EXHIBIT 13

  PORTIONS OF COMMUNITY FIRST BANCORPORATION 1997 ANNUAL REPORT TO SHAREHOLDERS
               INCORPORATED BY REFERENCE INTO THE ANNUAL REPORT ON
                FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1997

Market for Common Stock and Dividends

         Community First  Bancorporation (the "Company") was incorporated on May
23, 1997 as a bank holding company to effect a plan of corporate  reorganization
in which Community First 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
Community  First  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.

         Although the common stock of the Company is 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 1997, management was aware of a few transactions in which the
Company's  common  stock traded in a price range from $13.91 to $15.65 per share
(per share prices have been adjusted to reflect a 15% stock  dividend  effective
December  30,  1997).  During  the  period  January  1, to  February  28,  1998,
management is aware of a few  transactions  in which the Company's  common stock
has traded in a range of $18.00 to $18.25 per share. However, management has not
ascertained that these transactions are the result of arm's length  negotiations
between the parties, 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, 1998, there were approximately 744 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
or Community First Bank's inception. In order to support the Company's continued
capital  growth,  management  does not expect to pay such  dividends in the near
future.

         The Board of Directors declared a 15% stock dividend effective December
30, 1997 and a 5% stock dividend effective May 1, 1996. As a result, 114,451 and
35,724 shares of the Company's  common stock were issued to shareholders in 1997
and 1996,  respectively.  Cash payments  totaling $4,323 and $6,109 were made in
1997 and 1996, respectively, in lieu of fractional shares.


Management's Discussion and Analysis of Financial
Condition and Results of Operations

         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, which are collectively
referred to as the "Company".  The 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,  reflect
the required adoption in 1997 of a change in accounting  principle regarding the
computation and display of earnings per share.  Prior year per share information
has been  restated on a comparable  basis.  All per share amounts have also been
adjusted to reflect a 15% stock  dividend  effective  December 30, 1997,  and 5%
stock dividends effective May 1, 1996 and May 1, 1995.

                                       -1-

<PAGE>

Safe Harbor for Forward-Looking Statements

         Statements   included  in  Management's   Discussion  and  Analysis  of
Financial  Condition  and  Results of  Operations  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  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.

Earnings Performance

1997 Compared with 1996

         For the year ended December 31, 1997,  the Company  recorded net income
of $1,405,000,  an increase of $253,000, or 22.0%, over net income of $1,152,000
for 1996.  Net income per share for 1997 was $1.60 compared with $1.32 for 1996.
Per share net income,  assuming dilution for unexercised employee stock options,
was $1.55 for 1997  compared with $1.28 for 1996.  Return on average  assets for
1997 was 1.38% compared with 1.19% for 1996, and return on average shareholders'
equity increased to 12.64% from 11.97%.

         Net income  continues to increase,  primarily as a result of a $681,000
increase in net interest income in 1997. This increase was largely the result of
steady loan growth which has been 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 is 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.

1996 Compared with 1995

         The Company  achieved net income of  $1,152,000  or $1.32 per share for
the year ended  December 31, 1996,  compared with net income of $857,000 or $.98
per share for 1995. Net income per share, assuming dilution,  was $1.28 for 1996
compared  with  $.96 for  1995.  Return  on  average  assets  for 1996 was 1.19%
compared  with  1.04%  for 1995,  and  return on  average  shareholders'  equity
increased to 11.97% from 9.94%.

         The 34.4%  increase  in net income for 1996 was caused  primarily  by a
$485,000  increase in net interest  income  resulting from  significant  deposit
growth and a related  increase in the volume of  interest  earning  assets.  The
provision for loan losses  increased  $70,000 in 1996 because of higher net loan
charge-offs  and loan growth.  Noninterest  income  increased  $55,000 for 1996,
while noninterest overhead

                                       -2-

<PAGE>

expense  increased only $10,000.  The  industry-wide  decrease in FDIC insurance
premium  expense  contributed  substantially  to the  low  rate of  increase  in
noninterest expenses for 1996.

Net Interest Income

         Net  interest  income is the  amount  of  interest  earned on  interest
earning  assets  (loans,  securities,  time  deposits in other banks and federal
funds sold), less the interest expense incurred on interest bearing  liabilities
(primarily  interest  bearing  deposits),  and is the  principal  source  of the
Company's  earnings.  Net  interest  income is affected by the level of interest
rates,  the volume and mix of  interest  earning  assets  and  interest  bearing
liabilities, and the relative funding of these assets.

         Net interest income was $3,914,000, $3,233,000 and $2,748,000 for 1997,
1996 and 1995, respectively. The $681,000 growth in net interest income for 1997
was  attributable  primarily  to  increased  loan  volume and  higher  levels of
interest-free  funding  sources.  These  funding  sources  included  noninterest
bearing demand deposits and equity capital.

         During 1997, the Company experienced strong,  steady loan growth. Gross
loans as of December 31, 1997 totaled  $65,838,000  representing  an increase of
$11,180,000  or 20.5% over the amount as of December  31,  1996.  Average  loans
during 1997 were $60,707,000,  an increase of $10,755,000 or 21.5% over the 1996
average.  In 1997,  average loans were 62.1% of average interest earning assets,
representing a significant  increase over the 53.8% component ratio for 1996. At
the same  time,  the  average  yield on loans was  8.89% for 1997,  only 6 basis
points lower than the average yield for 1996.  Growth in the other components of
average interest earning assets during 1997 was negative,  as management  funded
most of the loan growth by reducing  its federal  funds sold  position.  Through
this  strategy,  the Company has shifted  from more liquid,  but lower  yielding
assets to less liquid,  but higher  yielding  assets.  As a result,  the average
yield  on  interest  earning  assets  increased  by 29 basis  points  in 1997 as
compared with 1996.

         Growth in average  interest bearing  liabilities  totaled only $654,000
during 1997 and was  concentrated  mainly in time deposits of $100,000 and over.
Average  time  deposits of $100,000 and over for 1997  totaled  $21,889,000,  an
increase of $2,329,000 or 11.9% over the average of such deposits for 1996.  The
average  rate on these  deposits  increased by 24 basis points to 5.49% in 1997.
Because of lower rates paid on other  categories of interest  bearing  deposits,
however,  the average rate on all interest  bearing deposits in 1997 decreased 9
basis points to 4.88%.  Further,  average  noninterest  bearing demand  deposits
increased by $3,144,000, or 27.0%, over their 1996 level.

         The  combined  effects of these  factors  resulted  in a 38 basis point
increase in the interest rate spread (earning assets yield less rate on interest
bearing  liabilities)  and a 52 basis point increase in the net yield on earning
assets (net interest income divided by average interest earning assets).

         Net interest  income for 1996,  as compared with 1995,  was  influenced
positively by growth in earning  assets and interest  bearing  liabilities.  The
positive  effects of larger  volumes of net earning  assets were only  partially
offset by higher rates paid on interest bearing liabilities.

         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,
1997, 1996 and 1995.

                                       -3-

<PAGE>

                       Average Balances, Yields and Rates

<TABLE>
<CAPTION>

                                                                        Years Ended December 31,
                                                     1997                            1996                            1995
                                      -----------------------------   ------------------------------   -----------------------------
                                                  Interest                        Interest                         Interest
                                       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>
Time deposits in other banks          $      -    $      -       -    $      -    $      -        -    $     33    $      2    6.06%
Taxable securities                      27,024       1,646    6.09%     25,895       1,544     5.96%     22,437       1,286    5.73%
Federal funds sold                      10,001         534    5.34%     16,990         911     5.36%     14,930         867    5.81%
Other investments                           19           -       -           -           -        -           -           -       -
Loans (2),(3)                           60,707       5,398    8.89%     49,952       4,473     8.95%     40,956       3,764    9.19%
                                      --------    --------            --------    --------             --------    --------
     Total interest earning assets      97,751       7,578    7.75%     92,837       6,928     7.46%     78,356       5,919    7.55%
Cash and due from banks                  2,088                           2,091                            1,803
Allowance for loan losses                 (790)                           (636)                            (521)
Premises and equipment                   1,725                           1,551                            1,585
Other assets                               982                             656                              820
                                      --------                        --------                         --------
     Total assets                     $101,756                        $ 96,499                         $ 82,043
                                      ========                        ========                         ========

Liabilities and shareholders' equity
Interest bearing deposits
  Interest bearing transaction
    accounts                            10,639         414    3.89%   $ 10,460    $    378     3.61%   $  7,627    $    284    3.72%
  Savings                               16,448         596    3.62%     18,801         738     3.93%     17,243         698    4.05%
  Time deposits $100M and over          21,889       1,201    5.49%     19,560       1,026     5.25%     16,319         885    5.42%
  Other time deposits                   26,065       1,452    5.57%     25,573       1,553     6.07%     22,217       1,303    5.86%
                                      --------    --------            --------    --------             --------    --------
     Total interest bearing
       deposits                         75,041       3,663    4.88%     74,394       3,695     4.97%     63,406       3,170    5.00%
Short-term borrowing                         7           1   14.29%          -           -        -           -           -       -
Obligation under capital lease               -           -                   -           -        -           4           1    8.10%
                                      --------    --------            --------    --------             --------    --------
     Total interest bearing
       liabilities                      75,048       3,664    4.88%     74,394       3,695     4.97%     63,410       3,171    5.00%
Noninterest bearing demand
  deposits                              14,790                          11,646                            9,337
Other liabilities                          799                             835                              678
Shareholders' equity                    11,119                           9,624                            8,618
                                      --------                        --------                         --------
     Total liabilities and
       shareholders' equity           $101,756                        $ 96,499                         $ 82,043
                                      ========                        ========                         ========
Interest rate spread (4)                                      2.87%                            2.49%                           2.55%
Net interest income and net yield
  on earning assets (5)                           $  3,914    4.00%               $  3,233     3.48%               $  2,748    3.51%
Interest free funds supporting
  earning assets (6)                  $ 22,703                        $ 18,443                         $ 14,946
</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)  Nonaccruing  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>

         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 $575,000 of the growth in net interest income for 1997,  which was
augmented by a $106,000  increase  due to lower rates paid for funding  sources.
Increased  volumes were  responsible  for $573,000 of the growth in net interest
income  for 1996,  which was  partially  offset by an  $88,000  decrease  due to
changes in rates.

