EXHIBIT 13


















                         COMMUNITY FIRST BANCORPORATION

                            Portions of Registrant's
                              2008 Annual Report to
                            Shareholders Incorporated
                       by Reference into 2008 Form 10-K




<PAGE>

Financial Summary
<TABLE>
<CAPTION>
                                                                                  Years Ended December 31,
                                                                                  ------------------------
                                                              2008            2007             2006            2005            2004
                                                              ----            ----             ----            ----            ----
                                                                           (Dollars in thousands, except per share data)
Financial Condition
<S>                                                         <C>             <C>             <C>             <C>             <C>
     Securities ....................................        $138,546        $104,689        $109,082        $109,821        $101,452
     Allowance for loan losses .....................           5,475           2,574           2,242           2,266           2,240
     Net loans (1) .................................         264,938         241,557         200,724         167,052         155,535
     Premises and equipment - net ..................           8,655           8,622           7,937           6,805           4,413
     Total assets ..................................         469,473         402,148         353,909         320,712         305,348
     Noninterest bearing deposits ..................          41,962          42,289          40,576          38,061          34,903
     Interest bearing deposits .....................         374,153         313,578         267,381         241,932         233,245
     Total deposits ................................         416,115         355,867         307,957         279,993         268,148
     Total liabilities .............................         429,545         364,237         320,694         291,858         279,412
     Total shareholders' equity ....................          39,928          37,911          33,215          28,854          25,936

Results of Operations
     Interest income ...............................        $ 24,551        $ 23,578        $ 19,600        $ 15,923        $ 13,948
     Interest expense ..............................          12,834          13,230          10,385           6,621           5,077
                                                            --------        --------        --------        --------        --------
     Net interest income ...........................          11,717          10,348           9,215           9,302           8,871
     Provision for loan losses .....................           4,550             594              65             250             380
                                                            --------        --------        --------        --------        --------
     Net interest income after provision ...........           7,167           9,754           9,150           9,052           8,491
     Other income ..................................           2,495           2,206           2,154           2,139           2,054
     Other expenses ................................           8,067           7,132           6,752           5,420           5,151
                                                            --------        --------        --------        --------        --------
     Income before income taxes ....................           1,595           4,828           4,552           5,771           5,394
     Income tax expense ............................             253           1,497           1,534           2,041           1,957
                                                            --------        --------        --------        --------        --------
     Net income ....................................        $  1,342        $  3,331        $  3,018        $  3,730        $  3,437
                                                            ========        ========        ========        ========        ========

Per Share Data (2)
     Net income, basic .............................        $   0.38        $   0.97        $   0.89        $   1.10        $   1.02
     Net income, assuming dilution .................            0.36            0.91            0.83            1.05            0.97
     Period end book value .........................           11.20           10.86            9.72            8.50            7.69
</TABLE>


(1)  Excludes loans held for sale.
(2)  Per share  amounts have been  retroactively  adjusted to reflect a 5% stock
     dividend  effective  December  20,  2008,  a 10% stock  dividend  effective
     December 20, 2007, and 5% stock dividends  effective  December 18, 2006 and
     November 30, 2005.


                                       1
<PAGE>

Quarterly Financial Information (Unaudited)

<TABLE>
<CAPTION>
                                                                                Years Ended December 31,
                                                                                ------------------------
                                                                       2008                                     2007
                                                                       ----                                     ----
                                                      Fourth     Third      Second    First     Fourth    Third     Second   First
                                                      Quarter    Quarter    Quarter   Quarter   Quarter   Quarter   Quarter  Quarter
                                                      -------    -------    -------   -------   -------   -------   -------  -------
                                                                           (Dollars in thousands, except per share)
<S>                                                   <C>        <C>       <C>       <C>       <C>       <C>       <C>       <C>
Interest and dividend income ......................   $ 5,922    $ 6,236   $ 6,037   $ 6,356   $ 6,116   $ 5,981   $ 5,820   $ 5,661
Interest expense ..................................     3,093      3,006     3,147     3,588     3,453     3,367     3,211     3,199
                                                      -------    -------   -------   -------   -------   -------   -------   -------

Net interest income ...............................     2,829      3,230     2,890     2,768     2,663     2,614     2,609     2,462
Provision for loan losses .........................     3,175        965       280       130       324       150       120         -
                                                      -------    -------   -------   -------   -------   -------   -------   -------

