EXHIBIT 13


















                         COMMUNITY FIRST BANCORPORATION

                            Portions of Registrant's
                              2009 Annual Report to
                            Shareholders Incorporated
                       by Reference into 2009 Form 10-K




<PAGE>



About the Company

         Community  First  Bancorporation  (the  "Company")  is a  bank  holding
company  organized  as  a  South  Carolina  corporation.   Through  its  banking
subsidiary, Community First Bank (the "Bank"), the Company provides a wide range
of lending and deposit services and electronic,  internet and telephone banking.
Substantially  all lending and deposit  acquisition  activities occur within the
Company's local market areas in Oconee and Anderson  counties of South Carolina.
The Company markets its products and services principally by offering attractive
interest rates and fees along with a friendly,  personal  service approach which
management believes can best be accomplished by a locally-owned  community bank.
The Bank first  commenced  operations  on March 12,  1990,  and the  Company was
organized in 1997 to become the Bank's holding  company under a plan approved by
the Bank's shareholders. In 2009, the Company formed an additional subsidiary to
hold certain troubled assets sold to it by the Bank.


Financial Highlights
<TABLE>
<CAPTION>
                                                                                 December 31,                    Percent Change
                                                                                 ------------                    --------------
(Dollars in thousands, except per common share)                      2009           2008          2007        2009/08     2008/07
                                                                     -----          -----         -----       -------     -------
Balance Sheet
<S>                                                              <C>            <C>           <C>                <C>         <C>
      Total assets .........................................     $ 492,898      $ 469,473     $ 402,148            5.0%       16.7%
      Loans ................................................       267,248        270,413       244,131           -1.2%       10.8%
      Securities ...........................................       150,734        138,546       104,689            8.8%       32.3%
      Total deposits .......................................       436,648        416,115       355,867            4.9%       16.9%
      Shareholders' equity .................................        44,818         39,928        37,911           12.2%        5.3%

For the Year
      Net interest income ..................................      $ 12,068       $ 11,717      $ 10,348            3.0%       13.2%
      Provision for loan losses ............................         4,355          4,550           594           -4.3%      666.0%
      Noninterest income ...................................         2,718          2,495         2,206            8.9%       13.1%
      Noninterest expenses .................................         9,249          8,067         7,132           14.7%       13.1%
      Income tax expense ...................................            81            253         1,497          -68.0%      -83.1%
      Net income ...........................................         1,101          1,342         3,331          -18.0%      -59.7%
      Net income available to common shareholders ..........         1,101          1,342         3,331          -18.0%      -59.7%

Per common share (1)
      Net income, basic ....................................        $ 0.29         $ 0.36        $ 0.92          -19.4%      -60.9%
      Net income, assuming dilution ........................          0.29           0.34          0.87          -14.7%      -60.9%
      Book value at year end ...............................         11.02          10.67         10.34            3.3%        3.2%

Financial Performance Ratios
      Return on average assets .............................         0.23%          0.31%         0.88%
      Return on average equity .............................         2.64%          3.38%         9.46%

Asset Quality Ratios (2)
      Nonperforming loans to total loans ...................         4.19%          4.36%         0.26%
      Allowance for loan losses times
        nonperforming loans ................................          0.4x           0.5x          4.1x
      Net charge-offs to
        average total loans ................................         1.39%          0.64%         0.12%
</TABLE>

(1)  Adjusted  to reflect 5% stock  dividends  effective  December  15, 2009 and
     December 20, 2008 and a 10% stock dividend effective December 20, 2007.

(2)  Nonperforming loans include nonaccrual loans and loans 90 days or more past
     due.


                                       2
<PAGE>

Financial Summary

<TABLE>
<CAPTION>
                                                                                         Years Ended December 31,
                                                                                         ------------------------
                                                                      2009          2008           2007         2006          2005
                                                                      ----          ----           ----         ----          ----
                                                                            (Dollars in thousands, except per common share data)
Financial Condition
<S>                                                                 <C>           <C>           <C>           <C>           <C>
     Securities ..............................................      $150,734      $138,546      $104,689      $109,082      $109,821
     Allowance for loan losses ...............................         6,052         5,475         2,574         2,242         2,266
     Net loans (1) ...........................................       261,196       264,938       241,557       200,724       167,052
     Premises and equipment - net ............................         8,470         8,655         8,622         7,937         6,805
     Total assets ............................................       492,898       469,473       402,148       353,909       320,712
     Noninterest bearing deposits ............................        47,067        41,962        42,289        40,576        38,061
     Interest bearing deposits ...............................       389,581       374,153       313,578       267,381       241,932
     Total deposits ..........................................       436,648       416,115       355,867       307,957       279,993
     Total liabilities .......................................       448,080       429,545       364,237       320,694       291,858
     Total shareholders' equity ..............................        44,818        39,928        37,911        33,215        28,854

Results of Operations
     Interest income .........................................      $ 22,951      $ 24,551      $ 23,578      $ 19,600      $ 15,923
     Interest expense ........................................        10,883        12,834        13,230        10,385         6,621
                                                                    --------      --------      --------      --------      --------
     Net interest income .....................................        12,068        11,717        10,348         9,215         9,302
     Provision for loan losses ...............................         4,355         4,550           594            65           250
                                                                    --------      --------      --------      --------      --------
     Net interest income after provision .....................         7,713         7,167         9,754         9,150         9,052
     Other income ............................................         2,718         2,495         2,206         2,154         2,139
     Other expenses ..........................................         9,249         8,067         7,132         6,752         5,420
                                                                    --------      --------      --------      --------      --------
     Income before income taxes ..............................         1,182         1,595         4,828         4,552         5,771
     Income tax expense ......................................            81           253         1,497         1,534         2,041
                                                                    --------      --------      --------      --------      --------
     Net income ..............................................         1,101         1,342         3,331         3,018         3,730
     Deduction for dividends declared or accumulated
       on preferred stock and unavailable to
       common shareholders ...................................             -             -             -             -             -
                                                                    --------      --------      --------      --------      --------
     Net income available to common shareholders .............      $  1,101      $  1,342      $  3,331      $  3,018      $  3,730
                                                                    ========      ========      ========      ========      ========

Per Common Share Data (2)
     Net income, basic .......................................      $   0.29      $   0.36      $   0.92      $   0.85      $   1.05
     Net income, assuming dilution ...........................          0.29          0.34          0.87          0.79          1.00
     Period end book value ...................................         11.02         10.67         10.34          9.26          8.10
</TABLE>
(1) Excludes any loans held for sale.
(2) Per common  share  amounts  have been  retroactively  adjusted to reflect 5%
    stock  dividends  effective  December  15, 2009 and December 20, 2008, a 10%
    stock dividend effective December 20, 2007 and a 5% stock dividend effective
    December 18, 2006.




                                       3
<PAGE>

Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>

                                                                                Years Ended December 31,
                                                                                ------------------------
                                                                      2009                                     2008
                                                                      ----                                     ----
                                                      Fourth    Third     Second     First     Fourth    Third     Second     First
                                                      Quarter   Quarter   Quarter    Quarter   Quarter   Quarter   Quarter   Quarter
                                                      -------   -------   -------    -------   -------   -------   -------   -------
                                                                (Dollars in thousands,  except per common share)

<S>                                                  <C>        <C>       <C>       <C>       <C>        <C>       <C>       <C>
Interest and dividend income .....................   $ 5,577    $ 5,730   $ 5,861   $ 5,783   $ 5,922    $ 6,236   $ 6,037   $ 6,356
Interest expense .................................     2,339      2,706     2,838     3,000     3,093      3,006     3,147     3,588
                                                     -------    -------   -------   -------   -------    -------   -------   -------

Net interest income ..............................     3,238      3,024     3,023     2,783     2,829      3,230     2,890     2,768
Provision for loan losses ........................     1,895      1,010       700       750     3,175        965       280       130
                                                     -------    -------   -------   -------   -------    -------   -------   -------

Net interest income after provision ..............     1,343      2,014     2,323     2,033      (346)     2,265     2,610     2,638
Noninterest income ...............................       691        704       752       571       627        634       625       609
Noninterest expense ..............................     2,429      2,297     2,426     2,097     2,237      1,938     2,005     1,887
                                                     -------    -------   -------   -------   -------    -------   -------   -------

Income (loss) before income taxes ................      (395)       421       649       507    (1,956)       961     1,230     1,360
Provision for income taxes .......................      (273)       101       160        93      (784)       252       385       400
                                                     -------    -------   -------   -------   -------    -------   -------   -------

Net income (loss) ................................      (122)       320       489       414    (1,172)       709       845       960
Dividends declared or accrued
  on preferred stock .............................         -          -         -         -         -          -         -         -
                                                     -------    -------   -------   -------   -------    -------   -------   -------
Net income available to
  common shareholders ............................   $  (122)   $   320   $   489   $   414   $(1,172)   $   709   $   845   $   960
                                                     =======    =======   =======   =======   =======    =======   =======   =======

Net income per common share *
  Basic ..........................................   $ (0.04)   $  0.09   $  0.13   $  0.11   $ (0.31)   $  0.19   $  0.23   $  0.27
  Diluted ........................................     (0.04)      0.09      0.13      0.11     (0.31)      0.18      0.22      0.25
</TABLE>

---------------------------------
*    Per common share amounts have been  retroactively  adjusted to reflect a 5%
     stock dividend effective December 15, 2009.

         During  the  third and  fourth  quarters  of 2009 and 2008,  management
observed that economic  activity in the Company's  market areas had deteriorated
significantly  from assessments made earlier in each year.  Numerous factors led
to those conclusions  including higher amounts of past due and nonaccrual loans,
reduced  local sales of housing  units,  and  increasing,  or  continuing  high,
numbers of layoffs and other  unfavorable  trends in unemployment  statistics in
the  local  area.  Consequently,  management  reevaluated  the  adequacy  of its
allowance  for loan  losses  and  determined  that  significant  increases  were
warranted.


                        CAUTIONARY NOTICE WITH RESPECT TO
                           FORWARD LOOKING STATEMENTS

         This report contains "forward-looking statements" within the meaning of
the  securities  laws.  The  Private  Securities  Litigation  Reform Act of 1995
provides a safe harbor for forward-looking  statements.  In order to comply with
the terms of the safe harbor,  the Company notes that a variety of factors could
cause the Company's actual results and experience to differ  materially from the
anticipated   results  or  other   expectations   expressed  in  the   Company's
forward-looking statements.

         All statements that are not historical  facts are statements that could
be  "forward-looking   statements."  You  can  identify  these   forward-looking
statements  through the use of words such as "may," "will,"  "should,"  "could,"
"would," "expect,"  "anticipate,"  "assume,  "indicate,"  "contemplate," "seek,"
"plan,"  "predict,"  "target,"  "potential,"  "believe,"  "intend,"  "estimate,"


                                       4
<PAGE>

"project,"  "continue,"  or  other  similar  words.  Forward-looking  statements
include,  but are not limited to,  statements  regarding  the  Company's  future
business  prospects,   revenues,  working  capital,  liquidity,  capital  needs,
interest costs, income, business operations and proposed services.

         These  forward-looking  statements  are based on current  expectations,
estimates and projections about the banking industry,  management's beliefs, and
assumptions made by management.  Such information includes,  without limitation,
discussions  as to estimates,  expectations,  beliefs,  plans,  strategies,  and
objectives  concerning  future  financial  and  operating   performance.   These
statements  are not guarantees of future  performance  and are subject to risks,
uncertainties and assumptions that are difficult to predict.  Therefore,  actual
results  may  differ  materially  from those  expressed  or  forecasted  in such
forward-looking  statements.  The risks and uncertainties  include,  but are not
limited to:

          o    future economic and business conditions;
          o    lack of sustained growth in the economies of the Company's market
               areas;
          o    government monetary and fiscal policies;
          o    the  effects  of  changes  in  interest   rates  on  the  levels,
               composition and costs of deposits, loan demand, and the values of
               loan collateral,  securities,  and interest  sensitive assets and
               liabilities;
          o    the  effects  of  competition  from  a  wide  variety  of  local,
               regional, national and other providers of financial,  investment,
               and insurance services, as well as competitors that offer banking
               products and  services by mail,  telephone,  computer  and/or the
               Internet;
          o    credit risks;
          o    higher than anticipated levels of defaults on loans;
          o    perceptions by depositors about the safety of their deposits;
          o    capital adequacy;
          o    the failure of assumptions  underlying the  establishment  of the
               allowance  for loan  losses and other  estimates,  including  the
               value of collateral securing loans;
          o    ability to weather the current economic downturn;
          o    loss of consumer or investor confidence;
          o    availability of liquidity sources;
          o    the risks of opening new offices, including,  without limitation,
               the related costs and time of building customer relationships and
               integrating operations as part of these endeavors and the failure
               to achieve expected gains,  revenue growth and/or expense savings
               from such endeavors;
          o    changes  in laws and  regulations,  including  tax,  banking  and
               securities laws and regulations;
          o    changes in accounting policies, rules and practices;
          o    changes  in  technology  or  products  may be more  difficult  or
               costly, or less effective, than anticipated;
          o    the effects of war or other conflicts, acts of terrorism or other
               catastrophic  events that may affect general economic  conditions
               and economic confidence; and
          o    other factors and information described in this report and in any
               of the  other  reports  that  we file  with  the  Securities  and
               Exchange Commission under the Securities Exchange Act of 1934.

         All  forward-looking   statements  are  expressly  qualified  in  their
entirety by this cautionary notice. The Company has no obligation,  and does not
undertake,  to update,  revise or correct any of the forward-looking  statements
after the date of this  report.  The Company  has  expressed  its  expectations,
beliefs and projections in good faith and believes they have a reasonable basis.
However,  there is no assurance that these expectations,  beliefs or projections
will result or be achieved or accomplished.


Market for Common Stock and Dividends

         Trading in the  Company's  common stock is reported on the OTC Bulletin
Board under the ticker symbol  "CFOK.OB."  The following  table  summarizes  the
range of high and low bid prices for the  Company's  common stock as reported on
the OTC Bulletin Board for each quarterly period of 2009 and 2008.  Prices shown
represent  inter-dealer  prices without retail markup,  markdown or commissions,
and may not represent actual transactions. Furthermore, trading in the Company's
stock is very  limited.  Per share  prices in the table  have been  adjusted  to
reflect a 5% stock dividend effective December 15, 2009.

<TABLE>
<CAPTION>
                                                          2009                             2008
                                                          ----                             ----
                      Quarter Ended                       High            Low              High            Low
                      -------------                       ----            ---              ----            ---
<S>                           <C>                        <C>             <C>              <C>            <C>
                                  March 31               $ 9.52          $ 2.95           $ 14.96        $ 10.97
                                   June 30               $ 7.14          $ 3.14           $ 15.19        $ 14.29
                              September 30               $10.48          $ 6.19           $ 14.51        $ 10.97
                               December 31               $ 7.62          $ 6.67           $ 11.79        $  6.85
</TABLE>

                                       5
<PAGE>


         As of February 28, 2010, there were approximately 765 holders of record
of the Company's  common stock,  excluding  individual  participants in security
position listings.

         The  Company  has not  declared  or paid any cash  dividends  since its
inception. The Board of Directors declared 5% stock dividends effective December
15, 2009 and December 20, 2008, a 10% stock dividend effective December 20, 2007
and a 5% stock dividend effective December 18, 2006.

         The  Company's  ability to declare  and pay cash  dividends  is largely
dependent upon the successful  operation of the subsidiary  bank and its ability
to pay cash  dividends  to the  Company and the ability of the Company to pay 5%
cumulative  dividends on the preferred stock issued in 2009. In addition,  South
Carolina banking  regulations  restrict the amount of cash dividends that can be
paid by the banking subsidiary to the Company.  Any of the Bank's cash dividends
to the Company in excess of the current year's earnings are subject to the prior
approval of the South Carolina  Commissioner of Banking. In addition,  dividends
paid by the Bank to the Company, or by the Company to its shareholders, would be
prohibited  if the  effect  thereof  would  cause  the  capital  of the  banking
subsidiary or the Company to be reduced below minimum capital requirements.


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 subsidiaries, Community First Bank (the "Bank") and Upstate
Resource Management,  Inc., which are collectively referred to as the "Company."
This  information  should  be  reviewed  in  conjunction  with the  consolidated
financial  statements and related notes contained  elsewhere in this report. Net
income per common share and net income per common share, assuming dilution, have
been  adjusted to reflect 5% stock  dividends  effective  December  15, 2009 and
December 20, 2008 and a 10% stock dividend effective December 20, 2007.

         During the two years ended  December  31,  2009,  both the national and
local economies have been adversely affected by high delinquency and foreclosure
rates of real  estate  loans,  principally  those  related to  residential  real
estate,  and high  levels  of  unemployment.  Evidencing  the  severity  and the
abruptness of this deterioration,  December unemployment for Anderson County was
13.4%,  9.6% and 5.6% for 2009,  2008 and 2007,  respectively  and,  for  Oconee
County, December unemployment was 14.6%, 10.6% and 6.2% for 2009, 2008 and 2007,
respectively.  Since  December  2007,  the number of  unemployed in Anderson and
Oconee  counties  increased by  approximately  9,300,  or 140%,  to about 16,000
people. By comparison,  the national  unemployment rate was 10.0%, 7.4% and 5.0%
as of December  2009,  2008 and 2007,  respectively.  As of December  2009,  the
number of  unemployed  members of the  national  labor  force was  approximately
15,267,000.  Unemployment  statistics and other indicators of economic  activity
may have recursive and magnifying  effects on each other as business  owners and
consumers  use these  measures to assess  their  current  conditions  and future
prospects.  Currently,  there are only low  levels of  optimism  concerning  the
probability of a prolonged economic recovery beginning in the near term.

         Nationally, the number of bank failures continues to increase and other
indicators  of the health of the banking  system  continue to  deteriorate.  The
Federal  Deposit  Insurance  Corporation  ("FDIC"),  which  insures  the  Bank's
deposits,  increased  deposit  coverage  to  $250,000  for most types of deposit
accounts  and  offered  insured  institutions  the option to  provide  unlimited
coverage  for  certain  transaction   accounts.   Costs  associated  with  those
enhancements  included a special assessment  collected from insured institutions
in the second  quarter of 2009 that added  approximately  $215,000 to the Bank's
FDIC insurance expenses for 2009. In 2009, banks were also subjected by the FDIC
to mandatory prepayment of the deposit insurance assessments that normally would
be paid over the next three years.  This  prepayment by the Bank in 2009 totaled
approximately  $2,600,000  and will be recognized as deposit  insurance  expense
over the three year period.  The Bank recently  opted out of an extended  period
for unlimited  coverage of certain  transaction  accounts while  maintaining the
maximum regular FDIC insurance of $250,000 on all accounts.

         Also  evidencing  concerns about the health of the financial  industry,
banks continue to be reluctant to engage in overnight lending  arrangements with
other financial institutions. The Bank continues to maintain its excess reserves
in an  interest-bearing  account  with the Federal  Reserve Bank of Richmond and
intends to continue to do so until interest rates on federal finds sold increase
enough to compensate the Bank  sufficiently  for the incremental  risks of those
investments.

         The Bank's  management  and other  personnel are working  diligently to
assess the  financial  condition of loan  customers  and to maximize the amounts
collected from nonaccrual and other distressed  loans.  During 2009,  nonaccrual
loans increased by $2,071,000,  charge-offs totaled  $3,886,000,  and $6,382,000
was transferred  from loans to foreclosed  assets.  Management  realizes that it


                                       6
<PAGE>

must continue to monitor all aspects of the local economy,  its individual  loan
customers,  and the many  factors that affect them for the  foreseeable  future.
During  2009,  the  Company  established  a  new  subsidiary,  Upstate  Resource
Management,  Inc.,  to  acquire  certain  loans in process  of  foreclosure  and
foreclosed  properties  from the Bank,  which it expects to hold until the local
real estate markets improve.  Management believes that there are, in some cases,
potential longer-term  advantages to holding some properties rather than selling
them at current "distressed" levels.

         Because of the level of attention  required by loans  previously  made,
the  Bank  recently  has  concentrated  on  purchasing  investment   securities,
primarily  those  issued  by  government-sponsored   enterprises,   rather  than
investing  more heavily in new loans.  Even though  investment  securities  earn
interest at lower rates than loans, the administrative costs of such investments
are lower and there are generally fewer risks of loss. In addition,  those types
of securities are generally  eligible to be pledged to public  depositors  whose
deposits are in excess of FDIC insurance limits, as required by law.

         Deposit  growth  during  2009  totaled  approximately  $20,533,000,  an
increase  of 4.9% over the 2008  year-end  amount.  The Bank  does not  purchase
brokered  deposits but instead  relies on deposits  obtained in the local market
areas and limited amounts of low-cost borrowings from the Federal Home Loan Bank
of Atlanta to fund its lending and  investing  activities.  Management  believes
that this practice imposes prudent limits on the Bank's ability to extend credit
and has proven to be an  important  contributing  factor to the Bank's  positive
earnings  performance  over the past two  years.  Management  does not  expect a
significant reduction in deposits to result from its decision not to participate
in the FDIC's optional period of unlimited  transaction account coverage because
it has significant  amounts of investment  securities  eligible to be pledged to
the public entities that make up the majority of such large depositors.

         The Company's  Board of Directors,  realizing  that the amounts of loan
losses  experienced  over the past two  years  have  been  higher  than  normal,
provided just over $3,000,000 of new capital to the Company by purchasing  3,150
shares of Series A preferred stock in December 2009.

         During 2009, the Company's management increased its efforts to maintain
communications with its largest borrowers,  stay abreast of changes in the local
real estate  market and other  facets of the local  economy,  and  reassess  the
values of loan collateral given the current economic environment.  These efforts
and  reassessments  resulted in an increase in the amounts of the  provision and
allowance for loan losses, a preference for investments in investment securities
rather than in loans, and the  strengthening  of the Company's  capital position
through the issuance of preferred stock.


Earnings Performance

2009 Compared with 2008

         For the year ended December 31, 2009,  the Company  recorded net income
of $1,101,000,  a decrease of $241,000,  or 18.0%, from net income of $1,342,000
for 2008. Net income per common share was $.29 for 2009,  compared with $.36 for
2008. Net income per common share,  assuming dilution was $.29 for 2009 and $.34
for 2008.  Return on  average  assets was .23% for 2009  compared  with .31% for
2008.  Return on average  shareholders'  equity was 2.64% for 2009 compared with
3.38% for 2008.

         The  decrease  in net income for 2009 was  caused  primarily  by higher
expenses  for deposit  insurance  coverage,  higher  expenses  for  salaries and
employee benefits,  the continuing effects of low interest rates, which hindered
the Company's  ability to increase net interest  margin,  and higher  amounts of
nonaccrual and other problem loans that resulted in continuing  high  provisions
for loan  losses as well as higher  legal and  other  expenses  associated  with
acquiring and carrying foreclosed assets.

         During  2009,   the  FDIC  imposed  both  rate  increases  and  special
assessments that resulted in  immediately-recognized  increases in the amount of
deposit insurance  expense.  For 2009, FDIC insurance expenses totaled $711,000,
an increase of $523,000,  or 278%,  over the $188,000 of such expenses  incurred
for  2008.  As long  as the  number  of bank  failures  continues  to  increase,
management  expects that the assessment rate per dollar of insured deposits will
continue to be under upward pressure.  Consequently,  deposit insurance expenses
are expected to increase for the foreseeable future.

         Higher  salaries  and employee  benefits  resulted  from normal  salary
increases  among the Bank's  staff and the addition or promotion of personnel to
positions  with higher levels of  responsibility  related to the  management and
resolution  of  problem  loans.  Management  expects  that  expenses  for  those
employee-provided  services will continue at current  levels  through the end of
2010 at least.