                                             Volume and Rate Variance Analysis

<TABLE>
<CAPTION>

                                                        1997 Compared to 1996            1996 Compared to 1995
                                                     ----------------------------     ------------------------
                                                     Volume(1)   Rate (1)  Total      Volume(1)   Rate (1)  Total
                                                     ---------   --------  -----      ---------   --------  -----
                                                                        (Dollars in thousands)

<S>                                                  <C>        <C>        <C>        <C>        <C>        <C>
Time deposits in other banks                         $    -     $    -     $    -     $   (2)    $    -     $   (2)
Taxable securities                                       69         33        102        205         53        258
Federal funds sold                                     (373)        (4)      (377)        99        (55)        44
Loans (2)                                               956        (31)       925        803        (94)       709
                                                     ------     ------     ------     ------     ------     ------
          Total interest income                         652         (2)       650      1,105        (96)     1,009
                                                     ------     ------     ------     ------     ------     ------
Interest bearing deposits
  Interest bearing transaction accounts                   7         29         36        102         (8)        94
  Savings                                               (88)       (54)      (142)        60        (20)        40
  Time deposits $100M and over                          126         49        175        169        (28)       141
  Other time deposits                                    31       (132)      (101)       202         48        250
Short-term borrowing                                      1          -          1          -          -          -
Obligation under capital lease                            -          -          -         (1)         -         (1)
                                                     ------     ------     ------     ------     ------     ------
          Total interest expense                         77       (108)       (31)       532         (8)       524
                                                     ------     ------     ------     ------     ------     ------
          Net interest income                        $  575     $  106     $  681     $  573     $  (88)    $  485
                                                     ======     ======     ======     ======     ======     ======
</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 differences.
(2)  No taxable  equivalent  adjustment has been made because the Company has no
     material amounts of non-taxable interest income.

         During 1998,  management expects that interest rates will move within a
narrow range,  and  management  has not  identified any factors that would cause
interest  rates to increase  sharply in a short period of time.  Therefore,  any
improvements  in net  interest  income for 1998 are  expected  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 area in Oconee County,  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  reviews  interest rate risk exposure and the expected  interest rate
environment so that adjustments in interest rate sensitivity can be timely made.

                                       -5-

<PAGE>

         The  table,  "Interest  Sensitivity  Analysis",  indicates  that,  on a
cumulative basis through twelve months, rate sensitive liabilities exceeded rate
sensitive assets, resulting in a liability sensitive position at the end of 1997
of  $37,691,000,  and a cumulative  gap ratio of .48.  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 1997  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 below  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.
Deposits in other banks and debt 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 under no obligation 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.

                          Interest Sensitivity Analysis
<TABLE>
<CAPTION>

                                                                           December 31, 1997
                                                      ------------------------------------------------------------
                                                       Within        4-12       Over 1-5      Over 5
                                                      3 Months      Months       Years        Years         Total
                                                      --------      ------       -----        -----         -----
                                                                         (Dollars in thousands)
Interest earning assets
  Taxable securities
<S>                                                   <C>          <C>          <C>          <C>          <C>
    Fixed rate                                        $  1,531     $  1,933     $ 15,718     $  3,368     $ 22,550
    Variable rate                                        1,988          972            -            -        2,960
  Other investments                                        335            -            -            -          335
  Federal funds sold                                     6,510            -            -            -        6,510
  Loans(1)                                              15,801        5,397       38,841        5,636       65,675
                                                      --------     --------     --------     --------     --------
          Total interest earning assets                 26,165        8,302     $ 54,559     $  9,004     $ 98,030
                                                      --------     --------     ========     ========     ========

Interest bearing liabilities
  Interest bearing deposits
    Interest bearing transaction accounts             $ 10,106     $      -     $      -     $      -     $ 10,106
    Savings                                             16,191            -            -            -       16,191
    Time deposits $100M and over                        18,807        3,423          816            -       23,046
    Other time deposits                                  9,061       14,570        2,816            -       26,447
                                                      --------     --------     --------     --------     --------
          Total interest bearing liabilities            54,165       17,993     $  3,632     $      -     $ 75,790
                                                      --------     --------     ========     ========     ========

Interest sensitivity gap                              $(28,000)    $ (9,691)
Cumulative interest sensitivity gap                   $(28,000)    $(37,691)
Gap ratio                                                  .48          .46
Cumulative gap ratio                                       .48          .48
</TABLE>

(1) Loans are net of nonaccruing loans totaling $163,000.

                                       -6-

<PAGE>

         During  1998,  management  plans  to  reduce  the  Company's  liability
sensitive  position by attempting  to increase the mix of variable  versus fixed
rate loans and extend the maturities of fixed rate time deposits.  This strategy
is  designed  to provide a stable net  interest  spread and soften the  negative
effects of any increase in interest rates that might occur.

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 $315,000,  $223,000,  and
$153,000 for the years ended December 31, 1997,  1996,  and 1995,  respectively.
The increased provision in 1997 is due to higher net loan charge-offs and growth
in loan volume. The allowance for loan losses as a percentage of loans was 1.35%
at the end of 1997 compared with 1.29% at the end of 1996. Net loan  charge-offs
were  $130,000  in 1997  compared  with  $93,000  and $38,000 for 1996 and 1995,
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 1997 increased  $180,000 or 52.6% compared with
an increase of $55,000 or 19.2% for 1996.  Service  charges on deposit  accounts
increased  $94,000 in 1997 and $23,000 in 1996.  These  increases were primarily
due to increased  chargeable account activity.  Credit life insurance commission
income was up $15,000 in 1997 after  increasing  by only  $2,000 in 1996.  There
were no  realized  securities  gains  or  losses  in 1997,  1996 or 1995.  Other
noninterest  income  increased  $71,000 in 1997,  including gains on the sale of
other real estate totaling $44,000, a $13,000 increase in wire transfer fees and
a $9,000 increase in ATM fee income.  Other noninterest income increased $31,000
in 1996 due to additional  fees on  merchants'  credit card  deposits,  official
check fees, safe deposit box rentals and other service fees.

Other Expenses

         Noninterest  expenses for 1997  increased  $350,000 or 22.5%,  compared
with an increase of only $10,000 or .6% for 1996. Salaries and employee benefits
increased $149,000 in 1997 and $72,000 in 1996. The 1997 increase included a new
incentive  bonus  totaling  $81,000  which  was  divided  among  all  employees.
Retirement plan expense increased  $16,000 in 1997 as employee  participation in
the Company's  401(k) plan expanded.  The 1996 increase was due mainly to hiring
additional  staff  needed to enable  the  Company  to  maintain  a high level of
customer service in response to the rapid growth of the Company's customer base.
Net occupancy and furniture and equipment  expenses combined for a 1997 increase
of $19,000 or 7.7%, and a $3,000 or 1.2% increase for 1996. The 1997 increase is
attributable to higher depreciation expense related to the Company's acquisition
of 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.
In 1996, other  noninterest  expenses  decreased  $65,000 or 12.6% compared with
1995.  The 1996  decrease  included  a decrease  of  $76,000  in FDIC  insurance
expense.

                                       -7-

<PAGE>
         Noninterest overhead expenses for 1998 are not expected to rise sharply
as compared with 1997 in most  categories.  Furniture  and equipment  expense is
expected to increase, however, because of higher depreciation,  amortization and
maintenance  related to new mainframe  computer  equipment and software that was
placed in service during 1997.  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.  Also,  the  increased
expenses incurred in connection with the Company's 1997 corporate reorganization
are not expected to recur in 1998. 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 County.

Income Taxes

         For 1997,  federal and state  income tax expense  increased to $807,000
from $641,000 in 1996. This increase was due to higher  earnings.  The effective
income tax rate (income tax expense  divided by income  before income taxes) was
36.5% for 1997 compared with 35.8% for 1996.

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,
                                                   ------------
                                         1997          1996          1995
                                         ----          ----          ----
                                      Available-    Available-    Available-
                                       for-Sale      for-Sale      for-Sale
                                       --------      --------      --------
                                              (Dollars in thousands)

U.S. Treasury                         $    2,003    $    5,025    $    5,034
U.S. Government agencies                  18,932        16,355        14,214
Mortgage-backed securities                 4,575         5,145         3,714
                                      ----------    ----------    ----------
     Total                            $   25,510    $   26,525    $   22,962
                                      ==========    ==========    ==========

         The following table presents  maturities and weighted average yields of
securities at December 31, 1997.

                   Securities Portfolio Maturities and Yields

                                                        December 31, 1997
                                                     ----------------------
                                                     Available-
                                                      for-Sale        Yield
                                                      --------        -----
                                                     (Dollars in thousands)
U.S. Treasury
  Within one year                                    $    2,003         6.47%
                                                     ----------

U.S. Government agencies
  Within one year                                         3,962         4.42%
  After one through five years                           12,472         6.26%
  After five through ten years                            2,498         6.95%
                                                     ----------
                                                         18,932         5.97%
Mortgage-backed securities
  Within one year                                           459         5.50%
  After one through five years                            3,245         6.56%
  After five through ten years                              871         6.36%
                                                     ----------
                                                          4,575         6.42%
Total
  Within one year                                         6,424         5.14%
  After one through five years                           15,717         6.32%
  After five through ten years                            3,369         6.80%
                                                     ----------
     Total                                           $   25,510         6.01%
                                                     ==========

                                       -8-
<PAGE>

         In December 1995,  securities  classified as  held-to-maturity  with an
amortized  cost of $9,752,318  and an estimated  fair value of  $9,874,270  were
transferred on a one-time basis to the available-for-sale category in accordance
with  provisions  of the  Special  Report  on  Implementation  of  Statement  of
Financial  Accounting  Standards  No.  115  issued by the  Financial  Accounting
Standards  Board.  During  1997 and 1996,  there were no sales or  transfers  of
held-to-maturity securities.

         On an ongoing basis,  management  assigns securities upon purchase into
one of the categories  designated by Statement of Financial Accounting Standards
No.  115  (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.

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

Loan Portfolio

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

         The amounts of loans  outstanding at December 31, 1997,  1996, and 1995
are shown in the following table according to type of loan:

                           Loan Portfolio Composition
<TABLE>
<CAPTION>

                                                                           December 31,
                                                 -----------------------------------------------------------------
                                                         1997                   1996                   1995
                                                 -------------------    -------------------    -------------------
                                                  Amount        %        Amount        %        Amount        %
                                                                      (Dollars in thousands)
Commercial, financial and industrial
<S>                                              <C>         <C>        <C>         <C>        <C>         <C>
   Commercial and industrial                     $  9,685      14.7%    $  7,600      13.9%    $  6,901      15.6%
   Purchasing or carrying securities                   79        .1%          66        .1%          71        .2%
Real estate - construction                             78        .1%         146        .3%         178        .4%
Real estate - mortgage
   1-4 family residential                          29,835      45.3%      24,423      44.7%      20,356      46.1%
   Multifamily (5 or more) residential                104        .2%         198        .4%         379        .9%
   Nonfarm, nonresidential                         11,357      17.3%      10,300      18.8%       7,478      16.9%
Consumer installment
   Credit card and checking credit                    838       1.3%         766       1.4%         584       1.3%
   Other                                           13,862      21.0%      11,159      20.4%       8,228      18.6%
                                                 --------    -------    --------    -------    --------    -------
           Total loans                           $ 65,838     100.0%    $ 54,658     100.0%    $ 44,175     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  ultimately  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 1997, total
commercial and  industrial  loans  increased  $2,085,000 or 27.4%.  Also,  loans
mainly  for  business  purposes  that  are  secured  by  real  estate  (nonfarm,
nonresidential) increased by $1,057,000 or 10.3% during 1997. 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

                                       -9-

<PAGE>

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 63% and
64% of the Company's loan  portfolio at the end of 1997 and 1996,  respectively.
Real estate mortgage loans of all types grew $6,375,000 during 1997. 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.

