EXHIBIT 13
                               EXCERPTS FROM 2001
                         ANNUAL REPORT TO SHAREHOLDERS


Financial Summary*

<Table>
<Caption>
                                                                                  Years Ended December 31,
                                                                                  ------------------------
                                                               2001            2000            1999           1998            1997
                                                               ----            ----            ----           ----            ----
                                                                       (Dollars in thousands, except per share data)
Financial Condition
<S>                                                         <C>             <C>             <C>             <C>             <C>
     Securities ....................................        $ 71,339        $ 57,862        $ 54,178        $ 38,284        $ 25,510
     Allowance for loan losses .....................           1,200           1,000             943             955             890
     Net loans .....................................         118,544          96,562          75,215          66,938          64,948
     Premises and equipment - net ..................           3,232           3,411           3,289           2,871           1,675
     Total assets ..................................         211,898         181,066         153,583         127,127         104,968
     Noninterest bearing deposits ..................          25,449          21,224          16,909          14,798          16,501
     Interest bearing deposits .....................         168,070         143,158         121,709          97,698          75,790
     Total deposits ................................         193,519         164,382         138,618         112,496          92,291
     Total liabilities .............................         194,881         166,171         139,847         113,524          93,118
     Total shareholders' equity ....................          17,017          14,895          13,736          13,603          11,850

Results of Operations
     Interest income ...............................        $ 13,969        $ 12,034        $ 10,402        $  8,904        $  7,578
     Interest expense ..............................           8,212           7,014           5,687           4,518           3,664
                                                            --------        --------        --------        --------        --------
     Net interest income ...........................           5,757           5,020           4,715           4,386           3,914
     Provision for loan losses .....................             567             305             300             213             315
                                                            --------        --------        --------        --------        --------
     Net interest income after provision ...........           5,190           4,715           4,415           4,173           3,599
     Other income ..................................           1,021             865             662             574             522
     Other expenses ................................           3,239           2,962           2,542           2,155           1,909
                                                            --------        --------        --------        --------        --------
     Income before income taxes ....................           2,972           2,618           2,535           2,592           2,212
     Income tax expense ............................           1,067             939             909             928             807
                                                            --------        --------        --------        --------        --------
     Net income ....................................        $  1,905        $  1,679        $  1,626        $  1,664        $  1,405
                                                            ========        ========        ========        ========        ========

Per Share Data**
     Net income ....................................        $   0.90        $   0.79        $   0.75        $   0.77        $   0.66
     Net income, assuming dilution .................            0.85            0.74            0.69            0.72            0.64
     Period end book value .........................            8.04            7.01            6.22            6.25            5.51
</Table>

*    Community First Bancorporation became the bank holding company of Community
     First Bank effective October 16, 1997 as part of a corporate reorganization
     which  was  accounted  for  as  if  it  were  a  pooling-of-interests.  The
     consolidated  financial  statements  and related  information  for the year
     ended December 31, 1997 are presented as if the reorganization had occurred
     on January 1, 1997.
**   Per share  amounts  have been  retroactively  adjusted  to reflect 5% stock
     dividends  effective  December  21, 2001 and December 15, 2000, a 10% stock
     dividend  effective  December 15, 1999, a two-for-one stock split effective
     July 31, 1998 and a 15% stock dividend effective December 30, 1997.



                                       1
<Page>

Market for Common Stock and Dividends

         Although a limited number of shares of common stock of Community  First
Bancorporation  (the  "Company")  are traded from time to time on an  individual
basis,  no  established  trading  market has  developed  and none is expected to
develop  in the near  future.  The  common  stock is not  traded  on the  NASDAQ
National Market System, nor are there any market makers known to management.

         During 2001,  the Company  repurchased  and cancelled a total of 19,377
shares of its common stock from two of the  Company's  directors  for a total of
$358,786,  or an average price of $18.52 (20,346  shares at $17.63,  if adjusted
for the 5% stock dividend  effective  December 31, 2001). On April 20, 2000, the
Company repurchased and cancelled 110,000 shares of its common stock for a price
of $17.27 per share, totaling $1,900,000 (121,275 shares at $15.66 per share, if
adjusted for the 5% stock dividends effective December 21, 2001 and December 15,
2000).  The shares  repurchased  in 2000  comprised  5.5% of the Company's  then
outstanding  common  stock  and  were  acquired  from  one  shareholder  who had
expressed to management a desire to sell his shares.  The foregoing  repurchases
and  cancellations  of  shares,  including  the  per  share  prices  paid,  were
negotiated between the shareholders and the Company's management and approved by
the Board of Directors.

         During 2001,  management was aware of a few other transactions in which
the  Company's  common  stock  traded in a price range from $15.71 to $20.95 per
share (per  share  prices  have been  adjusted  to  reflect a 5% stock  dividend
effective December 21, 2001). However, management has not ascertained that these
transactions  resulted  from  arm's  length  negotiations  between  the  parties
involved, and because of the limited number of shares involved, these prices may
not be indicative of the market value of the common stock.

         As of February 28, 2002, there were approximately 823 holders of record
of the Company's  common stock,  excluding  individual  participants in security
position listings.

         There have been no cash dividends  declared or paid since the Company's
inception.  In order to support  the  Company's  continuing  need for capital to
support  anticipated  asset  growth and market  expansion,  management  does not
expect to declare or pay cash dividends in 2002.

         The Board of Directors  declared a 5% stock dividend effective December
21,  2001, a 5% stock  dividend  effective  December  15, 2000,  and a 10% stock
dividend effective December 15, 1999.

         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.  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

         This discussion is intended to assist in understanding the consolidated
financial condition and results of operations of Community First  Bancorporation
and its wholly-owned  subsidiary,  Community First Bank (the "Bank"),  which are
collectively  referred to as the "Company".  This information should be reviewed
in  conjunction  with the  consolidated  financial  statements and related notes
contained  elsewhere  in this  report.  Per share  net  income  and net  income,
assuming  dilution,  have been adjusted to reflect a 5% stock dividend effective
December 21, 2001, a 5% stock  dividend  effective  December 15, 2000, and a 10%
stock dividend effective December 15, 1999.





                                       2
<Page>

Forward Looking Statements

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


Earnings Performance

2001 Compared with 2000

         For the year ended December 31, 2001,  the Company  recorded net income
of $1,905,000,  an increase of $226,000, or 13.5%, from net income of $1,679,000
for 2000.  Net income per share for 2001 was $.90  compared  with $.79 for 2000.
Per share net income,  assuming dilution for unexercised stock options, was $.85
for 2001 compared with $.74 for 2000. Return on average assets was .91% for 2001
compared with 1.02% for 2000. Return on average  shareholders'  equity decreased
to 11.82% for 2001 from 12.70% for 2000.

         Net  income  increased  in 2001  primarily  as a result of  higher  net
interest income.  The $737,000  increase in net interest income was attributable
to higher  volumes of interest  earning assets in 2001,  particularly  loans and
federal funds sold. The funding  supporting  these  increases is attributable in
large measure to the Company's  ability to attract  deposits at favorable  rates
over the last three years through its expansion activities into Anderson County,
South  Carolina.  See  "Net  Interest  Income"  for  further  discussion  of the
Company's interest income and expense.

         Partially  offsetting  the positive  effects of increased  net interest
income  in  2001  were  increases  in  provisions  for  loan  losses  and  other
noninterest operating expenses. Increased loan loss provisions totaling $262,000
resulted from  year-over-year  loan growth of  $22,182,000  or 22.7%,  increased
amounts of net loan  charge-offs,  and a higher amount of  nonperforming  loans.
Noninterest  operating  expenses increased $277,000 in 2001 primarily to obtain,
manage and process increased profitable volumes of business.

         Comprehensive income for 2001, 2000 and 1999 was $2,435,000, $2,941,000
and  $14,000,   respectively.   Accounting  principles  generally  require  that
recognized revenue,  expenses, gains and losses be included in net income. Other
elements of comprehensive  income for the Company are correlated directly to the
effects that  changing  market rates of interest  have on the fair values of the
Company's holdings of  available-for-sale  securities.  The resulting changes in
unrealized  holding  gains  and  losses on such  securities  are  reported  as a
separate component of shareholders'  equity. Those changes in fair value, net of
income tax effects, combined with net income comprise comprehensive income.

2000 Compared with 1999

         For the year ended December 31, 2000,  the Company  recorded net income
of $1,679,000,  an increase of $53,000,  or 3.3%,  from net income of $1,626,000
for 1999.  Net income per share for 2000 was $.79  compared  with $.75 for 1999.
Per share net income,  assuming dilution for unexercised stock options, was $.74
for 2000  compared  with $.69 for 1999.  Return on average  assets was 1.02% for
2000  compared  with  1.09% for 1999.  Return on  average  shareholders'  equity
increased to 12.70% for 2000 from 11.86% for 1999.

         Net income  increased  slightly in 2000 primarily as a result of higher
net  interest  income.   The  $305,000  increase  in  net  interest  income  was
attributable to higher volumes of interest earning assets in 2000,  particularly
loans and available-for-sale  securities.  These increases were made possible by
funding obtained through the Company's  increased ability to attract deposits at
favorable  rates due to its expansion  activities  into Anderson  County,  South
Carolina.




                                       3
<Page>

         Partially  offsetting  the positive  effects of increased  net interest
income  were  increases  in other  operating  expenses  largely  related  to the
expansion activities.  In 2000, the banking subsidiary completed its second full
year of operations in its de novo City of Anderson  office.  On August 28, 2000,
the  Company  opened  for  business  a fourth  office,  de novo,  in the Town of
Williamston.  Expenses  incurred  to staff and operate  these  offices and other
expenses incurred for increased  volumes of business were primarily  responsible
for an increase of $420,000 in other expenses in 2000.


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.  For analysis purposes, interest income from tax-exempt investments
has  been  adjusted  to an  amount  that  would  have to be  earned  on  taxable
investments  to produce  the same  after-tax  yields.  This  adjusted  amount is
referred to as fully taxable equivalent (FTE) interest income.

         FTE net interest income was  $5,791,000,  $5,028,000 and $4,717,000 for
2001, 2000 and 1999, respectively.  FTE interest income for 2001 was $1,961,000,
or 16.3%,  more than in 2000.  Similarly,  interest  expense for 2001  increased
$1,199,000,  or 17.1%, over the prior year amount.  The $763,000 increase in FTE
net interest  income for 2001 resulted from higher  volumes of interest  earning
assets.  Growth in loans was  especially  strong as average  loans for 2001 were
$20,218,000,  or 23.4%,  more than the 2000 amount.  The Company's federal funds
sold  position  was much  stronger  in 2001,  also,  increasing  on  average  to
$31,515,000,  an  increase  of  $19,001,000,  or 151.8%,  over the 2000  average
amount. In addition,  investment securities increased  significantly,  averaging
$4,618,000, or 8.0%, more in 2001 than in 2000. Funding sources for these assets
were  provided  by  increased  deposit  liabilities.  Average  interest  bearing
deposits  increased by $37,818,000,  or 28.9%,  over the 2000 amount and average
non-interest bearing deposits increased by $4,802,000, or 25.9%.

         As shown in the table  "Volume  and Rate  Variance  Analysis,"  falling
interest  rates did not  significantly  affect net interest  income during 2001.
Decreases in interest  income  attributable  to the rate component in that table
were almost  completely  offset by decreases  in the rate  component of interest
expense.  Because rates paid for funds  decreased  less than did rates earned on
earning  assets,  the interest rate spread  (earning assets yield minus interest
bearing  liabilities  rate)  decreased  by 21 basis  points  to 2.09%  for 2001.
Furthermore,  the net yield on earning  assets (net interest  income  divided by
average earning assets) decreased by 32 basis points to 2.88%.

         During  2001,  market  rates of  interest  decreased  significantly  in
response to actions  taken by the Federal  Reserve  Board to implement  monetary
policy.  The Federal  Reserve Board perceived that  recessionary  forces posed a
greater  risk  than  did  other  potential  threats  to  the  nation's  economic
stability.  Interest  rates were lowered  dramatically  to provide a stimulus to
economic  activity.  Furthermore,  in order to counterbalance  the immediate and
lingering effects on the economy of the terrorist actions of September 11, 2001,
an additional  stimulus in the form of further rate cuts was  implemented.  As a
result of these  external  actions,  the Company's  investments in variable rate
loans  were  repriced  quickly to lower  rates  throughout  the year.  The rapid
decline in market interest rates also made prepayment or refinancing of existing
fixed  rate  mortgage  and other  loans  attractive  to  borrowers.  Because  of
competitive forces, the Company renegotiated downward the rates on some existing
fixed rate loans rather than lose the customers to other lenders  offering lower
rate alternatives.  In addition,  many of the Company's  longer-term  securities
investments  were called by the  issuers  prior to  maturity  with the  proceeds
subsequently  reinvested at the lower rates then available.  In the later months
of 2000,  the Company had  increased the rates of interest it offered on certain
new  deposit  accounts,  particularly  on  certificates  of  deposit  in the new
Anderson and Williamston markets.  These actions were taken to meet competitors'
offerings and to increase the Company's ability to acquire funds in these market
areas.  As interest rate declines began during the first few months of 2001, the
Company was not able to reprice  these fixed rate funding  sources  immediately.
This repricing  mismatch  contributed  to the lower net interest  margin and net
yield on earning assets.





                                       4
<Page>

         The  $311,000  growth  in FTE net  interest  income  for 2000  resulted
primarily from the positive effects of higher levels of interest earning assets.
Growth  in  loans  was  especially   strong  as  average  loans  for  2000  were
$14,318,000,  or 19.9%, more than the 1999 amount. Also,  investment  securities
increased  significantly,  averaging $8,189,000,  or 16.4%, more in 2000 than in
1999.  Funding  sources for these  assets were  provided by  increasing  deposit
liabilities and decreasing  investments in overnight federal funds sold. Average
interest  bearing  deposits  increased by $12,700,000,  or 10.8%,  over the 1999
amount and average  non-interest  bearing deposits  increased by $2,847,000,  or
18.1%.  Average federal funds sold decreased by $7,621,0000,  or 37.8%, from the
1999 amount.

