Exhibit 13

             Portions of Annual Report to Shareholders Incorporated
                          by Reference into Form 10-KSB

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 2002,  management was aware of a few  transactions  in which the
Company's  common  stock traded in a price range from $15.48 to $17.14 per share
(per share prices have been  adjusted to reflect a 5% stock  dividend  effective
November  28,  2002).  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.

         During 2001,  the Company  repurchased  and cancelled a total of 19,377
shares of its common stock from two of the  Company's  directors  for a total of
$359,000,  or an average price of $18.52, or 21,363 shares at $16.79 if adjusted
for  two  subsequent  5%  stock  dividends.  On  April  20,  2000,  the  Company
repurchased  and  cancelled  110,000  shares of its common  stock for a price of
$17.27 per share, totaling $1,900,000,  or 127,339 shares at $14.92 per share if
adjusted for three subsequent 5% stock dividends. The shares repurchased in 2000
comprised 5.5% of the Company's then outstanding  common stock and were acquired
from one  shareholder  who had  expressed  to  management  a desire  to sell his
shares. The foregoing repurchases and cancellations of shares, including the per
share prices paid, were negotiated  between the  shareholders  and the Company's
management and approved by the Board of Directors.  No common stock  repurchases
were effected during 2002.

         As of February 28, 2003, there were approximately 820 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 2003.

         The Board of Directors  declared 5% stock dividends  effective November
28, 2002, December 21, 2001, and December 15, 2000.

         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, 2002, December 21, 2001, and December 15, 2000.

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

                                       1
<PAGE>

"anticipates,"   "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,  and income,  are subject to certain
risks and  uncertainties  that could cause actual  results to differ  materially
from those indicated in the forward-looking statements, due to several important
factors herein identified,  among others, and other risks and factors identified
from  time to time in the  Company's  reports  filed  with  the  Securities  and
Exchange Commission.

Earnings Performance

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 $1.24  compared with $.85 for 2001.
Per share net income, assuming dilution for unexercised stock options, was $1.17
for 2002  compared  with $.81 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  market areas of Oconee and
Anderson  Counties  of South  Carolina.  See "Net  Interest  Income" for further
discussion of the Company's interest income and expense.

         Partially  offsetting  the positive  effects of increased  net interest
income  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.  See  "Provision for Loan Losses"
for further discussion.

         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.  Although the Company
continuously  seeks to minimize the effects that increased  account volumes have
on  operating  expenses  through the use of  technology,  increases in operating
expenses from this source still occur.

2001 Compared with 2000

         For the year ended December 31, 2001,  the Company  recorded net income
of $1,905,000,  an increase of $226,000, or 13.5%, from net income of $1,679,000
for 2000.  Net income per share for 2001 was $.85  compared  with $.75 for 2000.
Per share net income,  assuming dilution for unexercised stock options, was $.81
for 2001 compared with $.71 for 2000. Return on average assets was .91% for 2001
compared with 1.02% for 2000. Return on average  shareholders'  equity decreased
to 11.82% for 2001 from 12.70% for 2000.

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

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

                                       2
<PAGE>

Comprehensive Income

         Comprehensive income for 2002, 2001 and 2000 was $2,978,000, $2,435,000
and  $2,941,000,  respectively.  Accounting  principles  generally  require that
recognized revenue,  expenses, gains and losses be included in net income. Other
elements of comprehensive  income for the Company are correlated directly to the
effects that  changing  market rates of interest  have on the fair values of the
Company's holdings of  available-for-sale  securities.  The resulting changes in
unrealized  holding  gains  and  losses on such  securities  are  reported  as a
separate component of shareholders'  equity. Those changes in fair value, net of
income tax effects, combined with net income, comprise comprehensive income.

Net Interest Income

         Net interest income,  the difference between interest income earned and
interest expense  incurred,  is the principal source of the Company's  earnings.
Net interest  income is affected by changes in the levels of interest  rates and
by changes in the volume and mix of interest earning assets and interest bearing
liabilities.  For analysis purposes, interest income from tax-exempt investments
has  been  adjusted  to an  amount  that  would  have to be  earned  on  taxable
investments  to produce  the same  after-tax  yields.  This  adjusted  amount is
referred to as fully taxable equivalent (FTE) interest income.

         FTE net interest income was  $7,895,000,  $5,791,000 and $5,028,000 for
2002, 2001 and 2000, respectively.  FTE interest income for 2002 was $1,392,000,
or 9.9%,  less than in 2001.  Similarly,  interest  expense  for 2002  decreased
$3,496,000,  or 42.6%,  from the prior  year  amount.  The  increase  in FTE net
interest income for 2002 resulted from higher volumes of interest earning assets
and from rates paid on funding sources  declining more than did the rates earned
on earning  assets.  Growth in loans was especially  strong as average loans for
2002 were  $23,624,000,  or  22.2%,  more than the 2001  amount.  The  Company's
average  federal  funds  sold  position  declined  during  2002 to  $23,656,000,
representing a decrease of $7,859,000,  or 24.9%,  from the 2001 average amount.
Investment  securities decreased slightly in 2002, also, averaging  $59,246,000.
This  represents a decrease of $3,212,000,  or 5.1%.  Average  interest  bearing
deposits  increased  by  $9,738,000,  or 5.8%,  over the 2001 amount and average
non-interest bearing deposits increased by $1,320,000, or 5.7%.

         During  2002,   market  rates  of  interest  were  relatively   stable.
Throughout 2001, however,  market rates of interest fell sharply. In each of the
two years,  the  Federal  Reserve  Board  attempted  to provide  stimulus to the
economy.  In 2001,  the Federal  Reserve Board sought to reduce market  interest
rates quickly so that interest costs might be reduced  significantly in order to
increase  the  amounts of funds  companies  would  have  available  for  capital
expenditures,  new job  creation and other  purposes  that could  contribute  to
economic growth.  The effects of those declines in interest rates on the Company
were not fully realized until 2002, however.

         During  2002,  the Federal  Reserve  Board  maintained  market rates of
interest at near-historic  low levels to further the goals identified above. The
continuance  of the low interest rate  environment  had two major effects on the
Company's customers. First, borrowers were more likely to refinance or otherwise
attempt to revise the terms of their debts,  especially  seeking to decrease the
associated interest rates.  Second,  depositors were more likely to commit funds
to longer-term  deposit  instruments in order to secure a marginally higher rate
of return on their investments.

         As shown in the tables "Average Balances, Yields and Rates" and "Volume
and Rate Variance Analysis," the lower interest  environment in 2002 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  rate
environment on interest income. Ratios of average loans to average deposits were
64.1% and 55.5% during 2002 and 2001,  respectively.  The average rate earned on
average  interest  earning assets in 2002 was 5.90%,  representing a decrease of
106 basis points from the comparable rate earned in 2001.

         During the past two years, but with greater impact in 2002, the Company
reduced the interest rates it 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  during  2002.
Consequently,  during 2002 the average  rate paid for interest  bearing  deposit
liabilities was 2.64%, a decrease of 223 basis points from the average rate paid
in 2001.

         The $763,000 increase in FTE net interest income for 2001 resulted from
higher volumes of interest earning assets. Growth in loans was especially strong
as average loans for 2001 were $20,218,000, or 23.4%, more than the 2000 amount.
The  Company's  federal  funds sold  position was much  stronger in 2001,  also,
increasing on average to  $31,515,000,  an increase of  $19,001,000,  or 151.8%,
over the 2000 average  amount.  In  addition,  investment  securities  increased
significantly, averaging $4,617,000, or 8.0%, more in 2001 than in 2000. Funding
sources for these assets were provided by increased deposit liabilities. Average
interest  bearing  deposits  increased by $37,818,000,  or 28.9%,  over the 2000
amount and average  noninterest  bearing  deposits  increased by $4,802,000,  or
25.9%.

                                       3
<PAGE>

         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, 2002, 2001 and
2000.

                       Average Balances, Yields and Rates
<TABLE>
<CAPTION>
                                                                             Years ended December 31,
                                                                             ------------------------
                                                          2002                          2001                           2000
                                                          ----                          ----                           ----
                                            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 .    $     26  $     1   3.85%     $     20  $     1   5.00%     $      9   $     1  11.11%
Taxable securities .......................      59,246    2,613   4.41%       62,458    3,620   5.80%       57,841     3,556   6.15%
Tax-exempt securities (2) ................         198       15   7.58%          198       15   7.58%          197        15   7.61%
Federal funds sold .......................      23,656      381   1.61%       31,515    1,297   4.12%       12,514       761   6.08%
Other investments ........................         538       21   3.90%          458       38   8.30%          385        30   7.79%
Loans  (2), (3) ..........................     130,104    9,580   7.36%      106,480    9,032   8.48%       86,262     7,679   8.90%
                                              --------  -------             --------  -------             --------   -------
         Total interest earning assets ...     213,768   12,611   5.90%      201,129   14,003   6.96%      157,208    12,042   7.66%
Cash and due from banks ..................       3,931                         3,588                         3,156
Allowance for loan losses ................      (1,621)                       (1,030)                         (991)
Unrealized securities gains (losses) .....         441                           177                        (2,489)
Premises and equipment ...................       3,395                         3,317                         3,339
Other assets .............................       2,692                         2,813                         3,737
                                              --------                      --------                      --------
         Total assets ....................    $222,606                      $209,994                      $163,960
                                              ========                      ========                      ========

Liabilities and shareholders' equity
Interest bearing deposits
     Interest bearing transaction accounts    $ 28,945  $   363   1.25%     $ 26,099  $   628   2.41%     $ 22,870   $   739   3.23%
     Savings .............................      25,470      266   1.04%       23,707      738   3.11%       21,006       806   3.84%
     Time deposits $100M and over ........      54,650    1,573   2.88%       50,156    2,661   5.31%       38,800     2,440   6.29%
     Other time deposits .................      69,272    2,514   3.63%       68,637    4,185   6.10%       48,105     3,029   6.30%
                                              --------  -------             --------  -------             --------   -------
         Total interest bearing deposits .     178,337    4,716   2.64%      168,599    8,212   4.87%      130,781     7,014   5.36%
Noninterest bearing demand deposits ......      24,672                        23,352                        18,550
Other liabilities ........................       1,044                         1,932                         1,407
Shareholders' equity .....................      18,553                        16,111                        13,222
                                              --------                      --------                      --------
         Total liabilities and shareholders'
         equity ..........................    $222,606                      $209,994                      $163,960
                                              ========                      ========                      ========
Interest rate spread  (4) ................                        3.26%                         2.09%                          2.30%
Net interest income and net yield
     on earning assets  (5) ..............              $ 7,895   3.69%               $ 5,791   2.88%                $ 5,028   3.20%
Interest free funds supporting earning
     assets  (6) .........................    $ 35,431                      $ 32,530                      $ 26,427
</TABLE>
--------------------------
(1)  Average balances are computed on a daily basis.
(2)  Computed on a fully  taxable  equivalent  basis using a federal  income tax
     rate of 34%.
(3)  Nonaccrual  loans are included in the average  loan  balances and income on
     such loans generally is recognized on a cash basis.
(4)  Total  interest  earning  assets  yield  less the  total  interest  bearing
     liabilities rate.
(5)  Net interest income divided by total interest earning assets.
(6)  Total interest earning assets less total interest bearing liabilities.

