loans
which management has identified as impaired  generally are nonperforming  loans.
Nonperforming  loans include nonaccrual loans or loans which are 90 days or more
delinquent as to principal or interest  payments.  Following is a summary of the
Company's impaired loans:

                          Nonaccrual and Past Due Loans

                                                         December 31, 1998
                                                         -----------------
                                                     1998       1997        1996
                                                     ----       ----        ----
                                                        (Dollars in thousands)

Nonaccrual loans ..............................      $366       $163       $249
Accruing loans 90 days or more past due .......        10          1          -
                                                     ----       ----       ----
            Total .............................      $376       $164       $249
                                                     ====       ====       ====

Percent of total loans ........................       0.6%       0.2%       0.5%

          When an  impaired  loan is 90 days or more past due as to  interest or
principal or there is serious doubt as to ultimate  collectibility,  the accrual
of interest income is generally  discontinued.  Previously  accrued  interest on
loans placed in a nonaccrual  status is reversed  against  current  income,  and
subsequent interest income is recognized on a cash basis when received. When the
collectibility  of a  significant  amount  of  principal  is in  serious  doubt,
collections  are credited  first to the  remaining  principal  balance on a cost
recovery  basis.  An impaired  nonaccrual loan is not returned to accrual status
unless  principal and interest are current and the borrower has demonstrated the
ability to continue  making  payments as agreed.  The effects of interest income
accrued and  collected on impaired  loans were  immaterial  to the  consolidated
financial statements for 1998, 1997 and 1996.

          As of December 31, 1998,  there were no commitments to lend additional
funds to debtors owing amounts on nonaccrual loans.


                                       11
<PAGE>

Potential Problem Loans

          Management has  identified  and maintains a list of potential  problem
loans.  These are loans that are not included in impaired  loans  (nonaccrual or
past due 90 days or more and still  accruing).  A loan is added to the potential
problem list when management  becomes aware of information about possible credit
problems of borrowers  that causes doubts as to the ability of such borrowers to
comply  with the  current  loan  repayment  terms.  The  total  amount  of loans
outstanding  at December  31, 1998  determined  by  management  to be  potential
problem loans was $541,000. This amount does not represent management's estimate
of potential losses since a large proportion of such loans is secured by various
types  of  collateral.  The  following  table  presents  information  about  the
categories and types of collateral with respect to potential problem loans as of
December 31, 1998.

                                               December 31, 1998
                                               -----------------
                                          Amount                 %
                                          ------               ------
                                            (Dollars in thousands)

Commercial and industrial
     Equipment ......................       $16                   3.0%
Real estate - mortgage             
     1-4 family residential .........       284                  52.5%
Consumer installment               
     Vehicles .......................       163                  30.1%
     Other secured ..................        37                   6.8%
     Unsecured ......................        41                   7.6%
                                           ----                 ----- 
                                           $541                 100.0%
                                           ====                 ===== 
                                   

Allowance for Loan Losses

          The  allowance  for loan  losses is  increased  by direct  charges  to
operating  expense.  Losses on loans are charged  against the  allowance  in the
period in which  management  has determined it is more likely than not that such
loans have become uncollectible.  Recoveries of previously charged off loans are
credited  to the  allowance.  The  table,  "Summary  of Loan  Loss  Experience",
summarizes loan balances at the end of each period indicated,  averages for each
period, changes in the allowance arising from charge-offs and recoveries by loan
category, and additions to the allowance which have been charged to expense.

          In  reviewing  the adequacy of the  allowance  for loan losses at each
year  end,  management  took  into  consideration  the  historical  loan  losses
experienced by the Company, current economic conditions affecting the borrowers'
ability to repay,  the volume of loans,  the trends in delinquent,  nonaccruing,
and  potential   problem   loans,   and  the  quality  of  collateral   securing
nonperforming and problem loans. After charging off all known losses, management
considers  the  allowance  for loan  losses  adequate  to cover its  estimate of
possible  future loan losses  inherent in the loan  portfolio as of December 31,
1998.

          In calculating  the amount  required in the allowance for loan losses,
management  applies  a  consistent  methodology  that is  updated  monthly.  The
methodology  utilizes a loan risk grading  system and  detailed  loan reviews to
assess credit risks and the overall  quality of the loan  portfolio,  as well as
other  off-balance-sheet  credit  risks  such as loan  commitments  and  standby
letters of credit.  In  addition,  the  calculation  provides  for  management's
assessment of trends in national and local economic conditions that might affect
the  general  quality of the loan  portfolio.  Management's  calculation  of the
allowance  for loan losses does not provide an  allocation  by  individual  loan
categories.


                                       12
<PAGE>

          The Company has not  historically  allocated  its  allowance  for loan
losses to individual  loan  categories.  Management  believes that its stringent
loan  charge-off  policy,   along  with  its  limited  historic  net  charge-off
experience,  makes an aggregate evaluation that emphasizes  individual loan risk
grades and  specific  problem loan  allocations  more  meaningful.  Management's
analysis of historical net charge-offs and the composition of the loan portfolio
at the end of 1998 did not reflect any material change from the prior years, nor
is management  aware of any significant  degree of increased  exposure,  risk of
collection or other adverse  features  toward any particular  category of loans.
Consequently,  management  has  not  estimated  future  charge-offs  related  to
individual loan categories or subcategories.

                         Summary of Loan Loss Experience
<TABLE>
<CAPTION>
                                                                                        Years Ended December 31,
                                                                                        ------------------------
                                                                          1998        1997          1996         1995        1994
                                                                          ----        ----          ----         ----        ----
                                                                                          (Dollars in thousands)

<S>                                                                     <C>          <C>          <C>          <C>          <C>    
Total loans outstanding at end of period ..........................     $67,893      $65,838      $54,658      $44,175      $37,185
Average amount of loans outstanding ...............................      68,499       60,707       49,952       40,956       33,553

Balance of allowance for loan losses - beginning ..................     $   890      $   705      $   575      $   460      $   338
                                                                        -------      -------      -------      -------      -------
Loans charged off
     Commercial and industrial ....................................          44           37           11           14           34
     Real estate - mortgage .......................................           9           31           29            -            -
     Consumer instalment ..........................................         116           72           69           26           19
                                                                        -------      -------      -------      -------      -------
             Total charge-offs ....................................         169          140          109           40           53
                                                                        -------      -------      -------      -------      -------
Recoveries of loans previously charged off
     Commercial and industrial ....................................           -            3            1            -            -
     Real estate - mortgage .......................................          15            -            5            -            -
     Consumer instalment ..........................................           6            7           10            2            2
                                                                        -------      -------      -------      -------      -------
             Total recoveries .....................................          21           10           16            2            2
                                                                        -------      -------      -------      -------      -------
Net charge-offs ...................................................         148          130           93           38           51
                                                                        -------      -------      -------      -------      -------
Additions to allowance charged to expense .........................         213          315          223          153          173
                                                                        -------      -------      -------      -------      -------
Balance of allowance for loan losses - ending .....................     $   955      $   890      $   705      $   575      $   460
                                                                        =======      =======      =======      =======      =======

Ratios
     Net charge-offs to average loans .............................        0.22%        0.21%        0.19%        0.09%        0.15%
     Net charge-offs to loans at end of period ....................        0.22%        0.20%        0.17%        0.09%        0.14%
     Allowance for loan losses to average loans ...................        1.39%        1.47%        1.41%        1.40%        1.37%
     Allowance for loan losses to loans at end of period ..........        1.41%        1.35%        1.29%        1.30%        1.24%
     Net charge-offs to allowance for loan losses .................       15.50%       14.61%       13.19%        6.61%       11.09%
     Net charge-offs to provision for loan losses .................       69.48%       41.27%       41.70%       24.84%       29.48%
</TABLE>



                                       13
<PAGE>

Deposits

          The average amounts and percentage composition of deposits held by the
Company for the years ended  December 31, 1998,  1997 and 1996,  are  summarized
below:

                                Average Deposits
<TABLE>
<CAPTION>
                                                                                   Years Ended December 31,
                                                                                   ------------------------
                                                                  1998                      1997                       1996
                                                                  ----                      ----                       ----
                                                          Amount          %        Amount           %        Amount            %
                                                          ------        -----      ------         -----      ------          -----
                                                                                       (Dollars in thousands)

<S>                                                      <C>           <C>        <C>            <C>        <C>             <C>  
Noninterest bearing demand .......................       $ 17,599       16.4%     $14,790         16.5%     $11,646          13.5%
Interest bearing transaction accounts ............         13,778       12.8%      10,639         11.8%      10,460          12.2%
Savings ..........................................         20,443       19.1%      16,448         18.3%      18,801          21.9%
Time deposits $100M and over .....................         24,977       23.3%      21,889         24.4%      19,560          22.7%
Other time .......................................         30,428       28.4%      26,065         29.0%      25,573          29.7%
                                                         --------      -----      -------        -----      -------         -----
               Total deposits ....................       $107,225      100.0%     $89,831        100.0%     $86,040         100.0%
                                                         ========      =====      =======        =====      =======         =====
</TABLE>

          As of December 31, 1998,  there were  $29,057,000  in time deposits of
$100,000  or  more.  Approximately   $19,430,000  mature  within  three  months,
$2,185,000  mature over three  through six  months,  $6,706,000  mature over six
through  twelve months and $736,000  mature after one year.  This level of large
time  deposits,  as well as the growth in other  deposits,  can be attributed to
growth  planned by management.  The vast majority of time deposits  $100,000 and
over are acquired  within the Company's  service areas in the ordinary course of
business.  The Company does not purchase  brokered  deposits.  Most of the large
time deposits are acquired from customers with standing  banking  relationships.
However, it is a common industry practice to not consider these deposits as core
deposits  since their  retention  can be  influenced  heavily by rates  offered.
Therefore,  such deposits have the  characteristics  of  shorter-term  purchased
funds.  Certificates  of deposit  $100,000  and over  require  that the  Company
achieve and maintain an  appropriate  matching of maturity  distributions  and a
diversification of sources to achieve an appropriate level of liquidity.

Return on Equity and Assets

          The following  table shows the return on assets (net income divided by
average total assets),  return on equity (net income divided by average equity),
dividend  payout ratio  (dividends  declared per share divided by net income per
share),  and equity to assets ratio  (average  equity  divided by average  total
assets) for each period indicated.

                                   Years Ended December 31,
                                   ------------------------
                                1998         1997        1996
                                ----         ----        ----
                          
Return on assets                1.38%       1.38%        1.19%
Return on equity               13.07%      12.64%       11.97%
Dividend payout ratio           0.00%       0.00%        0.00%
Equity to assets ratio         10.53%      10.93%        9.97%

Liquidity

          Liquidity  is the  ability  to meet  current  and  future  obligations
through  liquidation  or  maturity  of  existing  assets or the  acquisition  of
additional liabilities. Adequate liquidity is necessary to meet the requirements
of customers for loans and deposit withdrawals in the most timely and economical
manner.  Some liquidity is ensured by maintaining  assets which are  convertible
immediately  into cash at minimal cost (amounts due from banks and federal funds
sold).  However,  the most  manageable  sources of  liquidity  are  composed  of
liabilities, with the primary focus on liquidity management being on the ability
to obtain  deposits  within the Company's  service areas.  Core deposits  (total
deposits less time  deposits of $100,000 and over)  provide a relatively  stable
funding base,  and the average of these  deposits  represented  68.0% of average


                                       14
<PAGE>

total assets during 1998  compared  with 66.8% during 1997.  Deposits of several
local  governmental  entities  comprised  approximately  27%  and  33% of  total
deposits at the end of 1998 and 1997,  respectively.  Because of the potentially
volatile  nature  of  this  funding  source,  management  maintains  the  Bank's
membership  in the Federal  Home Loan Bank of Atlanta  (the  "FHLB") in order to
gain  access to its credit  programs.  As of  December  31,  1998,  the  banking
subsidiary  is  eligible  to  borrow  up to  $10,600,000  from  the  FHLB.  Such
borrowings,  if utilized,  would be secured by a lien on its  investment in FHLB
stock and all first mortgage  residential loans held. Assets potentially subject
to this lien totaled  approximately  $27,734,000  as of December  31,  1998.  In
addition, the banking subsidiary has available unused short-term lines of credit
to purchase  up to  $2,500,000  of federal  funds from  unrelated  correspondent
institutions.  The lines are  generally  available  on a one to seven day basis.
Asset  liquidity is provided from several  sources,  including  amounts due from
banks and federal funds sold. Securities available-for-sale,  particularly those
maturing  within one year,  and funds  available  from  maturing  loans  provide
secondary sources of liquidity.