         Rising  interest rates during 2000 had an adverse effect on the Company
as rates paid for funding  sources  increased  more than rates earned on earning
assets.  As a result,  the  interest  rate spread  (earning  assets  yield minus
interest  bearing  liabilities  rate)  decreased by 19 basis points to 2.30% for
2000. Furthermore,  the net yield on earning assets (net interest income divided
by average earning assets) decreased by 11 basis points to 3.20%.

         During  2000,  market  rates of  interest  increased  significantly  in
response to actions taken by the Federal  Reserve Board to offset its perception
of inflationary  threats to the national economy. The Company responded to those
actions by varying  the rates it  charged on  variable  rate loans as allowed by
contract and by investing in somewhat  longer-term,  higher-yielding  investment
securities while maintaining a conservative level of liquidity. In addition, the
Company  increased the rates of interest it paid on certain new deposit accounts
originated in 2000,  particularly on certificates of deposit in the new Anderson
and Williamston markets. These actions were taken to meet competitors' offerings
and to increase the Company's ability to acquire funds in these market areas.

         The table,  "Average Balances,  Yields and Rates",  provides a detailed
analysis of the average amounts of the Company's  assets and liabilities and the
effective  yields and rates on the categories of average interest earning assets
and interest bearing liabilities for the years ended December 31, 2001, 2000 and
1999.



                                       5
<Page>

                       Average Balances, Yields and Rates

<Table>
<Caption>
                                                                          Years ended December 31,
                                                                          ------------------------
                                                 2001                               2000                            1999
                                                 ----                               ----                            ----
                                     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    $      1    5.00%  $       9    $       1    11.11%  $      17    $       1    5.88%
Taxable securities .............      62,458       3,620    5.80%     57,841        3,556     6.15%     49,767        3,045    6.12%
Tax exempt securities(2) .......         198          15    7.58%        197           15     7.61%         82            6    7.32%
Federal funds sold .............      31,515       1,297    4.12%     12,514          761     6.08%     20,135          995    4.94%
Other investments ..............         458          38    8.30%        385           30     7.79%        374           27    7.22%
Loans(2),(3) ...................     106,480       9,032    8.48%     86,262        7,679     8.90%     71,944        6,330    8.80%
                                   ---------    --------           ---------    ---------            ---------    ---------
        Total interest
           earning assets ......     201,129      14,003    6.96%    157,208       12,042     7.66%    142,319       10,404    7.31%
Cash and due from banks ........       3,588                           3,156                             3,348
Allowance for loan losses ......      (1,030)                           (991)                             (955)
Unrealized securities
  gains (losses) ...............         177                          (2,489)                           (1,075)
Premises and equipment .........       3,317                           3,339                             3,251
Other assets ...................       2,813                           3,737                             1,904
                                   ---------                       ---------                         ---------
        Total assets ...........   $ 209,994                       $ 163,960                         $ 148,792
                                   =========                       =========                         =========

Liabilities and
 shareholders' equity
Interest bearing deposits
     Interest bearing
        transaction accounts ...   $  26,099    $    628    2.41%  $  22,870    $     739     3.23%  $  17,711    $     541    3.05%
     Savings ...................      23,707         738    3.11%     21,006          806     3.84%     20,063          704    3.51%
     Time deposits $100M
       and over ................      50,156       2,661    5.31%     38,800        2,440     6.29%     37,977        2,015    5.31%
     Other time deposits .......      68,637       4,185    6.10%     48,105        3,029     6.30%     42,330        2,427    5.73%
                                   ---------    --------           ---------    ---------            ---------    ---------
        Total interest bearing
          deposits .............     168,599       8,212    4.87%    130,781        7,014     5.36%    118,081        5,687    4.82%
Short-term borrowings ..........           -           -    0.00%          -            -     0.00%          3            -    0.00%
                                   ---------    --------           ---------    ---------            ---------    ---------
        Total interest bearing
          liabilities ..........     168,599       8,212    4.87%    130,781        7,014     5.36%    118,084        5,687    4.82%
Noninterest bearing
 demand deposits ...............      23,352                          18,550                            15,703
Other liabilities ..............       1,932                           1,407                             1,297
Shareholders' equity ...........      16,111                          13,222                            13,708
                                   ---------                       ---------                         ---------
        Total liabilities
          and shareholders'
          equity ...............   $ 209,994                       $ 163,960                         $ 148,792
                                   =========                       =========                         =========
Interest rate spread(4) ........                            2.09%                             2.30%                            2.49%
Net interest income and
 net yield on earning
 assets(5) .....................                $  5,791    2.88%               $   5,028     3.20%               $   4,717    3.31%
Interest free funds
 supporting earning assets(6) ..   $  32,530                       $  26,427                         $  24,235

</Table>
--------------------------
(1)  Average balances are computed on a daily basis.
(2)  Computed on a fully  taxable  equivalent  basis using a federal  income tax
     rate of 34%.
(3)  Nonaccrual  loans are included in the average  loan  balances and income on
     such loans is recognized on a cash basis.
(4)  Total  interest  earning  assets  yield  less the  total  interest  bearing
     liabilities rate.
(5)  Net interest income divided by total interest earning assets.
(6)  Total interest earning assets less total interest bearing liabilities.



                                       6
<Page>

         The table,  "Volume and Rate Variance Analysis",  provides a summary of
changes in net  interest  income  resulting  from changes in volumes of interest
earning assets and interest bearing  liabilities,  and the rates earned and paid
on such assets and liabilities.

   Volume and Rate Variance Analysis

<Table>
<Caption>
                                                               2001 Compared with 2000               2000 Compared with 1999
                                                               -----------------------               -----------------------
                                                           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 ..............     $     1     $    (1)     $     -      $     -      $     -      $     -
Taxable securities ....................................         275        (211)          64          496           15          511
Tax exempt securities (2) .............................           -           -            -            8            1            9
Federal funds sold ....................................         848        (312)         536         (431)         197         (234)
Other investments .....................................           6           2            8            1            2            3
Loans (2) .............................................       1,729        (376)       1,353        1,274           75        1,349
                                                            -------     -------      -------      -------      -------      -------
            Total interest income .....................       2,859        (898)       1,961        1,348          290        1,638
                                                            -------     -------      -------      -------      -------      -------
Interest bearing deposits
     Interest bearing transaction accounts ............          95        (206)        (111)         165           33          198
     Savings ..........................................          96        (164)         (68)          34           68          102
     Time deposits $100M and over .....................         641        (420)         221           45          380          425
     Other time deposits ..............................       1,255         (99)       1,156          350          252          602
                                                            -------     -------      -------      -------      -------      -------
            Total interest expense ....................       2,087        (889)       1,198          594          733        1,327
                                                            -------     -------      -------      -------      -------      -------
            Net interest income .......................     $   772     $    (9)     $   763      $   754      $  (443)     $   311
                                                            =======     =======      =======      =======      =======      =======
</Table>

------------------------------------------------------
(1)  The  rate/volume  variance  for  each  category  has  been  allocated  on a
     consistent  basis between rate and volume variances based on the percentage
     of rate or volume variance to the sum of the two absolute  variances except
     in categories having balances in only one period. In such cases, the entire
     variance is attributed to volume variances.
(2)  Computed on a fully  taxable  equivalent  basis using a federal  income tax
     rate of 34%.

         Management  currently  expects that  interest  rates will move within a
narrower range in 2002 than in 2001. Management has not presently identified any
factors  that might cause  interest  rates to increase or decrease  sharply in a
short period of time. However,  changes in interest rates that can significantly
affect the Company,  either  positively or  negatively,  are possible as seen in
2001. Any significant changes in net interest income for 2002 are expected to be
largely  the result of changes in the  volumes of  interest  earning  assets and
liabilities.  Management  expects to continue using its marketing  strategies to
increase the  Company's  market share of both  deposits and quality loans within
its market areas.  These strategies involve offering  attractive  interest rates
and outstanding customer service.

Interest Rate Sensitivity

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

         The  table,  "Interest  Sensitivity  Analysis",  indicates  that,  on a
cumulative basis through twelve months, rate sensitive liabilities exceeded rate
sensitive assets at the end of 2001 by  $109,301,000,  resulting in a cumulative
gap ratio of .32.  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 2001 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, in a rapidly falling interest rate environment,  such as experienced in
2001, net interest income can decrease despite a negative  interest  sensitivity
gap. This can occur because  debtors can obtain lower interest rate financing by
prepaying,  refinancing  or  renegotiating  their  existing,  higher  fixed rate
mortgage and other  loans.  Similarly,  issuers of federal and local  government
securities  can exercise  early call  options to prepay or refinance  their debt
securities at lower rates.

                                       7
<Page>

         A mismatch in the size of the  interest  rate changes that are possible
for certain  interest  sensitive assets and liabilities can also have a negative
effect on net interest margins in a rapidly falling  interest rate  environment.
For example,  the Company is  relatively  constrained  in its ability to reprice
interest  bearing  transaction  accounts and savings  accounts.  Although  these
deposits are interest  sensitive in the earliest period shown in the table,  the
rates paid cannot  decrease  below  zero.  Yields on  interest  earning  assets,
however, are generally  established at interest rates in excess of the Company's
cost to acquire  funds,  and may  therefore  decrease  further  before  they are
similarly constrained.

         The table,  "Interest Sensitivity  Analysis",  reflects the balances of
interest earning assets and interest bearing liabilities at the earlier of their
repricing or maturity  dates.  Amounts of fixed rate loans are  reflected at the
loans' final maturity dates. Variable rate loans are reflected at the earlier of
their  contractual  maturity date or the date at which the loans may be repriced
contractually.   Taxable  securities  are  reflected  at  the  earlier  of  each
instrument's  ultimate maturity or contractual repricing date. Overnight federal
funds sold are reflected in the earliest  contractual  repricing interval due to
the immediately  available nature of these funds.  Interest bearing  liabilities
with no contractual maturity,  such as interest bearing transaction accounts and
savings  deposits,  are  reflected in the  earliest  repricing  interval.  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.  Variable rate time
deposits,  principally  individual  retirement  accounts,  are  reflected at the
earlier of their next repricing or maturity dates.

      Interest Sensitivity Analysis

<Table>
<Caption>
                                                                                          December 31, 2001
                                                                                          -----------------
                                                              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 .........      $      27       $       -       $       -      $       -      $      27
     Securities available-for-sale ....................            745              83          58,459         12,052         71,339
     Other investments ................................            480               -               -              -            480
     Federal funds sold ...............................          9,240               -               -              -          9,240
     Loans (1) ........................................         31,090           8,797          74,338          4,910        119,135
                                                             ---------       ---------       ---------      ---------      ---------
            Total interest earning assets .............         41,582           8,880       $ 132,797      $  16,962      $ 200,221
                                                             =========       =========       =========      =========      =========

Interest bearing liabilities
     Interest bearing deposits
        Interest bearing transaction accounts .........      $  25,754       $       -       $       -      $       -      $  25,754
        Savings .......................................         24,323               -               -              -         24,323
        Time deposits $100M and over ..................         31,232          17,611           1,582              -         50,425
        Other time deposits ...........................         27,131          33,712           6,725              -         67,568
                                                             ---------       ---------       ---------      ---------      ---------
            Total interest bearing liabilities ........        108,440          51,323       $   8,307      $       -      $ 168,070
                                                             ---------       ---------       =========      =========      =========

Interest sensitivity gap ..............................      $ (66,858)      $ (42,443)
Cumulative interest sensitivity gap ...................      $ (66,858)      $(109,301)
Gap ratio .............................................           0.38            0.17
Cumulative gap ratio ..................................           0.38            0.32
</Table>
________________________
(1)  Loans are net of nonaccruing loans totaling $609,000.

Provision for Loan Losses

         The  provision  for  loan  losses  is  charged  to  earnings  based  on
management's  continuing review and evaluation of the loan portfolio and general
economic  conditions.  Provisions  for loan losses were  $567,000,  $305,000 and
$300,000 for the years ended December 31, 2001, 2000 and 1999, respectively. The
Company  increased  the  provisions  in 2001 and 2000 due to the  levels  of net
charge-offs,  higher loan volume,  and increased  amounts of  nonperforming  and

                                       8
<Page>

potential problem loans. Net charge-offs for 2001 were $367,000,  an increase of
$119,000 from the amount for 2000. Net  charge-offs  for 2000 were  $248,000,  a
decrease of $64,000 from the 1999  amount.  The  allowance  for loan losses as a
percentage  of total loans at year end was 1.00% for 2001 compared with 1.02% at
the end of 2000.  See  "Impaired  Loans" and  "Allowance  for Loan Losses" for a
discussion of the factors management  considers in its review of the adequacy of
the allowance and provision for loan losses.

Other Income

         Noninterest  income for 2001 increased $156,000 or 18.0% to $1,021,000,
compared  with an  increase of  $203,000  or 30.7% in 2000.  Service  charges on
deposit accounts  increased $213,000 or 37.0% to $789,000 for 2001, and $147,000
or 34.3% in 2000.  These  increases were  primarily due to increased  chargeable
account activity related to larger numbers of accounts held by customers. Credit
life  insurance  commissions  decreased  by $18,000 in 2001  following a $21,000
increase  in 2000.  A $4,000  gain was  realized  on the sale of one  investment
security in 2001, and there were no realized  securities gains or losses in 2000
or 1999.

Other Expenses

         Noninterest expenses for 2001 increased $277,000 or 9.4%, compared with
an  increase  of  $420,000  or 16.5% in 2000.  Salaries  and  employee  benefits
increased $194,000 in 2001 and $180,000 in 2000. The 2001 increase resulted from
recording the first full year of operations of the Williamston  office opened in
August of 2000,  the hiring of  additional  lending  personnel,  higher costs of
providing  life and health  insurance  coverage to employees,  and normal salary
adjustments.  The 2000 increase resulted primarily from the hiring of additional
management and other personnel to oversee the Company's expanding operations and
from normal salary adjustments.

         Net occupancy and furniture and equipment expenses decreased by $3,000,
or.7%, in 2001 and increased  $94,000,  or 27.0%, for 2000. The increase in 2000
was  caused  by  higher  depreciation  expense  and other  related  expenses  of
operations,  such as real  estate  taxes  and  utilities,  associated  with  the
expansion into Anderson County.