         During  2009,  interest  rates were  maintained  at low  levels.  Rates
available for short-term  investments,  including for federal funds sold and for


                                       7
<PAGE>

reserves held with Federal  Reserve  Banks,  averaged in the .10% to .20% range.
Accordingly,  interest income realized from those holdings  totaled just $50,000
for  2009   compared  with  $650,000  for  2008  when  the  average  rates  were
approximately  2.45%.  Rates earned on  newly-issued  investment  securities and
loans were similarly low. Furthermore,  rates earned on variable rate loans that
both used the prime  rate as their  index rate and had  repricing  dates in 2009
generally had lower rates during 2009. In all,  interest  income was  $1,600,000
lower in 2009 than in 2008.  The lower  interest  rates in 2009 also resulted in
lower interest expenses for deposits. The average rate paid for deposits in 2009
was 90 basis points lower than for 2008 and interest  expenses for deposits were
$2,084,000 less in 2009 than in 2008.  Interest expenses for borrowed funds were
$133,000 higher in 2009 primarily because higher average volumes of such funding
sources were utilized during 2009.

         The provision for loan losses for 2009 was $195,000 less than for 2008.
During  2009,   management   aggressively   charged-off   uncollectible   loans,
re-assessed  the value of  collateral  associated  with  distressed  loans,  and
foreclosed and repossessed  collateral in order to enhance the Bank's ability to
maximize the amount realizable from disposition of the properties.  After taking
those actions, nonaccrual loans at the end of 2009 were $13,870,000, an increase
of $2,071,000 over the amount of such loans held as of the end of 2008.

         Expenses to hold foreclosed  assets increased to $132,000 for 2009 from
$8,000 for 2008. Such expenses primarily include property taxes.


2008 Compared with 2007

         For the year ended December 31, 2008,  the Company  recorded net income
of $1,342,000, a decrease of $1,989,000, or 59.7%, from net income of $3,331,000
for 2007.  Net income per common share for 2008 was $.36  compared with $.92 for
2007.  Net income per common share,  assuming  dilution from  outstanding  stock
options,  was $.34 for 2008 and $.87 for 2007. Return on average assets was .31%
for 2008 compared with .88% for 2007. Return on average shareholders' equity was
3.38% for 2008 compared with 9.46% for 2007.

         The  decrease  in  net  income  for  2008  was  caused  primarily  by a
significantly  higher  provision for loan losses.  The provision for loan losses
for 2008 was  $4,550,000,  an increase of $3,956,000,  or 666.0%,  over the 2007
provision.  Deterioration  in asset  quality,  evidenced  by larger  amounts  of
nonaccrual,  past  due  and  potential  problem  loans  led to  those  increased
provisions.

         Net interest  income for 2008 was $1,369,000  more than for 2007 due to
higher levels of taxable  securities  and loans,  higher rates earned on taxable
securities  and lower  rates paid for  deposits  (especially  the rates paid for
interest  bearing  transaction and savings  accounts) and other funding sources.
Higher  amounts of nonaccrual  loans had a  detrimental  effect on the amount of
interest  income on loans  recognized  in the  period.  When a loan is placed in
nonaccrual status, the Company  discontinues  recognition of interest accrual in
income and reverses any amount of previously  accrued but  uncollected  interest
attributable  to  that  loan  against  interest  income.  Loans  categorized  as
nonaccrual   as  of  December   31,  2008  totaled   $11,799,000   and  included
approximately  $8,494,000 of loans that were not categorized as nonaccrual loans
as of December 31, 2007.  Despite those  effects,  interest  income on loans for
2008 was $612,000  more than for 2007.  The average rate earned on loans in 2008
was 81 basis points lower than for 2007.

         Other  income for 2008  increased  by  $289,000  over the 2007  amount,
primarily  as a result of increases  in the value of life  insurance  contracts.
Other  expenses  increased  by $935,000  primarily  due to higher  salaries  and
employee benefits,  increased expenses related to the banking office network and
higher data processing expenses.

Net Interest Income

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

2009 Compared with 2008

         Net interest income was $12,068,000 for 2009 compared with  $11,717,000
for 2008.  The $351,000  increase  during 2009 resulted  primarily from interest
expenses  declining  more than  interest  income.  The  primary  driver of lower
interest  expenses was an 86 basis point  reduction in the average rate paid for
average interest bearing liabilities.  Rates paid for time deposits, the largest
category of interest bearing liabilities,  fell to 3.29% for 2009 from 4.29% for
2008.  As a result of the decrease in rates,  even though the average  volume of
time deposits increased by $44,087,000, interest expense for these deposits fell
by $1,145,000.  Rates paid for savings and interest bearing transaction accounts
decreased by 97 and 115 basis points,  respectively,  and the average amounts of
such deposits  decreased by a total of  $7,302,000.  Interest  expense for these


                                       8
<PAGE>

deposits decreased by $939,000. Interest expense for borrowed funds increased by
$133,000 in large part because the Company  utilized  such funding  sources to a
greater degree in 2009.

         Similarly,  interest  income  was lower  for 2009  than for 2008.  This
resulted  primarily from lower interest  income on loans.  Yields were lower for
all categories of interest earning assets except tax-exempt  securities in 2009.
Loan yields were affected by several factors  including Federal Reserve policies
that  kept  interest  rates  at low  levels  throughout  2009,  the  effects  of
nonaccrual loans and loan charge-offs, repricing of variable rate loans at lower
rates and some refinancing  activity by borrowers seeking lower rates.  Interest
earned on federal  funds sold and interest  earning  deposits due from banks was
$50,000 for 2009,  a decrease of $600,000  from 2008.  The Bank  maintained  its
excess  reserves  in an  interest  bearing  account  with  the  Federal  Reserve
throughout 2009,  foregoing a nominal increase in the yield that might have been
realized by participating  in the sale of excess funds in the overnight  federal
funds market in exchange for the certainty of repayment by the Federal Reserve.


2008 Compared with 2007

         Net interest  income was $11,717,000 and $10,348,000 for 2008 and 2007,
respectively. Interest income for 2008 was $24,551,000, an increase of $973,000,
or 4.1%, over 2007.  Interest  expense for 2008 was  $12,834,000,  a decrease of
$396,000,  or 3.0% from $13,230,000 for 2007. Larger average amounts of interest
earning assets,  especially in the relatively  higher-yielding  loan and taxable
securities categories, resulted in the increased interest income amount in 2008,
overcoming a 55 basis point decrease in the yield on earning assets for the 2008
period.  Interest  expense for 2008  decreased  despite  large  increases in the
average  amounts of time  deposits,  in large part  because the average  cost of
interest-bearing liabilities for 2008 was 76 basis points lower than for 2007.

         During 2008, the amount of nonaccrual  loans  increased  significantly.
This  was  especially  noteworthy  during  the  last  six  months  of the  year.
Consequently,  the amount of accrued but uncollected  interest on such loans was
more than in prior years.  The  reversal of that income,  and the loss of income
after the  nonaccrual  date,  negatively  affected both the dollar amount of the
income and the  Company's  yield on loans for 2008.  Approximately  $340,000  of
interest  income  attributable  to nonaccrual  loans was not recognized in 2008;
this decreased the yield on loans by approximately 13 basis points.  The amounts
of  interest  on  nonaccrual  loans  in prior  years  were  not  material.  Also
contributing  to the lower loan yield for 2008 were the effects of  decreases in
the prime  rate on  variable  rate  loans.  As of  December  31,  2008 and 2007,
approximately $75,000,000 and $70,000,000 of loans were variable rate loans.

         Interest income on investment securities for 2008 increased by $934,000
over the prior year amount as a result of both higher average amounts and higher
rates  earned.  During  2008,  the Bank  sold  approximately  $9,736,000  of its
investments   in   mortgage-backed   securities   and   securities   issued   by
government-sponsored enterprises. In addition, maturities, calls and paydowns of
securities  during  2008  totaled   approximately   $48,364,000.   During  2008,
approximately $91,647,000 of new securities were purchased,  including purchases
of approximately  $37,671,000,  or 41% of all purchases for the year, during the
last four months of 2008. The average yield on taxable and tax-exempt securities
was 4.66% for 2008 compared  with 4.30% for 2007.  As of December 31, 2008,  the
average yield on investment securities was 4.79% compared with 4.44% at December
31, 2007.

         Interest earned on federal funds sold decreased by $577,000,  primarily
due to lower  rates  resulting  from the  Federal  Reserve's  actions to provide
economic stimulus.

         Interest  expense for 2008  decreased  by $396,000  compared  with 2007
primarily  due to lower rates paid for deposit  accounts.  The average rate paid
for all deposit  accounts in 2008 was 3.66%,  a decrease of 76 basis points from
the 2007 level. As stated  previously,  many depositors shifted their focus from
income accumulation to loss prevention, especially during the last few months of
2008. Consequently, total deposits as of December 31, 2008 were $32,393,000 more
than they were as of September  30, 2008 and  $60,248,000  more than at December
31, 2007.



                                       9
<PAGE>

                       Average Balances, Yields and Rates

<TABLE>
<CAPTION>
                                                                             Years Ended December 31,
                                                                             ------------------------
                                                        2009                           2008                          2007
                                                        ----                           ----                          ----
                                            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>
Interest bearing deposits due from banks .  $ 20,906   $    47   0.22%    $     995  $     18   1.81%    $    157    $     6   3.82%
Taxable securities .......................   136,619     5,569   4.08%      100,395     4,808   4.79%      89,867      3,890   4.33%
Tax-exempt securities (2) ................    19,912       811   4.07%       20,699       833   4.02%      19,630        817   4.16%
Federal funds sold .......................     1,981         3   0.15%       25,579       632   2.47%      23,730      1,209   5.09%
Federal Home Loan Bank stock .............     1,289         4   0.31%        1,053        48   4.56%         888         56   6.31%
Loans (2) (3) (4) ........................   272,330    16,517   6.07%      259,055    18,212   7.03%     224,353     17,600   7.84%
                                            --------   -------            ---------  --------            --------    -------
         Total interest earning assets ...   453,037    22,951   5.07%      407,776    24,551   6.02%     358,625     23,578   6.57%
Cash and due from banks ..................     5,598                          8,913                         8,370
Allowance for loan losses ................    (5,461)                        (3,038)                       (1,065)
Unrealized securities gains (losses) .....     1,432                            (64)                       (2,286)
Premises and equipment ...................     8,588                          8,774                         8,189
Other assets .............................    16,712                         12,578                         6,227
                                            --------                      ---------                      --------
       Total assets ......................  $479,906                      $ 434,939                      $378,060
                                            ========                      =========                      ========

Liabilities and shareholders' equity
Interest bearing deposits
     Interest bearing
        transaction accounts .............  $ 54,202   $   370   0.68%    $  57,416  $  1,049   1.83%    $ 57,117    $ 1,783   3.12%
     Savings .............................    21,093        80   0.38%       25,181       340   1.35%      25,042        658   2.63%
     Time deposits $100M and over ........   131,115     3,752   2.86%      111,780     4,326   3.87%      85,815      4,054   4.72%
     Other time deposits .................   173,047     6,268   3.62%      148,295     6,839   4.61%     126,588      6,531   5.16%
                                            --------    ------            ---------  --------            --------    -------
       Total interest bearing
           deposits ......................   379,457    10,470   2.76%      342,672    12,554   3.66%     294,562     13,026   4.42%
Short-term borrowings ....................       437        47  10.76%        1,219        11   0.90%           -          -   0.00%
Long-term debt ...........................     9,463       366   3.87%        6,615       269   4.07%       4,975        204   4.10%
                                            --------   -------            ---------  --------            --------    -------
       Total interest
          bearing liabilities ............   389,357    10,883   2.80%      350,506    12,834   3.66%     299,537     13,230   4.42%
Noninterest bearing demand deposits ......    44,243                         41,173                        40,099
Other liabilities ........................     4,667                          3,583                         3,225
Shareholders' equity .....................    41,639                         39,677                        35,199
                                            --------                      ---------                      -------
       Total liabilities and
         shareholders' equity ............  $479,906                      $ 434,939                      $378,060
                                            ========                      =========                      ========
Interest rate spread (5) .................                       2.27%                          2.36%                          2.15%
Net interest income and net yield
     on earning assets (6) ...............             $12,068   2.66%               $ 11,717   2.87%                $10,348   2.89%
Interest free funds supporting
     earning assets (7) ..................  $ 63,680                      $  57,270                      $ 59,088
</TABLE>
_________________________
(1)  Average balances are computed on a daily basis.
(2)  Income and yields on tax-exempt securities and loans have not been adjusted
     on a tax equivalent basis.
(3)  Nonaccrual  loans are included in the average  loan  balances and income on
     such loans generally is recognized on a cash basis.
(4)  Includes immaterial amounts of loan fees.
(5)  Total  interest  earning  assets  yield  less the  total  interest  bearing
     liabilities rate.
(6)  Net interest income divided by total interest earning assets.
(7)  Total interest earning assets less total interest bearing liabilities.


                                       10
<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 (change in volume times prior period rate), and
the rates earned and paid on such assets and  liabilities  (change in rate times
prior period volume).

                        Volume and Rate Variance Analysis

<TABLE>
<CAPTION>
                                                                 2009 Compared with 2008                2008 Compared with 2007
                                                                 -----------------------                -----------------------
                                                             Volume (1)    Rate (1)      Total       Volume (1)   Rate (1)     Total
                                                             -------       -----         -----       -------      -----        -----
                                                                                      (Dollars in thousands)
<S>                                                         <C>          <C>          <C>          <C>         <C>          <C>
Interest bearing deposits due from banks ..............     $    58      $   (29)     $    29      $    16     $    (4)     $    12
Taxable securities ....................................       1,552         (791)         761          481         437          918
Tax-exempt securities .................................         (32)          10          (22)          43         (27)          16
Federal funds sold ....................................        (312)        (317)        (629)          88        (665)        (577)
Federal Home Loan Bank stock ..........................           9          (53)         (44)           9         (17)          (8)
Loans .................................................         898       (2,593)      (1,695)       2,553      (1,941)         612
                                                            -------      -------      -------      -------     -------      -------
           Total interest income ......................       2,173       (3,773)      (1,600)       3,190      (2,217)         973
                                                            -------      -------      -------      -------     -------      -------
Interest bearing deposits
    Interest bearing transaction accounts .............         (56)        (623)        (679)           9        (743)        (734)
    Savings ...........................................         (48)        (212)        (260)           4        (322)        (318)
    Time deposits $100M and over ......................         670       (1,244)        (574)       1,088        (816)         272
    Other time deposits ...............................       1,034       (1,605)        (571)       1,047        (739)         308
Short-term borrowings .................................         (11)          47           36           11           -           11
Long-term debt ........................................         111          (14)          97           67          (2)          65
                                                            -------      -------      -------      -------     -------      -------
           Total interest expense .....................       1,700       (3,651)      (1,951)       2,226      (2,622)        (396)
                                                            -------      -------      -------      -------     -------      -------
           Net interest income ........................     $   473      $  (122)     $   351      $   964     $   405      $ 1,369
                                                            =======      =======      =======      =======     =======      =======
</TABLE>

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

(1)  The  rate/volume  variance  for  each  category  has  been  allocated  on a
     consistent  basis between rate and volume variances based on the percentage
     of rate or volume variance to the sum of the two absolute  variances except
     in categories having balances in only one period. In such cases, the entire
     variance is attributed to volume variances.


         Management currently is not able to predict with any significant degree
of certainty either the direction or frequency of changes in interest rates that
may occur during 2010. While  management  considers it more likely than not that
Federal  Reserve  policies  during 2010 would lead to slightly  higher  interest
rates, no catalyst for any immediate change in rates is currently evident.

Interest Rate Sensitivity

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

         The  table,  "Interest  Sensitivity  Analysis",  indicates  that,  on a
cumulative basis through twelve months, rate sensitive liabilities exceeded rate
sensitive assets at the end of 2009 by  $163,801,000,  resulting in 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 2009 with respect to
the one-year time  horizon.  For a bank with a negative  gap,  falling  interest
rates would  ordinarily  be expected to have a positive  effect on net  interest
income and rising rates would  ordinarily be expected to have a negative effect.
However, if interest rates on other investment types increased sufficiently, the
Company's  large  amount of interest  bearing  deposits  due from  banks,  which
consists of excess reserves held at the Federal Reserve, provides a ready source
of funds that could be invested into those  higher-yielding  asset  classes.  By
simultaneously  limiting  the  magnitude  of any  increases  in  rates  paid for
deposits, the Company could mitigate or overcome the negative effects of the gap
position indicated in the table.

         The table,  "Interest Sensitivity  Analysis",  reflects the balances of
interest earning assets and interest bearing liabilities at the earlier of their
repricing or maturity  dates.  Amounts of fixed rate loans are  reflected at the


                                       11
<PAGE>

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.  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.  These
liabilities  are subject to contractual  arrangements  that allow  management to
vary the rates paid on these  deposits  within a thirty-day  or shorter  period.
However,  the Company is not obligated to vary the rates paid on those  deposits
within any given period. Fixed rate time deposits,  principally  certificates of
deposit, are reflected at their contractual maturity dates.

                          Interest Sensitivity Analysis

<TABLE>
<CAPTION>
                                                                                         December 31, 2009
                                                           Within            4-12           Over 1-5          Over 5
                                                          3 Months          Months           Years            Years            Total
                                                          --------          ------           -----            -----            -----
                                                                                   (Dollars in thousands)
Interest earning assets
<S>                                                             <C>            <C>            <C>            <C>           <C>
     Interest bearing deposits due from banks .............     $  46,021      $       -      $       -      $       -     $  46,021
     Securities ...........................................             -          4,286         14,646        131,802       150,734
     Federal Home Loan Bank stock .........................         1,307              -              -              -         1,307
     Loans (1) ............................................        61,903         34,845        141,382         15,248       253,378
                                                                ---------      ---------      ---------      ---------     ---------
            Total interest earning assets .................       109,231         39,131        156,028        147,050     $ 451,440
                                                                ---------      ---------      ---------      ---------     =========

Interest bearing liabilities
     Interest bearing deposits
         Interest bearing transaction accounts ............     $  50,576      $       -      $       -      $       -     $  50,576
         Savings ..........................................        27,561              -              -              -        27,561
         Time deposits $100M and over .....................        30,398         65,568         32,948              -       128,914
         Other time deposits ..............................        23,460        109,600         49,470              -       182,530
     Long-term debt .......................................         3,500          1,500          3,000              -         8,000
                                                                ---------      ---------      ---------      ---------     ---------
            Total interest bearing liabilities ............       135,495        176,668         85,418              -     $ 397,581
                                                                ---------      ---------      ---------      ---------     =========

Interest sensitivity gap ..................................     $ (26,264)     $(137,537)     $  70,610      $ 147,050
Cumulative interest sensitivity gap .......................     $ (26,264)     $(163,801)     $ (93,191)     $  53,859
Gap ratio .................................................          0.81           0.22
Cumulative gap ratio ......................................          0.81           0.48
</TABLE>
------------------------------
(1) Loans are net of nonaccruing loans totaling $13,870,000.

Provision for Loan Losses

         The  provision  for  loan  losses  is  charged  to  earnings  based  on
management's  continuing  review and  evaluation  of the loan  portfolio and its
estimate of the related  allowance for loan losses.  Provisions  for loan losses
were $4,355,000,  $4,550,000 and $594,000 for the years ended December 31, 2009,
2008 and 2007,  respectively.  During  2009 and 2008,  the  Company  experienced
higher amounts of nonaccrual,  past due and other potential  problem loans. Some
signs of  deterioration  in the local real estate  market  were  observed in the
first  quarter of 2008 and the rate of  deterioration  was  gradual  through the
first three quarters of that year.  However,  during the fourth quarter of 2008,
the rate of deterioration  increased  significantly and the resulting distressed
real estate values continue as of December 31, 2009.

         The  Company is  monitoring  these  conditions  closely  and is working
proactively  with its  customers  in an effort to collect or recover the maximum
amounts possible.  When management determines that repayment of an impaired loan
is dependent  solely on the liquidation of its collateral,  management  assesses
the value of the  collateral  using  independent  appraisers,  or through  other
market-based measures, and, if the loan's carrying amount is more than the value


                                       12
<PAGE>

so determined,  a valuation  allowance is established,  or a portion of the loan
may be  charged-off,  such that the carrying  amount of the loan does not exceed
the fair value of the  collateral.  During 2009, the Company  charged-off  loans
totaling  $3,886,000,  an increase  of  $2,220,000,  or 133.3%,  over the amount
charged-off  in  2008.  For  2008,  the  Company   charged  off  loans  totaling
$1,666,000,  an  increase of  $1,374,000,  or 471%,  more than the 2007  amount.
Recoveries of charge-offs were not significant in either 2009 or 2008.

         See "Impaired Loans,"  "Potential  Problem Loans,"  "Allowance for Loan
Losses"  and "The  Application  of  Critical  Accounting  Policies"  for further
information and a discussion of the methodology  used and factors  considered by
management in its estimate of the allowance for loan losses.


Other Income

         Other income for 2009 was $2,718,000, an increase of $223,000, or 8.9%,
over the 2008 amount.  Mortgage  brokerage income increased by $152,000 over the
prior year amount due to increased activity. For these lending transactions, the
Bank  contracts  with an  unrelated  financial  institution  to provide  certain
services as the other bank's agent.  The Bank takes the borrower's  application,
obtains the credit report and other supporting  documentation  and forwards them
to the other institution which makes the credit decision and funds any resulting
loan.  During  2009,  gains on the sale of  investment  securities  were $90,000
compared with losses of $3,000 in 2008.

         Other income for 2008  increased by $289,000 over the 2007 amount.  Due
to increased usage, debit card transaction fees increased by $94,000.  The value
of life  insurance  contracts  increased  by  $267,000  over the  2007  amounts.
Decreases were noted in credit life insurance  commissions,  mortgage  brokerage
income  and  other  income.  These  categories  of other  income  have been in a
declining trend. Net losses of $3,000 were incurred on the sales of investments.


Other Expenses

2009 Compared with 2008

         Noninterest   expense  for  2009  totaled   $9,249,000   compared  with
$8,067,000 for 2008. FDIC insurance assessments increased by $523,000,  salaries
and employee  benefits  increased by $394,000,  professional  services  expenses
increased by $99,000,  and expenses  related to foreclosed  assets  increased by
$124,000.

         FDIC  insurance  expenses  increased  because  the FDIC is  required to
maintain its reserves at specified  levels  relative to insured  deposits.  When
those reserve levels are not maintained,  the FDIC must increase the assessments
charged to insured  depository  institutions in order to replenish the reserves.
During 2009, the FDIC increased the amount of its base  assessment and imposed a
special assessment,  both of which produced immediate and substantial  increases
in the amounts of deposit insurance  expense.  In addition,  at the end of 2009,
the FDIC required insured  institutions to prepay an estimate of their insurance
assessments  that would have been  payable for the next three  years.  While not
currently  included in expenses,  the prepaid  assessment  amount eliminated the
Bank's ability to earn interest income on those funds.

         Salaries and employee benefits increased due to normal salary increases
granted from time to time and because additional and some pre-existing personnel
were given additional  responsibilities to provide oversight and loss-mitigation
measures  related to nonaccrual and other problem  loans.  Weakness in the local
economy and the resulting  deterioration  in the Bank's credit  quality  metrics
have  required the Bank's  management  to employ  relatively  more  resources to
manage  loans  and  related  customer  relationships,  including  obtaining  and
analyzing updated financial  information,  visiting and interviewing  customers,
and  interpreting  economic  and other data about  various  aspects of the local
market  areas.  To  offset  some  of the  effects  of  those  efforts,  however,
management has allowed some vacant positions to remain  unfilled,  such that the
number of full-time  equivalent  employees  was reduced to 82 as of December 31,
2009, compared with 91 as of December 31, 2008.

         Expenses for  professional  services and expenses related to foreclosed
assets both increased due to higher levels of such activities. Twenty-five loans
totaling  $6,382,000 were transferred to foreclosed assets during 2009, compared
with $706,000 transferred in 2008.