Maturity Distribution of Loans

         The  following  table  sets  forth  the  maturity  distribution  of the
Company's  loans,  by type,  as of  December  31,  1997,  as well as the type of
interest requirement on such loans.
<TABLE>
<CAPTION>

                                                                   December 31, 1997
                                                                   -----------------
                                                    1 Year        1-5         5 Years
                                                   or Less       Years        or More      Total
                                                   -------       -----        -------      -----
                                                               (Dollars in thousands)

<S>                                                <C>          <C>          <C>          <C>
Commercial, financial and industrial               $  5,582     $  3,720     $    462     $  9,764
Real estate - construction                                -            -           78           78
Real estate - mortgage                                5,644       12,049       23,602       41,295
Consumer installment loans                            3,554       10,457          690       14,701
                                                   --------     --------     --------     --------
     Total loans                                   $ 14,780     $ 26,226     $ 24,832     $ 65,838
                                                   ========     ========     ========     ========

Predetermined rate, maturity
  greater than one year                                         $ 22,805     $  5,560     $ 28,365
                                                                ========     ========     ========
Variable rate or maturity
  within one year                                  $ 14,780     $  3,421     $ 19,272     $ 37,473
                                                   ========     ========     ========     ========
</TABLE>

Impaired Loans

         As of January 1, 1995,  the  Company  adopted  Statement  of  Financial
Accounting  Statement  No. 114,  "Accounting  by Creditors  for  Impairment of a
Loan",  as amended.  This standard  modified the accounting for impaired  loans,
defined as those loans on which, based on current  information and events, it is
probable  that a creditor will be unable to collect all amounts due according to
the contractual terms of the loan agreement.  The adoption of this Statement, as
amended,  did not have a material effect on the Company's  financial position or
results of operations.


                                      -10-

<PAGE>

         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,
                                                            ------------
                                                        1997    1996    1995
                                                        ----    ----    ----
                                                       (Dollars in thousands)

      Nonaccrual loans                                 $  163  $  249  $   92
      Accruing loans 90 days or more past due               1       -       -
                                                       ------  ------  ------
             Total                                     $  164  $  249  $   92
                                                       ======  ======  ======

      Percent of total loans                              .2%     .5%     .2%

         When an impaired  loan is 90 days 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
1997, 1996 and 1995.

         As of December 31, 1997,  there were no commitments to lend  additional
funds to debtors owing amounts on nonaccrual loans.

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, 1997  determined  by  management  to be  potential
problem loans was $473,000. 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, 1997.

                                                          December 31, 1997
                                                          -----------------
                                                         Amount          %
                                                         ------        ------
                                                       (Dollars in thousands)
          Commercial and industrial
            Inventory and accounts receivable          $       46        9.7%
          Real estate - mortgage
            1-4 family residential                            236       49.9%
          Consumer installment
            Vehicles                                           95       20.1%
            Other secured                                      35        7.4%
            Unsecured                                          61       12.9%
                                                       ----------    --------
                    Total                              $      473      100.0%
                                                       ==========    ========


                                      -11-

<PAGE>

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  that it is more likely than not 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, 1997.

         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. Also, 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.

         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 1997 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.





                                      -12-

<PAGE>

                         Summary of Loan Loss Experience
<TABLE>
<CAPTION>

                                                                            Years Ended December 31,
                                                                            ------------------------
                                                             1997        1996        1995        1994        1993
                                                             ----        ----        ----        ----        ----
                                                                            (Dollars in thousands)

<S>                                                        <C>         <C>         <C>         <C>         <C>
Total loans outstanding at end of period                   $ 65,838    $ 54,658    $ 44,175    $ 37,185    $ 30,039
Average amount of loans outstanding                          60,707      49,952      40,956      33,553      28,322

Balance of allowance for loan losses - beginning           $    705    $    575    $    460    $    338    $    295
                                                           --------    --------    --------    --------    --------
Loans charged off
  Commercial and industrial                                      37          11          14          34          56
  Real estate - mortgage                                         31          29           -           -           -
  Consumer installment                                           72          69          26          19          19
                                                           --------    --------    --------    --------    --------
     Total charge-offs                                          140         109          40          53          75
                                                           --------    --------    --------    --------    --------
Recoveries of loans previously charged off
  Commercial and industrial                                       3           1           -           -           -
  Real estate - mortgage                                          -           5           -           -           -
  Consumer installment                                            7          10           2           2           -
                                                           --------    --------    --------    --------    --------
     Total recoveries                                            10          16           2           2           -
                                                           --------    --------    --------    --------    --------
Net charge-offs                                                 130          93          38          51          75
                                                           --------    --------    --------    --------    --------
Additions to allowance charged to expense                       315         223         153         173         118
                                                           --------    --------    --------    --------    --------
Balance of allowance for loan losses - ending              $    890    $    705    $    575    $    460    $    338
                                                           ========    ========    ========    ========    ========

Ratios
  Net charge-offs to average loans                             .21%        .19%        .09%        .15%        .26%
  Net charge-offs to loans at end of period                    .20%        .17%        .09%        .14%        .25%
  Allowance for loan losses to average loans                  1.47%       1.41%       1.40%       1.37%       1.19%
  Allowance for loan losses to loans at end of period         1.35%       1.29%       1.30%       1.24%       1.13%
  Net charge-offs to allowance for loan losses               14.61%      13.19%       6.61%      11.09%      22.19%
  Net charge-offs to provision for loan losses               41.27%      41.70%      24.84%      29.48%      63.56%
</TABLE>

Deposits

         The average amounts and percentage  composition of deposits held by the
Company for the years ended  December 31, 1997,  1996 and 1995,  are  summarized
below:

                                Average Deposits
<TABLE>
<CAPTION>

                                                                       Years Ended December 31,
                                                                       ------------------------
                                                            1997                  1996                  1995
                                                            ----                  ----                  ----
                                                     Amount        %       Amount        %       Amount        %
                                                     ------        -       ------        -       ------        -
                                                                        (Dollars in thousands)

<S>                                                 <C>         <C>       <C>         <C>       <C>         <C>
Noninterest bearing demand                          $ 14,790      16.5%   $ 11,646      13.5%   $  9,337      12.8%
Interest bearing transaction accounts                 10,639      11.8%     10,460      12.2%      7,627      10.5%
Savings                                               16,448      18.3%     18,801      21.9%     17,243      23.7%
Time deposits $100M and over                          21,889      24.4%     19,560      22.7%     16,319      22.4%
Other time                                            26,065      29.0%     25,573      29.7%     22,217      30.6%
                                                    --------    -------   --------    -------   --------    -------
     Total deposits                                 $ 89,831     100.0%   $ 86,040     100.0%   $ 72,743     100.0%
                                                    ========    =======   ========    =======   ========    =======
</TABLE>

         As of December 31, 1997,  there were  $23,046,000  in time  deposits of
$100,000 or more with  approximately  $18,687,000  maturing within three months,
$1,244,000 maturing over three through six months,  $2,299,000 maturing over six
through twelve months and $816,000  maturing after one year. This level of large
time  deposits,  as well as the growth in other  deposits,  can be attributed to
planned  growth by management.  The vast majority of time deposits  $100,000 and
over are  acquired  from  customers  within the  Company's  service  area in the
ordinary course of business.  The Company does not purchase  brokered  deposits.
While most of the large time deposits are acquired from  customers with standing
banking  relationships,  it is a common industry  practice not to consider these
types of deposits as core deposits because their retention can be expected to be
heavily  influenced  by rates  offered,  and  therefore  such  deposits have the
characteristics  of  shorter-term  purchased  funds.   Certificates  of  deposit
$100,000 and over involve the maintenance of an appropriate matching of maturity
distribution and a diversification of sources to achieve an appropriate level of
liquidity.

                                      -13-

<PAGE>

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,
                                                 1997        1996        1995

               Return on assets                   1.38%       1.19%       1.04%
               Return on equity                  12.64%      11.97%       9.94%
               Dividend payout ratio                 -           -           -
               Equity to assets ratio            10.93%       9.97%      10.50%

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 may be immediately
converted  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 area.  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  66.8% of average
total assets during 1997  compared  with 68.9% during 1996.  Deposits of several
local  governmental  entities  comprised  approximately  33%  and  28% of  total
deposits at the end of 1997 and 1996,  respectively.  Because of the potentially
volatile nature of this funding  source,  as well as an increase in the ratio of
average  loans to average  total  deposits  to 67.6% in 1997 from 58.1% in 1996,
management  in 1997 secured  membership in the Federal Home Loan Bank of Atlanta
("FHLB") in order to gain  access to its credit  programs.  As of  December  31,
1997,  the banking  subsidiary is eligible to borrow up to  $6,700,000  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  $27,984,000 as of December 31, 1997.
In addition,  the banking  subsidiary has available an unused short-term line of
credit  to  purchase  up to  $1,000,000  of  federal  funds  from  an  unrelated
correspondent  institution.  The line is  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,  particularly those available-for-sale
and  those  maturing  within  one  year,  also  provide  a  secondary  source of
liquidity. In addition, funds from maturing loans are a source of liquidity.

         Community First  Bancorporation's  ability to meet its cash obligations
or to pay any  possible  future cash  dividends  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, 1997,
the banking subsidiary's  available undivided profits totaled $2,786,032.  Under
Federal  Reserve  Board  regulations,  the amounts of loans or advances from the
banking  subsidiary to the parent company are also restricted.  During 1997, the
parent company received a $250,000 cash dividend from its banking subsidiary.

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

                                      -14-

<PAGE>

         Understanding  the changes in the  Company's  financial  condition  and
liquidity is enhanced by reviewing  the changes in the size and  composition  of
the various  categories of earning and non-earning  assets due to cash flows and
the sources of cash for those changes. The table, "Sources and Uses of Cash", is
closely  related to the  consolidated  statement of cash flows  appearing in the
financial  statements and related notes contained  elsewhere in this report. The
information  in this table focuses on changes in year end balances  between 1997
and 1996, and between 1996 and 1995, caused by cash flows.