                                       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>
                                                                   2002 Compared with 2001                2001 Compared with 2000
                                                                   -----------------------                -----------------------
                                                              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 ....................................        (178)        (829)      (1,007)         275        (211)          64
Tax-exempt securities (2) .............................           -            -            -            -           -            -
Federal funds sold ....................................        (266)        (650)        (916)         848        (312)         536
Other investments .....................................           6          (23)         (17)           6           2            8
Loans (2) .............................................       1,838       (1,290)         548        1,729        (376)       1,353
                                                            -------      -------      -------      -------     -------      -------
            Total interest income .....................       1,400       (2,792)      (1,392)       2,859        (898)       1,961
                                                            -------      -------      -------      -------     -------      -------
Interest bearing deposits
     Interest bearing transaction accounts ............          62         (327)        (265)          95        (206)        (111)
     Savings ..........................................          51         (523)        (472)          96        (164)         (68)
     Time deposits $100M and over .....................         221       (1,309)      (1,088)         641        (420)         221
     Other time deposits ..............................          38       (1,709)      (1,671)       1,255         (99)       1,156
                                                            -------      -------      -------      -------     -------      -------
            Total interest expense ....................         372       (3,868)      (3,496)       2,087        (889)       1,198
                                                            -------      -------      -------      -------     -------      -------
            Net interest income .......................     $ 1,028      $ 1,076      $ 2,104      $   772     $    (9)     $   763
                                                            =======      =======      =======      =======     =======      =======
</TABLE>
----------------------------
(1)  The  rate/volume  variance  for  each  category  has  been  allocated  on a
     consistent  basis between rate and volume variances based on the percentage
     of rate or volume variance to the sum of the two absolute  variances except
     in categories having balances in only one period. In such cases, the entire
     variance is attributed to volume variances.
(2)  Computed on a fully  taxable  equivalent  basis using a federal  income tax
     rate of 34%.

         Management  currently  expects that  interest  rates may move  slightly
higher,  but  within  a narrow  range,  in 2003.  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 2003 are expected to result
primarily   from  changes  in  the  volumes  of  interest   earning  assets  and
liabilities.  Management  expects to continue using its marketing  strategies to
increase the  Company's  market share of both  deposits and quality loans within
its market areas.  These strategies involve offering  attractive  interest rates
and outstanding customer service.

Interest Rate Sensitivity

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

         The  table,  "Interest  Sensitivity  Analysis",  indicates  that,  on a
cumulative basis through twelve months, rate sensitive liabilities exceeded rate
sensitive  assets at the end of 2002 by  $88,186,000,  resulting in a cumulative
gap ratio of .43.  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 2002 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.

                                       5
<PAGE>

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

         The table,  "Interest Sensitivity  Analysis",  reflects the balances of
interest earning assets and interest bearing liabilities at the earlier of their
repricing or maturity  dates.  Amounts of fixed rate loans are  reflected at the
loans' final maturity dates. Variable rate loans are reflected at the earlier of
their  contractual  maturity date or the date at which the loans may be repriced
contractually.  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, 2002
                                                                                     -----------------
                                                                  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 ..............      $     32       $      -       $      -      $      -      $     32
     Securities available-for-sale .........................         1,076          1,046         38,986        21,860        62,968
     Other investments .....................................           555              -              -             -           555
     Federal funds sold ....................................        21,471              -              -             -        21,471
     Loans (1) .............................................        33,559          9,024         85,800         8,110       136,493
                                                                  --------       --------       --------      --------      --------
            Total interest earning assets ..................        56,693         10,070       $124,786      $ 29,970      $221,519
                                                                  --------       --------       ========      ========      ========
Interest bearing liabilities
     Interest bearing deposits
        Interest bearing transaction accounts ..............      $ 26,193       $      -       $      -      $      -      $ 26,193
        Savings ............................................        22,477              -              -             -        22,477
        Time deposits $100M and over .......................        23,953         30,700          4,718             -        59,371
        Other time deposits ................................        17,691         33,935         27,556             -        79,182
                                                                  --------       --------       --------      --------      --------
            Total interest bearing liabilities .............        90,314         64,635       $ 32,274      $      -      $187,223
                                                                  --------       --------       ========      ========      ========

Interest sensitivity gap ...................................      $(33,621)      $(54,565)
Cumulative interest sensitivity gap ........................      $(33,621)      $(88,186)
Gap ratio ..................................................          0.63           0.16
Cumulative gap ratio .......................................          0.63           0.43
</TABLE>
--------------------------------------
(1) Loans exclude loans held for sale and are net of nonaccruing  loans totaling
$866,000.

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  $1,291,000,  $567,000 and $305,000 for the years ended  December 31, 2002,
2001 and 2000,  respectively.  The  increased  provision in 2002 was  considered
necessary due to increased amounts of loan charge-offs, trends in nonaccrual and
other  potential  problem  loans,   higher  volumes  of  loans  outstanding  and
uncertainty  about the  potential  impact  that the  current  national  economic
downturn might have on local economic and business conditions. The allowance for

                                       6
<PAGE>

loan  losses  as a  percentage  of total  loans at  year-end  was 1.42% for 2002
compared  with  1.00%  as of the end of 2001.  Net  charge-offs  for  2002  were
$541,000,  an increase of $174,000 over the amount for 2001. Net charge-offs for
2001 were $367,000,  an increase of $119,000 over the 2000 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 2002  increased by $392,000 or 38.4% over 2001.
Service charges on deposit accounts increased by $314,000 or 39.8% due primarily
to charges associated with a new pre-arranged  overdraft  protection product. In
addition,  the Company in 2002 began originating  mortgage loans with the intent
to sell, principally to a regional mortgage banker. The Company realized $75,000
in gains on the sale of such  loans in 2002.  Several  advantages  accrue 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  2002,  the Company may increase  income if it is able to originate  such
loans at above-average  rates. The Company is generally  afforded decreased risk
of loss by  acquiring  take-out  commitments  for such loans prior to the loans'
originations.

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

Other Expenses

         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  made  from
time-to-time.

         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 for 2001 increased $277,000 or 9.4%. Salaries and
employee  benefits  increased  $194,000 in 2001 due to recording  the first full
year of  operations  of the  Williamston  office,  which was opened in August of
2000, the hiring of additional lending personnel, higher costs of providing life
and health insurance coverage to employees, and normal salary adjustments.

         Other  expense  for 2001  increased  $85,000,  or  8.8%,  over the 2000
amount.  This  increase  was caused by higher  stationery,  printing and postage
expenses related primarily to increased account volumes,  increased  utilization
of  professional  services  for  investment,   asset/liability   management  and
strategic planning advisory services, and higher expenses related to holding and
disposing of other real estate.

         Noninterest  overhead  expenses  for 2003 are  expected  to increase as
compared  with  2002  because  of  the  Company's  expanding  presence  in,  and
commitment  to, the  Anderson  County  market.  The Company  opened an office in
Williamston,  South Carolina in temporary quarters in the third quarter of 2000.
Construction  of a permanent  office  facility in  Williamston  began during the
second quarter of 2002 with completion  anticipated  during the first quarter of
2003.  Depreciation  expense  associated with this office will commence upon its
placement into service.

                                       7
<PAGE>

         In  December,   2002,  the  Company   acquired  a  parcel  of  land  in
Westminster,  South Carolina for a proposed future office location.  Approval to
establish an office at that site has been obtained from the South Carolina State
Board of  Financial  Institutions  and has  been  applied  for with the  Federal
Deposit Insurance  Corporation  ("FDIC").  The Company intends initially to open
the office in temporary  quarters until a permanent building can be constructed.
The temporary  facility is expected to become  operational  sometime  during the
first or second quarters of 2003, pending receipt of FDIC approval.

         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.  During 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.  The  property  is  carried  in the
consolidated  balance  sheet at a cost of $980,000  as of December  31, 2002 and
2001.  Periodically,  management  evaluates  this real estate for  impairment in
value, and any appropriate  downward adjustments to net realizable value will be
charged to expense if  necessary.  No such downward  adjustments  have been made
through December 31, 2002.

         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 2002,  federal and state income tax expenses  increased by $460,000
to  $1,527,000.  In 2001,  federal and state  income tax  expenses  increased to
$1,067,000 from $939,000 in 2000. 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 35.6% for 2002,  35.9% for
2001,  and 35.9% for 2000.  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.

                        Securities Portfolio Composition

                                                          December 31,
                                                          ------------
                                                2002         2001        2000
                                                ----         ----        ----
                                             Available-   Available-  Available-
                                              for-Sale     for-Sale    for-Sale
                                              --------     --------    --------
                                                    (Dollars in thousands)

U. S. Treasury ..........................      $     -      $     -      $ 1,992
U. S. Government agencies ...............       43,334       62,329       47,510
State, county and municipal .............          210          203          204
Mortgage-backed securities ..............       19,424        8,807        8,156
                                               -------      -------      -------
   Total ................................      $62,968      $71,339      $57,862
                                               =======      =======      =======

                                       8
<PAGE>

         The following table presents  maturities and weighted average yields of
securities at December 31, 2002.

                   Securities Portfolio Maturities and Yields
<TABLE>
<CAPTION>
                                                                         December 31, 2002
                                                                         -----------------
                                                               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 .........   $ 1,000    3.00%  $32,040    3.76%  $10,294      3.08%  $     -      0.00%  $43,334      3.58%
State, county and municipal (1) ...         -    0.00%        -    0.00%      210      7.52%        -      0.00%      210      7.52%
Mortgage-backed securities (2) ....       577    6.00%    3,974    5.17%    7,097      3.59%    7,776      4.23%   19,424      4.24%
                                      -------           -------           -------             -------             -------
        Total .....................   $ 1,577    4.10%  $36,014    3.92%  $17,601      3.34%  $ 7,776      4.23%  $62,968      3.80%
                                      =======           =======           =======             =======             =======
</TABLE>
----------------------------
(1)  Computed on a fully  taxable  equivalent  basis using a federal  income tax
     rate of 34%.
(2)  Maturity  categories  based  upon  final  stated  maturity  dates.  Average
     maturity  is  substantially  shorter  because  of  the  monthly  return  of
     principal on certain securities.

         On an ongoing basis,  management  assigns securities upon purchase into
one of three categories (trading,  available-for-sale or held-to-maturity) based
on intent,  taking into consideration  other factors including  expectations for
changes in market rates of interest, liquidity needs, asset/liability management
strategies, and capital requirements.  The Company has never held securities for
trading  purposes.  During  2002,  one  security  was  sold,  resulting  in  the
recognition of a loss of $2,000.  During 2001, one security sale resulted in the
recognition of a gain of $4,000. During 2000, there were no sales of securities.
No transfers  of  available-for-sale  or  held-to-maturity  securities  to other
categories were effected in any of the years 2000 through 2002.

         During  2002,  management  altered the  composition  of the  securities
portfolio,  both in  terms  of the  types of  securities  held  and the  overall
maturity structure.  These changes were made in response to the historically low
rates  available  for short to  medium-term  U.S.  Treasury and U.S.  Government
agencies  obligations.  Management  opted to mitigate the effects of  continuing
decreases in these interest rates by investing larger amounts in mortgage-backed
securities.  These  investment  instruments are slightly more risky, and usually
have longer  maturity  structures  and higher yields than the U.S.  Treasury and
U.S.  Government  agencies  securities  which the  Company  uses as its  primary
investment  vehicles.  The primary  increased  risk factor  associated  with the
change in the  composition  of the  securities  portfolio is the  acceptance  of
potentially  greater  variability  in expected  future cash flows.  The periodic
repayments of principal and interest from  mortgage-backed  investments are more
variable because such investments reflect the aggregate repayment  experience of
many individual residential mortgage loans. The individual mortgage loans, which
might have original  repayment periods ranging from fifteen to thirty years, are
each subject to various risks of repayment. Those risks relate to the individual
mortgagors' abilities to repay and include foreclosure, slow payment records due
to job losses and layoffs,  as well as  prepayment  of loans due to sales of the
underlying properties,  refinancing of loans to take advantage of lower interest
rates, and other factors.  Despite the longer contractual maturities of the more
recent investments in mortgage-backed securities,  management believes that such
securities  will  demonstrate  a general  trend toward  prepayment of individual
mortgages resulting from factors such as the geographic and economic mobility of
homeowners.  Although  homeowners may refinance  their  mortgages at lower rates
during  periods when market  interest  rates  decline,  the long duration of the
period of declining rates which has culminated in the current  historically  low
levels of market  interest rates  indicates  that such rate related  prepayments
might not be as significant in the  foreseeable  future.  Still,  it is believed
that the average lives of most mortgage-backed  securities will be significantly
shorter than revealed by maturity distributions based on contractual terms.