         Other  expense  for 2001  increased  $85,000,  or  8.8%,  over the 2000
amount.  This  increase  was caused by higher  stationery,  printing and postage
expenses related primarily to increased account volumes,  increased  utilization
of  professional  services  for  investment,   asset/liability   management  and
strategic planning advisory services, and higher expenses related to holding and
disposing of other real estate.  Other  expenses for 2000 increased by $146,000,
or 17.9%,  over their 1999 level.  The 2000  increase  was caused  primarily  by
higher  expenses  such as  printing  and  postage,  advertising  and  promotion,
telephone,  and other expenses that would be expected to rise in an organization
expanding its geographic territory and office network.

         Noninterest  overhead  expenses  for 2002 are  expected  to increase as
compared  with  2001  because  of  the  Company's  expanding  presence  in,  and
commitment  to, the  Anderson  County  market.  The Company  opened an office in
Williamston,  South Carolina in temporary quarters in the third quarter of 2000.
Construction of a permanent  office facility in Williamston is expected to begin
during the second quarter of 2002 with  completion  anticipated  near the end of
2002.

         The Company continues to hold for sale four commercial  parcels of land
it developed in 1999 adjacent to its City of Anderson office.  This property was
subdivided  and developed  from the original  property  acquisition  for the new
office.  To date,  no  contracts  for sales have been  entered  into.  Marketing
efforts  have been held up  because  of a road  construction  project  affecting
traffic  access to the  property.  The  property is carried in the  consolidated
balance sheet at a cost of $980,000 at the end of 2001. Periodically, management
evaluates this real estate for impairment in value, and any appropriate downward
adjustments to net realizable value will be charged to expense if necessary.

         Increases  in  noninterest  expenses  are  closely  monitored  and cost
control will continue to be emphasized by management  where possible in order to
achieve profitability  objectives and attain the goal of growth in the Company's
market share in Oconee and Anderson counties.

Income Taxes

         For 2001,  federal and state income tax expenses  increased by $128,000
to  $1,067,000.  In 2000,  federal and state  income tax  expenses  increased to
$939,000 from $909,000 in 1999. The  fluctuations  in income tax expense are due
to increasing  amounts of earnings.  The  effective  income tax rate (income tax
expense  divided by income before  income  taxes) was 35.9% for 2001,  35.9% for
2000,  and 35.9% for 1999.  The  Company  has  minimal  amounts  of income  from
nontaxable sources,  such as nontaxable  investment securities or loans to local
governments.

                                       9
<Page>

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,
                                                                                                 ------------
                                                                                2001                 2000                   1999
                                                                                ----                 ----                   ----
                                                                             Available-           Available-             Available-
                                                                              for-Sale             for-Sale               for-Sale
                                                                              --------             --------               --------
                                                                                           (Dollars in thousands)

<S>                                                                            <C>                    <C>                    <C>
U. S. Treasury ................................................                $     -                $ 1,992                $ 1,969
U. S. Government agencies .....................................                 62,329                 47,510                 45,675
State, county and municipal ...................................                    203                    204                    193
Mortgage-backed securities ....................................                  8,807                  8,156                  6,341
                                                                               -------                -------                -------
   Total ......................................................                $71,339                $57,862                $54,178
                                                                               =======                =======                =======
</Table>

         The following table presents  maturities and weighted average yields of
securities at December 31, 2001.

                   Securities Portfolio Maturities and Yields

<Table>
<Caption>
                                                                                  December 31, 2001
                                                                                  -----------------
                                                                      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)
Available-for-sale
<S>                                          <C>       <C>    <C>        <C>    <C>        <C>    <C>        <C>    <C>        <C>
U. S. Government agencies ................   $    -    0.00%  $53,626    4.51%  $ 8,703    6.08%  $     -    0.00%  $62,329    4.73%
State, county and municipal (1) ..........        -    0.00%        -    0.00%        -    0.00%      203    4.73%      203    4.73%
Mortgage-backed securities (2) ...........       83    6.50%    4,833    5.70%      758    6.01%    3,133    6.24%    8,807    5.93%
                                             ------           -------           -------           -------           -------
        Total ............................   $   83    6.50%  $58,459    4.61%  $ 9,461    6.07%  $ 3,336    6.15%  $71,339    4.88%
                                             ======           =======           =======           =======           =======
</Table>
______________________________
(1)  Computed on a fully  taxable  equivalent  basis using a federal  income tax
     rate of 34%.
(2)  Maturity  categories  based  upon  final  stated  maturity  dates.  Average
     maturity  is  substantially  shorter  because  of  the  monthly  return  of
     principal on certain securities.

         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 2001, one security sale resulted in the recognition of
a gain of $4,000.  During 2000 and 1999,  there were no sales of securities.  No
transfers  of  available-for-sale   or  held-to-maturity   securities  to  other
categories were effected in any of the years 1999 through 2001.

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

                                       10
<Page>

Loan Portfolio

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

         The amounts of loans  outstanding  at December 31, 2001,  2000 and 1999
are shown in the following  table  according to type of loan, and the percentage
of each category to total loans:

                           Loan Portfolio Composition

<Table>
<Caption>
                                                                                           December 31,
                                                                                           ------------
                                                                      2001                     2000                    1999
                                                                      ----                     ----                    ----
                                                              Amount          %        Amount           %       Amount           %
                                                              ------          -        ------           -       ------           -
                                                                                     (Dollars in thousands)
Commercial, financial and industrial
<S>                                                         <C>            <C>       <C>            <C>       <C>             <C>
     Commercial and industrial .......................      $ 21,006        17.5%    $ 16,997        17.4%    $ 11,964         15.7%
     Purchasing or carrying securities ...............         2,578         2.1%       2,654         2.7%       1,998          2.6%
Real estate - construction ...........................           346          .3%         200          .2%          28           .1%
Real estate - mortgage
     1-4 family residential ..........................        45,329        37.9%      39,163        40.1%      31,854         41.8%
     Multifamily (5 or more) residential .............         1,862         1.5%         641          .7%         182           .2%
     Nonfarm, nonresidential .........................        27,047        22.6%      17,897        18.4%      12,919         17.0%
Consumer installment
     Credit card and checking credit .................         1,030          .9%       1,097         1.1%       1,046          1.4%
     Other ...........................................        20,546        17.2%      18,913        19.4%      16,167         21.2%
                                                            --------       -----     --------       -----     --------        -----
                     Total loans .....................      $119,744       100.0%    $ 97,562       100.0%    $ 76,158        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.

         Commercial  and  industrial  loans  primarily  represent  loans made to
businesses,  and may be made on either a secured  or an  unsecured  basis.  When
taken,  collateral  consists of liens on  receivables,  equipment,  inventories,
furniture and fixtures.  Unsecured business loans are generally  short-term with
emphasis on repayment strengths and low debt-to-worth ratios. During 2001, total
commercial,  financial and industrial loans increased $3,933,000 or 20.0%. Loans
mainly for  business  and  investment  purposes  that are secured by real estate
(nonfarm,   nonresidential)  increased  by  $9,150,000  or  51.1%  during  2001.
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.    During    1999,    a   senior    commercial    lending
officer/administrator  position was created to enhance expertise and supervision
in this area. However,  turnover of personnel hired for this position has slowed
the implementation of these objectives, and no one is currently employed in this
position.

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

         Loans secured by real estate mortgages comprised  approximately 62% and
59% of the Company's loan  portfolio at the end of 2001 and 2000,  respectively.
Real  estate  mortgage  loans of all types grew  $16,683,000  during 2001 and by
$12,918,000  during 2000.  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.

                                       11
<Page>

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,  2001,  as well as the type of
interest requirement on such loans.


<Table>
<Caption>
                                                                                              December 31, 2001
                                                                                              -----------------
                                                                           One Year         One to        Five Years
                                                                            or Less       Five Years        or More           Total
                                                                            -------       ----------        -------           -----
                                                                                            (Dollars in thousands)

<S>                                                                         <C>             <C>             <C>             <C>
Commercial, financial and industrial ...............................        $ 12,486        $ 10,723        $    375        $ 23,584
Real estate - construction .........................................               -             346               -             346
Real estate - mortgage .............................................          10,610          36,273          27,355          74,238
Consumer installment ...............................................           4,498          15,954           1,124          21,576
                                                                            --------        --------        --------        --------
              Total loans ..........................................        $ 27,594        $ 63,296        $ 28,854        $119,744
                                                                            ========        ========        ========        ========

Predetermined rate, maturity greater than one year .................                        $ 57,403        $  4,885        $ 62,288
                                                                                            ========        ========        ========

Variable rate or maturity within one year ..........................        $ 27,594        $  5,893        $ 23,969        $ 57,456
                                                                            ========        ========        ========        ========
</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.  Following is a summary of the
Company's impaired loans:

                        Nonaccrual and Past Due Loans

                                                          December 31,
                                                          ------------
                                                     2001      2000        1999
                                                     ----      ----        ----
                                                       (Dollars in thousands)

Nonaccrual loans ..............................      $609       $341       $209
Accruing loans 90 days or more past due .......         1          9         20
                                                     ----       ----       ----
            Total .............................      $610       $350       $229
                                                     ====       ====       ====

Percent of total loans ........................       0.5%       0.4%       0.3%

         When an  impaired  loan is 90 days or more past due as to  interest  or
principal or there is serious doubt as to ultimate  collectibility,  the accrual
of interest income is generally  discontinued.  Previously  accrued  interest on
loans placed in a nonaccrual  status is reversed  against  current  income,  and
subsequent interest income is recognized on a cash basis when received. When the
collectibility  of a  significant  amount  of  principal  is in  serious  doubt,
collections  are credited  first to the  remaining  principal  balance on a cost
recovery  basis.  An impaired  nonaccrual loan is not returned to accrual status
unless  principal and interest are current and the borrower has demonstrated the
ability to continue  making  payments as agreed.  The effects of interest income
accrued and  collected on impaired  loans were  immaterial  to the  consolidated
financial statements for 2001, 2000, and 1999.

         As of December 31, 2001,  there were no commitments to lend  additional
funds to debtors owing amounts on nonaccrual loans.

                                       12
<Page>

Potential Problem Loans

         Management  has  identified  and maintains a list of potential  problem
loans.  These are loans that are not included in impaired  loans  (nonaccrual or
past due 90 days or more and still  accruing).  A loan is added to the potential
problem list when management  becomes aware of information about possible credit
problems of borrowers  that causes doubts as to the ability of such borrowers to
comply  with the  current  loan  repayment  terms.  The  total  amount  of loans
outstanding  at December  31, 2001  determined  by  management  to be  potential
problem loans was $880,000. This amount does not represent management's estimate
of potential losses since a large proportion of such loans is secured by various
types of collateral. The following table presents information about the types of
collateral securing potential problem loans as of December 31, 2001.

                                                            December 31, 2001
                                                            -----------------
                                                           Amount           %
                                                           ------           -
                                                          (Dollars in thousands)

Real estate mortgage ...............................       $307            34.9%
Equipment, inventory and receivables ...............        281            31.9%
Vehicles ...........................................        124            14.1%
Mobile homes .......................................         44             5.0%
Other ..............................................         25             2.8%
Unsecured ..........................................         99            11.3%
                                                           ----           -----
           Total ...................................       $880           100.0%
                                                           ====           =====

Allowance for Loan Losses

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

         In reviewing the adequacy of the allowance for loan losses at each year
end,  management took into  consideration the historical loan losses experienced
by the Company,  current economic conditions affecting the borrowers' ability to
repay, the volume of loans, the trends in delinquent, nonaccruing, and potential
problem loans, and the quality of collateral securing  nonperforming and problem
loans. After charging off all known losses,  management  considers the allowance
for loan losses  adequate to cover its  estimate of possible  future loan losses
inherent in the loan portfolio as of December 31, 2001.

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

         The Company  has not  historically  allocated  its  allowance  for loan
losses to individual  loan  categories.  Management  believes that its stringent
loan  charge-off  policy,   along  with  its  limited  historic  net  charge-off
experience,  makes an aggregate evaluation that emphasizes  individual loan risk
grades and  specific  problem loan  allocations  more  meaningful.  Management's
analysis of historical net charge-offs and the composition of the loan portfolio
at the end of 2001 did not reflect any material  change from the prior years. In
addition,  management  is not  aware  of any  significant  degree  of  increased
exposure,  risk of  collection  or  other  adverse  features  in any  particular
category of loans. Consequently, management has not estimated future charge-offs
related to individual loan categories or subcategories.