Net interest income after provision ...............      (346)     2,265     2,610     2,638     2,339     2,464     2,489     2,462
Noninterest income ................................       627        634       625       609       635       583       502       486
Noninterest expense ...............................     2,237      1,938     2,005     1,887     2,055     1,901     1,642     1,534
                                                      -------    -------   -------   -------   -------   -------   -------   -------

Income (loss) before income taxes .................    (1,956)       961     1,230     1,360       919     1,146     1,349     1,414
Provision for income taxes ........................      (784)       252       385       400       255       375       410       457
                                                      -------    -------   -------   -------   -------   -------   -------   -------

Net income (loss) .................................   $(1,172)   $   709   $   845   $   960   $   664   $   771   $   939   $   957
                                                      =======    =======   =======   =======   =======   =======   =======   =======

Earnings per share *
Basic .............................................   $ (0.33)   $  0.20   $  0.24   $  0.28   $  0.19   $  0.23   $  0.27   $  0.28
Diluted ...........................................     (0.33)      0.19      0.23      0.26      0.19      0.21      0.25      0.26
</TABLE>

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

* Per share  amounts  have been  retroactively  adjusted  to  reflect a 5% stock
dividend effective December 20, 2008.

         During the fourth  quarter of 2008,  management  observed that economic
activity in the Company's market areas had deteriorated  significantly  from its
earlier  assessments.  Numerous  factors  led to  that  determination  including
increasing  amounts of past due and nonaccrual  loans,  reduced sales of housing
units,   increasing  numbers  of  layoffs  in  the  local  workforce,   and  the
announcement by US government  economists in the fourth quarter of 2008 that the
country's  economy  had  entered  a  recession  in the  first  quarter  of 2008.
Consequently,  management  reevaluated  the adequacy of its  allowance  for loan
losses and determined that a significant increase was warranted.


                        CAUTIONARY NOTICE WITH RESPECT TO
                           FORWARD LOOKING STATEMENTS

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

         All statements that are not historical  facts are statements that could
be  "forward-looking   statements."  You  can  identify  these   forward-looking
statements  through the use of words such as "may," "will,"  "should,"  "could,"
"would," "expect,"  "anticipate,"  "assume,  "indicate,"  "contemplate," "seek,"
"plan,"  "predict,"  "target,"  "potential,"  "believe,"  "intend,"  "estimate,"
"project,"  "continue,"  or  other  similar  words.  Forward-looking  statements
include,  but are not limited to,  statements  regarding  the  Company's  future
business  prospects,   revenues,  working  capital,  liquidity,  capital  needs,
interest costs, income, business operations and proposed services.

         These  forward-looking  statements  are based on current  expectations,
estimates and projections about the banking industry,  management's beliefs, and
assumptions made by management.  Such information includes,  without limitation,
discussions  as to estimates,  expectations,  beliefs,  plans,  strategies,  and
objectives  concerning  future  financial  and  operating   performance.   These


                                       2
<PAGE>

statements  are not guarantees of future  performance  and are subject to risks,
uncertainties and assumptions that are difficult to predict.  Therefore,  actual
results  may  differ  materially  from those  expressed  or  forecasted  in such
forward-looking  statements.  The risks and uncertainties  include,  but are not
limited to:

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

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


Market for Common Stock and Dividends

         Trading in the  Company's  common stock is reported on the OTC Bulletin
Board under the ticker symbol  "CFOK.OB."  The following  table  summarizes  the
range of high and low bid prices for the  Company's  common stock as reported on
the OTC Bulletin Board for each quarterly period of 2008 and 2007.  Prices shown
represent  inter-dealer  prices without retail markup,  markdown or commissions,
and may not represent actual transactions. Furthermore, trading in the Company's
stock is very  limited.  Per share  prices in the table  have been  adjusted  to
reflect a 5% stock dividend effective December 20, 2008.


                                    2008                          2007
                                    ----                          ----
   Quarter Ended             High           Low            High           Low
   -------------             ----           ---            ----           ---
        March 31          $ 15.71        $ 11.52        $ 18.61        $ 16.49
         June 30          $ 15.95        $ 15.00        $ 16.54        $ 14.94
    September 30          $ 15.24        $ 11.52        $ 15.58        $ 12.99
     December 31          $ 12.38        $ 7.19         $ 15.71        $ 11.48


         As of February 28, 2009, there were approximately 768 holders of record
of the Company's  common stock,  excluding  individual  participants in security
position listings.