         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, 2002,  2001 and 2000
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,
                                                                                          ------------
                                                                       2002                      2001                    2000
                                                                       ----                      ----                    ----
                                                             Amount           %        Amount           %         Amount        %
                                                             ------           -        ------           -         ------        -
                                                                                     (Dollars in thousands)
Commercial, financial and industrial
<S>                                                         <C>            <C>       <C>             <C>       <C>            <C>
     Commercial and industrial .......................      $ 19,124        13.9%    $ 21,006         17.5%    $ 16,997        17.4%
     Purchasing or carrying securities ...............         2,547         1.9%       2,578          2.1%       2,654         2.7%
Real estate - construction ...........................           822          .6%         346           .3%         200          .2%
Real estate - mortgage
     1-4 family residential ..........................        54,471        39.7%      45,329         37.9%      39,163        40.1%
     Multifamily (5 or more) residential .............         2,311         1.7%       1,862          1.5%         641          .7%
     Nonfarm, nonresidential .........................        36,122        26.3%      27,047         22.6%      17,897        18.4%
Consumer installment
     Credit card and checking credit .................         1,033          .7%       1,030           .9%       1,097         1.1%
     Other ...........................................        20,929        15.2%      20,546         17.2%      18,913        19.4%
                                                            --------       -----     --------        -----     --------       -----
                     Total loans .....................      $137,359       100.0%    $119,744        100.0%    $ 97,562       100.0%
                                                            ========       =====     ========        =====     ========       =====
</TABLE>

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

         Commercial  and  industrial  loans  primarily  represent  loans made to
businesses,  and may be made on either a secured  or an  unsecured  basis.  When
taken,  collateral  consists of liens on  receivables,  equipment,  inventories,
furniture and fixtures.  Unsecured business loans are generally  short-term with
emphasis on repayment strengths and low debt-to-worth ratios. During 2002, total
commercial and industrial  loans decreased  $1,882,000 or 9.0%. Loans mainly for
business  and  investment  purposes  that are secured by real  estate  (nonfarm,
nonresidential) increased by $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.
During  1999, a senior  commercial  lending  officer/administrator  position was
created to enhance expertise and supervision in this area. However,  turnover of
personnel  hired  for this  position  has  slowed  the  implementation  of these
objectives, and no one is currently employed in this position.

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

         Loans secured by real estate mortgages comprised  approximately 68% and
62% of the Company's loan  portfolio at the end of 2002 and 2001,  respectively.
Real  estate  mortgage  loans of all types grew  $19,142,000  during 2002 and by
$16,683,000  during 2001.  Residential real estate loans consist mainly of first
and second  mortgages on single family homes,  with some multifamily home loans.
Loan-to-value  ratios  for  these  instruments  are  generally  limited  to 80%.
Nonfarm, nonresidential real estate loans are secured by business and commercial
properties with loan-to-value  ratios generally limited to 70%. The repayment of
both  residential  and business real estate loans is dependent  primarily on the
income  and cash  flows of the  borrowers,  with the real  estate  serving  as a
secondary or  liquidation  source of repayment.  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

                                       10
<PAGE>

approximately  $5,000,000  of  mortgage  loans.  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,  2002,  as well as the type of
interest requirement on such loans.

<TABLE>
<CAPTION>
                                                                                             December 31, 2002
                                                                                             -----------------
                                                                            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 ...............................        $ 11,394        $  9,350        $    927        $ 21,671
Real estate - construction .........................................             822               -               -             822
Real estate - mortgage .............................................          25,995          59,998           6,911          92,904
Consumer installment ...............................................           4,656          16,818             488          21,962
                                                                            --------        --------        --------        --------
              Total loans ..........................................        $ 42,867        $ 86,166        $  8,326        $137,359
                                                                            ========        ========        ========        ========

Predetermined rate, maturity greater than one year .................                        $ 69,292        $  8,047        $ 77,339
                                                                                            ========        ========        ========

Variable rate or maturity within one year ..........................        $ 42,867        $ 16,874        $    279        $ 60,020
                                                                            ========        ========        ========        ========
</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,
                                                     2002       2001       2000
                                                     ----       ----       ----
                                                      (Dollars in thousands)

Nonaccrual loans ..............................      $866       $609       $341
Accruing loans 90 days or more past due .......         -          1          9
                                                     ----       ----       ----
            Total .............................      $866       $610       $350
                                                     ====       ====       ====
Percent of total loans ........................       0.6%       0.5%       0.4%

         When an  impaired  loan is 90 days or more past due as to  interest  or
principal or there is serious doubt as to ultimate  collectibility,  the accrual
of interest income is generally  discontinued.  Previously  accrued  interest on
loans placed in a nonaccrual  status is reversed  against  current  income,  and
subsequent interest income is recognized on a cash basis when received. When the
collectibility  of a  significant  amount  of  principal  is in  serious  doubt,
collections  are credited  first to the  remaining  principal  balance on a cost
recovery  basis.  An impaired  nonaccrual loan is not returned to accrual status
unless  principal and interest are current and the borrower has demonstrated the
ability to continue  making  payments as agreed.  The effects of interest income
accrued and  collected on impaired  loans were  immaterial  to the  consolidated
financial statements for 2002, 2001 and 2000.

         As of December 31, 2002,  there were no commitments to lend  additional
funds to debtors owing amounts on nonaccrual loans.

                                       11
<PAGE>

Potential Problem Loans

         Management  has  identified  and maintains a list of potential  problem
loans.  These are loans that are not included in impaired  loans  (nonaccrual or
past due 90 days or more and still  accruing).  A loan is added to the potential
problem list when management  becomes aware of information about possible credit
problems of borrowers  that causes doubts as to the ability of such borrowers to
comply  with the  current  loan  repayment  terms.  The  total  amount  of loans
outstanding  at December  31, 2002  determined  by  management  to be  potential
problem  loans was  $1,279,000.  This  amount  does not  represent  management's
estimate of potential  losses since a large  proportion of such loans is secured
by various types of collateral.  The following table presents  information about
the types of  collateral  securing  potential  problem  loans as of December 31,
2002.

                                                           December 31, 2002
                                                           -----------------
                                                         Amount             %
                                                         ------             -
                                                         (Dollars in thousands)
Real estate mortgage .......................            $  954             74.6%
Vehicles ...................................               193             15.1%
Mobile homes ...............................                29              2.3%
Other ......................................                59              4.6%
Unsecured ..................................                44              3.4%
                                                        ------            -----
           Total ...........................            $1,279            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,
                                                                                         ------------------------
                                                                          2002         2001         2000        1999         1998
                                                                          ----         ----         ----        ----         ----
                                                                                          (Dollars in thousands)
<S>                                                                    <C>          <C>          <C>          <C>          <C>
Total loans outstanding at end of period ..........................    $137,359     $119,744     $ 97,562     $ 76,158     $ 67,893
Average amount of loans outstanding ...............................     130,104      106,480       86,262       71,944       68,499

Balance of allowance for loan losses - beginning ..................    $  1,200     $  1,000     $    943     $    955     $    890
                                                                       --------     --------     --------     --------     --------
Loans charged off
     Commercial and industrial ....................................         193          249           97          234           44
     Real estate - mortgage .......................................         131            -           40            -            9
     Consumer installment .........................................         223          126          121           99          116
                                                                       --------     --------     --------     --------     --------
           Total charge-offs ......................................         547          375          258          333          169
                                                                       --------     --------     --------     --------     --------
Recoveries of loans previously charged off
     Commercial and industrial ....................................           1            -            -           12            -
     Real estate - mortgage .......................................           -            -            -            -           15
     Consumer installment .........................................           5            8           10            9            6
                                                                       --------     --------     --------     --------     --------
           Total recoveries .......................................           6            8           10           21           21
                                                                       --------     --------     --------     --------     --------
Net charge-offs ...................................................         541          367          248          312          148
                                                                       --------     --------     --------     --------     --------
Additions to allowance charged to expense .........................       1,291          567          305          300          213
                                                                       --------     --------     --------     --------     --------
Balance of allowance for loan losses - ending .....................    $  1,950     $  1,200     $  1,000     $    943     $    955
                                                                       ========     ========     ========     ========     ========
Ratios
     Net charge-offs to average loans .............................        0.42%        0.34%        0.29%        0.43%        0.22%
     Net charge-offs to loans at end of period ....................        0.39%        0.31%        0.25%        0.41%        0.22%
     Allowance for loan losses to average loans ...................        1.50%        1.13%        1.16%        1.31%        1.39%
     Allowance for loan losses to loans at end of period ..........        1.42%        1.00%        1.02%        1.24%        1.41%
     Net charge-offs to allowance for loan losses .................       27.74%       30.58%       24.80%       33.09%       15.50%
     Net charge-offs to provision for loan losses .................       41.91%       64.73%       81.31%      104.00%       69.48%
</TABLE>

Deposits

         The average amounts and percentage  composition of deposits held by the
Company for the years ended  December 31, 2002,  2001 and 2000,  are  summarized
below:
                                Average Deposits
<TABLE>
<CAPTION>
                                                                               Years Ended December 31,
                                                                   2002                      2001                       2000
                                                                   ----                      ----                       ----
                                                         Amount           %         Amount           %         Amount           %
                                                         ------           -         ------           -         ------           -
                                                                                (Dollars in thousands)

<S>                                                    <C>             <C>        <C>             <C>        <C>             <C>
Noninterest bearing demand .....................       $ 24,672         12.2%     $ 23,352         12.2%     $ 18,550         12.4%
Interest bearing transaction accounts ..........         28,945         14.3%       26,099         13.6%       22,870         15.3%
Savings ........................................         25,470         12.5%       23,707         12.4%       21,006         14.1%
Time deposits $100M and over ...................         54,650         26.9%       50,156         26.1%       38,800         26.0%
Other time deposits ............................         69,272         34.1%       68,637         35.7%       48,105         32.2%
                                                       --------        -----      --------        -----      --------        -----
             Total deposits ....................       $203,009        100.0%     $191,951        100.0%     $149,331        100.0%
                                                       ========        =====      ========        =====      ========        =====
</TABLE>

         As of December 31, 2002,  there were  $59,371,000  in time  deposits of
$100,000  or  more.  Approximately   $23,414,000  mature  within  three  months,
$13,603,000  mature over three through six months,  $10,675,000  mature over six
through twelve months and $11,679,000 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,
2002, approximately $29,333,000 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,
                                                ------------------------
                                           2002           2001          2000
                                           ----           ----          ----

Return on assets .....................       1.24%         0.91%         1.02%
Return on equity .....................      14.89%        11.82%        12.70%
Dividend payout ratio ................       0.00%         0.00%         0.00%
Equity to assets ratio ...............       8.33%         7.67%         8.06%


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  66.6% of average
total assets during 2002  compared  with 67.5% during 2001.  Deposits of several
local  governmental  entities  comprised  approximately  23%  and  25% of  total
deposits at the end of 2002 and 2001,  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,  2002,  the  banking
subsidiary  is  eligible  to  borrow  up to  $36,511,000  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  $47,941,000  as of
December 31, 2002. In addition,  the banking  subsidiary has available an unused
short-term  line of credit to purchase up to $5,000,000 of federal funds from an
unrelated  correspondent  institution.  The  line is  generally  available  on a
one-day basis for up to 14 days in any 30 day period,  in the sole discretion of
the lender. Asset liquidity is provided from several sources,  including amounts
due  from  banks  and  federal   funds  sold.   Securities   available-for-sale,
particularly  those maturing  within one year, and funds available from maturing
loans provide secondary sources of liquidity.