                                       13
<Page>

    Summary of Loan Loss Experience

<Table>
<Caption>
                                                                                        Years Ended December 31,
                                                                                        ------------------------
                                                                         2001         2000         1999         1998          1997
                                                                         ----         ----         ----         ----          ----
                                                                                         (Dollars in thousands)

<S>                                                                    <C>          <C>          <C>          <C>          <C>
Total loans outstanding at end of period ..........................    $119,744     $ 97,562     $ 76,158     $ 67,893     $ 65,838
Average amount of loans outstanding ...............................     106,480       86,262       71,944       68,499       60,707

Balance of allowance for loan losses - beginning ..................    $  1,000     $    943     $    955     $    890     $    705
                                                                       --------     --------     --------     --------     --------
Loans charged off
     Commercial and industrial ....................................         249           97          234           44           37
     Real estate - mortgage .......................................           -           40            -            9           31
     Consumer installment .........................................         126          121           99          116           72
                                                                       --------     --------     --------     --------     --------
           Total charge-offs ......................................         375          258          333          169          140
                                                                       --------     --------     --------     --------     --------
Recoveries of loans previously charged off
     Commercial and industrial ....................................           -            -           12            -            3
     Real estate - mortgage .......................................           -            -            -           15            -
     Consumer installment .........................................           8           10            9            6            7
                                                                       --------     --------     --------     --------     --------
           Total recoveries .......................................           8           10           21           21           10
                                                                       --------     --------     --------     --------     --------
Net charge-offs ...................................................         367          248          312          148          130
                                                                       --------     --------     --------     --------     --------
Additions to allowance charged to expense .........................         567          305          300          213          315
                                                                       --------     --------     --------     --------     --------
Balance of allowance for loan losses - ending .....................    $  1,200     $  1,000     $    943     $    955     $    890
                                                                       ========     ========     ========     ========     ========

Ratios
     Net charge-offs to average loans .............................        0.34%        0.29%        0.43%        0.22%        0.21%
     Net charge-offs to loans at end of period ....................        0.31%        0.25%        0.41%        0.22%        0.20%
     Allowance for loan losses to average loans ...................        1.13%        1.16%        1.31%        1.39%        1.47%
     Allowance for loan losses to loans at end of period ..........        1.00%        1.02%        1.24%        1.41%        1.35%
     Net charge-offs to allowance for loan losses .................       30.58%       24.80%       33.09%       15.50%       14.61%
     Net charge-offs to provision for loan losses .................       64.73%       81.31%      104.00%       69.48%       41.27%
</Table>

Deposits

         The average amounts and percentage  composition of deposits held by the
Company for the years ended  December 31, 2001,  2000 and 1999,  are  summarized
below:

   Average Deposits

<Table>
<Caption>
                                                                                    Years Ended December 31,
                                                                                    ------------------------
                                                                  2001                         2000                    1999
                                                                  ----                         ----                    ----
                                                         Amount            %        Amount             %       Amount           %
                                                         ------            -        ------             -       ------           -
                                                                                      (Dollars in thousands)

<S>                                                    <C>             <C>        <C>             <C>        <C>              <C>
Noninterest bearing demand .....................       $ 23,352         12.2%     $ 18,550         12.4%     $ 15,703          11.7%
Interest bearing transaction accounts ..........         26,099         13.6%       22,870         15.3%       17,711          13.2%
Savings ........................................         23,707         12.4%       21,006         14.1%       20,063          15.0%
Time deposits $100M and over ...................         50,156         26.1%       38,800         26.0%       37,977          28.4%
Other time deposits ............................         68,637         35.7%       48,105         32.2%       42,330          31.7%
                                                       --------        -----      --------        -----      --------         -----
             Total deposits ....................       $191,951        100.0%     $149,331        100.0%     $133,784         100.0%
                                                       ========        =====      ========        =====      ========         =====
</Table>

         As of December 31, 2001,  there were  $50,425,000  in time  deposits of
$100,000  or  more.  Approximately   $30,892,000  mature  within  three  months,
$9,356,000  mature over three  through six  months,  $7,349,000  mature over six
through twelve months and $2,828,000  mature after one year. This level of large

                                       14
<Page>

time  deposits,  as well as the growth in other  deposits,  can be attributed to
growth  planned by management.  The vast majority of time deposits  $100,000 and
over are acquired  within the Company's  market areas in the ordinary  course of
business from customers with standing banking relationships.  As of December 31,
2001, approximately $27,432,000 of time deposits of $100,000 or more represented
deposits of public  entities.  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  does not  purchase  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 share divided by net income per
share),  and equity to assets ratio  (average  equity  divided by average  total
assets) for each period indicated.

                                                  Years Ended December 31,
                                                  ------------------------
                                               2001          2000          1999
                                               ----          ----          ----

Return on assets .....................         0.91%         1.02%         1.09%
Return on equity .....................        11.82%        12.70%        11.86%
Dividend payout ratio ................         0.00%         0.00%         0.00%
Equity to assets ratio ...............         7.67%         8.06%         9.21%

Liquidity

         Liquidity is the ability to meet current and future obligations through
liquidation  or maturity of existing  assets or the  acquisition  of  additional
liabilities.  Adequate  liquidity  is  necessary  to meet  the  requirements  of
customers for loans and deposit  withdrawals  in the most timely and  economical
manner.  Some liquidity is ensured by maintaining  assets which are  convertible
immediately  into cash at minimal cost (amounts due from banks and federal funds
sold).  However,  the most  manageable  sources of  liquidity  are  composed  of
liabilities, with the primary focus on liquidity management being on the ability
to obtain  deposits  within the  Company's  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  67.5% of average
total assets during 2001  compared  with 67.4% during 2000.  Deposits of several
local  governmental  entities  comprised  approximately  25%  and  22% of  total
deposits at the end of 2001 and 2000,  respectively.  Because of the potentially
volatile  nature  of  this  funding  source,  management  maintains  the  Bank's
membership  in the Federal  Home Loan Bank of Atlanta  (the  "FHLB") in order to
gain  access to its credit  programs.  As of  December  31,  2001,  the  banking
subsidiary  is  eligible  to  borrow  up to  $29,947,000  from  the  FHLB.  Such
borrowings,  if utilized,  would be secured by a lien on its  investment in FHLB
stock  and  all  qualifying  first  mortgage   residential  loans  held.  Assets
potentially  subject  to  this  lien  totaled  approximately  $39,769,000  as of
December 31, 2001. In addition,  the banking  subsidiary has available an unused
short-term  line of credit to purchase up to $4,250,000 of federal funds from an
unrelated  correspondent  institution.  The  line is  generally  available  on a
one-day basis for up to 14 days in any 30 day period,  in the sole discretion of
the lender. Asset liquidity is provided from several sources,  including amounts
due  from  banks  and  federal   funds  sold.   Securities   available-for-sale,
particularly  those maturing  within one year, and funds available from maturing
loans provide secondary sources of liquidity.

         Community First  Bancorporation's  ability to meet its cash obligations
or to pay any  possible  future cash  dividends  to  shareholders  is  dependent
primarily on the successful  operation of the subsidiary bank and its ability to
pay cash dividends to the parent company.  Any of the banking  subsidiary's cash
dividends  in excess  of the  amount of the  subsidiary's  current  year-to-date
earnings are subject to the prior approval of the South Carolina Commissioner of
Banking and are generally payable only from its undivided  profits.  At December
31, 2001, the banking  subsidiary's  undivided  profits totaled  $7,276,000.  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  regulatory  requirements.  During  2000,  the parent
company received a cash dividend of $2,420,000 and used $1,900,000 to repurchase
and cancel shares of the Company's  common stock.  In 2001 and 1999,  the parent
company  received no cash dividends from its banking  subsidiary.  Under Federal
Reserve  Board  regulations,  the amounts of loans or advances  from the banking
subsidiary to the parent company are also restricted.

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

                                       15
<Page>

Capital Resources

         Shareholders' equity increased by $2,122,000 and $1,159,000 during 2001
and 2000, respectively. During 2001, net income increased shareholders equity by
$1,905,000  and the exercise of employee  stock options  provided an increase of
$53,000.  Other  comprehensive  income,  consisting  solely  of  the  change  in
unrealized  holding  gains or losses on  available-for-sale  securities,  net of
deferred tax effects,  increased  shareholders' equity by $529,000.  Repurchases
and  cancellations  of  common  stock in 2001  reduced  shareholders  equity  by
$359,000.  In lieu of fractional shares,  $6,000 was payable with respect to the
5%  stock  dividend   declared  in  2001.  During  2000,  net  income  increased
shareholders'  equity by $1,679,000,  and the exercise of employee stock options
provided an increase of $124,000. Other comprehensive income or loss, consisting
solely of the change in unrealized holding gains or losses on available-for-sale
securities,  net of deferred  tax  effects,  increased  shareholders'  equity by
$1,262,000 for the year ended December 31, 2000. In addition, $6,000 was paid in
lieu of issuing fractional shares with respect to the 5% stock dividend effected
in 2000.  During 2000, the Company  repurchased and cancelled  110,000 shares of
common stock; consequently,  shareholders' equity was reduced by $1,900,000. The
Company  continues  to use  retained  earnings to provide  adequate  capital for
future growth.

         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, 2001 and 2000,  that the Company and the Bank exceeded all capital  adequacy
minimum requirements to which they were subject.

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

<Table>
<Caption>
                                                                                                Minimum for         Minimum to be
                                                                             Actual           Capital Adequacy     Well Capitalized
                                                                             ------           ----------------     ----------------
                                                                        Amount      Ratio    Amount      Ratio   Amount        Ratio
                                                                        ------      -----    ------      -----   ------        -----
December 31, 2001                                                                         (Dollars in thousands)
      The Company
<S>                                                                     <C>          <C>     <C>          <C>    <C>           <C>
          Total Capital to risk weighted assets ...................     $18,055      14.2%   $10,169      8.0%   $12,711       10.0%
          Tier 1 Capital to risk weighted assets ..................     $16,855      13.3%   $ 5,085      4.0%   $ 7,627        6.0%
          Tier 1 Capital to average assets (leverage) .............     $16,855       8.0%   $ 6,342      3.0%   $10,570        5.0%
      Community First Bank
          Total Capital to risk weighted assets ...................     $17,310      13.6%   $10,169      8.0%   $12,711       10.0%
          Tier 1 Capital to risk weighted assets ..................     $16,110      12.7%   $ 5,085      4.0%   $ 7,627        6.0%
          Tier 1 Capital to average assets (leverage) .............     $16,110       7.6%   $ 6,342      3.0%   $10,570        5.0%

December 31, 2000
      The Company
          Total Capital to risk weighted assets ...................     $16,262      15.4%   $ 8,453      8.0%   $10,567       10.0%
          Tier 1 Capital to risk weighted assets ..................     $15,262      14.4%   $ 4,227      4.0%   $ 6,340        6.0%
          Tier 1 Capital to average assets (leverage) .............     $15,262       8.9%   $ 5,170      3.0%   $ 8,616        5.0%
      Community First Bank
          Total Capital to risk weighted assets ...................     $15,214      14.4%   $ 8,453      8.0%   $10,567       10.0%
          Tier 1 Capital to risk weighted assets ..................     $14,214      13.5%   $ 4,227      4.0%   $ 6,340        6.0%
          Tier 1 Capital to average assets (leverage) .............     $14,214       8.3%   $ 5,170      3.0%   $ 8,616        5.0%
</Table>

                                       16
<Page>

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.

Impact of Recent Accounting Changes

         FASB  ("Financial  Accounting  Standards  Board")  Statement  No.  133,
"Accounting for Derivative  Instruments and Hedging Activities," as subsequently
amended  by FASB  Statements  No.  137 and 138,  addresses  the  accounting  and
financial reporting for derivative instruments, including derivative instruments
embedded in other contracts and hedging  activities.  The Statement requires the
recognition  of all  derivatives  as either assets or liabilities in the balance
sheet and the  measurement  of these  instruments at fair value.  Also,  hedging
relationships  are required to be accounted for and disclosed in accordance with
the Statement.  The Statement,  as amended,  is required to be effective for all
fiscal  quarters of all fiscal  years  beginning  after June 15,  2000,  without
restatement of financial  statements of prior  periods.  The Company has adopted
the  provisions of the Statement  effective  with the fiscal  quarter  beginning
January  1,  2001.  However,  the  adoption  of this  Statement  has not had any
material adverse or beneficial effect on the consolidated  financial position or
results of operations of the Company.

         FASB Statement No. 141, "Business  Combinations,"  addresses accounting
and  reporting  for  business   combinations  and  supersedes  APB  ("Accounting
Principles  Board") Opinion No. 16, "Business  Combinations," and FASB Statement
No. 38, "Accounting for Preacquisition  Contingencies of Purchased Enterprises."
All business combinations within the scope of this Statement are to be accounted
for using the purchase method,  with use of the  pooling-of-interests  method no
longer  permitted.  The  provisions  of the  Statement  apply  to  all  business
combinations initiated after June 30, 2001, as well as all business combinations
accounted  for using the purchase  method for which the date of  acquisition  is
July 1, 2001, or later.  The adoption of this  Statement in 2001 has not had any
material adverse or beneficial effect on the consolidated  financial position or
results of operations of the Company.

         FASB  Statement  No.  142,  "Goodwill  and  Other  Intangible  Assets,"
addresses  financial  accounting  and reporting for acquired  goodwill and other
intangible assets and supersedes APB No. 17, "Intangible Assets." This statement
changes  the  accounting  for  goodwill  from  an  amortization   method  to  an
impairment-only  approach.  The  provisions of this Statement are required to be
applied  beginning  with fiscal years  beginning  after  December 15, 2001.  The
adoption  of this  Statement  as of January 1, 2002 is not  expected to have any
material adverse or beneficial effect on the consolidated  financial position or
results of operations of the Company.

         FASB Statement No. 143, "Accounting for Asset Retirement  Obligations,"
addresses financial accounting and reporting for obligations associated with the
retirement of tangible  long-lived  assets and the associated  asset  retirement
costs.  The  Statement  requires  recording the fair value of a liability for an
asset  retirement  obligation in the period in which it is incurred,  along with
increasing  the carrying  amount and  depreciation  of the related  asset.  This
statement  is  effective  for  financial  statements  issued  for  fiscal  years
beginning after June 15, 2002, with earlier application encouraged. The adoption
of this  Statement  as of January 1, 2003 is not  expected to have any  material
adverse or beneficial effect on the consolidated  financial  position or results
of operations of the Company.

         FASB Statement No. 144,  "Accounting  for the Impairment or Disposal of
Long-Lived  Assets,"  addresses  financial  accounting  and  reporting  for  the
impairment or disposal of long-lived  assets.  This  Statement  supersedes  FASB
Statement No. 121 and the accounting and reporting  provisions of APB No. 30 for
the disposal of a segment of a business,  as previously defined in that Opinion.
The provisions of this Statement are effective for financial  statements  issued
for fiscal years  beginning  after December 15, 2001, and interim periods within
those fiscal  years,  with early  application  encouraged.  The adoption of this
Statement as of January 1, 2002 is not expected to have any material  adverse or
beneficial  effect  on  the  consolidated   financial  position  or  results  of
operations of the Company.