          Community First Bancorporation's  ability to meet its cash obligations
or to pay any  possible  future cash  dividends  to  shareholders  is  dependent
primarily on the successful  operation of the subsidiary bank and its ability to
pay cash dividends to the parent company.  All of the banking  subsidiary's cash
dividends are subject to the prior approval of the South  Carolina  Commissioner
of  Banking  and are  generally  payable  only from its  undivided  profits.  At
December 31, 1998, the banking subsidiary's  available undivided profits totaled
$4,487,000.  Under Federal  Reserve Board  regulations,  the amounts of loans or
advances from the banking  subsidiary to the parent company are also restricted.
During 1998,  the parent  company  received no cash  dividends  from its banking
subsidiary.  However,  the parent company received a $250,000 cash dividend from
the bank subsidiary during 1997.

          Management  believes  that the overall  liquidity  sources of both the
Company and its banking subsidiary are adequate to meet their operating needs.

Capital Resources

          Shareholders'  equity  increased by $1,753,000 and  $1,515,000  during
1998 and 1997,  respectively.  During 1998, net income  increased  shareholders'
equity  $1,664,000,  and the  exercise of  employee  stock  options  provided an
$89,000  increase.  Management has continued to use retained earnings to provide
adequate capital for expected growth.

          During 1998, the Company's  Board of Directors  declared a two-for-one
stock split, and in 1997, declared a 15% stock dividend.  These actions resulted
in the issuance of 889,198 and 228,902 additional shares of the Company's common
stock to its shareholders, respectively.

          The Company and its banking  subsidiary are each subject to regulatory
risk-based  capital  adequacy  standards.  Under these  standards,  bank holding
companies and banks are required to maintain  certain  minimum ratios of capital
to  risk-weighted  assets and average total assets.  Under the provisions of the
Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA),  federal
bank  regulatory  authorities  are  required  to  implement  prescribed  "prompt
corrective  actions" upon the deterioration of the capital position of a bank or
bank holding company. If the capital position of an affected institution were to
fall below certain levels,  increasingly stringent regulatory corrective actions
are  mandated.   Unrealized  holding  gains  and  losses  on  available-for-sale
securities are generally excluded for purposes of calculating regulatory capital
ratios.  However,  the extent of any unrealized  appreciation or depreciation on
securities  will continue to be a factor that regulatory  examiners  consider in
their overall assessment of capital adequacy.

          Quantitative  measures  established  by regulation  to ensure  capital
adequacy  require both the Company and the Bank to maintain  minimum amounts and
ratios, as set forth in the table below, of Total and Tier 1 Capital, as defined
in the regulation,  to risk weighted assets, as defined,  and of Tier 1 Capital,
as defined, to average assets, as defined.  Management believes,  as of December
31, 1998 and 1997,  that the Company and the Bank exceeded all capital  adequacy
minimum requirements to which they were subject.

          To be categorized as well  capitalized,  the Company and the Bank must
maintain minimum Total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios
as set forth in the table below. The federal  regulators may also categorize the
Company or the Bank as less than well capitalized based on subjective  criteria.
There are no  conditions  or events  that  management  believes  would cause the
Company's or the Bank's  category to be other than that  resulting  from meeting
the minimum ratio requirements.

                                       15
<PAGE>


<TABLE>
<CAPTION>
                                                                                                Minimum for           Minimum to be
                                                                             Actual           Capital Adequacy      Well Capitalized
                                                                             ------           ----------------      ----------------
                                                                      Amount      Ratio      Amount      Ratio     Amount      Ratio
                                                                      ------      -----      ------      -----     ------      -----
December 31, 1998                                                                       (Dollars in thousands)
     The Company
<S>                                                                  <C>          <C>        <C>         <C>       <C>         <C>  
          Total Capital to risk weighted assets ...............      $14,497      20.7%      $5,615      8.0%      $7,019      10.0%
          Tier 1 Capital to risk weighted assets ..............      $13,620      19.4%      $2,807      4.0%      $4,211       6.0%
          Tier 1 Capital to average assets (leverage) .........      $13,620      11.0%      $3,703      3.0%      $6,172       5.0%
     Community First Bank                                                                                        
          Total Capital to risk weighted assets ...............      $14,197      20.2%      $5,615      8.0%      $7,019      10.0%
          Tier 1 Capital to risk weighted assets ..............      $13,320      19.0%      $2,807      4.0%      $4,211       6.0%
          Tier 1 Capital to average assets (leverage) .........      $13,320      10.8%      $3,703      3.0%      $6,172       5.0%
                                                                                                                 
December 31, 1997                                                                                                
     The Company                                                                                                 
          Total Capital to risk weighted assets ...............      $12,646      20.3%      $4,994      8.0%      $6,242      10.0%
          Tier 1 Capital to risk weighted assets ..............      $11,866      19.0%      $2,497      4.0%      $3,745       6.0%
          Tier 1 Capital to average assets (leverage) .........      $11,866      12.0%      $2,959      3.0%      $4,932       5.0%
     Community First Bank                                                                                        
          Total Capital to risk weighted assets ...............      $12,407      19.9%      $4,993      8.0%      $6,242      10.0%
          Tier 1 Capital to risk weighted assets ..............      $11,620      18.6%      $2,497      4.0%      $3,745       6.0%
          Tier 1 Capital to average assets (leverage) .........      $11,620      11.8%      $2,958      3.0%      $4,930       5.0%
</TABLE>

Year 2000 Readiness Disclosure

          The  Company  is  presently  on  schedule  in  implementing   its  Y2K
Preparedness Plan. The plan has five phases: (1) Awareness, (2) Assessment,  (3)
Renovation, (4) Validation, and (5) Implementation. The awareness and assessment
phases have been substantially  completed as of December 31 1998, which included
the identification of critical systems and equipment  potentially  vulnerable to
the Year 2000 problem.  This also included  identification  of significant  loan
customers whose businesses  could possibly be adversely  affected by the problem
and  communicating  with them about their  progress in addressing  the Year 2000
changeover.  The renovation phase,  consisting of upgrading or replacing systems
and equipment,  had also been largely completed for all mission-critical systems
as of December 31, 1998. The validation portion of the plan calls for the actual
testing of systems and equipment as of several  critical dates with such testing
to be completed by June 30, 1999.  This testing is presently on schedule with no
major problems  encountered.  Finally, the implementation  phase, which requires
addressing  any  problems  encountered  in  the  validation  phase,  along  with
continued  review and  assessment of the  Company's  systems and  equipment,  is
presently underway and will continue until the year 2000 has arrived.  As a part
of contingency  planning,  the Company has engaged an outside contractor to make
available a compatible portable hardware and software system,  represented to be
Year 2000 compliant,  which could timely be brought to the Company's location in
the event of a system failure.

          Management is of the opinion that the Company's  systems and equipment
will be ready for the Year 2000 in a timely manner without any material  adverse
effect on the Company's business.  Because of the planned comprehensive computer
hardware and software  upgrade begun in 1996 and completed in 1997,  the Company
has incurred no material  expenditures in 1998 or 1997 relating  directly to the
Year 2000 problem.  The new  components,  which were largely Year 2000 compliant
when  installed,  were  acquired in the normal course of business to upgrade the
Bank's computer capabilities. The previous system was over six years old and was
becoming  functionally  obsolete.  The Company  has been able to use  previously
existing  internal  personnel  and  resources to carry out its Y2K  Preparedness
Plan, and has used few outside resources that would incur significant additional
costs.  Management is not aware of any material future expenditures  required to
complete its preparedness plan.

Inflation

          Since the assets and  liabilities of a bank are primarily  monetary in
nature (payable in fixed,  determinable  amounts),  the performance of a bank is
affected  more by changes in interest  rates than by inflation.  Interest  rates
generally increase as the rate of inflation increases,  but the magnitude of the
change in rates may not be the same.

          While the effect of inflation on banks is normally not as  significant
as is its influence on those  businesses  having large  investments in plant and
inventories, it does have an effect. During periods of high inflation, there are
normally  corresponding  increases in the money supply,  and banks will normally
experience  above-average  growth in assets,  loans and deposits.  Also, general
increases in the prices of goods and services will result in increased operating
expenses.

                                       16
<PAGE>

Independent Auditors' Report




The Shareholders and Board of Directors
    of Community First Bancorporation

        We have audited the accompanying consolidated balance sheet of Community
First  Bancorporation  and  subsidiary as of December 31, 1998 and 1997, and the
related  consolidated  statements of income,  comprehensive  income,  changes in
shareholders'  equity,  and cash flows for each of the three years in the period
ended December 31, 1998. 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 generally  accepted  auditing
standards.  Those 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  financial  statements  referred to above  present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Community First  Bancorporation and subsidiary as of December 31, 1998 and 1997,
and the  consolidated  results of their operations and their  consolidated  cash
flows for each of the three years in the period  ended  December  31,  1998,  in
conformity with generally accepted accounting principles.


                                      s/Donald G. Jones and Company, P.A.


Donald G. Jones and Company, P.A.
Certified Public Accountants
Columbia, South Carolina
February 4, 1999










                                       17
<PAGE>


Consolidated Balance Sheet
Community First Bancorporation
<TABLE>
<CAPTION>

                                                                                                            December 31,
                                                                                                            ------------
                                                                                                     1998                   1997
                                                                                                     ----                   ----
Assets
<S>                                                                                             <C>                   <C>          
     Cash and due from banks (Note C) ..................................................        $   3,319,892         $   4,833,659
     Federal funds sold ................................................................           14,150,000             6,510,000
     Securities available-for-sale (Note D) ............................................           38,284,136            25,510,524
     Other investments .................................................................              345,400               335,000
     Loans (Note E) ....................................................................           67,893,169            65,837,908
         Allowance for loan losses .....................................................             (954,788)             (890,125)
                                                                                                -------------         -------------
            Loans - net ................................................................           66,938,381            64,947,783
     Premises and equipment - net (Note F) .............................................            2,871,156             1,675,492
     Accrued interest receivable .......................................................              829,201               792,715
     Other assets ......................................................................              388,610               362,966
                                                                                                -------------         -------------

            Total assets ...............................................................        $ 127,126,776         $ 104,968,139
                                                                                                =============         =============

Liabilities
     Deposits (Note G)
         Noninterest bearing ...........................................................        $  14,797,785         $  16,501,066
         Interest bearing ..............................................................           97,698,387            75,789,506
                                                                                                -------------         -------------
            Total deposits .............................................................          112,496,172            92,290,572
     Accrued interest payable ..........................................................              965,653               772,105
     Other liabilities .................................................................               61,991                55,741
                                                                                                -------------         -------------
            Total liabilities ..........................................................          113,523,816            93,118,418
                                                                                                -------------         -------------

     Commitments and contingent liabilities (Note L)

Shareholders' equity (Notes B and H)
     Common stock - no par  value;  10,000,000 shares authorized; issued and
         outstanding - 1,793,792 for 1998 and
         1,772,280 for 1997 ............................................................           10,568,522            10,479,137
     Retained earnings .................................................................            3,051,399             1,387,121
     Accumulated other comprehensive income ............................................              (16,961)              (16,537)
                                                                                                -------------         -------------
            Total shareholders' equity .................................................           13,602,960            11,849,721
                                                                                                -------------         -------------

            Total liabilities and shareholders' equity .................................        $ 127,126,776         $ 104,968,139
                                                                                                =============         =============
</TABLE>











See accompanying notes to consolidated financial statements.