                                       3
<PAGE>

         The  Company  has not  declared  or paid any cash  dividends  since the
Company's  inception.  The  Board of  Directors  declared  a 5%  stock  dividend
effective  December 20, 2008, a 10% stock dividend  effective  December 20, 2007
and 5% stock dividends effective December 18, 2006 and November 30, 2005.

         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 of Financial Condition
         and Results of Operations

         This discussion is intended to assist in understanding the consolidated
financial condition and results of operations of Community First  Bancorporation
and its wholly-owned  subsidiary,  Community First Bank (the "Bank"),  which are
collectively  referred to as the "Company." This information  should be reviewed
in  conjunction  with the  consolidated  financial  statements and related notes
contained  elsewhere  in this  report.  Per share  net  income  and net  income,
assuming  dilution,  have been adjusted to reflect a 5% stock dividend effective
December  20, 2008, a 10% stock  dividend  effective  December 20, 2007 and a 5%
stock dividend effective December 18, 2006.

         During the  second  half of 2008,  severe  economic  and credit  market
disruptions  caused by increasing  foreclosure rates and valuation  difficulties
related to sub-prime and other problem  mortgages led to  significant  losses in
stock  valuations and sharp and sudden  decreases in the  availability of credit
for  companies  of all sizes.  Interest  rates  associated  with  short-term  US
Treasury securities reached historically low levels as some investors refused to
entrust their funds to entities other than those presumed riskless.  The Federal
Reserve pushed its target rate for federal funds lower, as well.

         In their  efforts to  mitigate  the  factors  constraining  the flow of
credit  and to  restore  confidence  in the  banking  system,  Congress  enacted
legislation  and  governmental  agencies  implemented  regulations  designed  to
alleviate the fears of bank depositors (by temporarily  increasing the limits on
insured interest-bearing  deposits to $250,000 per account owner and temporarily
eliminating  the  cap  on the  amount  of  insured  noninterest  bearing  demand
deposits),  to provide  guarantees for constant dollar money market mutual funds
to investors,  made available  additional  capital for banks and other financial
institutions  in the  form  of  direct  preferred  stock  investments  by the US
Treasury,  and through  various other measures which continue to be added to and
refined. In addition,  the Federal Reserve expanded the types of assets eligible
to be used as  collateral  for  discount  window  borrowings  and the  types  of
entities that could use those services.

         The demise of the large  investment  houses  and the  closing or forced
mergers of a few large and recognizable  banking  companies caused depositors to
become  concerned  about the ongoing  viability of their own banks and made them
more  acutely  aware  of  the  FDIC  insurance   coverage  of  their   deposits.
Accordingly,  in some cases, the Company's  depositors,  and those with funds on
deposit at other financial  institutions,  took action to maximize the amount of
funds  covered  by FDIC  insurance.  This  resulted  in funds  flowing  from one
institution to another as customers  decreased the amount of their funds held by
any one  institution  to the insurance  limit.  Because there are several larger
financial  institutions  in the  Company's  market areas which likely could have
held significant amounts of such deposits, management believes that the Bank was
a net  recipient of such funds;  i.e.,  the amount of such funds  flowing to the
Bank exceeded the amount that the Bank's customers moved to other banks. Because
the  depositors'  primary  concern was about the safety of  principal,  the Bank
could compete for the funds without  having to increase the rates it offered for
deposits.

         To  further  address  depositors'  concerns  about  the  safety of bank
deposits  and debt  instruments,  the  FDIC,  through  its  Temporary  Liquidity
Guarantee  Program,  provided  financial  institutions  with  options  to accept
unlimited  insurance  coverage  for  noninterest  bearing  transaction  accounts
(including  certain  low-interest  NOW and IOLTA  accounts,  but excluding money
market deposit accounts) through December 31, 2009 and,  separately,  the FDIC's
guarantee of a portion of an institution's  unsecured senior debt with a term of
at least 31 days.  The FDIC's  guarantee of such debt lasts until the earlier of
the maturity of the debt or June 30, 2012, provided the institution does not opt
out of the program.  If an institution  participates in these optional programs,
its  deposit   insurance   assessments  will  increase  more  than  if  did  not
participate.  The Company and the Bank have not opted out of these programs, but
have not issued any guaranteed debt.