         Community First  Bancorporation's  ability to meet its cash obligations
or to pay any  possible  future cash  dividends  to  shareholders  is  dependent
primarily on the successful  operation of the subsidiary bank and its ability to
pay cash dividends to the parent company.  Any of the banking  subsidiary's cash
dividends  in excess  of the  amount of the  subsidiary's  current  year-to-date
earnings are subject to the prior approval of the South Carolina Commissioner of
Banking and are generally payable only from its undivided  profits.  At December
31, 2002, the banking  subsidiary's  undivided profits totaled  $10,051,000.  In
addition,  dividends paid by the banking  subsidiary to the parent company would
be prohibited if the effect thereof would cause the Bank's capital to be reduced
below applicable minimum regulatory  requirements.  In 2002 and 2001, 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 $3,068,000 and $2,122,000 during 2002
and 2001,  respectively.  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,  consisting  primarily  of the change in
unrealized  holding  gains or losses on  available-for-sale  securities,  net of
deferred tax effects,  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.  During  2001,  net income  increased  shareholders  equity by
$1,905,000  and the exercise of employee  stock options  provided an increase of
$53,000.  Other comprehensive income, which consisted primarily of the change in
unrealized holding gains or losses on available-for-sale  securities,  increased
shareholders' equity by $529,000.  Repurchases and cancellations of common stock
in 2001 reduced  shareholders equity by $359,000.  In lieu of fractional shares,
$6,000 was payable with respect to the 5% stock dividend declared in 2001.

         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, 2002 and 2001,  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, 2002                                                                         (Dollars in thousands)
      The Company
<S>                                                                    <C>         <C>        <C>         <C>       <C>        <C>
          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%      $ 6,745     3.0%      $11,242     5.0%
      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%      $ 6,745     3.0%      $11,242     5.0%

December 31, 2001
      The Company
          Total Capital to risk weighted assets ...................    $18,055     14.2%      $10,169     8.0%      $12,711    10.0%
          Tier 1 Capital to risk weighted assets ..................    $16,855     13.3%      $ 5,085     4.0%      $ 7,627     6.0%
          Tier 1 Capital to average assets (leverage) .............    $16,855      8.0%      $ 6,342     3.0%      $10,570     5.0%
      Community First Bank
          Total Capital to risk weighted assets ...................    $17,310     13.6%      $10,169     8.0%      $12,711    10.0%
          Tier 1 Capital to risk weighted assets ..................    $16,110     12.7%      $ 5,085     4.0%      $ 7,627     6.0%
          Tier 1 Capital to average assets (leverage) .............    $16,110      7.6%      $ 6,342     3.0%      $10,570     5.0%
</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,
                                                              ------------
                                                          2002             2001
                                                          ----             ----
                                                          (Dollars in thousands)

Loan commitments .............................          $13,943          $12,780
Standby letters of credit ....................              238              323

         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   increased
significantly in 2002 to $1,291,000  compared with $567,000 and $305,000 in 2001
and 2000,  respectively.  The  allowance  for loan losses at the end of 2002 was
$1,950,000, up $750,000 or 62.5% as compared with the allowance of $1,200,000 as
of the end of 2001. As a percentage of total loans  outstanding at year end, the
allowance  for loan losses  stood at 1.42%,  1.00% and 1.02% for 2002,  2001 and
2000, respectively. In making its judgments about the percentage factors applied
to loan risk grade  categories,  management  elected to take a more conservative
approach in 2002. Several key factors influenced  management's  decision to take
this  approach,  including  the increases in net loan  charge-offs,  impaired or
non-performing  loans and potential  problem loans over the last two years.  Net
loan  charge-offs  increased to $541,000 in 2002,  an increase of 50.1% over the
2001 amount.  In 2001, net  charge-offs  increased to $367,000 or 48.0% over the
2000 amount.  As of the end of 2002,  impaired or  non-performing  loans grew to
$866,000,  up  from  $610,000  and  $350,000  at  the  end  of  2001  and  2000,

                                       17
<PAGE>

respectively.  Potential  problem  loans grew to  $1,279,000 at the end of 2002,
compared with  $880,000 and $425,000 at the end of 2001 and 2000,  respectively.
While  management  believes that the local economy remains  relatively  healthy,
there are concerns  that the national  economic  downturn that began in 2001 and
continued  throughout  2002 and beyond  eventually  might have a more noticeable
effect  locally.  Loan  growth has also been a  contributing  factor  toward the
increased provisions for loan losses in 2002 and 2001. Total year end loans grew
14.7% and 22.7% in 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 2002 and
2001.  Because the  Anderson  County  market is  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 have to increase,  thereby decreasing net income and shareholders' equity.
During 2002 and 2001,  the total of loans  secured by real estate  mortgages has
increased  $35,203,000 from $57,701,000 at the end of 2000 to $92,904,000 by the
end of 2002.  Of this  increase,  $15,308,000  consisted of loans secured by 1-4
family  residential real estate  mortgages,  and $18,225,000  consisted of loans
secured by nonfarm, nonresidential real estate mortgages. A further significant,
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

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

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

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

Isolation of Transferred  Financial  Assets - FASB  Technical  Bulletin No. 01-1
deferred until 2002 application of the isolation standards of FASB Statement No.

                                       18
<PAGE>

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

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 are 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 are effective for exit or disposal activities  initiated after
December 31, 2002, with early application encouraged.  The adoption of Statement
No. 146 is not expected to have any material adverse or beneficial effect on the
consolidated financial position or results of operations of the Company.

Acquisitions  of  Certain  Financial  Institutions  - FASB  Statement  No.  147,
"Acquisitions of Certain Financial  Institutions,"  amends Statements No. 72 and
144 and FASB  Interpretation  No.  9. This  Statement  addresses  the  financial
accounting  and  reporting  for the  acquisition  of all or part of a  financial
institution,  except for a transaction  between two or more mutual  enterprises,
and provides  guidance on accounting  for the impairment or disposal of acquired
long-term  customer-relationship  intangible assets, including those acquired in
transactions  between  two or more  mutual  enterprises.  This  Statement  makes
Statement No. 72 and Interpretation 9 not applicable to acquisitions  within its
scope and requires that  acquisitions of all or part of a financial  institution
that meet the  definition  of a business  combination  be  accounted  for by the
purchase   method  in  accordance   with  FASB  Statement  No.  141,   "Business
Combinations." Acquisitions that do not qualify as business combinations because
the transferred net assets and activities do not constitute a business are to be
accounted  for in  accordance  with  paragraphs  4-8 of Statement  No. 141. This
Statement  also makes the provisions of Statement No. 144,  "Accounting  for the
Impairment   or  Disposal  of  Long-Lived   Assets,"   applicable  to  long-term
customer-relationship  intangible assets, except servicing assets, recognized in
the  acquisition  of a  financial  institution.  In  addition,  certain  amounts
previously  recognized with regard to a business  combination as  unidentifiable
intangible  assets  may  be  required  to  be  reclassified  as  goodwill,  with
restatement of any amortization  expense  subsequent to the date of the adoption
of  FASB  Statement  No.  142,  "Goodwill  and  Other  Intangible  Assets."  The
provisions of this  Statement  were  generally  effective as of October 1, 2002,
with earlier  application  permitted.  The  adoption of Statement  No. 147 as of
January 1, 2002 did not have any material  adverse or  beneficial  effect on the
consolidated financial position or results of operations of the Company.

Accounting  for  Stock-Based  Compensation  - Transition  and  Disclosure - FASB
Statement No. 148,  "Accounting  for  Stock-Based  Compensation - Transition and
Disclosure,"  amends  Statement  No.  123  to  provide  alternative  methods  of
transition  for  entities  that  voluntarily  change to the fair value method of
accounting for stock-based employee compensation. FASB Statement 142 also amends
the  disclosure  provisions  of that Statement to require  prominent  disclosure

                                       19
<PAGE>

about the  effects on  reported  net  income of an  entity's  accounting  policy
decisions with respect to stock-based compensation.  Also, this Statement amends
APB Opinion No. 28, Interim  Financial  Reporting,  to require  disclosure about
those effects in interim financial information. The provisions of this Statement
related to transition provisions and disclosure  requirements were effective for
financial  statements  for fiscal  years ending  after  December  15, 2002.  The
provisions  related to interim  financial  reporting  are  applicable to interim
periods  beginning  after  December 15, 2002.  Adoption of this  Statement as of
December 15, 2002 did not have any material adverse or beneficial  effect on the
consolidated  financial  position or results of  operations of the Company as of
and for the years ended December 31, 2002,  2001 and 2000, nor is it expected to
have any such effects on the Company's  future  consolidated  interim  financial
position or results of operations.  As of December 31, 2002, 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 Statement No. 123, as amended,
there are no  current  intentions  to adopt the fair  value  method  recognition
provisions of that Statement.

Accounting  by  Certain  Financing  Entities   (Including  Entities  with  Trade
Receivables)  That Lend to or Finance the  Activities  of Others - The  American
Institute  of  Certified  Public  Accountants'  ("AICPA")  Accounting  Standards
Executive  Committee  ("AcSEC")  issued  Statement  of  Position  ("SOP")  01-6,
"Accounting by Certain Entities (Including Entities with Trade Receivables) That
Lend to or Finance the  Activities  of Others,"  that  reconciles  and  conforms
existing  differences in the accounting and financial  reporting guidance in the
AICPA Audit and Accounting Guides, "Banks and Savings  Institutions," "Audits of
Credit  Unions"  and  "Audits of Finance  Companies".  It also  carries  forward
accounting  guidance  for  practices  deemed to be unique to  certain  financial
institutions.  Trade  receivables  of all  entities,  including  commercial  and
not-for-profit  entities  that finance their  customers'  purchases of goods and
services using trade  receivables,  are within the scope of the existing finance
companies Guide and are, therefore,  within the scope of the new SOP. The SOP is
effective for fiscal years  beginning  after  December 15, 2001. The adoption of
this SOP as of January 1, 2002 had no 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   are  effective  for  interim  and  annual  financial
statements  ending after  December 15, 2002.  FIN 45's initial  recognition  and
measurement  provisions  are 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 are not expected to
have  any  material  adverse  or  beneficial  effects  on the  Company's  future
consolidated financial position or results of operations.

Change of Accountants

         Legislation and Securities  Exchange  Commission  rules adopted in 2002
have  significantly  increased,  and will continue to increase,  the  regulatory
burdens on audit firms that audit the financial statements of companies that are
subject to the reporting  requirements  of the Securities  Exchange Act of 1934.
Consequently,  many  smaller  audit  firms are  deciding  to limit  their  audit
practice to companies that are not subject to the 1934 Act.  Donald G. Jones and
Company,  P.A., which served as the Company's principal  independent  accountant
since the Company's inception, is one such firm. Accordingly, effective November
19, 2002 Donald G. Jones and Company,  P.A. resigned as the Company's  principal
independent  public accountant.  J. W. Hunt and Company,  LLP was engaged by the
Company on November 19, 2002 to audit the Company's financial statements for the
year ended  December 31, 2002, and has also been selected to audit the Company's
financial statements for the year ended December 31, 2003.

