Exhibit 13















                         Portions of 2003 Annual Report
                   to Shareholders incorporated by Reference












<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 2003,  management was aware of a few  transactions  in which the
Company's  common  stock traded in a price range from $16.19 to $20.00 per share
(per share prices have been  adjusted to reflect a 5% stock  dividend  effective
November  28,  2003).  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 29, 2004, there were approximately 828 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 2004.

         The Board of Directors  declared 5% stock dividends  effective November
28, 2003, November 28, 2002, and December 21, 2001.

         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 5% stock dividends  effective
November 28, 2003, November 28, 2002, and December 21, 2001.


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.  Forward-looking
statements include statements concerning plans,  objectives,  goals, strategies,
future events or performance  and underlying  assumptions  and other  statements
which are other  than  statements  of  historical  facts.  Such  forward-looking
statements  may be  identified,  without  limitation,  by the  use of the  words
"anticipates,"    believes,"   "estimates,"   "expects,"   "intends,"   "plans,"
"predicts,"  "projects," and similar  expressions.  The Company's  expectations,
beliefs and  projections  are  expressed  in good faith and are  believed by the
Company to have a reasonable basis,  including without limitation,  management's
examination  of historical  operating  trends,  data  contained in the Company's
records  and  other  data  available  from  third  parties,  but there can be no
assurance that management's expectations,  beliefs or projections will result or
be achieved or accomplished.  The Company cautions readers that  forward-looking
statements, including without limitation, those relating to the Company's recent
and continuing  expansion,  its future  business  prospects,  revenues,  working
capital,  liquidity,  capital needs, interest costs, income, and adequacy of the
allowance  for loan losses,  are subject to 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.


                                       1
<PAGE>

Earnings Performance

2003 Compared with 2002

         For the year ended December 31, 2003,  the Company  recorded net income
of $3,005,000,  an increase of $243,000, or 8.8%, above net income of $2,762,000
for 2002.  Net income per share for 2003 was $1.27 compared with $1.18 for 2002.
Per share net income, assuming dilution for unexercised stock options, was $1.21
for 2003  compared with $1.12 for 2002.  Return on average  assets was 1.12% for
2003 compared with 1.24% for 2002.  Return on average  shareholders'  equity was
14.03% for 2003 compared with 14.89% for 2002.

         Net  income  increased  significantly  in 2003  primarily  due to lower
provisions for loan losses and higher noninterest  income. The $769,000 decrease
in the provision for loan losses was  attributable to several factors  including
lower loan charge-offs and a slower rate of loan growth.  The $620,000  increase
in noninterest  income was  attributable to higher fee income  generated from an
automatic  overdraft  protection  product and gains from the sale of residential
home  mortgage  loans,  both products  first  introduced by the Company in 2002.
Also, net gains from the sale of a few securities added to noninterest income in
2003. See "Provision for Loan Losses" and "Other Income" for further discussion.

         Partially  offsetting these positive net income factors were a $289,000
decrease in net interest income and a $717,000 increase in noninterest  overhead
expenses. The Company aggressively competed for deposits during 2003 by offering
attractive  interest rates in its local markets in Oconee and Anderson  Counties
of South Carolina. This effort succeeded in increasing average total deposits by
$41,703,000 or 20.5%. Most of these deposits were interest bearing time deposits
which  mature or can be repriced  by the end of 2004.  The net  interest  margin
narrowed  because  the demand for quality  loans did not keep pace with  deposit
growth and most of the funds were employed in the lower-yielding  securities and
overnight  federal funds sold categories.  The average loan to deposit ratio for
2003  dropped  to 58.2%  from the 2002  ratio  of  64.1%.  Noninterest  expenses
increased in part due to the expenses of staffing and  promoting  the  Company's
new office location in Westminster,  South Carolina, which opened for operations
in  May,  2003.  Also,  the  Company  acquired  and  implemented  a new  imaging
technology for customer  statements and other purposes in 2003 which is expected
to help reduce future  increases in operating  expenses  resulting from expected
increases  in the number of customer  accounts.  See "Net  Interest  Income" and
"Other Expenses" for further discussion.

2002 Compared with 2001

         For the year ended December 31, 2002,  the Company  recorded net income
of $2,762,000, an increase of $857,000, or 45.0%, above net income of $1,905,000
for 2001.  Net income per share for 2002 was $1.18  compared with $.81 for 2001.
Per share net income, assuming dilution for unexercised stock options, was $1.12
for 2002  compared  with $.77 for 2001.  Return on average  assets was 1.24% for
2002  compared  with  .91% for  2001.  Return on  average  shareholders'  equity
increased to 14.89% for 2002 from 11.82% for 2001.

         Net income increased  significantly in 2002 primarily due to higher net
interest income. The $2,107,000 increase in net interest income was attributable
to higher volumes of loans  outstanding in 2002 and lower rates paid for deposit
funding sources.  Increases in the amounts of loans outstanding were funded by a
change in the mix of the earning assets  portfolio and through  deposit  sources
obtained at favorable rates within the Company's local market areas.

         Partially  offsetting  the positive  effects of increased  net interest
income  was a  significant  increase  in the  amount of the  provision  for loan
losses.  In 2002,  the banking  subsidiary  provided  $1,291,000 for loan losses
compared with a provision of $567,000 in 2001.

         Both   noninterest   income   and   noninterest    expenses   increased
significantly  during 2002.  The  subsidiary  bank  implemented  a new automatic
overdraft  protection product,  and made other changes in the amounts of service
charges,  during  2002 that  increased  the  amount  of  service  charge  income
collected from customers.  Noninterest expenses increased  substantially,  also,
due both to continued  expansion of the number of the Bank's  locations  and the
effects of increased numbers of deposit and loan accounts.


Comprehensive Income

         Comprehensive income for 2003, 2002 and 2001 was $2,427,000, $2,978,000
and  $2,435,000,  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


                                       2
<PAGE>

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.


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.

         Net interest income was $7,575,000, $7,864,000 and $5,757,000 for 2003,
2002 and 2001, respectively. Interest income for 2003 was $84,000, or 0.7%, more
than in 2002. However,  interest expense for 2003 increased  $373,000,  or 7.9%,
from the prior year  amount.  The $289,000  decrease in net interest  income for
2003  resulted  from the  effects of lower  interest  rates  earned on  interest
earning assets and significantly higher volumes of interest bearing liabilities.
Such interest bearing  liabilities  were comprised  entirely of interest bearing
deposits.

         The average rate earned on interest earning assets declined by 96 basis
points to 4.92% for 2003. The average rate paid for interest bearing liabilities
during 2003 was 2.34%, a decrease of 30 basis points from 2002.

         Average  interest  earning  assets  during 2003 were  $257,284,000,  an
increase  of  $43,516,000  or  20.4%  over  2002.  Average  loans  for the  2003
nine-month period totaled $142,322,000,  an increase of $12,218,000 or 9.4% over
2002.  Average loans were 55.3% and 60.9% of average interest earning assets for
2003  and  2002,  respectively.   Average  federal  funds  sold  for  2003  were
$38,465,000,  an increase of  $14,809,000 or 62.6% over 2002.  Average  interest
bearing liabilities during 2003 totaled  $217,934,000,  representing an increase
of  $39,597,000  or 22.2% over the amount for 2002.  Average  time  deposits  of
$100,000 and over  increased to  $63,106,000  for 2003 from  $54,650,000  in the
prior year, an increase of $8,456,000 or 15.5%.  Average time deposits less than
$100,000   increased  to  $93,588,000   for  2003  from   $69,272,000  in  2002,
representing  an increase of  $24,316,000  or 35.1%.  Average  interest  bearing
transaction and savings accounts  increased to $61,240,000 for 2003, an increase
of $6,825,000 or 12.5% from 2002.

         The average  interest rate spread  (average  yield on interest  earning
assets less the  average  rate paid on interest  bearing  liabilities)  for 2003
declined 66 basis  points to 2.58%.  Net yield on earning  assets (net  interest
income divided by average  interest  earning assets) declined 74 basis points to
2.94% for 2003.

         Market rates of interest  were  relatively  stable in 2003.  During the
year ended December 31, 2003, the Federal  Reserve Bank's Open Market  Committee
lowered key target interest rates on only one occasion, resulting in a reduction
of 25 basis points in those target  rates.  Consequently,  the prime rate, a key
determinant  of rates charged to the Bank's most  credit-worthy  customers and a
factor considered in all loan-pricing  decisions,  was similarly reduced.  As of
December 31, 2003,  approximately  $48,000,000,  or 32.5%, of the Company's loan
portfolio was composed of variable rate loans  directly  indexed to movements in
the prime rate. The average rate earned on loans during 2003 was 6.98%, compared
with 7.34% for 2002.  Similarly,  in  response  to the  Federal  Reserve's  rate
reduction, other market rates of interest have declined. Securities issuers have
taken advantage of these circumstances by redeeming  securities that were issued
with call provisions,  and reissuing new securities at lower rates. As a result,
the yield on the Company's taxable securities was 3.02% for 2003,  compared with
4.41% for the same period of 2002.

         The Company  focused its funding  efforts on  attracting  time  deposit
accounts during 2003.  Within that year, time deposits of all types increased by
$24,672,000. To acquire those deposits, the Company offered interest rates that,
although  generally   consistent  with  the  offerings  of  other  locally-owned
financial institutions,  were somewhat higher than rates offered by the regional
and nationwide  institutions who also operate in the Company's market areas. The
majority of the funds obtained in 2003 are scheduled to mature before the end of
2004.

         Because  loan  demand  softened,  the  Company  invested  the  funds it
acquired  during 2003 primarily in the  lower-yielding  categories of investment
securities and federal funds sold. Loan demand in the Company's market areas was
adversely  affected  in  2003  by the  bankruptcy  of a  relatively  unregulated
mortgage banking  operation's local funding  subsidiary.  This event resulted in
the recognition of approximately  $200,000,000 of losses by local investors. The
longer-term effect of the bankruptcy on the local economy is uncertain.

         The  $2,107,000  increase  in net  interest  income for 2002 was due to
several factors.  The lower interest rate environment in 2002 compared with 2001
resulted in significant reductions in both interest income and interest expense.
The Company  changed the "mix" of its  interest  earning  assets in favor of the
generally  higher-yielding  loans,  somewhat mitigating the effects of the lower


                                       3
<PAGE>

rate  environment  on  interest  income.  The ratio of average  loans to average
deposits  increased  to 64.1% for 2002  compared  with 55.5%  during  2001.  The
average rate earned on interest  earning  assets  decreased  107 basis points in
2002. In 2002,  management  reduced the interest rates paid on interest  bearing
transaction and savings deposits and reduced significantly the rates offered for
new  or  reinvested  certificates  of  deposit.   Relatively  large  amounts  of
certificates  of deposit matured or were otherwise  repriced  according to their
terms in 2002. Consequently,  the average rate paid in 2003 for interest bearing
deposit  liabilities  decreased 223 basis points compared with 2002. The average
interest  rate spread  increased  116 basis  points and the net yield on average
interest earning assets increased 82 basis points in 2002 compared with 2001.

         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, 2003, 2002 and
2001.

                       Average Balances, Yields and Rates

<TABLE>
<CAPTION>
                                                                                   Years ended December 31,
                                                                                   ------------------------
                                                              2003                         2002                       2001
                                                              ----                         ----                       ----
                                                  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 ...... $     25   $      -   0.00%  $     26   $     1    3.85% $     20   $     1   5.00%
Taxable securities .............................  75,069      2,270   3.02%    59,246     2,613    4.41%   62,458     3,620   5.80%
Tax-exempt securities .........................      697         26   3.73%       198        10    5.05%      198        10   5.05%
Federal funds sold ............................   38,465        403   1.05%    23,656       381    1.61%   31,515     1,298   4.12%
Other investments .............................      706         27   3.82%       538        21    3.90%      458        38   8.30%
Loans (2) .....................................  142,322      9,938   6.98%   130,104     9,554    7.34%  106,480     9,002   8.45%
                                                --------    -------          --------   -------          --------   -------
            Total interest earning assets .....  257,284     12,664   4.92%   213,768    12,580    5.88%  201,129    13,969   6.95%
Cash and due from banks .......................    4,194                        3,931                       3,588
Allowance for loan losses .....................   (2,188)                      (1,621)                     (1,030)
Unrealized securities gains (losses) ..........      265                          441                         177
Premises and equipment ........................    4,352                        3,395                       3,317
Other assets ..................................    3,752                        2,692                       2,813
                                                --------                     --------                    --------
            Total assets ...................... $267,659                     $222,606                    $209,994
                                                ========                     ========                    ========

Liabilities and shareholders' equity
Interest bearing deposits
       Interest bearing transaction accounts .. $ 32,985   $    251   0.76%  $ 28,945   $   363    1.25% $ 26,099   $   628   2.41%
       Savings ................................   28,255        161   0.57%    25,470       266    1.04%   23,707       738   3.11%
       Time deposits $100M and over ...........   63,106      1,609   2.55%    54,650     1,573    2.88%   50,156     2,661   5.31%
       Other time deposits ....................   93,588      3,068   3.28%    69,272     2,514    3.63%   68,637     4,185   6.10%
                                                --------    -------          --------   -------          --------   -------
            Total interest bearing
              deposits ........................  217,934      5,089   2.34%   178,337     4,716    2.64%  168,599     8,212   4.87%
Noninterest bearing demand deposits ...........   26,778                       24,672                      23,352
Other liabilities .............................    1,529                        1,044                       1,932
Shareholders' equity ..........................   21,418                       18,553                      16,111
                                                --------                     --------                    --------
            Total liabilities and
             shareholders' equity ............. $267,659                     $222,606                    $209,994
                                                ========                     ========                    ========
Interest rate spread (3) ......................                       2.58%                        3.24%                      2.08%
Net interest income and net yield
       on earning assets (4) ..................            $  7,575   2.94%             $ 7,864    3.68%            $ 5,757   2.86%
Interest free funds supporting earning
       assets (5) ............................. $ 39,350                     $ 35,431                    $ 32,530
</TABLE>
--------------------------
(1)  Average balances are computed on a daily basis.
(2)  Nonaccrual  loans are included in the average  loan  balances and income on
     such loans generally is recognized on a cash basis.
(3)  Total  interest  earning  assets  yield  less the  total  interest  bearing
     liabilities rate.
(4)  Net interest income divided by total interest earning assets.
(5)  Total interest earning assets less total interest bearing liabilities.