         Management   expects  expenses  related  to  problem  loan  management,
foreclosed properties, and professional services will continue to be higher than
normal  until there is a  significant  turn-around  in economic  activity at the
local level. Likewise, expenses related to deposit insurance are not expected to
decrease in the foreseeable future.


                                       13
<PAGE>

2008 Compared with 2007

         Noninterest  expense  for  2008  totaled  $8,067,000,  an  increase  of
$935,000,  or 13.1%,  over the amount for 2007.  Salaries and employee  benefits
increased  by  $416,000,  or 10.1%,  over the 2007  amount due to an increase of
$219,000 in salaries and wages,  an increase of $139,000 for employee  insurance
benefits expenses, and a $48,000 increase in deferred compensation expenses. Net
occupancy  and  furniture  and  equipment  expenses  increased by $70,000 due to
increased expenses for real estate taxes,  utilities,  and building depreciation
and maintenance.  Transaction  expenses related to debit card services increased
in 2008 to  $373,000,  or $96,000  more than for 2007 due to higher  transaction
volumes.  Expenses for FDIC deposit insurance in 2008 increased by $151,000 over
the 2007 amount. Other expenses for 2008 were $202,000 more than the 2007 amount
primarily due to an increase of $107,000 in data processing expenses.


Income Taxes

         Income tax expense for 2009 was  $81,000,  a decrease of $172,000  from
the 2008 amount, primarily due to a decrease of $413,000 in income before income
taxes.  The  effective  income tax rates  (income tax expense  divided by income
before income taxes) were 6.9% for 2009,  15.9% for 2008 and 31.0% for 2007. For
2009 and 2008,  income from  tax-exempt  investment  securities  and  nontaxable
increases in the value of life insurance  contracts were  approximately 100% and
76% of income before income taxes, respectively.

         Income tax expense for 2008 fell by  $1,244,000  from the 2007  amount,
due to the $3,233,000 decrease in income before income taxes.


Securities

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

                        Securities Portfolio Composition

<TABLE>
<CAPTION>
                                                                                                            December 31,
                                                                                                            ------------
                                                                                                   2009          2008          2007
                                                                                                   ----          ----          ----
                                                                                                      (Dollars in thousands)
Available-for-sale
   Mortgage-backed securities issued by
<S>                                                                                             <C>           <C>           <C>
       US Government agencies ............................................................      $  1,475      $  1,829      $      -
   Government-sponsored enterprises (GSEs) ...............................................        72,303        63,981        56,545
   Mortgage-backed securities issued by GSEs .............................................        48,362        41,357        22,193
   State, county and municipal ...........................................................        19,570        19,469        20,288
                                                                                                --------      --------      --------
       Total available-for-sale ..........................................................       141,710       126,636        99,026
                                                                                                --------      --------      --------
Held-to-maturity
   Mortgage-backed securities issued by GSEs .............................................         9,024        11,910         5,663
                                                                                                --------      --------      --------
       Total securities ..................................................................      $150,734      $138,546      $104,689
                                                                                                ========      ========      ========
</TABLE>


                                       14
<PAGE>

         The following table presents  maturities and weighted average yields of
securities  at  December  31,  2009.  Yields on  tax-exempt  state,  county  and
municipal obligations have not been computed on a taxable-equivalent basis.

Securities Portfolio Maturities and Yields

<TABLE>
<CAPTION>
                                                                       December 31, 2009
                                                                       -----------------
                                                        After                After
                                                       One Year            Five Years
                                      Within            Through               Through              After
                                     One Year          Five Years            Ten Years           Ten Years             Total
                                     --------          ----------            ---------           ---------             -----
                                 Amount    Yield     Amount    Yield      Amount   Yield      Amount    Yield     Amount     Yield
                                 ------    -----     ------    -----      ------   -----      ------    -----     ------     -----
                                                                      (Dollars in thousands)
<S>                              <C>       <C>      <C>         <C>      <C>        <C>      <C>         <C>     <C>          <C>
Mortgage-backed securities
     issued by US Government
     agencies (1) .............  $     -   0.00%    $      -    0.00%    $ 1,475    4.23%    $      -    0.00%   $   1,475    4.23%
Government-sponsored
     enterprises (GSEs) .......    1,520   3.44%      10,032    2.81%     25,889    3.80%      34,862    3.54%      72,303    3.53%
Mortgage-backed securities
     issued by GSEs (1) .......    2,465   3.44%       3,303    3.83%     16,136    4.11%      35,482    4.53%      57,386    4.32%
State, county and municipal ...      301   4.09%       1,000    3.87%      2,655    4.10%      15,614    4.09%      19,570    4.08%
                                 -------            --------             -------             --------            ---------
        Total .................  $ 4,286   3.49%    $ 14,335    3.12%    $46,155    3.94%    $ 85,958    4.05%   $ 150,734    3.91%
                                 =======            ========             =======             ========            =========
</TABLE>
----------------------------
(1)  Maturity  categories  based  upon  final  stated  maturity  dates.  Average
     maturity  is  substantially  shorter  because  of  the  monthly  return  of
     principal on certain securities.

         Government-sponsored enterprises ("GSEs") are agencies and corporations
established by the U.S.  Government,  including,  among others, the Federal Home
Loan Banks,  Federal National Mortgage  Association,  Federal Home Loan Mortgage
Corporation,   and  Federal  Farm  Credit  Banks.  Securities  issued  by  these
enterprises are not obligations of the U.S. Government and are not backed by the
full faith and credit of the U.S. Government or otherwise guaranteed by the U.S.
Government.  Evidencing the quality of the issuers,  however,  these  securities
generally  are eligible to be used as security  for public  deposits of the U.S.
Treasury,  government agencies and corporations,  and states and other political
subdivisions,  and may used as collateral to secure  borrowings from the Federal
Reserve  Bank's  Discount  Window.  As of December 31, 2009,  securities  with a
carrying value of $59,482,000 were pledged to secure public deposits.

         On an ongoing basis,  management  assigns securities upon purchase into
one of three categories (trading,  available-for-sale or held-to-maturity) based
on intent,  taking into consideration  other factors including  expectations for
changes in market rates of interest, liquidity needs, asset/liability management
strategies, and capital requirements.  The Company has never held securities for
trading purposes.  During 2009, the Company realized net gains of $90,000 on the
sales of securities.  During 2008, the Company  realized net losses of $3,000 on
such sales.  During  2007,  the Company  realized no gains or losses on sales of
investment  securities.  No transfers of  available-for-sale or held-to-maturity
securities to other categories were made in any of the years 2007 through 2009.

         The investment portfolio increased by $12,188,000 in 2009 from the 2008
year-end amount.  The Company invested  significant  amounts in  mortgage-backed
securities issued by GSEs and other GSE securities,  increasing these categories
by  $12,441,000  over the prior  year  amounts.  Yields  associated  with  these
securities  at the time of their  purchase  were  generally  superior  to yields
available for other categories of securities with similar expected lives and the
Company's  management  believed that, because these types of securities are held
worldwide,  there was no more than a remote probability that the U.S. Government
would fail to provide a commitment to repay these obligations.

         The overall yield on investment securities held as of December 31, 2009
was 3.91%,  compared with 4.79% as of December 31, 2008 and 4.44% as of December
31, 2007.

         All  mortgage-backed  securities  held by the  Company in 2009 and 2008
were issued by the Federal Home Loan Mortgage Corporation,  the Federal National
Mortgage Association, or the Government National Mortgage Association.


                                       15
<PAGE>

Loan Portfolio

         Management believes the loan portfolio is adequately diversified. There
are no concentrations of loans in any particular individual,  industry or groups
of  related  individuals  or  industries,  and there are no foreign  loans.  The
Company's loan portfolio is, however,  dependent upon economic and other factors
that  affect  its local  market  area,  and a  substantial  portion  of the loan
portfolio is secured by local real estate.

         The amounts of loans outstanding as of the end of each of the last five
years,  and the  percentage  of each  category to total loans,  are shown in the
following tables according to type of loan:

                           Loan Portfolio Composition

<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                             ------------
                                                                    2009          2008          2007           2006           2005
                                                                    ----          ----          ----           ----           ----
                                                                                        (Dollars in thousands)
Commercial, financial and industrial
<S>                                                             <C>            <C>            <C>            <C>            <C>
     Commercial and industrial ..........................       $ 21,511       $ 21,372       $ 22,042       $ 22,268       $ 20,873
     Purchasing or carrying securities ..................          1,598          1,815          1,823          2,000          2,136
Real estate - construction ..............................         29,439         30,451          2,201          1,982            674
Real estate - mortgage
     1-4 family residential .............................        108,293        109,153        131,944         98,708         72,774
     Multifamily (5 or more) residential ................          2,899             66          2,421          1,900          1,229
     Nonfarm, nonresidential ............................         73,282         73,450         50,833         47,337         46,544
Consumer installment
     Credit card and checking credit ....................          1,643          1,517          1,407          1,334          1,148
     Other ..............................................         28,583         32,589         31,460         27,437         23,940
                                                                --------       --------       --------       --------       --------
                Total loans .............................       $267,248       $270,413       $244,131       $202,966       $169,318
                                                                ========       ========       ========       ========       ========
</TABLE>


                      Percentage Loan Portfolio Composition

<TABLE>
<CAPTION>
                                                                                                December 31,
                                                                                                ------------
                                                                        2009          2008          2007          2006          2005
                                                                        ----          ----          ----          ----          ----
Commercial, financial and industrial
<S>                                                                   <C>           <C>           <C>           <C>           <C>
     Commercial and industrial ...............................          8.0%          7.9%          9.0%         11.0%         12.3%
     Purchasing or carrying securities .......................          0.6%          0.7%          0.8%          1.0%          1.3%
Real estate - construction ...................................         11.0%         11.2%          0.9%          1.0%          0.4%
Real estate - mortgage
     1-4 family residential ..................................         40.5%         40.4%         54.0%         48.6%         43.0%
     Multifamily (5 or more) residential .....................          1.1%          0.0%          1.0%          0.9%          0.7%
     Nonfarm, nonresidential .................................         27.5%         27.2%         20.8%         23.3%         27.5%
Consumer installment
     Credit card and checking credit .........................          0.6%          0.6%          0.6%          0.7%          0.7%
     Other ...................................................         10.7%         12.0%         12.9%         13.5%         14.1%
                                                                      -----         -----         -----         -----         -----
                Total loans ..................................        100.0%        100.0%        100.0%        100.0%        100.0%
                                                                      =====         =====         =====         =====         =====
</TABLE>

         A certain degree of risk taking is inherent in the extension of credit.
Management has established  loan and credit  policies and practices  designed to
control  both the types and amounts of risks  assumed,  and to minimize  losses.
Such policies and practices 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.

         Total loans  decreased  by  $3,165,000,  or 1.2%,  during  2009,  after
growing   $26,282,000,   or  10.8%,  during  2008.  The  decrease  in  2009  was
attributable  primarily to  management's  decision to devote the majority of its
attention and efforts toward increased oversight, loss mitigation and collection


                                       16
<PAGE>

of loans made previously. Overall, there were no large changes in any particular
categories of loans during 2009.  The ratio of total loans to total  deposits at
the end of 2009 was 61.2% compared with 65.0% at December 31, 2008. During 2008,
the  Company  changed the way it  categorizes  loans,  including  the 1-4 family
residential sub-category of the Real estate - mortgage grouping, the Real estate
-  construction  category,  and the  non-farm,  non-residential  loan  category.
Accordingly,  the  categories  shown  for  2008  are not in all  cases  directly
comparable to amounts reported in previous years.

         Commercial  and  industrial   loans   primarily   represent   loans  to
businesses,  and may be made on either a secured  or an  unsecured  basis.  When
taken,   collateral  usually  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 2009,  commercial and industrial  loans  increased by $139,000,  or 0.7%,
compared  with a decrease of $670,000,  or 3.0%,  during 2008.  Loans mainly for
business  and  investment  purposes  that are secured by real  estate  (nonfarm,
nonresidential) decreased by $168,000, or .2%, in 2008 compared with an increase
of $22,617,000,  or 44.5%, in 2008. Commercial lending involves significant risk
because  repayment  usually  depends on the cash flows generated by a borrower's
business, and the debt service capacity of a business can deteriorate because of
downturns in national  and local  economic  conditions.  To control  risk,  more
in-depth  initial and continuing  financial  analysis of a borrower's cash flows
and other financial information is generally required.

         Real estate  construction  loans  generally  consist of  financing  the
construction  of 1-4 family  dwellings  and some  nonfarm,  nonresidential  real
estate. Usually, loan-to-value 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,  excluding  construction loans,
comprised  approximately  69% and 68% of the Company's loan portfolio at the end
of 2009 and 2008, respectively.  Real estate mortgage loans of all types totaled
$184,474,000 at the end of 2009 and $182,669,000 at the end of 2008. Residential
real estate loans consist mainly of first and second  mortgages on single family
homes,  with  some  multifamily  home  loans.  Loan-to-value  ratios  for  these
instruments are generally  limited to 80%. Nonfarm,  nonresidential  real estate
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.  The Company  does not  originate  high-risk  mortgage  loans such as
so-called  option  ARMs,  nor does it  originate  loans with high  loan-to-value
ratios without requiring the purchaser to obtain private mortgage insurance. The
Company also does not originate  loans with fixed monthly  payment  amounts that
are less than the  interest  accrued  on the  loan,  or loans  with low  initial
monthly payments that increase to much higher levels at some future time.

         Real  estate  values  in  the  Company's  market  areas,   particularly
residential real properties,  began to show some signs of weakness  beginning in
the first quarter of 2008 and have  deteriorated  further  since that time.  The
deterioration  in the local real estate market was slow at first and accelerated
during  the  third and  fourth  quarters  of 2008 and  throughout  2009.  Higher
foreclosure rates,  increasing  unemployment and other factors resulted in lower
demand for housing and have driven down property values. The decline in property
values does not directly cause  defaults by borrowers  other than home builders,
but it does reduce the  likelihood  that either the  defaulting  borrower or the
foreclosing  bank will receive enough from the sale of the property to repay the
loan in full.

         National  political and industry  leaders recently have been working to
encourage  private-sector  programs whereby lenders and mortgage servicers would
be able to work with distressed borrowers to prevent a glut of foreclosures.  By
reworking loan terms,  including  eliminating or reducing to a manageable  level
the payment shock that often results when certain adjustable-rate loans "reset,"
it may be possible for borrowers to continue making monthly  payments and remain
in their  homes.  In  addition,  the Federal  Reserve  recently  has  maintained
interest rate at low levels to provide stimulus to the national economy.


Maturity and Interest Sensitivity Distribution of Loans

         The  following  table  sets  forth  the  maturity  distribution  of the
Company's  loans,  by type,  as of  December  31,  2009,  as well as the type of
interest requirement on such loans.

                                       17
<PAGE>

<TABLE>
<CAPTION>
                                                                                        December 31, 2009
                                                                                        -----------------
                                                                     Due in          Due after
                                                                    One Year        One through         Due after
                                                                     or Less         Five Years         Five Years           Total
                                                                     -------         ----------         ----------           -----
                                                                                     (Dollars in thousands)

<S>                                                                <C>                <C>                <C>                <C>
Commercial, financial and industrial ...................           $ 10,398           $ 12,286           $    425           $ 23,109
Real estate - construction .............................             20,121              6,478              2,840             29,439
Real estate - mortgage .................................             37,615             96,071             50,788            184,474
Consumer installment ...................................              8,381             19,522              2,323             30,226
                                                                   --------           --------           --------           --------
                 Total loans ...........................           $ 76,515           $134,357           $ 56,376           $267,248
                                                                   ========           ========           ========           ========

Maturity greater than one year:
Predetermined rate .....................................                                                                    $139,530
                                                                                                                            ========
Variable rate ..........................................                                                                    $ 51,203
                                                                                                                            ========
</TABLE>


Impaired Loans

         Impaired loans are those loans on which,  based on current  information
and  events,  it is  probable  that the  Company  will be unable to collect  all
amounts due  according to the  contractual  terms of the loan  agreement.  Loans
which management has identified as impaired  generally are nonperforming  loans.
Nonperforming loans include nonaccrual loans and loans which are 90 days or more
delinquent as to principal or interest payments.  Other impaired loans are loans
that management has identified as impaired  through the Company's  internal loan
review process based on other  criteria,  including the borrowers'  deteriorated
financial  condition,  lower  collateral  values  associated with loans that are
collateral  dependent,  and other  specific  factors.  The  Company had no loans
accounted for as troubled debt restructurings in the past five years.  Following
is a summary of the Company's impaired loans:

    Impaired Loans

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                          ------------
                                                             2009             2008            2007            2006            2005
                                                             ----             ----            ----            ----            ----
                                                                                    (Dollars in thousands)

<S>                                                         <C>             <C>             <C>             <C>             <C>
Nonaccrual loans ...................................        $13,870         $11,799         $   625         $    50         $   900
Accruing loans 90 days or more past due ............              -               -               -               -               5
Other ..............................................          3,478               -               -               -               -
                                                            -------         -------         -------         -------         -------
             Total .................................        $17,348         $11,799         $   625         $    50         $   905
                                                            =======         =======         =======         =======         =======

Percent of total loans .............................            6.5%            4.4%            0.3%            0.0%            0.5%
</TABLE>

         When an  impaired  loan is 90 days or more past due as to  interest  or
principal or there is serious doubt as to ultimate  collectibility,  the accrual
of interest income is generally  discontinued.  Previously  accrued  interest on
loans placed in a nonaccrual  status is reversed  against  current  income,  and
subsequent interest income is recognized on a cash basis when received. When the
collectibility  of a  significant  amount  of  principal  is in  serious  doubt,
collections  are credited  first to the  remaining  principal  balance on a cost
recovery  basis.  An impaired  nonaccrual loan is not returned to accrual status
unless  principal and interest are current and the borrower has demonstrated the
ability to continue  making  payments as agreed.  The amount of interest  income
that would have been included in income if nonaccrual  loans had been current in
accordance with their terms for 2009 approximated  $781,000.  The amount of such
income for 2008 was  approximately  $821,000 and, for prior years,  such amounts
were  immaterial.  The amount of interest  income on  nonaccrual  loans that was
included in interest  income for 2009 was $72,000,  compared  with  $480,000 for
2008. For prior years, the amounts of such income were not material.

         As of December 31, 2009, nonaccrual loans totaling $12,624,000,  or 91%
of such loans, were secured by real estate.



                                       18
<PAGE>

         As of December 31, 2009, there were no irrevocable  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 that are not included in impaired  loans. 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, 2009  determined  by  management  to be  potential
problem loans was  $7,305,000,  an increase of $395,000  from the  $6,910,000 of
such loans as of December 31, 2008. 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 the dollar amounts
and  percentages  of  potential  problem  loans  secured  by  various  types  of
collateral. The realizable value of the collateral in any given case may be less
than the amount due on the loan.


                                                          December 31, 2009
                                                          -----------------
                                                        Amount             %
                                                        ------             -
                                                        (Dollars in thousands)

              Real estate mortgage ...............     $6,128            83.9%
              Vehicles ...........................        583             8.0%
              Mobile homes .......................         17             0.2%
              Other ..............................        420             5.8%
              Unsecured ..........................        157             2.1%
                                                       ------           -----
                         Total ...................     $7,305           100.0%
                                                       ======           =====

Allowance for Loan Losses

         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.  See "The
Application  of Critical  Accounting  Policies"  for further  discussion  of the
factors and  procedures  used by management in estimating the allowance for loan
losses.













                                       19
<PAGE>

 Summary of Loan Loss Experience

<TABLE>
<CAPTION>
                                                                                        Years Ended December 31,
                                                                                        ------------------------
                                                                         2009         2008        2007          2006          2005
                                                                         ----         ----        ----          ----          ----
                                                                                         (Dollars in thousands)

<S>                                                                    <C>          <C>          <C>          <C>          <C>
Total loans outstanding at end of period ..........................    $267,248     $270,413     $244,131     $202,966     $169,318
Average amount of loans outstanding ...............................     272,330      259,055      224,353      184,032      164,243

Balance of allowance for loan losses - beginning ..................    $  5,475     $  2,574     $  2,242     $  2,266     $  2,240
                                                                       --------     --------     --------     --------     --------
Loans charged off
     Commercial and industrial ....................................         846          652           88           13            -
     Real estate - mortgage .......................................       1,866          667           13            6           61
     Consumer installment .........................................       1,174          347          191          115          242
                                                                       --------     --------     --------     --------     --------
          Total charge-offs .......................................       3,886        1,666          292          134          303
                                                                       --------     --------     --------     --------     --------
Recoveries of loans previously charged off
     Commercial and industrial ....................................           6            5            -            -            -
     Real estate - mortgage .......................................           -            -            -           31           10
     Consumer installment .........................................         102           12           30           14           69
                                                                       --------     --------     --------     --------     --------
          Total recoveries ........................................         108           17           30           45           79
                                                                       --------     --------     --------     --------     --------
Net charge-offs ...................................................       3,778        1,649          262           89          224
                                                                       --------     --------     --------     --------     --------
Additions to allowance charged to expense .........................       4,355        4,550          594           65          250
                                                                       --------     --------     --------     --------     --------
Balance of allowance for loan losses - ending .....................    $  6,052     $  5,475     $  2,574     $  2,242     $  2,266
                                                                       ========     ========     ========     ========     ========

Ratios
     Net charge-offs to average loans .............................        1.39%        0.64%        0.12%        0.05%        0.14%
     Net charge-offs to loans at end of period ....................        1.41%        0.61%        0.11%        0.04%        0.13%
     Allowance for loan losses to average loans ...................        2.22%        2.11%        1.15%        1.22%        1.38%
     Allowance for loan losses to loans at end of period ..........        2.26%        2.02%        1.05%        1.10%        1.34%
     Net charge-offs to allowance for loan losses .................       62.43%       30.12%       10.18%        3.97%        9.89%
     Net charge-offs to provision for loan losses .................       86.75%       36.24%       44.11%      136.92%       89.60%
</TABLE>

Deposits

         The average amounts and percentage  composition of deposits held by the
Company for the years ended  December 31, 2009,  2008 and 2007,  are  summarized
below:

                                Average Deposits

<TABLE>
<CAPTION>
                                                                                Years Ended December 31,
                                                                                ------------------------
                                                          2009                       2008                       2007
                                                          ----                       ----                       ----
                                                         Amount           %         Amount          %          Amount           %
                                                         ------         -----       ------        ------       ------        -------
                                                                                 (Dollars in thousands)

<S>                                                    <C>             <C>        <C>             <C>        <C>             <C>
Noninterest bearing demand .....................       $ 44,243         10.4%     $ 41,173         10.7%     $ 40,099         12.0%
Interest bearing transaction accounts ..........         54,202         12.8%       57,416         15.0%       57,117         17.1%
Savings ........................................         21,093          5.0%       25,181          6.6%       25,042          7.5%
Time deposits $100M and over ...................        131,115         31.0%      111,780         29.1%       85,815         25.6%
Other time deposits ............................        173,047         40.8%      148,295         38.6%      126,588         37.8%
                                                       --------        -----      --------        -----      --------        -----
             Total deposits .....................      $423,700        100.0%     $383,845        100.0%     $334,661        100.0%
                                                       ========        =====      ========        =====      ========        =====
</TABLE>


         As of December 31, 2009,  there were  $128,914,000  in time deposits of
$100,000  or  more.  Approximately   $30,398,000  mature  within  three  months,
$15,414,000  mature over three through six months,  $50,154,000  mature over six


                                       20
<PAGE>

through twelve months and $32,948,000  mature after one year. The amount of such
deposits maturing after one year increased  significantly  from the amount as of
December  31, 2008  because  the rates paid for  longer-term  deposits  are more
attractive than are the rates  currently  offered for short-term  deposits.  The
FDIC's  deposit  insurance  coverage limit was increased to $250,000 per account
owner for all deposit  accounts at all insured  financial  institutions  through
December 31, 2013. On January 1, 2014, deposit insurance coverage will revert to
$100,000  per  depositor,  except for  certain  retirement  accounts  which will
continue to be insured up to $250,000 per depositor.  The Bank  participated  in
the FDIC's  initial  Temporary  Liquidity  Guarantee  Program  (the  "TLGP") for
deposits  which  provided an unlimited  amount of deposit  insurance for certain
noninterest-bearing  transaction accounts through December 31, 2009. Even though
the Bank  decided not to  participate  in the optional  extended  period for the
TLGP, the temporary maximum regular FDIC insurance of $250,000 remains in effect
for all of the Bank's deposit accounts.  As of December 31, 2009,  approximately
$24,365,000 of time deposits of $100,000 or more  represented  deposits of local
governmental  entities  compared  with  $33,380,000  at the end of 2008. It is a
common  industry  practice not to consider  time deposits of $100,000 or more as
core deposits since their retention can be influenced  heavily by rates offered.
Therefore,  such deposits have the  characteristics  of  shorter-term  purchased
funds.  Certificates  of deposit  $100,000  and over  require  that the  Company
achieve and maintain an  appropriate  matching of maturity  distributions  and a
diversification  of sources to achieve an  appropriate  level of liquidity.  The
Company has never purchased brokered deposits.