         Donald G. Jones and Company,  P.A.'s reports on the Company's financial
statements for the years ended  December 31, 2001 and 2000 neither  contained an
adverse  opinion or disclaimer of opinion,  nor were modified as to uncertainty,
audit scope, or accounting  principles.  There were no disagreements with Donald
G. Jones and Company,  P.A. on any matter of accounting principles or practices,
financial statement  disclosure,  or auditing scope or procedure,  which, if not
resolved to Donald G. Jones and Company, P.A.'s satisfaction,  would have caused
it to make reference to the subject matter of the disagreements in its reports.


                                       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, 2002, and the
related consolidated  statements of income, changes in shareholders' equity, and
cash  flows  for  the  year  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 audit.  The  consolidated
financial  statements of Community First  Bancorporation as of and for the years
ended  December 31, 2001 and 2000,  were audited by other  auditors whose report
dated February 7, 2002, expressed an unqualified opinion on those statements.

           We  conducted  our  audit  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
audit provides a reasonable basis for our opinion.

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


s/J. W. Hunt and Company, LLP


J. W. Hunt and Company, LLP
Certified Public Accountants
Columbia, South Carolina
February 11, 2003


                                       21
<PAGE>

                          INDEPENDENT AUDITORS' REPORT


The Shareholders and Board of Directors
    of Community First Bancorporation

         We  have  audited  the  accompanying   consolidated  balance  sheet  of
Community First  Bancorporation  and subsidiary as of December 31, 2001, and the
related consolidated  statements of income, changes in shareholders' equity, and
cash flows for the years  ended  December  31,  2001 and 2000.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

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



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


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




                                       22

<PAGE>

Consolidated Balance Sheet
Community First Bancorporation

<TABLE>
<CAPTION>
                                                                                                            December 31,
                                                                                                            ------------
                                                                                                     2002                  2001
                                                                                                     ----                  ----
Assets
<S>                                                                                           <C>                     <C>
     Cash and due from banks (Note B) ..............................................          $   5,113,815           $   6,063,051
     Interest bearing deposits due from banks ......................................                 32,364                  27,419
     Federal funds sold ............................................................             21,471,000               9,240,000
     Securities available-for-sale (Note C) ........................................             62,967,593              71,338,781
     Other investments .............................................................                554,500                 480,100
     Loans held for sale ...........................................................                211,127                       -
     Loans (Note D) ................................................................            137,358,504             119,743,926
         Allowance for loan losses .................................................             (1,950,000)             (1,200,000)
                                                                                              -------------           -------------
            Loans - net ............................................................            135,408,504             118,543,926
     Premises and equipment - net (Note E) .........................................              4,148,080               3,232,136
     Accrued interest receivable ...................................................              1,350,574               1,466,465
     Real estate held for sale .....................................................                980,003                 980,003
     Other assets ..................................................................                617,003                 525,922
                                                                                              -------------           -------------

            Total assets ...........................................................          $ 232,854,563           $ 211,897,803
                                                                                              =============           =============

Liabilities
     Deposits (Note F)
         Noninterest bearing .......................................................          $  24,415,791           $  25,448,702
         Interest bearing ..........................................................            187,222,836             168,070,527
                                                                                              -------------           -------------
            Total deposits .........................................................            211,638,627             193,519,229
     Accrued interest payable ......................................................              1,069,177               1,307,096
     Other liabilities .............................................................                 61,907                  54,703
                                                                                              -------------           -------------
            Total liabilities ......................................................            212,769,711             194,881,028
                                                                                              -------------           -------------

     Commitments and contingent liabilities (Note K)

Shareholders' equity (Note G)
     Common stock - no par  value; 10,000,000 shares authorized;
         issued and outstanding - 2,242,417 for 2002 and
         2,117,062 for 2001 ........................................................             17,569,241              15,734,004
     Retained earnings .............................................................              2,137,103               1,120,413
     Accumulated other comprehensive income ........................................                378,508                 162,358
                                                                                              -------------           -------------
            Total shareholders' equity .............................................             20,084,852              17,016,775
                                                                                              -------------           -------------

            Total liabilities and shareholders' equity .............................          $ 232,854,563           $ 211,897,803
                                                                                              =============           =============
</TABLE>











See accompanying notes to consolidated financial statements.

                                       23
<PAGE>

Consolidated Statement of Income
Community First Bancorporation

<TABLE>
<CAPTION>
                                                                                                Years Ended December 31,
                                                                                                ------------------------
                                                                                        2002               2001               2000
                                                                                        ----               ----               ----
Interest income
<S>                                                                                <C>                <C>               <C>
     Loans, including fees ..................................................      $  9,554,406       $  9,002,386      $  7,675,937
     Securities
         Taxable ............................................................         2,612,877          3,620,426         3,556,111
         Tax-exempt .........................................................             9,820              9,819             9,819
     Federal funds sold .....................................................           380,691          1,297,454           761,571
     Other investments ......................................................            21,484             38,295            29,773
     Interest bearing deposits due from banks ...............................               434                797               533
                                                                                   ------------       ------------      ------------
         Total interest income ..............................................        12,579,712         13,969,177        12,033,744
                                                                                   ------------       ------------      ------------

Interest expense
     Time deposits $100,000 and over ........................................         1,572,554          2,660,538         2,439,638
     Other deposits .........................................................         3,142,899          5,551,915         4,574,386
                                                                                   ------------       ------------      ------------
         Total interest expense .............................................         4,715,453          8,212,453         7,014,024
                                                                                   ------------       ------------      ------------

Net interest income .........................................................         7,864,259          5,756,724         5,019,720
Provision for loan losses (Note D) ..........................................         1,291,384            566,976           305,033
                                                                                   ------------       ------------      ------------
Net interest income after provision .........................................         6,572,875          5,189,748         4,714,687
                                                                                   ------------       ------------      ------------

Other income
     Service charges on deposit accounts ....................................         1,103,046            789,265           575,822
     Credit life insurance commissions ......................................            35,586             40,756            59,436
     (Loss) gain on sale of available-for-sale securities (Note C) ..........            (2,475)             4,327                 -
     Gain on sale of loans held for sale ....................................            74,898                  -                 -
     Other income ...........................................................           202,227            187,129           229,868
                                                                                   ------------       ------------      ------------
         Total other income .................................................         1,413,282          1,021,477           865,126
                                                                                   ------------       ------------      ------------

Other expenses (Notes H and J)
     Salaries and employee benefits .........................................         2,055,809          1,753,074         1,559,219
     Net occupancy expense ..................................................           189,768            192,399           186,203
     Furniture and equipment expense ........................................           236,000            246,930           255,787
     Other expense ..........................................................         1,215,223          1,046,289           960,663
                                                                                   ------------       ------------      ------------
         Total other expenses ...............................................         3,696,800          3,238,692         2,961,872
                                                                                   ------------       ------------      ------------

Income before income taxes ..................................................         4,289,357          2,972,533         2,617,941
Income tax expense (Note I) .................................................         1,527,561          1,067,214           938,689
                                                                                   ------------       ------------      ------------
Net income ..................................................................      $  2,761,796       $  1,905,319      $  1,679,252
                                                                                   ============       ============      ============

Per share (Note G)
     Net income .............................................................      $       1.24       $       0.85      $       0.75
     Net income, assuming dilution ..........................................              1.17               0.81              0.71
</TABLE>

See accompanying notes to consolidated financial statements.


                                       24
<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, 2000 ......................       2,002,699     $ 14,254,918     $  1,110,371     $ (1,628,999)    $ 13,736,290

Comprehensive income:
    Net income ................................               -                -        1,679,252                -        1,679,252
    Unrealized holding gains arising
    during the period, net of
    income tax effects of $706,878 ............               -                -                -        1,262,141        1,262,141
                                                                                                                       ------------
    Total comprehensive income ................               -                -                -                -        2,941,393
                                                                                                                       ------------
Issuance of 5% stock dividend,
    including cash payment for
    fractional shares .........................          95,248        1,904,961       (1,911,225)               -           (6,264)
Exercise of employee stock options ............          34,676          123,355                -                -          123,355
Repurchase and cancellation of
    common stock ..............................        (110,000)      (1,900,000)               -                -       (1,900,000)
                                                   ------------     ------------     ------------     ------------     ------------
Balance, December 31, 2000 ....................       2,022,623       14,383,234          878,398         (366,858)      14,894,774

Comprehensive income:
    Net income ................................               -                -        1,905,319                -        1,905,319
    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
                                                   ============     ============     ============     ============     ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       25
<PAGE>

Consolidated Statement of Cash Flows
Community First Bancorporation

<TABLE>
<CAPTION>
                                                                                               Years Ended December 31,
                                                                                               ------------------------
                                                                                      2002              2001                2000
                                                                                      ----              ----                ----
Operating activities
<S>                                                                              <C>                <C>                <C>
     Net income ...........................................................      $  2,761,796       $  1,905,319       $  1,679,252
     Adjustments to reconcile net income to net
         cash provided by operating activities
            Provision for loan losses .....................................         1,291,384            566,976            305,033
            Depreciation ..................................................           210,892            231,590            227,063
            Deferred income taxes .........................................          (227,649)           (42,180)            (2,208)
            Amortization of net loan fees and costs .......................           (13,103)             7,334             63,669
            Securities accretion and premium amortization .................           195,436            (35,540)            (6,900)
            Loss (gain) on sale of available-for-sale securities ..........             2,475             (4,327)                 -
            Gain on sale of loans held for sale ...........................           (74,898)                 -                  -
            Loss on sale of other real estate .............................            24,443             31,072              7,351
            Loss on disposal of premises and equipment ....................                 -                  -              6,247
            Decrease (increase) in interest receivable ....................           115,891            (90,036)          (184,033)
            (Decrease) increase in interest payable .......................          (237,919)          (452,424)           579,629
            Increase in prepaid expenses ..................................          (153,310)            (1,386)           (69,028)
            Increase (decrease) in other accrued expenses .................            13,545             18,855            (19,526)
            Originations of loans held for sale ...........................        (5,148,032)                 -                  -
            Proceeds of sales of loans held for sale ......................         5,011,803                  -                  -
                                                                                 ------------       ------------       ------------
                Net cash provided by operating activities .................         3,772,754          2,135,253          2,586,549
                                                                                 ------------       ------------       ------------

Investing activities
     Purchases of available-for-sale securities ...........................       (68,285,150)       (96,196,397)        (4,972,022)
     Maturities of available-for-sale securities ..........................        73,798,110         83,009,787          3,264,229
     Proceeds from sale of available-for -sale securities .................         2,997,525            575,065                  -
     Purchases of other investments .......................................           (74,400)           (94,400)            (3,700)
     Net increase in loans made to customers ..............................       (18,167,859)       (22,676,174)       (21,771,906)
     Additions to other real estate .......................................                 -             (3,132)          (103,688)
     Proceeds from sale of other real estate ..............................           169,377            179,466             38,307
     Purchases of real estate held for sale ...............................                 -                  -             (5,003)
     Purchases of premises and equipment ..................................        (1,126,836)           (52,700)          (355,756)
                                                                                 ------------       ------------       ------------
                Net cash used by investing activities .....................       (10,689,233)       (35,258,485)       (23,909,539)
                                                                                 ------------       ------------       ------------

Financing activities
     Net (decrease) increase in demand deposits, interest
         bearing transaction accounts and savings accounts ................        (2,440,429)        13,872,502          9,546,217
     Net increase in certificates of deposit and other
         time deposits ....................................................        20,559,827         15,264,270         16,217,994
     Repurchase and cancellation of common stock ..........................                 -           (358,786)        (1,900,000)
     Payment of cash in lieu of fractional shares
         for stock dividend ...............................................           (12,281)                 -             (6,264)
     Exercise of employee stock options ...................................            96,071             52,593            123,355
                                                                                 ------------       ------------       ------------
                Net cash provided by financing activities .................        18,203,188         28,830,579         23,981,302
                                                                                 ------------       ------------       ------------
Increase (decrease) in cash and cash equivalents ..........................        11,286,709         (4,292,653)         2,658,312
Cash and cash equivalents, beginning ......................................        15,330,470         19,623,123         16,964,811
                                                                                 ------------       ------------       ------------
Cash and cash equivalents, ending .........................................      $ 26,617,179       $ 15,330,470       $ 19,623,123
                                                                                 ============       ============       ============
</TABLE>


See accompanying notes to consolidated financial statements.