                                       18
<PAGE>

Consolidated Statement of Income
Community First Bancorporation
<TABLE>
<CAPTION>

                                                                                             Years Ended December 31,
                                                                                             ------------------------
                                                                               1998                   1997                 1996
                                                                               ----                   ----                 ----
Interest Income
<S>                                                                         <C>                    <C>                    <C>       
     Loans, including fees ....................................             $6,116,208             $5,397,962             $4,473,299
     Securities - taxable .....................................              1,841,050              1,645,718              1,543,986
     Federal funds sold .......................................                926,264                534,153                910,946
     Other investments ........................................                 20,797                      -                      -
                                                                            ----------             ----------             ----------
         Total interest income ................................              8,904,319              7,577,833              6,928,231
                                                                            ----------             ----------             ----------

Interest expense
     Time deposits $100,000 and over ..........................              1,390,866              1,201,135              1,026,257
     Other deposits ...........................................              3,127,035              2,462,426              2,668,609
     Short-term borrowings ....................................                      -                    649                      -
                                                                            ----------             ----------             ----------
         Total interest expense ...............................              4,517,901              3,664,210              3,694,866
                                                                            ----------             ----------             ----------

Net interest income ...........................................              4,386,418              3,913,623              3,233,365
Provision for loan losses (Note E) ............................                213,486                315,183                223,075
                                                                            ----------             ----------             ----------
Net interest income after provision ...........................              4,172,932              3,598,440              3,010,290
                                                                            ----------             ----------             ----------

Other income
     Service charges on deposit accounts ......................                368,777                306,435                212,879
     Credit life insurance commissions ........................                 39,189                 38,827                 23,512
     Other income .............................................                166,766                176,753                105,518
                                                                            ----------             ----------             ----------
         Total other income ...................................                574,732                522,015                341,909
                                                                            ----------             ----------             ----------

Other expenses (Notes I and K)
     Salaries and employee benefits ...........................              1,138,752              1,008,265                858,916
     Net occupancy expense ....................................                115,789                100,605                 97,802
     Furniture and equipment expense ..........................                194,429                166,612                150,257
     Other expense ............................................                706,289                633,020                451,958
                                                                            ----------             ----------             ----------
         Total other expenses .................................              2,155,259              1,908,502              1,558,933
                                                                            ----------             ----------             ----------

Income before income taxes ....................................              2,592,405              2,211,953              1,793,266
Income tax expense (Note J) ...................................                928,127                806,903                640,825
                                                                            ----------             ----------             ----------
Net income ....................................................             $1,664,278             $1,405,050             $1,152,441
                                                                            ==========             ==========             ==========

Per share (Note H)
     Net income ...............................................             $     0.94             $     0.80             $     0.66
     Net income, assuming dilution ............................                   0.88                   0.77                   0.64
</TABLE>











See accompanying notes to consolidated financial statements.


                                       19
<PAGE>


Consolidated Statement of Comprehensive Income
Community First Bancorporation
<TABLE>
<CAPTION>

                                                                                             Years Ended December 31,
                                                                                             ------------------------
                                                                                   1998                1997                1996
                                                                                   ----                ----                ----

<S>                                                                           <C>                   <C>                 <C>        
Net income .........................................................          $ 1,664,278           $1,405,050          $ 1,152,441
                                                                              -----------           ----------          -----------
Other comprehensive income (loss)
     Change in unrealized holding gains and
        losses on available-for-sale securities ....................                 (661)              97,051             (137,147)
     Income tax expense (benefit) on other
         comprehensive income (loss) ...............................                 (237)              34,841              (49,236)
                                                                              -----------           ----------          -----------
            Total other comprehensive income (loss) ................                 (424)              62,210              (87,911)
                                                                              -----------           ----------          -----------
Comprehensive income ...............................................          $ 1,663,854           $1,467,260          $ 1,064,530
                                                                              ===========           ==========          ===========
</TABLE>







































See accompanying notes to consolidated financial statements.


                                       20
<PAGE>

Consolidated Statement of Changes in Shareholder's Equity
Community First Bancorporation
<TABLE>
<CAPTION>
                                                       Common Stock                                         
                                                       ------------                                         Accumulated
                                               Number of                       Capital       Retained   Other Comprehensive
                                                Shares*          Amount        Surplus       Earnings        Income          Total
                                                -------          ------        -------       --------        ------          -----
                            
<S>                                            <C>           <C>              <C>           <C>             <C>         <C>        
Balance, January 1, 1996 .................     1,445,250     $  3,613,125     $4,280,674    $ 1,321,589     $  9,164    $ 9,224,552

Issuance of 5% stock dividend,
   including cash payment for
   fractional shares .....................        71,448          178,620        357,240       (541,969)                     (6,109)
Exercise of employee stock options .......        12,410           31,025         20,689                                     51,714
Change in unrealized holding gains
   and losses on available-for-sale
   securities, net of income tax
   benefit of $49,236 ....................                                                                   (87,911)       (87,911)
Net income ...............................             -                -              -      1,152,441            -      1,152,441
                                              ----------     ------------     ----------    -----------     --------    -----------
Balance, December 31, 1996 ...............     1,529,108        3,822,770      4,658,603      1,932,061      (78,747)    10,334,687

Issuance of 15% stock dividend,
   including cash payment for
   fractional shares .....................       228,902        1,945,667              -     (1,949,990)                     (4,323)
Exercise of employee stock options .......        14,270           50,767          1,330                                     52,097
Change in unrealized holding gains
   and losses on available-for-sale
   securities, net of income taxes
   of $34,841 ............................                                                                    62,210         62,210
Exchange of no par value common stock
   of Community First Bancoporation
   for all of the outstanding shares
   of Community First Bank (Note B) ......                      4,659,933     (4,659,933)
Net income ...............................             -                -              -      1,405,050            -      1,405,050
                                              ----------     ------------     ----------    -----------     --------    -----------
Balance, December 31, 1997 ...............     1,772,280       10,479,137              -      1,387,121      (16,537)    11,849,721

Exercise of employee stock options .......        21,512           89,385                                                    89,385
Change in unrealized holding gains
   and losses on available-for-sale ......
   securities, net of income tax
   benefit of $237 .......................                                                                      (424)          (424)
Net income ...............................             -                -              -      1,664,278            -      1,664,278
                                              ----------     ------------     ----------    -----------     --------    -----------
Balance, December 31, 1998 ...............     1,793,792     $ 10,568,522     $        -    $ 3,051,399     $(16,961)   $13,602,960
                                              ==========     ============     ==========    ===========     ========    ===========
</TABLE>


* Adjusted for a two-for-one stock split effective July 31, 1998.






















See accompanying notes to consolidated financial statements.


                                       21
<PAGE>


Consolidated Statement of Cash Flows
Community First Bancorporation
<TABLE>
<CAPTION>

                                                                                            Years Ended December 31,
                                                                                            ------------------------
                                                                                     1998                1997               1996
                                                                                     ----                ----               ----
Operating Activities
<S>                                                                            <C>                 <C>                 <C>         
     Net income ........................................................       $  1,664,278        $  1,405,050        $  1,152,441
     Adjustments to reconcile net income to net
         cash provided by operating activities
            Provision for loan losses ..................................            213,486             315,183             223,075
            Depreciation ...............................................            149,463             129,703              97,338
            Deferred income taxes ......................................              1,957             (49,529)            (36,161)
            Amortization of net loan fees and costs ....................             55,014              37,959              26,717
            Securities accretion and premium amortization ..............            (98,401)            (14,705)            (32,860)
            Writedowns of other real estate ............................                  -              25,000                   -
            Gain on sale of other real estate ..........................                  -             (44,547)                  -
            Loss on disposal of fixed assets ...........................                439                   -                   -
            Increase in interest receivable ............................            (36,486)            (74,475)            (80,135)
            Increase (decrease) in interest payable ....................            193,548             (46,600)             17,439
            (Increase) decrease in prepaid expenses ....................            (27,364)            (94,750)              3,350
            Increase (decrease) in other accrued expenses ..............              6,250              (4,370)             31,107
                                                                               ------------        ------------        ------------
                Net cash provided by operating activities ..............          2,122,184           1,583,919           1,402,311
                                                                               ------------        ------------        ------------

Investing activities
     Purchases of available-for-sale securities ........................        (60,961,204)         (7,999,531)        (13,434,774)
     Maturities of available-for-sale securities .......................         48,285,332           9,125,412           9,768,227
     Purchases of other investments ....................................            (10,400)           (335,000)                  -
     Net increase in loans made to customers ...........................         (2,259,098)        (11,347,996)        (10,628,127)
     Proceeds from sale of other real estate ...........................                  -              44,547                   -
     Purchases of premises and equipment ...............................         (1,345,566)            (22,770)           (317,713)
                                                                               ------------        ------------        ------------
                Net cash used by investing activities ..................        (16,290,936)        (10,535,338)        (14,612,387)
                                                                               ------------        ------------        ------------

Financing activities
     Net increase in demand deposits, interest
         bearing transaction accounts and savings accounts .............          6,111,490           1,442,368           7,970,374
     Net increase in certificates of deposit and other
         time deposits .................................................         14,094,110           3,388,290           5,549,239
     Payment of cash in lieu of of fractional shares
         for stock dividend ............................................                  -              (4,323)             (6,109)
     Exercise of employee stock options ................................             89,385              52,097              51,714
                                                                               ------------        ------------        ------------
                Net cash provided by financing activities ..............         20,294,985           4,878,432          13,565,218
                                                                               ------------        ------------        ------------
Increase (decrease) in cash and cash equivalents .......................          6,126,233          (4,072,987)            355,142
Cash and cash equivalents, beginning ...................................         11,343,659          15,416,646          15,061,504
                                                                               ------------        ------------        ------------
Cash and cash equivalents, ending ......................................       $ 17,469,892        $ 11,343,659        $ 15,416,646
                                                                               ============        ============        ============
</TABLE>









See accompanying notes to consolidated financial statements.



                                       22
<PAGE>

Notes to Consolidated Financial Statements
Community First Bancorporation


NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization  Community First  Bancorporation  (the  "Company"),  a bank holding
company, and its wholly-owned  subsidiary,  Community First Bank, are engaged in
providing domestic commercial banking services from their headquarters office in
Walhalla, and other offices in Seneca and Anderson,  South Carolina. The Company
is a South Carolina  corporation and its banking subsidiary is a state chartered
commercial  bank with its  deposits  insured by the  Federal  Deposit  Insurance
Corporation (the "FDIC"). Therefore, the Company and its bank subsidiary operate
under the supervision,  rules and regulations of the Federal Reserve Board, FDIC
and South Carolina State Board of Financial  Institutions.  The holding  company
was  incorporated  on May 23,  1997,  pursuant  to a plan of  reorganization  as
described in Note B to the consolidated  financial  statements.  Community First
Bank was  organized on December 1, 1988,  and received its charter and commenced
operations on March 12, 1990.