                                       4
<PAGE>

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

                        Volume and Rate Variance Analysis

<TABLE>
<CAPTION>
                                                                  2003 Compared with 2002              2002 Compared with 2001
                                                                  -----------------------              -----------------------
                                                             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 ....................................         597        (940)        (343)        (178)        (829)      (1,007)
Tax-exempt securities .................................          19          (3)          16            -            -            -
Federal funds sold ....................................         185        (163)          22         (266)        (651)        (917)
Other investments .....................................           7          (1)           6            6          (23)         (17)
Loans .................................................         868        (484)         384        1,832       (1,280)         552
                                                            -------     -------      -------      -------      -------      -------
                      Total interest income ...........       1,676      (1,592)          84        1,394       (2,783)      (1,389)
                                                            -------     -------      -------      -------      -------      -------
Interest bearing deposits
        Interest bearing transaction accounts .........          45        (157)        (112)          62         (327)        (265)
        Savings .......................................          27        (132)        (105)          51         (523)        (472)
        Time deposits $100M and over ..................         227        (191)          36          221       (1,309)      (1,088)
        Other time deposits ...........................         816        (262)         554           38       (1,709)      (1,671)
                                                            -------     -------      -------      -------      -------      -------
                      Total interest expense ..........       1,115        (742)         373          372       (3,868)      (3,496)
                                                            -------     -------      -------      -------      -------      -------
                      Net interest income .............     $   561     $  (850)     $  (289)     $ 1,022      $ 1,085      $ 2,107
                                                            =======     =======      =======      =======      =======      =======
</TABLE>
-------------------------------
(1)  The  rate/volume  variance  for  each  category  has  been  allocated  on a
     consistent  basis between rate and volume variances based on the percentage
     of rate or volume variance to the sum of the two absolute  variances except
     in categories having balances in only one period. In such cases, the entire
     variance is attributed to volume variances.

         Management  currently  expects that  interest  rates may move  slightly
higher,  but  within  a narrow  range,  in 2004.  Management  has not  presently
identified  any factors that it believes  might cause interest rates to increase
sharply in a short period of time.  However,  changes in interest rates that can
significantly affect the Company, either positively or negatively, are possible.
In the  absence of  significant  changes in market  interest  rate  levels,  any
significant  changes in net interest  income  during 2004 are expected to result
primarily   from  changes  in  the  volumes  of  interest   earning  assets  and
liabilities.

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 2003 by  $121,666,000,  resulting in a cumulative
gap ratio of .39.  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 2003 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, net interest income can
decrease  despite a negative  interest  sensitivity  gap.  This  occurs  because
traditional  interest sensitivity analysis does not account for all factors that
affect  the  repricing  of  assets  including  actions  taken by  consumers  and
businesses to prepay,  refinance or renegotiate  terms associated with existing,
higher fixed rate loans and mortgages.  Similarly,  issuers of federal and local
government  securities  frequently  exercise  early  call  options  to prepay or
refinance their debt securities at lower rates.

         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

                                       5
<PAGE>

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.  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, 2003
                                                                                   -----------------
                                                                       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 ...............    $      29     $       -     $       -    $       -    $      29
         Securities available-for-sale ..........................          376           289        40,522       44,836       86,023
         Other investments ......................................          750             -             -            -          750
         Federal funds sold .....................................       31,916             -             -            -       31,916
         Loans (1) ..............................................       34,549         8,991        93,573        9,540      146,653
                                                                     ---------     ---------     ---------    ---------    ---------
                       Total interest earning assets ............       67,620         9,280     $ 134,095    $  54,376    $ 265,371
                                                                     ---------     ---------     =========    =========    =========

Interest bearing liabilities
         Interest bearing deposits
                Interest bearing transaction accounts ...........    $  32,633           $ -           $ -          $ -    $  32,633
                Savings .........................................       28,419             -             -            -       28,419
                Time deposits $100M and over ....................       22,133        30,739         7,875            -       60,747
                Other time deposits .............................       21,509        63,133        17,837            -      102,479
                                                                     ---------     ---------     ---------    ---------    ---------
                       Total interest bearing liabilities .......      104,694        93,872     $  25,712          $ -    $ 224,278
                                                                     ---------     ---------     =========    =========    =========

Interest sensitivity gap ........................................    $ (37,074)    $ (84,592)
Cumulative interest sensitivity gap .............................    $ (37,074)    $(121,666)
Gap ratio .......................................................         0.65         0.10
Cumulative gap ratio ............................................         0.65         0.39
</TABLE>
---------------------
(1)  Loans exclude loans held for sale and are net of nonaccruing loans totaling
     $997,000.

Provision for Loan Losses

         The  provision  for  loan  losses  is  charged  to  earnings  based  on
management's  continuing  review and  evaluation  of the loan  portfolio and its
estimate of the related  allowance for loan losses.  Provisions  for loan losses
were  $522,000,  $1,291,000  and $567,000 for the years ended December 31, 2003,
2002 and 2001,  respectively.  The  decreased  provision in 2003 was largely the
result of decreased amounts of loan  charge-offs,  an approximate 50% decline in
the rate of loan growth during 2003 compared with 2002, and a slight decrease in
the total volume of nonaccrual and other  potential  problem loans at the end of
2003  from the end of 2002.  However,  uncertainty  about  the  impact  that the
current  recovery from the recent national  economic  downturn and a major local
bankruptcy might have on local economic and business conditions had an influence
on  management's  estimate  of the  allowance  for loan  losses and the  related
provision.  The  allowance  for loan  losses as a  percentage  of total loans at


                                       6
<PAGE>

year-end  was  1.49% for 2003  compared  with  1.42% as of the end of 2002.  Net
charge-offs  for 2003 were $275,000,  a decrease of $266,000 from the amount for
2002. Net charge-offs  for 2002 were $541,000,  an increase of $174,000 over the
2001 amount.  See "Impaired Loans,"  "Potential  Problem Loans,"  "Allowance for
Loan Losses" and "The Application of Critical  Accounting  Policies" for further
information and a discussion of the methodology  used and factors  considered by
management in its estimate of the allowance for loan losses.

Other Income

         Noninterest  income for 2003  increased by $620,000 or 43.9% over 2002.
Service charges on deposit accounts  accounted for $358,000 of this increase due
primarily to charges associated with a pre-arranged overdraft protection product
first  introduced in 2002.  Gains on loans held for sale  increased  $127,000 in
2003 over 2002. In 2002, the Company began  originating  mortgage loans with the
intent to sell,  principally to a regional mortgage banker.  Several  advantages
have accrued to the Company  under this  arrangement,  including  the ability to
serve the needs within its established market areas for long-term  financing for
home  purchases  without  incurring  the  interest  rate risk of  maintaining  a
long-term  fixed-rate asset. In addition,  as demonstrated by the gains realized
on sale of  loans  originated  during  both  2003  and  2002,  the  Company  was
positioned  to derive  increased  income from the wave of  residential  mortgage
refinancing  and new home  purchases  resulting  from  historically  low  market
interest rates for such loans. The Company is generally  afforded decreased risk
of loss on such loans by acquiring take-out  commitments for such loans prior to
the loans'  originations.  In 2003, the Company realized net gains from the sale
of a few  available-for-sale  securities  of  $80,000,  compared  with a loss of
$2,000 in 2002.

         Noninterest  income  increased by $392,000 or 38.4% for 2002 over 2001.
Service charges on deposit accounts increased by $314,000 or 39.8%. This was due
primarily to charges associated with the newly introduced pre-arranged overdraft
protection product. In addition, the Company began in 2002 originating long-term
residential mortgage loans to be sold to a mortgage banker. The Company realized
$75,000 in gains on the sale of such loans in 2002.

Other Expenses

         Noninterest  expenses  increased  $717,000  or 19.4%  for 2003 over the
amount for 2002. Salaries and employee benefits increased $364,000 or 17.7% over
the amount for 2002. This increase was caused  primarily by the cost of staffing
the Company's new Westminster  office which opened for commercial  operations in
temporary  facilities in May, 2003.  The 2003 increase in personnel  expense was
also due to  normal  salary  and wage  adjustments  made from  time-to-time.  In
addition,  employee group insurance  expense was up $43,000 or 36.1% in 2003 due
to significant premium increases as well as more participants.

         As of December  31,  2003,  the Company  has two  stock-based  employee
compensation  plans.  The Company accounts for those plans under the recognition
and measurement  principles of Accounting  Principles  Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations.  No
stock-based  employee  compensation  cost is  reflected  in net  income,  as all
options  granted  under those  plans had an  exercise  price equal to the market
value of the underlying common stock on the date of grant. While the Company has
adopted the  disclosure  provisions  of  Financial  Accounting  Standards  Board
("FASB")  Statement  No. 123,  "Accounting  for  Stock-Based  Compensation,"  as
amended,  there  are no  current  intentions  to  adopt  the fair  value  method
recognition provisions of that Statement. Refer to "Stock-Based Compensation" in
Note A to the consolidated  financial statements included in this report for the
pro-forma  effects on net income  and net  income per share if the  Company  had
applied such fair value method recognition.

         Net occupancy and furniture and equipment  expenses for 2003  increased
$106,000 or 24.9%.  Depreciation  expense increased $34,000,  largely due to the
approximately  $300,000 purchase of check imaging equipment primarily during the
third quarter.  Building and equipment maintenance and repair expenses increased
$39,000.  Property taxes,  utilities and other related  expenses also increased.
The new branch office in Westminster contributed to a portion of the increase in
these expenses.

         Other  noninterest  expenses  increased  $246,000  or 20.2% for 2003 as
compared with 2002. Stationery,  printing and postage expense was $45,000 higher
in 2003 largely due to the costs of implementing the new imaging  technology for
customers'  statements and increases in account  volumes from a larger  customer
base.  Advertising and promotion  expenses were up $33,000  primarily because of
increased  advertising  to attract  deposits  and  promote  the new  Westminster
office.  Other  expenses  increased  primarily due to the branch  expansion into
Westminster, increased costs of computer software, and higher costs of corporate
governance compliance resulting from recent regulatory changes.

                                       7
<PAGE>

         The  Company  continues  to hold for sale four  parcels  of  commercial
property  consisting  of  land it  developed  in 1999  adjacent  to its  City of
Anderson  office.  This property was  subdivided and developed from the property
originally  acquired  for  the  new  office.  The  property  is  carried  in the
consolidated  balance  sheet at a cost of $980,000  as of December  31, 2003 and
2002.  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.  No such downward  adjustments  have been made
through December 31, 2003. During 2003, 2002 and 2001, marketing efforts to sell
this property have been slowed due to adjacent  road  construction  and no sales
contracts have been entered into. However, the construction was completed in the
fourth quarter of 2003 and management is optimistic that the marketing prospects
for the property will improve.

         Noninterest  expenses for 2002 increased  $458,000,  or 14.1%, over the
amount for 2001. Salaries and employee benefits increased by $303,000,  or 17.3%
over the 2001 amount.  This increase was caused primarily by increased  employee
bonuses awarded in 2002 and normal salary and wage adjustments.

         Net occupancy and furniture and equipment  expenses  decreased slightly
in 2002 due  primarily  to a decrease in the amount of  depreciation  associated
with data processing equipment.  Computer and related equipment with an original
cost of $265,000  became fully  depreciated  during 2002. Much of this equipment
was  replaced  during  2002  with new,  more  advanced  equipment  for a cost of
approximately $110,000.

         Other expenses for 2002 increased  $169,000,  or 16.2%, over the amount
for 2001 due to a $25,000  increase in expenses  for  stationery,  printing  and
postage caused by continued  increases in account volumes from a larger customer
base and by higher postal rates, a $22,000 increase in expenses for professional
services  primarily caused by increased usage of outside assistance in assessing
various business  strategies,  and a $47,000 increase in data processing because
of  the  expenses   associated  with  software  used  for  the  Company's  basic
information needs.  During 2002, the Company licensed an enhanced version of its
primary application software.

         Noninterest  expenses  are expected to continue to increase in 2004 due
to  continued   market  expansion  and  technology   investment.   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 2003,  federal and state income tax expenses  increased by $140,000
to  $1,667,000.  In 2002,  federal and state  income tax  expenses  increased to
$1,527,000 from  $1,067,000 in 2001. 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 35.7% for 2003,  35.6% for
2002,  and 35.9% for 2001.  The Company has only minimal  amounts of income from
nontaxable sources,  such as nontaxable  investment securities or loans to local
governments.


Securities

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

                                                          December 31,
                                                          ------------
                                                2003         2002        2001
                                                ----         ----        ----
                                             Available-   Available-  Available-
                                              for-Sale     for-Sale    for-Sale
                                              --------     --------    --------
                                                    (Dollars in thousands)

U. S. Government agencies ...............      $53,171      $43,334      $62,329
State, county and municipal .............        2,021          210          203
Mortgage-backed securities ..............       30,831       19,424        8,807
                                               -------      -------      -------
       Total ............................      $86,023      $62,968      $71,339
                                               =======      =======      =======


                                       8
<PAGE>

         The following table presents  maturities and weighted average yields of
securities at December 31, 2003.

<TABLE>
<CAPTION>
                                                                             December 31, 2003
                                                                             -----------------
                                                              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%    $ 32,054   2.85%    $ 20,326  3.07%   $   791   4.53%    $ 53,171   2.96%
State, county and municipal ..........       -   0.00%           -   0.00%       1,151  3.28%       870   3.77%       2,021   3.49%
Mortgage-backed securities (1) .......     293   6.01%       3,989   3.24%      19,722  3.41%     6,827   3.89%      30,831   3.52%
                                         -----            --------            --------          -------            -------
        Total ........................   $ 293   6.01%    $ 36,043   2.89%    $ 41,199  3.24%   $ 8,488   3.94%    $ 86,023   3.17%
                                         =====            ========            ========          =======            ========
 </TABLE>
----------------------------
(1)  Maturity  categories  based  upon  final  stated  maturity  dates.  Average
     maturity  is  substantially  shorter  because  of  the  monthly  return  of
     principal on certain securities.

         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 2003,  the Company  sold  several  available-for-sale
securities  resulting  in net realized  gains of $80,000.  During 2002 and 2001,
securities were sold resulting in the recognition of a $2,000 loss in 2002 and a
gain of $4,000 in 2001. No transfers of  available-for-sale  or held-to-maturity
securities  to other  categories  were effected in any of the years 2001 through
2003.