         As  shown in the  table,  core  deposits  provided  only  2.5% of total
funding  sources in 1997  compared with 70.6% in 1996.  Certificates  of deposit
$100,000 and over provided 32.8% of the total funding  sources for 1997 compared
with 14.5% for 1996. For 1997,  83.1% of the total funding  sources was employed
in the higher yielding loan portfolio  compared with 66.9% for 1996.  Reductions
in securities  and federal funds sold provided a total of 52.4% of total funding
sources in 1997.

                            Sources and Uses of Cash
<TABLE>
<CAPTION>

                                                              Increase (Decrease) December 31,
                                                              --------------------------------
                                                          1997         %         1996         %
                                                          ----       ------      ----        -----
                                                                   (Dollars in thousands)
Sources of cash
  Core deposits
<S>                                                     <C>          <C>       <C>         <C>
    Noninterest bearing demand                          $  6,149      45.0%    $   (183)     (1.2)%
    Interest bearing transaction accounts                 (2,702)    (19.8)%      4,998      31.5%
    Savings                                               (2,005)    (14.7)%      3,155      19.9%
    Time deposits under $100M                             (1,097)     (8.0)%      3,235      20.4%
                                                        --------    -------    --------    -------
         Total core deposits                                 345       2.5%      11,205      70.6%
                                                        --------    -------    --------    -------
  Time deposits $100M and over                             4,486      32.8%       2,314      14.6%
                                                        --------    -------    --------    -------
  Shareholders' equity
    Sales of common stock                                     52        .4%          52        .3%
    Payment in lieu of fractional shares                      (4)      (.1)%         (6)      (.1)%
    Operating activities                                   1,584      11.6%       1,402       8.8%
                                                        --------    -------    --------    -------
         Total shareholders' equity                        1,632      11.9%       1,448       9.0%
                                                        --------    -------    --------    -------
  Earning assets
    Federal funds sold                                     6,025      44.1%           -         -
    Securities                                             1,126       8.3%           -         -
                                                        --------    -------    --------    ------
         Total earning assets                              7,151      52.4%           -         -
                                                        --------    -------    --------    ------
  Non-earning assets
    Cash and due from banks                                    -         -          915       5.8%
    Sales of other real estate                                44        .4%           -         -
                                                        --------    -------    --------    ------
    Total non-earning assets                                  44        .4%         915       5.8%
                                                        --------    -------    --------    -------
         Total sources of cash                          $ 13,658     100.0%    $ 15,882     100.0%
                                                        ========    =======    ========    =======

Uses of cash
  Earning assets
    Securities                                          $      -         -     $  3,666      23.1%
    Federal funds sold                                         -         -        1,270       8.0%
    Other investments                                        335       2.4%           -         -
    Loans made to customers                               11,348      83.1%      10,628      66.9%
                                                        --------    -------    --------    -------
         Total earning assets                             11,683      85.5%      15,564      98.0%
                                                        --------    -------    --------    -------
  Non-earning assets
    Cash and due from banks                                1,952      14.3%           -         -
    Premises and equipment                                    23        .2%         318       2.0%
                                                        --------    -------    --------    -------
         Total non-earning assets                          1,975      14.5%         318       2.0%
                                                        --------    -------    --------    -------
         Total uses of cash                             $ 13,658     100.0%    $ 15,882     100.0%
                                                        ========    =======    ========    =======
</TABLE>

Capital Resources

         Shareholders' equity increased by $1,515,000 and $1,110,000 during 1997
and 1996,  respectively.  During 1997, net income increased shareholders' equity
$1,405,000,  and the  exercise  of  employee  stock  options  provided a $52,000
increase.  In 1997,  shareholders'  equity increased  $62,000 from the change in
unrealized  holding gains and losses on  available-for-sale  securities,  net of
income tax effect.

                                      -15-

<PAGE>

         During 1997,  the  Company's  Board of  Directors  declared a 15% stock
dividend  effective  December 30, 1997. In 1996 and 1995, the Board of Directors
declared 5% stock dividends effective May 1 of each year. These actions resulted
in the issuance of 114,451, 35,724 and 34,021 additional shares of the Company's
common stock to shareholders in 1997, 1996 and 1995, respectively. Cash payments
totaling $4,000, $6,000 and $4,000,  respectively,  were made in lieu of issuing
fractional shares in each of these years.

         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 Community First Bank to maintain  minimum
amounts and ratios set forth in the table below of Total and Tier I capital,  as
defined in the regulations,  to risk weighted assets, as defined,  and of Tier I
capital, as defined, to average assets, as defined.  Management believes,  as of
December 31, 1997 and 1996,  that the Company and Community  First Bank exceeded
all capital adequacy minimum requirements to which they were subject.

         To be categorized as well capitalized,  the Company and Community First
Bank must maintain  minimum  Total  risk-based,  Tier I  risk-based,  and Tier I
leverage ratios as set forth in the table below. The federal regulators may also
categorize  the Company or  Community  First 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 Community  First Bank's  category to be
other than that resulting from meeting the minimum ratio requirements.
<TABLE>
<CAPTION>
                                                                                  Minimum           Minimum to
                                                                                 for Capital         be Well
                                                                Actual            Adequacy         Capitalized
                                                                ------            --------         -----------
                                                            Amount   Ratio     Amount   Ratio     Amount   Ratio
                                                            ------   -----     ------   -----     ------   -----
                                                                           (Dollars in thousands)
December 31, 1997
  The Company
<S>                                                        <C>       <C>       <C>       <C>      <C>      <C>
    Total capital to risk weighted assets                  $12,646   20.3%     $4,994    8.0%     $6,242   10.0%
    Tier I capital to risk weighted assets                 $11,866   19.0%     $2,497    4.0%     $3,745    6.0%
    Tier I 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 I capital to risk weighted assets                 $11,620   18.6%     $2,497    4.0%     $3,745    6.0%
    Tier I capital to average assets (leverage)            $11,620   11.8%     $2,958    3.0%     $4,930    5.0%

December 31, 1996
  Community First Bank
    Total capital to risk weighted assets                  $11,102   20.1%     $4,411    8.0%     $5,514   10.0%
    Tier I capital to risk weighted assets                 $10,413   18.9%     $2,205    4.0%     $3,308    6.0%
    Tier I capital to average assets (leverage)            $10,413   10.8%     $2,901    3.0%     $4,834    5.0%
</TABLE>

                                      -16-

<PAGE>

Year 2000 Compliance

         The  end  of  the   century   presents  a   technological   problem  to
computer-dependent  organizations  such as a bank.  Because of the high costs of
electronic storage and memory,  early computer  programmers adopted a convention
of using  only two  digits to  designate  the year in a date.  Accuracy  of data
processing and calculations  depends on the correct recognition of dates. Unless
appropriate  systems  testing  and  corrective  measures  are  undertaken,   the
viability of banking operations could be seriously jeopardized.

         The Company's  management  is aware of the  importance of the year 2000
issue. All of the banking subsidiary's data processing equipment and software is
potentially susceptible to failure due to this cause. Certain other non-computer
equipment and systems,  such as vault doors and telephone  systems,  may also be
affected.  Management  has  appointed a committee  of senior  officers and other
personnel to carefully review  potentially  affected systems and equipment.  The
committee is  responsible  for  initiating  the actions  necessary to ensure the
correct,  uninterrupted  functioning  of these  devices  across  the  millennial
threshold.

         The banking subsidiary's primary federal regulator, the Federal Deposit
Insurance  Corporation  ("FDIC") is also concerned with this issue. The FDIC has
issued  policy  statements  which require all banks to consider  adequately  the
responses  needed  to  ensure  that  systems  are  able to make  the  year  2000
transition successfully.  The FDIC has established time frames for completion of
various  elements of a bank's review and  implementation  process and intends to
perform  examinations of institutions  specifically to evaluate  progress toward
achieving year 2000 readiness.  The FDIC is also concerned that systems failures
in the  businesses  of  commercial  loan  customers  of banks could impair their
ability to repay loans.

         Management has determined that the banking  subsidiary's  new mainframe
computer equipment acquired in 1997 is year 2000 compliant, and has been assured
by the primary  application  software vendors that any and all changes needed to
achieve or maintain such compliance will be made in a timely manner.  Testing of
the mainframe  equipment and related  software is planned to be completed during
the fourth quarter of 1998. Other microcomputer equipment and software have been
or will be tested for year 2000  readiness  well in advance of that date.  Other
potentially  vulnerable systems and devices are expected to be tested before the
end of 1998.

         Management  continues to evaluate the estimated  costs  associated with
the year 2000 compliance  efforts based on developing  information.  While these
efforts will involve  additional costs,  management  currently  believes that it
will be able to manage the year 2000  transition  without any  material  adverse
effect on the Company's  financial  condition,  business  operations or customer
service.

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  which have 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.

                                      -17-

<PAGE>



                        DONALD G. JONES AND COMPANY, P.A.
                          CERTIFIED PUBLIC ACCOUNTANTS
                               7812 WINNSBORO RD.
                              COLUMBIA, S.C. 29203
                                    TELEPHONE
                                 (803) 786-9963
                                    FACSIMILE
                                 (803) 786-9910

           MEMBER                                            MEMBER
       SOUTH CAROLINA                                 AMERICAN INSTITUTE OF
       ASSOCIATION OF                              CERTIFIED PUBLIC ACCOUNTANTS
CERTIFIED PUBLIC ACCOUNTANTS                          DIVISION FOR CPA FIRMS
                                                          SECPS AND PCPS




                          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, 1997 and 1996, and the
related consolidated  statements of income, changes in shareholders' equity, and
cash flows for each of the three years in the period  ended  December  31, 1997.
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,  1997  and  1996,  and the
consolidated  results of their operations and their  consolidated cash flows for
each of the three years in the period ended  December 31,  1997,  in  conformity
with generally accepted accounting principles.

      As  discussed  in Note H to the  consolidated  financial  statements,  the
Company  changed its method of  accounting  for  earnings per share for the year
ended  December  31,  1997,  with  restatement  of  prior  years'  figures  on a
comparable basis.