The  subsidiary,  Community  First  Bank,  is a  community-oriented  institution
offering a full range of  traditional  banking  services,  with the exception of
trust  services.  Substantially  all of its  loans are made to  individuals  and
business within markets in Oconee and Anderson counties of South Carolina. Also,
substantially all of its deposits are acquired within its local market areas and
no brokered deposits are accepted.

Principles of Consolidation and Basis of Presentation The consolidated financial
statements include the accounts of the parent company and its banking subsidiary
after elimination of all significant intercompany balances and transactions. The
accounting  and  reporting  policies of the Company  and its  subsidiary  are in
conformity with generally accepted  accounting  principles and general practices
within the banking industry.

Securities Equity securities that have readily  determinable fair values and all
debt  securities  are  classified  generally at the time of purchase into one of
three  categories:   held-to-maturity,   trading  or  available-for-sale.   Debt
securities  which the  Company  has the  positive  intent and ability to hold to
ultimate  maturity are  classified  as  held-to-maturity  and  accounted  for at
amortized  cost.  Debt and equity  securities that are bought and held primarily
for sale in the near term are  classified as trading and are accounted for on an
estimated fair value basis,  with unrealized  gains and losses included in other
income. However, the Company has never held any securities for trading purposes.
Securities not classified as either  held-to-maturity  or trading are classified
as available-for-sale and are accounted for at estimated fair value.  Unrealized
holding gains and losses on available-for-sale  securities are excluded from net
income and recorded as other comprehensive  income, net of applicable income tax
effects.  Dividend and interest income, including amortization of any premium or
accretion of discount  arising at  acquisition,  is included in earnings for all
three  categories of securities.  Realized gains and losses on all categories of
securities are included in other operating  income,  based on the amortized cost
of the specific certificate on a trade date basis.

Other Investments Other investments  consist of restricted  securities which are
carried  at  cost.  Management   periodically  evaluates  these  securities  for
impairment,  with any appropriate downward valuation adjustments being made when
necessary. Other investments at December 31, 1998 and 1997, consisted of Federal
Home  Loan  Bank  of  Atlanta  (the  "FHLB")  stock  with  the  carrying  amount
approximating estimated fair value.

Loans and Interest  Income Loans are carried at principal  amounts  outstanding,
increased  or reduced by  deferred  net loan costs or fees.  Interest  income on
loans is recognized  using the interest method based upon the principal  amounts
outstanding.  Loan  origination  and  commitment  fees and  certain  direct loan
origination  costs  (principally  salaries  and  employee  benefits)  are  being
deferred and amortized as an adjustment of the related loan's yield.  Generally,
these amounts are being amortized over the contractual life of the related loans
or commitments.

                                       23
<PAGE>

A loan is considered  to be impaired  when, in  management's  judgment  based on
current  information and events, it is probable that the obligation's  principal
or interest will not be collectible in accordance with the terms of the original
loan agreement.  Impaired loans,  when not material,  are carried in the balance
sheet at a value not to exceed their  observable  market price or the fair value
of the collateral if the repayment of the loan is expected to be provided solely
by the underlying  collateral.  The carrying value of any material impaired loan
is measured based on the present value of expected future cash flows  discounted
at the loan's effective  interest rate,  which is the contractual  interest rate
adjusted for any deferred  loan fees or costs,  premium or discount  existing at
the inception or acquisition of the loan. Generally,  the accrual of interest is
discontinued on impaired loans and any previously accrued interest on such loans
is reversed against current income. Any subsequent interest income is recognized
on a cash basis when received unless  collectibility of a significant  amount of
principal is in serious doubt. In such cases,  collections are credited first to
the remaining  principal  balance on a cost recovery  basis. An impaired loan is
not returned to accrual status unless principal and interest are current and the
borrower has demonstrated the ability to continue making payments as agreed.

Allowance for Loan Losses An allowance for possible loan losses is maintained at
a level deemed  appropriate  by management to provide  adequately  for known and
inherent risks in the loan  portfolio.  When  management  determines that a loan
will not perform  substantially  as agreed, a review of the loan is initiated to
ascertain whether it is more likely than not that a loss has occurred.  If it is
determined  that a loss is likely,  the estimated  amount of the loss is charged
off and deducted from the allowance.  The provision for possible loan losses and
recoveries  on  loans  previously  charged  off  are  added  to  the  allowance.
Determining  the amount and adequacy of the allowance  for loan losses  involves
estimating  uncertain  future events and their effects based on judgment applied
to currently known facts and circumstances.  Changes in the estimated  allowance
for loan losses necessitated as new events occur or more information is obtained
are accounted for as changes in accounting estimates in the accounting period in
which the change occurs.

Management  considers the Company's  historical  loan loss  experience,  current
national and local  economic  conditions  affecting  the  borrowers'  ability to
repay,  the volume of loans,  the trends in  delinquent,  impaired and potential
problem loans,  and the amount and quality of collateral  securing such loans in
reviewing  the adequacy of the  allowance for loan losses.  In  calculating  its
estimate,  management applies a consistent  methodology that is updated monthly.
The calculation  involves applying various estimated  percentage  factors to the
loan  portfolio  categorized  into assessed risk grades  utilizing the Company's
ongoing  system of detailed loan  reviews.  For some loans,  particularly  those
identified as impaired or potential  problem,  specific  allocations are made in
the  calculation.  The methodology  also includes  assessing the risk associated
with off-balance-sheet extensions of credit such as loan commitments and standby
letters of credit.

Premises  and  Equipment  Premises  and  equipment  are  stated  at  cost,  less
accumulated  depreciation.  The provision for depreciation is computed using the
straight-line method. Rates of depreciation are generally based on the following
estimated  useful lives:  buildings - 40 years;  land  improvements  - 15 years;
furniture  and  equipment - 5 to 25 years.  The cost of assets sold or otherwise
disposed of, and the related  allowance for  depreciation is eliminated from the
accounts and the  resulting  gains or losses are  reflected in the  consolidated
income  statement.  Maintenance  and repairs  are charged to current  expense as
incurred and the costs of major renewals and improvements are capitalized.

Other Real  Estate  Other  real  estate  includes  properties  acquired  through
foreclosure or acceptance of a deed in lieu of foreclosure. Other real estate is
initially recorded at the lower of cost or the estimated fair market value, less
estimated  selling  costs.  Loan losses  arising  from the  acquisition  of such
property are charged to the allowance  for loan losses.  An allowance for losses
on  other  real  estate  is  maintained   for  subsequent   downward   valuation
adjustments.

Retirement Plan The Company has a salary  reduction profit sharing plan pursuant
to Section 401(k) of the Internal  Revenue Code as more fully  described in Note
K. The Company does not sponsor any postretirement or postemployment benefits.

                                       24
<PAGE>

Deferred  Income  Taxes The Company  uses an asset and  liability  approach  for
financial accounting and reporting of deferred income taxes. Deferred tax assets
and  liabilities  are determined  based on the difference  between the financial
statement  and income tax bases of assets and  liabilities  as  measured  by the
currently  enacted  tax rates  which are  assumed  will be in effect  when these
differences reverse. If it is more likely than not that some portion or all of a
deferred tax asset will not be realized,  a valuation  allowance is  recognized.
Deferred  income tax expense or credit is the result of changes in deferred  tax
assets and liabilities.

Stock-Based  Compensation The Company applies only the disclosure  provisions of
Statement of Financial  Accounting  Standards ("SFAS") No. 123,  "Accounting for
Stock-Based  Compensation",  but applies Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees",  for recording compensation cost
for stock options granted. Accordingly,  compensation expense is measured as the
excess, if any, of the estimated fair value of the Company's common stock at the
date of grant over the amount the grantee  must pay to acquire the shares  under
option. Refer to Note H for further information.

Earnings  Per Share Basic net income per share is  calculated  by  dividing  net
income by the weighted  average  number of shares of the Company's  common stock
outstanding  during the  period.  Net income per share,  assuming  dilution,  is
calculated by dividing net income by the total of the weighted average number of
shares  outstanding  during the period and the  weighted  average  number of any
dilutive  potential  common  shares  and  stock  options  that  would  have been
outstanding if the dilutive  potential shares and stock options had been issued.
In computing the number of dilutive  potential common shares, it is assumed that
all dilutive  stock options are exercised at the beginning of each year and that
the proceeds are used to purchase  shares of the  Company's  common stock at the
average market price during the year. See Note H.

Comprehensive  Income In June,  1997, the Financial  Accounting  Standards Board
issued SFAS No. 130, "Reporting  Comprehensive Income". As required, the Company
adopted  the   provisions  of  this  SFAS  beginning   January  1,  1998,   with
reclassifications  included  for  any  earlier  comparative  accounting  periods
presented.  Comprehensive  income consists of net income or loss for the current
period and other comprehensive income,  defined as income,  expenses,  gains and
losses  that  bypass  the  consolidated  statement  of income  and are  reported
directly in a separate component of shareholders'  equity. SFAS No. 130 provides
that the Company is to classify and report items of other  comprehensive  income
by their nature,  report total comprehensive income in a financial statement and
display the accumulated balance of other comprehensive  income separately in the
shareholders' equity section of the consolidated balance sheet.

The  Company  has  elected to report  comprehensive  income in the  accompanying
consolidated  statement of comprehensive  income.  The only other  comprehensive
income  category the Company has is the change in  unrealized  holding gains and
losses on available-for-sale  securities,  net of income tax effects,  which had
previously been accounted for only in the  consolidated  statement of changes in
shareholders' equity. See Note H.

Consolidated  Statement of Cash Flows The  consolidated  statement of cash flows
reports  net  cash  provided  or  used by  operating,  investing  and  financing
activities and the net effect of those flows on cash and cash equivalents.  Cash
equivalents  include  amounts due from banks,  federal funds sold and securities
purchased under agreements to resell.

During  1998,  1997 and 1996,  interest  paid on deposits  and other  borrowings
amounted to $4,348,010,  $3,710,810  and  $3,677,427,  respectively.  Income tax
payments of  $958,200,  $864,056 and  $679,072  were made during 1998,  1997 and
1996,  respectively.  Noncash transfers from retained earnings of $1,945,667 and
$535,860 were made as the result of stock  dividends  declared in 1997 and 1996,
respectively.  As a result,  common stock in 1997 and 1996 increased  $1,945,667
and $178,620,  respectively,  and capital  surplus  increased  $357,240 in 1996.
Effective October 16, 1997, Community First  Bancorporation  acquired all of the
then  outstanding  shares of Community First Bank's $5.00 par value common stock
in exchange for shares of Community First  Bancorporation's  no par value common
stock.  As a result,  a noncash  transfer of  $4,659,933  was made from  capital
surplus  to  common  stock.  During  1998,  1997  and  1996,  noncash  valuation


                                       25
<PAGE>

adjustments  totaling  $661,  $97,051 and  $137,147  were made which  decreased,
increased and decreased, respectively, the carrying amount of available-for-sale
securities.  In 1998,  accumulated other comprehensive income decreased $424 and
deferred tax assets  increased $237; in 1997,  accumulated  other  comprehensive
income increased $62,210 and deferred tax assets decreased $34,841; and in 1996,
accumulated other comprehensive income decreased $87,911 and deferred tax assets
increased  $49,236.  In 1996,  a loan  with a  carrying  amount of  $25,000  was
transferred to other real estate as the result of a foreclosure.

Fair Value  Estimates Fair value  estimates are made at a specific point in time
based on relevant  market  information  about the  financial  instrument.  These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the  Company's  entire  holdings of a particular  financial
instrument. Because no active trading market exists for a significant portion of
the  Company's  financial  instruments,   fair  value  estimates  are  based  on
management's  judgments  regarding  future  expected  loss  experience,  current
economic conditions, risk characteristics of various financial instruments,  and
other   factors.   These   estimates  are   subjective  in  nature  and  involve
uncertainties  and  matters of  significant  judgment  and  therefore  cannot be
determined with precision. Changes in assumptions could significantly affect the
estimates.