         FASB Technical  Bulletin No. 01-1 defers until 2002  application of the
isolation  standards of FASB  Statement  No. 140 as applied to banks and certain
other financial institutions.  FASB Statement No. 140, "Accounting for Transfers

                                       17
<Page>

and Servicing of Financial Assets and Extinguishments of Liabilities,"  provides
accounting  and  reporting  standards  for  transfers  of  financial  assets and
extinguishments  of liabilities  based on a financial  components  approach that
focuses on retention or surrender of control of such assets or liabilities.  The
Statement  also requires the  reclassification  of financial  assets  pledged as
collateral  under certain  circumstances.  FASB  Statement 140 was effective for
transfers and servicing of financial  assets and  extinguishment  of liabilities
occurring   after  March  31,  2001,   and   effective   for   recognition   and
reclassification  of collateral and for disclosures  relating to  securitization
transactions and collateral for fiscal years ending after December 31, 2000. The
adoption  of FASB  Statement  No. 140 in 2001 and the  deferral  allowed by FASB
Technical  Bulletin No. 01-01 have not had any  material  adverse or  beneficial
effect on the  consolidated  financial  position or results of operations of the
Company.





                                       18
<Page>




Independent Auditors' Report




The Shareholders and Board of Directors
    of Community First Bancorporation

         We  have  audited  the  accompanying   consolidated  balance  sheet  of
Community First  Bancorporation and subsidiary as of December 31, 2001 and 2000,
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, 2001.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

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


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

Donald G. Jones and Company, P.A.
Certified Public Accountants
Columbia, South Carolina
February 7, 2002




                                       19
<Page>



Consolidated Balance Sheet
Community First Bancorporation

<Table>
<Caption>
                                                                                                          December 31,
                                                                                                          ------------
                                                                                                  2001                      2000
                                                                                                  ----                      ----
Assets
<S>                                                                                         <C>                       <C>
     Cash and due from banks (Note B) ..........................................            $   6,063,051             $   4,027,045
     Interest bearing deposits due from banks ..................................                   27,419                    16,078
     Federal funds sold ........................................................                9,240,000                15,580,000
     Securities available-for-sale (Note C) ....................................               71,338,781                57,861,760
     Other investments .........................................................                  480,100                   385,700
     Loans (Note D) ............................................................              119,743,926                97,562,062
         Allowance for loan losses .............................................               (1,200,000)               (1,000,000)
                                                                                            -------------             -------------
            Loans - net ........................................................              118,543,926                96,562,062
     Premises and equipment - net (Note E) .....................................                3,232,136                 3,411,026
     Accrued interest receivable ...............................................                1,466,465                 1,376,429
     Real estate held for sale .................................................                  980,003                   980,003
     Other assets ..............................................................                  525,922                   866,155
                                                                                            -------------             -------------

            Total assets .......................................................            $ 211,897,803             $ 181,066,258
                                                                                            =============             =============

Liabilities
     Deposits (Note F)
         Noninterest bearing ...................................................            $  25,448,702             $  21,223,751
         Interest bearing ......................................................              168,070,527               143,158,706
                                                                                            -------------             -------------
            Total deposits .....................................................              193,519,229               164,382,457
     Accrued interest payable ..................................................                1,307,096                 1,759,520
     Other liabilities .........................................................                   54,703                    29,507
                                                                                            -------------             -------------
            Total liabilities ..................................................              194,881,028               166,171,484
                                                                                            -------------             -------------

     Commitments and contingent liabilities (Note K)

Shareholders' equity (Note G)
     Common stock - no par  value; 10,000,000 shares
         authorized; issued and outstanding - 2,117,062
         for 2001 and 2,022,623 for 2000 .......................................               15,734,004                14,383,234
     Retained earnings .........................................................                1,120,413                   878,398
     Accumulated other comprehensive income (loss) .............................                  162,358                  (366,858)
                                                                                            -------------             -------------
            Total shareholders' equity .........................................               17,016,775                14,894,774
                                                                                            -------------             -------------

            Total liabilities and shareholders' equity .........................            $ 211,897,803             $ 181,066,258
                                                                                            =============             =============
</Table>










See accompanying notes to consolidated financial statements.




                                       20
<Page>


Consolidated Statement of Income
Community First Bancorporation

<Table>
<Caption>
                                                                                                Years Ended December 31,
                                                                                                ------------------------
                                                                                       2001               2000               1999
                                                                                       ----               ----               ----
Interest income
<S>                                                                                <C>                <C>                <C>
     Loans, including fees ................................................        $ 9,002,386        $ 7,675,937        $ 6,330,466
     Securities
         Taxable ..........................................................          3,620,426          3,556,111          3,044,216
         Tax-exempt .......................................................              9,819              9,819              4,119
     Federal funds sold ...................................................          1,297,454            761,571            994,827
     Other investments ....................................................             38,295             29,773             27,349
     Interest bearing deposits due from banks .............................                797                533                918
                                                                                   -----------        -----------        -----------
         Total interest income ............................................         13,969,177         12,033,744         10,401,895
                                                                                   -----------        -----------        -----------

Interest expense
     Time deposits $100,000 and over ......................................          2,660,538          2,439,638          2,015,117
     Other deposits .......................................................          5,551,915          4,574,386          3,671,647
     Short-term borrowings ................................................                  -                  -                148
                                                                                   -----------        -----------        -----------
         Total interest expense ...........................................          8,212,453          7,014,024          5,686,912
                                                                                   -----------        -----------        -----------

Net interest income .......................................................          5,756,724          5,019,720          4,714,983
Provision for loan losses (Note D) ........................................            566,976            305,033            300,009
                                                                                   -----------        -----------        -----------
Net interest income after provision .......................................          5,189,748          4,714,687          4,414,974
                                                                                   -----------        -----------        -----------

Other income
     Service charges on deposit accounts ..................................            789,265            575,822            428,733
     Credit life insurance commissions ....................................             40,756             59,436             38,042
     Gain on sale of securities available-for-sale (Note C) ...............              4,327                  -                  -
     Other income .........................................................            187,129            229,868            195,244
                                                                                   -----------        -----------        -----------
         Total other income ...............................................          1,021,477            865,126            662,019
                                                                                   -----------        -----------        -----------

Other expenses (Notes H and J)
     Salaries and employee benefits .......................................          1,753,074          1,559,219          1,378,965
     Net occupancy expense ................................................            192,399            186,203            129,225
     Furniture and equipment expense ......................................            246,930            255,787            218,800
     Other expense ........................................................          1,046,289            960,663            814,664
                                                                                   -----------        -----------        -----------
         Total other expenses .............................................          3,238,692          2,961,872          2,541,654
                                                                                   -----------        -----------        -----------

Income before income taxes ................................................          2,972,533          2,617,941          2,535,339
Income tax expense (Note I) ...............................................          1,067,214            938,689            909,041
                                                                                   -----------        -----------        -----------
Net income ................................................................        $ 1,905,319        $ 1,679,252        $ 1,626,298
                                                                                   ===========        ===========        ===========

Per share (Note G)
     Net income ...........................................................        $      0.90        $      0.79        $      0.75
     Net income, assuming dilution ........................................               0.85               0.74               0.69
</Table>






See accompanying notes to consolidated financial statements.


                                       21
<Page>



Consolidated Statement of Changes in Shareholders' Equity
Community First Bancorporation

<Table>
<Caption>
                                                                 Common Stock
                                                                 ------------                             Accumulated
                                                          Number of                       Retained   Other Comprehensive
                                                           Shares          Amount         Earnings       Income (Loss)     Total
                                                           ------          ------         --------       -------------     -----

<S>                                                       <C>          <C>             <C>             <C>             <C>
Balance, January 1, 1999 ...........................      1,793,792    $ 10,568,522    $  3,051,399    $    (16,961)   $ 13,602,960

Comprehensive income:
    Net income .....................................              -               -       1,626,298               -       1,626,298
    Change in unrealized holding gains
      and losses on available-for-sale
      securities, net of income tax effects ........              -               -               -      (1,612,038)     (1,612,038)
                                                                                                                       ------------
    Total comprehensive income .....................              -               -               -               -          14,260
                                                                                                                       ------------
Issuance of 10% stock dividend,
    including cash payment for
    fractional shares ..............................        180,155       3,561,672      (3,567,326)              -          (5,654)
Exercise of employee stock options .................         28,752         124,724               -               -         124,724
                                                          ---------    ------------    ------------    ------------    ------------
Balance, December 31, 1999 .........................      2,002,699      14,254,918       1,110,371      (1,628,999)     13,736,290

Comprehensive income:
    Net income .....................................              -               -       1,679,252               -       1,679,252
    Change in unrealized holding gains
      and losses on available-for-sale
      securities, net of income tax effects ........              -               -               -       1,262,141       1,262,141
                                                                                                                       ------------

    Total comprehensive income .....................              -               -               -               -       2,941,393
                                                                                                                       ------------
Issuance of 5% stock dividend,
    including cash payment for
    fractional shares ..............................         95,248       1,904,961      (1,911,225)              -          (6,264)
Exercise of employee stock options .................         34,676         123,355               -               -         123,355
Repurchase and cancellation of
    common stock ...................................       (110,000)     (1,900,000)              -               -      (1,900,000)
                                                          ---------    ------------    ------------    ------------    ------------
Balance, December 31, 2000 .........................      2,022,623      14,383,234         878,398        (366,858)     14,894,774

Comprehensive income:
    Net income .....................................              -               -       1,905,319               -       1,905,319
    Change in unrealized holding gains
      and losses on available-for-sale
      securities, net of income tax effects ........              -               -               -         529,216         529,216
                                                                                                                       ------------
    Total comprehensive income .....................              -               -               -               -       2,434,535
                                                                                                                       ------------
Declaration of 5% stock dividend,
    including cash payable for
    fractional shares ..............................        100,422       1,656,963      (1,663,304)              -          (6,341)
Exercise of employee stock options .................         13,394          52,593               -               -          52,593
Repurchase and cancellation of
    common stock ...................................        (19,377)       (358,786)              -               -        (358,786)
                                                          ---------    ------------    ------------    ------------    ------------
Balance, December 31, 2001 .........................      2,117,062    $ 15,734,004    $  1,120,413    $    162,358    $ 17,016,775
                                                          =========    ============    ============    ============    ============
</Table>













See accompanying notes to consolidated financial statements.


                                       22
<Page>



Consolidated Statement of Cash Flows
Community First Bancorporation

<Table>
<Caption>
                                                                                              Years Ended December 31,
                                                                                              ------------------------
                                                                                     2001               2000                 1999
                                                                                     ----               ----                 ----
Operating activities
<S>                                                                            <C>                 <C>                 <C>
     Net income ........................................................       $  1,905,319        $  1,679,252        $  1,626,298
     Adjustments to reconcile net income to net
         cash provided by operating activities
            Provision for loan losses ..................................            566,976             305,033             300,009
            Depreciation ...............................................            231,590             227,063             170,623
            Deferred income taxes ......................................            (42,180)             (2,208)             21,651
            Amortization of net loan fees and costs ....................              7,334              63,669              64,876
            Securities accretion and premium amortization ..............            (35,540)             (6,900)            (16,944)
            Gain on sale of available-for-sale securities ..............             (4,327)                  -                   -
            Loss (gain) on sale of other real estate ...................             31,072               7,351              (9,684)
            Loss on disposal of premises and equipment .................                  -               6,247               8,342
            Increase in interest receivable ............................            (90,036)           (184,033)           (363,195)
            (Decrease) increase in interest payable ....................           (452,424)            579,629             214,238
            (Increase) decrease in prepaid expenses ....................             (1,386)            (69,028)             24,230
            Increase (decrease) in other accrued expenses ..............             18,855             (19,526)            (12,958)
                                                                               ------------        ------------        ------------
                Net cash provided by operating activities ..............          2,135,253           2,586,549           2,027,486
                                                                               ------------        ------------        ------------

Investing activities
     Purchases of available-for-sale securities ........................        (96,196,397)         (4,972,022)        (26,347,189)
     Maturities of available-for-sale securities .......................         83,009,787           3,264,229           7,955,341
     Proceeds from sale of available-for -sale securities ..............            575,065                   -                   -
     Purchases of other investments ....................................            (94,400)             (3,700)            (36,600)
     Net increase in loans made to customers ...........................        (22,676,174)        (21,771,906)         (8,783,558)
     Additions to other real estate ....................................             (3,132)           (103,688)                  -
     Proceeds from sale of other real estate ...........................            179,466              38,307               9,684
     Purchases of real estate held for sale ............................                  -              (5,003)           (975,000)
     Purchases of premises and equipment ...............................            (52,700)           (355,756)           (596,389)
                                                                               ------------        ------------        ------------
                Net cash used by investing activities ..................        (35,258,485)        (23,909,539)        (28,773,711)
                                                                               ------------        ------------        ------------

Financing activities
     Net increase in demand deposits, interest
         bearing transaction accounts and savings accounts .............         13,872,502           9,546,217           3,197,622
     Net increase in certificates of deposit and other
         time deposits .................................................         15,264,270          16,217,994          22,924,452
     Repurchase and cancellation of common stock .......................           (358,786)         (1,900,000)                  -
     Payment of cash in lieu of fractional shares
         for stock dividend ............................................                  -              (6,264)             (5,654)
     Exercise of employee stock options, net
         of issuance costs of $15,953 in 1999 ..........................             52,593             123,355             124,724
                                                                               ------------        ------------        ------------
                Net cash provided by financing activities ..............         28,830,579          23,981,302          26,241,144
                                                                               ------------        ------------        ------------
(Decrease) increase in cash and cash equivalents .......................         (4,292,653)          2,658,312            (505,081)
Cash and cash equivalents, beginning ...................................         19,623,123          16,964,811          17,469,892
                                                                               ------------        ------------        ------------
Cash and cash equivalents, ending ......................................       $ 15,330,470        $ 19,623,123        $ 16,964,811
                                                                               ============        ============        ============
</Table>


See accompanying notes to consolidated financial statements.

                                       23
<Page>

Notes to Consolidated Financial Statements
Community First Bancorporation

NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization. Community First  Bancorporation  (the  "Company"),  a bank holding
company, and its wholly-owned  subsidiary,  Community First Bank, are engaged in
providing domestic commercial banking services from their headquarters office in
Walhalla, and other offices in Seneca, Anderson and Williamston, 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.

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

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

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.

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

Other Investments.  Other investments consist of restricted securities which are
carried  at  cost.  Management   periodically  evaluates  these  securities  for
impairment,  with any appropriate downward valuation adjustments being made when
necessary.  Other investments at December 31, 2001 and 2000 consisted of Federal
Home  Loan  Bank  of  Atlanta  (the  "FHLB")  stock  with  the  carrying  amount
approximating estimated fair value.