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 common share divided by net income
per common share), and equity to assets ratio (average equity divided by average
total assets) for each period indicated.

<TABLE>
<CAPTION>
                                                  Years Ended December 31,
                                                  ------------------------
                                            2009            2008           2007
                                            ----            ----           ----

<S>                                         <C>            <C>            <C>
            Return on assets                0.23%          0.31%          0.88%
            Return on equity                2.64%          3.38%          9.46%
            Dividend payout ratio           0.00%          0.00%          0.00%
            Equity to assets ratio          8.68%          9.12%          9.31%
</TABLE>

Liquidity

         Liquidity is the ability to meet current and future obligations through
liquidation  or maturity of existing  assets or the  acquisition  of  additional
liabilities.  Adequate  liquidity  is  necessary  to meet  the  requirements  of
customers for loans and deposit  withdrawals  in the most timely and  economical
manner.  Some liquidity is ensured by maintaining  assets which are  convertible
immediately  into cash at minimal cost (amounts due from banks and federal funds
sold).  However,  the most  manageable  sources of  liquidity  are  composed  of
liabilities, with the primary focus of liquidity management being on the ability
to obtain  deposits  within the  Company's  market areas.  Core deposits  (total
deposits less time  deposits of $100,000 and over)  provide a relatively  stable
funding base,  and the average of these  deposits  represented  61.0% of average
total assets during 2009  compared  with 62.6% during 2008.  Deposits of several
local  governmental  entities  comprised  approximately  12%  and  14% of  total
deposits at the end of 2009 and 2008,  respectively.  Because of the potentially
volatile  nature of this funding  source,  the Bank maintains  membership in the
Federal  Home Loan Bank of Atlanta  (the  "FHLB") in order to gain access to its
credit programs.  As of December 31, 2009, the Bank had borrowed $8,000,000 from
the FHLB and was  eligible  to  borrow  up to an  additional  $15,147,000.  Such
borrowings may be secured by a lien on its investment in FHLB stock,  the Bank's
unencumbered  holdings  of  securities  issued by the FHLB,  and  certain  first
mortgage  residential  loans  held.  The  amount  of  eligible  mortgage-related
collateral instruments remaining available as of December 31, 2009 to secure any
additional FHLB borrowings totaled approximately  $8,722,000.  The amount of the
Bank's unencumbered  investment  securities issued by the FHLB was approximately
$10,385,000 as of December 31, 2009. The Bank has no available  short-term lines
of credit to purchase federal funds from unrelated correspondent institutions.

         The Bank has been approved by the Federal  Reserve Bank ("FRB") to have
immediate  access to the FRB's Discount  Window.  Access to this facility allows
the Bank to obtain funds on short notice by pledging eligible  securities to the
FRB to secure  amounts  borrowed.  The Bank obtained  access to this facility to
diversify and strengthen the financial position of available funding sources.

         Asset liquidity is provided from several sources, including amounts due
from banks,  securities  available-for-sale  and funds  available  from maturing
loans and paydowns of mortgage-backed securities.

                                       21
<PAGE>

         The  Company's  ability  to meet  its  cash  obligations  or to pay any
possible  future cash dividends to  shareholders  is dependent  primarily on the
successful  operation  of the  subsidiary  bank  and  its  ability  to pay  cash
dividends  to the  Company.  Any of the Bank's cash  dividends  in excess of the
amount of the subsidiary's current year-to-date earnings ($1,101,000 at December
31, 2009) are subject to the prior approval of the South  Carolina  Commissioner
of Banking.  In  addition,  dividends  paid by the Bank to the Company  would be
prohibited if the effect  thereof  would cause the Bank's  capital to be reduced
below applicable  minimum regulatory  requirements.  In 2009, 2008 and 2007, the
Company  received no cash dividends from its banking  subsidiary.  Under Federal
Reserve Board regulations, the amounts of loans or advances from the Bank to the
Company are also restricted.

         Management  believes  that, by offering  attractive  interest rates for
deposits and by providing outstanding customer service, the Company and the Bank
will  continue  to be able to obtain  sufficient  funds to meet their  operating
needs in the local marketplace.


Capital Resources

         Shareholders' equity increased by $4,890,000 and $2,017,000 during 2009
and 2008,  respectively.  During 2009, net income increased shareholders' equity
by  $1,101,000,  exercises  of stock  options  added  $486,000,  the issuance of
preferred  stock  provided an increase of $3,125,000  and  repurchases of common
stock decreased  shareholders'  equity by $80,000.  Other comprehensive  income,
consisting   of  the  change  in   unrealized   holding   gains  and  losses  on
available-for-sale  securities  adjusted for the effects of realized losses, net
of deferred tax  effects,  increased  shareholders'  equity by $261,000 and cash
paid in lieu of  issuing  fractional  shares  in  conjunction  with the 5% stock
dividend declared in 2009 resulted in a $3,000 decrease. During 2008, net income
increased  shareholders'  equity by $1,342,000 and the exercise of stock options
and related income tax benefits resulted in increases totaling  $431,000.  Other
comprehensive  income or loss,  consisting of the change in  unrealized  holding
gains and losses on  available-for-sale  securities  adjusted for the effects of
realized losses, net of deferred tax effects,  increased shareholders' equity by
$247,000. Approximately $3,000 was payable in lieu of the issuance of fractional
shares in conjunction with the 5% stock dividend declared in 2008.

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

         Quantitative  measures  established  by  regulation  to ensure  capital
adequacy  require both the Company and the Bank to maintain  minimum amounts and
ratios, as set forth in the table below, of Total and Tier 1 Capital, as defined
in the regulation,  to risk weighted assets, as defined,  and of Tier 1 Capital,
as defined, to average assets, as defined.  Management believes,  as of December
31, 2009 and 2008,  that the Company and the Bank exceeded all capital  adequacy
minimum requirements to which they were subject.

         To be categorized as well capitalized as defined in the Federal Deposit
Insurance  Act,  the  Bank  must  maintain  minimum  Total  risk-based,  Tier  1
risk-based,  and Tier 1 leverage ratios as set forth in the table below. Federal
regulators may also categorize the Bank as less than well  capitalized  based on
subjective criteria.  Bank holding companies with higher levels of risk, or that
are experiencing or anticipating significant growth, are expected by the Federal
Reserve to maintain capital well above the minimums.  There are no conditions or
events that management believes would cause the Company's or the Bank's category
to be other than that resulting from meeting the minimum ratio requirements.


                                       22
<PAGE>

<TABLE>
<CAPTION>
                                                                                       Minimum for               Minimum to be
                                                                  Actual             Capital Adequacy          Well Capitalized
                                                                  ------             ----------------          ----------------
                                                           Amount       Ratio       Amount       Ratio        Amount       Ratio
                                                           -------      -----      --------      -----       --------      -----
December 31, 2009                                                                 (Dollars in thousands)
     The Company
<S>                                                        <C>            <C>       <C>              <C>      <C>            <C>
        Total Capital to risk weighted assets .........    $ 48,127       15.5%     $ 24,769         8.0%           NA          NA
        Tier 1 Capital to risk weighted assets ........    $ 44,230       14.3%     $ 12,385         4.0%           NA          NA
        Tier 1 Capital to average assets (leverage) ...    $ 44,230        9.3%     $ 18,991         4.0%           NA          NA
     Community First Bank
        Total Capital to risk weighted assets .........    $ 42,709       14.0%     $ 24,461         8.0%     $ 30,577       10.0%
        Tier 1 Capital to risk weighted assets ........    $ 38,859       12.7%     $ 12,231         4.0%     $ 18,346        6.0%
        Tier 1 Capital to average assets (leverage) ...    $ 38,859        8.2%     $ 18,985         4.0%     $ 23,732        5.0%

December 31, 2008
     The Company
        Total Capital to risk weighted assets .........    $ 43,470       14.1%     $ 24,633         8.0%           NA          NA
        Tier 1 Capital to risk weighted assets ........    $ 39,601       12.9%     $ 12,317         4.0%           NA          NA
        Tier 1 Capital to average assets (leverage) ...    $ 39,601        8.8%     $ 18,010         4.0%           NA          NA
     Community First Bank
        Total Capital to risk weighted assets .........    $ 41,513       13.5%     $ 24,622         8.0%     $ 30,777       10.0%
        Tier 1 Capital to risk weighted assets ........    $ 37,646       12.2%     $ 12,311         4.0%     $ 18,466        6.0%
        Tier 1 Capital to average assets (leverage) ...    $ 37,646        8.4%     $ 18,004         4.0%     $ 22,505        5.0%
</TABLE>

Inflation

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

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


Off-Balance   Sheet   Arrangements,   Contractual   Obligations  and  Contingent
Liabilities and Commitments

         The  Company  presently  engages  in  only  limited  off-balance  sheet
arrangements.   Such   arrangements   are   defined  as   potentially   material
transactions,  agreements,  or other contractual  arrangements which the Company
has  entered  into that  involve  an entity  that is not  consolidated  into its
financial statements and, under which the Company,  whether or not it is a party
to the arrangement, has, or in the future may have:

     o    any  obligation  under a  direct  or  indirect  guarantee  or  similar
          arrangement;
     o    a  retained  or  contingent  interest  in  assets  transferred  to  an
          unconsolidated entity or similar arrangement;
     o    derivatives,  to the extent  that the fair value  thereof is not fully
          reflected as a liability or asset in the financial statements; or
     o    any  obligation  or  liability,  including a contingent  obligation or
          liability,  to the  extent  that  it is  not  fully  reflected  in the
          financial statements (excluding the footnotes thereto).

         The Company's  off-balance-sheet  arrangements  presently  include only
commitments  to extend credit and standby  letters of credit.  Such  instruments
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 these  instruments is represented  by the  contractual,  or 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 letters of credit.  The following table sets out the contractual
amounts of those arrangements:

                                       23
<PAGE>

                                                            December 31,
                                                            ------------
                                                       2009               2008
                                                       ----               ----
                                                      (Dollars in thousands)

            Loan commitments .....................   $ 28,527          $ 30,486
            Standby letters of credit ............        873               915


         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.

         The Bank obtained the required  regulatory approval to purchase land on
which it plans to construct a new banking office building in Powdersville, South
Carolina.  The Bank has not yet  applied  for  regulatory  approval to open that
office and no budgets or timetables for construction have yet been made.

         As described under  "Liquidity,"  management  believes that its various
sources of liquidity  provide the  resources  necessary for the Bank to fund the
loan  commitments  and to perform under standby  letters of credit,  if the need
arises. Neither the Company nor the Bank are involved in other off-balance sheet
contractual  relationships or transactions  that could result in liquidity needs
or other commitments or significantly impact earnings.


Short-Term Borrowings

         The Company did not have any material short-term borrowings outstanding
at any time during 2009.


The Application of Critical Accounting Policies

         The  consolidated  financial  statements are based on the selection and
application of accounting  principles generally accepted in the United States of
America, which require management to make estimates and assumptions about future
events  that  affect  the  amounts  reported  in the  financial  statements  and
accompanying  notes.  Future events and their effects cannot be determined  with
absolute  certainty.  Therefore,  the  determination  of estimates  requires the
exercise of judgment.  Actual results could differ from those estimates, and any
such  differences  may be  material  to  the  financial  statements.  Management
believes that the provision and allowance for loan losses  discussed  below is a
critical  accounting  policy  that may involve a higher  degree of judgment  and
complexity in its application and represents the critical accounting policy used
in  the  preparation  of  the  Company's  financial  statements.   If  different
assumptions  or  conditions  were to prevail,  the results  could be  materially
different from the reported results.

         Management has discussed the selection,  development  and disclosure of
this critical accounting policy's methodology and assumptions with the Company's
audit  committee to enhance the  committee's  awareness of those  factors and to
enable the committee to assess the  appropriateness  of management's  procedures
and conclusions, and its disclosures about this accounting policy.

Provision and Allowance for Loan Losses

         The  Company is required to  estimate  the  collectibility  of its loan
portfolio as of each accounting period end and, based on such estimates, provide
for an allowance for loan losses.  The allowance for loan losses is increased by
the provision for loan losses charged to expense, and any recoveries received on
loans previously charged off. The allowance is decreased by deducting the amount
of uncollectible loans charged off.

         A  considerable  amount of  judgment is required in order to compute an
estimate of the amount of the allowance for loan losses.  Management's judgments
must be applied in  assessing  the  current  creditworthiness  of the  Company's


                                       24
<PAGE>

borrowers and in estimating probable losses incurred in the loan portfolio based
on factors  discussed below and their potential effects based on currently known
facts and  circumstances.  Changes in the  estimated  allowance  for loan losses
arising as new events occur or more information is obtained are accounted for as
changes in accounting  estimates in the accounting period in which such a change
occurs.

         The  allowance  for loan losses is composed  of  specific,  general and
unallocated  amounts.  Specific  allowance  amounts are provided for  individual
impaired loans based on  management's  evaluation of the Company's loss exposure
taking into account the current payment status,  underlying collateral and other
known information about a particular borrower's circumstances.  Typically, these
impaired  loans are  assigned  internal  risk  grades of  management  attention,
special  mention,  substandard  or  doubtful.  The  findings of internal  credit
reviews and results from external  audits and regulatory  examinations  are also
considered.  General  amounts are provided for all other loans,  excluding those
for  which  specific  amounts  were  determined,   by  applying  estimated  loss
percentages to the portfolio  categorized  using risk grades.  These percentages
are  based  on  management's  current  evaluation  with  consideration  given to
historical loss experience. The unallocated portion of the allowance consists of
an amount  believed to be appropriate to provide for the elements of imprecision
and  estimation  risk  inherent  in the  specific  and  general  amounts  and is
determined based on management's  evaluation of various  conditions that are not
directly  measured by the other  components of the  allowance.  This  evaluation
includes general national and local economic and business  conditions  affecting
key lending  market  areas,  credit  quality  trends,  collateral  values,  loan
volumes,  portfolio  seasoning,  and any identified credit  concentrations.  The
findings  of  internal  credit  reviews and  results  from  external  audits and
regulatory examinations are also considered.

         The Company  utilizes its risk grading system for all loans held in the
portfolio.  This system involves the Company's lending officers assigning a risk
grade, on a loan-by-loan  basis,  considering  information  about the borrower's
capacity to repay,  collateral,  payment history, and other known factors.  Risk
grades  assigned  are  updated  monthly for any known  changes in  circumstances
affecting  the borrower or the loan.  The risk grading  system is monitored on a
continuing  basis by  management  and  validated  by the  Company's  independent
external credit review firm.

         During  2009,  higher  foreclosures  rates  resulted in the transfer of
approximately  $6,382,000 of loans to foreclosed assets.  Additionally,  because
the  performance  of some other loans  deteriorated,  the amounts of  nonaccrual
loans as of December 31, 2009 were $2,071,000 more than the amount of such loans
as of  December  31,  2008.  Because  the  amounts  of problem  loans  increased
significantly   during  2009  and  2008,  and  because   individual   borrowers'
circumstances  were  increasingly  sensitive  to events  beyond  their  control,
management  revamped its process for  estimating  the allowance for loan losses,
including providing more frequent independent  loan-by-loan analysis of impaired
loans and a more robust procedure for analyzing and estimating losses associated
with other loans.  Management's response to the deteriorated  performance of the
Company's  loans  has  led it to  devote  significantly  more  resources  to the
processes of problem loan identification,  management and work-out.  The current
national  and local  economic  environments,  including  high  unemployment  and
depressed  real  estate  values,  are  expected  to  continue  to  result in the
occurrence  of loan  losses  and the need for  abnormally  high  provisions  and
allowances  for  loan  losses  for the  near  term.  However,  because  the Bank
historically  has been  relatively  conservative  in its  lending  policies  and
practices,  management believes that the Company is well-positioned to withstand
these  problems  absent  further  significant  economic   deterioration  in  the
Company's  markets.  Generally accepted  accounting  principles require that the
Company's  allowance  for loan losses  reflect  only losses  incurred as of each
balance sheet date. Consequently, as new information is obtained, it is probable
that additional provisions for loan losses will be required.

         During 2008,  an  environment  of economic  slowdown  and  uncertainty,
rising unemployment,  increasing  inventories of unsold housing units (including
new construction, owner-occupied resale properties, and properties foreclosed or
otherwise  acquired by lenders),  falling real estate values,  a declining stock
market,  and other  negative  factors  led to  higher  levels  of  impaired  and
potential  problem loans.  Problems which previously were confined in large part
to other areas of the country became local problems.  Management  estimates that
local real estate  values  decreased by at least 25% during 2008.  Consequently,
some loans that were  appropriately  margined at inception  were no longer fully
secured.  In addition,  completed  residential units required a longer marketing
period,  fewer  borrowers  qualified for loans due to tightening of underwriting
standards,  and many of those who might have been able to find  financing  chose
not to  purchase  a new  home.  Speculative  activity  in real  properties  also
decreased significantly.

         During the fourth  quarter of 2008,  approximately  $8,494,000 of loans
were transferred to nonaccrual  status. Of those loans,  $5,949,000  represented
loans secured by owner-occupied  residential properties,  $1,755,000 represented
loans for  construction and land  development,  and $643,000  represented  loans
secured by commercial real estate. Of the remaining amount,  $80,000 represented
a few  small-balance  consumer  loans,  and the  remaining  $67,000 was composed
primarily  of loans for  commercial  vehicles.  As of the end of 2008,  impaired
loans  increased  to  $11,799,000  compared  with  $625,000  one  year  earlier,

                                       25
<PAGE>

representing an increase of $11,174,000. Potential problem loans were $6,910,000
as of the end of  2008  compared  with  $3,088,000  as of the  end of  2007  and
$3,176,000  at the end of 2006.  The values of real  estate and  vehicles  which
serve as collateral  for many of the loans  recognized as impaired and potential
problem loans in prior years helped keep charge-offs  relatively low considering
the total credit exposures present in those loans. However, circumstances at the
end of 2008 indicate that, in most cases, the values of such items may have been
significantly reduced.

         The provision for loan losses  charged to expense  increased in 2008 to
$4,550,000  compared with  $594,000 for 2007 and $65,000 in 2006.  The allowance
for loan losses at the end of 2008 was  $5,475,000,  an  increase of  $2,901,000
from the allowance of $2,574,000 as of the end of 2007.

         A significant  increase in the amount of loans outstanding during 2007,
higher amounts of net charge-offs,  heightened  uncertainty  about the degree of
protection available to the Bank from residential properties taken as collateral
due to the  negative  pressure on property  values  stemming  from the  mortgage
lending crisis, higher levels of nonaccrual loans and only a slight reduction in
potential  problem  loans were factors  leading to the increase in the provision
for loan losses in 2007.  Although  the Company uses  conservative  underwriting
standards,  including  adhering to prudent  loan-to-value  ratios, the values of
properties taken as collateral  generally are determined by appraisal  processes
that rely, in part, on other recent local transactions as an indicator of value.

         Higher  levels of loans  collateralized  by  mortgages  on real estate,
lower amounts of  nonperforming  loans,  and a significantly  lower incidence in
loan  charge-offs in 2006  contributed to the decrease in the 2006 provision for
loan losses as compared  with 2005.  During this period of time,  the  Company's
loan portfolio  increasingly  was  collateralized  by residential and commercial
real estate.  Such  collateral,  combined with other  conservative  underwriting
standards,  was  believed  to offer  the  Company  substantial  protection  from
ultimately incurring losses in the event that foreclosure and liquidation of the
collateral occurred, though there could be no assurances to that effect.

         The $250,000  provision for loan losses in 2005 resulted primarily from
increases  in  potential  problem  loans,  the  $11,543,000  growth  of the loan
portfolio,  and was  influenced by lower net  charge-offs  that reflected both a
reduced level of charge-offs and higher recoveries of amounts previously charged
against the allowance.  Net  charge-offs to average loans in 2005 was,  however,
substantially lower than the trailing four-year average of that measure.

         Management has established  loan and credit policies and practices that
are designed to control credit risks as a part of the loan underwriting process.
These policies and practices include, for example, requirements for minimum loan
to collateral value ratios,  real estate appraisal  requirements,  and obtaining
credit and  financial  information  on borrowers.  However,  if the capacity for
borrowers to repay and/or collateral values should deteriorate subsequent to the
underwriting  process,  the estimate of the  provision  and  allowance  for loan
losses might increase, thereby decreasing net income and shareholders' equity. A
significant  or prolonged  downturn in national and local  economic and business
conditions,  such as the one that has continued  over the past two years,  could
further erode the borrowers'  capacity to repay these loans as well as the value
of the underlying  collateral.  This scenario  would be likely to  substantially
increase  the  level  of  impaired  or  non-performing   loans  and  non-earning
foreclosed  assets and increase  overall  credit risk by shrinking the margin of
collateral values as compared with loans outstanding.  Another factor that could
adversely  affect  borrowers'  ability to make payments in accordance  with loan
terms is the potential for continued  increases in rates charged for loans.  The
Company  has a  significant  amount  of  variable  rate  loans  outstanding.  In
addition,  some loans are refinanced at maturity rather than being paid out in a
lump sum. If interest  rates were to  increase  sharply in a short time  period,
some  loan  customers  might  not be able to afford  payments  on loans  made or
repriced at the higher  resulting  interest rates, nor would they necessarily be
able to obtain more favorable terms elsewhere. This could also cause an increase
in the amounts of impaired or non-performing assets and other credit risks.


Impact of Recent Accounting Changes

Effective for periods on or after  September  15, 2009,  references to generally
accepted  accounting  principals  ("GAAP")  issued by the  Financial  Accounting
Standards Board ("FASB") in these footnotes are to the FASB Accounting Standards
Codification, which is sometimes referred to as the "Codification" or "ASC." The
Codification  does not change how the Company  accounts for its  transactions or
the nature of related  disclosures  made.  However,  when referring to GAAP, the
Company  refers to topics in the ASC.  References  to GAAP have been  updated to
reflect the location of the guidance in the Codification. Other acronyms used in
the following  discussion  include  "SFAS" or Statement of Financial  Accounting
Standards,  "FAS" or Financial Accounting Standard (a variant of SFAS), "FSP" or
FASB  Staff  Position,  "EITF" or  Emerging  Issues  Task  Force",  and "APB" or
Accounting  Principles Board (an authoritative  body that promulgated GAAP prior
to the establishment of the FASB).