Fair value  estimates are based on existing  on-and-off  balance sheet financial
instruments  without  attempting  to estimate  the value of  anticipated  future
business  and the  value of  assets  and  liabilities  that  are not  considered
financial   instruments.   Significant  assets  and  liabilities  that  are  not
considered  financial assets or liabilities  include net deferred tax assets and
premises and equipment. In addition, the income tax ramifications related to the
realization for the unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered in the estimates.

For cash and due from banks,  federal funds sold and accrued interest receivable
and  payable,   the  carrying  amount  approximates  fair  value  because  these
instruments generally mature in 90 days or less and do not present unanticipated
credit concerns.


NOTE B - CORPORATE REORGANIZATION

On May 20, 1997,  the  shareholders  of Community  First Bank approved a plan of
corporate  reorganization  under  which  Community  First  Bank  would  become a
wholly-owned  subsidiary  of  Community  First  Bancorporation.   As  a  result,
Community First Bancorporation was organized on May 23, 1997 at the direction of
Community  First Bank's  management.  The  authorized  common stock of Community
First  Bancorporation  at that time was  5,000,000  shares with no par value per
share.  Pursuant  to the  reorganization,  the  parent  company  issued  764,702
(unadjusted  for stock  dividend and stock split)  shares of its common stock in
exchange for all of the 764,702  outstanding  common  shares of Community  First
Bank.

The  reorganization  was effected on October 16, 1997 and accounted for as if it
were a pooling-of-interests.  As a result, the consolidated financial statements
for the year ended December 31, 1997 are presented as if the  reorganization had
occurred  on January  1,  1997.  Except  for per share  data,  the  consolidated
financial statements for the year ended December 31, 1996 are unchanged from the
amounts previously  reported by Community First Bank. Per share data for 1996 is
presented  in  terms  of  the  current   equivalent  of  the  number  of  shares
outstanding,  and has been adjusted for a subsequent  15% stock dividend in 1997
and a two-for-one  stock split in 1998, and restated  because of the 1997 change
in accounting principle for the computation and display of earnings per share


NOTE C - CASH AND DUE FROM BANKS

Banks are  generally  required by regulation to maintain an average cash reserve
balance  based on a  percentage  of  deposits.  The  average  amount of the cash
reserve balances at December 31, 1998 and 1997, were approximately  $697,000 and
$475,000, respectively.

                                       26
<PAGE>

NOTE D - SECURITIES

The aggregate amortized cost and estimated fair values of securities, as well as
gross unrealized gains and losses of securities were as follows:

<TABLE>
<CAPTION>
                                                                            December 31,
                                                                            ------------
                                                    1998                                                  1997
                                                    ----                                                  ----
                                              Gross         Gross                                  Gross       Gross
                                            Unrealized    Unrealized    Estimated                Unrealized  Unrealized    Estimated
                               Amortized     Holding       Holding        Fair       Amortized    Holding     Holding         Fair
                                 Cost         Gains         Losses        Value        Cost        Gains       Losses        Value
                                 ----         -----         ------        -----        ----        -----       ------        -----
Available-for-sale
<S>                           <C>            <C>         <C>         <C>            <C>            <C>        <C>        <C>        
      U.S. Treasury ......    $         -    $      -    $      -    $         -    $ 2,000,550    $ 2,810    $     -    $ 2,003,360
      U.S. Government
          agencies .......     30,971,303      58,970     111,202     30,919,071     18,980,911     19,963     68,899     18,931,975
      Mortgage-backed
          securities .....      7,339,293      54,007      28,235      7,365,065      4,554,862     22,698      2,371      4,575,189
                              -----------    --------    --------    -----------    -----------    -------    -------    -----------
              Total ......    $38,310,596    $112,977    $139,437    $38,284,136    $25,536,323    $45,471    $71,270    $25,510,524
                              ===========    ========    ========    ===========    ===========    =======    =======    ===========
</TABLE>


The  amortized  cost and  estimated  fair  value of  securities  by  contractual
maturity are shown below:

<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                                         ------------
                                                                             1998                                1997
                                                                             ----                                ----
                                                                   Amortized        Estimated         Amortized           Estimated
                                                                     Cost           Fair Value           Cost            Fair Value
                                                                     ----           ----------           ----            ----------
Available-for-sale
<S>                                                             <C>                <C>                <C>                <C>        
      Due in one year or less ..........................        $         -        $         -        $ 6,001,296        $ 5,965,560
      Due after one through five years .................          7,990,095          8,034,377         12,483,764         12,472,275
      Due after five through ten years .................         21,981,208         21,900,007          2,496,401          2,497,500
      Due after ten years ..............................          1,000,000            984,688                  -                  -
                                                                -----------        -----------        -----------        -----------
                                                                 30,971,303         30,919,072         20,981,461         20,935,335
      Mortgage-backed securities .......................          7,339,293          7,365,064          4,554,862          4,575,189
                                                                -----------        -----------        -----------        -----------
          Total ........................................        $38,310,596        $38,284,136        $25,536,323        $25,510,524
                                                                ===========        ===========        ===========        ===========
</TABLE>


The fair value of U.S. Treasury and U.S.  Government agencies debt securities is
estimated based on published closing quotations.  Fair Value for mortgage-backed
securities is estimated primarily using dealers' quotes.

There  were no sales or  transfers  to other  categories  of  available-for-sale
securities in 1998, 1997 and 1996.

At December 31, 1998,  securities  with an amortized cost of $36,246,811  and an
estimated fair value of $36,219,904  were pledged as collateral to secure public
deposits. The amortized cost and estimated fair value of such pledged securities
were  $21,990,882 and  $21,966,454,  respectively,  at the end of 1997. 

                                       27
<PAGE>

NOTE E - LOANS

Loans consisted of the following:

<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                                           ------------
                                                                           1998                                  1997
                                                                           ----                                  ----
                                                              Carrying            Estimated           Carrying           Estimated
                                                               Amount            Fair Value            Amount           Fair Value
                                                               ------            ----------            ------           ----------

<S>                                                         <C>                  <C>                <C>                  <C>        
Commercial, financial and industrial ...............        $  9,537,226         $ 9,430,082        $  9,763,982         $ 9,627,061
Real estate - construction .........................              50,820              50,471              78,318              77,318
Real estate - mortgage .............................          41,653,728          41,254,837          41,294,769          40,931,053
Consumer installment ...............................          16,651,395          16,607,402          14,700,839          14,571,074
                                                            ------------         -----------        ------------         -----------
      Total ........................................          67,893,169          67,342,792          65,837,908          65,206,506
Allowance for loan losses ..........................            (954,788)                  -            (890,125)                  -
                                                            ------------         -----------        ------------         -----------
      Loans - net ..................................        $ 66,938,381         $67,342,792        $ 64,947,783         $65,206,506
                                                            ============         ===========        ============         ===========
</TABLE>

Net  deferred  loan costs of $35,576  and  $13,834  have been  allocated  to the
various loan categories as of December 31, 1998 and 1997, respectively.

Fair  values  are  estimated  for  loan   categories   with  similar   financial
characteristics.  Within each category, the fair value of loans is calculated by
discounting  estimated cash flows through the estimated maturity using estimated
market discount rates that reflect the credit and interest rate risk inherent in
the loan. For certain  categories of loans, such as variable rate loans,  credit
card receivables,  and other lines of credit, the carrying amount,  adjusted for
credit  risk,  is a  reasonable  estimate  of fair  value  because  there  is no
contractual maturity or because the Company has the ability to reprice the loans
as interest  rate shifts  occur.  Since the discount  rates are based on current
loan rates offered as well as management's estimates,  the fair values presented
may not necessarily be indicative of the value negotiated in an actual sale.

Loans which  management has identified as impaired  generally are  nonperforming
loans.  Nonperforming  loans include nonaccrual loans or loans which are 90 days
or more delinquent as to principal or interest payments.  Following is a summary
of activity regarding the Company's impaired loans:

<TABLE>
<CAPTION>
                                                                                                             December 31,
                                                                                                             ------------
                                                                                                        1998                 1997
                                                                                                        ----                 ----
Investment in impaired loans
<S>                                                                                                   <C>                   <C>     
     Nonaccrual ........................................................................              $365,626              $162,032
     Accruing 90 days and over past due ................................................                10,575                 1,468
                                                                                                      --------              --------
         Total .........................................................................              $376,201              $163,500
                                                                                                      ========              ========

Average total investment in impaired loans during the year .............................              $184,800              $303,875
Allowance for loan losses on impaired loans ............................................                29,347                16,890
</TABLE>

The average total  investment in impaired loans during 1996 was $299,436.  There
were no outstanding  commitments at December 31, 1998, to lend additional  funds
to debtors owing amounts on impaired loans.

                                       28
<PAGE>

As of December 31, 1998 and 1997,  there were no significant  concentrations  of
credit risk in any single  borrower or groups of borrowers.  The Company's  loan
portfolio   consists  primarily  of  extensions  of  credit  to  businesses  and
individuals  in its Oconee County,  South  Carolina  market area. The economy of
this area is  diversified  and does not depend on any one  industry  or group of
related  industries.  The Company  entered the Anderson  County,  South Carolina
market on a de novo basis from its temporary  office facility in January,  1999.
Management  has  established  loan  policies  and  practices  that  include  set
limitations  on  loan-to-collateral  value for  different  types of  collateral,
requirements  for  appraisals,  obtaining  and  maintaining  current  credit and
financial information on borrowers, and credit approvals.

Transactions in the allowance for loan losses are summarized below:

<TABLE>
<CAPTION>
                                                                                        Years Ended December 31,
                                                                                        ------------------------
                                                                            1998                    1997                   1996
                                                                            ----                    ----                   ----

<S>                                                                     <C>                      <C>                      <C>      
Balance at January 1 ....................................               $ 890,125                $ 705,000                $ 575,000
Provision charged to expense ............................                 213,486                  315,183                  223,075
Recoveries ..............................................                  20,915                   10,146                   15,589
Charge-offs .............................................                (169,738)                (140,204)                (108,664)
                                                                        ---------                ---------                ---------
Balance at December 31 ..................................               $ 954,788                $ 890,125                $ 705,000
                                                                        =========                =========                =========
</TABLE>

Certain  officers  and  directors  of the  Company  and  its  subsidiary,  their
immediate  families and business interests were loan customers of, and had other
transactions  with the  banking  subsidiary  in the normal  course of  business.
Related party loans are made on substantially the same terms, including interest
rates  and   collateral,   and  do  not   involve   more  than  normal  risk  of
collectibility.  The aggregate  dollar amount of these loans was  $3,288,367 and
$4,604,451 at December 31, 1998 and 1997, respectively.  During 1998, $4,127,752
of new loans were made and repayments totaled $5,443,836.


NOTE F - PREMISES AND EQUIPMENT

Premises and equipment consisted of the following:

<TABLE>
<CAPTION>
                                                                                                             December 31,
                                                                                                             ------------
                                                                                                   1998                     1997
                                                                                                   ----                     ----

<S>                                                                                            <C>                        <C>       
Land .........................................................................                 $  384,773                 $  384,773
Buildings and land improvements ..............................................                    972,836                    966,417
Furniture and equipment ......................................................                    894,822                    848,366
Construction in progress .....................................................                  1,233,175                          -
                                                                                               ----------                 ----------
              Total ..........................................................                  3,485,606                  2,199,556
Accumulated depreciation .....................................................                    614,450                    524,064
                                                                                               ----------                 ----------
              Premises and equipment - net ...................................                 $2,871,156                 $1,675,492
                                                                                               ==========                 ==========
</TABLE>

Depreciation  expense for the years ended  December 31, 1998,  1997 and 1996 was
$149,463, $129,703 and $97,338, respectively.