                                       26
<PAGE>

Notes to Consolidated Financial Statements
Community First Bancorporation

NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

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

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

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

Accounting  Estimates - In preparing  financial  statements in  conformity  with
generally  accepted  accounting  principles,  management  is  required  to  make
estimates  and  assumptions  that affect the  reported  amounts of revenues  and
expenses during the reporting period.  Actual results could differ significantly
from those estimates.  Material  estimates that are particularly  susceptible to
significant change in the near-term relate to the determination of the allowance
for loan losses.  In connection with the determination of the allowance for loan
losses, management has identified specific loans as well as adopting a policy of
providing amounts for loan valuation  purposes which are not identified with any
specific loan but are derived from actual loss  experience  ratios,  loan types,
loan volume,  economic  conditions and industry  standards.  Management believes
that the allowance for loan losses is adequate.  While management uses available
information to recognize losses on loans,  future additions to the allowance may
be necessary based on changes in economic  conditions.  In addition,  regulatory
agencies, as an integral part of their examination process,  periodically review
the banking  subsidiary's  allowance for loan losses.  Such agencies may require
additions to the allowance based on their judgments about information  available
to them at the time of their examination.

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

Other Investments - Other investments consist of restricted securities which are
carried  at  cost.  Management   periodically  evaluates  these  securities  for
impairment,  with any appropriate downward valuation adjustments being made when
necessary.

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
realized on the sale of loans are recognized at the time of the sale and are

                                       27
<PAGE>

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
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.

                                       28
<PAGE>

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  $168,820  as of
December 31, 2001. 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.

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,  2002,  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, 2002, December 21, 2001 and
December 15, 2000.

<TABLE>
<CAPTION>
                                                                                         Years Ended December 31,
                                                                                         ------------------------
                                                                             2002                   2001                2000
                                                                             ----                   ----                ----

<S>                                                                     <C>                    <C>                    <C>
Net income, as reported .......................................         $   2,761,796          $   1,905,319          $   1,679,252
Deduct:  Total stock-based employee
      compensation expense determined under
      fair value based method for all awards,
      net of any related tax effects ..........................              (276,129)              (257,757)              (199,115)
                                                                        -------------          -------------          -------------
Pro forma net income ..........................................         $   2,485,667          $   1,647,562          $   1,480,137
                                                                        =============          =============          =============

Net income per share, basic
      As reported .............................................         $        1.24          $        0.85          $        0.75
      Pro forma ...............................................                  1.12                   0.74                   0.66
Net income per share, assuming dilution
      As reported .............................................         $        1.17          $        0.81          $        0.71
      Pro forma ...............................................                  1.06                   0.70                   0.62
</TABLE>

The fair values of options granted during 2002, 2001 and 2000 were $10.56, $9.13
and $8.83 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 2002, 2001 and 2000:  dividend yield of 0%,
expected life of 10 years,  and  risk-free  interest  rates of 4.06%,  5.39% and
5.85%, respectively.

                                       29
<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.

During  2002,  2001 and 2000,  interest  paid on deposits  and other  borrowings
amounted to $4,955,123,  $8,664,877  and  $6,434,395,  respectively.  Income tax
payments of $1,807,300,  $1,093,000 and $995,600 were made during 2002, 2001 and
2000,  respectively.  In 2002,  2001 and 2000,  noncash  transfers  of  $25,000,
$120,000 and $56,135,  respectively,  were made from loans to other real estate.
Noncash  transfers  from  retained  earnings  to common  stock in the amounts of
$1,739,166, $1,656,963 and $1,904,961 were made as the result of stock dividends
declared  in 2002,  2001 and  2000,  respectively.  In  2001,  a $6,341  noncash
transfer was made from retained  earnings to other  liabilities for cash payable
in lieu of fractional  shares for a stock dividend.  During 2002, 2001 and 2000,
noncash valuation  adjustments  totaling $337,208,  $825,609 and $1,969,019 were
made which each increased the carrying amount of available-for-sale  securities.
In 2002,  accumulated other comprehensive  income increased $216,150 and related
net deferred  income tax assets or  liabilities  changed by  $121,058;  in 2001,
accumulated  other  comprehensive  income  increased  $529,216  and  related net
deferred  income tax assets or  liabilities  changed by  $296,393;  and in 2000,
accumulated  other  comprehensive  income  increased  $1,262,141 and related net
deferred income tax assets or liabilities changed by $706,878.

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, 2002 and 2001, were  approximately  $1,009,000
and $959,000, respectively.

NOTE C- SECURITIES

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

<TABLE>
<CAPTION>
                                                                    December 31,
                                                                    ------------
                                              2002                                                    2001
                                              ----                                                    ----

                                       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
  U.S. Government
<S>                   <C>           <C>           <C>           <C>           <C>           <C>           <C>           <C>
      agencies ....   $42,919,558   $   414,074   $         -   $43,333,632   $62,175,791   $   368,098   $   214,723   $62,329,166
  Mortgage-backed
      securities ..    19,259,662       175,999        12,022    19,423,639     8,712,045       102,871         7,783     8,807,133
  State, county and
      municipal ...       197,877        12,445             -       210,322       197,657         4,825             -       202,482
                      -----------   -----------   -----------   -----------   -----------   -----------   -----------   -----------
        Total .....   $62,377,097   $   602,518   $    12,022   $62,967,593   $71,085,493   $   475,794   $   222,506   $71,338,781
                      ===========   ===========   ===========   ===========   ===========   ===========   ===========   ===========
</TABLE>

                                       30
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                          ------------
                                                                             2002                                   2001
                                                                             ----                                   ----
                                                                 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 ..................         31,691,273         32,040,270         53,565,712         53,626,541
     Due after five through ten years ..................         10,426,162         10,503,684          8,610,079          8,702,625
     Due after ten years ...............................                  -                  -            197,657            202,482
                                                                -----------        -----------        -----------        -----------
                                                                 43,117,435         43,543,954         62,373,448         62,531,648
     Mortgage-backed securities ........................         19,259,662         19,423,639          8,712,045          8,807,133
                                                                -----------        -----------        -----------        -----------
         Total .........................................        $62,377,097        $62,967,593        $71,085,493        $71,338,781
                                                                ===========        ===========        ===========        ===========
</TABLE>

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 sales of available-for-sale securities in 2000. There were
no transfers of available-for-sale  securities to other categories in 2002, 2001
or 2000.

At December 31, 2002,  securities  with an amortized cost of $25,520,356  and an
estimated fair value of $25,813,681  were pledged as collateral to secure public
deposits. The amortized cost and estimated fair value of such pledged securities
were $45,970,487 and $47,806,367, respectively, at the end of 2001.

NOTE D - LOANS

Loans consisted of the following:

                                                            December 31,
                                                            ------------
                                                     2002                 2001
                                                     ----                 ----
Commercial, financial and industrial .....     $  21,670,544      $  23,584,833
Real estate- construction ................           822,149            345,941
Real estate - mortgage ...................        92,903,525         74,237,238
Consumer installment .....................        21,962,286         21,575,914
                                               -------------      -------------
     Total ...............................       137,358,504        119,743,926
Allowance for loan losses ................        (1,950,000)        (1,200,000)
                                               -------------      -------------
     Loans - net .........................     $ 135,408,504      $ 118,543,926
                                               =============      =============
----------------------------
Net deferred  loan fees of $121,624  and $37,576  were  allocated to the various
loan categories as of December 31, 2002 and 2001, 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:

                                       31
<PAGE>

                                                                December 31,
                                                                ------------
                                                              2002        2001
                                                              ----        ----
Investment in impaired loans
     Nonaccrual ..........................................   $865,875   $608,634
     Accruing 90 days and over past due ..................          -      1,204
                                                             --------   --------
         Total ...........................................   $865,875   $609,838
                                                             ========   ========

Average total investment in impaired loans during the year   $453,000   $498,000
Allowance for loan losses on impaired loans at year end ..    518,346    133,165

The average total  investment in impaired loans during 2000 was $249,000.  There
were no  commitments  to lend  additional  funds to  debtors  owing  amounts  on
impaired loans at December 31, 2002.

As of December 31, 2002 and 2001,  there were no significant  concentrations  of
credit risk in any single  borrower or groups of borrowers.  The Company's  loan
portfolio   consists  primarily  of  extensions  of  credit  to  businesses  and
individuals in its Oconee and Anderson County,  South Carolina market areas. The
economy of these areas is diversified and does not depend on any one industry or
group of related  industries.  Management  has  established  loan  policies  and
practices that include set limitations on loan-to-collateral value for different
types of collateral,  requirements  for  appraisals,  obtaining and  maintaining
current credit and financial information on borrowers, and credit approvals.

Transactions in the allowance for loan losses are summarized below:

                                              Years Ended December 31,
                                              ------------------------
                                          2002          2001             2000
                                          ----          ----             ----

Balance at January 1 ..............   $ 1,200,000    $ 1,000,000    $   942,950
Provision charged to expense ......     1,291,384        566,976        305,033
Recoveries ........................         6,113          9,018         10,304
Charge-offs .......................      (547,497)      (375,994)      (258,287)
                                      -----------    -----------    -----------
Balance at December 31 ............   $ 1,950,000    $ 1,200,000    $ 1,000,000
                                      ===========    ===========    ===========

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 $10,212,119 and
$8,691,318 at December 31, 2002 and 2001, respectively.  During 2002, $7,044,017
of new loans were made and repayments totaled $5,523,216.

NOTE E - PREMISES AND EQUIPMENT

Premises and equipment consisted of the following:

                                                             December 31,
                                                             ------------
                                                         2002             2001
                                                         ----             ----

Land .........................................       $1,022,387       $1,022,387
Buildings and land improvements ..............        2,052,216        2,052,216
Furniture and equipment ......................        1,524,198        1,360,436
Construction in process ......................          963,074                -
                                                     ----------       ----------
     Total ...................................        5,561,875        4,435,039
Accumulated depreciation .....................        1,413,795        1,202,903
                                                     ----------       ----------
     Premises and equipment - net ............       $4,148,080       $3,232,136
                                                     ==========       ==========

Depreciation  expense for the years ended  December 31, 2002,  2001 and 2000 was
$210,892, $231,590 and $227,063, respectively.

                                       32
<PAGE>

NOTE F - DEPOSITS

A summary of deposits follows:

                                                            December 31,
                                                            ------------
                                                        2002             2001
                                                        ----             ----
Noninterest bearing demand ...................     $ 24,415,791     $ 25,448,702
Interest bearing transaction accounts ........       26,192,354       25,754,073
Savings ......................................       22,477,204       24,323,003
Time deposits $100,000 and over ..............       59,370,988       50,425,214
Other time deposits ..........................       79,182,290       67,568,237
                                                   ------------     ------------
     Total deposits ..........................     $211,638,627     $193,519,229
                                                   ============     ============

As of  December  31,  2002  and  2001,  local  governmental  deposits  comprised
approximately  23% and 25% of total deposits,  respectively.  As of December 31,
2002,  $114,125 of overdrawn demand deposit  balances have been  reclassified as
loans.