The  Transfers  and  Servicing  Topic  was  updated   (formerly  SFAS  No.  166,
"Accounting  for Transfers of Financial  Assets--an  amendment of FASB Statement


                                       26
<PAGE>

No. 140") to remove the concept of a qualifying  special-purpose entity from the
Topic and removes the exception from applying the Consolidations Topic (formerly
FASB Interpretation No. 46R). The objective in issuing this update is to improve
the  relevance,   representational   faithfulness,   and  comparability  of  the
information that a reporting entity provides in its financial statements about a
transfer  of  financial  assets;  the  effects  of a transfer  on its  financial
position,  financial performance,  and cash flows; and a transferor's continuing
involvement,  if any,  in  transferred  financial  assets.  This  update must be
applied as of the beginning of each reporting  entity's  first annual  reporting
period that begins  after  November 15, 2009,  for interim  periods  within that
first  annual  reporting  period and for  interim and annual  reporting  periods
thereafter.  The Company has no  interests in any  entities  that were  formerly
qualifying  special-purpose entities.  Therefore, the impact of adoption was not
material.

The Consolidations Topic was amended (formerly SFAS No. 167, "Amendments to FASB
Interpretation  No.  46(R)")  to  improve  financial  reporting  by  enterprises
involved  with  variable  interest  entities.  The  amendment  addresses (1) the
effects on certain  provisions of the Topic as they relate to the elimination of
the  qualifying  special-purpose  entity  concept in the Transfers and Servicing
Topic  and (2)  constituent  concerns  about  the  application  of  certain  key
provisions of the Topic  including those in which the accounting and disclosures
under the Topic do not always  provide  timely and useful  information  about an
enterprise's  involvement  in a variable  interest  entity.  This  amendment  is
effective as of the beginning of each reporting  entity's first annual reporting
period that begins  after  November 15, 2009,  for interim  periods  within that
first annual  reporting  period,  and for interim and annual  reporting  periods
thereafter.  The Company has no  interests  in any  variable-interest  entities.
Therefore, the impact of adoption was not material.

The Fair Value  Measurements and Disclosure - Overall Topic has been amended for
interim  and  annual  periods  beginning  after  December  15,  2009 to  require
reporting entities to disclose  separately the amounts of significant  transfers
in and out of Level 1 and Level 2 fair value  measurements  and the  reasons for
the transfers. In addition, entities will be required to provide disclosures for
each class of assets and  liabilities,  which will  increase the level of detail
beyond that of the  individual  balance  sheet line item and, for measures  that
fall  within  either  Level 2 or Level 3,  entities  will be required to provide
disclosures about the valuation techniques and inputs used to measure fair value
for both recurring and nonrecurring fair value  measurement.  Management has not
yet  determined  how it will  identify  the  appropriate  classes  of assets and
liabilities.  In addition,  effective for interim and annual  periods  beginning
after  December  15, 2010,  entities  will be required by this update to present
separately  information  about  purchases,  sales,  issuances and settlements of
items in the  reconciliation  for fair value  measurements using Level 3 inputs.
The new  requirements  are expected to provide a greater level of  disaggregated
information and more robust  disclosures  about valuation  techniques and inputs
for fair  value  measurements.  The  effect of  adopting  these  new  disclosure
requirements  is not expected to result in any material  change in the Company's
financial condition or its results of operations.


                                       27
<PAGE>


Management's Report on Internal Control Over Financial Reporting

Management  of the  Company is  responsible  for  establishing  and  maintaining
adequate internal control over financial  reporting as defined in Rule 13a-15(f)
of the  Securities  Exchange Act of 1934 as amended (the  "Exchange  Act").  The
Company's  internal  control over financial  reporting is a process  designed to
provide reasonable  assurance  regarding the reliability of financial  reporting
and the preparation of financial  statements for external purposes in accordance
with accounting  principles  generally accepted in the United States of America.
The Company's internal control over financial  reporting includes those policies
and  procedures  that  (1)  pertain  to the  maintenance  of  records,  that  in
reasonable   detail,   accurately  and  fairly  reflect  the   transactions  and
dispositions  of the Company's  assets;  (2) provide  reasonable  assurance that
transactions  are recorded as necessary to permit the  preparation  of financial
statements in accordance with generally accepted accounting  principles and that
receipts and  expenditures  of the Company are made only in accordance  with the
authorizations  of the  Company's  management  and  directors;  and (3)  provide
reasonable  assurance  regarding  prevention or timely detection of unauthorized
acquisition,  use or  disposition  of the  Company's  assets  that  could have a
material impact on the financial statements.

Under the supervision and with the  participation  of management,  including the
Chief  Executive  Officer and Chief  Financial  Officer of the Bank, the Company
conducted an evaluation of the  effectiveness of internal control over financial
reporting as of December 31, 2009 based on the framework in "Internal  Control -
Integrated Framework"  promulgated by the Committee of Sponsoring  Organizations
of  the  Treadway  Commission  and  the  interpretive  guidance  issued  by  the
Securities  and  Exchange  Commission  in Release  No.  34-55929.  Based on this
evaluation,  management  concluded  that the  Company's  internal  control  over
financial reporting was effective as of December 31, 2009.

This  annual  report  does not include an  attestation  report of the  Company's
independent  registered public  accounting firm regarding  internal control over
financial  reporting because  management's report was not subject to attestation
by the Company's  registered  public accounting firm pursuant to temporary rules
of the  Securities  and Exchange  Commission  that permit the Company to provide
only management's report in this annual report.



                                       28
<PAGE>

Report of Independent Registered Public Accounting Firm




The Shareholders and Board of Directors
    of Community First Bancorporation

     We have audited the accompanying  consolidated  balance sheets of Community
     First  Bancorporation  and subsidiaries  (the "Company") as of December 31,
     2009 and 2008, 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, 2009. These consolidated financial statements are
     the  responsibility of the Company's  management.  Our responsibility is to
     express an opinion on these consolidated  financial statements based on our
     audits.

     We  conducted  our audits in  accordance  with the  standards of the Public
     Company Accounting Oversight Board (United States). Those standards require
     that we plan and perform  the audit to obtain  reasonable  assurance  about
     whether  the  consolidated   financial  statements  are  free  of  material
     misstatement.  The Company is not required to have,  nor were we engaged to
     perform,  an audit of its internal  control over financial  reporting.  Our
     audit included  consideration of internal control over financial  reporting
     as a basis for  designing  audit  procedures  that are  appropriate  in the
     circumstances,  but not for the  purpose  of  expressing  an opinion on the
     effectiveness of the company's  internal control over financial  reporting.
     Accordingly,  we express no such opinion. An audit also includes examining,
     on a test basis,  evidence  supporting  the amounts and  disclosures in the
     financial   statements,   assessing  the  accounting  principles  used  and
     significant estimates made by management, as well as evaluating the overall
     financial  statement  presentation.  We believe  that our audits  provide a
     reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
     present  fairly,  in all  material  respects,  the  consolidated  financial
     position of Community First  Bancorporation and subsidiaries as of December
     31, 2009 and 2008,  and the  consolidated  results of their  operations and
     their  consolidated  cash  flows for each of the three  years in the period
     ended December 31, 2009, in conformity with accounting principles generally
     accepted in the United States of America.




J. W. Hunt and Company, LLP
Columbia, South Carolina
March 30, 2010


                                       29
<PAGE>

Consolidated Balance Sheets
Community First Bancorporation and Subsidiaries

<TABLE>
<CAPTION>
                                                                                                             December 31,
                                                                                                             ------------
                                                                                                       2009                  2008
                                                                                                       ----                  ----
Assets
<S>                                                                                              <C>                  <C>
     Cash and due from banks (Note B) ....................................................       $   1,462,535        $   9,204,306
     Interest bearing deposits due from banks ............................................          46,020,551           12,969,193
     Federal funds sold ..................................................................                   -           18,793,000
                                                                                                 -------------        -------------
         Cash and cash equivalents .......................................................          47,483,086           40,966,499
     Securities available-for-sale (Note C) ..............................................         141,710,113          126,635,534
     Securities held-to-maturity (fair value of $9,476,399 for 2009 and
         $12,238,445 for 2008) (Note C) ..................................................           9,023,999           11,910,268
     Federal Home Loan Bank stock, at cost ...............................................           1,306,500            1,219,600
     Loans (Note D) ......................................................................         267,248,148          270,413,317
         Allowance for loan losses .......................................................          (6,051,851)          (5,475,294)
                                                                                                 -------------        -------------
            Loans - net ..................................................................         261,196,297          264,938,023
     Premises and equipment - net (Note E) ...............................................           8,469,682            8,655,253
     Accrued interest receivable .........................................................           2,424,113            2,775,788
     Bank-owned life insurance ...........................................................           9,289,415            8,482,802
     Other assets ........................................................................          11,994,324            3,888,880
                                                                                                 -------------        -------------

            Total assets .................................................................       $ 492,897,529        $ 469,472,647
                                                                                                 =============        =============

Liabilities
     Deposits (Note F)
         Noninterest bearing .............................................................       $  47,066,775        $  41,961,968
         Interest bearing ................................................................         389,580,956          374,153,215
                                                                                                 -------------        -------------
            Total deposits ...............................................................         436,647,731          416,115,183
     Accrued interest payable ............................................................           2,043,563            3,044,981
     Long-term debt (Note H) .............................................................           8,000,000            9,500,000
     Other liabilities ...................................................................           1,387,924              884,860
                                                                                                 -------------        -------------
            Total liabilities ............................................................         448,079,218          429,545,024
                                                                                                 -------------        -------------

     Commitments and contingent liabilities (Note M)

Shareholders' equity (Note I)
     Preferred Stock - Series A - non-voting 5% cumulative - $1,000 per share
         liquidation preference; 5,000 shares authorized;
         issued and outstanding - 3,150 shares for 2009 ..................................           3,126,215                    -
     Preferred Stock - no par value; 9,995,000 shares authorized;
         None issued and outstanding .....................................................                   -                    -
     Common stock - no par value; 10,000,000 shares authorized;
         issued and outstanding - 3,782,415 for 2009 and
         3,564,279 for 2008 ..............................................................          38,922,623           37,084,462
     Additional paid-in capital ..........................................................             747,621              747,621
     Retained earnings ...................................................................           1,434,247            1,768,552
     Accumulated other comprehensive income (loss) .......................................             587,605              326,988
                                                                                                 -------------        -------------
            Total shareholders' equity ...................................................          44,818,311           39,927,623
                                                                                                 -------------        -------------

            Total liabilities and shareholders' equity ...................................       $ 492,897,529        $ 469,472,647
                                                                                                 =============        =============
</TABLE>

See accompanying notes to consolidated financial statements.


                                       30
<PAGE>

Consolidated Statements of Income
Community First Bancorporation and Subsidiaries

<TABLE>
<CAPTION>
                                                                                             Years Ended December 31,
                                                                                             ------------------------
                                                                                     2009                2008                2007
                                                                                     ----                ----               ----
Interest income
<S>                                                                              <C>                <C>                 <C>
     Loans, including fees ...............................................       $ 16,517,132       $ 18,212,174        $ 17,600,104
     Securities
        Taxable ..........................................................          5,568,337          4,807,778           3,890,240
        Tax-exempt .......................................................            811,052            833,677             816,428
     Federal funds sold ..................................................              2,649            632,265           1,208,738
     Other ...............................................................              4,088             47,714              55,829
     Interest bearing deposits due from banks ............................             47,314             17,787               6,277
                                                                                 ------------       ------------        ------------
        Total interest income ............................................         22,950,572         24,551,395          23,577,616
                                                                                 ------------       ------------        ------------

Interest expense
     Time deposits $100,000 and over .....................................          3,751,612          4,325,891           4,054,315
     Other deposits ......................................................          6,718,320          8,228,274           8,972,052
     Short-term borrowings ...............................................             47,195             11,051                   -
     Long-term debt ......................................................            365,850            269,208             203,871
                                                                                 ------------       ------------        ------------
        Total interest expense ...........................................         10,882,977         12,834,424          13,230,238
                                                                                 ------------       ------------        ------------

Net interest income ......................................................         12,067,595         11,716,971          10,347,378
Provision for loan losses (Note D) .......................................          4,355,000          4,550,000             594,000
                                                                                 ------------       ------------        ------------
Net interest income after provision ......................................          7,712,595          7,166,971           9,753,378
                                                                                 ------------       ------------        ------------

Other income
     Service charges on deposit accounts .................................          1,406,988          1,478,495           1,473,469
     Credit life insurance commissions ...................................             15,777             14,375              28,587
     Mortgage brokerage income ...........................................            178,347             26,646              33,203
     Gain (loss) on sales of securities available-for-sale ...............             90,076             (3,396)                  -
     Debit card transaction fees .........................................            542,282            473,265             378,671
     Increase in value of life insurance contracts .......................            368,765            375,012             107,784
     Other income ........................................................            115,780            130,885             184,685
                                                                                 ------------       ------------        ------------
        Total other income ...............................................          2,718,015          2,495,282           2,206,399
                                                                                 ------------       ------------        ------------

Other expenses (Notes J and L)
     Salaries and employee benefits ......................................          4,931,004          4,537,173           4,120,766
     Net occupancy expense ...............................................            511,944            514,488             432,852
     Furniture and equipment expense .....................................            392,392            429,850             441,010
     FDIC insurance expense ..............................................            711,033            188,000              37,168
     Debit card transaction expenses .....................................            409,740            373,382             276,993
     Other expense .......................................................          2,292,564          2,024,477           1,822,807
                                                                                 ------------       ------------        ------------
        Total other expenses .............................................          9,248,677          8,067,370           7,131,596
                                                                                 ------------       ------------        ------------

Income before income taxes ...............................................          1,181,933          1,594,883           4,828,181
Income tax expense (Note K) ..............................................             81,219            252,385           1,497,469
                                                                                 ------------       ------------        ------------
Net income ...............................................................          1,100,714          1,342,498           3,330,712
                                                                                 ------------       ------------        ------------
Deductions for amounts not available to common shareholders:
     Dividends declared or accumulated on preferred stock ................                  -                  -                   -
                                                                                 ------------       ------------        ------------
Net income available to common shareholders ..............................       $  1,100,714       $  1,342,498        $  3,330,712
                                                                                 ============       ============        ============

Per common share (Note I)
     Net income, basic ...................................................       $       0.29       $       0.36        $       0.92
     Net income, assuming dilution .......................................               0.29               0.34                0.87
</TABLE>

See accompanying notes to consolidated financial statements.


                                       31
<PAGE>

Consolidated Statements of Changes in Shareholders' Equity
Community First Bancorporation and Subsidiaries
<TABLE>
<CAPTION>
                                                                                                          Accumulated
                                         Shares of                             Additional                   Other
                                          Common       Preferred    Common      Paid-in       Retained   Comprehensive
                                           Stock         Stock       Stock      Capital       Earnings   Income (Loss)      Total
                                           -----         -----       -----      -------       --------   -------------      -----
<S>                                     <C>          <C>          <C>            <C>        <C>            <C>          <C>
Balance, January 1, 2007 .............. 2,958,558    $        -   $30,061,392    $593,100   $ 3,284,692    $(724,154)   $33,215,030
Comprehensive income:
  Net income ..........................         -             -             -           -     3,330,712            -      3,330,712
                                                                                                                        -----------
  Unrealized net holding gains
    on available-for-sale securities
    arising during the period,  net of
    income tax effects of $450,431 ....         -             -             -           -             -      804,253        804,253
                                                                                                                        -----------
      Total other comprehensive
        income (loss) .................         -             -             -           -             -            -        804,253
                                                                                                                        -----------
          Total comprehensive income ..         -             -             -           -             -            -      4,134,965
                                                                                                                        -----------
Income tax benefits from exercises of
  non-qualified stock options in excess
  of amount previously provided .......         -             -             -      88,398             -            -         88,398
Declaration of 10% stock dividend
  distributed on January 15, 2008 and
  cash payment for fractional shares ..   295,470             -     4,469,444           -    (4,474,939)           -         (5,495)
Exercise of employee stock options ....    70,077             -       478,090           -             -            -        478,090
                                        ---------    ----------   -----------    --------   -----------    ---------    -----------
Balance, December 31, 2007 ............ 3,324,105             -    35,008,926     681,498     2,140,465       80,099     37,910,988
Comprehensive income:
  Net income ..........................         -             -             -           -     1,342,498            -      1,342,498
                                                                                                                        -----------
  Unrealized net holding gains on
    available-for-sale securities
    arising during the period, net
    of income tax effects of $137,053 .         -             -             -           -             -      244,712        244,712
  Reclassification adjustment, net
   of income tax effects of $1,219 ....         -             -             -           -             -        2,177          2,177
                                                                                                                        -----------
      Total other comprehensive
         income (loss) ................         -             -             -           -             -            -        246,889
                                                                                                                        -----------
        Total comprehensive income ....         -             -             -           -             -            -      1,589,387
                                                                                                                        -----------
Income tax benefits from exercises
  of non-qualified stock options in excess
  of amount previously provided .......         -             -             -      66,123             -            -         66,123
Declaration of 5% stock dividend
  distributed on January 20, 2009 and
  cash payable for fractional shares ..   169,406             -     1,711,001           -    (1,714,411)           -         (3,410)
Exercise of employee stock options ....    70,768             -       364,535           -             -            -        364,535
                                        ---------    ----------   -----------    --------   -----------    ---------    -----------
Balance, December 31, 2008 ............ 3,564,279             -    37,084,462     747,621     1,768,552      326,988     39,927,623
Comprehensive income:
  Net income ..........................         -             -             -           -     1,100,714            -      1,100,714
                                                                                                                        -----------
  Unrealized net holding gains on
    available-for-sale securities
    arising during the period, net of
    income tax effects of $178,299 ....         -             -             -           -             -      318,356        318,356
  Reclassification adjustment, net of
    income tax effects of $32,336 .....         -             -             -           -             -      (57,739)       (57,739)
                                                                                                                        -----------
      Total other comprehensive
       income (loss) ..................         -             -             -           -             -            -        260,617
                                                                                                                        -----------
        Total comprehensive income ....         -             -             -           -             -            -      1,361,331
                                                                                                                        -----------
Declaration of 5% stock dividend
  distributed on January 15, 2010 and
  cash payment for fractional shares ..   180,094             -     1,431,914           -    (1,435,019)           -         (3,105)
Net proceeds from issuing 3,150 shares
  of preferred stock (issuance costs
  of $23,785) .. ......................         -     3,126,215             -           -             -            -      3,126,215
Exercise of employee stock options ....    45,532             -       486,232           -             -            -        486,232
Common stock repurchased and cancelled     (7,490)            -       (79,985)          -             -            -        (79,985)
                                        ---------    ----------   -----------    --------   -----------    ---------    -----------
Balance, December 31, 2009 ............ 3,782,415    $3,126,215   $38,922,623    $747,621   $ 1,434,247    $ 587,605    $44,818,311
                                        =========    ==========   ===========    ========   ===========    =========    ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       32
<PAGE>

Consolidated Statements of Cash Flows
Community First Bancorporation and Subsidiaries
<TABLE>
<CAPTION>
                                                                                              Years Ended December 31,
                                                                                              ------------------------
                                                                                     2009               2008                 2007
                                                                                     ----               ----                 ----
Operating activities
<S>                                                                             <C>                <C>                <C>
     Net income ...........................................................     $   1,100,714      $   1,342,498      $   3,330,712
     Adjustments to reconcile net income to net
         cash provided by operating activities
            Provision for loan losses .....................................         4,355,000          4,550,000            594,000
            Depreciation ..................................................           391,764            416,971            399,456
            Deferred income taxes .........................................          (206,887)          (956,973)          (266,418)
            Amortization of net loan fees and costs .......................          (138,490)          (179,539)          (225,117)
            Securities accretion and premium amortization .................           845,582             75,087             53,843
            (Gains) losses realized on sales of
                available-for-sale securities .............................           (90,076)             3,396                  -
            Accretion of cash surrender value of life insurance ...........          (368,765)          (375,012)          (107,784)
            Loss (gain) on sale of foreclosed assets ......................               290              6,000               (354)
            Decrease (increase) in interest receivable ....................           351,675           (246,633)          (347,583)
            (Decrease) increase in interest payable .......................        (1,001,418)          (434,588)           776,623
            Increase in prepaid expenses and other assets .................        (2,673,045)          (273,766)          (506,041)
            Increase (decrease) in other accrued expenses .................            20,277             56,209            (29,408)
            Deferred compensation expense .................................           486,197            434,116            386,446
                                                                                -------------      -------------      -------------
                Net cash provided by operating activities .................         3,072,818          4,417,766          4,058,375
                                                                                -------------      -------------      -------------
Investing activities
     Purchases of available-for-sale securities ...........................      (133,699,046)       (84,156,840)       (25,224,140)
     Maturities, calls and paydowns of available-for-sale securities ......       112,429,490         47,120,613         29,879,688
     Proceeds of sales of available-for-sale securities ...................         5,851,147          9,732,462                  -
     Purchases of securities held-to-maturity .............................                 -         (7,490,035)                 -
     Maturities, calls and paydowns of held-to-maturity securities ........         2,881,173          1,243,838            938,552
     Purchases of Federal Home Loan Bank stock ............................          (126,000)          (379,700)                 -
     Proceeds of redemptions of Federal Home Loan Bank stock ..............            39,100                  -            140,300
     Net increase in loans made to customers ..............................        (6,856,415)       (28,457,229)       (41,202,385)
     Purchases of premises and equipment ..................................          (206,193)          (450,699)        (1,083,499)
     Proceeds from sale of foreclosed assets ..............................         1,276,094             34,000             14,589
     Capitalized additions to other real estate owned .....................          (266,228)                 -                  -
     Proceeds from sale of real estate held for sale ......................                 -                  -             36,449
     Proceeds from redemptions of bank-owned life insurance ...............         1,062,152                  -                  -
     Purchases of bank-owned life insurance ...............................        (1,500,000)        (1,000,006)        (7,000,000)
                                                                                -------------      -------------      -------------
                Net cash used by investing activities .....................       (19,114,726)       (63,803,596)       (43,500,446)
                                                                                -------------      -------------      -------------
Financing activities
     Net increase (decrease) in demand deposits, interest
         bearing transaction accounts and savings accounts ................         3,581,980          2,485,387         (4,715,971)
     Net increase in certificates of deposit and other
         time deposits ....................................................        16,950,568         57,763,243         52,625,215
     Net decrease in short-term borrowings ................................                 -                  -         (4,500,000)
     Proceeds of issuances of long-term debt ..............................                 -          6,000,000                  -
     Repayment of long-term debt ..........................................        (1,500,000)        (1,000,000)        (1,000,000)
     Net proceeds from issuing preferred stock
         (issuance costs of $23,785) ......................................         3,126,215                  -                  -
     Payment of cash in lieu of fractional shares
         for common stock dividend ........................................            (6,515)                 -             (5,495)
     Exercise of employee stock options ...................................           486,232            364,535            478,090
     Common stock repurchased and cancelled ...............................           (79,985)                 -                  -
     Excess tax benefits of exercises of stock options ....................                 -             66,123             88,398
                                                                                -------------      -------------      -------------
                Net cash provided by financing activities .................        22,558,495         65,679,288         42,970,237
                                                                                -------------      -------------      -------------
Increase in cash and cash equivalents .....................................         6,516,587          6,293,458          3,528,166
Cash and cash equivalents, beginning ......................................        40,966,499         34,673,041         31,144,875
                                                                                -------------      -------------      -------------
Cash and cash equivalents, ending .........................................     $  47,483,086      $  40,966,499      $  34,673,041
                                                                                =============      =============      =============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       33
<PAGE>

Consolidated Statements of Cash Flows - continued
Community First Bancorporation and Subsidiaries
<TABLE>
<CAPTION>
                                                                                                Years Ended December 31,
                                                                                                ------------------------
                                                                                     2009                 2008                 2007
                                                                                     ----                 ----                 ----
Supplemental Disclosure of Cash Flow Information
     Cash paid during the period for
<S>                                                                              <C>                 <C>                 <C>
         Interest (net of amount capitalized) ..........................         $11,884,395         $13,269,012         $12,453,615
         Income taxes ..................................................              49,015           1,644,000           1,700,000
     Noncash investing and financing activities
         Transfer of loans to foreclosed assets ........................           6,381,631             706,000                   -
         Transfers from retained earnings to common stock
            in connection with stock dividends .........................           1,431,914           1,711,001           4,469,444
         Other comprehensive income ....................................             260,617             246,889             804,253
         Cash payable in lieu of issuing fractional shares .............                   -               3,410                   -
</TABLE>

See accompanying notes to consolidated financial statements.