Loans and Interest.  Income Loans are carried at principal amounts  outstanding,
increased  or reduced by  deferred  net loan costs or fees.  Interest  income on

                                       24
<Page>

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

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

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

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

Other Real Estate.  Properties  acquired through  foreclosure or acceptance of a
deed in lieu of  foreclosure  were carried in other assets at values of $168,820
and $256,225 as of December 31, 2001 and 2000, respectively. Such properties are
initially recorded at the lower of cost or the estimated fair market value, less
estimated  selling  costs.  Loan losses  arising  from the  acquisition  of such
property are charged to the allowance  for loan losses.  An allowance for losses
on  foreclosed  properties  is  maintained  for  subsequent  downward  valuation
adjustments.

Real estate held for sale is carried in the  consolidated  balance  sheet at the
lower of cost or estimated net realizable  value. Such property consists of four
commercial  lots that were  subdivided  and  developed  from  land  acquired  to
construct the banking  subsidiary's  Anderson  office.  Management  periodically
evaluates  real  estate  held  for  sale for  impairment,  with any  appropriate
downward valuation adjustments being made when necessary.

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
J. The Company does not sponsor any postretirement or postemployment benefits.

                                       25
<Page>

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

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

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

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 G.

The components of other comprehensive income or loss and related tax effects are
as follows:

<Table>
<Caption>
                                                                                            Years Ended December 31,
                                                                                            ------------------------
                                                                                 2001                 2000                1999
                                                                                 ----                 ----                ----
<S>                                                                         <C>                   <C>                   <C>
Change in unrealized holding gains and
     losses on available-for-sale securities ....................           $   825,609           $ 1,969,019           $(2,514,880)
Income tax expense (benefit) on other
     comprehensive income (loss) ................................               296,393               706,878              (902,842)
                                                                            -----------           -----------           -----------
         Net-of-tax amount ......................................           $   529,216           $ 1,262,141           $(1,612,038)
                                                                            ===========           ===========           ===========
</Table>

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

During  2001,  2000 and 1999,  interest  paid on deposits  and other  borrowings
amounted to $8,664,877,  $6,434,395  and  $5,543,362,  respectively.  Income tax
payments of  $1,093,000,  $995,600 and $865,800 were made during 2001,  2000 and
1999,  respectively.  In 2001,  2000 and 1999,  noncash  transfers  of $120,000,
$56,135 and $142,061,  respectively,  were made from loans to other real estate.
Noncash  transfers  from  retained  earnings  to common  stock in the amounts of
$1,656,963, $1,904,961 and $3,561,672 were made as the result of stock dividends
declared  in 2001,  2000 and  1999,  respectively.  In  2001,  a $6,341  noncash
transfer was made from retained  earnings to other  liabilities for cash payable
in lieu of fractional  shares for a stock dividend.  During 2001, 2000 and 1999,
noncash valuation adjustments totaling $825,609,  $1,969,019 and $2,514,880 were
made which increased, increased and decreased, respectively, the carrying amount
of  available-for-sale  securities.  In 2001,  accumulated  other  comprehensive
income  increased  $529,216  and  related  net  deferred  income  tax  assets or
liabilities changed by $296,393; in 2000, accumulated other comprehensive income
increased  $1,262,141 and related net deferred  income tax assets or liabilities
changed  by  $706,878;  and in  1999,  accumulated  other  comprehensive  income
decreased  $1,612,038 and related net deferred  income tax assets or liabilities
changed by $902,842.

                                       26
<Page>

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

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

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


NOTE B - CASH AND DUE FROM BANKS

Banks are  generally  required by regulation to maintain an average cash reserve
balance  based on a  percentage  of  deposits.  The  average  amount of the cash
reserve balances at December 31, 2001 and 2000, were approximately  $959,000 and
$856,000, respectively.


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,
                                                                          ------------
                                                2001                                                   2000
                                                ----                                                   ----
                                         Gross        Gross                                      Gross       Gross
                                      Unrealized   Unrealized     Estimated                   Unrealized   Unrealized     Estimated
                         Amortized      Holding      Holding         Fair       Amortized       Holding      Holding        Fair
                           Cost          Gains       Losses         Value          Cost          Gains       Losses         Value
                           ----          -----       ------         -----          ----          -----       ------         -----
Available-for-sale
<S>                   <C>           <C>           <C>           <C>           <C>           <C>           <C>           <C>
  U.S. Treasury ...   $         -   $         -   $         -   $         -   $ 1,998,249   $         -   $     6,374   $ 1,991,875
  U.S. Government
      agencies ....    62,175,791       368,098       214,723    62,329,166    47,962,521       140,585       593,267    47,509,839
  Mortgage-backed
      securities ..     8,712,045       102,871         7,783     8,807,133     8,275,873         2,462       122,020     8,156,315
  State, county and
      municipal ...       197,657         4,825             -       202,482       197,438         6,293             -       203,731
                      -----------   -----------   -----------   -----------   -----------   -----------   -----------   -----------
        Total .....   $71,085,493   $   475,794   $   222,506   $71,338,781   $58,434,081   $   149,340   $   721,661   $57,861,760
                      ===========   ===========   ===========   ===========   ===========   ===========   ===========   ===========
</Table>


                                       27
<Page>

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

<Table>
<Caption>
                                                                                             December 31,
                                                                                             ------------
                                                                            2001                                   2000
                                                                            ----                                   ----
                                                                 Amortized          Estimated            Amortized         Estimated
                                                                   Cost            Fair Value             Cost            Fair Value
                                                                   ----            ----------             ----            ----------
Available-for-sale
<S>                                                             <C>                <C>                <C>                <C>
     Due within one year ...............................        $         -        $         -        $ 6,016,574        $ 6,050,863
     Due after one through five years ..................         53,565,712         53,626,541         24,955,440         24,883,703
     Due after five through ten years ..................          8,610,079          8,702,625         17,988,756         17,605,249
     Due after ten years ...............................            197,657            202,482          1,197,438          1,165,630
                                                                -----------        -----------        -----------        -----------
                                                                 62,373,448         62,531,648         50,158,208         49,705,445
     Mortgage-backed securities ........................          8,712,045          8,807,133          8,275,873          8,156,315
                                                                -----------        -----------        -----------        -----------
         Total .........................................        $71,085,493        $71,338,781        $58,434,081        $57,861,760
                                                                ===========        ===========        ===========        ===========
</Table>

The fair value of U.S. Treasury and U.S.  Government agencies debt securities is
estimated based on published closing quotations. The fair value of state, county
and municipal  securities is generally not available from published  quotations;
consequently,  their fair values estimates are based on matrix pricing or quoted
market prices of similar  instruments  adjusted for credit  quality  differences
between the quoted  instruments and the securities being valued.  Fair value for
mortgage-backed securities is estimated primarily using dealers' quotes.

During 2001,  the Company sold an  available-for-sale  security  with a carrying
value of $570,738  for  $575,065,  realizing  a gain of $4,327 on the sale.  The
income tax  provision  charged to expense  applicable  to this realized gain was
$1,553. There were no sales of  available-for-sale  securities in 2000 and 1999.
There were no transfers of available-for-sale  securities to other categories in
2001, 2000 or 1999.

At December 31, 2001,  securities  with an amortized cost of $45,970,487  and an
estimated fair value of $47,806,367  were pledged as collateral to secure public
deposits. The amortized cost and estimated fair value of such pledged securities
were $46,405,237 and $45,859,900, respectively, at the end of 2000.

NOTE D - LOANS

Loans consisted of the following:

<Table>
<Caption>
                                                                                        December 31,
                                                                                        ------------
                                                                         2001                                    2000
                                                                         ----                                    ----
                                                             Carrying            Estimated            Carrying           Estimated
                                                              Amount             Fair Value            Amount            Fair Value
                                                              ------             ----------            ------            ----------

<S>                                                      <C>                  <C>                 <C>                  <C>
Commercial, financial and industrial .............       $  23,584,833        $  23,358,635       $  19,650,877        $  19,310,780
Real estate- construction ........................             345,941              341,453             200,000              197,122
Real estate - mortgage ...........................          74,237,238           73,851,671          57,701,320           56,802,251
Consumer installment .............................          21,575,914           21,361,070          20,009,865           19,687,112
                                                         -------------        -------------       -------------        -------------
     Total .......................................         119,743,926          118,912,829          97,562,062           95,997,265
Allowance for loan losses ........................          (1,200,000)                   -          (1,000,000)                   -
                                                         -------------        -------------       -------------        -------------
     Loans - net .................................       $ 118,543,926        $ 118,912,829       $  96,562,062        $  95,997,265
                                                         =============        =============       =============        =============
</Table>
______________________
Net deferred loan (fees) or costs of $(37,576) and $35,839 were allocated to the
various loan categories as of December 31, 2001 and 2000, respectively.

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

                                       28
<Page>

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

<Table>
<Caption>
                                                                                                                December 31,
                                                                                                                ------------
                                                                                                          2001                2000
                                                                                                          ----                ----
Investment in impaired loans
<S>                                                                                                   <C>                   <C>
     Nonaccrual ........................................................................              $608,634              $341,023
     Accruing 90 days and over past due ................................................                 1,204                 8,900
                                                                                                      --------              --------
         Total .........................................................................              $609,838              $349,923
                                                                                                      ========              ========

Average total investment in impaired loans during the year .............................              $498,000              $249,000
Allowance for loan losses on impaired loans ............................................               133,165               140,815
</Table>

The average total  investment in impaired loans during 1999 was $254,000.  There
were no outstanding commitments at December 31, 2001 to lend additional funds to
debtors owing amounts on impaired loans.

As of December 31, 2001 and 2000,  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:

                                               Years Ended December 31,
                                               ------------------------
                                          2001           2000            1999
                                          ----           ----            ----

Balance at January 1 ..............   $ 1,000,000    $   942,950    $   954,788
Provision charged to expense ......       566,976        305,033        300,009
Recoveries ........................         9,018         10,304         21,465
Charge-offs .......................      (375,994)      (258,287)      (333,312)
                                      -----------    -----------    -----------
Balance at December 31 ............   $ 1,200,000    $ 1,000,000    $   942,950
                                      ===========    ===========    ===========

Certain  officers  and  directors  of the  Company  and  its  subsidiary,  their
immediate  families and business interests were loan customers of, and had other
transactions  with,  the banking  subsidiary  in the normal  course of business.
Related party loans are made on substantially the same terms, including interest
rates  and   collateral,   and  do  not   involve   more  than  normal  risk  of
collectibility.  The aggregate  dollar amount of these loans was  $8,691,318 and
$6,620,237 at December 31, 2001 and 2000, respectively.  During 2001, $7,566,375
of new loans were made and repayments totaled $5,495,294.


NOTE E - PREMISES AND EQUIPMENT

Premises and equipment consisted of the following:

                                                              December 31,
                                                              ------------
                                                          2001             2000
                                                          ----             ----

Land .............................................     $1,022,387     $1,022,387
Buildings and land improvements ..................      2,052,216      2,051,151
Furniture and equipment ..........................      1,360,436      1,308,800
                                                       ----------     ----------
              Total ..............................      4,435,039      4,382,338
Accumulated depreciation .........................      1,202,903        971,312
                                                       ----------     ----------
              Premises and equipment - net .......     $3,232,136     $3,411,026
                                                       ==========     ==========


                                       29
<Page>

Depreciation  expense for the years ended  December 31, 2001,  2000 and 1999 was
$231,590, $227,063 and $170,623, respectively.


NOTE F - DEPOSITS

A summary of deposits follows:

<Table>
<Caption>
                                                                                          December 31,
                                                                                          ------------
                                                                          2001                                  2000
                                                                          ----                                  ----
                                                               Carrying          Estimated            Carrying         Estimated
                                                                Amount           Fair Value            Amount         Fair Value
                                                                ------           ----------            ------         ----------

<S>                                                         <C>                 <C>                 <C>                 <C>
Noninterest bearing demand .........................        $ 25,448,702        $ 25,448,702        $ 21,223,751        $ 21,223,751
Interest bearing transaction accounts ..............          25,754,073          25,754,073          22,025,093          22,025,093
Savings ............................................          24,323,003          24,323,003          18,404,432          18,404,432
Time deposits $100,000 and over ....................          50,425,214          50,431,550          43,262,035          43,267,134
Other time deposits ................................          67,568,237          67,636,281          59,467,146          59,499,828
                                                            ------------        ------------        ------------        ------------
     Total deposits ................................        $193,519,229        $193,593,609        $164,382,457        $164,420,238
                                                            ============        ============        ============        ============
</Table>

As of  December  31,  2001  and  2000,  local  governmental  deposits  comprised
approximately 25% and 22% of total deposits, respectively.

The fair value of deposits with no stated maturity  (noninterest bearing demand,
interest  bearing  transaction  accounts  and  savings)  is equal to the  amount
payable on demand,  or carrying  amount,  as of December 31, 2001 and 2000.  The
fair  value of time  deposits  is  estimated  based on the  discounted  value of
contractual  cash flows.  The discount rate is estimated  using rates  currently
offered as of December,  31, 2001 and 2000,  for  deposits of similar  remaining
maturities.

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

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

                       2002                            $ 108,417,091
                       2003                                9,044,932
                       2004                                  112,200
                       2005                                   16,129
                       2006 and thereafter                   403,099


NOTE G - SHAREHOLDERS' EQUITY

Restrictions  on  Subsidiary  Dividends,   Loans  or  Advances.  South  Carolina
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 total amount of the subsidiary's  current  year-to-date  earnings are
subject to the prior approval of the South Carolina  Commissioner of Banking and
are generally payable only from its undivided profits. At December 31, 2001, the
banking  subsidiary's   undivided  profits  totaled  $7,276,147.   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 also restricted.

Stock Dividends. Effective December 21, 2001 and December 15, 2000 and 1999, 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, 2001 and 2000,
accumulated  other  comprehensive  income or (loss)  included as a component  of
shareholders' equity in the accompanying consolidated balance sheet consisted of
accumulated   changes   in  the   unrealized   holding   gains  and   losses  on
available-for-sale  securities, net of income tax effects, amounting to $162,358
and $(366,858), respectively.