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

Columbia, South Carolina
January 9, 1998

                                      -18-

<PAGE>

Consolidated Balance Sheet
Community First Bancorporation

<TABLE>
<CAPTION>

                                                             December 31,
                                                             ------------
                                                         1997            1996
                                                         ----            ----
Assets
<S>                                                  <C>             <C>
  Cash and due from banks (Note C)                   $  4,833,659    $  2,881,646
  Federal funds sold                                    6,510,000      12,535,000
  Securities available-for-sale (Note D)               25,510,524      26,524,649
  Other investments                                       335,000
  Loans (Note E)                                       65,837,908      54,657,929
    Allowance for loan losses                            (890,125)       (705,000)
                                                     ------------    ------------
        Loans - net                                    64,947,783      53,952,929
  Premises and equipment - net (Note F)                 1,675,492       1,782,425
  Accrued interest receivable                             792,715         718,240
  Other real estate                                                        25,000
  Other assets                                            362,966         253,528
                                                     ------------    ------------

        Total assets                                 $104,968,139    $ 98,673,417
                                                     ============    ============

Liabilities
  Deposits (Note G)
    Noninterest bearing                              $ 16,501,066    $ 10,351,628
    Interest bearing                                   75,789,506      77,108,286
                                                     ------------    ------------
        Total deposits                                 92,290,572      87,459,914
  Accrued interest payable                                772,105         818,705
  Other liabilities                                        55,741          60,111
                                                     ------------    ------------
        Total liabilities                              93,118,418      88,338,730
                                                     ------------    ------------

  Commitments and contingent liabilities (Note L)

Shareholders' equity (Notes B and H)
  Common stock - no par value for 1997,
    $5.00 par value for 1996; 5,000,000
    shares authorized; issued and outstanding
    886,140 for 1997 and 764,554 for 1996              10,479,137       3,822,770
  Capital surplus                                                       4,658,603
  Retained earnings                                     1,387,121       1,932,061
  Unrealized holding gains and losses
    on available-for-sale securities                      (16,537)        (78,747)
                                                     ------------    ------------
        Total shareholders' equity                     11,849,721      10,334,687
                                                     ------------    ------------

        Total liabilities and shareholders' equity   $104,968,139    $ 98,673,417
                                                     ============    ============
</TABLE>



See accompanying notes to the consolidated financial statements.

                                      -19-

<PAGE>

Consolidated Statement of Income
Community First Bancorporation

<TABLE>
<CAPTION>

                                                    Years Ended December 31,
                                                    ------------------------
                                                1997          1996          1995
                                                ----          ----          ----
Interest income
<S>                                          <C>           <C>           <C>
  Loans, including fees                      $5,397,962    $4,473,299    $3,764,026
  Time deposits in other banks                                                2,720
  Securities - taxable                        1,645,718     1,543,986     1,285,615
  Federal funds sold                            534,153       910,946       867,099
                                             ----------    ----------    ----------
        Total interest income                 7,577,833     6,928,231     5,919,460
                                             ----------    ----------    ----------

Interest expense
  Time deposits $100,000 and over             1,201,135     1,026,257       885,435
  Other deposits                              2,462,426     2,668,609     2,285,409
  Short-term borrowings                             649
  Obligation under capital lease                                                838
                                             ----------    ----------    ----------
        Total interest expense                3,664,210     3,694,866     3,171,682
                                             ----------    ----------    ----------

Net interest income                           3,913,623     3,233,365     2,747,778
Provision for loan losses (Note E)              315,183       223,075       152,746
                                             ----------    ----------    ----------
Net interest income after provision           3,598,440     3,010,290     2,595,032
                                             ----------    ----------    ----------

Other income
  Service charges on deposit accounts           306,435       212,879       190,280
  Credit life insurance commissions              38,827        23,512        21,978
  Other income                                  176,753       105,518        74,935
                                             ----------    ----------    ----------
        Total other income                      522,015       341,909       287,193
                                             ----------    ----------    ----------

Other expenses (Notes I and K)
  Salaries and employee benefits              1,008,265       858,916       787,301
  Net occupancy expense                         100,605        97,802        96,244
  Furniture and equipment expense               166,612       150,257       148,533
  Other expense                                 633,020       451,958       517,271
                                             ----------    ----------    ----------
        Total other expenses                  1,908,502     1,558,933     1,549,349
                                             ----------    ----------    ----------

Income before income taxes                    2,211,953     1,793,266     1,332,876
Income tax expense (Note J)                     806,903       640,825       475,658
                                             ----------    ----------    ----------

Net income (Note O)                          $1,405,050    $1,152,441    $  857,218
                                             ==========    ==========    ==========

Per share (Note H)*
  Net income                                 $     1.60    $     1.32    $      .98
  Net income, assuming dilution                    1.55          1.28           .96
</TABLE>
------------------------------
*Per share  figures  have been  retroactively  adjusted  to  reflect a 15% stock
 dividend  effective  December 30, 1997 and 5% stock dividends  effective May 1,
 1996, and May 1, 1995.




See accompanying notes to the consolidated financial statements.

                                      -20-

<PAGE>

Consolidated Statement of Changes in Shareholders' Equity
Community First Bancorporation
<TABLE>
<CAPTION>

                                                                                                   Unrealized
                                                                                                    Holding
                                                                                                   Gains and
                                             Common Stock                                          Losses on
                                         Number                                                    Available-
                                           of                         Capital        Retained       for-Sale
                                         Shares         Amount        Surplus        Earnings      Securities        Total
                                         ------         ------        -------        --------      ----------        -----

<S>                                   <C>            <C>            <C>            <C>            <C>            <C>
Balance, January 1, 1995                   686,299   $  3,431,495   $  3,962,000   $    944,854   $   (250,560)  $  8,087,789

Issuance of 5% stock dividend,
  including cash payment for
  fractional shares                         34,021        170,105        306,189       (480,483)                       (4,189)

Exercise of employee stock options           2,305         11,525         12,485                                       24,010

Change in unrealized holding gains
  and losses on available-for-sale
  securities, net of income taxes
  of $145,463                                                                                          259,724        259,724

Net income                                                                              857,218                       857,218
                                      ------------   ------------   ------------   ------------   ------------   ------------

Balance, December 31, 1995                 722,625      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                         35,724        178,620        357,240       (541,969)                       (6,109)

Exercise of employee stock options           6,205         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                  764,554      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                        114,451      1,945,667                    (1,949,990)                       (4,323)

Exercise of employee stock options           7,135         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 Fist Bancorporation
  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                 886,140    $10,479,137   $              $  1,387,121   $    (16,537)  $ 11,849,721
                                      ============   ============   ============   ============   ============   ============
</TABLE>

See accompanying notes to the consolidated financial statements.


                                      -21-

<PAGE>

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

                                                           Years Ended December 31,
                                                           ------------------------
                                                       1997          1996            1995
                                                  ------------   ------------   ------------
Operating activities
<S>                                               <C>            <C>            <C>
  Net income                                      $  1,405,050   $  1,152,441   $    857,218
  Adjustments to reconcile net income to net
    cash provided by operating activities
      Provision for loan losses                        315,183        223,075        152,746
      Depreciation                                     129,703         97,338         99,498
      Deferred income taxes                            (49,529)       (36,161)        (6,313)
      Amortization of net loan fees and costs           37,959         26,717         22,315
      Amortization of organizational costs                                               281
      Securities accretion and
        premium amortization                           (14,705)       (32,860)       (63,618)
      Writedowns of other real estate                   25,000                        18,300
      Gain on sale of other real estate                (44,547)                      (17,075)
      Increase in interest receivable                  (74,475)       (80,135)       (91,943)
      (Decrease) increase in interest payable          (46,600)        17,439        384,750
      (Increase) decrease in prepaid expenses          (94,750)         3,350        (34,477)
      (Decrease) increase in other
        accrued expenses                                (4,370)        31,107       (203,906)
                                                  ------------   ------------   ------------
          Net cash provided by
            operating activities                     1,583,919      1,402,311      1,117,776
                                                  ------------   ------------   ------------

Investing activities
  Net decrease in time deposits
    in other banks                                                                   200,000
  Purchases of available-for-sale securities        (7,999,531)   (13,434,774)    (5,478,718)
  Maturities of available-for-sale securities        9,125,412      9,768,227      5,522,742
  Purchases of held-to-maturity securities                                        (6,019,019)
  Maturities of held-to-maturity securities                                        3,290,331
  Purchase of other investments                       (335,000)
  Net increase in loans made to customers          (11,347,996)   (10,628,127)    (7,049,746)
  Proceeds from sale of other real estate               44,547                       137,075
  Purchases of premises and equipment                  (22,770)      (317,713)       (52,157)
                                                  ------------   ------------   ------------
          Net cash used by investing activities    (10,535,338)   (14,612,387)    (9,449,492)
                                                  ------------   ------------   ------------

Financing activities
  Net increase (decrease) in demand deposits,
    interest bearing transaction accounts and
    savings accounts                                 1,442,368      7,970,374     (1,125,887)
  Net increase in certificates of
    deposit and other time deposits                  3,388,290      5,549,239      7,978,782
  Principal payments on capital lease obligation                                     (27,833)
  Payment of cash in lieu of fractional
    shares for stock dividend                           (4,323)        (6,109)        (4,189)
  Exercise of employee stock options                    52,097         51,714         24,010
                                                  ------------   ------------   ------------
          Net cash provided by
            financing activities                     4,878,432     13,565,218      6,844,883
                                                  ------------   ------------   ------------

(Decrease) increase in cash and cash equivalents    (4,072,987)       355,142     (1,486,833)
Cash and cash equivalents, beginning                15,416,646     15,061,504     16,548,337
                                                  ------------   ------------   ------------

Cash and cash equivalents, ending                 $ 11,343,659   $ 15,416,646   $ 15,061,504
                                                  ============   ============   ============
</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 a second office in Seneca,  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
("FDIC").   Therefore,   the  Company  and  its  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 businesses
within its Oconee County, South Carolina market. Also,  substantially all of its
deposits are acquired within its local market area 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
earnings and recorded in a separate account  included in  shareholders'  equity,
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, 1997 consisted of Federal Home Loan
Bank stock with the carrying amount approximating estimated fair value.

                                      -23-

<PAGE>

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.

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 loans
are 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.  The allowance is based upon a continuing
review of past loan  loss  experience,  current  economic  conditions  which may
affect the borrowers' ability to pay and the underlying  collateral value of the
loans. 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.

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; 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 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  Plans - In 1996, the Company  adopted a profit sharing plan pursuant
to Section 401(k) of the Internal  Revenue Code as more fully  described in Note
K.  Prior to 1996,  the  Company  did not have  any  pension  or  profit-sharing
retirement plans in effect.  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.

Statement of Cash Flows - The  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 and federal funds sold and securities  purchased under  agreements to
resell.