                                       29
<PAGE>

Construction  in progress at December  31, 1998,  consists of costs  incurred in
connection  with the  Company's  branch  office  in  Anderson,  South  Carolina.
Management has entered into contracts and estimates that an additional  $697,000
will be required to complete the project.

NOTE G - DEPOSITS

A summary of deposits follows:

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                          ------------
                                                                             1998                                1997
                                                                             ----                                ----
                                                                Carrying            Estimated          Carrying           Estimated
                                                                 Amount            Fair Value           Amount           Fair Value
                                                                 ------            ----------           ------           ----------

<S>                                                           <C>                 <C>                 <C>                <C>        
Noninterest bearing demand ...........................        $ 14,797,785        $ 14,797,785        $16,501,066        $16,501,066
Interest bearing transaction accounts ................          17,239,636          17,239,636         10,106,001         10,106,001
Savings ..............................................          16,872,016          16,872,016         16,190,880         16,190,880
Time deposits $100,000 and over ......................          29,057,397          29,061,084         23,046,080         23,048,468
Other time deposits ..................................          34,529,338          34,576,445         26,446,545         26,454,311
                                                              ------------        ------------        -----------        -----------
      Total deposits .................................        $112,496,172        $112,546,966        $92,290,572        $92,300,726
                                                              ============        ============        ===========        ===========
</TABLE>


As of  December  31,  1998  and  1997,  local  governmental  deposits  comprised
approximately 27% and 33%, respectively, of total deposits.

The fair value of deposits with no stated maturity  (noninterest bearing demand,
interest  bearing  transaction  accounts  and  savings)  is equal to the  amount
payable on demand,  or carrying  amount,  as of December 31, 1998 and 1997.  The
fair  value of time  deposits  is  estimated  based on the  discounted  value of
contractual  cash flows. The discount rate is estimated using the rate currently
offered as of December,  31, 1998 and 1997,  for  deposits of similar  remaining
maturities.

At December 31, 1998, the scheduled maturities of time deposits are as follows:

            Year                                      Amount
            ----                                      ------

            1999                                   $ 57,428,126
            2000                                      5,919,794
            2001                                        179,815
            2002                                         26,000
            2003 and thereafter                          33,000

NOTE H - SHAREHOLDERS' EQUITY

Restrictions  on  Subsidiary   Dividends,   Loans  or  Advances  South  Carolina
regulations restrict the amount of dividends that banks can pay to shareholders.
All of the Banking  subsidiary's  dividends to the parent company are subject to
the prior  approval  of the  South  Carolina  Commissioner  of  Banking  and are
generally  payable only from its undivided  profits.  At December 31, 1998,  the
banking  subsidiary's  available  undivided  profits totaled  $4,487,285.  Under
Federal  Reserve  Board  regulations,  the amounts of loans or advances from the
banking subsidiary to the parent company are also restricted.

Stock Split and Stock  Dividends  The  Company's  Board of Directors  declared a
two-for-one  stock split effective on July 31, 1998. At that time, the Company's
number of authorized  shares of its common stock was increased from 5,000,000 to
10,000,000  shares.  Effective  December  30, 1997 and May 1, 1996,  the Company
issued stock dividends of 15% and 5%,  respectively.  All per share  information
has been  retroactively  adjusted  to give  effect to the stock  split and stock
dividends.

                                       30
<PAGE>

Accumulated  Other  Comprehensive  Income  As of  December  31,  1998 and  1997,
accumulated other comprehensive  income included as a reduction of shareholders'
equity  in  the  accompanying   consolidated  balance  sheet  consisted  of  the
accumulated   changes   in  the   unrealized   holding   gains  and   losses  on
available-for-sale securities amounting to $16,961 and $16,537, respectively.

Earnings per Share In 1997, the Company adopted the required  provisions of SFAS
No.  128,  "Earnings  per  Share".  This SFAS  mandated  certain  changes in the
computation  and display of earnings per share,  and required the restatement of
prior years' figures on a comparable basis.

Net income per share and net income per share, assuming dilution,  were computed
as follows:

<TABLE>
<CAPTION>
                                                                                              Years Ended December 31,
                                                                                              ------------------------
                                                                                 1998                  1997                 1996
                                                                                 ----                  ----                 ----
Net income per share, basic
<S>                                                                           <C>                  <C>                   <C>        
 Numerator - net income ..................................................    $ 1,664,278          $ 1,405,050           $ 1,152,441
                                                                              ===========          ===========           ===========
 Denominator
  Weighted average common shares issued and outstanding ..................      1,777,495            1,758,216             1,743,880
                                                                              ===========          ===========           ===========

               Net income per share, basic ...............................    $       .94          $       .80           $       .66
                                                                              ===========          ===========           ===========

Net income per share, assuming dilution
 Numerator - net income ...................................................   $ 1,664,278          $ 1,405,050           $ 1,152,441
                                                                              ===========          ===========           ===========
 Denominator
  Weighted average common shares issued and outstanding ...................     1,777,495            1,758,216             1,743,880
  Effect of dilutive stock options ........................................       115,397               56,696                54,072
                                                                              -----------          -----------           -----------
               Total shares .............................................       1,892,892            1,814,912             1,797,952
                                                                              ===========          ===========           ===========
               Net income per share, assuming dilution ...................    $       .88          $       .77           $       .64
                                                                              ===========          ===========           ===========
</TABLE>

Regulatory  Capital All bank holding  companies and banks are 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  Company's  consolidated  financial
statements.  Under capital adequacy guidelines and the regulatory  framework for
prompt  corrective  action,  bank holding companies and banks must meet specific
capital  guidelines  that  involve   quantitative   measures  of  their  assets,
liabilities,  and certain off-balance-sheet items as calculated under regulatory
accounting  practices.  Capital amounts and  classification  are also subject to
qualitative judgments by the regulators about components,  risk weightings,  and
other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Company and its banking  subsidiary to maintain  minimum amounts and
ratios set forth in the table  below of Total and Tier 1 Capital,  as defined in
the regulations,  to risk weighted assets, as defined, and of Tier 1 Capital, as
defined, to average assets, as defined.  Management believes, as of December 31,
1998 and 1997,  that the Company and its  subsidiary  bank  exceeded all capital
adequacy minimum requirements.

As of December 31, 1998, the most recent  notification from the FDIC categorized
Community  First Bank as well  capitalized  under the  regulatory  framework for
prompt corrective action. To be categorized as well capitalized, the Company and
its  banking   subsidiary  must  maintain  minimum  Total  risk-based,   Tier  1
risk-based,  and Tier 1 leverage ratios as set forth in the table.  There are no
conditions  or events since that  notification  that  management  believes  have
changed  Community  First Bank's  category.  The Company's  and Community  First
Bank's actual capital amounts and ratios are also presented in the table.



                                       31
<PAGE>

<TABLE>
<CAPTION>
                                                                                              Minimum for            Minimum to be
                                                                        Actual             Capital Adequacy        Well Capitalized
                                                                        ------             ----------------        ----------------
                                                                 Amount       Ratio        Amount     Ratio        Amount      Ratio
                                                                 ------       -----        ------     -----        ------      -----
December 31, 1998                                                                       (Dollars in thousands)
  The Company
<S>                                                             <C>           <C>          <C>         <C>         <C>         <C>  
    Total Capital to risk weighted assets ...................   $14,497       20.7%        $5,615      8.0%        $7,019      10.0%
    Tier 1 Capital to risk weighted assets ..................   $13,620       19.4%        $2,807      4.0%        $4,211       6.0%
    Tier 1 Capital to average assets (leverage) .............   $13,620       11.0%        $3,703      3.0%        $6,172       5.0%
  Community First Bank                                                                                              
    Total Capital to risk weighted assets ...................   $14,197       20.2%        $5,615      8.0%        $7,019      10.0%
    Tier 1 Capital to risk weighted assets ..................   $13,320       19.0%        $2,807      4.0%        $4,211       6.0%
    Tier 1 Capital to average assets (leverage) .............   $13,320       10.8%        $3,703      3.0%        $6,172       5.0%
                                                                                                              
December 31, 1997                                                                                             
  The Company                                                                                                   
    Total Capital to risk weighted assets ...................   $12,646       20.3%        $4,994      8.0%        $6,242      10.0%
    Tier 1 Capital to risk weighted assets ..................   $11,866       19.0%        $2,497      4.0%        $3,745       6.0%
    Tier 1 Capital to average assets (leverage) .............   $11,866       12.0%        $2,959      3.0%        $4,932       5.0%
Community First Bank                                                                                          
    Total Capital to risk weighted assets ...................   $12,407       19.9%        $4,993      8.0%        $6,242      10.0%
    Tier 1 Capital to risk weighted assets ..................   $11,620       18.6%        $2,497      4.0%        $3,745       6.0%
    Tier 1 Capital to average assets (leverage) .............   $11,620       11.8%        $2,958      3.0%        $4,930       5.0%
</TABLE>

Stock Options In 1998, the Company's shareholders approved the 1998 Stock Option
Plan under which an aggregate of 400,000 (adjusted for a two-for-one stock split
effective July 31, 1998) shares of the Company's  authorized but unissued common
stock was  reserved  for  possible  issuance  pursuant to the  exercise of stock
options. Generally, options may be granted to directors,  officers and employees
under terms and conditions,  including  expiration  date,  exercise  price,  and
vesting as  determined  by the Board of  Directors.  In 1990,  the  shareholders
approved the 1989  Incentive  Stock Option Plan.  The 1989 plan provided for the
granting of options to certain  eligible  employees and reserved  279,556 shares
(adjusted for the stock split and stock  dividends)  of authorized  common stock
for  issuance  upon the  exercise of such  options.  For all stock  options ever
granted under the two plans through the end of 1998,  the exercise price was the
fair  market  value of the  Company's  common  stock on the date the  option was
granted as determined by the Board of Directors.  Options terminate according to
the  conditions of the grant not to exceed 10 years from the date of grant.  The
expiration  of the  options  accelerates  upon  the  optionee's  termination  of
employment  with the Company or death, or if there is a change in control of the
Company,  in accordance  with the provisions of the two plans.  Options  awarded
during 1998, 1997 and 1996 provided for 20% vesting immediately upon award, with
20% vesting on the anniversary date of the award for each of the four subsequent
years, and ten year expiration dates.

As of January 1, 1996, the Company adopted only the disclosure provision of SFAS
No. 123,  "Accounting  for  Stock-Based  Compensation",  but applies  Accounting
Principles  Board Opinion No. 25 and related  interpretations  in accounting for
its plans.  Since the exercise  price of each option  equals the market price of
the  Company's  stock  on the  date of  grant,  no  compensation  cost  has been
recognized for the plan for any period. Had compensation cost for the plans been
determined  based on the fair value of the options at the grant dates consistent
with the method of SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below.

                                       32
<PAGE>

<TABLE>
<CAPTION>
                                                                                             Years Ended December 31,
                                                                                             ------------------------
                                                                             1998                    1997                    1996
                                                                             ----                    ----                    ----
Net income
<S>                                                                    <C>                     <C>                     <C>          
     As reported ................................................      $   1,664,278           $   1,405,050           $   1,152,441
     Pro forma ..................................................          1,576,137               1,376,930               1,135,241
Net income per share
     As reported ................................................      $        0.94           $        0.80           $        0.66
     Pro forma ..................................................               0.89                    0.78                    0.65
Net income per share, assuming dilution                                                                     
     As reported ................................................      $        0.88           $        0.77           $        0.64
     Pro forma ..................................................               0.83                    0.76                    0.63
</TABLE>

The fair values of options granted during 1998, 1997 and 1996 were $5.39,  $3.68
and $3.36 per share.  Such fair value was  estimated as of the date of the grant
using the minimum value option pricing method.  The following  assumptions  were
used for grants in 1998,  1997 and 1996:  dividend yield of 0%, expected life of
10 years, and risk-free interest rates of 5.51%, 6.57% and 6.87%, respectively.