         The investment portfolio grew by $23,055,000 in 2003 over the amount at
the end of 2002. This increase was primarily the result of  insufficient  demand
for  quality  loans to more  profitably  employ  the  large  volume  of new time
deposits  obtained in 2003. Also, the Company has a significant  amount of local
governmental  deposits for which it is required by law to pledge  securities  as
collateral.  As of  December  31,  2003,  securities  with a  carrying  value of
$40,898,000 were pledged to secure such public deposits.

         Market rates of interest  declined only  slightly  during 2003 from the
levels  existing  at the end of 2002.  The shape of the U.S.  Treasury  security
yield curve was basically  unchanged  throughout  2003.  These external  factors
contribute  significantly  to the Company's  pricing  structure for its loan and
deposit  products  and, to a large  extent,  determine  the rates  available  on
investment  securities.  In 2003,  the Company  continued to be subject to early
call  redemptions  of  securities  as  issuers  of  securities  decreased  their
borrowing costs.  Such early calls totaled  $54,300,000 in 2003,  representing a
turnover rate of approximately 86% of the year end 2002 investment portfolio. In
order to maintain the net interest  margin,  the Company invested larger amounts
in  longer-term  U.  S.  Government  agencies  and  mortgage-backed  securities.
However,  the average  maturity of the  securities  portfolio as of December 31,
2003 was only 3 months longer than the average maturity as of December 31, 2002.
Less than 10% of the Company's investments mature in more than 10 years, and the
majority of those investments are in mortgage-backed instruments.

         By purchasing longer-term  mortgage-backed  securities,  management has
accepted a higher  level of interest  rate risk than the level that would result
from investing  solely in shorter-term  higher-quality  instruments.  Management
believes  that this risk is mitigated  somewhat by expected  prepayments  of the
mortgage-backed  securities  and  the  presence  of U. S.  Government  agencies'
guarantees.  Such prepayments recently have been driven to unusually high levels
by increased home mortgage  refinancing activity resulting from historically low
residential  mortgage interest rates.  While the pace of prepayments likely will
slow from that seen in recent years,  management  believes that the  longer-term
historical  record  indicates  that the  average  life of  mortgage  loans,  and
therefore the expected average life of a typical  mortgage-backed  security,  is
significantly  shorter  than its  contractual  terms due to  factors  other than
interest rates.

         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.


                                       9
<PAGE>

Loan Portfolio

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

         The amounts of loans  outstanding  at December 31, 2003,  2002 and 2001
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,
                                                                                              ------------
                                                                      2003                         2002                    2001
                                                                      ----                         ----                    ----
                                                             Amount              %        Amount          %       Amount          %
                                                             ------          -----        ------       ----       ------       ----
                                                                                         (Dollars in thousands)
Commercial, financial and industrial
<S>                                                         <C>              <C>      <C>              <C>      <C>            <C>
     Commercial and industrial .......................      $ 20,592         13.9%    $ 19,124         13.9%    $ 21,006       17.5%
     Purchasing or carrying securities ...............         2,323          1.6%       2,547          1.9%       2,578        2.1%
Real estate - construction ...........................           436           .3%         822           .6%         346         .3%
Real estate - mortgage
     1-4 family residential ..........................        58,762         39.8%      54,471         39.7%      45,329       37.9%
     Multifamily (5 or more) residential .............         2,095          1.4%       2,311          1.7%       1,862        1.5%
     Nonfarm, nonresidential .........................        40,834         27.7%      36,122         26.3%      27,047       22.6%
Consumer installment
     Credit card and checking credit .................           998           .7%       1,033           .7%       1,030         .9%
     Other ...........................................        21,610         14.6%      20,929         15.2%      20,546       17.2%
                                                            --------        -----     --------        -----     --------      -----
                    Total loans ......................      $147,650        100.0%    $137,359        100.0%    $119,744      100.0%
                                                            ========        =====     ========        =====     ========      =====
</TABLE>

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

         Total loans grew  $10,291,000 or 7.5% in 2003,  compared with growth of
$17,615,000  or 14.7% in 2002. The ratio of total loans to total deposits at the
end of 2003 was 57.6%  compared  with  64.9% at the end of 2002.  The demand for
quality loans in 2003 did not keep pace with the  $44,912,000  or 21.2% increase
in total deposits.  Management did not sacrifice loan quality standards in order
to  maintain  any  particular  target  loan to  deposit  ratio.  The  percentage
composition   of  the  loan  portfolio  as  to  type  of  loan  did  not  change
significantly in 2003 as compared with 2002.

         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 2003, total
commercial and industrial  loans increased  $1,468,000 or 7.7%,  compared with a
decrease of  $1,882,000  or 9.0% during  2002.  Loans  mainly for  business  and
investment  purposes that are secured by real estate  (nonfarm,  nonresidential)
increased by $4,712,000 or 13.0% in 2003 compared with an increase of $9,075,000
or 33.6% during  2002.  Commercial  lending  involves  significant  risk because
repayment usually depends on the cash flows generated by a borrower's  business,
and the debt service capacity of a business can deteriorate because of downturns
in national  and local  economic  conditions.  To control  risk,  more  in-depth
initial and continuing  financial  analysis of a borrower's cash flows and other
financial information is generally required.

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

         Loans secured by real estate mortgages comprised  approximately 69% and
68% of the Company's loan  portfolio at the end of 2003 and 2002,  respectively.
Real  estate  mortgage  loans of all types grew  $8,787,000  during  2003 and by
$18,666,000  during 2002.  Residential real estate loans consist mainly of first
and second  mortgages on single family homes,  with some multifamily home loans.


                                       10
<PAGE>

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.  During 2002,  the Company began
originating  for sale mortgage  loans  pursuant to an agreement  with a regional
mortgage banking firm. Under this arrangement,  the Company  originated and sold
mortgage loans of approximately  $4,000,000 and $5,000,000 during 2003 and 2002,
respectively. The Company does not retain servicing of these loans, nor is there
any intention of retaining such rights in the immediate future.


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,  2003,  as well as the type of
interest requirement on such loans.

<TABLE>
<CAPTION>
                                                                                               December 31, 2003
                                                                                               -----------------
                                                                            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 ...............................        $ 11,746        $ 10,773        $    396        $ 22,915
Real estate - construction .........................................             279             157               -             436
Real estate - mortgage .............................................          26,339          66,486           8,866         101,691
Consumer installment ...............................................           5,356          16,735             517          22,608
                                                                            --------        --------        --------        --------
                 Total loans .......................................        $ 43,720        $ 94,151        $  9,779        $147,650
                                                                            ========        ========        ========        ========

Predetermined rate, maturity greater than one year .................        $      -        $ 77,762        $  9,534        $ 87,296
                                                                            ========        ========        ========        ========
Variable rate or maturity within one year ..........................        $ 43,720        $ 16,389        $    245        $ 60,354
                                                                            ========        ========        ========        ========
</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,
                                                            ------------
                                                     2003       2002      2001
                                                     ----       ----      ----
                                                       (Dollars in thousands)
Nonaccrual loans ..............................      $997       $866       $609
Accruing loans 90 days or more past due .......         -          -          1
                                                     ----       ----       ----
            Total .............................      $997       $866       $610
                                                     ====       ====       ====

Percent of total loans ........................       0.7%       0.6%       0.5%


         When an  impaired  loan is 90 days or more past due as to  interest  or
principal or there is serious doubt as to ultimate  collectibility,  the accrual
of interest income is generally  discontinued.  Previously  accrued  interest on
loans placed in a nonaccrual  status is reversed  against  current  income,  and
subsequent interest income is recognized on a cash basis when received. When the
collectibility  of a  significant  amount  of  principal  is in  serious  doubt,
collections  are credited  first to the  remaining  principal  balance on a cost
recovery  basis.  An impaired  nonaccrual loan is not returned to accrual status


                                       11
<PAGE>

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 2003, 2002 and 2001.

         As of December 31, 2003,  there were no commitments to lend  additional
funds to debtors owing amounts on nonaccrual loans.

Potential Problem Loans

         Management  has  identified  and maintains a list of potential  problem
loans.  These are loans that are not included in impaired  loans  (nonaccrual or
past due 90 days or more and still  accruing).  A loan is added to the potential
problem list when management  becomes aware of information about possible credit
problems of borrowers  that causes doubts as to the ability of such borrowers to
comply  with the  current  loan  repayment  terms.  The  total  amount  of loans
outstanding  at December  31, 2003  determined  by  management  to be  potential
problem  loans was  $1,053,000.  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.

                                               December 31, 2003
                                               -----------------
                                             Amount               %
                                             ------             ----
                                            (Dollars in thousands)

Real estate mortgage ................     $  596               56.6%
Vehicles ............................        209               19.9%
Mobile homes ........................         67                6.4%
Other ...............................        110               10.4%
Unsecured ...........................         71                6.7%
                                          ------              -----
           Total ....................     $1,053              100.0%
                                          ======              =====


Allowance for Loan Losses

         The table, "Summary of Loan Loss Experience",  summarizes loan balances
at the end of each period  indicated,  averages for each period,  changes in the
allowance  arising  from  charge-offs  and  recoveries  by  loan  category,  and
additions to the allowance which have been charged to expense.

         Management  believes  that  an  aggregate  evaluation  that  emphasizes
individual  loan risk  grades and  specific  problem  loan  allocations  is more
meaningful than an allocation by loan categories. Management is not aware of any
significant  degree of increased  exposure,  risk of collection or other adverse
features in any particular  category of loans.  See "The Application of Critical
Accounting  Policies" for further  discussion of the factors and procedures used
by management in estimating the allowance for loan losses.


                                       12
<PAGE>

             Summary of Loan Loss Experience

<TABLE>
<CAPTION>
                                                                                           Years Ended December 31,
                                                                                           ------------------------
                                                                         2003          2002         2001         2000         1999
                                                                         ----          ----         ----         ----         ----
                                                                                          (Dollars in thousands)
<S>                                                                    <C>          <C>          <C>          <C>          <C>
Total loans outstanding at end of period ..........................    $147,650     $137,359     $119,744     $ 97,562     $ 76,158
Average amount of loans outstanding ...............................     142,322      130,104      106,480       86,262       71,944

Balance of allowance for loan losses - beginning ..................    $  1,950     $  1,200     $  1,000     $    943     $    955
                                                                       --------     --------     --------     --------     --------
Loans charged off
     Commercial and industrial ....................................         305          193          249           97          234
     Real estate - mortgage .......................................           -          131            -           40            -
     Consumer installment .........................................           -          223          126          121           99
                                                                       --------     --------     --------     --------     --------
          Total charge-offs .......................................         305          547          375          258          333
                                                                       --------     --------     --------     --------     --------
Recoveries of loans previously charged off
     Commercial and industrial ....................................          30            1            -            -           12
     Consumer installment .........................................           -            5            8           10            9
                                                                       --------     --------     --------     --------     --------
          Total recoveries ........................................          30            6            8           10           21
                                                                       --------     --------     --------     --------     --------
Net charge-offs ...................................................         275          541          367          248          312
                                                                       --------     --------     --------     --------     --------
Additions to allowance charged to expense .........................         522        1,291          567          305          300
                                                                       --------     --------     --------     --------     --------
Balance of allowance for loan losses - ending .....................    $  2,197     $  1,950     $  1,200     $  1,000     $    943
                                                                       ========     ========     ========     ========     ========

Ratios
     Net charge-offs to average loans .............................        0.19%        0.42%        0.34%        0.29%        0.43%
     Net charge-offs to loans at end of period ....................        0.19%        0.39%        0.31%        0.25%        0.41%
     Allowance for loan losses to average loans ...................        1.54%        1.50%        1.13%        1.16%        1.31%
     Allowance for loan losses to loans at end of period ..........        1.49%        1.42%        1.00%        1.02%        1.24%
     Net charge-offs to allowance for loan losses .................       12.52%       27.74%       30.58%       24.80%       33.09%
     Net charge-offs to provision for loan losses .................       52.68%       41.91%       64.73%       81.31%      104.00%
</TABLE>


Deposits

         The average amounts and percentage  composition of deposits held by the
Company for the years ended  December 31, 2003,  2002 and 2001,  are  summarized
below:

                                Average Deposits

<TABLE>
<CAPTION>
                                                                                Years Ended December 31,
                                                                                ------------------------
                                                                2003                        2002                      2001
                                                                ----                        ----                      ----
                                                        Amount          %         Amount           %         Amount           %
                                                        ------         ----       ------         ----        ------          ----
                                                                                 (Dollars in thousands)
<S>                                                    <C>             <C>       <C>             <C>       <C>               <C>
Noninterest bearing demand .....................       $ 26,778        10.9%     $ 24,672        12.2%     $ 23,352          12.2%
Interest bearing transaction accounts ..........         32,985        13.6%       28,945        14.3%       26,099          13.6%
Savings ........................................         28,255        11.5%       25,470        12.5%       23,707          12.4%
Time deposits $100M and over ...................         63,106        25.8%       54,650        26.9%       50,156          26.1%
Other time deposits ............................         93,588        38.2%       69,272        34.1%       68,637          35.7%
                                                       --------       -----      --------       -----      --------         -----
             Total deposits ....................       $244,712       100.0%     $203,009       100.0%     $191,951         100.0%
                                                       ========       =====      ========       =====      ========         =====
</TABLE>

         As of December 31, 2003,  there were  $60,747,000  in time  deposits of
$100,000  or  more.  Approximately   $22,005,000  mature  within  three  months,
$8,728,000  mature over three  through six months,  $20,761,000  mature over six
through twelve months and $9,253,000  mature after one year. This level of large


                                       13
<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,
2003, approximately $18,302,000 of time deposits of $100,000 or more represented
deposits of local governmental 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,
                                       ------------------------
                                  2003           2002           2001
                                  ----           ----           ----

  Return on assets ...........    1.12%          1.24%          0.91%
  Return on equity ...........   14.03%         14.89%         11.82%
  Dividend payout ratio ......    0.00%          0.00%          0.00%
  Equity to assets ratio .....    8.00%          8.33%          7.67%


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  67.8% of average
total assets during 2003  compared  with 66.6% during 2002.  Deposits of several
local  governmental  entities  comprised  approximately  17%  and  23% of  total
deposits at the end of 2003 and 2002,  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,  2003,  the  banking
subsidiary  is  eligible  to  borrow  up to  $38,284,000  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  $51,045,000  as of
December 31, 2003. In addition,  the banking  subsidiary has available an unused
short-term  line of credit to purchase up to $6,900,000 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.  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.  In 2003 and
2002, 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.