         The U.S.  Treasury's  Troubled Assets Relief Program (Capital  Purchase
Program) was implemented to provide capital to healthy  financial  institutions.


                                       4
<PAGE>

Under  this  program,  the  Treasury  generally  purchases  preferred  stock and
receives  warrants to purchase  either  preferred or common stock.  In addition,
limits are imposed on the amounts of dividends  that the  recipients  may pay to
common  stockholders  and on  certain  other  activities  as well.  The  Company
initially applied to sell approximately  $9,000,000 of preferred stock to the U.
S. Treasury,  but withdrew its application after receiving  preliminary approval
because  of  (i)  the  cost  of  the  preferred   stock,   (ii)  the  open-ended
administrative  burdens  associated  with the stock,  including  having to allow
Treasury  to amend  unilaterally  the stock  purchase  agreement  to comply with
subsequent  changes  in  applicable  federal  statutes,  (iii) the fact that the
Company and the Bank were already well capitalized  under regulatory  guidelines
and  expected  to  continue  to be so, and (iv)  management's  belief that other
sources of capital were, and would continue to be, available  should  additional
capital be needed.


Earnings Performance

2008 Compared with 2007

         For the year ended December 31, 2008,  the Company  recorded net income
of $1,342,000, a decrease of $1,989,000, or 59.7%, from net income of $3,331,000
for 2007.  Net income per share for 2008 was $.38  compared  with $.97 for 2007.
Per share net income, assuming dilution from outstanding stock options, was $.36
for 2008 and $.91 for 2007.  Return on average assets was .31% for 2008 compared
with .88% for 2007.  Return on average  shareholders'  equity was 3.38% for 2008
compared with 9.46% for 2007.

         The  decrease  in  net  income  for  2008  was  caused  primarily  by a
significantly  higher  provision for loan losses.  The provision for loan losses
for 2008 was  $4,550,000,  an increase of $3,956,000,  or 666.0%,  over the 2007
provision.  Deterioration  in asset  quality,  evidenced  by larger  amounts  of
nonaccrual,  past  due  and  potential  problem  loans  led to  those  increased
provisions.  Due to continuing  weakness and other problems in many areas of the
local and  national  economies,  the  Company  expects  that  higher than normal
amounts of provision  for loan losses may be needed in the future until  general
economic  conditions begin to improve.  While the ultimate timing,  extent,  and
likelihood of such potential  improvements currently are unknown, it is expected
that significant improvement is not likely in the short-term.

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

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

         Land intended to be used for the Bank's  further  expansion in Anderson
County was obtained near  Powdersville,  SC in 2007. The Company has established
neither a budget nor a schedule for the construction of that proposed office.

2007 Compared with 2006

         For the year ended December 31, 2007,  the Company  recorded net income
of $3,331,000,  an increase of $313,000, or 10.4%, over net income of $3,018,000
for 2006.  Net income per share for 2007 was $.97  compared  with $.89 for 2006.
Per share net income, assuming dilution from outstanding stock options, was $.91
for 2007 and $.83 for 2006.  Return on average assets was .88% for 2007 compared
with .89% for 2006.  Return on average  shareholders'  equity was 9.46% for 2007
compared with 9.87% for 2006.

         Net income for 2007 increased due to increased  amounts of net interest
income and other  income.  Partially  offsetting  those  factors were  increased
expenses  resulting from an increase of $529,000 in the amount provided for loan
losses  during  2007,  expenses  related to the opening and  operation  of a new
banking office in the City of Anderson and the effects of agreements between the
Company  and  its  Chief  Executive  Officer  related  to his  compensation  and
retention.

         The provision  for loans losses for 2007 was  $594,000,  an increase of
$529,000  or 813.8%  from the  $65,000  provided  in 2006.  For  2007,  net loan
charge-offs  were  $262,000,  or  $173,000  more  than in  2006.  Year  end 2007


                                       5
<PAGE>

nonperforming  loans  (nonaccrual  loans and accruing loans 90 days or more past
due) increased  $575,000 from the amount at the end of 2006.  Potential  problem
loans decreased $88,000 by the end of 2007 compared with the end of 2006. Of the
2007 year end  potential  problem  loans,  76.1%  were  secured  by real  estate
mortgages compared with 86.4% at the end of 2006.