During  1997,  1996 and 1995,  interest  paid on deposits  and other  borrowings
amounted to $3,710,810,  $3,677,427  and  $2,786,932,  respectively.  Income tax
payments of $864,056,  $679,072 and $683,661  were made during 1997,  1996,  and
1995,  respectively.  Noncash  transfers from  undivided  profits of $1,945,667,
$535,860 and  $476,294  were made as the result of stock  dividends  declared in
1997, 1996 and 1995,  respectively.  As a result, common stock in 1997, 1996 and
1995  increased  $1,945,667  $178,620 and  $170,105,  respectively,  and capital
surplus  increased  $357,240  and  $306,189  in  1996  and  1995,  respectively.
Effective October 16, 1997, Community First  Bancorporation  acquired all of the
then outstanding 764,702 shares of Community First Bank's $5.00 par value common
stock in exchange for 764,702 shares of Community First  Bancorporation's no par
value common stock. As a result, a non-cash transfer of $4,659,933 was made from
capital surplus to common stock.  During 1997, 1996 and 1995,  noncash valuation
adjustments  totaling $97,051,  $137,147 and $405,187 were made which increased,
decreased  and  increased,  respectively,  the  carrying  amount  of  available-
for-sale securities.  In 1997, a related  shareholders' equity account increased
$62,210  and  deferred  tax  assets  decreased  $34,841;  in 1996,  the  related
shareholders' equity account decreased $87,911 and deferred tax assets increased
$49,236;  and in  1995,  the  related  shareholders'  equity  account  increased
$259,724 and deferred tax assets decreased $145,463. Held-to-maturity securities
with an amortized cost of $9,752,318 were transferred to the  available-for-sale
category  in 1995.  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 of the unrealized gains and losses can have a significant  effect on
fair value estimates and have not been considered in the estimates.

                                      -25-

<PAGE>

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 was 5,000,000 shares with no par value per share.  Pursuant
to the  reorganization,  the parent  company issued 764,702 shares of its common
stock in  exchange  for all of the 764,702  then  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 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 financial  statements  for the
years ended December 31, 1996 and 1995 are unchanged from the amounts previously
reported by Community First Bank. Per share data for 1996 and 1995, presented in
terms of the current equivalent of the number of shares  outstanding,  have been
adjusted  for the 15% stock  dividend  effective  December 30, 1997 and restated
because of a 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, 1997 and 1996, were approximately  $475,000 and
$491,000, respectively.

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,
                       -------------------------------------------------------------------------------------------------------------
                                               1997                                                    1996
                       -----------------------------------------------------   -----------------------------------------------------
                                       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   $ 4,999,976   $    24,644                 $ 5,024,620
  U.S. Government
    agencies            18,980,911        19,963   $    68,899    18,931,975    16,484,225        33,567   $   162,372    16,355,420
  Mortgage-backed
    securities           4,554,862        22,698         2,371     4,575,189     5,163,298         9,737        28,426     5,144,609
                       -----------   -----------   -----------   -----------   -----------   -----------   -----------   -----------

     Total             $25,536,323   $    45,471   $    71,270   $25,510,524   $26,647,499   $    67,948   $   190,798   $26,524,649
                       ===========   ===========   ===========   ===========   ===========   ===========   ===========   ===========
</TABLE>



                                      -26-

<PAGE>

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

                                                                    December 31,
                                                                    ------------
                                                          1997                      1996
                                                          ----                      ----
                                                 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   $ 3,995,063  $ 3,997,900
  Due after one through five years               12,483,764   12,472,275    16,993,422   16,893,000
  Due after five through ten years                2,496,401    2,497,500       495,716      489,140
                                                -----------  -----------   -----------  -----------
                                                 20,981,461   20,935,335    21,484,201   21,380,040
  Mortgage-backed securities                      4,554,862    4,575,189     5,163,298    5,144,609
                                                -----------  -----------   -----------  -----------

    Total                                       $25,536,323  $25,510,524   $26,647,499  $26,524,649
                                                ===========  ===========   ===========  ===========
</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.  All of the Company's
mortgage-backed securities held at December 31, 1997 and 1996 were issued by the
Federal Home Loan Mortgage Corporation.

There were no sales of available-for-sale and securities in 1997, 1996 or 1995.

At December 31, 1997,  securities with an amortized cost of $21,990,882,  and an
estimated fair value of $21,966,454  were pledged as collateral to secure public
deposits. The amortized cost and estimated fair value of such pledged securities
was $25,462,289 and $25,352,556, respectively, at the end of 1996.

In December 1995,  securities  classified as held-to-maturity  with an amortized
cost of $9,752,318 and an estimated fair value of $9,874,270 were transferred on
a one-time basis to the  available-for-sale  category.  The transfer was made in
accordance with provisions of the Special Report on  Implementation of Statement
of Financial  Accounting  Standards No. 115 issued by the  Financial  Accounting
Standards  Board.  During  1997 and 1996,  there were no sales or  transfers  of
held-to-maturity securities.

NOTE E - LOANS

Loans consisted of the following:
<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                                    ------------
                                                                          1997                      1996
                                                                          ----                      ----
                                                                 Carrying    Estimated      Carrying    Estimated
                                                                  Amount     Fair Value      Amount     Fair Value
                                                                  ------     ----------      ------     ----------

<S>                                                             <C>          <C>           <C>          <C>
Commercial, financial and industrial                            $ 9,763,982  $ 9,627,061   $ 7,665,315  $ 7,544,559
Real estate - construction                                           78,318       77,318       145,606      143,686
Real estate - mortgage                                           41,294,769   40,931,053    34,921,984   34,508,760
Consumer installment                                             14,700,839   14,571,074    11,925,024   11,766,606
                                                                -----------  -----------   -----------  -----------
     Total                                                       65,837,908   65,206,506    54,657,929   53,963,611
Allowance for loan losses                                          (890,125)                  (705,000)
                                                                -----------  -----------   -----------  -----------

     Loans - net                                                $64,947,783  $65,206,506   $53,952,929  $53,963,611
                                                                ===========  ===========   ===========  ===========
</TABLE>

Net  deferred  loan costs of $13,834 and net  deferred  loan fees of $3,650 have
been allocated to the various loan  categories as of December 31, 1997 and 1996,
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

                                      -27-

<PAGE>

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:

                                                              December 31,
                                                              ------------
                                                           1997          1996
                                                           ----          ----
Investment in impaired loans
  Nonaccrual                                            $  162,032    $  248,745
  Accruing 90 days and over past due                         1,468             -
                                                        ----------    ----------
    Total                                               $  163,500    $  248,745
                                                        ==========    ==========

Average total investment in impaired loans during year  $  303,875    $  299,436
Allowance for loan losses on impaired loans                 16,890        16,625

There were no outstanding  commitments at December 31, 1997, to lend  additional
funds to debtors owing amounts on impaired loans.

As of December 31, 1997 and 1996,  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 market area within Oconee County, South Carolina. The economy
of this area is diversified  and does not depend on any one industry or group of
related industries.  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:

                                                Years Ended December 31,
                                                ------------------------
                                            1997          1996          1995
                                            ----          ----          ----

Balance at January 1                     $  705,000    $  575,000    $  460,000
Provision charged to expense                315,183       223,075       152,746
Recoveries                                   10,146        15,589         2,063
Charge-offs                                (140,204)     (108,664)      (39,809)
                                         ----------    ----------    ----------

Balance at December 31                   $  890,125    $  705,000    $  575,000
                                         ==========    ==========    ==========

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,   as  those   prevailing  at  the  time  for  comparable
transactions  with unrelated persons and do not involve more than normal risk of
collectibility.  The aggregate  dollar amount of these loans was  $4,604,451 and
$3,801,918 at December 31, 1997 and 1996, respectively.  During 1997, $3,004,619
of new loans were made and repayments totaled $2,202,086.



                                      -28-

<PAGE>



NOTE F - PREMISES AND EQUIPMENT

Premises and equipment consisted of the following:

                                                            December 31,
                                                            ------------
                                                         1997          1996
                                                         ----          ----

Land                                                  $  384,773    $  384,773
Buildings and land improvements                          966,417       963,696
Furniture and equipment                                  848,366       828,317
                                                      ----------    ----------
    Total                                              2,199,556     2,176,786
Accumulated depreciation                                 524,064       394,361
                                                      ----------    ----------

    Premises and equipment - net                      $1,675,492    $1,782,425
                                                      ==========    ==========

Depreciation  expense for the years ended  December 31, 1997,  1996 and 1995 was
$129,703, $97,338 and $99,498, respectively.

NOTE G - DEPOSITS

A summary of deposits follows:
<TABLE>
<CAPTION>
                                                                           December 31,
                                                                           ------------
                                                                 1997                      1996
                                                                 ----                      ----
                                                        Carrying    Estimated      Carrying    Estimated
                                                         Amount     Fair Value      Amount     Fair Value
                                                         ------     ----------      ------     ----------

<S>                                                    <C>          <C>           <C>          <C>
Noninterest bearing demand                             $16,501,066  $16,501,066   $10,351,628  $10,351,628
Interest bearing transaction accounts                   10,106,001   10,106,001    12,807,794   12,807,794
Savings                                                 16,190,880   16,190,880    18,196,157   18,196,157
Time deposits $100,000 and over                         23,046,080   23,048,468    18,560,388   18,560,388
Other time deposits                                     26,446,545   26,454,311    27,543,947   27,560,468
                                                       -----------  -----------   -----------  -----------

          Total deposits                               $92,290,572  $92,300,726   $87,459,914  $87,476,435
                                                       ===========  ===========   ===========  ===========
</TABLE>


As of  December  31,  1997  and  1996,  local  governmental  deposits  comprised
approximately 33% and 28%, 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, 1997 and 1996.  The
fair  value of time  deposits  is  estimated  based on the  discounted  value of
contractual cash flows. The discount rate is estimated using the rates currently
offered as of December  31,  1997 and 1996,  for  deposits of similar  remaining
maturities.

At December 31, 1997, the scheduled maturities of time deposits are as follows:

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

             1998                                    $ 45,761,413
             1999                                       3,512,621
             2000                                         144,732
             2001                                          73,859
             2002 and thereafter                                -


                                      -29-

<PAGE>

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, 1997,  the
banking  subsidiary's  available  undivided  profits totaled  $2,786,032.  Under
Federal  Reserve  Board  regulations,  the amounts of loans or advances from the
banking subsidiary to the parent company are also restricted.

Stock Dividends - The Company's Board of Directors declared a 15% stock dividend
effective  December 30, 1997 and 5% stock  dividends  effective  May 1, 1996 and
1995.