Transactions  under the plans for the years ended  December 31,  1998,  1997 and
1996 are summarized as follows:

                                                                       Weighted
                                                                       Average
                                                      Number of        Exercise
                                                        Shares          Price
                                                        ------          -----
Options oustanding January 1, 1996 ...............     139,360         $   5.24
      Granted ....................................      10,000             7.50
      Exercised ..................................     (12,410)            4.17
      Canceled ...................................      (1,030)            7.15
      Stock dividend .............................       6,984
                                                      --------
Options oustanding December 31, 1996 .............     142,904             5.22
      Granted ....................................      14,500             8.00
      Exercised ..................................     (14,270)            3.65
      Canceled ...................................      (1,022)            7.61
      Stock dividend .............................      23,540
                                                      --------
Options oustanding December 31, 1997 .............     165,652             4.84
      Granted ....................................      78,600             9.19
      Exercised ..................................     (21,512)            4.16
      Canceled ...................................      (2,742)            7.30
                                                      --------
Options oustanding December 31, 1998 .............     219,998             6.43
                                                      ========

Options exercisable at year end
     1998 ........................................     141,800         $   5.21
     1997 ........................................     133,796             4.49
     1996 ........................................     132,462             4.23


                                       33
<PAGE>


<TABLE>
<CAPTION>
                                                                             Outstanding Options              Exercisable Options
                                                                             -------------------              -------------------
                                                                            Number       Exercise            Number        Exercise
                                                                          of Shares       Price            of Shares        Price
                                                                          ---------       -----            ---------        -----
Options at December 31, 1998 expire                                                                   
<S>                                                                       <C>           <C>                  <C>            <C>     
    December 31, 1999 ........................................            13,982        $   3.58             13,982         $   3.58
    May 9, 2000 ..............................................            10,906            3.58             10,906             3.58
    December 31, 2000 ........................................            13,982            3.58             13,982             3.58
    January 22, 2001 .........................................             3,084            3.88              3,084             3.88
    March 1, 2001 ............................................             6,990            3.88              6,990             3.88
    April 27, 2002 ...........................................            13,708            4.65             13,708             4.65
    October 1, 2002 ..........................................             8,388            4.83              8,388             4.83
    January 25, 2003 .........................................             5,436            5.01              5,436             5.01
    January 18, 2004 .........................................            23,962            5.07             23,962             5.07
    June 1, 2004 .............................................             2,540            5.32              2,540             5.32
    December 21, 2005 ........................................            13,938            6.21             11,054             6.21
    July 25, 2006 ............................................            11,500            6.52              6,900             6.52
    January 16, 2007 .........................................            14,102            6.95              5,468             6.95
    February 19, 2008 ........................................            27,480            9.13              5,400             9.13
    June 1, 2008 .............................................             6,000            9.25              1,200             9.25
    June 18, 2008 ............................................            44,000            9.25              8,800             9.25

</TABLE>

Included  in the  219,998  outstanding  options as of December  31,  1998,  were
options to purchase  78,198  shares at an average  price of $8.69 per share that
had not become  exercisable.  The number of shares,  average  exercise price and
years in which these options become exercisable are as follows: 23,582 shares at
$8.30 in 1999,  20,698 shares at $8.59 in 2000,  18,398 shares at $8.85 in 2001,
and 15,520  shares at $9.20 in 2002.  Of the  679,566  authorized  shares of the
Company's  common stock  originally  reserved for issuance  upon the exercise of
options  under the two plans,  356,004 had not been  awarded as of December  31,
1998.

NOTE I - OTHER EXPENSES

Other expenses are summarized below:

<TABLE>
<CAPTION>
                                                                                               Years Ended December 31,
                                                                                               ------------------------
                                                                                 1998                  1997                  1996
                                                                                 ----                  ----                  ----
                                                                  
<S>                                                                           <C>                   <C>                   <C>       
Salaries and employee benefits ...................................            $1,138,752            $1,008,265            $  858,916
Net occupancy expense ............................................               115,789               100,605                97,802
Furniture and equipment expense ..................................               194,429               166,612               150,257
Other expense
     Stationery, printing and postage ............................               153,901               139,888               119,170
     Telephone ...................................................                22,828                20,578                22,138
     Advertising and promotion ...................................                41,134                27,654                24,450
     Professional services .......................................                54,456                77,038                32,641
     Insurance ...................................................                19,052                26,651                18,532
     FDIC insurance assessment ...................................                11,565                 7,760                 2,000
     Directors' fees .............................................                34,200                31,200                25,200
     Other real estate costs and expenses, net ...................                   864                32,334                     -
     Data processing expenses ....................................                92,841                52,748                46,520
     Other .......................................................               275,448               217,169               161,307
                                                                              ----------            ----------            ----------
         Total ...................................................            $2,155,259            $1,908,502            $1,558,933
                                                                              ==========            ==========            ==========
</TABLE>

                                       34
<PAGE>

NOTE J - INCOME TAXES

Income tax expense consisted of:

<TABLE>
<CAPTION>
                                                                                               Years Ended December 31,
                                                                                               ------------------------
                                                                                 1998                  1997                 1996
                                                                                 ----                  ----                 ----
Current                                                           
<S>                                                                           <C>                  <C>                    <C>      
     Federal ....................................................             $849,500             $ 786,786              $ 621,981
     State ......................................................               76,670                69,646                 55,005
                                                                              --------             ---------              ---------
               Total current ....................................              926,170               856,432                676,986
                                                                              --------             ---------              ---------
Deferred
     Federal ....................................................                1,800               (45,555)               (33,260)
     State ......................................................                  157                (3,974)                (2,901)
                                                                              --------             ---------              ---------
               Total deferred ...................................                1,957               (49,529)               (36,161)
                                                                              --------             ---------              ---------
               Total income tax expense .........................             $928,127             $ 806,903              $ 640,825
                                                                              ========             =========              =========
</TABLE>

The  principal  components  of the  deferred  portion of income  tax  expense or
(credit) were:

<TABLE>
<CAPTION>
                                                                                            Years Ended December 31,
                                                                                            ------------------------
                                                                             1998                    1997                   1996
                                                                             ----                    ----                   ----

<S>                                                                        <C>                     <C>                     <C>      
Provision for loan losses ..................................               $(23,213)               $(66,460)               $(46,670)
Accelerated depreciation ...................................                 17,365                  10,870                   4,308
Deferred net loan costs and fees ...........................                  7,805                   6,276                   6,201
Other real estate ..........................................                      -                    (215)                      -
                                                                           --------                --------                --------
               Total .......................................               $  1,957                $(49,529)               $(36,161)
                                                                           ========                ========                ========
</TABLE>

Income before income taxes presented in the consolidated statement of income for
the years ended December 31, 1998, 1997 and 1996, included no foreign component.
A  reconciliation  between  the income tax  expense  and the amount  computed by
applying  the  federal  statutory  rate of 34% to  income  before  income  taxes
follows:

<TABLE>
<CAPTION>
                                                                                             Years Ended December 31,
                                                                                             ------------------------
                                                                             1998                     1997                   1996
                                                                             ----                     ----                   ----

<S>                                                                       <C>                     <C>                     <C>      
Tax expense at statutory rate ..............................              $ 881,418               $ 752,064               $ 609,710
State income tax, net of federal
     income tax benefit ....................................                 50,706                  43,344                  34,389
Tax-exempt interest income .................................                 (6,538)                 (5,854)                 (5,625)
Non-deductible interest expense to
     carry tax-exempt instruments ..........................                    491                     480                     540
Non-deductible corporate
     reorganization expenses ...............................                      -                  15,069                       -
Other, net .................................................                  2,050                   1,800                   1,811
                                                                          ---------               ---------               ---------
               Total .......................................              $ 928,127               $ 806,903               $ 640,825
                                                                          =========               =========               =========
</TABLE>

                                       35
<PAGE>

Deferred tax assets and liabilities  included in the consolidated  balance sheet
consisted of the following:

<TABLE>
<CAPTION>
                                                                                                              December 31,
                                                                                                              ------------
                                                                                                   1998                        1997
                                                                                                   ----                        ----
Deferred tax assets
<S>                                                                                               <C>                       <C>     
     Allowance for loan losses .................................................                  $280,949                  $257,735
     Other real estate .........................................................                     8,975                     8,975
     Unrealized holding gains and losses on
       available-for-sale securities ...........................................                     9,499                     9,262
                                                                                                  --------                  --------
               Gross deferred tax assets .......................................                   299,423                   275,972
     Valuation allowance .......................................................                         -                         -
                                                                                                  --------                  --------
               Total ...........................................................                   299,423                   275,972
                                                                                                  --------                  --------

Deferred tax liabilities
     Accelerated depreciation ..................................................                    90,254                    72,889
     Deferred net loan costs ...................................................                    12,772                     4,966
                                                                                                  --------                  --------
               Gross deferred tax liabilities ..................................                   103,026                    77,855
                                                                                                  --------                  --------
Net deferred income tax assets .................................................                  $196,397                  $198,117
                                                                                                  ========                  ========
</TABLE>

A portion of the change in net  deferred  tax assets or  liabilities  related to
unrealized holding gains and losses on available-for-sale  securities is charged
or credited directly to other comprehensive income. The balance of the change in
net deferred  tax assets is charged or credited to income tax expense.  In 1998,
1997 and 1996, $237 was credited,  $34,841 was charged, and $49,236 was credited
to other  comprehensive  income,  respectively.  In 1998,  $1,957 was charged to
income tax expense,  and, in 1997 and 1996, $49,529 and $36,161 were credited to
income tax expense, respectively.

Management  believes that the Company will fully realize the deferred tax assets
as of December 31, 1998 and 1997 based on refundable income taxes available from
carryback years, as well as estimates of future taxable income.

NOTE K - RETIREMENT PLAN

 In 1996,  the Company  established  the  Community  First Bank 401(k) Plan (the
"401(k)  Plan") for the  exclusive  benefit of all eligible  employees and their
beneficiaries.  Employees are eligible to participate in the 401(k) Plan with no
minimum age requirement  after completing twelve months of service in which they
are credited with at least 501 hours of service.  Employees are allowed to defer
and contribute up to 15% of their salary each year. The Company matches $.50 for
each dollar deferred up to 10% of total salary.  The Board of Directors can also
elect to make  discretionary  contributions.  Employees are fully vested in both
the matching and any  discretionary  contributions  after five years of service.
The employer  contributions to the plan for 1998, 1997 and 1996 totaled $30,044,
$29,550 and $13,286, respectively.

NOTE L - COMMITMENTS AND CONTINGENCIES

Commitments  to Extend  Credit In the normal  course of  business,  the  banking
subsidiary is party to financial instruments with off-balance-sheet  risk. These
financial  instruments  include commitments to extend credit and standby letters
of credit,  and have elements of credit risk in excess of the amount  recognized
in the balance sheet. The exposure to credit loss in the event of nonperformance
by the other  parties to the financial  instruments  for  commitments  to extend
credit and standby letters of credit is represented by the contractual  notional
amount  of those  instruments.  Generally,  the same  credit  policies  used for
on-balance-sheet  instruments,  such  as  loans,  are  used  in  extending  loan
commitments and standby letters of credit.