                                       30
<Page>

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

<Table>
<Caption>
                                                                                               Years Ended December 31,
                                                                                               ------------------------
                                                                                       2001              2000               1999
                                                                                       ----              ----               ----
Net income per share, basic
<S>                                                                                 <C>                <C>                <C>
  Numerator - net income ..................................................         $1,905,319         $1,679,252         $1,626,298
                                                                                    ==========         ==========         ==========
  Denominator
    Weighted average common shares issued and outstanding .................          2,122,812          2,135,074          2,181,937
                                                                                    ==========         ==========         ==========
               Net income per share, basic ................................         $      .90         $      .79         $      .75
                                                                                    ==========         ==========         ==========

Net income per share, assuming dilution
  Numerator - net income ..................................................         $1,905,319         $1,679,252         $1,626,298
                                                                                    ==========         ==========         ==========
  Denominator
    Weighted average common shares issued and outstanding .................          2,122,812          2,135,074          2,181,937
    Effect of dilutive stock options ......................................            124,675            128,262            166,998
                                                                                    ----------         ----------         ----------
               Total shares ...............................................          2,247,487          2,263,336          2,348,935
                                                                                    ==========         ==========         ==========
               Net income per share, assuming dilution ....................         $      .85         $      .74         $      .69
                                                                                    ==========         ==========         ==========
</Table>

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

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Company and its banking  subsidiary to maintain  minimum amounts and
ratios set forth in the table  below of Total and Tier 1 Capital,  as defined in
the regulations,  to risk weighted assets, as defined, and of Tier 1 Capital, as
defined, to average assets, as defined.  Management believes, as of December 31,
2001 and 2000,  that the Company and its  subsidiary  bank  exceeded all capital
adequacy minimum requirements.

As of December 31, 2001, the most recent  notification from the FDIC categorized
Community  First Bank as well  capitalized  under the  regulatory  framework for
prompt corrective action. To be categorized as well capitalized, the Company and
its  banking   subsidiary  must  maintain  minimum  Total  risk-based,   Tier  1
risk-based,  and Tier 1 leverage ratios as set forth in the table.  There are no
conditions  or events since that  notification  that  management  believes  have
changed  Community  First Bank's  category.  The Company's  and Community  First
Bank's actual capital amounts and ratios are also presented in the table.

                                       31
<Page>
<Table>
<Caption>
                                                                                                 Minimum for        Minimum to be
                                                                               Actual         Capital Adequacy     Well Capitalized
                                                                               ------         ----------------     ----------------
                                                                         Amount      Ratio   Amount      Ratio    Amount      Ratio
                                                                         ------      -----   ------      -----    ------      -----
December 31, 2001                                                                          (Dollars in thousands)
      The Company
<S>                                                                     <C>          <C>     <C>          <C>    <C>           <C>
          Total Capital to risk weighted assets ...................     $18,055      14.2%   $10,169      8.0%   $12,711       10.0%
          Tier 1 Capital to risk weighted assets ..................     $16,855      13.3%   $ 5,085      4.0%   $ 7,627        6.0%
          Tier 1 Capital to average assets (leverage) .............     $16,855       8.0%   $ 6,342      3.0%   $10,570        5.0%
      Community First Bank
          Total Capital to risk weighted assets ...................     $17,310      13.6%   $10,169      8.0%   $12,711       10.0%
          Tier 1 Capital to risk weighted assets ..................     $16,110      12.7%   $ 5,085      4.0%   $ 7,627        6.0%
          Tier 1 Capital to average assets (leverage) .............     $16,110       7.6%   $ 6,342      3.0%   $10,570        5.0%

December 31, 2000
      The Company
          Total Capital to risk weighted assets ...................     $16,262      15.4%   $ 8,453      8.0%   $10,567       10.0%
          Tier 1 Capital to risk weighted assets ..................     $15,262      14.4%   $ 4,227      4.0%   $ 6,340        6.0%
          Tier 1 Capital to average assets (leverage) .............     $15,262       8.9%   $ 5,170      3.0%   $ 8,616        5.0%
      Community First Bank
          Total Capital to risk weighted assets ...................     $15,214      14.4%   $ 8,453      8.0%   $10,567       10.0%
          Tier 1 Capital to risk weighted assets ..................     $14,214      13.5%   $ 4,227      4.0%   $ 6,340        6.0%
          Tier 1 Capital to average assets (leverage) .............     $14,214       8.3%   $ 5,170      3.0%   $ 8,616        5.0%
</Table>

Stock  Options.  In 1998,  the  Company's  shareholders  approved the 1998 Stock
Option Plan under which an aggregate of 485,100 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 may be granted to  directors,  officers and
employees under terms and conditions, including expiration date, exercise price,
and vesting as determined by the Board of Directors.  In 1990, the  shareholders
approved the 1989  Incentive  Stock Option Plan.  The 1989 plan provided for the
granting of options to certain  eligible  employees and reserved  339,044 shares
(adjusted  for stock  dividends  and  splits)  of  authorized  common  stock for
issuance upon the exercise of such  options.  For all stock options ever granted
under the two plans  through the end of 2001,  the  exercise  price was the fair
market value of the Company's common stock on the date the option was granted as
determined  by the  Board  of  Directors.  Options  terminate  according  to the
conditions  of the  grant,  not to exceed 10 years  from the date of grant.  The
expiration  of the  options  accelerates  upon  the  optionee's  termination  of
employment  with the Company or death, or if there is a change in control of the
Company,  in accordance  with the provisions of the two plans.  Options  awarded
during 2001, 2000 and 1999 provided for 20% vesting immediately upon award, with
20% vesting on the anniversary date of the award for each of the four subsequent
years, and ten year expiration dates.

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

<Table>
<Caption>
                                                                                         Years Ended December 31,
                                                                                         ------------------------
                                                                             2001                   2000                  1999
                                                                             ----                   ----                  ----
Net income
<S>                                                                    <C>                     <C>                     <C>
      As reported ..........................................           $   1,905,319           $   1,679,252           $   1,626,298
      Pro forma ............................................               1,647,562               1,480,137               1,479,156
Net income per share
      As reported ..........................................           $        0.90           $        0.79           $        0.75
      Pro forma ............................................                    0.78                    0.69                    0.68
Net income per share, assuming dilution
      As reported ..........................................           $        0.85           $        0.74           $        0.69
      Pro forma ............................................                    0.73                    0.65                    0.63
</Table>

The fair values of options granted during 2001, 2000 and 1999 were $9.59,  $9.27
and $9.92 per share.  Such fair value was  estimated as of the date of the grant
using the minimum value option pricing method.  The following  assumptions  were
used for grants in 2001,  2000 and 1999:  dividend yield of 0%, expected life of
10 years, and risk-free interest rates of 5.39%, 5.85% and 5.23%, respectively.


                                       32
<Page>

Transactions  under the plans for the years ended  December 31,  2001,  2000 and
1999 are summarized as follows:

                                                                        Weighted
                                                                         Average
                                                         Number of      Exercise
                                                          Shares          Price
                                                          ------          -----
Options outstanding January 1, 1999 ................     219,998            6.43
      Granted ......................................      37,500           20.00
      Exercised ....................................     (28,752)           4.89
      Canceled .....................................      (6,240)           8.60
      Stock dividend ...............................      24,048            -
                                                         -------
Options outstanding December 31, 1999 ..............     246,554            7.99
      Granted ......................................      42,150           17.85
      Exercised ....................................     (34,676)           3.63
      Canceled .....................................      (6,224)          16.90
      Stock dividend ...............................      13,228            -
                                                         -------
Options outstanding December 31, 2000 ..............     261,032            9.57
      Granted ......................................      51,100           17.04
      Exercised ....................................     (13,394)           3.92
      Canceled .....................................      (3,150)          19.05
      Stock dividend ...............................      14,792            -
                                                         -------
Options outstanding December 31, 2001 ..............     310,380           10.49
                                                         =======

Options exercisable at year end
      2001 .........................................     208,456          $ 8.41
      2000 .........................................     175,899            6.99
      1999 .........................................     165,926            5.60

                                       Outstanding Options   Exercisable Options
                                       -------------------   -------------------
                                        Number   Exercise     Number    Exercise
                                      of Shares   Price     of Shares    Price
                                      ---------   -----     ---------    -----
Options at December 31, 2001 expire
April 27, 2002 ...............          9,415      3.84       9,415         3.84
October 1, 2002 ..............         10,173      3.98      10,173         3.98
January 25, 2003 .............          5,089      4.13       5,089         4.13
January 18, 2004 .............         29,064      4.18      29,064         4.18
June 1, 2004 .................          1,071      4.38       1,071         4.38
December 21, 2005 ............         11,061      5.12      11,061         5.12
July 25, 2006 ................         13,947      5.38      13,947         5.38
January 16, 2007 .............         12,048      5.73      12,048         5.73
February 19, 2008 ............         26,652      7.52      21,180         7.52
June 1, 2008 .................          3,106      7.63       1,650         7.63
June 18, 2008 ................         53,361      7.63      42,691         7.63
January 21, 2009 .............          5,823     16.50       3,403        16.50
February 26, 2009 ............         32,750     16.50      19,655        16.50
April 18, 2010 ...............         13,618     15.67       5,458        15.67
August 17, 2010 ..............          1,544     15.67         620        15.67
August 25, 2010 ..............          3,308     15.67       1,322        15.67
October 16, 2010 .............         24,695     16.32       9,878        16.32
Jamuary 1, 2011 ..............         19,425     17.14       3,885        17.14
December 20, 2011 ............         34,230     15.71       6,846        15.71

Included  in the  310,380  outstanding  options as of December  31,  2001,  were
options to purchase  101,924 shares at an average price of $14.73 per share that
had not become  exercisable.  The number of shares,  average  exercise price and
years in which these options become exercisable are as follows: 44,719 shares at
$12.84 in 2002, 27,117 shares at $16.25 in 2003, 19,357 shares at $16.15 in 2004
and 10,731  shares at $16.23 in 2005.  Of the 784,899  authorized  shares of the


                                       33
<Page>

Company's  common stock  originally  reserved for issuance  upon the exercise of
options  under the two plans,  286,136 had not been  issued as of  December  31,
2001.


NOTE H - OTHER EXPENSES

Other expenses are summarized below:

                                                  Years Ended December 31,
                                                  ------------------------
                                                2001        2000          1999
                                                ----        ----          ----

Salaries and employee benefits ..........   $1,753,074   $1,559,219   $1,378,965
Net occupancy expense ...................      192,399      186,203      129,225
Furniture and equipment expense .........      246,930      255,787      218,800
Other expense
  Stationery, printing and postage ......      206,019      186,292      164,970
  Telephone .............................       61,624       51,515       44,321
  Advertising and promotion .............       68,514       68,628       63,759
  Professional services .................      103,124       75,947       43,578
  Insurance .............................       19,626       10,260       14,021
  FDIC insurance assessment .............       32,217       28,850       13,977
  Directors' fees .......................       68,800       64,700       57,500
  Other real estate costs
    and expenses, net ...................       39,867       17,513        4,998
  Data processing expenses ..............       77,963       68,569       77,807
  Other .................................      368,535      388,389      329,733
                                            ----------   ----------   ----------
      Total .............................   $3,238,692   $2,961,872   $2,541,654
                                            ==========   ==========   ==========

NOTE I - INCOME TAXES

Income tax expense consisted of:

                                                 Years Ended December 31,
                                                 ------------------------
                                          2001          2000             1999
                                          ----          ----             ----
Current
  Federal .......................    $ 1,025,971     $   864,872     $   815,151
  State .........................         83,423          76,025          72,239
                                     -----------     -----------     -----------
    Total current ...............      1,109,394         940,897         887,390
                                     -----------     -----------     -----------
Deferred
  Federal .......................        (55,614)         (2,030)         19,914
  State .........................         13,434            (178)          1,737
                                     -----------     -----------     -----------
    Total deferred ..............        (42,180)         (2,208)         21,651
                                     -----------     -----------     -----------
    Total income tax expense ....    $ 1,067,214     $   938,689     $   909,041
                                     ===========     ===========     ===========


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

                                                  Years Ended December 31,
                                                  ------------------------
                                              2001          2000          1999
                                              ----          ----          ----

Provision for loan losses .............     $(14,250)     $  1,280      $  4,250
Accelerated depreciation ..............       (2,656)        2,805         2,040
Deferred net loan costs and fees ......      (25,274)       (6,293)        6,386
Other real estate .....................            -             -         8,975
                                            --------      --------      --------
    Total .............................     $(42,180)     $ (2,208)     $ 21,651
                                            ========      ========      ========


                                       34
<Page>

Income before income taxes presented in the consolidated statement of income for
the years ended December 31, 2001, 2000 and 1999 included no foreign  component.
A  reconciliation  between  the income tax  expense  and the amount  computed by
applying  the  federal  statutory  rate of 34% to  income  before  income  taxes
follows:

                                               Years Ended December 31,
                                               ------------------------
                                          2001            2000          1999
                                          ----            ----          ----

Tax expense at statutory rate .....   $ 1,010,661    $   890,100    $   862,015
State income tax, net of federal
      income tax benefit ..........        55,059         50,059         48,824
Tax-exempt interest income ........       (23,087)        (5,111)        (4,904)
Non-deductible interest expense to
      carry tax-exempt instruments          3,709            608            487
Other, net ........................        20,872          3,033          2,619
                                      -----------    -----------    -----------
                 Total ............   $ 1,067,214    $   938,689    $   909,041
                                      ===========    ===========    ===========

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

                                                               December 31,
                                                               ------------
                                                           2001           2000
                                                           ----           ----
Deferred tax assets
  Allowance for loan losses ......................       $289,669       $275,419
  Deferred net loan fees .........................         12,408              -
  Unrealized holding losses on
    available-for-sale securities ................              -        205,463
                                                         --------       --------
       Gross deferred tax assets .................        302,077        480,882
  Valuation allowance ............................              -              -
                                                         --------       --------
       Total .....................................        302,077        480,882
                                                         --------       --------

Deferred tax liabilities
  Accelerated depreciation .......................         92,442         95,098
  Deferred net loan costs ........................              -         12,866
  Unrealized holding gains on
    available-for-sale securities ................         90,930              -
                                                         --------       --------
       Gross deferred tax liabilities ............        183,372        107,964
                                                         --------       --------
Net deferred income tax assets ...................       $118,705       $372,918
                                                         ========       ========

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 2001, 2000 and 1999,  $296,393 was charged,  $706,878 was
charged,  and  $902,842  was  credited  to other  comprehensive  income or loss,
respectively.  In 2001,  $42,180 was  credited to income tax  expense;  in 2000,
$2,208 was credited to income tax expense;  and, in 1999, $21,651 was charged to
income tax expense.