Earnings  per  Share - As  required,  the  Company  adopted  the  provisions  of
Statement of Accounting  Standards No. 128,  "Earnings per Share",  for the year
ended  December  31,  1997.  This  Statement  mandates  certain  changes  in the
computation  and  display  of  earnings  per share for 1997,  and  requires  the
restatement  of  prior  years'  figures  on a  comparable  basis.  According  to
Statement No. 128,  basic  earnings per common share is computed by dividing net
income  applicable  to common  shares by the weighted  average  number of common
shares  outstanding.  Diluted  earnings  per common  share are based on dividing
applicable  net  income  by  the  weighted   average  number  of  common  shares
outstanding and any dilutive potential common shares and dilutive stock options.
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.  All per  share
information has been retroactively adjusted to give effect to stock dividends.

Prior to the issuance of  Statement  No. 128 in  February,  1997,  the number of
shares in the  denominator  used in computing the Company's  single earnings per
share  figure  included  the effect of dilutive  stock  options as common  stock
equivalents.  Under the new principle, a dual presentation of basic earnings per
share and earnings per share,  assuming  dilution,  is used. For the years ended
December 31, 1996 and 1995, earnings per share,  assuming dilution,  corresponds
to the single earnings per share figures previously reported.

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

                                                  Years Ended December 31,
                                                  ------------------------
                                               1997         1996         1995
                                               ----         ----         ----
Net income per share (basic)
  Numerator - net income                    $1,405,050   $1,152,441   $  857,218
                                            ==========   ==========   ==========
  Denominator
    Weighted average common shares
      issued and outstanding                   879,108      871,940      870,539
                                            ==========   ==========   ==========

        Net income per share (basic)        $     1.60   $     1.32   $      .98
                                            ==========   ==========   ==========

Net income per share, assuming dilution
  Numerator - net income                    $1,405,050   $1,152,441   $  857,218
                                            ==========   ==========   ==========
  Denominator
    Weighted average common shares
      issued and outstanding                   879,108      871,940      870,539
    Effect of dilutive stock options            28,348       27,036       23,136
                                            ----------   ----------   ----------
        Total shares                           907,456      898,976      893,675
                                            ==========   ==========   ==========
        Net income per share,
          assuming dilution                 $     1.55   $     1.28   $      .96
                                            ==========   ==========   ==========

                                      -30-

<PAGE>

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 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 I capital,  as defined in
the regulations,  to risk weighted assets, as defined, and of Tier I capital, as
defined, to average assets, as defined.  Management believes, as of December 31,
1997 and 1996,  that the Company and its  subsidiary  bank  exceeded all capital
adequacy minimum requirements.

As of December 31, 1997, 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  I
risk-based,  and Tier I 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.
<TABLE>
<CAPTION>

                                                                                  Minimum           Minimum to
                                                                                 for Capital         be Well
                                                                Actual            Adequacy         Capitalized
                                                                ------            --------         -----------
                                                            Amount   Ratio     Amount   Ratio     Amount   Ratio
                                                            ------   -----     ------   -----     ------   -----
                                                                           (Dollars in thousands)
December 31, 1997
  The Company
<S>                                                        <C>       <C>       <C>       <C>      <C>      <C>
    Total capital to risk weighted assets                  $12,646   20.3%     $4,994    8.0%     $6,242   10.0%
    Tier I capital to risk weighted assets                 $11,866   19.0%     $2,497    4.0%     $3,745    6.0%
    Tier I 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 I capital to risk weighted assets                 $11,620   18.6%     $2,497    4.0%     $3,745    6.0%
    Tier I capital to average assets (leverage)            $11,620   11.8%     $2,958    3.0%     $4,930    5.0%

December 31, 1996
  Community First Bank
    Total capital to risk weighted assets                  $11,102   20.1%     $4,411    8.0%     $5,514   10.0%
    Tier I capital to risk weighted assets                 $10,413   18.9%     $2,205    4.0%     $3,308    6.0%
    Tier I capital to average assets (leverage)            $10,413   10.8%     $2,901    3.0%     $4,834    5.0%
</TABLE>

Stock  Options - On May 9, 1990,  the Company's  shareholders  approved the 1989
Incentive  Stock Option Plan (the Plan).  The Plan  provides for the granting of
options  to  certain  eligible  employees  and  reserves  139,783  shares of the
Company's  common stock for  issuance  upon the  exercise of such  options.  The
exercise price of options granted under the Plan is the fair market value of the
Company's  common stock on the date the option is granted,  but in no event less
than $5.00 per share. For any person owning directly or indirectly more than 10%
voting control of the Company's  outstanding shares, the option price may not be
less than 110% of fair market value of the shares.  Options must be  exercisable
within ten years from the date of grant (five years with respect to 10% owners).
The expiration of the options  accelerates  upon the  optionee's  termination of
employment  with the Company or death in accordance  with the  provisions of the
Plan.  Options  awarded vest in accordance  with  provisions  established by the
Board of Directors at their  discretion.  Options  awarded during 1997, 1996 and
1995 provided for 20%

                                      -31-

<PAGE>

vesting  immediately upon award, with 20% vesting on the anniversary date of the
award for each of the four subsequent years.

As of January 1, 1996,  the Company  adopted only the  disclosure  provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation,"  but  applies  Accounting  Principles  Board  Opinion  No. 25 and
related  interpretations in accounting for its Plan. 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 plan been  determined  based on the fair value of the
options at the grant dates  consistent with the method of Statement No. 123, the
Company's  net income and  earnings per share would have been reduced to the pro
forma amounts indicated below.

                                                  Years Ended December 31,
                                                  ------------------------
                                               1997         1996         1995
                                               ----         ----         ----
Net income
  As reported                               $1,405,050   $1,152,441   $  857,218
  Pro forma                                  1,376,930    1,135,241      847,300
Net income per share
  As reported                                   $ 1.60       $ 1.32       $  .98
  Pro forma                                       1.57         1.30          .97
Net income per share, assuming dilution
  As reported                                   $ 1.55       $ 1.28       $  .96
  Pro forma                                       1.52         1.26          .95

The fair values of options granted during 1997, 1996 and 1995 were $7.36,  $6.71
and $7.09 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 1997,  1996 and 1995:  dividend yield of 0%, an expected life
of  10  years,  and  risk-free   interest  rates  of  6.57%,  6.87%  and  5.77%,
respectively.   The   effects  of  applying   Statement   No.  123  may  not  be
representative of the effects on reported net income in future years.

Transactions under the Plan for the years ended December 31, 1997, 1996 and 1995
are summarized as follows:

                                                                     Weighted
                                                                      Average
                                                          Number of  Exercise
                                                           Shares      Price
                                                           ------      -----

Options outstanding January 1, 1995                          62,891   $ 10.51
  Granted                                                     7,700     15.00
  Exercised                                                  (2,305)    10.42
  Canceled                                                   (1,709)    12.63
  Stock dividend                                              3,103
                                                          ---------
Options outstanding December 31, 1995                        69,680     10.48
  Granted                                                     5,000     15.00
  Exercised                                                  (6,205)     8.33
  Canceled                                                     (515)    14.29
  Stock dividend                                              3,492
                                                          ---------
Options outstanding December 31, 1996                        71,452     10.45
  Granted                                                     7,250     16.00
  Exercised                                                  (7,135)     7.30
  Canceled                                                     (511)    15.21
  Stock dividend                                             11,770
                                                          ---------
Options outstanding December 31, 1997                        82,826      9.70
                                                          =========

Options exercisable at year end
  1997                                                       66,898   $  8.97
  1996                                                       66,231      8.45
  1995                                                       64,947      8.01

                                      -32-

<PAGE>
<TABLE>
<CAPTION>

                                                          Outstanding Options    Exercisable Options
                                                          -------------------    -------------------
                                                          Number of  Exercise    Number of  Exercise
                                                           Shares      Price      Shares      Price
                                                           ------      -----      ------      -----
Options at December 31, 1997 expire
<S>                                                           <C>     <C>            <C>     <C>
  December 31, 1998                                           6,990   $  7.16        6,990   $  7.16
  December 31, 1999                                           6,991      7.16        6,991      7.16
  May 9, 2000                                                 6,293      7.16        6,293      7.16
  December 31, 2000                                           6,991      7.16        6,991      7.16
  January 22, 2001                                            2,104      7.76        2,104      7.76
  March 1, 2001                                               3,495      7.76        3,495      7.76
  April 27, 2002                                              7,135      9.30        7,135      9.30
  October 1, 2002                                             4,194      9.66        4,194      9.66
  January 25, 2003                                            2,858     10.02        2,858     10.02
  January 18, 2004                                           11,981     10.15        9,582     10.15
  June 1, 2004                                                1,778     10.65        1,416     10.65
  December 21, 2005                                           8,272     12.43        4,952     12.43
  July 25, 2006                                               5,750     13.04        2,300     13.04
  January 16, 2007                                            7,994     13.91        1,597     13.91
</TABLE>


Included in the 82,826 outstanding options as of December 31, 1997, were options
to purchase  15,928  shares at an average price of $12.77 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: 7,168 shares at $12.00 in
1998,  4,410 shares at $13.13 in 1999, 2,750 shares at $13.55 in 2000, and 1,600
shares at $13.91 in 2001.  Of the  139,783  authorized  shares of the  Company's
common stock originally reserved for issuance upon the exercise of options under
the Plan, 17,302 had not been awarded as of December 31, 1997.

The number of shares and average  prices in this section  have been  adjusted to
reflect a 15% stock dividend  effective December 30, 1997 and 5% stock dividends
effective May 1, 1996 and 1995.