         The Bank opened a new full-service  banking office on Highway 81 in the
City of Anderson, SC during the fourth quarter of 2007. The cost of construction
was approximately  $800,000.  During 2007, the Company, the Bank and their Chief
Executive  Officer  entered  into  agreements  related to his  compensation  and
retention.  The subsidiary Bank purchased life insurance  contracts to partially
fund its obligations under those agreements.  Approximately  $386,000 of expense
related to those  agreements  is included  in  compensation  expenses  for 2007.
Included in other income for 2007 were  increases in the value of the underlying
insurance contracts of approximately $108,000.

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.

2008 Compared with 2007

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

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

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

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

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

2007 Compared with 2006

         Net interest  income was  $10,348,000 and $9,215,000 for 2007 and 2006,
respectively.   Interest  income  for  2007  was  $23,578,000,  an  increase  of
$3,978,000,  or 20.3%, over 2006. Interest expense for 2007 was $13,230,000,  an
increase of  $2,845,000,  or 27.4%,  over 2006. The Company  experienced  higher
average volumes of interest earning assets and interest  bearing  liabilities in
2007 as well as higher average yields and rates on those instruments.



                                       6
<PAGE>

         The yield on average  earning assets for 2007 was 6.57%, an increase of
56 basis  points  over the 2006  yield,  and the rate paid on  average  interest
bearing  liabilities for 2007 increased by 55 basis points to 4.42% in 2007 from
3.87% in 2006.  The  combination  of these  factors  resulted in a 1 basis point
increase in the interest rate spread. Net yield on earning assets increased by 7
basis points to 2.89%.

         Higher  volumes  of  interest   earning  assets  and  interest  bearing
liabilities  resulted  in  increased  interest  income  and  interest  expenses.
Interest  income  increased  $3,978,000 with  approximately  71% of the increase
attributable  to higher  average  amounts  of  interest  earning  assets and 29%
attributable  to  higher  interest  rates  earned.  Interest  expense  increased
$2,845,000.  Approximately 53% of this increase was attributable to higher rates
paid for interest bearing deposit accounts and borrowings.

         During the first seven months of 2007, the Federal  Reserve  maintained
its interest rate targets at levels set previously. Beginning in September 2007,
however,  a series  of rate cuts  began  which  reduced  the  Federal  Reserve's
Discount Window Primary Credit rate from 6.25% to 4.75% by the end of the year.

         During 2007, the amount of loans outstanding  increased  significantly.
Year-end loans for 2007 were $244,131,000, an increase of $41,165,000, or 20.3%,
over the 2006 year-end amount.  The average amount of loans  outstanding  during
2007  increased by  $40,321,000,  or 21.9%,  over the 2006 average  amount.  The
average  yield  earned on loans in 2007 was 7.84%,  compared  with 7.53%  during
2006.

         Loans secured by real estate  mortgages  increased by  $37,254,000,  or
25.2%,  over the 2006 year-end amount.  Closed-end loans secured by conventional
1-4 family residential  properties  increased by $31,448,000,  or 36.4%,  during
2007. The Company does not originate or hold sub-prime mortgage loans.

         Consumer  installment loans increased by $4,095,000,  or 14.2%,  during
2007  primarily  due to an increase of  $2,543,000,  or 19.8%,  in the amount of
loans secured by automobiles.

         As of  December  31,  2007  and  2006,  approximately  $70,000,000  and
$54,000,000,  respectively,  or 28.7% and 26.6%, respectively,  of the Company's
loan portfolio was composed of variable rate loans directly indexed to movements
in the prime rate.

         Competition for deposits in the Company's  market areas continued to be
strong during 2007. In response,  the Company  offered higher rates and interest
bearing  deposits  increased by $46,197,000,  or 17.3%,  over the prior year-end
amount.  Time deposits issued in amounts of $100,000 or more grew by the largest
amount of any deposit  category,  increasing by $28,270,000,  or 41.4%, over the
2006 year-end  amount.  The average rate paid for these  deposits in 2007 was 67
basis points  higher than the 2006 average  rate.  Growth in other time deposits
also was significant,  with the 2007 year-end amount  increasing by $24,355,000,
or  21.0%,  over the 2006  year-end  amount.  The  average  rate  paid for these
deposits in 2007 was 69 basis points  higher than in 2006.  Savings  deposits at
the end of 2007  declined by  $9,198,000,  or 30.0%,  from the end of 2006.  The
average rate paid for savings  deposits in 2007 was only 5 basis  points  higher
than the rate  paid in 2006.  The  average  rate paid for all  interest  bearing
deposits in 2007 was 4.42%, an increase of 55 basis points over the average rate
paid in 2006.