Notes to Consolidated Financial Statements
Community First Bancorporation and Subsidiaries


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 offices in Walhalla,
Seneca, Anderson,  Williamston and Westminster, South Carolina. The Company is a
South  Carolina  corporation  and its banking  subsidiary  is a state  chartered
commercial  bank with its  deposits  insured by the  Federal  Deposit  Insurance
Corporation (the "FDIC"). Therefore, the Company and its bank subsidiary operate
under the supervision,  rules and regulations of the Federal Reserve Board, FDIC
and South Carolina State Board of Financial  Institutions.  The holding  company
was  incorporated  on May 23, 1997 and  Community  First Bank was  organized  on
December 1, 1988, and received its charter and commenced operations on March 12,
1990.

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
markets in Oconee and Anderson counties of South Carolina.  Also,  substantially
all of its deposits  are acquired  within its local market areas and no brokered
deposits are accepted.

During 2009, the Company established a new subsidiary to hold and manage certain
loans and real estate assets that were acquired from Community First Bank.

References to Accounting Standards - In September 2009, the Financial Accounting
Standards   Board   ("FASB")   established   the   FASB   Accounting   Standards
Codification(TM)  (the  "Codification" or "ASC") as the principal  authoritative
source of generally accepted accounting principles ("GAAP") to be applied in the
preparation of financial  statements in conformity with GAAP by  nongovernmental
entities.  The  Codification  also  acknowledges  that  rules  and  interpretive
releases of the Securities and Exchange  Commission  ("SEC") under  authority of
federal  securities  laws  are  also  sources  of  authoritative  GAAP  for  SEC
registrants. Consequently, references to authoritative accounting pronouncements
in these  financial  statements  have been made using the new  Codification.  To
facilitate comparison with prior-year financial statements,  we may present both
the  reference  under the previous  system  and/or the  reference  under the new
Codification.

Principles  of  Consolidation  and  Basis  of  Presentation  - The  consolidated
financial  statements  include  the  accounts  of the  parent  company  and  its
subsidiaries  after  elimination of all  significant  intercompany  balances and
transactions.  The  accounting  and  reporting  policies  of the Company and its
subsidiaries are in conformity with generally accepted accounting principles and
general practices within the banking  industry.  In certain  instances,  amounts
reported  in  prior  years'   consolidated   financial   statements   have  been
reclassified to conform to the current presentation.  Such reclassifications had
no effect on previously reported shareholders' equity or net income.

                                       34
<PAGE>

Accounting  Estimates - In preparing  financial  statements in  conformity  with
generally  accepted  accounting  principles,  management  is  required  to  make
estimates  and  assumptions  that affect the  reported  amounts of revenues  and
expenses during the reporting period.  Actual results could differ significantly
from those estimates.  Material  estimates that are particularly  susceptible to
significant change in the near-term relate to the determination of the allowance
for loan losses.  In connection with the determination of the allowance for loan
losses, management has identified specific loans as well as adopting a policy of
providing amounts for loan valuation  purposes which are not identified with any
specific loan but 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
additions to the allowance based on their judgments about information  available
to them at the time of their examination.

Concentrations  of  Credit  Risk  - Most  of  the  Company's,  and  its  banking
subsidiary's,  activities  are with  customers  located  within the local market
areas of Oconee and Anderson  Counties of South  Carolina.  Note C discloses the
types of  securities  invested  in,  and Note D  discusses  the types of lending
engaged  in. The  ability of  borrowers  to comply  with the terms of their loan
contracts  is largely  dependent  upon local real  estate and  general  economic
conditions in the Company's market areas. The Company and its bank subsidiary do
not have any significant  concentrations to any single industry or customer. The
Company  does not engage in  originating,  holding,  guaranteeing,  servicing or
investing  in  loans  where  the  terms  of the  loan  product  give  rise  to a
concentration of credit risk as that term is used in the ASC.

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  that the Company has the  positive  intent and ability to hold until
ultimate  maturity are classified as  held-to-maturity  and are accounted for at
amortized  cost.  Debt and equity  securities that are bought and held primarily
for sale in the near term are  classified as trading and are accounted for on an
estimated fair value basis,  with unrealized  gains and losses included in other
income. However, the Company has never held any securities for trading purposes.
Securities not classified as either  held-to-maturity  or trading are classified
as available-for-sale and are accounted for at estimated fair value.  Unrealized
holding gains and losses on available-for-sale  securities are excluded from net
income and recorded as other comprehensive  income, net of applicable income tax
effects.  Dividend and interest income, including amortization of any premium or
accretion of discount  arising at acquisition,  are 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 security on a trade date basis.

Federal  Home Loan Bank  Stock - Federal  Home Loan Bank  stock is a  restricted
security and is carried at cost.  Management  periodically  evaluates this stock
for impairment,  with any appropriate downward valuation  adjustments being made
when necessary.

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 deferred and
amortized as an adjustment of the related loan's yield. Generally, these amounts
are 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 include  non-accrual  loans and loans past due
according to their contractual terms 90 days or more with respect to interest or
principal  payments.  Impaired loans that individually have been evaluated under
the  Company's  normal loan review  process are carried in the balance  sheet at
either (1) 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 or (2) at a value  not to  exceed  their
observable  market price or the fair value of the collateral if repayment of the
loan is expected to be provided solely by the underlying collateral.  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 loan losses is  maintained  at a
level deemed  appropriate  by  management  to provide  adequately  for known and


                                       35
<PAGE>

inherent  losses in the loan portfolio.  When management  determines that a loan
will not perform  substantially  as agreed, a review of the loan is initiated to
ascertain whether it is more likely than not that a loss has occurred.  If it is
determined  that a loss has been incurred,  the estimated  amount of the loss is
charged off and deducted from the  allowance.  The provision for loan losses and
recoveries  on  loans  previously  charged  off  are  added  to  the  allowance.
Determining  the amount and adequacy of the allowance  for loan losses  involves
estimating  losses  incurred in the loan  portfolio  based on factors  discussed
below and their potential  effects based on judgments applied to currently known
facts and  circumstances.  Changes in the  estimated  allowance  for loan losses
which are deemed  necessary due to the  occurrence of new events or because more
information is obtained are accounted for as changes in accounting  estimates in
the accounting period in which the changes occur.

The allowance for loan losses is composed of specific,  general and  unallocated
amounts.  Specific  amounts are determined  when  necessary on individual  loans
based  on  management's   evaluation  of  the  Company's  credit  loss  exposure
considering the current payment  status,  underlying  collateral and other known
information  about the particular  borrower's  circumstances.  Typically,  these
loans are  considered  impaired or have been  assigned  internal  risk grades of
management attention,  special mention, substandard or doubtful. General amounts
are provided for all other loans,  excluding  those for which  specific  amounts
were  determined,  by  applying  estimated  loss  percentages  to the  portfolio
categorized  using risk  grades.  These  percentages  are based on  management's
current evaluation with consideration  given to historical loss experience.  The
unallocated portion of the allowance consists of an amount deemed appropriate to
provide for the elements of  imprecision  and  estimation  risk  inherent in the
specific and general amounts, and is determined based on management's evaluation
of various  conditions that are not directly measured by the other components of
the allowance.  This evaluation  includes  consideration of general national and
local  economic and business  conditions  affecting  key lending  market  areas,
credit quality trends, collateral values, loan volumes, portfolio seasoning, and
any identified  credit  concentrations.  The findings of internal credit reviews
and  results  from  external  audits  and  regulatory   examinations   are  also
considered.

The  Company  utilizes  its  risk  grading  system  for  all  loans  held in the
portfolio. This system involves the Company's lending officers' assigning a risk
grade, on a loan-by-loan  basis,  considering  information  about the borrower's
capacity  to  repay,  collateral,  payment  history,  and other  known  factors.
Assigned risk grades are updated monthly for any known changes in  circumstances
affecting  the borrower or the loan.  The risk grading  system is monitored on a
continuing basis by management and the Company's  external credit reviewer,  who
is independent of the lending function.

The Company estimates losses related to off-balance-sheet  credit exposures such
as loan  commitments,  standby letters of credit,  and unrecognized  liabilities
under recourse  provisions related to certain mortgage loans that are originated
by the Bank's personnel, but are funded by another financial institution,  based
on historical  experience  and by monitoring any large  positions  individually.
When management  determines that a loss on such a position has been incurred,  a
charge is made against earnings and a liability for off-balance-sheet  positions
is recorded.

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

Foreclosed  Assets  - Assets  (primarily  real  estate  and  vehicles)  acquired
through, or in lieu of, foreclosure are held for sale and are initially recorded
at fair  value,  less  estimated  costs  to sell,  at the  date of  foreclosure,
establishing a new cost basis.  Loan losses arising from the acquisition of such
property as of that date are  charged  against the  allowance  for loan  losses.
Subsequent to foreclosure,  valuations are periodically  performed by management
and the  assets are  carried  at the lower of the new cost basis or fair  value,
less estimated costs to sell.  Revenues and expenses from operations and changes
in any  subsequent  valuation  allowance are included in net  foreclosed  assets
costs and  expenses.  The carrying  value of foreclosed  assets  included in the
balance  sheets was  $6,077,475  and  $706,000 as of December 31, 2009 and 2008,
respectively.

Bank-owned Life Insurance - In accordance with applicable  accounting standards,
the  Company   presents   the  gross   amounts  of  the   liability  to  provide
postretirement   benefits  and  the  cash  surrender  value  of  an  endorsement
split-dollar life insurance arrangement held to fund the benefit.

Transfers of Financial  Assets - Transfers of financial assets are accounted for
as sales  when  control  over the  assets  has been  surrendered.  Control  over
transferred  assets is deemed to be  surrendered  when (1) the assets  have been
isolated  from the  Company,  (2) the  transferee  obtains  the  right  (free of

                                       36
<PAGE>

conditions  that constrain it from taking  advantage of that right) to pledge or
exchange the transferred assets, and (3) the Company does not maintain effective
control over the  transferred  assets  through an agreement to  repurchase  them
before their maturity.

Advertising - The Company  expenses  advertising and promotion costs as they are
incurred.

Retirement  Plan - The  Company  has a  salary  reduction  profit  sharing  plan
pursuant to Section 401(k) of the Internal  Revenue Code as more fully described
in  Note  L.  The  Company  does  not  sponsor  any  other   postretirement   or
postemployment benefits,  except with respect to the Chief Executive Officer. In
2007, the Company's Board of Directors  approved  supplemental  benefits for the
Chief Executive Officer as more fully described in Note L.

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

Stock-Based  Compensation  -  As  of  December  31,  2009,  the  Company  has  a
stock-based employee compensation plan, which is described more fully in Note I.
Effective January 1, 2006, the Company adopted Statement of Financial Accounting
Standards  No.  123  (revised  2004)  ("SFAS  123(R)")   "Share-Based   Payment"
(principally  included  in ASC Topics 718 and 505).  Prior to  adoption  of SFAS
123(R),  the Company accounted for its then existing plans under the recognition
and measurement principles of former Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations.
Accordingly,   prior  to  adoption  of  SFAS  123(R),  no  stock-based  employee
compensation  cost was reflected in net income, as all options granted under the
plans had an exercise price equal to the market value of the  underlying  common
stock on the date of grant.

In 2006,  the  Company  accelerated  the vesting of all  previously  awarded and
then-outstanding options such that all options were vested by December 31, 2006.
This  acceleration of vesting resulted in the recognition of pre-tax expenses of
approximately  $394,000 in 2006 that  otherwise  would have been  recognized  in
2007, 2008 and 2009.

No  options  were  granted   during  2009,   2008  or  2007.   Accordingly,   no
option-related compensation expense was recognized in any of those periods.

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

Comprehensive  Income - Comprehensive  income consists of net income or loss for
the current period and other comprehensive income, defined as income,  expenses,
gains and  losses  that  bypass  the  consolidated  statement  of income and are
reported directly in a separate  component of shareholders'  equity. The Company
classifies and reports items of other  comprehensive  income  according to their
nature, reports total comprehensive income or loss in the consolidated statement
of changes in  shareholders'  equity,  and displays the  accumulated  balance of
other  comprehensive  income  or loss  separately  in the  shareholders'  equity
section of the consolidated balance sheet. See Note I.

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


NOTE B - 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  amounts of the cash
reserve balances at December 31, 2009 and 2008 were approximately $2,576,000 and
$2,502,000, respectively.


                                       37
<PAGE>


NOTE C - 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,
                                                                      ------------
                                                  2009                                                   2008
                                                  ----                                                   ----
                                          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
                            ----          -----         ------       -----         ----          -----        ------        -----
<S>                   <C>           <C>           <C>           <C>           <C>           <C>           <C>           <C>
Available-for-sale
Mortgage-backed
 securities issued
 by US Government
 agencies ..........  $  1,426,107  $     48,557  $          -  $  1,474,664  $  1,790,998  $     37,439  $          -  $  1,828,437
Government sponsored
 enterprises (GSEs)     71,995,104       643,235       335,397  $ 72,302,942    62,840,000     1,141,220           500    63,980,720
Mortgage-backed
 securities
 issued by GSEs ....    47,854,685     1,005,630       497,891    48,362,424    40,753,955       625,965        22,768    41,357,152
State, county
 and municipal .....    19,517,517       240,544       187,978    19,570,083    20,740,461        41,197     1,312,433    19,469,225
                      ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------
   Total ...........  $140,793,413  $  1,937,966  $  1,021,266  $141,710,113  $126,125,414  $  1,845,821  $  1,335,701  $126,635,534
                      ============  ============  ============  ============  ============  ============  ============  ============

Held-to-maturity
Mortgage-backed
 securities issued
 by US Government
 agencies ..........  $          -  $          -   $         -   $         -  $          -   $         -  $          -  $          -
Government sponsored
 enterprises .......             -             -             -             -             -             -             -             -
Mortgage-backed
 securities issued
 by GSEs ...........     9,023,999       452,400             -     9,476,399    11,910,268       328,177             -    12,238,445
State, county and
  municipal ........             -             -             -             -             -             -             -             -
                      ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------
   Total ...........  $  9,023,999  $    452,400           $ -  $  9,476,399  $ 11,910,268  $    328,177           $ -  $ 12,238,445
                      ============  ============  ============  ============  ============  ============  ============  ============
</TABLE>


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

<TABLE>
<CAPTION>
                                                                                       December 31, 2009
                                                                                       -----------------
                                                                    Available-for-sale                     Held-to-maturity
                                                                    ------------------                     ----------------
                                                                  Amortized        Estimated       Amortized             Estimated
                                                                    Cost           Fair Value         Cost               Fair Value
                                                                    ----           ----------         ----               ----------
<S>                                                            <C>                <C>                <C>                <C>
Non-mortgage backed securities issued by GSEs and
      by state, county and municipal issuers
          Due within one year ..........................       $  1,803,611       $  1,820,951       $          -       $          -
          Due after one through five years .............         11,009,470         11,031,579                  -                  -
          Due after five through ten years .............         28,393,476         28,544,577                  -                  -
          Due after ten years ..........................         50,306,064         50,475,918                  -                  -
                                                               ------------       ------------       ------------       ------------
                                                                 91,512,621         91,873,025                  -                  -
Mortgage-backed securities issued by:
      US Government agencies ...........................          1,426,107          1,474,664                  -                  -
      GSEs .............................................         47,854,685         48,362,424          9,023,999          9,476,399
                                                               ------------       ------------       ------------       ------------
          Total ........................................       $140,793,413       $141,710,113       $  9,023,999       $  9,476,399
                                                               ============       ============       ============       ============
</TABLE>


The  estimated  fair  values  and  gross  unrealized  losses  of  the  Company's
investment  securities whose estimated fair values were less than amortized cost
as  of  December  31,  2009  and  2008  which  had  not  been  determined  to be
other-than-temporarily  impaired,  are presented below. The securities have been
aggregated  by  investment  category  and the  length  of time  that  individual
securities have been in a continuous unrealized loss position.

                                       38
<PAGE>

<TABLE>
<CAPTION>
                                                                              December 31, 2009
                                                                              -----------------
                                                        Continuously in Unrealized Loss Position for a Period of
                                                        --------------------------------------------------------
                                             Less than 12 Months              12 Months or more                    Total
                                             -------------------              -----------------                    -----
                                          Estimated      Unrealized      Estimated       Unrealized       Estimated       Unrealized
                                          Fair Value        Loss         Fair Value        Loss           Fair Value         Loss
                                          ----------        ----         ----------        ----           ----------         ----
Available-for-sale

<S>                                      <C>             <C>             <C>             <C>             <C>             <C>
US Government agencies .............     $         -     $         -     $         -     $         -     $         -     $         -
Government-sponsored
  enterprises (GSEs) ...............      26,770,038         335,397               -               -      26,770,038         335,397
Mortgage-backed securities
  issued by GSEs ...................      16,471,160         497,891               -               -      16,471,160         497,891
State, county and
  municipal securities .............       6,220,000         187,978               -               -       6,220,000         187,978
                                         -----------     -----------     -----------     -----------     -----------     -----------
    Total ..........................     $49,461,198     $ 1,021,266     $         -     $         -     $49,461,198     $ 1,021,266
                                         ===========     ===========     ===========     ===========     ===========     ===========

Held-to-maturity
  GSEs .............................     $         -     $         -     $         -     $         -     $         -     $         -
                                         -----------     -----------     -----------     -----------     -----------     -----------
    Total ..........................     $         -     $         -     $         -     $         -     $         -     $         -
                                         ===========     ===========     ===========     ===========     ===========     ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                              December 31, 2008
                                                                              -----------------
                                                        Continuously in Unrealized Loss Position for a Period of
                                                        --------------------------------------------------------
                                             Less than 12 Months              12 Months or more                    Total
                                             -------------------              -----------------                    -----
                                          Estimated      Unrealized      Estimated       Unrealized       Estimated       Unrealized
                                          Fair Value        Loss         Fair Value        Loss           Fair Value         Loss
                                          ----------        ----         ----------        ----           ----------         ----
Available-for-sale
<S>                                           <C>            <C>            <C>            <C>            <C>            <C>
US Government agencies ...................    $         -    $         -    $         -    $         -    $         -    $         -
Government-sponsored
  enterprises (GSEs) .....................        999,500            500              -              -        999,500            500
Mortgage-backed securities
  issued by GSEs .........................      2,512,864          5,247      2,980,894         17,521      5,493,758         22,768
State, county and
  municipal securities ...................     15,629,399      1,243,371        814,554         69,062     16,443,953      1,312,433
                                              -----------    -----------    -----------    -----------    -----------    -----------
                        Total ............    $19,141,763    $ 1,249,118    $ 3,795,448    $    86,583    $22,937,211    $ 1,335,701
                                              ===========    ===========    ===========    ===========    ===========    ===========

Held-to-maturity
  GSEs ...................................    $         -    $         -    $         -    $         -    $         -    $         -
                                              -----------    -----------    -----------    -----------    -----------    -----------
                        Total ............    $         -    $         -    $         -    $         -    $         -    $         -
                                              ===========    ===========    ===========    ===========    ===========    ===========
</TABLE>

At December 31, 2009, 50 securities had been  continuously in an unrealized loss
position for less than 12 months and no securities had been  continuously  in an
unrealized  loss  position for 12 months or more.  The Company does not consider
these investments to be  other-than-temporarily  impaired because the unrealized
losses involve primarily securities issued by  government-sponsored  enterprises
and state, county and municipal  governments,  none of the rated securities have
been downgraded below  investment  grade, and there have been no failures by the
issuers to remit their  periodic  interest  payments as  required.  Although the
Company    classifies   a   majority   of   its    investment    securities   as
available-for-sale,  management has not determined that any specific  securities
will be disposed of prior to maturity and believes that the Company has both the
ability and the intent to hold those investments until a recovery of fair value,
including until maturity.  Substantially all of the issuers of state, county and
municipal  securities held were rated at least "investment grade" as of December
31, 2009 and 2008.

The  Company's  subsidiary  bank is a member  of the  Federal  Home Loan Bank of
Atlanta ("FHLB") and,  accordingly,  is required to own restricted stock in that
institution  in  amounts  that  may  vary  from  time to  time.  Because  of the
restrictions  imposed,  the  stock  may  not be sold to  other  parties,  but is
redeemable by the FHLB at the same price as that at which it was acquired by the
Company's  subsidiary.  The Company evaluates this security for impairment based
on  the  probability  of  ultimate  recoverability  of  the  par  value  of  the
investment. No impairment has been recognized based on this evaluation.


                                       39
<PAGE>

During 2009,  the Company  sold three  available-for-sale  securities  for gross
proceeds of $5,851,147.  Gross gains  realized from these sales totaled  $90,076
and  there   were  no  losses.   During   2008,   the   Company   sold   sixteen
available-for-sale  securities  for gross sales  proceeds of  $9,732,462.  Gross
realized  gains and losses  resulting  from these  sales  totaled  $127,830  and
$131,226,   respectively.  The  Company  did  not  sell  any  available-for-sale
securities during 2007. There were no transfers of available-for-sale securities
to other categories in 2009, 2008 or 2007.

At December 31, 2009 and 2008,  securities  with a carrying value of $59,481,883
and  $64,130,700,  respectively,  were pledged as  collateral  to secure  public
deposits.





NOTE D - LOANS

Loans consisted of the following:

                                                          December 31,
                                                          ------------
                                                   2009                2008
                                                   ----                ----
Commercial, financial and industrial .....     $  23,108,861      $  23,187,252
Real estate- construction ................        29,438,596         30,450,996
Real estate - mortgage ...................       184,474,249        182,668,353
Consumer installment .....................        30,226,442         34,106,716
                                               -------------      -------------
      Total ..............................       267,248,148        270,413,317
Allowance for loan losses ................        (6,051,851)        (5,475,294)
                                               -------------      -------------
      Loans - net ........................     $ 261,196,297      $ 264,938,023
                                               =============      =============

         Net deferred loan fees of $290,444 and $405,584  were  allocated to the
         various loan categories as of December 31, 2009 and 2008, respectively.

Loans which  management has identified as impaired  generally are  nonperforming
loans.  Nonperforming loans include nonaccrual loans, loans which are 90 days or
more  delinquent  as to principal or interest  payments,  and other loans where,
based on current information and events, it is probable that the Company will be
unable to collect principal and interest  payments  according to the contractual
terms of the loan agreements. A loan is not considered to be impaired,  however,
if any periods of delay or  shortfalls  of amounts  expected to be collected are
insignificant  or if the Company  expects  that it will  collect all amounts due
including interest accrued at the contractual interest rate during the period of
delay.  Following  is a summary of activity  regarding  the  Company's  impaired
loans:

<TABLE>
<CAPTION>
                                                                                                               December 31,
                                                                                                               ------------
                                                                                                          2009               2008
                                                                                                          ----               ----
Investment in impaired loans
<S>                                                                                                   <C>                <C>
     Nonaccrual ..............................................................................        $13,869,437        $11,798,654
     Accruing 90 days and over past due ......................................................                  -                  -
     Other ...................................................................................          3,478,239                  -
                                                                                                      -----------        -----------
         Total ...............................................................................        $17,347,676        $11,798,654
                                                                                                      ===========        ===========

Average total investment in impaired loans during the year ...................................        $15,149,000        $ 4,712,000
Amount of impaired loans for which an allowance for loan losses is established ...............          8,660,112         11,296,779
Amount of impaired loans for which no allowance for loan losses is established ...............          8,687,564            501,875
Amount of allowance for loan losses related to impaired loans ................................          2,844,014          1,603,493
</TABLE>

For 2009, the amount of interest  income that would have been included in income
if  nonaccrual  loans  had been  current  in  accordance  with  their  terms was
approximately  $781,000  and the amount of such income  actually  collected  and
included in interest income was approximately  $72,000.  For 2008, the amount of
interest income that would have been included in income if nonaccrual  loans had
been current in accordance with their terms was  approximately  $821,000 and the
amount of interest income actually collected and included in interest income was
approximately  $480,000.  Such amounts of interest income were immaterial to the
consolidated  financial  statements  for 2007.  The average total  investment in


                                       40
<PAGE>

impaired loans during 2007 was $413,500.  There were no irrevocable  commitments
to lend additional  funds to debtors owing amounts on impaired loans at December
31, 2009.