NOTE I - OTHER EXPENSES

Operating expenses are summarized below:
<TABLE>
<CAPTION>

                                                    Years Ended December 31,
                                                    ------------------------
                                                 1997         1996         1995
                                                 ----         ----         ----

<S>                                           <C>          <C>          <C>
Salaries and employee benefits                $1,008,265   $  858,916   $  787,301
Net occupancy expense                            100,605       97,802       96,244
Furniture and equipment expense                  166,612      150,257      148,533
Other expense
  Stationery, printing and postage               139,888      119,170      115,605
  Telephone                                       20,578       22,138       19,458
  Advertising and promotion                       27,654       24,450       26,335
  Professional services                           77,038       32,641       30,614
  Insurance                                       26,651       18,532       19,053
  FDIC insurance assessment                        7,760        2,000       77,627
  Directors' fees                                 31,200       25,200       23,000
  Other real estate costs and expenses, net       32,334                     2,622
  Data processing expenses                        52,748       46,520       50,782
  Other                                          217,169      161,307      152,175
                                              ----------   ----------   ----------

      Total                                   $1,908,502   $1,558,933   $1,549,349
                                              ==========   ==========   ==========
</TABLE>


                                      -33-

<PAGE>

NOTE J - INCOME TAXES

Income tax expense consisted of:
                                                 Years Ended December 31,
                                                 ------------------------
                                              1997         1996         1995
                                              ----         ----         ----
Current
  Federal                                  $  786,786   $  621,981   $  442,614
  State                                        69,646       55,005       39,357
                                           ----------   ----------   ----------
          Total current                       856,432      676,986      481,971
                                           ----------   ----------   ----------
Deferred
  Federal                                     (45,555)     (33,260)      (5,807)
  State                                        (3,974)      (2,901)        (506)
                                           ----------   ----------   ----------
          Total deferred                      (49,529)     (36,161)      (6,313)
                                           ----------   ----------   ----------

          Total income tax expense         $  806,903   $  640,825   $  475,658
                                           ==========   ==========   ==========

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

                                               Years Ended December 31,
                                               ------------------------
                                            1997         1996         1995
                                            ----         ----         ----

Provision for loan losses                $  (66,460)  $  (46,670)  $  (41,285)
Accelerated depreciation                     10,870        4,308        9,363
Deferred net loan costs and fees              6,276        6,201        7,922
Capital lease                                                           7,187
Other real estate                              (215)                    7,790
Amortizable pre-operating expenses                                      2,710
                                         ----------   ----------   ----------

          Total                          $  (49,529)  $  (36,161)  $   (6,313)
                                         ==========   ==========   ==========

Income  before  income taxes  presented in the statement of income for the years
ended  December  31,  1997,  1996 and 1995,  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:

                                                Years Ended December 31,
                                                ------------------------
                                             1997         1996         1995
                                             ----         ----         ----

Tax expense at statutory rate             $  752,064   $  609,710   $  453,178
State income tax, net of federal
  income tax benefit                          43,344       34,389       25,642
Tax-exempt interest income                    (5,854)      (5,625)      (5,801)
Non-deductible interest expense to
  carry tax-exempt instruments                   480          540          564
Non-deductible corporate
  reorganization expenses                     15,069
Other, net                                     1,800        1,811        2,075
                                          ----------   ----------   ----------

          Total                           $  806,903   $  640,825   $  475,658
                                          ==========   ==========   ==========


                                      -34-

<PAGE>



Deferred tax assets and  liabilities  included in the balance sheet consisted of
the following:
                                                             December 31,
                                                             ------------
                                                           1997        1996
                                                           ----        ----
Deferred tax assets
  Allowance for loan losses                            $  257,735   $  191,275
  Deferred net loan fees                                                 1,310
  Other real estate                                         8,975        8,760
  Unrealized holding gains and losses on
    available-for-sale securities                           9,262       44,103
                                                       ----------   ----------
      Gross deferred tax assets                           275,972      245,448
  Valuation allowance                                           -            -
                                                       ----------   ----------
      Total                                               275,972      245,448
                                                       ----------   ----------

Deferred tax liabilities
  Accelerated depreciation                                 72,889       62,019
  Deferred net loan costs                                   4,966
                                                       ----------   ----------
      Total deferred tax liabilities                       77,855       62,019
                                                       ----------   ----------

Net deferred income tax assets                         $  198,117   $  183,429
                                                       ==========   ==========

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 a component of shareholders'  equity. The balance of the
change in net  deferred tax assets is charged or credited to income tax expense.
In 1997, 1996 and 1995, $34,841 was charged,  $49,236 was credited, and $145,463
was  charged to  shareholders'  equity,  respectively.  In 1997,  1996 and 1995,
$49,529, $36,161 and $6,313 were credited to income tax expense, respectively.

Management  believes that the Company will fully realize the deferred tax assets
as of December 31, 1997 and 1996 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
"Plan")  for  the  exclusive  benefit  of  all  eligible   employees  and  their
beneficiaries. Employees are eligible to participate in the 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 will match $.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 1997 and 1996  totaled  $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.

                                      -35-

<PAGE>

Following are the off-balance-sheet financial instruments whose contract amounts
represent credit risk:
                                                     December 31,
                                                     ------------
                                                  1997          1996
                                                  ----          ----

          Loan commitments                     $6,172,000    $6,066,600
          Standby letters of credit               374,577       314,700

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, 1997 and 1996, a majority of the
outstanding letters of credit were secured by real estate.

Statement of Financial  Accounting  Standards No. 107 requires the disclosure of
the estimated fair values of off-balance-sheet  financial  instruments for which
it is  practicable  to estimate fair value.  The  estimated  fair values of such
off-balance- sheet financial instruments 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, 1997, the estimated fair value 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, 1997,  the banking  subsidiary  had an
unused  short-term  line of credit to purchase up to $1,000,000 of federal funds
from an  unrelated  correspondent  financial  institution  and an unused line of
credit  agreement  with the  Federal  Home Loan Bank of  Atlanta  ("FHLB").  The
correspondent  line  is  available  on a one to  seven  day  basis  for  general
corporate purposes of the banking subsidiary.  The lender has reserved the right
to withdraw the line at its option.  Under the terms of the FHLB agreement,  the
banking  subsidiary  may  borrow  up to  $6,700,000  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 is secured by FHLB capital stock
with a  carrying  value  of  $335,000,  and a  blanket  lien on all  1-4  family
residential  first lien  mortgage  loans  held by the  banking  subsidiary.  The
carrying value of such loans at December 31, 1997 was approximately $27,649,000.

                                      -36-

<PAGE>

Litigation - The Company and its  subsidiary  were not involved as defendants in
any  litigation at December 31, 1997.  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 assets and
liabilities,  the disclosure of contingent assets and liabilities at the date of
the  financial  statements,  and 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.

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.

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:
<TABLE>
<CAPTION>

                                                                            December 31,
                                                                            ------------
                                                               1997                              1996
                                                               ----                              ----
                                                     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)                  $   4,833,659    $   4,833,659    $   2,881,646    $   2,881,646
Federal funds sold (Note A)                           6,510,000        6,510,000       12,535,000       12,535,000
Securities (Note D)                                  25,510,524       25,510,524       26,524,649       26,524,649
Other investments (Note A)                              335,000          335,000
Loans (Note E)                                       64,947,783       65,206,506       53,952,929       53,963,611
Accrued interest receivable (Note A)                    792,715          792,715          718,240          718,240
Deposits (Note G)                                   (92,290,572)     (92,300,726)     (87,459,914)     (87,476,435)
Accrued interest payable (Note A)                      (772,105)        (772,105)        (818,705)        (818,705)
Loan commitments (Note L)                                             (6,172,000)                       (6,066,600)
Standby letters of credit (Note L)                                      (374,577)                         (314,700)
</TABLE>


                                      -37-

<PAGE>

NOTE N - COMMUNITY FIRST BANCORPORATION (PARENT COMPANY ONLY)
                                                                 December 31,
                                                                      1997
                                                                     ----
Condensed Balance Sheet
  Assets
    Cash                                                         $    245,705
    Investment in banking subsidiary                               11,602,938
    Other assets                                                        2,370
                                                                 ------------
         Total assets                                            $ 11,851,013
                                                                 ============
  Liabilities
    Other liabilities                                            $      1,292
  Shareholder's equity                                             11,849,721
                                                                 ------------
         Total liabilities and
           shareholders' equity                                  $ 11,851,013
                                                                 ============

                                                                  Year Ended
                                                                 December 31,
                                                                     1997
                                                                     ----
Condensed Statement of Income
  Income
    Dividends received from
      banking subsidiary                                         $    250,000
                                                                 ------------
  Expenses
    Interest expense                                                      649
    Other expenses                                                     50,642
                                                                  ------------
         Total expenses                                                51,291
  Income before income taxes and equity in
    undistributed earnings of banking subsidiary                      198,709
  Income tax expense (credit)                                          (2,370)
  Equity in undistributed earnings
    of banking subsidiary                                           1,203,971
                                                                 ------------
  Net income                                                     $  1,405,050
                                                                 ============


                                                                  Year Ended
                                                                 December 31,
                                                                     1997
                                                                 ------------
 Condensed Statement of Cash Flows
  Operating activities
    Net income                                                   $  1,405,050
      Adjustments to reconcile net income to net
        cash provided by operating activities
          Equity in undistributed earnings
            of banking subsidiary                                  (1,203,971)
          Increase in other assets                                     (2,370)
          Increase in other liabilities                                 1,292
                                                                 ------------
            Net cash provided by
              operating activities                                    200,001
                                                                 ------------
   Financing activities
    Exercise of employee stock options                                 50,027
    Payment of cash in lieu of fractional
      shares for stock dividend                                        (4,323)
                                                                 ------------
            Net cash provided by financing activities                  45,704
                                                                 ------------
  Increase in cash and cash equivalents                               245,705
  Cash and cash equivalents, beginning
                                                                 ------------
   Cash and cash equivalents, ending                             $    245,705
                                                                 ============

                                      -38-

<PAGE>

NOTE O - COMPREHENSIVE INCOME

In June 1997, the Financial  Accounting  Standards Board issued its Statement of
Financial Accounting Standards No. 130,  "Comprehensive  Income". The provisions
of this Statement are to become effective for the Company  beginning  January 1,
1998, with  reclassifications  included for any earlier  comparative  accounting
periods presented after that date.  Comprehensive  income consists of net income
or loss for the  current  period  and  other  comprehensive  income  --  income,
expenses,  gains and losses that bypass the statement of income and are reported
directly in a separate component of shareholders' equity. The Statement requires
the Company to classify and report items of other comprehensive  income by their
nature  and 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 balance sheet.

Currently,  the Company's only other comprehensive  income item is the change in
unrealized  holding gains and losses on  available-for-sale  securities,  net of
income  tax  effects,  which  is  presently  accounted  for in the  consolidated
statement of changes in shareholder's  equity. Had the Statement been applied to
the  consolidated  financial  statements  for the years ended December 31, 1997,
1996  and  1995,   total   shareholders'   equity  would  remain  unchanged  and
consolidated comprehensive income would have been computed as follows:
<TABLE>
<CAPTION>

                                                    Years Ended December 31,
                                                    ------------------------
                                                 1997         1996         1995
                                              ----------   ----------   ----------

<S>                                           <C>          <C>          <C>
Net income                                    $1,405,050   $1,152,441   $  857,218
                                              ----------   ----------   ----------
Other comprehensive income (loss)
  Change in unrealized holding gains and
    losses on available-for-sale securities       97,051     (137,147)     405,187
  Income tax expense (benefit) on other
    comprehensive income (loss)                   34,841      (49,236)     145,463
                                              ----------   ----------   ----------
          Total                                   62,210      (87,911)     259,724
                                              ----------   ----------   ----------

Comprehensive income                          $1,467,260   $1,064,530   $1,116,942
                                              ==========   ==========   ==========
</TABLE>

                                      -39-