At December 31, 2002, the scheduled maturities of time deposits are as follows:

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

             2003                          $ 99,197,366
             2004                            33,528,382
             2005                             5,249,074
             2006                               438,411
             2007 and thereafter                140,045

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 and
are generally payable only from its undivided profits. At December 31, 2002, the
banking  subsidiary's  undivided  profits  totaled  $10,050,945.   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, 2002,  December 21, 2001 and December
15, 2000 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, 2002 and
2001,  accumulated  other  comprehensive  income  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 $378,508
and $162,358, 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,
                                                                                                 ------------------------
                                                                                       2002              2001               2000
                                                                                       ----              ----               ----
Net income per share, basic
<S>                                                                                 <C>                <C>                <C>
  Numerator - net income ..................................................         $2,761,796         $1,905,319         $1,679,252
                                                                                    ==========         ==========         ==========
  Denominator
    Weighted average common shares issued and outstanding .................          2,229,079          2,228,953          2,241,828
                                                                                    ==========         ==========         ==========
               Net income per share, basic ................................         $     1.24         $      .85         $      .75
                                                                                    ==========         ==========         ==========

Net income per share, assuming dilution
  Numerator - net income ..................................................         $2,761,796         $1,905,319         $1,679,252
                                                                                    ==========         ==========         ==========
  Denominator
    Weighted average common shares issued and outstanding .................          2,229,079          2,228,953          2,241,828
    Effect of dilutive stock options ......................................            122,129            130,909            134,675
                                                                                    ----------         ----------         ----------
               Total shares ...............................................          2,351,208          2,359,862          2,376,503
                                                                                    ==========         ==========         ==========
               Net income per share, assuming dilution ....................         $     1.17         $      .81         $      .71
                                                                                    ==========         ==========         ==========
</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,
2002 and 2001,  that the Company and its  subsidiary  bank  exceeded all capital
adequacy minimum requirements.

As of December 31, 2002, 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
                                                                        ------       -----   ------     -----   ------       -----
December 31, 2002                                                                          (Dollars in thousands)
      The Company
<S>                                                                     <C>          <C>     <C>          <C>    <C>          <C>
           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%   $ 6,745      3.0%   $11,242       5.0%
      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%   $ 6,745      3.0%   $11,242       5.0%

December 31, 2001
      The Company
           Total Capital to risk weighted assets ..................     $18,055      14.2%   $10,169      8.0%   $12,711      10.0%
           Tier 1 Capital to risk weighted assets .................     $16,855      13.3%   $ 5,085      4.0%   $ 7,627       6.0%
           Tier 1 Capital to average assets (leverage) ............     $16,855       8.0%   $ 6,342      3.0%   $10,570       5.0%
      Community First Bank
           Total Capital to risk weighted assets ..................     $17,310      13.6%   $10,169      8.0%   $12,711      10.0%
           Tier 1 Capital to risk weighted assets .................     $16,110      12.7%   $ 5,085      4.0%   $ 7,627       6.0%
           Tier 1 Capital to average assets (leverage) ............     $16,110       7.6%   $ 6,342      3.0%   $10,570       5.0%
</TABLE>

Stock  Options - In 1998,  the  Company's  shareholders  approved the 1998 Stock
Option Plan under which an aggregate of 509,355 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  355,996 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 2002,  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 2002, 2001 and 2000 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,
                                                                                 ------------------------
                                                              2002                         2001                     2000
                                                              ----                         ----                     ----
                                                                    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 ............        325,899       $    9.99     287,788     $    8.68     285,417      $    6.90
Granted .....................................         28,455           14.96      56,338         15.46      48,794          15.42
Exercised ...................................        (19,859)           4.85     (14,767)         3.56     (40,142)          3.14
Forfeited or expired ........................         (6,054)           6.54      (3,460)        17.28      (6,281)         14.60
                                                     -------                     -------                   -------
Outstanding at end of year ..................        328,441           10.87     325,899          9.99     287,788           8.68
                                                     =======                     =======                   =======

Options exercisable at year-end .............        246,746       $    9.34     218,879     $    8.01     184,694      $    6.66
                                                     =======                     =======                   =======
</TABLE>

------------------------
Numbers of shares and exercise  prices have been adjusted in the table above for
5% stock dividends  effective November 28, 2002, December 21, 2001, and December
15, 2000.

                                       35
<PAGE>

The following table summarizes information about the options outstanding:

<TABLE>
<CAPTION>
                                                                            December 31, 2002
                                                                            -----------------
                                                       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>              <C>
           $ 3.93  to  $ 5.47             74,316              2.23                 $ 4.57               74,316           $ 4.57
             7.16  to    7.26             85,898              5.37                   7.23               85,898             7.23
            14.92  to   16.33            168,227              7.96                  15.52               86,532            15.52
                                        --------                                                       -------

                                         328,441              5.98                 $10.87              246,746           $ 9.34
                                        ========                                                      ========
</TABLE>

Of the  865,351  shares of the  Company's  authorized  common  stock  originally
reserved for issuance upon the exercise of options under the two plans,  271,987
had not been issued as of December 31, 2002.

NOTE H - OTHER EXPENSES

Other expenses are summarized below:

<TABLE>
<CAPTION>
                                                                                              Years Ended December 31,
                                                                                              ------------------------
                                                                                  2002                  2001                 2000
                                                                                  ----                  ----                 ----

<S>                                                                             <C>                  <C>                  <C>
Salaries and employee benefits ......................................           $2,055,809           $1,753,074           $1,559,219
Net occupancy expense ...............................................              189,768              192,399              186,203
Furniture and equipment expense .....................................              236,000              246,930              255,787
Other expense
      Stationery, printing and postage ..............................              231,164              206,019              186,292
      Telephone .....................................................               67,720               61,624               51,515
      Advertising and promotion .....................................               67,835               68,514               68,628
      Professional services .........................................              124,755              103,124               75,947
      Insurance .....................................................               24,486               19,626               10,260
      FDIC insurance assessment .....................................               33,750               32,217               28,850
      Directors' fees ...............................................               73,700               68,800               64,700
      Other real estate costs and expenses, net .....................               41,612               39,867               17,513
      Data processing expenses ......................................              125,387               77,963               68,569
      Other .........................................................              424,814              368,535              388,389
                                                                                ----------           ----------           ----------
           Total ....................................................           $3,696,800           $3,238,692           $2,961,872
                                                                                ==========           ==========           ==========
</TABLE>

                                       36
<PAGE>

NOTE I - INCOME TAXES

Income tax expense consisted of:

<TABLE>
<CAPTION>
                                                                                             Years Ended December 31,
                                                                                             ------------------------
                                                                                2002                  2001                 2000
                                                                                ----                  ----                 ----
Current
<S>                                                                         <C>                   <C>                   <C>
      Federal ....................................................          $ 1,640,594           $ 1,025,971           $   864,872
      State ......................................................              114,616                83,423                76,025
                                                                            -----------           -----------           -----------
                    Total current ................................            1,755,210             1,109,394               940,897
                                                                            -----------           -----------           -----------
Deferred
      Federal ....................................................             (227,649)              (55,614)               (2,030)
      State ......................................................                    -                13,434                  (178)
                                                                            -----------           -----------           -----------
                    Total deferred ...............................             (227,649)              (42,180)               (2,208)
                                                                            -----------           -----------           -----------
                    Total income tax expense .....................          $ 1,527,561           $ 1,067,214           $   938,689
                                                                            ===========           ===========           ===========
</TABLE>

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

                                               Years Ended December 31,
                                               ------------------------
                                            2002           2001          2000
                                            ----           ----          ----

Provision for loan losses ............    $(213,868)    $ (14,250)    $   1,280
Accelerated depreciation .............       13,972        (2,656)        2,805
Deferred net loan costs and fees .....      (27,753)      (25,274)       (6,293)
                                          ---------     ---------     ---------
               Total .................    $(227,649)    $ (42,180)    $  (2,208)
                                          =========     =========     =========

Income before income taxes presented in the consolidated statement of income for
the years ended December 31, 2002, 2001 and 2000 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,
                                               ------------------------
                                         2002           2001               2000
                                         ----           ----               ----

Tax expense at statutory rate .....   $ 1,458,382    $ 1,010,661    $   890,100
State income tax, net of federal
     income tax benefit ...........        75,647         55,059         50,059
Tax-exempt interest income ........       (20,277)       (23,087)        (5,111)
Non-deductible interest expense to
     carry tax-exempt instruments .         1,771          3,709            608
Other, net ........................        12,038         20,872          3,033
                                      -----------    -----------    -----------
               Total ..............   $ 1,527,561    $ 1,067,214    $   938,689
                                      ===========    ===========    ===========

                                       37
<PAGE>

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

                                                                December 31,
                                                                ------------
                                                             2002          2001
                                                             ----          ----
Deferred tax assets
     Allowance for loan losses .......................     $503,537     $289,669
     Deferred net loan fees ..........................       40,160       12,408
                                                           --------     --------
               Gross deferred tax assets .............      543,697      302,077
     Valuation allowance .............................            -            -
                                                           --------     --------
               Total .................................      543,697      302,077
                                                           --------     --------

Deferred tax liabilities
     Accelerated depreciation ........................      106,413       92,442
     Unrealized net holding gains on
       available-for-sale securities .................      211,988       90,930
                                                           --------     --------
               Gross deferred tax liabilities ........      318,401      183,372
                                                           --------     --------
Net deferred income tax assets .......................     $225,296     $118,705
                                                           ========     ========

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 2002, 2001 and 2000,  $121,058 was charged,  $296,393 was
charged,  and  $706,878  was  charged  to other  comprehensive  income  or loss,
respectively.  In 2002,  $227,649 was  credited to income tax expense;  in 2001,
$42,180 was credited to income tax expense; and, in 2000, $2,208 was credited to
income tax expense.

Management  believes that the Company will fully realize the deferred tax assets
as of December 31, 2002 and 2001 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 2002, 2001 and 2000 totaled $38,996,
$32,539 and $28,585, 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,
                                                          ------------
                                                    2002                2001
                                                    ----                ----

Loan commitments .......................         $13,943,222         $12,779,532
Standby letters of credit ..............             238,100             322,600

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, 2002,  the banking  subsidiary had an
unused  short-term  line of credit to purchase up to $5,000,000 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 $36,511,000 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 $554,500,  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, 2002 was approximately $47,941,000.

Litigation - The Company and its  subsidiary  were not involved as defendants in
any  litigation at December 31, 2002.  Management is not aware of any pending or
threatened litigation,  or unasserted claims or assessments that are expected to
result in losses,  if any, that would be material to the consolidated  financial
statements.

Williamston  Office - In August of 2000, a temporary  office facility was placed
on the land acquired for the banking subsidiary's  Williamston office and opened
for  commercial  operations.  Occupancy  of the  permanent  office  facility  is
expected to occur during the first quarter of 2003.  Construction costs incurred
to date total $483,395 and management  estimates additional capital expenditures
for construction, furniture and equipment will total approximately $224,000.