                                       14
<PAGE>

Capital Resources

         Shareholders' equity increased by $2,452,000 and $3,068,000 during 2003
and 2002,  respectively.  During 2003, net income increased shareholders' equity
by $3,005,000 and the exercise of employee stock options provided an increase of
$32,000.  Other comprehensive income or loss, consisting primarily of the change
in unrealized holding gains or losses on available-for-sale  securities,  net of
deferred tax effects,  decreased  shareholders'  equity by $578,000.  In lieu of
fractional shares,  $7,000 was paid with respect to the 5% stock dividend issued
in 2003. During 2002, net income increased shareholders equity by $2,762,000 and
the exercise of employee  stock options  provided an increase of $96,000.  Other
comprehensive  income  or loss,  which  consisted  primarily  of the  change  in
unrealized holding gains or losses on available-for-sale  securities,  increased
shareholders' equity by $216,000.  In lieu of fractional shares, $6,000 was paid
with respect to the 5% stock dividend declared in 2002.

         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, 2003 and 2002,  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.  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, 2003                                                                             (Dollars in thousands)
     The Company
<S>                                                                       <C>         <C>       <C>        <C>      <C>        <C>
        Total Capital to risk weighted assets ........................    $24,770     15.2%     $13,001    8.0%     $16,251    10.0%
        Tier 1 Capital to risk weighted assets .......................    $22,737     14.0%     $ 6,500    4.0%     $ 9,751     6.0%
        Tier 1 Capital to average assets (leverage) ..................    $22,737      8.3%     $10,959    4.0%     $16,439     6.0%
     Community First Bank
        Total Capital to risk weighted assets ........................    $23,940     14.7%     $13,001    8.0%     $16,251    10.0%
        Tier 1 Capital to risk weighted assets .......................    $21,907     13.5%     $ 6,500    4.0%     $ 9,751     6.0%
        Tier 1 Capital to average assets (leverage) ..................    $21,907      8.0%     $10,959    4.0%     $16,439     6.0%

December 31, 2002
     The Company
        Total Capital to risk weighted assets ........................    $21,481     15.2%     $11,346    8.0%     $14,183    10.0%
        Tier 1 Capital to risk weighted assets .......................    $19,706     13.9%     $ 5,673    4.0%     $ 8,510     6.0%
        Tier 1 Capital to average assets (leverage) ..................    $19,706      8.8%     $ 8,994    4.0%     $13,491     6.0%
     Community First Bank
        Total Capital to risk weighted assets ........................    $20,659     14.6%     $11,346    8.0%     $14,183    10.0%
        Tier 1 Capital to risk weighted assets .......................    $18,884     13.3%     $ 5,673    4.0%     $ 8,510     6.0%
        Tier 1 Capital to average assets (leverage) ..................    $18,884      8.4%     $ 8,994    4.0%     $13,491     6.0%

</TABLE>



                                       15
<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.


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

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

     o    any  obligation  under a  direct  or  indirect  guarantee  of  similar
          arrangement;

     o    a  retained  or  contingent  interest  in  assets  transferred  to  an
          unconsolidated  entity or similar arrangement;

     o    derivatives,  to the extent  that the fair value  thereof is not fully
          reflected as a liability or asset in the financial statements; or

     o    any  obligation  or  liability,  including a contingent  obligation or
          liability,  to the  extent  that  it is  not  fully  reflected  in the
          financial statements (excluding the footnotes thereto).

         The Company's  off-balance  sheet  arrangements  presently include only
commitments  to extend credit and standby  letters of credit.  Such  instruments
have  elements of credit risk in excess of the amount  recognized in the balance
sheet. The exposure to credit loss in the event of  nonperformance  by the other
parties to these  instruments is represented  by the  contractual,  or notional,
amount  of those  instruments.  Generally,  the same  credit  policies  used for
on-balance  sheet  instruments,  such  as  loans,  are  used in  extending  loan
commitments and letters of credit.  The following table sets out the contractual
amounts of those arrangements:

                                                        December 31,
                                                        ------------
                                                  2003               2002
                                                  ----               ----
                                                  (Dollars in thousands)

   Loan commitments .........................    $ 14,482          $ 13,943
   Standby letters of credit ................         449               238


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

         Standby letters of credit are conditional  commitments to guarantee the
performance of a customer to a third party.  The credit risk involved in issuing
standby  letters  of  credit  is the  same  as  that  involved  in  making  loan
commitments to customers.

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


                                       16
<PAGE>

The Application of Critical Accounting Policies

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

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

Provision and Allowance for Loan Losses

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

         A  considerable  amount of  judgment is required in order to compute an
estimate of the amount of the allowance for loan losses.  Management's judgments
must be applied in  assessing  the  current  creditworthiness  of the  Company's
borrowers and in estimating  uncertain  future events and their effects based on
currently known facts and circumstances.  Changes in the estimated allowance for
loan losses  arising as new events  occur or more  information  is obtained  are
accounted for as changes in  accounting  estimates in the  accounting  period in
which such a change occurs.

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

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

         The   provision   for  loan   losses   charged  to  expense   decreased
significantly in 2003 to $522,000  compared with $1,291,000 and $567,000 in 2002
and 2001,  respectively.  The  allowance  for loan losses at the end of 2003 was
$2,197,000, up $247,000 or 12.7% as compared with the allowance of $1,950,000 as
of the end of 2002. As a percentage of total loans  outstanding at year end, the
allowance  for loan losses  stood at 1.49%,  1.42% and 1.00% for 2003,  2002 and
2001, respectively. In making its judgments about the percentage factors applied
to loan risk grade  categories,  management  elected to take a more conservative
approach  in both 2003 and 2002.  Several key  factors  influenced  management's
decision to take this approach, including the trend toward increases in net loan
charge-offs,  impaired or non-performing  loans and potential problem loans over


                                       17
<PAGE>

the last three years. While net loan charge-offs  decreased to $275,000 in 2003,
net loan  charge-offs  increased to $541,000 in 2002,  an increase of 47.4% over
the 2001 amount,  after increasing to $367,000 or 48.0% over the 2000 amount. As
of the end of 2003, impaired or non-performing  loans grew to $997,000,  up from
$866,000  and  $610,000  at the end of 2002 and  2001,  respectively.  Potential
problem loans were  $1,053,000 at the end of 2003,  compared with $1,279,000 and
$880,000 at the end of 2002 and 2001,  respectively.  While management  believes
that the local economy remains relatively healthy,  uncertainty exists about the
effects that the 2003 bankruptcy of a mortgage banking operation's local funding
subsidiary might have on the Company's borrowers.  This failure caused losses of
approximately  $200,000,000 to numerous large and small local  investors.  While
the national  economy appears to be currently in recovery,  concerns remain that
the national  economic  downturn that began in 2001, and  continuing  throughout
2002  and  2003,  eventually  might  have  a  more  noticeable  effect  locally.
Manufacturing remains a significant sector of the local economy. Loan growth has
also had an influence on the provisions for loan losses in 2003,  2002 and 2001.
Total  year end  loans  grew  7.5%,  14.7%  and  22.7% in 2003,  2002 and  2001,
respectively.  The Company entered into the new market of Anderson County, South
Carolina in 1999, and has continued to expand its presence over the last several
years.  Activities  within this market  initially  emphasized the acquisition of
deposit  liabilities  to  fund  loan  growth.  The  Company's  loan  origination
activities increased  significantly in 2003, 2002 and 2001. Because the Anderson
County market is still  relatively  new to the Company,  management  perceives a
higher  degree of risk in its  lending  operations  there and,  consequently,  a
higher  provision and allowance for loan losses has been estimated until further
experience  is obtained.  If  experience in this market proves to be better than
management  has  estimated,  the Company may be able to increase the size of its
loan portfolio without the need for  significantly  increasing its provision and
allowance for loan losses in the future.

         Management has established  loan and credit policies and practices that
are designed to control credit risks as a part of the loan underwriting process.
These policies and practices include, for example, requirements for minimum loan
to collateral  value ratios,  real estate  appraisal  requirements and obtaining
credit and  financial  information  on borrowers.  However,  if the capacity for
borrowers to repay and/or collateral values should deteriorate subsequent to the
underwriting  process,  the estimate of provision  and allowance for loan losses
might increase,  thereby decreasing net income and shareholders'  equity. During
2003 and 2002, the total of loans secured by real estate mortgages  increased by
$27,453,000  from  $74,238,000 at the end of 2001 to  $101,691,000 by the end of
2003.  Of this  increase,  $13,433,000  consisted of loans secured by 1-4 family
residential real estate mortgages, and $13,787,000 consisted of loans secured by
nonfarm,  nonresidential  real estate  mortgages.  A  significant  or  prolonged
downturn in national and local economic and business conditions could negatively
affect the borrowers'  capacity to repay these loans as well as the value of the
underlying  collateral.  This scenario would be likely to substantially increase
the level of impaired  or  non-performing  loans,  non-earning  foreclosed  real
estate and increase  overall  credit risk by shrinking  the margin of collateral
values as compared with loans  outstanding.  Another factor that could adversely
affect borrowers'  ability to make payments in accordance with loan terms is the
potential  for  increases  in  rates  charged  for  loans.  The  Company  has  a
significant amount of variable rate loans outstanding.  In addition,  some loans
are refinanced at maturity rather than being paid out in a lump sum. If interest
rates were to increase sharply in a short time period, some loan customers might
not be able to afford payments on loans made or repriced at the higher resulting
interest  rates,  nor would they  necessarily  be able to obtain more  favorable
terms elsewhere. This could also cause an increase in the amounts of impaired or
non-performing assets and other credit risks.

Impact of Recent Accounting Changes

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 was 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 did not have
any material adverse or beneficial effect on the consolidated financial position
or results of operations of the Company.

                                       18
<PAGE>


Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No.
13, and  Technical  Corrections  FASB  Statement  No. 145,  "Rescission  of FASB
Statements No. 4, 44, and 64,  Amendment of FASB Statement No. 13, and Technical
Corrections," addresses financial accounting and reporting for extinguishment of
debt and for certain lease  modifications  that have economic effects similar to
sale-leaseback transactions.  This Statement requires that gains and losses from
debt  extinguishments  that are part of an entity's recurring  operations not be
accounted for as extraordinary  items.  Furthermore,  gains and losses from debt
extinguishments  that  are not  part of an  entity's  recurring  operations  are
required to be  evaluated  using the  criteria in  Accounting  Principles  Board
Opinion No. 30,  "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," to determine whether extraordinary treatment
is warranted for those transactions. The provisions of this Statement related to
debt extinguishments were required to be applied in fiscal years beginning after
May 15, 2002,  with early  application  encouraged.  Restatement is required for
amounts that previously were classified as  extraordinary,  but that do not meet
the  criteria in Opinion No. 30 for  extraordinary  treatment.  The  Statement's
other  provisions were required to be applied either to  transactions  occurring
after May 15, 2002 or for financial  statements issued on or after May 15, 2002,
with early  application  encouraged.  The adoption of the provisions of FASB No.
145 as of their effective dates did not have any material  adverse or beneficial
effect on the  consolidated  financial  position or results of operations of the
Company.

Accounting for Costs Associated with Exit or Disposal  Activities FASB Statement
No. 146,  "Accounting for Costs  Associated  with Exit or Disposal  Activities,"
addresses  financial  accounting and reporting for costs associated with exit or
disposal  activities and nullifies  Emerging Issues Task Force Issues Nos. 88-10
and 94-3. This Statement requires that a liability for a cost associated with an
exit or disposal  activity be recognized at its fair value when the liability is
incurred,  rather than the previous  recognition of a liability at the date that
an entity  committed to an exit plan.  The  provisions  of this  Statement  were
effective for exit or disposal  activities  initiated  after  December 31, 2002,
with early  application  encouraged.  The  adoption of  Statement  No. 146 as of
January 1, 2003 did not have any material  adverse or  beneficial  effect on the
consolidated financial position or results of operations of the Company.



                                       19
<PAGE>

Guarantor's  Accounting and Disclosure  Requirements  for Guarantees,  Including
Indirect Guarantees of Indebtedness of Others The FASB issued its Interpretation
45  ("FIN  45"),   "Guarantor's   Accounting  and  Disclosure  Requirements  for
Guarantees,  Including  Indirect  Guarantees of  Indebtedness  of Others," which
addresses a guarantor's  measurement and  recognition of its  liabilities  under
certain  guarantee  transactions  at inception and provides for new  disclosures
regarding the nature and extent of such guarantees.  The disclosure requirements
were effective for interim and annual financial statements ending after December
15, 2002. FIN 45's initial recognition and measurement provisions were effective
prospectively; that is, for guarantees issued or modified on or after January 1,
2003. The adoption of the  disclosure  provisions of this  Interpretation  as of
December  31,  2002  had  no  material  adverse  or  beneficial  effect  on  the
consolidated  financial  position  or  results  of  operations  of the  Company.
Furthermore,  the adoption of the  Interpretation's  measurement and recognition
provisions as of January 1, 2003 did not have any material adverse or beneficial
effect  on  the  Company's   consolidated   financial  position  or  results  of
operations.

Consolidation of Variable Interest  Entities FASB  Interpretation 46 ("FIN 46"),
"Consolidation of Variable Interest Entities,  an interpretation of ARB No. 51,"
provides a new framework for identifying  variable interest  entities  ("VIE's")
and  determining  when  a  company  should  include  the  assets,   liabilities,
noncontrolling  interests and results of activities of a VIE in its consolidated
financial  statements.  FIN 46  requires  that if a  business  enterprise  has a
controlling financial interest in a VIE, the assets,  liabilities and results of
the  activities  of the  VIE  must be  included  in the  consolidated  financial
statements of a business enterprise.  This interpretation also requires existing
unconsolidated  VIE's to be consolidated by their primary  beneficiaries  if the
entities do not effectively  disperse risks among parties  involved.  VIE's that
effectively  disperse risks will not be consolidated unless a single party holds
an interest or combination of interests that  effectively  recombines risks that
were previously  dispersed.  FIN 46 was effective  immediately for VIE's created
after January 31, 2003, and to VIE's in which an enterprise  obtains an interest
after that date. It applied in the first fiscal year or interim period beginning
after June 15, 2003, to VIE's in which an enterprise  holds a variable  interest
that it acquired before February 1, 2003. This  Interpretation does not apply to
securitization structures that are qualified special purpose entities as defined
within FASB Statement No. 140. Management does not believe that adoption of this
Interpretation  has had, or will have, any material adverse or beneficial effect
on the Company's consolidated financial position or results of operations.