                                       36
<PAGE>

Following are the off-balance-sheet financial instruments whose contract amounts
represent credit risk:

                                                           December 31,
                                                           ------------
                                                      1998                1997
                                                      ----                ----

Loan commitments .......................          $4,880,316          $6,172,000
Standby letters of credit ..............             333,100             374,577

Loan commitments involve agreements to lend to a customer as long as there is no
violation of any condition  established in the contract.  Commitments  generally
have  fixed  expiration  dates or other  termination  clauses  and some  involve
payment of a fee. Many of the  commitments  are expected to expire without being
fully  drawn;  therefore,   the  total  amount  of  loan  commitments  does  not
necessarily represent future cash requirements. Each customer's creditworthiness
is evaluated on a case-by-case basis. The amount of collateral obtained, if any,
upon  extension  of credit is based on  management's  credit  evaluation  of the
borrower. Collateral held varies but may include commercial and residential real
properties, accounts receivable, inventory and equipment.

Standby  letters  of  credit  are  conditional   commitments  to  guarantee  the
performance of a customer to a third party.  The credit risk involved in issuing
standby  letters  of  credit  is the  same  as  that  involved  in  making  loan
commitments  to  customers.  As of December 31, 1998 and 1997, a majority of the
outstanding letters of credit were secured by real estate.

The estimated fair values of  off-balance-sheet  financial  instruments  such as
loan  commitments  and standby  letters of credit are generally  based upon fees
charged to enter into  similar  agreements,  taking into  account the  remaining
terms  of the  agreements  and the  counterparties'  creditworthiness.  The vast
majority  of the  banking  subsidiary's  loan  commitments  do not  involve  the
charging of a fee,  and fees  associated  with  outstanding  standby  letters of
credit  are not  material.  Therefore,  as of  December  31 1998 and  1997,  the
estimated  fair  values  of these  off-balance-sheet  financial  instruments  is
nominal.  For loan  commitments  and standby  letters of credit,  the  committed
interest rates are either variable or approximate current interest rates offered
for similar  commitments.  Management is not aware of any significant  change in
the credit risk associated with these commitments.

Borrowing  Commitments At December 31, 1998,  the banking  subsidiary had unused
short-term  lines of credit to purchase up to  $2,500,000  of federal funds from
unrelated  correspondent  financial  institutions.  The correspondent  lines are
generally  available on a one to seven day basis for general corporate  purposes
of the Bank.  The lenders have reserved the right to withdraw the lines at their
option.  The Bank also has an unused  line of  credit  agreement  with the FHLB.
Under the terms of the FHLB agreement, the Bank may borrow up to $10,600,000 for
its general corporate  purposes.  Borrowings under the line may bear interest at
either a variable or fixed rate  established by the FHLB. The line, if utilized,
would be secured by FHLB capital stock with a carrying value of $345,400,  and a
blanket lien on all 1-4 family residential first lien mortgage loans held by the
Bank.  The carrying  value of such loans at December 31, 1998 was  approximately
$27,389,000.

Litigation The Company and its subsidiary were not involved as defendants in any
litigation  at  December  31,  1998.  Management  is not aware of any pending or
threatened litigation,  or unasserted claims or assessments that are expected to
result in losses,  if any, that would be material to the consolidated  financial
statements.

Accounting  Estimates In  preparing  financial  statements  in  conformity  with
generally  accepted  accounting  principles,  management  is  required  to  make
estimates  and  assumptions  that affect the  reported  amounts of revenues  and
expenses during the reporting period.  Actual results could differ significantly
from those estimates.  Material  estimates that are particularly  susceptible to
significant change in the near-term relate to the determination of the allowance
for loan losses.  In connection with the determination of the allowance for loan
losses, management has identified specific loans as well as adopting a policy of
providing amounts for loan valuation  purposes which are not identified with any
specific loans and are derived from actual loss experience  ratios,  loan types,
loan volume, economic conditions and industry standards.

                                       37
<PAGE>

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

Year 2000  Readiness  Management  believes  that the  Company  is  presently  on
schedule in implementing  its Y2K  Preparedness  Plan. The plan has five phases:
(1)  Awareness,  (2)  Assessment,   (3)  Renovation,  (4)  Validation,  and  (5)
Implementation.  The awareness  and  assessment  phases have been  substantially
completed as of December 31 1998, which included the  identification of critical
systems and equipment potentially vulnerable to the Year 2000 problem. This also
included  identification  of significant  loan customers whose  businesses could
possibly be adversely  affected by the problem and communicating with them about
their progress in addressing  the Year 2000  changeover.  The renovation  phase,
consisting  of  upgrading  or  replacing  systems and  equipment,  had also been
largely completed for all mission-critical  systems as of December 31, 1998. The
validation  portion  of the plan calls for the  actual  testing  of systems  and
equipment as of several critical dates with such testing to be completed by June
30,  1999.  This  testing  is  presently  on  schedule  with no  major  problems
encountered.  Finally,  the implementation  phase, which requires addressing any
problems  encountered in the validation  phase,  along with continued review and
assessment of the Company's  systems and  equipment,  is presently  underway and
will  continue  until  the  year  2000  has  arrived.  As a part of  contingency
planning,  the  Company has engaged an outside  contractor  to make  available a
compatible  portable  hardware and software system,  represented to be Year 2000
compliant,  which could timely be brought to the Company's location in the event
of a system failure.

Management  is of the opinion that the Company's  systems and equipment  will be
ready for the Year 2000 in a timely manner  without any material  adverse effect
on the  Company's  business.  Because  of  the  planned  comprehensive  computer
hardware and software  upgrade begun in 1996 and completed in 1997,  the Company
has incurred no material  expenditures in 1998 or 1997 relating  directly to the
Year 2000 problem.  The new  components,  which were largely Year 2000 compliant
when  installed,  were  acquired in the normal course of business to upgrade the
Bank's computer capabilities. The previous system was over six years old and was
becoming  functionally  obsolete.  The Company  has been able to use  previously
existing  internal  personnel  and  resources to carry out its Y2K  Preparedness
Plan, and has used few outside resources that would incur significant additional
costs.  Management is not aware of any material future expenditures  required to
complete its preparedness plan.

NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS

Following  is summary  information  on the  estimated  fair  value of  financial
instruments,  cross  referenced  to the location in the  consolidated  financial
statements and notes where more detailed information can be obtained:

                                       38
<PAGE>

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                          ------------
                                                                       1998                                     1997
                                                                       ----                                     ----
                                                          Carrying              Estimated            Carrying           Estimated
                                                           Amount               Fair Value            Amount            Fair Value
                                                         of Assets              of Assets            of Assets          of Assets
                                                       (Liabilities)          (Liabilities)        (Liabilities)      (Liabilities)
                                                       -------------          -------------        -------------      -------------

<S>                                                   <C>                   <C>                   <C>                  <C>         
Cash and due from banks (Note A) .............        $   3,319,892         $   3,319,892         $  4,833,659         $  4,833,659
Federal funds sold (Note A) ..................           14,150,000            14,150,000            6,510,000            6,510,000
Securities (Note D) ..........................           38,284,136            38,284,136           25,510,524           25,510,524
Other investments (Note A) ...................              345,400               345,400              335,000              335,000
Loans (Note E) ...............................           66,938,381            67,342,792           64,947,783           65,206,506
Accrued interest receivable (Note A) .........              829,201               829,201              792,715              792,715
Deposits (Note G) ............................         (112,496,172)         (112,546,966)         (92,290,572)         (92,300,726)
Accrued interest payable (Note A) ............             (965,653)             (965,653)            (772,105)            (772,105)
Loan commitments (Note L) ....................                                 (4,880,316)                               (6,172,000)
Standby letters of credit (Note L) ...........                                   (333,100)                                 (374,577)
</TABLE>


NOTE N - COMMUNITY FIRST BANCORPORATION (PARENT COMPANY ONLY)


<TABLE>
<CAPTION>
                                                                                                          December 31,
                                                                                                          ------------
                                                                                                  1998                  1997
                                                                                                  ----                  ----
Condensed Balance Sheet
     Assets
<S>                                                                                             <C>                      <C>        
         Cash ....................................................................              $   282,464              $   245,705
         Investment in banking subsidiary ........................................               13,303,767               11,602,938
         Other assets ............................................................                   19,047                    2,370
                                                                                                -----------              -----------
            Total assets .........................................................              $13,605,278              $11,851,013
                                                                                                ===========              ===========
     Liabilities
         Other liabilities .......................................................              $     2,318              $     1,292
     Shareholders' equity ........................................................               13,602,960               11,849,721
                                                                                                -----------              -----------
            Total liabilities and shareholders' equity ...........................              $13,605,278              $11,851,013
                                                                                                ===========              ===========
</TABLE>

                                       39
<PAGE>

<TABLE>
<CAPTION>
                                                                                                     Years Ended December 31,
                                                                                                     ------------------------
                                                                                                 1998                     1997
                                                                                                 ----                     ----
Condensed Statement of Income
     Income
<S>                                                                                           <C>                       <C>        
         Dividends received from banking subsidiary ............................              $         -               $   250,000
         Interest income .......................................................                      793                         -
                                                                                              -----------               -----------
            Total income .......................................................                      793                   250,000
                                                                                              -----------               -----------
     Expenses
         Interest expense ......................................................                        -                       649
         Other expenses ........................................................                   56,815                    50,642
                                                                                              -----------               -----------
            Total expenses .....................................................                   56,815                    51,291
                                                                                              -----------               -----------
     Income (loss) before income taxes and equity in
         undistributed earnings of banking subsidiary ..........................                  (56,022)                  198,709
     Income tax expense (credit) ...............................................                  (19,047)                   (2,370)
     Equity in undistributed earnings
         of banking subsidiary .................................................                1,701,253                 1,203,971
                                                                                              -----------               -----------
     Net income ................................................................              $ 1,664,278               $ 1,405,050
                                                                                              ===========               ===========
<CAPTION>

                                                                                                     Years Ended December 31,
                                                                                                     ------------------------
                                                                                                 1998                       1997
                                                                                                 ----                       ----
Condensed Statement of Comprehensive Income
<S>                                                                                           <C>                         <C>       
     Net income ..............................................................                $ 1,664,278                 $1,405,050
                                                                                                                                    
     Equity in other comprehensive income
        (loss) of banking subsidiary .........................................                       (424)                    62,210
                                                                                              -----------                 ----------
     Comprehensive income ....................................................                $ 1,663,854                 $1,467,260
                                                                                              ===========                 ==========
<CAPTION>

                                                                                                     Years Ended December 31,
                                                                                                     ------------------------
                                                                                                    1998                  1997
                                                                                                    ----                  ----
Condensed Statement of Cash Flows
     Operating activities
<S>                                                                                             <C>                     <C>        
         Net income ................................................................            $ 1,664,278             $ 1,405,050
            Adjustments to reconcile net income to net
                cash provided by operating activities
                    Equity in undistributed earnings
                      of banking subsidiary ........................................             (1,701,253)             (1,203,971)
                    Increase in other assets .......................................                (16,677)                 (2,370)
                    Increase in other liabilities ..................................                  1,026                   1,292
                                                                                                -----------             -----------
                      Net cash (used) provided by
                         operating activities ......................................                (52,626)                200,001
                                                                                                -----------             -----------
     Financing activities
         Exercise of employee stock options ........................................                 89,385                  50,027
         Payment of cash in lieu of fractional
            shares for stock dividend ..............................................                      -                  (4,323)
                                                                                                -----------             -----------
                      Net cash provided by financing activities ....................                 89,385                  45,704
                                                                                                -----------             -----------
     Increase in cash and cash equivalents .........................................                 36,759                 245,705
     Cash and cash equivalents, beginning ..........................................                245,705                       -
                                                                                                -----------             -----------
     Cash and cash equivalents, ending .............................................            $   282,464             $   245,705
                                                                                                ===========             ===========
</TABLE>

                                       40