As of December 31, 2009 and 2008,  there were no significant  concentrations  of
credit risk in any single  borrower or groups of borrowers.  The Company's  loan
portfolio   consists  primarily  of  extensions  of  credit  to  businesses  and
individuals in its Oconee and Anderson County,  South Carolina market areas. The
economy of these areas 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:

<TABLE>
<CAPTION>
                                                                                         Years Ended December 31,
                                                                                         ------------------------
                                                                          2009                     2008                    2007
                                                                          ----                     ----                    ----
<S>                                                                   <C>                      <C>                      <C>
Balance at January 1 ....................................             $ 5,475,294              $ 2,573,758              $ 2,241,947
Provision charged to expense ............................               4,355,000                4,550,000                  594,000
Recoveries ..............................................                 107,568                   18,062                   30,098
Charge-offs .............................................              (3,886,011)              (1,666,526)                (292,287)
                                                                      -----------              -----------              -----------
Balance at December 31 ..................................             $ 6,051,851              $ 5,475,294              $ 2,573,758
                                                                      ===========              ===========              ===========
</TABLE>

Certain officers and directors of the Company and its banking subsidiary,  their
immediate  families and business interests were loan customers of, and had other
transactions  with,  the banking  subsidiary  in the normal  course of business.
Related party loans are made on substantially the same terms, including interest
rates  and   collateral,   and  do  not   involve   more  than  normal  risk  of
collectibility.  The aggregate  dollar amount of these loans was  $8,534,488 and
$8,916,120 at December 31, 2009 and 2008, respectively. During 2009, $462,487 of
new loans were made and repayments totaled $844,119.



NOTE E - PREMISES AND EQUIPMENT

Premises and equipment consisted of the following:

                                                            December 31,
                                                            ------------
                                                       2009              2008
                                                       ----              ----

Land .......................................       $ 2,916,997       $ 2,916,997
Buildings and land improvements ............         5,702,858         5,617,252
Furniture and equipment ....................         3,389,393         3,296,538
                                                   -----------       -----------
     Total .................................        12,009,248        11,830,787
Accumulated depreciation ...................         3,539,566         3,175,534
                                                   -----------       -----------
     Premises and equipment - net ..........       $ 8,469,682       $ 8,655,253
                                                   ===========       ===========

Depreciation  expense for the years ended  December 31, 2009,  2008 and 2007 was
$391,764, $416,971, and $399,456, respectively.


NOTE F - DEPOSITS

A summary of deposits follows:


                                       41
<PAGE>

                                                             December 31,
                                                             ------------
                                                       2009              2008
                                                       ----              ----

Noninterest bearing demand ...................     $ 47,066,775     $ 41,961,968
Interest bearing transaction accounts ........       50,575,875       54,800,195
Savings ......................................       27,560,647       24,859,154
Time deposits $100,000 and over ..............      128,914,487      126,492,251
Other time deposits ..........................      182,529,947      168,001,615
                                                   ------------     ------------
     Total deposits ..........................     $436,647,731     $416,115,183
                                                   ============     ============


As of  December  31,  2009  and  2008,  local  governmental  deposits  comprised
approximately  12% and 14% of total deposits,  respectively.  As of December 31,
2009 and 2008, $213,506 and $204,623,  respectively, of overdrawn demand deposit
balances  have been  reclassified  as loans.  As of December  31, 2009 and 2008,
deposits of directors,  officers and their related  business  interests  totaled
approximately $4,739,000 and $6,558,000, respectively.

At December 31, 2009, the scheduled maturities of time deposits are as follows:

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

                              2010                        $ 229,025,821
                              2011                           79,166,600
                              2012                            1,886,542
                              2013                            1,295,834
                              2014                               69,637
                        Thereafter                                    -

NOTE G - SHORT-TERM BORROWINGS

There were no short-term borrowings outstanding at December 31, 2009 and 2008.

As of  December  31,  2009,  the banking  subsidiary  had no  short-term  credit
accommodation  available  from any unrelated  bank to facilitate the purchase of
federal funds.


NOTE H - LONG-TERM DEBT

Long-term debt consisted of:

                                                             December 31,
                                                             ------------
                                                        2009               2008
                                                        ----               ----

Fixed rate notes due to FHLB .................       $1,500,000       $3,000,000
Variable rate notes due to FHLB ..............        6,500,000        6,500,000
                                                     ----------       ----------
                                                     $8,000,000       $9,500,000
                                                     ==========       ==========

Long-term debt represents  amounts borrowed from the FHLB under the FHLB's Fixed
Rate  Advance  Credit and  Convertible  Advance  programs  as shown in the table
below. The interest rate on Convertible  Advances have remained at their initial
values and are subject to the FHLB's  option to convert the advances to variable
rate  instruments  if 3-month  LIBOR  exceeds  specified  levels as of the dates
specified  in each  advance  agreement.  In the event of such  conversions,  the
affected  advances would thereafter be subject to variable  interest rates until
maturity.  Each of the Fixed Rate and Convertible Advances may be prepaid on any
quarterly   interest  payment  date  at  the  Company's  option.   With  limited
exceptions, any such prepayments would be subject to a prepayment penalty.


                                       42
<PAGE>

The contractual maturities of long-term debt are as follows:

<TABLE>
<CAPTION>
                                                                                                     December 31, 2009
                                                                                                     -----------------
                                                                                      Fixed Rate        Variable Rate        Total
                                                                                      ----------        -------------        -----
Due to Federal Home Loan Bank:
<S>                                                                                   <C>               <C>               <C>
Due 2010, interest rate 3.834% ...............................................        $1,500,000        $        -        $1,500,000
Due 2013, interest rate 3.7475% convertible to variable rate at
    lender's option on June 27, 2011 .........................................                 -         1,500,000         1,500,000
Due 2014, interest rate 3.9200% convertible to variable rate at
    lender's option on March 18, 2010 ........................................                 -         3,500,000         3,500,000
Due 2015, interest rate 3.9250% convertible to variable rate at
    lender's option on June 29, 2012 .........................................                 -         1,500,000         1,500,000
                                                                                      ----------        ----------        ----------
     Total long-term debt ....................................................        $1,500,000        $6,500,000        $8,000,000
                                                                                      ==========        ==========        ==========
</TABLE>

The  Company  has  pledged  certain  of its  first  mortgage  loans  secured  by
one-to-four  family  residential  properties  and its  holdings  of  FHLB  stock
(collectively,  "qualifying  collateral  instruments") to secure its debt due to
the FHLB under a blanket lien  agreement.  The amount of  qualifying  collateral
instruments  as  of  December  31,  2009  was  approximately  $22,288,000.   The
qualifying  collateral  instruments  required to secure the Company's  long-term
debt as of December 31, 2009 totaled approximately $13,566,000.

The banking  subsidiary had unused credit  availability under the FHLB's blanket
lien  agreement  of up to an  additional  $15,147,000  under the FHLB's  various
credit  programs,  subject to  pledging  and other  requirements.  The amount of
qualifying collateral instruments remaining available as of December 31, 2009 to
secure any additional  FHLB borrowings  totaled  approximately  $8,722,000.  The
Company  also had  unencumbered  investment  securities  issued by the FHLB with
carrying amounts totaling  $10,423,000  which could be used to secure additional
advances of up to $10,385,000.

The banking  subsidiary  also has access to the Federal  Reserve Bank's discount
window  which  would  allow it to  borrow  approximately  $90,948,000.  Any such
borrowings  from the  discount  window are  limited  by the amount of  unpledged
eligible securities that could be used as collateral.



NOTE I - SHAREHOLDERS' EQUITY

Restrictions on Subsidiary Dividends, Loans or Advances - South Carolina banking
regulations restrict the amount of dividends that banks can pay to shareholders.
Any of the banking subsidiary's  dividends to the parent company which exceed in
amount the subsidiary's  current  year-to-date  earnings ($1,213,877 at December
31, 2009) are subject to the prior approval of the South  Carolina  Commissioner
of Banking. In addition,  dividends paid by the banking subsidiary to the parent
company would be prohibited if the effect thereof would cause the Bank's capital
to be reduced  below  applicable  minimum  capital  requirements.  Under Federal
Reserve  Board  regulations,  the amounts of loans or advances  from the banking
subsidiary  to the parent  company  are  generally  limited to 10% of the Bank's
capital  stock and  surplus  on a  secured  basis.  The  terms of the  Company's
outstanding  preferred  stock also  restrict the  Company's  ability to pay cash
dividends to holders of the common stock. See "Preferred Stock" below.

Stock Dividends - For stockholders of record on December 15, 2009,  December 20,
2008 and December 20, 2007,  the  Company's  Board of Directors  declared  stock
dividends of 5%, 5% and 10%,  respectively.  All per share  information has been
retroactively adjusted to give effect to the stock dividends.

Accumulated  Other  Comprehensive  Income  (Loss) - As of December  31, 2009 and
2008,  accumulated other comprehensive  income (loss) included as a component of
shareholders'  equity in the accompanying  consolidated balance sheets consisted
of  accumulated  changes  in  the  unrealized  holding  gains  and  (losses)  on
available-for-sale  securities, net of income tax effects, amounting to $587,605
and $326,988, respectively.

Preferred  Stock - On January 27,  2009,  the  Company's  shareholders  approved
revisions to its articles of  incorporation  authorizing the Company to issue up
to  10,000,000  shares  of  preferred  stock  in one or  more  series  with  the
preferences,  limitations and relative rights of each series to be determined by
the Company's Board of Directors  before any such series is issued.  The Company
sought this authorization originally in anticipation of accepting funds from the
Troubled Assets Relief Program.  The Company applied for such funds,  but, after
receiving preliminary approval, ultimately withdrew its application and declined
such funds due to continuing uncertainties, including restrictions on use of the
funds and  reporting  requirements,  among  others.  Subsequently,  the  Company


                                       43
<PAGE>

offered to its  directors  up to 5,000  shares of Series A preferred  stock,  of
which 3,150 shares were issued in exchange for  proceeds of  $3,126,215,  net of
issuance costs of $23,785.  The preferred shares,  which were issued on December
31, 2009,  have a  liquidation  preference  of $1,000  each.  Dividends on these
non-voting  preferred shares  accumulate at 5% per annum and, under the terms of
the preferred  stock,  no cash  dividends  may be declared or become  payable on
common shares unless all of the accumulated preferred dividends have been paid.

Earnings  per Common  Share - Net  income  per  common  share and net income per
common share, assuming dilution, were computed as follows:

<TABLE>
<CAPTION>
                                                                                                  Years Ended December 31,
                                                                                                  ------------------------
                                                                                        2009               2008               2007
                                                                                        ----               ----               ----
Net income per common share, basic
<S>                                                                                  <C>                <C>               <C>
  Numerator - net income available to common shareholders ...................        $ 1,100,714        $1,342,498        $3,330,712
                                                                                     ===========        ==========        ==========
  Denominator
    Weighted average common shares issued and outstanding ...................          3,783,680         3,720,264         3,604,119
                                                                                     ===========        ==========        ==========
               Net income per common share, basic ...........................        $       .29        $      .36        $      .92
                                                                                     ===========        ==========        ==========

Net income per common share, assuming dilution
  Numerator - net income available to common shareholders ...................        $ 1,100,714        $1,342,498        $3,330,712
                                                                                     ===========        ==========        ==========
  Denominator
    Weighted average common shares issued and outstanding ...................          3,783,680         3,720,264         3,604,119
    Effect of dilutive stock options ........................................                  -           159,074           230,497
                                                                                     -----------        ----------        ----------
               Total shares .................................................          3,783,680         3,879,338         3,834,616
                                                                                     ===========        ==========        ==========
               Net income per common share, assuming dilution ...............        $       .29        $      .34        $      .87
                                                                                     ===========        ==========        ==========
</TABLE>

For the years ended December 31, 2009, 2008 and 2007,  respectively,  the number
of  anti-dilutive  stock options excluded from the calculation of net income per
common share,  assuming dilution were 364,011,  97,179 and 97,179. If the market
price of the Company's common stock increases  sufficiently,  such shares may be
included in future calculations of earnings per common share, assuming dilution.

Regulatory Capital - All bank holding companies and banks are subject to various
regulatory  capital  requirements  administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory, and
possibly  additional  discretionary,  actions by regulators that, if undertaken,
could have a direct  material  effect on the  Company's  consolidated  financial
statements.  Under capital adequacy guidelines and the regulatory  framework for
prompt  corrective  action,  bank holding companies and banks must meet specific
capital  guidelines  that  involve   quantitative   measures  of  their  assets,
liabilities,  and certain off-balance-sheet items as calculated under regulatory
accounting  practices.  Capital amounts and  classification  are also subject to
qualitative judgments by the regulators about components,  risk weightings,  and
other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Company and its banking  subsidiary to maintain  minimum amounts and
ratios set forth in the table  below of Total and Tier 1 Capital,  as defined in
the regulations,  to risk weighted assets, as defined, and of Tier 1 Capital, as
defined, to average assets, as defined.  Management believes, as of December 31,
2009 and 2008,  that the Company and its  subsidiary  bank  exceeded all capital
adequacy minimum requirements.

As of December 31, 2009, 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 as defined in
the Federal Deposit  Insurance Act,  Community First Bank must maintain  minimum
total risk-based,  Tier 1 risk-based, and Tier 1 leverage ratios as set forth in
the  table.  There are no  conditions  or events  since that  notification  that
management  believes have changed Community First Bank's category.  Bank holding
companies with higher levels of risk, or that are  experiencing  or anticipating
significant growth, are expected by the Federal Reserve to maintain capital well
above the minimums.  The Company's  and  Community  First Bank's actual  capital
amounts and ratios are also presented in the table.

                                       44
<PAGE>

<TABLE>
<CAPTION>
                                                                                      Minimum for                Minimum to be
                                                               Actual               Capital Adequacy            Well Capitalized
                                                               ------               ----------------            ----------------
                                                        Amount        Ratio         Amount       Ratio         Amount        Ratio
                                                        -------       -----         -------      -----         -------       -----
<S>                                                      <C>            <C>         <C>              <C>       <C>             <C>
December 31, 2009                                                                  (Dollars in thousands)
     The Company
        Total Capital to risk weighted assets .........  $ 48,127       15.5%       $ 24,769         8.0%            NA           NA
        Tier 1 Capital to risk weighted assets ........  $ 44,230       14.3%       $ 12,385         4.0%            NA           NA
        Tier 1 Capital to average assets (leverage) ...  $ 44,230        9.3%       $ 18,991         4.0%            NA           NA
     Community First Bank
        Total Capital to risk weighted assets .........  $ 42,709       14.0%       $ 24,461         8.0%      $ 30,577        10.0%
        Tier 1 Capital to risk weighted assets ........  $ 38,859       12.7%       $ 12,231         4.0%      $ 18,346         6.0%
        Tier 1 Capital to average assets (leverage) ...  $ 38,859        8.2%       $ 18,985         4.0%      $ 23,732         5.0%

December 31, 2008
     The Company
        Total Capital to risk weighted assets .........  $ 43,470       14.1%       $ 24,633         8.0%            NA           NA
        Tier 1 Capital to risk weighted assets ........  $ 39,601       12.9%       $ 12,317         4.0%            NA           NA
        Tier 1 Capital to average assets (leverage) ...  $ 39,601        8.8%       $ 18,010         4.0%            NA           NA
     Community First Bank
        Total Capital to risk weighted assets .........  $ 41,513       13.5%       $ 24,622         8.0%      $ 30,777        10.0%
        Tier 1 Capital to risk weighted assets ........  $ 37,646       12.2%       $ 12,311         4.0%      $ 18,466         6.0%
        Tier 1 Capital to average assets (leverage) ...  $ 37,646        8.4%       $ 18,004         4.0%      $ 22,505         5.0%

</TABLE>

Stock  Options - In 1998,  the  Company's  shareholders  approved the 1998 Stock
Option Plan under which an aggregate of 786,597 shares  (adjusted for subsequent
stock  dividends  and a stock split) of the  Company's  authorized  but unissued
common  stock was reserved  for  possible  issuance  pursuant to the exercise of
stock options.  Generally,  options could be granted to directors,  officers and
employees under terms and conditions, including expiration date, exercise price,
and vesting as determined by the Board of Directors.  In 1990, the  shareholders
approved the 1989  Incentive  Stock Option Plan.  The 1989 plan provided for the
granting of options to certain  eligible  employees and reserved  549,766 shares
(adjusted  for stock  dividends  and  splits)  of  authorized  common  stock for
issuance upon the exercise of such options.  Both the 1998 Stock Option Plan and
the 1989 Stock Option Plan have now  terminated.  Although some options  granted
under the 1998 Plan can still be exercised,  no further  options may be granted.
All options outstanding under the 1989 Plan have expired.  For all stock options
ever granted under the two plans,  the exercise  price was the fair market value
of the  Company's  common stock on the date the option was granted as determined
by the Board of Directors.  Options terminate according to the conditions of the
grant,  not to exceed 10 years  from the date of grant.  The  expiration  of the
options  accelerates  upon the  optionee's  termination  of employment  with the
Company or death, and vesting of options accelerates upon a change in control of
the Company, in accordance with the provisions of the 1998 Plan.

During 2006,  the Company's  Board of Directors  accelerated  the vesting of all
other  previously  awarded and  outstanding  options  such that all options were
vested by December 31, 2006. The  acceleration of the options'  vesting resulted
in the recognition of pre-tax  expenses of  approximately  $394,000 in 2006 that
would otherwise have been recognized in 2007, 2008 and 2009.




                                       45
<PAGE>


Transactions under the plans during 2009 are summarized as follows:

<TABLE>
<CAPTION>
                                                                                   Year Ended December 31, 2009
                                                                                   ----------------------------
                                                                                                     Weighted Average
                                                                                        Weighted         Remaining       Aggregate
                                                                                    Average Exercise  Contractual Life   Intrinsic
                                                                  Shares            Price Per Share      (Years)           Value
                                                                  ------            ---------------      -------           -----
                                                                           (Dollars in thousands, except per share)
<S>                                                              <C>                  <C>                  <C>            <C>
Outstanding at beginning of year .........................       418,227              $   11.60
Granted ..................................................             -                      -
Exercised ................................................       (47,805)                 10.17
Forfeited or expired .....................................        (6,411)                 10.17
                                                                 -------
Outstanding at end of year ...............................       364,011              $   11.82             3.34          $    -
                                                                 =======                                                  ======

Options outstanding ......................................       364,011              $   11.82             3.34          $    -
  and expected to vest

Options exercisable at year-end ..........................       364,011              $   11.82             3.34          $    -
</TABLE>
------------------------
Numbers of shares and exercise  prices have been adjusted in the table above for
a 5% stock dividend effective December 15, 2009.

The aggregate  intrinsic  value of a stock option in the table above  represents
the pre-tax intrinsic value (the amount, if any, by which the current fair value
of the  underlying  stock  exceeds the amount  required to exercise the options)
that  would have been  received  by the  option  holder  had all option  holders
exercised  their options on December 31, 2009. At that date, the exercise prices
of all of the  Company's  outstanding  options  exceeded  the fair  value of the
Company's stock.



NOTE J - OTHER EXPENSES

Other expenses are summarized below:

<TABLE>
<CAPTION>
                                                                                               Years Ended December 31,
                                                                                               ------------------------
                                                                                    2009                2008                 2007
                                                                                    ----                ----                 ----

<S>                                                                             <C>                  <C>                  <C>
Salaries and employee benefits ......................................           $4,931,004           $4,537,173           $4,120,766
Net occupancy expense ...............................................              511,944              514,488              432,852
Furniture and equipment expense .....................................              392,392              429,850              441,010
FDIC insurance expense ..............................................              711,033              188,000               37,168
Debit card transaction expense ......................................              409,740              373,382              276,993
Other expense
     Stationery, printing and postage ...............................              314,351              328,126              286,382
     Telephone ......................................................              188,867              176,972              152,656
     Advertising and promotion ......................................              155,337              129,327              118,565
     Professional services ..........................................              389,760              290,528              284,907
     Insurance ......................................................               48,056               57,384               73,991
     Directors' compensation ........................................              133,401              115,400               94,400
     Foreclosed assets costs and expenses, net ......................              131,613                8,306                3,142
     Data processing expenses .......................................              436,364              357,561              250,728
     Other ..........................................................              494,815              560,873              558,036
                                                                                ----------           ----------           ----------
         Total ......................................................           $9,248,677           $8,067,370           $7,131,596
                                                                                ==========           ==========           ==========
</TABLE>



                                       46
<PAGE>



NOTE K - INCOME TAXES

Income tax expense consisted of:

                                                Years Ended December 31,
                                                ------------------------
                                           2009          2008            2007
                                           ----          ----            ----
Current
    Federal .......................   $   233,481    $ 1,146,790    $ 1,613,312
    State .........................        54,625         62,568        150,575
                                      -----------    -----------    -----------
          Total current ...........       288,106      1,209,358      1,763,887
Deferred
    Federal .......................      (206,887)      (956,973)      (266,418)
                                      -----------    -----------    -----------
          Total income tax expense    $    81,219    $   252,385    $ 1,497,469
                                      ===========    ===========    ===========

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

<TABLE>
<CAPTION>
                                                                                             Years Ended December 31,
                                                                                             ------------------------
                                                                                   2009                 2008                  2007
                                                                                   ----                 ----                  ----

<S>                                                                             <C>                  <C>                  <C>
Provision for loan losses ...........................................           $  21,363            $(892,982)           $(109,564)
Accelerated depreciation ............................................               9,783               87,063               (5,049)
Deferred net loan costs and fees ....................................              38,019               (7,710)             (24,201)
Deferred compensation expense .......................................            (160,544)            (143,344)            (127,604)
Disallowed charitable contribution carryforward .....................              (4,415)                   -                    -
Alternative minimum tax credit carryforward .........................            (111,093)                   -                    -
                                                                                ---------            ---------            ---------
          Total .....................................................           $(206,887)           $(956,973)           $(266,418)
                                                                                =========            =========            =========
</TABLE>

Income before income taxes  presented in the  consolidated  statements of income
for the years  ended  December  31,  2009,  2008 and 2007  included  no  foreign
component.  A  reconciliation  between  the  income tax  expense  and the amount
computed by applying the federal  statutory  rate of 34% to income before income
taxes follows:

<TABLE>
<CAPTION>
                                                                                               Years Ended December 31,
                                                                                               ------------------------
                                                                                    2009                2008                 2007
                                                                                    ----                ----                 ----

<S>                                                                             <C>                 <C>                 <C>
Tax expense at statutory rate ..........................................        $   401,857         $   542,260         $ 1,641,582
State income tax, net of federal
    income tax benefit .................................................             36,053              41,295              99,380
Tax-exempt interest income .............................................           (274,727)           (282,276)           (276,416)
Non-deductible interest expense to
    carry tax-exempt instruments .......................................             30,394              41,195              46,616
Non-taxable increase in value of life insurance ........................           (125,380)           (127,504)            (36,647)
Other, net .............................................................             13,022              37,415              22,954
                                                                                -----------         -----------         -----------
          Total ........................................................        $    81,219         $   252,385         $ 1,497,469
                                                                                ===========         ===========         ===========
</TABLE>

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

                                       47
<PAGE>

<TABLE>
<CAPTION>
                                                                                                             December 31,
                                                                                                             ------------
                                                                                                    2009                      2008
                                                                                                    ----                      ----
Deferred tax assets
<S>                                                                                              <C>                      <C>
    Allowance for loan losses ....................................................               $1,574,241               $1,595,604
    Deferred net loan fees .......................................................                   95,905                  133,924
    Non-qualified stock options ..................................................                   96,088                   96,088
    Deferred compensation ........................................................                  431,492                  270,948
    Disallowed charitable contributions ..........................................                    4,415                        -
    Alternative minimum tax credit carryforward ..................................                  111,093                        -
                                                                                                 ----------               ----------
          Gross deferred tax assets ..............................................                2,313,234                2,096,564
    Valuation allowance ..........................................................                        -                        -
                                                                                                 ----------               ----------
          Total ..................................................................                2,313,234                2,096,564
                                                                                                 ----------               ----------

Deferred tax liabilities
    Accelerated depreciation .....................................................                  292,257                  282,474
    Unrealized net holding gains on
      available-for-sale securities ..............................................                  329,095                  183,132
                                                                                                 ----------               ----------
          Gross deferred tax liabilities .........................................                  621,352                  465,606
                                                                                                 ----------               ----------
Net deferred income tax assets ...................................................               $1,691,882               $1,630,958
                                                                                                 ==========               ==========
</TABLE>

The portion of the change in net  deferred  tax assets or  liabilities  which is
related to unrealized holding gains and losses on available-for-sale  securities
is charged or  credited  directly  to other  comprehensive  income or loss.  The
balance of the change in net  deferred  tax  assets is  charged or  credited  to
income tax expense.  In 2009,  2008 and 2007,  $145,963,  $138,272 and $450,431,
respectively,  was charged to other comprehensive income or loss,  respectively.
In 2009,  2008 and 2007,  $206,887,  $956,973 and  $266,418,  respectively,  was
credited to income tax expense.