Amendment  of FASB  Statement  No. 133 The FASB  issued its  Statement  No. 149,
"Amendment of Statement 133 on Derivative  Instruments and Hedging  Activities,"
which amends and clarifies accounting and disclosure for derivative instruments,
including certain derivative  instruments  embedded in other contracts,  and for
hedging  activities  under FASB  Statement No. 133. This Statement was effective
for contracts  entered into or modified  after June 30, 2003,  except in certain
circumstances,  and for hedging  relationships  designated  after June 30, 2003.
Adoption of this Statement did not have a material adverse or beneficial  effect
on the Company's consolidated financial position or results of operations.

Financial  Instruments with  Characteristics of both Liabilities and Equity FASB
Statement  No.  150,   "Accounting  for  Certain   Financial   Instruments  with
Characteristics  of both  Liabilities  and  Equity,"  provides  new rules on the
accounting for certain  financial  instruments  that,  under previous  guidance,
issuers  could  account  for  as  equity.  Such  financial  instruments  include
mandatorily  redeemable shares,  instruments that require the issuer to buy back
some of its shares in exchange for cash or other assets, or obligations that can
be  settled  with  shares,  the  monetary  value of which is fixed.  Most of the
guidance in FASB  Statement  No. 150 was  effective  for  financial  instruments
entered into or modified  after May 31, 2003, and otherwise was effective at the
beginning of the first interim period beginning after June 30, 2003. Adoption of
this  Statement had no material  adverse or  beneficial  effect on the Company's
consolidated financial position or results of operations.

Other-Than-Temporary  Impairment of Certain  Investments  In November  2003, the
Emerging  Issues Task Force ("EITF")  reached  consensus on Issue No. 03-1, "The
Meaning  of  Other-Than-Temporary  Impairment  and Its  Application  to  Certain
Investments."  EITF Issue No. 03-1 requires tabular  disclosure of the amount of
unrealized  losses and the  related  estimated  fair value of  investments  with
unrealized  losses  aggregated for each category of investment that is disclosed
in accordance with SFAS No. 115. In addition,  it requires sufficient  narrative
disclosure to allow financial  statement users to understand both the aggregated
tabular  information  and the positive and negative  information  considered  in
reaching the conclusion that the impairments are not  other-than-temporary.  See
Note C to the consolidated financial statements for the required disclosures.


                                       20

<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, 2003 and 2002,
and the related  consolidated  statements  of income,  changes in  shareholders'
equity, and cash flows for the years then ended. 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.  The consolidated
financial  statements  of  Community  First  Bancorporation  for the year  ended
December 31, 2001 were audited by other  auditors whose report dated February 7,
2002, expressed an unqualified opinion on those statements.

         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 2003 and 2002  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,
2003 and  2002,  and the  consolidated  results  of their  operations  and their
consolidated  cash flows for the years then ended in conformity  with accounting
principles generally accepted in the United States of America.




J. W. Hunt and Company, LLP
Certified Public Accountants
Columbia, South Carolina
January 21, 2004












                                       21
<PAGE>


Consolidated Balance Sheet
Community First Bancorporation

<TABLE>
<CAPTION>
                                                                                                              December 31,
                                                                                                              ------------
                                                                                                        2003                 2002
                                                                                                        ----                 ----
Assets
<S>                                                                                              <C>                  <C>
     Cash and due from banks (Note B) ....................................................       $   7,560,353        $   5,113,815
     Interest bearing deposits due from banks ............................................              28,764               32,364
     Federal funds sold ..................................................................          31,916,000           21,471,000
     Securities available-for-sale (Note C) ..............................................          86,022,915           62,967,593
     Other investments ...................................................................             750,200              554,500
     Loans held for sale .................................................................                   -              211,127
     Loans (Note D) ......................................................................         147,649,915          137,358,504
         Allowance for loan losses .......................................................          (2,196,500)          (1,950,000)
                                                                                                 -------------        -------------
            Loans - net ..................................................................         145,453,415          135,408,504
     Premises and equipment - net (Note E) ...............................................           4,453,781            4,148,080
     Accrued interest receivable .........................................................           1,424,305            1,350,574
     Real estate held for sale ...........................................................             980,003              980,003
     Other assets ........................................................................           1,936,543              617,003
                                                                                                 -------------        -------------

            Total assets .................................................................       $ 280,526,279        $ 232,854,563
                                                                                                 =============        =============

Liabilities
     Deposits (Note F)
         Noninterest bearing .............................................................       $  32,272,829        $  24,415,791
         Interest bearing ................................................................         224,277,893          187,222,836
                                                                                                 -------------        -------------
            Total deposits ...............................................................         256,550,722          211,638,627
     Accrued interest payable ............................................................           1,356,922            1,069,177
     Other liabilities ...................................................................              81,341               61,907
                                                                                                 -------------        -------------
            Total liabilities ............................................................         257,988,985          212,769,711
                                                                                                 -------------        -------------

     Commitments and contingent liabilities (Note K)

Shareholders' equity (Note G)
     Common stock - no par  value; 10,000,000 shares authorized; issued and
         outstanding - 2,362,057 for 2003 and
         2,242,417 for 2002 ..............................................................          19,619,589           17,569,241
     Retained earnings ...................................................................           3,117,432            2,137,103
     Accumulated other comprehensive income (loss) .......................................            (199,727)             378,508
                                                                                                 -------------        -------------
            Total shareholders' equity ...................................................          22,537,294           20,084,852
                                                                                                 -------------        -------------

            Total liabilities and shareholders' equity ...................................       $ 280,526,279        $ 232,854,563
                                                                                                 =============        =============
</TABLE>










See accompanying notes to consolidated financial statements.




                                       22
<PAGE>

Consolidated Statement of Income
Community First Bancorporation

<TABLE>
<CAPTION>
                                                                                                Years Ended December 31,
                                                                                                ------------------------
                                                                                       2003              2002               2001
                                                                                       ----              ----               ----
Interest income
<S>                                                                                <C>               <C>                <C>
     Loans, including fees ..................................................      $  9,938,187      $  9,554,406       $  9,002,386
     Securities
        Taxable .............................................................         2,269,718         2,612,877          3,620,426
        Tax-exempt ..........................................................            26,427             9,820              9,819
     Federal funds sold .....................................................           402,559           380,691          1,297,454
     Other investments ......................................................            26,961            21,484             38,295
     Interest bearing deposits due from banks ...............................               276               434                797
                                                                                   ------------      ------------       ------------
        Total interest income ...............................................        12,664,128        12,579,712         13,969,177
                                                                                   ------------      ------------       ------------

Interest expense
     Time deposits $100,000 and over ........................................         1,608,789         1,572,554          2,660,538
     Other deposits .........................................................         3,480,591         3,142,899          5,551,915
                                                                                   ------------      ------------       ------------
        Total interest expense ..............................................         5,089,380         4,715,453          8,212,453
                                                                                   ------------      ------------       ------------

Net interest income .........................................................         7,574,748         7,864,259          5,756,724
Provision for loan losses (Note D) ..........................................           521,842         1,291,384            566,976
                                                                                   ------------      ------------       ------------
Net interest income after provision .........................................         7,052,906         6,572,875          5,189,748
                                                                                   ------------      ------------       ------------

Other income
     Service charges on deposit accounts ....................................         1,461,488         1,103,046            789,265
     Credit life insurance commissions ......................................            45,814            35,586             40,756
     Gain (loss) on sale of available-for-sale securities (Note C) ..........            80,488            (2,475)             4,327
     Gain on sale of loans held for sale ....................................           202,330            74,898                  -
     Other income ...........................................................           242,859           202,227            187,129
                                                                                   ------------      ------------       ------------
        Total other income ..................................................         2,032,979         1,413,282          1,021,477
                                                                                   ------------      ------------       ------------

Other expenses (Notes H and J)
     Salaries and employee benefits .........................................         2,420,268         2,055,809          1,753,074
     Net occupancy expense ..................................................           243,826           189,768            192,399
     Furniture and equipment expense ........................................           288,229           236,000            246,930
     Other expense ..........................................................         1,461,175         1,215,223          1,046,289
                                                                                   ------------      ------------       ------------
        Total other expenses ................................................         4,413,498         3,696,800          3,238,692
                                                                                   ------------      ------------       ------------

Income before income taxes ..................................................         4,672,387         4,289,357          2,972,533
Income tax expense (Note I) .................................................         1,667,418         1,527,561          1,067,214
                                                                                   ------------      ------------       ------------
Net income ..................................................................      $  3,004,969      $  2,761,796       $  1,905,319
                                                                                   ============      ============       ============

Per share (Note G)
     Net income .............................................................      $       1.27      $       1.18       $       0.81
     Net income, assuming dilution ..........................................              1.21              1.12               0.77
</TABLE>






See accompanying notes to consolidated financial statements.



                                       23
<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, 2001 ......................       2,022,623     $ 14,383,234     $    878,398     $   (366,858)    $ 14,894,774
Comprehensive income:
    Net income ................................               -                -        1,905,319                -        1,905,319
    Unrealized holding gains arising
    during the period, net of
    income tax effects of $297,946 ............               -                -                -          531,990          531,990
    Reclassification adjustment,
    net of income tax effects of $1,553 .......               -                -                -           (2,774)          (2,774)
                                                                                                                       ------------
    Total other comprehensive income ..........               -                -                -                -          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

Comprehensive income:
    Net income ................................               -                -        2,761,796                -        2,761,796
    Unrealized holding gains arising
    during the period, net of
    income tax effects of $120,169 ............               -                -                -          214,564          214,564
    Reclassification adjustment,
    net of income tax effects of $889 .........               -                -                -            1,586            1,586
                                                                                                                       ------------
    Total other comprehensive income ..........               -                -                -                -          216,150
                                                                                                                       ------------
    Total comprehensive income ................               -                -                -                -        2,977,946
                                                                                                                       ------------
Issuance of 5% stock dividend,
    including cash payment for
    fractional shares .........................         106,442        1,739,166       (1,745,106)               -           (5,940)
Exercise of employee stock options ............          18,913           96,071                -                -           96,071
                                                   ------------     ------------     ------------     ------------     ------------
Balance, December 31, 2002 ....................       2,242,417       17,569,241        2,137,103          378,508       20,084,852

Comprehensive income:
    Net income ................................               -                -        3,004,969                -        3,004,969
    Unrealized holding losses arising
    during the period, net of
    income tax effects of $294,953 ............               -                -                -         (526,643)        (526,643)
    Reclassification adjustment,
    net of income tax effects of $28,895 ......               -                -                -          (51,592)         (51,592)
                                                                                                                       ------------
    Total other comprehensive income ..........               -                -                -                -         (578,235)
                                                                                                                       ------------
    Total comprehensive income ................               -                -                -                -        2,426,734
                                                                                                                       ------------
Issuance of 5% stock dividend,
    including cash payment for
    fractional shares .........................         112,117        2,018,106       (2,024,640)               -           (6,534)
Exercise of employee stock options ............           7,523           32,242                -                -           32,242
                                                   ------------     ------------     ------------     ------------     ------------
Balance, December 31, 2003 ....................       2,362,057     $ 19,619,589     $  3,117,432     $   (199,727)    $ 22,537,294
                                                   ============     ============     ============     ============     ============
</TABLE>


See accompanying notes to consolidated financial statements.


                                       24
<PAGE>

Consolidated Statement of Cash Flows
Community First Bancorporation
<TABLE>
<CAPTION>
                                                                                                   Years Ended December 31,
                                                                                                   ------------------------
                                                                                            2003             2002            2001
                                                                                            ----             ----            ----
Operating activities
<S>                                                                                    <C>             <C>             <C>
     Net income ....................................................................   $  3,004,969    $  2,761,796    $  1,905,319
     Adjustments to reconcile net income to net
         cash provided by operating activities
            Provision for loan losses ..............................................        521,842       1,291,384         566,976
            Depreciation ...........................................................        245,281         210,892         231,590
            Deferred income taxes ..................................................         31,625        (227,649)        (42,180)
            Amortization of net loan fees and costs ................................        (69,999)        (13,103)          7,334
            Securities accretion and premium amortization ..........................      1,045,958         195,436         (35,540)
            (Gain) loss on sale of available-for-sale securities ...................        (80,488)          2,475          (4,327)
            Gain on sale of loans held for sale ....................................       (202,330)        (74,898)              -
            (Gain) loss on sale of other real estate ...............................         (1,009)         24,443          31,072
            (Increase) decrease in interest receivable .............................        (73,731)        115,891         (90,036)
            Increase (decrease) in interest payable ................................        287,745        (237,919)       (452,424)
            Increase in prepaid expenses ...........................................       (290,503)       (153,310)         (1,386)
            Increase in other accrued expenses .....................................         19,434          13,545          18,855
            Originations of loans held for sale ....................................     (4,217,778)     (5,148,032)              -
            Proceeds of sales of loans held for sale ...............................      4,631,235       5,011,803               -
                                                                                       ------------    ------------    ------------
                Net cash provided by operating activities ..........................      4,852,251       3,772,754       2,135,253
                                                                                       ------------    ------------    ------------

Investing activities
     Purchases of available-for-sale securities ....................................    (98,268,759)    (68,285,150)    (96,196,397)
     Maturities of available-for-sale securities ...................................     69,275,918      73,798,110      83,009,787
     Proceeds from sale of available-for-sale securities ...........................      4,069,965       2,997,525         575,065
     Purchases of other investments ................................................       (195,700)        (74,400)        (94,400)
     Net increase in loans made to customers .......................................    (11,293,567)    (18,167,859)    (22,676,174)
     Additions to other real estate ................................................              -               -          (3,132)
     Proceeds from sale of other real estate .......................................         61,009         169,377         179,466
     Purchases of premises and equipment ...........................................       (550,982)     (1,126,836)        (52,700)
                                                                                       ------------    ------------    ------------
                Net cash used by investing activities ..............................    (36,902,116)    (10,689,233)    (35,258,485)
                                                                                       ------------    ------------    ------------

Financing activities
     Net increase (decrease) in demand deposits, interest
         bearing transaction accounts and savings accounts .........................     20,240,116      (2,440,429)     13,872,502
     Net increase in certificates of deposit and other
         time deposits .............................................................     24,671,979      20,559,827      15,264,270
     Repurchase and cancellation of common stock ...................................              -               -        (358,786)
     Payment of cash in lieu of fractional shares
         for stock dividend ........................................................         (6,534)        (12,281)              -
     Exercise of employee stock options ............................................         32,242          96,071          52,593
                                                                                       ------------    ------------    ------------
                Net cash provided by financing activities ..........................     44,937,803      18,203,188      28,830,579
                                                                                       ------------    ------------    ------------
Increase (decrease) in cash and cash equivalents ...................................     12,887,938      11,286,709      (4,292,653)
Cash and cash equivalents, beginning ...............................................     26,617,179      15,330,470      19,623,123
                                                                                       ------------    ------------    ------------
Cash and cash equivalents, ending ..................................................   $ 39,505,117    $ 26,617,179    $ 15,330,470
                                                                                       ============    ============    ============

Supplemental  Disclosure  of Cash Flow  Information
     Cash paid during the period for:
         Interest ..................................................................   $  4,801,635    $  4,955,123    $  8,664,877
         Income taxes ..............................................................      1,672,319       1,807,300       1,093,000
     Noncash investing and financing activities:
         Transfer of loans to other real estate ....................................        796,813          25,000         120,000
         Transfers from retained earnings to common stock
            in connection with stock dividends .....................................      2,018,106       1,739,166       1,656,963
         Other comprehensive income (loss) .........................................       (578,235)        216,150         529,216
</TABLE>

See accompanying notes to consolidated financial statements.