Management  believes that the Company will fully realize the deferred tax assets
as of December 31, 2001 and 2000 based on refundable income taxes available from
carryback years, as well as estimates of future taxable income.


NOTE J - 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
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 2001, 2000 and 1999 totaled $32,539,
$28,585 and $26,952, respectively.


                                       35
<Page>

NOTE K - COMMITMENTS AND CONTINGENCIES

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

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

                                                           December 31,
                                                           ------------
                                                    2001                2000
                                                    ----                ----

Loan commitments .......................         $12,779,532         $11,157,499
Standby letters of credit ..............             322,600           1,336,100


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 estimated fair values of  off-balance-sheet  financial  instruments  such as
loan  commitments  and standby  letters of credit are generally  based upon fees
charged to enter into  similar  agreements,  taking into  account the  remaining
terms  of the  agreements  and the  counterparties'  creditworthiness.  The vast
majority  of the  banking  subsidiary's  loan  commitments  do not  involve  the
charging of a fee,  and fees  associated  with  outstanding  standby  letters of
credit are not  material.  Therefore,  as of  December  31,  2001 and 2000,  the
estimated  fair  values of these  off-balance-sheet  financial  instruments  are
nominal.  For loan  commitments  and standby  letters of credit,  the  committed
interest rates are either variable or approximate current interest rates offered
for similar  commitments.  Management is not aware of any significant  change in
the credit risk associated with these commitments.

Borrowing  Availability.  At December 31, 2001,  the banking  subsidiary  had an
unused  short-term  line of credit to purchase up to $4,250,000 of federal funds
from an unrelated  correspondent  bank. The line is available on a one-day basis
for the  general  corporate  purposes of the Bank.  Advances  under the line are
further  restricted in availability  to 14 days in any 30 day period,  except in
the sole discretion of the other institution.  The Bank also has unused lines of
credit available from the FHLB. Under the terms of the FHLB agreements, the Bank
may  borrow  approximately  $29,947,000  for  its  general  corporate  purposes.
Borrowings  under the lines may bear interest at either a variable or fixed rate
established  by the FHLB.  The  lines,  if  utilized,  would be  secured by FHLB
capital stock with a carrying value of $480,100, and blanket liens on qualifying
1-4 family  residential first lien mortgage loans held by the Bank sufficient to
secure the advances.  The carrying amount of such loans at December 31, 2001 was
approximately $39,289,000.

Litigation.  The Company and its  subsidiary  were not involved as defendants in
any  litigation at December 31, 2001.  Management is not aware of any pending or
threatened litigation,  or unasserted claims or assessments that are expected to
result in losses,  if any, that would be material to the consolidated  financial
statements.

Williamston Office. In August of 2000, a temporary office facility was placed on
the land acquired for the banking subsidiary's Williamston office and opened for
commercial   operations.   Management   expects  to  complete  plans  and  begin
construction  of the permanent  office  facility in the second  quarter of 2002,
with completion near the end of 2002.  Management  estimates that  approximately
$750,000 in  additional  capital  expenditures  will be  required to  construct,
furnish and equip the new permanent facility.


                                       36
<Page>

NOTE L - FAIR VALUE OF FINANCIAL INSTRUMENTS

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

<Table>
<Caption>
                                                                                            December 31,
                                                                                            ------------
                                                                            2001                                 2000
                                                                            ----                                 ----
                                                                  Carrying         Estimated           Carrying          Estimated
                                                                   Amount          Fair Value           Amount          Fair Value
                                                                 of Assets         of Assets          of Assets          of Assets
                                                               (Liabilities)     (Liabilities)      (Liabilities)      (Liabilities)
                                                               -------------     -------------      ------------       -------------

<S>                                                          <C>                <C>                <C>                <C>
Cash and due from banks (Note A) .......................     $   6,063,051      $   6,063,051      $   4,027,045      $   4,027,045
Interest bearing deposits due from banks (Note A) ......            27,419             27,419             16,078             16,078
Federal funds sold (Note A) ............................         9,240,000          9,240,000         15,580,000         15,580,000
Securities (Note C) ....................................        71,338,781         71,338,781         57,861,760         57,861,760
Other investments (Note A) .............................           480,100            480,100            385,700            385,700
Loans (Note D) .........................................       118,543,926        118,912,829         96,562,062         95,997,265
Accrued interest receivable (Note A) ...................         1,466,465          1,466,465          1,376,429          1,376,429
Deposits (Note F) ......................................      (193,519,229)      (193,593,609)      (164,382,457)      (164,420,238)
Accrued interest payable (Note A) ......................        (1,307,096)        (1,307,096)        (1,759,520)        (1,759,520)
Loan commitments (Note K) ..............................                 -        (12,779,532)                 -        (11,157,499)
Standby letters of credit (Note K) .....................                 -           (322,600)                 -         (1,336,100)
</Table>


NOTE M - ACCOUNTING CHANGES

Accounting for Derivative  Instruments and Hedging Activities.  FASB ("Financial
Accounting  Standards  Board")  Statement No. 133,  "Accounting  for  Derivative
Instruments and Hedging  Activities," as subsequently amended by FASB Statements
No. 137 and 138, addresses the accounting and financial reporting for derivative
instruments,  including  derivative  instruments embedded in other contracts and
hedging activities. The Statement requires the recognition of all derivatives as
either assets or liabilities  in the balance sheet and the  measurement of these
instruments  at fair  value.  Also,  hedging  relationships  are  required to be
accounted for and disclosed in accordance with the Statement.  The Statement, as
amended, is required to be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000,  without  restatement of financial  statements of
prior periods. The Company has adopted the provisions of the Statement effective
with the fiscal quarter beginning January 1, 2001. However, the adoption of this
Statement  has  not  had  any  material  adverse  or  beneficial  effect  on the
consolidated financial position or results of operations of the Company.

Business  Combinations.   FASB  Statement  No.  141,  "Business   Combinations,"
addresses accounting and reporting for business  combinations and supersedes APB
("Accounting  Principles  Board") Opinion No. 16, "Business  Combinations,"  and
FASB Statement No. 38, "Accounting for Preacquisition Contingencies of Purchased
Enterprises." All business  combinations  within the scope of this Statement are
to  be   accounted   for   using   the   purchase   method,   with  use  of  the
pooling-of-interests method no longer permitted. The provisions of the Statement
apply to all business combinations initiated after June 30, 2001, as well as all
business combinations accounted for using the purchase method for which the date
of acquisition is July 1, 2001, or later. The adoption of this Statement in 2001
has not had any  material  adverse  or  beneficial  effect  on the  consolidated
financial position or results of operations of the Company.

Goodwill and Other  Intangibles.  FASB  Statement  No. 142,  "Goodwill and Other
Intangible  Assets," addresses  financial  accounting and reporting for acquired
goodwill and other  intangible  assets and  supersedes  APB No. 17,  "Intangible
Assets." This statement changes the accounting for goodwill from an amortization
method to an  impairment-only  approach.  The  provisions of this  Statement are
required to be applied  beginning with fiscal years beginning after December 15,
2001.  The  adoption of this  Statement as of January 1, 2002 is not expected to
have any material  adverse or beneficial  effect on the  consolidated  financial
position or results of operations of the Company.

Accounting for Asset Retirement Obligations. FASB Statement No. 143, "Accounting
for Asset Retirement  Obligations," addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. The Statement requires recording the fair
value of a liability for an asset  retirement  obligation in the period in which
it is incurred,  along with increasing the carrying  amount and  depreciation of
the related asset.  This statement is effective for financial  statements issued


                                       37
<Page>

for  fiscal  years  beginning  after June 15,  2002,  with  earlier  application
encouraged. The adoption of this Statement as of January 1, 2003 is not expected
to have any material adverse or beneficial effect on the consolidated  financial
position or results of operations of the Company.

Accounting for the Impairment or Disposal of Long-Lived  Assets.  FASB Statement
No. 144,  "Accounting  for the  Impairment  or Disposal of  Long-Lived  Assets,"
addresses  financial  accounting and reporting for the impairment or disposal of
long-lived  assets.  This  Statement  supersedes  FASB Statement No. 121 and the
accounting and reporting  provisions of APB No. 30 for the disposal of a segment
of a business,  as previously  defined in that Opinion.  The  provisions of this
Statement  are  effective  for  financial  statements  issued for  fiscal  years
beginning  after  December 15,  2001,  and interim  periods  within those fiscal
years, with early application  encouraged.  The adoption of this Statement as of
January 1, 2002 is not  expected  to have any  material  adverse  or  beneficial
effect on the  consolidated  financial  position or results of operations of the
Company.

Isolation of Transferred  Financial  Assets.  FASB  Technical  Bulletin No. 01-1
defers until 2002  application of the isolation  standards of FASB Statement No.
140 as applied to banks and certain other financial institutions. FASB Statement
No. 140,  "Accounting  for  Transfers  and  Servicing  of  Financial  Assets and
Extinguishments of Liabilities," provides accounting and reporting standards for
transfers of financial  assets and  extinguishments  of  liabilities  based on a
financial  components approach that focuses on retention or surrender of control
of such assets or liabilities.  The Statement also requires the reclassification
of financial  assets  pledged as collateral  under certain  circumstances.  FASB
Statement 140 was effective for transfers and servicing of financial  assets and
extinguishment of liabilities  occurring after March 31, 2001, and effective for
recognition and  reclassification of collateral and for disclosures  relating to
securitization  transactions  and  collateral  for  fiscal  years  ending  after
December  31,  2000.  The  adoption  of FASB  Statement  No. 140 in 2001 and the
deferral allowed by FASB Technical  Bulletin No. 01-01 have not had any material
adverse or beneficial effect on the consolidated  financial  position or results
of operations of the Company.


NOTE N - COMMUNITY FIRST BANCORPORATION (PARENT COMPANY ONLY)

                                                             December 31,
                                                             ------------
                                                          2001           2000
                                                          ----           ----
Condensed Balance Sheet
  Assets
    Cash ...........................................   $   756,109   $ 1,049,609
    Investment in banking subsidiary ...............    16,271,948    13,846,701
                                                       -----------   -----------
      Total assets .................................   $17,028,057   $14,896,310
                                                       ===========   ===========
  Liabilities
    Other liabilities ..............................   $    11,282   $     1,536
  Shareholders' equity .............................    17,016,775    14,894,774
                                                       -----------   -----------
     Total liabilities and shareholders' equity ....   $17,028,057   $14,896,310
                                                       ===========   ===========

                                       38
<Page>
<Table>
<Caption>
                                                                                            Years Ended December 31,
                                                                                            ------------------------
                                                                                   2001               2000                    1999
                                                                                   ----               ----                    ----
Condensed Statement of Income
  Income
<S>                                                                            <C>                 <C>                  <C>
      Dividends received from banking subsidiary .....................         $         -         $ 2,420,000          $         -
      Interest income ................................................              32,540              32,933               11,760
      Other income ...................................................               8,520               1,483                    -
                                                                               -----------         -----------          -----------
          Total income ...............................................              41,060           2,454,416               11,760
                                                                               -----------         -----------          -----------
  Expenses
      Other expenses .................................................              26,988              30,360               26,848
                                                                               -----------         -----------          -----------
          Total expenses .............................................              26,988              30,360               26,848
                                                                               -----------         -----------          -----------
  Income (loss) before income taxes and equity in
      undistributed earnings of banking subsidiary ...................              14,072           2,424,056              (15,088)
  Income tax expense (credit) ........................................               4,784               1,379               (5,130)
  Equity in undistributed earnings
      of banking subsidiary ..........................................           1,896,031            (743,425)           1,636,256
                                                                               -----------         -----------          -----------
  Net income .........................................................         $ 1,905,319         $ 1,679,252          $ 1,626,298
                                                                               ===========         ===========          ===========
</Table>



<Table>
<Caption>
                                                                                                Years Ended December 31,
                                                                                                ------------------------
                                                                                         2001             2000               1999
                                                                                         ----             ----               ----
Condensed Statement of Cash Flows
      Operating activities
<S>                                                                                   <C>              <C>              <C>
          Net income ............................................................     $ 1,905,319      $ 1,679,252      $ 1,626,298
              Adjustments to reconcile net income to net
                   cash provided by operating activities
                       Equity in undistributed earnings
                         of banking subsidiary ..................................      (1,896,031)         743,425       (1,636,256)
                       Decrease (increase) in other assets ......................               -            5,130           13,917
                       Increase (decrease) in other liabilities .................           3,405             (931)             149
                                                                                      -----------      -----------      -----------
                         Net cash provided by
                            operating activities ................................          12,693        2,426,876            4,108
                                                                                      -----------      -----------      -----------
      Financing activities
          Repurchase and cancellation of common stock ...........................        (358,786)      (1,900,000)               -
          Exercise of employee stock options, net of issuance
              costs of $15,953 in 1999 ..........................................          52,593          123,355          124,724
          Payment of cash in lieu of fractional
              shares for stock dividend .........................................               -           (6,264)          (5,654)
                                                                                      -----------      -----------      -----------
                         Net cash (used) provided by financing activities .......        (306,193)      (1,782,909)         119,070
                                                                                      -----------      -----------      -----------
      (Decrease) increase in cash and cash equivalents ..........................        (293,500)         643,967          123,178
      Cash and cash equivalents, beginning ......................................       1,049,609          405,642          282,464
                                                                                      -----------      -----------      -----------
      Cash and cash equivalents, ending .........................................     $   756,109      $ 1,049,609      $   405,642
                                                                                      ===========      ===========      ===========
</Table>











                                       39