Management  believes that the Company will fully realize the deferred tax assets
as of December 31, 2009 and 2008 based on refundable income taxes available from
carryback years, as well as estimates of future taxable income.

As of December  31, 2009 and 2008,  the Company had no tax  benefits  disallowed
under ASC 740-10-25-5 through 17 (formerly the provisions of FASB Interpretation
48 "Accounting for  Uncertainty in Income Taxes").  A tax position is recognized
as a benefit only if it is "more likely than not" that the tax position would be
sustained in a tax examination,  with a tax examination being presumed to occur.
The amount  recognized is the largest amount of tax benefit that is greater than
50% likely of being realized upon examination. For tax benefits that do meet the
"more likely than not" criterion, no tax benefit is recorded.

The Company and its subsidiaries are subject to US federal income tax as well as
income tax of the State of South  Carolina.  The Company is no longer subject to
examination  by these taxing  authorities  for years before 2006 for federal and
state income tax.

The Company  recognizes  interest and penalties related to income tax matters as
interest expense and other noninterest expense, respectively.


NOTE L - RETIREMENT PLAN

The Company  sponsors the Community  First Bank 401(k) Plan (the "401(k)  Plan")
for the exclusive  benefit of all eligible  employees  and their  beneficiaries.
Employees  are  eligible to  participate  in the 401(k) Plan with no minimum age


                                       48
<PAGE>

requirement after completing twelve months of service in which they are credited
with at  least  501  hours of  service.  Employees  are  allowed  to  defer  and
contribute  up to 15% of their  salary each year.  The Company  matches $.50 for
each dollar deferred up to 10% of total salary.  The Board of Directors can also
elect to make  discretionary  contributions.  Employees are fully vested in both
the matching and any  discretionary  contributions  after five years of service.
The employer  contributions to the plan for 2009, 2008 and 2007 totaled $69,572,
$73,039 and $84,941 respectively.

In 2007, the Company's Board of Directors approved certain supplemental benefits
for the Chief  Executive  Officer.  These  benefits are not qualified  under the
Internal Revenue Code and they are not funded. However, life insurance contracts
owned by the Bank provide  informal,  indirect  funding for those benefits.  The
Company  recorded  deferred  compensation  expense  related to these benefits of
$486,197, $434,116 and $386,446 in 2009, 2008 and 2007, respectively.


NOTE M - 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,  or
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.

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

                                                         December 31,
                                                         ------------
                                                   2009                 2008
                                                   ----                 ----

Loan commitments .......................         $28,527,000         $30,485,940
Standby letters of credit ..............             872,735             914,735


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.

Litigation  - The Company and its  subsidiary  were  involved as  defendants  in
litigation  at  December  31,  2009  whereby a party  being sued by the Bank for
foreclosure  and  deficiency on a loan has filed a countersuit  alleging  lender
liability.  Management  believes  that no material  losses will result from this
action.  Management is not aware of any other 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.



                                       49
<PAGE>

New Offices - Land intended to be used for the Bank's future  expansion is owned
near  Powdersville,  SC.  The  Company  has  established  neither a budget nor a
schedule for the construction of that proposed office.

Other - The  Company  and its  banking  subsidiary  are not  involved  in  other
off-balance-sheet contractual relationships or transactions that could result in
liquidity needs or other commitments or significantly impact earnings.


NOTE N - DISCLOSURES ABOUT FAIR VALUES

The  Company  does not value any assets or  liabilities  at fair value under the
fair value option provisions of the ASC.

Fair  value is the  price  that  would be  received  to sell an asset or paid to
transfer a liability in an orderly  fashion  between market  participants at the
measurement  date. A three-level  hierarchy is used for fair value  measurements
based upon the  transparency  of inputs to the valuation.  No  consideration  of
large position  discounts for  instruments  quoted in active markets is allowed.
However,  entities  are  required to consider  their own  creditworthiness  when
valuing their liabilities.  For disclosure purposes,  fair values for assets and
liabilities  are shown in the level of the hierarchy  that  correlates  with the
least observable  level input that is significant to the fair value  measurement
in its entirety.  The three levels of the fair value  hierarchy are described as
follows:

Level 1 inputs reflect  quoted prices in active markets for identical  assets or
liabilities.

Level 2 inputs  reflect  observable  inputs  that may  consist of quoted  market
prices for  similar  assets or  liabilities,  quoted  prices  that are not in an
active  market,  or other  inputs that are  observable  in the market and can be
corroborated by by observable market data for substantially the full term of the
assets or liabilities being valued.

Level 3 inputs  reflect the use of pricing  models and/or  discounted  cash flow
methodologies using other than contractual  interest rates or methodologies that
incorporate a significant amount of management judgment, use of the entity's own
data, or other forms of unobservable data.

The following is a summary of the measurement attributes applicable to financial
assets and liabilities that are measured at fair value on a recurring basis:

<TABLE>
<CAPTION>
                                                     Fair Value Measurement at Reporting Date Using
                                                     ----------------------------------------------
                                                   Quoted Prices
                                                     in Active         Significant
                                                    Markets for           Other           Significant
                                                     Identical         Observable        Unobservable
                                                       Assets            Inputs             Inputs
Description                    December 31, 2009     (Level 1)         (Level 2)          (Level 3)
-----------                    -----------------     ---------         ---------          ---------

<S>                                                 <C>               <C>                  <C>
Securities available-for-sale                       $ 1,997,500       $139,712,613         $      -
</TABLE>

Pricing for the  Company's  securities  available-for-sale  is obtained  from an
independent third-party that uses a process that may incorporate current prices,
benchmark  yields,  broker/dealer  quotes,  issuer spreads,  two-sided  markets,
benchmark  securities,  bids,  offers,  other  reference  items and industry and
economic events that a market  participant would be expected to use as inputs in
valuing the  securities.  Not all of the inputs listed apply to each  individual
security at each measurement  date. The independent third party assigns specific
securities  into an "asset  class" for the purpose of assigning  the  applicable
level of the fair  value  hierarchy  used to value  the  securities.  Securities
available-for-sale  are measured at fair value with unrealized gains and losses,
net of income taxes, recorded in other comprehensive income.

The following is a description  of the valuation  methodologies  used for assets
measured  at fair  value on a  nonrecurring  basis in the  Consolidated  Balance
Sheets, including the general classification of such instruments pursuant to the
valuation hierarchy.


                                       50
<PAGE>

<TABLE>
<CAPTION>
                                                     Fair Value Measurement at Reporting Date Using
                                                     ----------------------------------------------
                                                   Quoted Prices
                                                     in Active         Significant
                                                    Markets for           Other           Significant
                                                     Identical         Observable        Unobservable          Total
                                                       Assets            Inputs             Inputs             Gains
Description                    December 31, 2009     (Level 1)         (Level 2)          (Level 3)          (Losses)
-----------                    -----------------     ---------         ---------          ---------          --------

<S>                                                 <C>             <C>                  <C>                 <C>
Collateral dependent impaired loans                 $       -       $ 11,219,306         $        -          $     -
Land held for sale                                          -            138,551                  -                -
Foreclosed assets                                           -          6,077,475                  -                -
</TABLE>


Fair values of collateral dependent impaired loans are estimated based on recent
appraisals of the underlying properties or other information derived from market
sources.

The ASC requires  disclosure of the estimated  fair value of certain  on-balance
sheet  and  off-balance   sheet  financial   instruments  and  the  methods  and
assumptions  used to  estimate  their fair  values.  A financial  instrument  is
defined as cash,  evidence of an  ownership  interest in an entity or a contract
that  creates a  contractual  obligation  or right to deliver or receive cash or
another  financial  instrument from a second entity on potentially  favorable or
unfavorable  terms.  Financial  instruments  within the ASC's scope that are not
carried at fair value on the  Consolidated  Balance Sheets are discussed  below.
Accordingly, these fair value disclosures provide only a partial estimate of the
Company's fair value.

For cash and due from  banks,  interest  bearing  deposits  due from  banks  and
federal funds sold, the carrying  amount  approximates  fair value because these
instruments generally mature in 90 days or less. The carrying amounts of accrued
interest receivable or payable approximate fair values.

The  fair  value  of  held-to-maturity   mortgage-backed  securities  issued  by
Government  sponsored  enterprises is estimated based on dealers' quotes for the
same or similar securities.

The fair value of FHLB stock is estimated at its cost. The FHLB historically has
redeemed its outstanding stock at that value.

Fair values are estimated for loans using  discounted cash flow analyses,  using
interest  rates  currently  offered  for loans  with  similar  terms and  credit
quality.  The Company  does not engage in  originating,  holding,  guaranteeing,
servicing or investing in loans where the terms of the loan product give rise to
a concentration of credit risk.

The fair value of deposits with no stated maturity  (noninterest bearing demand,
interest  bearing  transaction  accounts and savings) is estimated as the amount
payable on demand, or carrying amount, as required by the ASC. The fair value of
time deposits is estimated using a discounted cash flow calculation that applies
rates currently offered to aggregate expected maturities.

The fair values of the  Company's  short-term  borrowings,  if any,  approximate
their carrying amounts.

The fair values of fixed rate long-term  debt  instruments  are estimated  using
discounted cash flow analyses,  based on the borrowing rates currently in effect
for  similar  borrowings.  The fair  values  of  variable  rate  long-term  debt
instruments are estimated at the carrying amount.

The estimated fair values of  off-balance-sheet  financial  instruments  such as
loan  commitments  and standby  letters of credit are generally  based upon fees
charged to enter into  similar  agreements,  taking into  account the  remaining
terms  of the  agreements  and the  counterparties'  creditworthiness.  The vast
majority  of the  banking  subsidiary's  loan  commitments  do not  involve  the
charging of a fee,  and fees  associated  with  outstanding  standby  letters of
credit are not material. For loan commitments and standby letters of credit, the
committed  interest rates are either  variable or approximate  current  interest



                                       51
<PAGE>

rates offered for similar commitments.  Therefore,  the estimated fair values of
these off-balance-sheet financial instruments are nominal.

The following is a summary of the carrying  amounts and estimated fair values of
the Company's financial assets and liabilities:

<TABLE>
<CAPTION>
                                                                                       December 31,
                                                                                       ------------
                                                                           2009                                2008
                                                                           ----                                ----
                                                               Carrying         Estimated          Carrying          Estimated
                                                                 Amount         Fair Value          Amount           Fair Value
                                                                 ------         ----------          ------           ----------
Financial assets
<S>                                                           <C>               <C>               <C>               <C>
  Cash and due from banks .................................   $  1,462,535      $  1,462,535      $  9,204,306      $  9,204,306
  Interest bearing deposits due from banks ................     46,020,551        46,020,551        12,969,193        12,969,193
  Federal funds sold ......................................              -                 -        18,793,000        18,793,000
  Securities available-for-sale ...........................    141,710,113       141,710,113       126,635,534       126,635,534
  Securities held-to-maturity .............................      9,023,999         9,476,399        11,910,268        12,238,445
  Federal Home Loan Bank stock ............................      1,306,500         1,306,500         1,219,600         1,219,600
  Loans, net ..............................................    261,196,297       262,308,000       264,938,023       265,053,000
  Accrued interest receivable .............................      2,424,113         2,424,113         2,775,788         2,775,788
Financial liabilities
  Deposits ................................................    436,647,731       436,444,000       416,115,183       376,043,000
  Accrued interest payable ................................      2,043,563         2,043,563         3,044,981         3,044,981
  Long-term debt ..........................................      8,000,000         8,005,000         9,500,000        10,232,000
</TABLE>


The following is a summary of the notional or contractual  amounts and estimated
fair values of the Company's off-balance sheet financial instruments:

<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                                     ------------
                                                                         2009                              2008
                                                                         ----                              ----
                                                             Notional/        Estimated        Notional/        Estimated
                                                              Contract           Fair           Contract           Fair
                                                              Amount            Value           Amount            Value
                                                              ------            -----           ------            -----
Off-balance sheet commitments
<S>                                                        <C>                <C>            <C>                 <C>
Loan commitments .......................................   $ 28,527,000       $       -      $ 30,485,940        $      -
Standby letters of credit ..............................        872,735               -           914,735               -
</TABLE>


NOTE O - ACCOUNTING CHANGES

Effective for periods on or after  September  15, 2009,  references to generally
accepted  accounting  principals  ("GAAP")  issued by the  Financial  Accounting
Standards Board ("FASB") in these footnotes are to the FASB Accounting Standards
Codification, which is sometimes referred to as the "Codification" or "ASC." The
Codification  does not change how the Company  accounts for its  transactions or
the nature of related  disclosures  made.  However,  when referring to GAAP, the
Company  refers to topics in the ASC.  References  to GAAP have been  updated to
reflect the location of the guidance in the Codification. Other acronyms used in
the following  discussion  include  "SFAS" or Statement of Financial  Accounting
Standards,  "FAS" or Financial Accounting Standard (a variant of SFAS), "FSP" or
FASB  Staff  Position,  "EITF" or  Emerging  Issues  Task  Force",  and "APB" or
Accounting  Principles Board (an authoritative  body that promulgated GAAP prior
to the establishment of the FASB).

The  Transfers  and  Servicing  Topic  was  updated   (formerly  SFAS  No.  166,
"Accounting  for Transfers of Financial  Assets--an  amendment of FASB Statement
No. 140") to remove the concept of a qualifying  special-purpose entity from the
Topic and removes the exception from applying the Consolidations Topic (formerly
FASB Interpretation No. 46R). The objective in issuing this update is to improve


                                       52
<PAGE>

the  relevance,   representational   faithfulness,   and  comparability  of  the
information that a reporting entity provides in its financial statements about a
transfer  of  financial  assets;  the  effects  of a transfer  on its  financial
position,  financial performance,  and cash flows; and a transferor's continuing
involvement,  if any,  in  transferred  financial  assets.  This  update must be
applied as of the beginning of each reporting  entity's  first annual  reporting
period that begins  after  November 15, 2009,  for interim  periods  within that
first  annual  reporting  period and for  interim and annual  reporting  periods
thereafter.  The Company has no  interests in any  entities  that were  formerly
qualifying  special-purpose entities.  Therefore, the impact of adoption was not
material.

The Consolidations Topic was amended (formerly SFAS No. 167, "Amendments to FASB
Interpretation  No.  46(R)")  to  improve  financial  reporting  by  enterprises
involved  with  variable  interest  entities.  The  amendment  addresses (1) the
effects on certain  provisions of the Topic as they relate to the elimination of
the  qualifying  special-purpose  entity  concept in the Transfers and Servicing
Topic  and (2)  constituent  concerns  about  the  application  of  certain  key
provisions of the Topic  including those in which the accounting and disclosures
under the Topic do not always  provide  timely and useful  information  about an
enterprise's  involvement  in a variable  interest  entity.  This  amendment  is
effective as of the beginning of each reporting  entity's first annual reporting
period that begins  after  November 15, 2009,  for interim  periods  within that
first annual  reporting  period,  and for interim and annual  reporting  periods
thereafter.  The Company has no  interests  in any  variable-interest  entities.
Therefore, the impact of adoption was not material.

The Fair Value  Measurements and Disclosure - Overall Topic has been amended for
interim  and  annual  periods  beginning  after  December  15,  2009 to  require
reporting entities to disclose  separately the amounts of significant  transfers
in and out of Level 1 and Level 2 fair value  measurements  and the  reasons for
the transfers. In addition, entities will be required to provide disclosures for
each class of assets and  liabilities,  which will  increase the level of detail
beyond that of the  individual  balance  sheet line item and, for measures  that
fall  within  either  Level 2 or Level 3,  entities  will be required to provide
disclosures about the valuation techniques and inputs used to measure fair value
for both recurring and nonrecurring fair value  measurement.  Management has not
yet  determined  how it will  identify  the  appropriate  classes  of assets and
liabilities.  In addition,  effective  for interim and annual  period  beginning
after  December  15, 2010,  entities  will be required by this update to present
separately  information  about  purchases,  sales,  issuances and settlements of
items in the  reconciliation  for fair value  measurements using Level 3 inputs.
The new  requirements  are expected to provide a greater level of  disaggregated
information and more robust  disclosures  about valuation  techniques and inputs
for fair  value  measurements.  The  effect of  adopting  these  new  disclosure
requirements  is not expected to result in any material  change in the Company's
financial condition or its results of operations.

NOTE P - SUBSEQUENT EVENTS

The Company  evaluated  events  subsequent to the balance sheet date through the
date that the financial statements were issued.

Subsequent events may provide additional  evidence about conditions that existed
at the  balance  sheet  date,  including  estimates  inherent  in the process of
preparing financial  statements  (recognized  subsequent events), or may provide
evidence about conditions that did not exist at the balance sheet date but arose
after the balance  sheet date but before the  financial  statements  were issued
(nonrecognized  subsequent events). The effects of recognized subsequent events,
if any,  have been  included  in the  financial  statements.  If the  effects of
nonrecognized  subsequent  events,  if any,  are of a nature  that  they must be
disclosed to keep the financial  statements from being  misleading,  the Company
would  disclose  both the nature of the event and an estimate  of its  financial
effect or would state that an estimate of the  financial  effect cannot be made.
As of December  31, 2009,  there were no  nonrecognized  subsequent  events that
required disclosure.


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<PAGE>

NOTE Q - COMMUNITY FIRST BANCORPORATION (PARENT COMPANY ONLY)

<TABLE>
<CAPTION>
                                                                                                            December 31,
                                                                                                            ------------
                                                                                                     2009                   2008
                                                                                                     ----                   ----
Condensed Balance Sheets
      Assets
<S>                                                                                              <C>                     <C>
          Cash .....................................................................             $ 1,024,131             $ 1,794,968
          Investment in banking subsidiary .........................................              39,447,333              37,972,839
          Investment in nonbanking subsidiary ......................................               4,150,000                       -
          Land held for sale .......................................................                 138,551                 138,551
          Other assets .............................................................                  58,296                  24,675
                                                                                                 -----------             -----------
              Total assets .........................................................             $44,818,311             $39,931,033
                                                                                                 ===========             ===========
      Liabilities
          Other liabilities ........................................................             $         -             $     3,410
      Shareholders' equity .........................................................              44,818,311              39,927,623
                                                                                                 -----------             -----------
              Total liabilities and shareholders' equity ...........................             $44,818,311             $39,931,033
                                                                                                 ===========             ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                                            Years Ended December 31,
                                                                                            ------------------------
                                                                                  2009                 2008                 2007
                                                                                  ----                 ----                 ----
Condensed Statements of Income
<S>                                                                           <C>                  <C>                  <C>
      Income
          Interest income ...........................................         $    13,690          $    27,590          $    41,048
          Other income ..............................................                   -                    -                    -
                                                                              -----------          -----------          -----------
              Total income ..........................................              13,690               27,590               41,048
                                                                              -----------          -----------          -----------
      Expenses
          Interest expense ..........................................              47,119                    -                    -
          Other expenses ............................................             138,030              100,163               64,378
                                                                              -----------          -----------          -----------
              Total expenses ........................................             185,149              100,163               64,378
                                                                              -----------          -----------          -----------
      Income (loss) before income taxes and equity in
          undistributed earnings of banking subsidiary ..............            (171,459)             (72,573)             (23,330)
      Income tax expense (credit) ...................................             (58,296)             (24,675)              (7,932)
      Equity in undistributed earnings
          of banking subsidiary .....................................           1,213,877            1,390,396            3,346,110
                                                                              -----------          -----------          -----------
      Net income ....................................................         $ 1,100,714          $ 1,342,498          $ 3,330,712
                                                                              ===========          ===========          ===========
</TABLE>


                                       54
<PAGE>

<TABLE>
<CAPTION>
                                                                                               Years Ended December 31,
                                                                                               ------------------------
                                                                                        2009             2008              2007
                                                                                        ----             ----              ----
Condensed Statements of Cash Flows
      Operating activities
<S>                                                                                 <C>               <C>               <C>
          Net income .........................................................      $ 1,100,714       $ 1,342,498       $ 3,330,712
              Adjustments to reconcile net income to net
                  cash used by operating activities
                      Equity in undistributed earnings
                        of banking subsidiary ................................       (1,213,877)       (1,390,396)       (3,346,110)
                      (Increase) decrease in other assets ....................          (33,621)          (16,743)            4,230
                      Other ..................................................                -                 2                 -
                                                                                    -----------       -----------       -----------
                        Net cash used by operating activities ................         (146,784)          (64,639)          (11,168)
                                                                                    -----------       -----------       -----------
      Investing activities
          Investment in nonbanking subsidiary ................................       (4,150,000)                -                 -
          Purchase of land held for sale .....................................                -          (138,551)                -
                                                                                    -----------       -----------       -----------
                      Net cash used by investing activities ..................       (4,150,000)         (138,551)                -
                                                                                    -----------       -----------       -----------
      Financing activities
          Exercise of employee stock options .................................          486,232           364,535           478,090
          Net proceeds from issuing preferred stock
              (costs of $23,785) .............................................        3,126,215                 -                 -
          Common stock repurchased and cancelled .............................          (79,985)                -                 -
          Payment of cash in lieu of fractional
              shares for common stock dividend ...............................           (6,515)                -            (5,495)
                                                                                    -----------       -----------       -----------
                        Net cash provided by financing activities ............        3,525,947           364,535           472,595
                                                                                    -----------       -----------       -----------
      (Decrease) increase in cash and cash equivalents .......................         (770,837)          161,345           461,427
      Cash and cash equivalents, beginning ...................................        1,794,968         1,633,623         1,172,196
                                                                                    -----------       -----------       -----------
      Cash and cash equivalents, ending ......................................      $ 1,024,131       $ 1,794,968       $ 1,633,623
                                                                                    ===========       ===========       ===========
</TABLE>





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