                                       25
<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,  Williamston and Westminster,
South  Carolina.  The Company is a South  Carolina  corporation  and its banking
subsidiary is a state chartered commercial bank with its deposits insured by the
Federal Deposit Insurance Corporation (the "FDIC").  Therefore,  the Company and
its bank subsidiary operate under the supervision,  rules and regulations of the
Federal  Reserve  Board,  FDIC and  South  Carolina  State  Board  of  Financial
Institutions. The holding company was incorporated on May 23, 1997 and Community
First Bank was  organized  on December  1, 1988,  and  received  its charter and
commenced operations on March 12, 1990.

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.

Loans Held for Sale.  Loans held for sale are  reported  at the lower of cost or
estimated fair value on an aggregate loan portfolio basis. Gains or losses


                                       26
<PAGE>

realized  on the sale of loans  are  recognized  at the time of the sale and are
determined  by the  difference  between the net sales  proceeds and the carrying
value of the loans  sold.  Gains and  losses on sales of loans are  included  in
other income.

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

A loan is considered  to be impaired  when, in  management's  judgment  based on
current  information and events, it is probable that the obligation's  principal
or interest will not be collectible in accordance with the terms of the original
loan agreement.  Impaired loans include  non-accrual loans, which are loans past
due,  according  to their  contractual  terms,  90 days or more with  respect to
interest or principal payments.  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.

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

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

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


                                       27
<PAGE>

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 and Real  Estate  Held for Sale Other real estate  consists of
properties  acquired  through  foreclosure  or  acceptance  of a deed in lieu of
foreclosure  which  were  carried  in other  assets  at a value  $736,813  as of
December 31, 2003. No such properties  were held as of December 31, 2002.  These
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.

Other Real Estate and Real  Estate  Held for Sale.  Real estate held for sale is
carried in the consolidated  balance sheet at the lower of cost or estimated net
realizable  value.  This  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.

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

Stock-Based  Compensation.  As  of  December  31,  2003,  the  Company  has  two
stock-based employee  compensation plans, which are described more fully in Note
G. The Company  accounts for those plans under the  recognition  and measurement
principles of Accounting  Principles  Board ("APB") Opinion No. 25,  "Accounting
for Stock Issued to  Employees,"  and related  interpretations.  No  stock-based
employee  compensation  cost is reflected in net income,  as all options granted
under  those  plans  had an  exercise  price  equal to the  market  value of the
underlying  common stock on the date of grant.  The following table  illustrates
the effect on net income and net income per share if the Company had applied the
fair value recognition provisions of Statement of Financial Accounting Standards
("SFAS") No. 123,  "Accounting  for  Stock-Based  Compensation,"  to stock-based
employee  compensation.  Per share  amounts  have been  adjusted  to reflect the
effects of 5% stock dividends  effective  November 28, 2003,  November 28, 2002,
and December 21, 2001.

<TABLE>
<CAPTION>
                                                                                          Years Ended December 31,
                                                                                          ------------------------
                                                                                2003                  2002                 2001
                                                                                ----                  ----                 ----

<S>                                                                     <C>                    <C>                    <C>
Net income, as reported .......................................         $   3,004,969          $   2,761,796          $   1,905,319
Deduct:  Total stock-based employee
     compensation expense determined under
     fair value based method for all awards,
     net of any related tax effects ...........................              (226,091)              (276,129)              (257,757)
                                                                        -------------          -------------          -------------
Pro forma net income ..........................................         $   2,778,878          $   2,485,667          $   1,647,562
                                                                        =============          =============          =============

Net income per share, basic
     As reported ..............................................         $        1.27          $        1.18          $        0.81
     Pro forma ................................................                  1.18                   1.06                   0.70
Net income per share, assuming dilution
     As reported ..............................................         $        1.21          $        1.12          $        0.77
     Pro forma ................................................                  1.12                   1.01                   0.66
</TABLE>


The fair  values of options  granted  during  2003,  2002 and 2001 were  $11.08,
$10.06 and $8.70 per share,  respectively.  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 2003,  2002 and 2001:  dividend
yield of 0%, expected life of 10 years,  and risk-free  interest rates of 3.87%,
4.06% and 5.39%, respectively. Management has no current intentions to adopt the
fair value method  recognition  provisions  of SFAS No. 123.

                                       28
<PAGE>

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.

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


NOTE B - CASH AND DUE FROM BANKS

Banks are  generally  required by regulation to maintain an average cash reserve
balance  based on a  percentage  of  deposits.  The average  amounts of the cash
reserve  balances at December 31, 2003 and 2002, were  approximately  $1,293,000
and $1,009,000, respectively.


                                       29
<PAGE>

NOTE C- SECURITIES

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

<TABLE>
<CAPTION>
                                                                       December 31,
                                                                       ------------
                                               2003                                                     2002
                                               ----                                                     ----
                                         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. Government
       agencies ....   $53,162,008   $   179,276   $   170,342   $53,170,942   $42,919,558   $   414,074   $         -   $43,333,632
   Mortgage-backed
       securities ..    31,088,557        55,853       313,364    30,831,046    19,259,662       175,999        12,022    19,423,639
   State, county and
       municipal ...     2,083,938        15,043        78,054     2,020,927       197,877        12,445             -       210,322
                       -----------   -----------   -----------   -----------   -----------   -----------   -----------   -----------
         Total .....   $86,334,503   $   250,172   $   561,760   $86,022,915   $62,377,097   $   602,518   $    12,022   $62,967,593
                       ===========   ===========   ===========   ===========   ===========   ===========   ===========   ===========
</TABLE>

The  amortized  cost and  estimated  fair  value of  securities  by  contractual
maturity are shown below:
<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                             ------------
                                                                              2003                                   2002
                                                                              ----                                   ----
                                                                  Amortized         Estimated          Amortized          Estimated
                                                                    Cost            Fair Value            Cost            Fair Value
                                                                    ----            ----------            ----            ----------
Available-for-sale
<S>                                                             <C>                <C>                <C>                <C>
     Due within one year ...............................        $         -        $         -        $ 1,000,000        $ 1,000,000
     Due after one through five years ..................         32,083,031         32,054,582         31,691,273         32,040,270
     Due after five through ten years ..................         21,450,289         21,476,617         10,426,162         10,503,684
     Due after ten years ...............................          1,712,626          1,660,670                  -                  -
                                                                -----------        -----------        -----------        -----------
                                                                 55,245,946         55,191,869         43,117,435         43,543,954
     Mortgage-backed securities ........................         31,088,557         30,831,046         19,259,662         19,423,639
                                                                -----------        -----------        -----------        -----------
         Total .........................................        $86,334,503        $86,022,915        $62,377,097        $62,967,593
                                                                ===========        ===========        ===========        ===========
</TABLE>
The estimated  fair values and gross  unrealized  losses of all of the Company's
investment  securities whose estimated fair values were less than amortized cost
as  of   December   31,   2003,   which   had   not   been   determined   to  be
other-than-temporarily  impaired,  are presented below. The securities have been
aggregated  by  investment  category  and the  length  of time  that  individual
securities have been in a continuous unrealized loss position.

<TABLE>
<CAPTION>
                                                                                    December 31, 2003
                                                                                    -----------------
                                                              Continuously in Unrealized Loss Position for a Period of
                                                             --------------------------------------------------------
                                                      Less than 12 Months           12 Months or more               Total
                                                     -------------------            -----------------               -----
                                                  Estimated        Unrealized    Estimated     Unrealized   Estimated     Unrealized
                                                  Fair Value          Loss       Fair Value       Loss      Fair Value       Loss
                                                  ----------          ----       ----------       ----      ----------       ----
<S>                                                <C>           <C>           <C>           <C>           <C>           <C>
U.S. Treasury obligations and
    direct obligations of U.S.
    government agencies ........................   $21,204,193   $   170,342   $         -   $         -   $21,204,193   $   170,342
Federal agency mortgage-
    backed securities ..........................    22,981,498       310,696       511,618         2,668    23,493,116       313,364
State, county and
    municipal securities .......................     1,491,493        78,054             -             -     1,491,493        78,054
                                                   -----------   -----------   -----------   -----------   -----------   -----------
                                  Total ........   $45,677,184   $   559,092   $   511,618   $     2,668   $46,188,802   $   561,760
                                                   ===========   ===========   ===========   ===========   ===========   ===========
</TABLE>

The Company does not consider  these  investments  to be  other-than-temporarily
impaired because the unrealized losses resulted primarily from the volatility of
interest rates. Although the Company classifies all of its investment securities

                                       30
<PAGE>

as   available-for-sale,   management  has  not  determined  that  any  specific
securities will be disposed of prior to maturity.  In addition,  there have been
no  significant  adverse  changes in the credit  ratings of any of the  security
issuers that would  indicate the Company will be unable to collect all principal
and interest amounts according to contractual terms.

During 2003, the Company sold available for sale securities with amortized costs
totaling  $3,989,477  for proceeds of  $4,069,965,  resulting in gross  realized
gains of $107,420 and gross realized losses of $26,932. The income tax provision
charged to expense  applicable  to the net realized gain of $80,488 was $28,895.
During 2002,  the Company sold an  available-for-sale  security  with a carrying
value of $3,000,000 for $2,997,525,  realizing a loss of $2,475 on the sale. The
income tax  provision  credited to expense  applicable to this realized loss was
$889.  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  transfers  of  available-for-sale  securities  to other
categories in 2003, 2002 or 2001.

At December 31, 2003 and 2002,  securities  with a carrying value of $40,897,919
and  $25,813,681,  respectively,  were pledged as  collateral  to secure  public
deposits.


NOTE D - LOANS

Loans consisted of the following:

<TABLE>
<CAPTION>
                                                                                                          December 31,
                                                                                                          ------------
                                                                                             2003                           2002
                                                                                             ----                           ----
<S>                                                                                     <C>                           <C>
Commercial, financial and industrial ...................................                $  22,915,250                 $  21,670,544
Real estate- construction ..............................................                      435,712                       822,149
Real estate - mortgage .................................................                  101,690,845                    92,903,525
Consumer installment ...................................................                   22,608,108                    21,962,286
                                                                                        -------------                 -------------
     Total .............................................................                  147,649,915                   137,358,504
Allowance for loan losses ..............................................                   (2,196,500)                   (1,950,000)
                                                                                        -------------                 -------------
     Loans - net .......................................................                $ 145,453,415                 $ 135,408,504
                                                                                        =============                 =============
</TABLE>
Net deferred  loan fees of $180,322 and $121,624  were  allocated to the various
loan categories as of December 31, 2003 and 2002, respectively.

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,
                                                                                                               ------------
                                                                                                       2003                  2002
                                                                                                       ----                  ----
Investment in impaired loans
<S>                                                                                                   <C>                   <C>
     Nonaccrual ........................................................................              $997,165              $865,875
     Accruing 90 days and over past due ................................................                     -                     -
                                                                                                      --------              --------
         Total .........................................................................              $997,165              $865,875
                                                                                                      ========              ========
Average total investment in impaired loans during the year .............................              $832,000              $453,000
Allowance for loan losses on impaired loans at year end ................................               518,213               518,346
</TABLE>

The average total  investment in impaired loans during 2001 was $498,000.  There
were no  commitments  to lend  additional  funds to  debtors  owing  amounts  on
impaired loans at December 31, 2003.

As of December 31, 2003 and 2002,  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.


                                       31
<PAGE>

Transactions in the allowance for loan losses are summarized below:

                                                Years Ended December 31,
                                                ------------------------
                                         2003            2002            2001
                                         ----            ----            ----

Balance at January 1 ..............   $ 1,950,000    $ 1,200,000    $ 1,000,000
Provision charged to expense ......       521,842      1,291,384        566,976
Recoveries ........................        29,626          6,113          9,018
Charge-offs .......................      (304,968)      (547,497)      (375,994)
                                      -----------    -----------    -----------
Balance at December 31 ............   $ 2,196,500    $ 1,950,000    $ 1,200,000
                                      ===========    ===========    ===========


Certain  officers  and  directors  of the  Company  and  its  subsidiary,  their
immediate  families and business interests were loan customers of, and had other
transactions  with,  the banking  subsidiary  in the normal  course of business.
Related party loans are made on substantially the same terms, including interest
rates  and   collateral,   and  do  not   involve   more  than  normal  risk  of
collectibility.  The aggregate  dollar amount of these loans was  $8,072,649 and
$10,212,119 at December 31, 2003 and 2002, respectively. During 2003, $2,639,969
of new loans were made and repayments totaled $4,779,439.