Future  Westminster Office - In the fourth quarter of 2002, the Company acquired
a parcel of land in  Westminster,  South  Carolina  as the site for a  potential
future office location. Permission to establish such an office has been obtained
from the South Carolina State Board of Financial Institutions and an application
has been  filed  with the  Federal  Deposit  Insurance  Corporation.  Subject to
obtaining  the  requisite  regulatory  approval and  completion of the permanent
office facility in Williamston,  South Carolina,  management intends to commence
operations at this location during 2003 using the temporary  facility  currently
in use in Williamston. 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,
                                                                                            ------------
                                                                           2002                                    2001
                                                                           ----                                    ----
                                                                 Carrying            Estimated           Carrying          Estimated
                                                                  Amount            Fair Value            Amount          Fair Value
                                                                  ------            ----------            ------          ----------
Financial assets
<S>                                                            <C>                <C>                <C>                <C>
    Cash and due from banks ............................       $  5,113,815       $  5,113,815       $  6,063,051       $  6,063,051
    Interest bearing deposits due from banks ...........             32,364             32,364             27,419             27,419
    Federal funds sold .................................         21,471,000         21,471,000          9,240,000          9,240,000
    Securities .........................................         62,967,593         62,967,593         71,338,781         71,338,781
    Other investments ..................................            554,500            554,500            480,100            480,100
    Loans held for sale ................................            211,127            211,127                  -                  -
    Loans ..............................................        135,408,504        135,948,000        118,543,926        118,912,829
    Accrued interest receivable ........................          1,350,574          1,350,574          1,466,465          1,466,465
Financial liabilities
    Deposits ...........................................        211,638,627        212,298,000        193,519,229        193,593,609
    Accrued interest payable ...........................          1,069,177          1,069,177          1,307,096          1,307,096
</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,
                                                                                       ------------
                                                                            2002                              2001
                                                                            ----                              ----
                                                                Notional/         Estimated        Notional/          Estimated
                                                                 Contract           Fair           Contract             Fair
                                                                 Amount             Value           Amount              Value
Off-balance sheet commitments
<S>                                                           <C>                    <C>          <C>                    <C>
Loan commitments .......................................      $13,943,222            $ -          $12,779,532            $ -
Standby letters of credit ..............................          238,100              -              322,600              -
</TABLE>

NOTE M - ACCOUNTING CHANGES

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

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

Accounting for the Impairment or Disposal of Long-Lived  Assets - FASB Statement
No. 144,  "Accounting  for the  Impairment  or Disposal of  Long-Lived  Assets,"
addresses  financial  accounting and reporting for the impairment or disposal of
long-lived  assets.  This  Statement  supersedes  FASB Statement No. 121 and the
accounting and reporting  provisions of APB No. 30 for the disposal of a segment
of a business,  as previously  defined in that Opinion.  The  provisions of this
Statement  are  effective  for  financial  statements  issued for  fiscal  years
beginning  after  December 15,  2001,  and interim  periods  within those fiscal
years, with early application encouraged. The adoption of this Statement as of

                                       41
<PAGE>

January 1, 2002 did not have any material  adverse or  beneficial  effect on the
consolidated financial position or results of operations of the Company.

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

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 are 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 are effective for exit or disposal activities  initiated after
December 31, 2002, with early application encouraged.  The adoption of Statement
No. 146 is not expected to have any material adverse or beneficial effect on the
consolidated financial position or results of operations of the Company.

Acquisitions  of  Certain  Financial  Institutions  - FASB  Statement  No.  147,
"Acquisitions of Certain Financial  Institutions,"  amends Statements No. 72 and
144 and FASB  Interpretation  No.  9. This  Statement  addresses  the  financial
accounting  and  reporting  for the  acquisition  of all or part of a  financial
institution,  except for a transaction  between two or more mutual  enterprises,
and provides  guidance on accounting  for the impairment or disposal of acquired
long-term  customer-relationship  intangible assets, including those acquired in
transactions  between  two or more  mutual  enterprises.  This  Statement  makes
Statement No. 72 and Interpretation 9 not applicable to acquisitions  within its
scope and requires that  acquisitions of all or part of a financial  institution
that meet the  definition  of a business  combination  be  accounted  for by the
purchase   method  in  accordance   with  FASB  Statement  No.  141,   "Business
Combinations." Acquisitions that do not qualify as business combinations because
the transferred net assets and activities do not constitute a business are to be
accounted  for in  accordance  with  paragraphs  4-8 of Statement  No. 141. This
Statement  also makes the provisions of Statement No. 144,  "Accounting  for the
Impairment   or  Disposal  of  Long-Lived   Assets,"   applicable  to  long-term
customer-relationship  intangible assets, except servicing assets, recognized in
the  acquisition  of a  financial  institution.  In  addition,  certain  amounts
previously  recognized with regard to a business  combination as  unidentifiable
intangible  assets  may  be  required  to  be  reclassified  as  goodwill,  with
restatement of any amortization  expense  subsequent to the date of the adoption
of  FASB  Statement  No.  142,  "Goodwill  and  Other  Intangible  Assets."  The
provisions of this  Statement  were  generally  effective as of October 1, 2002,
with earlier  application  permitted.  The  adoption of Statement  No. 147 as of
January 1, 2002 did not have any material  adverse or  beneficial  effect on the
consolidated financial position or results of operations of the Company.

                                       42
<PAGE>

Accounting  for  Stock-Based  Compensation  - Transition  and  Disclosure - FASB
Statement No. 148,  "Accounting  for  Stock-Based  Compensation - Transition and
Disclosure,"  amends  Statement  No.  123  to  provide  alternative  methods  of
transition  for  entities  that  voluntarily  change to the fair value method of
accounting for stock-based employee compensation.  It also amends the disclosure
provisions of that Statement to require  prominent  disclosure about the effects
on reported net income of an entity's  accounting  policy decisions with respect
to stock-based  compensation.  Also,  this Statement  amends APB Opinion No. 28,
Interim  Financial  Reporting,  to require  disclosure  about  those  effects in
interim  financial  information.  The  provisions of this  Statement  related to
transition  provisions and disclosure  requirements were effective for financial
statements  for fiscal  years ending after  December  15, 2002.  The  provisions
related  to interim  financial  reporting  are  applicable  to  interim  periods
beginning after December 15, 2002. Adoption of this Statement as of December 15,
2002 did not have any material adverse or beneficial  effect on the consolidated
financial  position  or results of  operations  of the Company as of and for the
years ended  December  31, 2002,  2001 and 2000,  nor is it expected to have any
such effects on the Company's future consolidated  interim financial position or
results of operations.  As of December 31, 2002, 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 Statement No. 123, as amended,
there are no  current  intentions  to adopt the fair  value  method  recognition
provisions of that Statement.

Accounting  by  Certain  Financing  Entities   (Including  Entities  with  Trade
Receivables)  That Lend to or Finance the  Activities  of Others - The  American
Institute  of  Certified  Public  Accountants'  ("AICPA")  Accounting  Standards
Executive  Committee  ("AcSEC")  issued  Statement  of  Position  ("SOP")  01-6,
"Accounting by Certain Entities (Including Entities with Trade Receivables) That
Lend to or Finance the  Activities  of Others,"  that  reconciles  and  conforms
existing  differences in the accounting and financial  reporting guidance in the
AICPA Audit and Accounting Guides, "Banks and Savings  Institutions," "Audits of
Credit  Unions"  and  "Audits of Finance  Companies".  It also  carries  forward
accounting  guidance  for  practices  deemed to be unique to  certain  financial
institutions.  Trade  receivables  of all  entities,  including  commercial  and
not-for-profit  entities  that finance their  customers'  purchases of goods and
services using trade  receivables,  are within the scope of the existing finance
companies Guide and are, therefore,  within the scope of the new SOP. The SOP is
effective for fiscal years  beginning  after  December 15, 2001. The adoption of
this SOP as of January 1, 2002 had no 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   are  effective  for  interim  and  annual  financial
statements  ending after  December 15, 2002.  FIN 45's initial  recognition  and
measurement  provisions  are 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 are not expected to
have  any  material  adverse  or  beneficial  effects  on the  Company's  future
consolidated financial position or results of operations.

                                       43
<PAGE>

NOTE N - COMMUNITY FIRST BANCORPORATION (PARENT COMPANY ONLY)

<TABLE>
<CAPTION>
                                                                                                             December 31,
                                                                                                             ------------
                                                                                                     2002                   2001
                                                                                                     ----                   ----
Condensed Balance Sheet
     Assets
<S>                                                                                              <C>                     <C>
         Cash ......................................................................             $   815,259             $   756,109
         Investment in banking subsidiary ..........................................              19,262,897              16,271,948
         Other assets ..............................................................                   6,697                       -
                                                                                                 -----------             -----------
            Total assets ...........................................................             $20,084,853             $17,028,057
                                                                                                 ===========             ===========
     Liabilities
         Other liabilities .........................................................                     $ -             $    11,282
     Shareholders' equity ..........................................................              20,084,853              17,016,775
                                                                                                 -----------             -----------
            Total liabilities and shareholders' equity .............................             $20,084,853             $17,028,057
                                                                                                 ===========             ===========
</TABLE>
<TABLE>
<CAPTION>
                                                                                             Years Ended December 31,
                                                                                             ------------------------
                                                                                   2002                 2001                 2000
                                                                                   ----                 ----                 ----
Condensed Statement of Income
     Income
<S>                                                                            <C>                  <C>                 <C>
         Dividends received from banking subsidiary ..................         $         -          $         -         $ 2,420,000
         Interest income .............................................              15,285               32,540              32,933
         Other income ................................................               8,297                8,520               1,483
                                                                               -----------          -----------         -----------
            Total income .............................................              23,582               41,060           2,454,416
                                                                               -----------          -----------         -----------
     Expenses
         Other expenses ..............................................              43,281               26,988              30,360
                                                                               -----------          -----------         -----------
            Total expenses ...........................................              43,281               26,988              30,360
                                                                               -----------          -----------         -----------
     Income (loss) before income taxes and equity in
         undistributed earnings of banking subsidiary ................             (19,699)              14,072           2,424,056
     Income tax expense (credit) .....................................              (6,697)               4,784               1,379
     Equity in undistributed earnings
         of banking subsidiary .......................................           2,774,798            1,896,031            (743,425)
                                                                               -----------          -----------         -----------
     Net income ......................................................         $ 2,761,796          $ 1,905,319         $ 1,679,252
                                                                               ===========          ===========         ===========
</TABLE>
<TABLE>
<CAPTION>
                                                                                               Years Ended December 31,
                                                                                               ------------------------
                                                                                     2002                 2001               2000
                                                                                     ----                 ----               ----
Condensed Statement of Cash Flows
     Operating activities
<S>                                                                                 <C>               <C>               <C>
         Net income ..........................................................      $ 2,761,796       $ 1,905,319       $ 1,679,252
            Adjustments to reconcile net income to net
                cash provided by operating activities
                    Equity in undistributed earnings
                      of banking subsidiary ..................................       (2,774,798)       (1,896,031)          743,425
                    (Increase) decrease in other assets ......................           (6,697)                -             5,130
                    (Decrease) increase in other liabilities .................           (4,941)            3,405              (931)
                                                                                    -----------       -----------       -----------
                      Net cash (used) provided by
                         operating activities ................................          (24,640)           12,693         2,426,876
                                                                                    -----------       -----------       -----------
     Financing activities
         Repurchase and cancellation of common stock .........................                -          (358,786)       (1,900,000)
         Exercise of employee stock options ..................................           96,071            52,593           123,355
         Payment of cash in lieu of fractional
            shares for stock dividend ........................................          (12,281)                -            (6,264)
                                                                                    -----------       -----------       -----------
                      Net cash provided (used) by financing activities .......           83,790          (306,193)       (1,782,909)
                                                                                    -----------       -----------       -----------
     Increase (decrease) in cash and cash equivalents ........................           59,150          (293,500)          643,967
     Cash and cash equivalents, beginning ....................................          756,109         1,049,609           405,642
                                                                                    -----------       -----------       -----------
     Cash and cash equivalents, ending .......................................      $   815,259       $   756,109       $ 1,049,609
                                                                                    ===========       ===========       ===========
</TABLE>
                                       44