NOTE E - PREMISES AND EQUIPMENT

Premises and equipment consisted of the following:

                                                              December 31,
                                                              ------------
                                                         2003             2002
                                                         ----             ----

Land .........................................       $1,290,567       $1,022,387
Buildings and land improvements ..............        2,730,746        2,052,216
Furniture and equipment ......................        2,074,232        1,524,198
Construction in process ......................                -          963,074
                                                     ----------       ----------
     Total ...................................        6,095,545        5,561,875
Accumulated depreciation .....................        1,641,764        1,413,795
                                                     ----------       ----------
     Premises and equipment - net ............       $4,453,781       $4,148,080
                                                     ==========       ==========


Depreciation  expense for the years ended  December 31, 2003,  2002 and 2001 was
$245,281, $210,892 and $231,590, respectively.




                                       32
<PAGE>


NOTE F - DEPOSITS

A summary of deposits follows:

                                                            December 31,
                                                            ------------
                                                        2003             2002
                                                        ----             ----
Noninterest bearing demand ...................     $ 32,272,829     $ 24,415,791
Interest bearing transaction accounts ........       32,633,295       26,192,354
Savings ......................................       28,419,341       22,477,204
Time deposits $100,000 and over ..............       60,746,736       59,370,988
Other time deposits ..........................      102,478,521       79,182,290
                                                   ------------     ------------
     Total deposits ..........................     $256,550,722     $211,638,627
                                                   ============     ============


As of  December  31,  2003  and  2002,  local  governmental  deposits  comprised
approximately  17% and 23% of total deposits,  respectively.  As of December 31,
2003 and 2002, $265,799 and $114,125,  respectively, of overdrawn demand deposit
balances have been reclassified as loans.

At December 31, 2003, the scheduled maturities of time deposits are as follows:

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

                       2004                            $ 136,013,590
                       2005                               17,078,027
                       2006                                7,403,088
                       2007                                2,464,771
                       2008 and thereafter                   265,781


NOTE G - SHAREHOLDERS' EQUITY

Restrictions on Subsidiary  Dividends,  Loans or Advances South Carolina banking
regulations restrict the amount of dividends that banks can pay to shareholders.
Any of the banking subsidiary's  dividends to the parent company which exceed in
amount the total amount of the subsidiary's  current  year-to-date  earnings are
subject to the prior approval of the South Carolina  Commissioner of Banking. In
addition,  dividends paid by the banking  subsidiary to the parent company would
be prohibited if the effect thereof would cause the Bank's capital to be reduced
below  applicable  minimum  capital  requirements.  Under Federal  Reserve Board
regulations, the amounts of loans or advances from the banking subsidiary to the
parent company are also restricted.

Stock Dividends Effective November 28, 2003, November 28, 2002, and December 21,
2001 the Company's Board of Directors declared 5% stock dividends. All per share
information  has  been  retroactively  adjusted  to  give  effect  to the  stock
dividends.

Accumulated Other Comprehensive  Income (Loss) As of December 31, 2003 and 2002,
accumulated  other  comprehensive  income  (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
$(199,727) and $378,508, respectively.



                                       33
<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,
                                                                                                ------------------------
                                                                                      2003              2002               2001
                                                                                      ----              ----               ----
Net income per share, basic
<S>                                                                                 <C>                <C>                <C>
Numerator - net income ....................................................         $3,004,969         $2,761,796         $1,905,319
                                                                                    ==========         ==========         ==========
Denominator
   Weighted average common shares issued and outstanding ..................          2,360,921          2,340,533          2,340,401
                                                                                    ==========         ==========         ==========
                Net income per share, basic ...............................         $     1.27         $     1.18         $      .81
                                                                                    ==========         ==========         ==========

Net income per share, assuming dilution
Numerator - net income ....................................................         $3,004,969         $2,761,796         $1,905,319
                                                                                    ==========         ==========         ==========
Denominator
   Weighted average common shares issued and outstanding ..................          2,360,921          2,340,533          2,340,401
   Effect of dilutive stock options .......................................            120,479            128,235            137,454
                                                                                    ----------         ----------         ----------
                Total shares ..............................................          2,481,400          2,468,768          2,477,855
                                                                                    ==========         ==========         ==========
                Net income per share, assuming dilution ...................         $     1.21         $     1.12         $      .77
                                                                                    ==========         ==========         ==========
</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,
2003 and 2002,  that the Company and its  subsidiary  bank  exceeded all capital
adequacy minimum requirements.

As of December 31, 2003, 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.


                                       34
<PAGE>

<TABLE>
<CAPTION>
                                                                                                 Minimum for         Minimum to be
                                                                                Actual        Capital Adequacy     Well Capitalized
                                                                                ------        ----------------     ----------------
                                                                           Amount    Ratio     Amount    Ratio     Amount     Ratio
                                                                           ------    -----     ------    -----     ------     -----
                                                                                          (Dollars in thousands)
December 31, 2003
     The Company
<S>                                                                       <C>        <C>       <C>        <C>      <C>        <C>
        Total Capital to risk weighted assets ........................    $24,770    15.2%     $13,001    8.0%     $16,251    10.0%
        Tier 1 Capital to risk weighted assets .......................    $22,737    14.0%     $ 6,500    4.0%     $ 9,751     6.0%
        Tier 1 Capital to average assets (leverage) ..................    $22,737     8.3%     $10,959    4.0%     $16,439     6.0%
     Community First Bank
        Total Capital to risk weighted assets ........................    $23,940    14.7%     $13,001    8.0%     $16,251    10.0%
        Tier 1 Capital to risk weighted assets .......................    $21,907    13.5%     $ 6,500    4.0%     $ 9,751     6.0%
        Tier 1 Capital to average assets (leverage) ..................    $21,907     8.0%     $10,959    4.0%     $16,439     6.0%

December 31, 2002
     The Company
        Total Capital to risk weighted assets ........................    $21,481    15.2%     $11,346    8.0%     $14,183    10.0%
        Tier 1 Capital to risk weighted assets .......................    $19,706    13.9%     $ 5,673    4.0%     $ 8,510     6.0%
        Tier 1 Capital to average assets (leverage) ..................    $19,706     8.8%     $ 8,994    4.0%     $13,491     6.0%
     Community First Bank
        Total Capital to risk weighted assets ........................    $20,659    14.6%     $11,346    8.0%     $14,183    10.0%
        Tier 1 Capital to risk weighted assets .......................    $18,884    13.3%     $ 5,673    4.0%     $ 8,510     6.0%
        Tier 1 Capital to average assets (leverage) ..................    $18,884     8.4%     $ 8,994    4.0%     $13,491     6.0%
</TABLE>

Stock Options In 1998, the Company's shareholders approved the 1998 Stock Option
Plan under which an aggregate of 534,823 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  373,796 shares
(adjusted  for stock  dividends  and  splits)  of  authorized  common  stock for
issuance upon the exercise of such options.  Although some options granted under
the 1989 Plan can still be  exercised,  no further  options may be granted under
the 1989 Plan.  For all stock  options ever granted  under the two plans through
the end of 2003,  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 2003, 2002 and 2001 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.

Transactions under the plans are summarized as follows:

<TABLE>
<CAPTION>
                                                                              Years Ended December 31,
                                                                              ------------------------
                                                               2003                     2002                       2001
                                                               ----                     ----                       ----
                                                                  Wtd. Avg.                   Wtd. Avg.                  Wtd. Avg.
                                                                  Exercise                    Exercise                   Exercise
                                                      Shares        Price        Shares         Price      Shares          Price
                                                      ------        -----        ------         -----      ------          -----
<S>                                                  <C>          <C>           <C>          <C>           <C>          <C>
Outstanding at beginning of year ............        344,863      $   10.35     342,194      $    9.51     302,177      $    8.27
Granted .....................................          9,765          16.19      29,878          14.25      59,155          14.72
Exercised ...................................         (7,881)          4.09     (20,852)          4.62     (15,505)          3.39
Forfeited or expired ........................            (11)          3.76      (6,357)          6.23      (3,633)         16.46
                                                     -------                    -------                    -------
Outstanding at end of year ..................        346,736          10.66     344,863          10.35     342,194           9.51
                                                     =======                    =======                    =======

Options exercisable at year-end .............        288,526      $    9.79     259,083      $    8.90     229,823      $    7.63
                                                     =======                    =======                    =======
</TABLE>

------
Numbers of shares and exercise  prices have been adjusted in the table above for
5% stock dividends  effective November 28, 2003, November 28, 2002, and December
21, 2001.



                                       35
<PAGE>

The following table summarizes information about the options outstanding:

<TABLE>
<CAPTION>
                                                                 December 31, 2003
                                                                 -----------------
                                          Options Outstanding                             Options Exercisable
                                          -------------------                             -------------------
                                              Weighted
                                              Average
                                             Remaining           Weighted                             Weighted
                              Number        Contractual          Average            Number            Average
Range of Exercise Prices    Outstanding     Life (Years)      Exercise Price      Outstanding       Exercise Price
------------------------    -----------     ------------      --------------      -----------       --------------
<S>                          <C>               <C>               <C>                <C>                 <C>
   $ 3.75  to  $ 5.20         70,376           1.38              $ 4.39              70,376             $ 4.39
     6.82  to    6.92         89,958           4.35                6.89              89,958               6.89
    13.21  to   16.41        186,402           7.08               14.85             128,192              14.80
                             -------                                                -------
                             346,736           5.22             $ 10.66             288,526             $ 9.79
                             =======                                                =======
</TABLE>


Of the  908,619  shares of the  Company's  authorized  common  stock  originally
reserved for issuance upon the exercise of options under the two plans,  275,822
had not been issued as of December 31, 2003.


NOTE H - OTHER EXPENSES

Other expenses are summarized below:

<TABLE>
<CAPTION>
                                                                                                 Years Ended December 31,
                                                                                                 ------------------------
                                                                                     2003                 2002               2001
                                                                                     ----                 ----               ----
<S>                                                                               <C>                 <C>                 <C>
Salaries and employee benefits .........................................          $2,420,268          $2,055,809          $1,753,074
Net occupancy expense ..................................................             243,826             189,768             192,399
Furniture and equipment expense ........................................             288,229             236,000             246,930
Other expense
         Stationery, printing and postage ..............................             275,898             231,164             206,019
         Telephone .....................................................              76,000              67,720              61,624
         Advertising and promotion .....................................             100,522              67,835              68,514
         Professional services .........................................             133,130             124,755             103,124
         Insurance .....................................................              36,769              24,486              19,626
         FDIC insurance assessment .....................................              30,439              33,750              32,217
         Directors' fees ...............................................             113,700              73,700              68,800
         Other real estate costs and expenses, net .....................              30,255              41,612              39,867
         Data processing expenses ......................................             130,229             125,387              77,963
         Other .........................................................             534,233             424,814             368,535
                                                                                  ----------          ----------          ----------
                Total ..................................................          $4,413,498          $3,696,800          $3,238,692
                                                                                  ==========          ==========          ==========
</TABLE>


                                       36
<PAGE>

NOTE I - INCOME TAXES

Income tax expense consisted of:

<TABLE>
<CAPTION>
                                                                                              Years Ended December 31,
                                                                                              ------------------------
                                                                                   2003                2002                2001
                                                                                   ----                ----                ----
Current
<S>                                                                            <C>                 <C>                  <C>
         Federal .....................................................         $ 1,498,380         $ 1,640,594          $ 1,025,971
         State .......................................................             137,413             114,616               83,423
                                                                               -----------         -----------          -----------
                             Total current ...........................           1,635,793           1,755,210            1,109,394
                                                                               -----------         -----------          -----------
Deferred
         Federal .....................................................              31,625            (227,649)             (55,614)
         State .......................................................                   -                   -               13,434
                                                                               -----------         -----------          -----------
                             Total deferred ..........................              31,625            (227,649)             (42,180)
                                                                               -----------         -----------          -----------
                             Total income tax expense ................         $ 1,667,418         $ 1,527,561          $ 1,067,214
                                                                               ===========         ===========          ===========
</TABLE>


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

                                                  Years Ended December 31,
                                                  ------------------------
                                             2003          2002          2001
                                             ----          ----          ----

Provision for loan losses ............    $ (78,965)    $(213,868)    $ (14,250)
Accelerated depreciation .............      129,972        13,972        (2,656)
Deferred net loan costs and fees .....      (19,382)      (27,753)      (25,274)
                                          ---------     ---------     ---------
               Total .................    $  31,625     $(227,649)    $ (42,180)
                                          =========     =========     =========




Income before income taxes presented in the consolidated statement of income for
the years ended December 31, 2003, 2002 and 2001 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,
                                              ------------------------
                                         2003           2002            2001
                                         ----           ----            ----

Tax expense at statutory rate .....   $ 1,588,612    $ 1,458,382    $ 1,010,661
State income tax, net of federal
     income tax benefit ...........        90,693         75,647         55,059
Tax-exempt interest income ........       (22,089)       (20,277)       (23,087)
Non-deductible interest expense to
     carry tax-exempt instruments .         1,932          1,771          3,709
Other, net ........................         8,270         12,038         20,872
                                      -----------    -----------    -----------
               Total ..............   $ 1,667,418    $ 1,527,561    $ 1,067,214
                                      ===========    ===========    ===========


                                       37
<PAGE>


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

                                                                 December 31,
                                                                 ------------
                                                             2003          2002
                                                             ----          ----
Deferred tax assets
     Allowance for loan losses .......................     $582,502     $503,537
     Deferred net loan fees ..........................       59,542       40,160
     Unrealized net holding losses on
       available-for-sale securities .................      111,860            -
                                                           --------     --------
               Gross deferred tax assets .............      753,904      543,697
     Valuation allowance .............................            -            -
                                                           --------     --------
               Total .................................      753,904      543,697
                                                           --------     --------

Deferred tax liabilities
     Accelerated depreciation ........................      236,385      106,413
     Unrealized net holding gains on
       available-for-sale securities .................            -      211,988
                                                           --------     --------
               Gross deferred tax liabilities ........      236,385      318,401
                                                           --------     --------
Net deferred income tax assets .......................     $517,519     $225,296
                                                           ========     ========


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 2003, 2002 and 2001, $323,848 was credited,  $121,058 was
charged,  and  $296,393  was  charged  to other  comprehensive  income  or loss,
respectively.  In 2003,  $31,625  was  charged to income tax  expense;  in 2002,
$227,649 was credited to income tax expense;  and, in 2001, $42,180 was credited
to income tax expense.

Management  believes that the Company will fully realize the deferred tax assets
as of December 31, 2003 and 2002 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 2003, 2002 and 2001 totaled $44,848,
$38,996 and $32,539, respectively.


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.



                                       38
<PAGE>

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

                                                            December 31,
                                                            ------------
                                                      2003                2002
                                                      ----                ----

Loan commitments .......................         $14,482,135         $13,943,222
Standby letters of credit ..............             449,100             238,100


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.

Borrowing  Availability.  At December 31, 2003,  the banking  subsidiary  had an
unused  short-term  line of credit to purchase up to $6,900,000 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 Federal Home Loan Bank of Atlanta ("FHLB").  Under the
terms of the FHLB agreements,  the Bank may borrow approximately $38,284,000 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 $750,200,  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, 2003 was approximately $50,295,000.

Litigation.  The Company and its  subsidiary  were not involved as defendants in
any  litigation at December 31, 2003.  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.

Westminster  Office.  In May of 2003, a temporary banking office facility opened
for commercial  operations in  Westminster,  South Carolina on land purchased in
2002. Management has not yet formulated plans for or considered a capital budget
for a future permanent facility in Westminster.


NOTE L - DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS

SFAS No. 107,  "Disclosures  about Fair  Values of  Financial  Instruments,"  as
amended, requires disclosure of the estimated fair value of on-balance sheet and
off-balance sheet financial  instruments.  A financial  instrument is defined by
SFAS No.  107 as cash,  evidence  of an  ownership  interest  in an  entity or a
contract  that creates a  contractual  obligation or right to deliver or receive
cash or  another  financial  instrument  from a  second  entity  on  potentially
favorable or unfavorable terms.

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


                                       39
<PAGE>

time the Company's  entire  holdings of a particular  financial  instrument.  No
active  trading  market  exists  for a  significant  portion  of  the  Company's
financial  instruments.  Fair value estimates for these instruments 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.

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

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

The fair value of 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.

The fair value of other investments,  consisting of FHLB stock, approximates the
carrying amount.

Fair values are estimated for loans using  discounted cash flow analyses,  using
interest rates  currently  being offered for loans with similar terms and credit
quality.

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.  The fair  value of time  deposits  is
estimated using a discounted cash flow  calculation that applies rates currently
offered to aggregate expected maturities.

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


                                       40
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                                           ------------
                                                                             2003                                2002
                                                                             ----                                ----
                                                                   Carrying         Estimated          Carrying         Estimated
                                                                   Amount           Fair Value         Amount           Fair Value
                                                                   -------          ----------         -------          ----------
Financial assets
<S>                                                            <C>                <C>                <C>                <C>
  Cash and due from banks ..............................       $  7,560,353       $  7,560,353       $  5,113,815       $  5,113,815
  Interest bearing deposits due from banks .............             28,764             28,764             32,364             32,364
  Federal funds sold ...................................         31,916,000         31,916,000         21,471,000         21,471,000
  Securities ...........................................         86,022,915         86,022,915         62,967,593         62,967,593
  Other investments ....................................            750,200            750,200            554,500            554,500
  Loans held for sale ..................................                  -                  -            211,127            211,127
  Loans ................................................        145,453,415        146,198,000        135,408,504        135,948,000
  Accrued interest receivable ..........................          1,424,305          1,424,305          1,350,574          1,350,574
Financial liabilities
  Deposits .............................................        256,550,722        256,843,000        211,638,627        212,298,000
  Accrued interest payable .............................          1,356,922          1,356,922          1,069,177          1,069,177
</TABLE>


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

<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                            ------------
                                                                              2003                                2002
                                                                              ----                                ----
                                                                  Notional/         Estimated         Notional/         Estimated
                                                                   Contract            Fair            Contract            Fair
                                                                   Amount             Value            Amount             Value
                                                                   -------            -----            -------            -----
Off-balance sheet commitments
<S>                                                            <C>                    <C>            <C>                    <C>
  Loan commitments .....................................       $14,482,135            $ -            $13,943,222            $ -
  Standby letters of credit ............................           449,100              -                238,100              -
</TABLE>


NOTE M - ACCOUNTING CHANGES

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 was 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 did not have
any material adverse or beneficial effect on the consolidated financial position
or results of operations of the Company.

Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No.
13, and  Technical  Corrections  FASB  Statement  No. 145,  "Rescission  of FASB
Statements No. 4, 44, and 64,  Amendment of FASB Statement No. 13, and Technical
Corrections," addresses financial accounting and reporting for extinguishment of
debt and for certain lease  modifications  that have economic effects similar to
sale-leaseback transactions.  This Statement requires that gains and losses from
debt  extinguishments  that are part of an entity's recurring  operations not be
accounted for as extraordinary  items.  Furthermore,  gains and losses from debt
extinguishments  that  are not  part of an  entity's  recurring  operations  are
required to be  evaluated  using the  criteria in  Accounting  Principles  Board
Opinion No. 30,  "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," to determine whether extraordinary treatment
is warranted for those transactions. The provisions of this Statement related to
debt extinguishments were required to be applied in fiscal years beginning after
May 15, 2002,  with early  application  encouraged.  Restatement is required for
amounts that previously were classified as  extraordinary,  but that do not meet
the  criteria in Opinion No. 30 for  extraordinary  treatment.  The  Statement's


                                       41
<PAGE>

other  provisions were required to be applied either to  transactions  occurring
after May 15, 2002 or for financial  statements issued on or after May 15, 2002,
with early  application  encouraged.  The adoption of the provisions of FASB No.
145 as of their effective dates did not have any material  adverse or beneficial
effect on the  consolidated  financial  position or results of operations of the
Company.

Accounting for Costs Associated with Exit or Disposal  Activities FASB Statement
No. 146,  "Accounting for Costs  Associated  with Exit or Disposal  Activities,"
addresses  financial  accounting and reporting for costs associated with exit or
disposal  activities and nullifies  Emerging Issues Task Force Issues Nos. 88-10
and 94-3. This Statement requires that a liability for a cost associated with an
exit or disposal  activity be recognized at its fair value when the liability is
incurred,  rather than the previous  recognition of a liability at the date that
an entity  committed to an exit plan.  The  provisions  of this  Statement  were
effective for exit or disposal  activities  initiated  after  December 31, 2002,
with early  application  encouraged.  The  adoption of  Statement  No. 146 as of
January 1, 2003 did not have any material  adverse or  beneficial  effect on the
consolidated financial position or results of operations of the Company.

Guarantor's  Accounting and Disclosure  Requirements  for Guarantees,  Including
Indirect Guarantees of Indebtedness of Others The FASB issued its Interpretation
45  ("FIN  45"),   "Guarantor's   Accounting  and  Disclosure  Requirements  for
Guarantees,  Including  Indirect  Guarantees of  Indebtedness  of Others," which
addresses a guarantor's  measurement and  recognition of its  liabilities  under
certain  guarantee  transactions  at inception and provides for new  disclosures
regarding the nature and extent of such guarantees.  The disclosure requirements
were effective for interim and annual financial statements ending after December
15, 2002. FIN 45's initial recognition and measurement provisions were effective
prospectively; that is, for guarantees issued or modified on or after January 1,
2003. The adoption of the  disclosure  provisions of this  Interpretation  as of
December  31,  2002  had  no  material  adverse  or  beneficial  effect  on  the
consolidated  financial  position  or  results  of  operations  of the  Company.
Furthermore,  the adoption of the  Interpretation's  measurement and recognition
provisions as of January 1, 2003 did not have any material adverse or beneficial
effect  on  the  Company's   consolidated   financial  position  or  results  of
operations.

Consolidation of Variable Interest  Entities FASB  Interpretation 46 ("FIN 46"),
"Consolidation of Variable Interest Entities,  an interpretation of ARB No. 51,"
provides a new framework for identifying  variable interest  entities  ("VIE's")
and  determining  when  a  company  should  include  the  assets,   liabilities,
noncontrolling  interests and results of activities of a VIE in its consolidated
financial  statements.  FIN 46  requires  that if a  business  enterprise  has a
controlling financial interest in a VIE, the assets,  liabilities and results of
the  activities  of the  VIE  must be  included  in the  consolidated  financial
statements of a business enterprise.  This interpretation also requires existing
unconsolidated  VIE's to be consolidated by their primary  beneficiaries  if the
entities do not effectively  disperse risks among parties  involved.  VIE's that
effectively  disperse risks will not be consolidated unless a single party holds
an interest or combination of interests that  effectively  recombines risks that
were previously  dispersed.  FIN 46 was effective  immediately for VIE's created
after January 31, 2003, and to VIE's in which an enterprise  obtains an interest
after that date. It applied in the first fiscal year or interim period beginning
after June 15, 2003, to VIE's in which an enterprise  holds a variable  interest
that it acquired before February 1, 2003. This  Interpretation does not apply to
securitization structures that are qualified special purpose entities as defined
within FASB Statement No. 140. Management does not believe that adoption of this
Interpretation  has had, or will have, any material adverse or beneficial effect
on the Company's consolidated financial position or results of operations.

Amendment  of FASB  Statement  No. 133 The FASB  issued its  Statement  No. 149,
"Amendment of Statement 133 on Derivative  Instruments and Hedging  Activities,"
which amends and clarifies accounting and disclosure for derivative instruments,
including certain derivative  instruments  embedded in other contracts,  and for
hedging  activities  under FASB  Statement No. 133. This Statement was effective
for contracts  entered into or modified  after June 30, 2003,  except in certain
circumstances,  and for hedging  relationships  designated  after June 30, 2003.
Adoption of this Statement did not have a material adverse or beneficial  effect
on the Company's consolidated financial position or results of operations.

Financial  Instruments with  Characteristics of both Liabilities and Equity FASB
Statement  No.  150,   "Accounting  for  Certain   Financial   Instruments  with
Characteristics  of both  Liabilities  and  Equity,"  provides  new rules on the
accounting for certain  financial  instruments  that,  under previous  guidance,
issuers  could  account  for  as  equity.  Such  financial  instruments  include
mandatorily  redeemable shares,  instruments that require the issuer to buy back
some of its shares in exchange for cash or other assets, or obligations that can
be  settled  with  shares,  the  monetary  value of which is fixed.  Most of the
guidance in FASB  Statement  No. 150 was  effective  for  financial  instruments
entered into or modified  after May 31, 2003, and otherwise was effective at the
beginning of the first interim period beginning after June 30, 2003. Adoption of
this  Statement had no material  adverse or  beneficial  effect on the Company's
consolidated financial position or results of operations.


                                       42
<PAGE>

NOTE N - COMMUNITY FIRST BANCORPORATION (PARENT COMPANY ONLY)

<TABLE>
<CAPTION>
                                                                                                             December 31,
                                                                                                             ------------
                                                                                                    2003                    2002
                                                                                                    ----                    ----
Condensed Balance Sheet
      Assets
<S>                                                                                              <C>                     <C>
           Cash ....................................................................             $   821,852             $   815,258
           Investment in banking subsidiary ........................................              21,706,666              19,262,897
           Other assets ............................................................                   8,776                   6,697
                                                                                                 -----------             -----------
                Total assets .......................................................             $22,537,294             $20,084,852
                                                                                                 ===========             ===========
      Liabilities
           Other liabilities .......................................................             $         -             $         -
      Shareholders' equity .........................................................              22,537,294              20,084,852
                                                                                                 -----------             -----------
                Total liabilities and shareholders' equity .........................             $22,537,294             $20,084,852
                                                                                                 ===========             ===========
</TABLE>


<TABLE>
<CAPTION>
                                                                                            Years Ended December 31,
                                                                                            ------------------------
                                                                                   2003                2002                 2001
                                                                                   ----                ----                 ----
Condensed Statement of Income
      Income
<S>                                                                            <C>                  <C>                  <C>
           Interest income ...........................................         $    13,093          $    15,285          $    32,540
           Other income ..............................................               2,875                8,297                8,520
                                                                               -----------          -----------          -----------
                Total income .........................................              15,968               23,582               41,060
                                                                               -----------          -----------          -----------
      Expenses
           Other expenses ............................................              41,779               43,281               26,988
                                                                               -----------          -----------          -----------
                Total expenses .......................................              41,779               43,281               26,988
                                                                               -----------          -----------          -----------
      Income (loss) before income taxes and equity in
           undistributed earnings of banking subsidiary ..............             (25,811)             (19,699)              14,072
      Income tax expense (credit) ....................................              (8,776)              (6,697)               4,784
      Equity in undistributed earnings
           of banking subsidiary .....................................           3,022,004            2,774,798            1,896,031
                                                                               -----------          -----------          -----------
      Net income .....................................................         $ 3,004,969          $ 2,761,796          $ 1,905,319
                                                                               ===========          ===========          ===========
</TABLE>

                                       43
<PAGE>


<TABLE>
<CAPTION>
                                                                                              Years Ended December 31,
                                                                                              ------------------------
                                                                                     2003                2002               2001
                                                                                     ----                ----               ----
Condensed Statement of Cash Flows
Operating activities
<S>                                                                                 <C>               <C>               <C>
     Net income ..............................................................      $ 3,004,969       $ 2,761,796       $ 1,905,319
          Adjustments to reconcile net income to net
                cash (used) provided by operating activities
                     Equity in undistributed earnings
                       of banking subsidiary .................................       (3,022,004)       (2,774,798)       (1,896,031)
                     Increase in other assets ................................           (2,079)           (6,697)                -
                     (Decrease) increase in other liabilities ................                -            (4,942)            3,405
                                                                                    -----------       -----------       -----------
                       Net cash (used) provided by
                          operating activities ...............................          (19,114)          (24,641)           12,693
                                                                                    -----------       -----------       -----------
Financing activities
     Repurchase and cancellation of common stock .............................                -                 -          (358,786)
     Exercise of employee stock options ......................................           32,242            96,071            52,593
     Payment of cash in lieu of fractional
          shares for stock dividend ..........................................           (6,534)          (12,281)                -
                                                                                    -----------       -----------       -----------
                       Net cash provided (used) by financing activities ......           25,708            83,790          (306,193)
                                                                                    -----------       -----------       -----------
Increase (decrease) in cash and cash equivalents .............................            6,594            59,149          (293,500)
Cash and cash equivalents, beginning .........................................          815,258           756,109         1,049,609
                                                                                    -----------       -----------       -----------
Cash and cash equivalents, ending ............................................      $   821,852       $   815,258       $   756,109
                                                                                    ===========       ===========       ===========
</TABLE>



                                       44