                                       7
<PAGE>

<TABLE>
<CAPTION>
                                                       Average Balances, Yields and Rates

                                                                                 Years Ended December 31,
                                                                                 ------------------------
                                                          2008                           2007                         2006
                                                          ----                           ----                         ----
                                               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 .  $     995   $    18    1.81%    $    157   $     6   3.82%    $     82   $     4   4.88%
Taxable securities .......................    100,395     4,808    4.79%      89,867     3,890   4.33%      99,922     3,868   3.87%
Tax-exempt securities (2) ................     20,699       833    4.02%      19,630       817   4.16%      16,457       636   3.86%
Federal funds sold .......................     25,579       632    2.47%      23,730     1,209   5.09%      24,814     1,175   4.74%
Federal Home Loan Bank stock .............      1,053        48    4.56%         888        56   6.31%         972        52   5.35%
Loans (2) (3) (4) ........................    259,055    18,212    7.03%     224,353    17,600   7.84%     184,032    13,865   7.53%
                                            ---------   -------             --------   -------            --------   -------
    Total interest earning assets ........    407,776    24,551    6.02%     358,625    23,578   6.57%     326,279    19,600   6.01%
Cash and due from banks ..................      8,913                          8,370                         6,573
Allowance for loan losses ................     (3,038)                        (1,065)                       (2,263)
Unrealized securities gains (losses) .....        (64)                        (2,286)                       (2,341)
Premises and equipment ...................      8,774                          8,189                         7,586
Other assets .............................     12,578                          6,227                         3,914
                                            ---------                       --------                      --------
    Total assets .........................  $ 434,939                       $378,060                      $339,748
                                            =========                       ========                      ========

Liabilities and shareholders' equity
Interest bearing deposits
  Interest bearing transaction accounts ..  $  57,416   $ 1,049    1.83%    $ 57,117   $ 1,783   3.12%    $ 46,942   $ 1,358   2.89%
  Savings ................................     25,181       340    1.35%      25,042       658   2.63%      28,513       736   2.58%
  Time deposits $100M and over ...........    111,780     4,326    3.87%      85,815     4,054   4.72%      72,936     2,953   4.05%
  Other time deposits ....................    148,295     6,839    4.61%     126,588     6,531   5.16%     114,091     5,100   4.47%
                                             --------   -------             --------   -------            --------   -------
    Total interest bearing
           deposits ......................    342,672    12,554    3.66%     294,562    13,026   4.42%     262,482    10,147   3.87%
Short-term borrowings ....................      1,219        11    0.90%           -         -   0.00%          56         2   3.57%
Long-term debt ...........................      6,615       269    4.07%       4,975       204   4.10%       5,955       236   3.96%
                                            ---------   -------             --------   -------            --------   -------
    Total interest bearing liabilities ...    350,506    12,834    3.66%     299,537    13,230   4.42%     268,493    10,385   3.87%
Noninterest bearing demand deposits ......     41,173                         40,099                        38,197
Other liabilities ........................      3,583                          3,225                         2,489
Shareholders' equity .....................     39,677                         35,199                        30,569
                                            ---------                       --------                      -------
    Total liabilities and shareholders'
       equity ............................  $ 434,939                       $378,060                      $339,748
                                            =========                       ========                      ========
Interest rate spread (5) .................                         2.36%                         2.15%                         2.14%
Net interest income and net yield
     on earning assets (6) ...............              $11,717    2.87%               $10,348   2.89%               $ 9,215   2.82%
Interest free funds supporting
     earning assets (7) ..................   $ 57,270                       $ 59,088                      $ 57,786
</TABLE>
__________________________

(1)  Average balances are computed on a daily basis.
(2)  Income and yields on tax-exempt securities and loans have not been adjusted
     on a tax equivalent basis.
(3)  Nonaccrual  loans are included in the average  loan  balances and income on
     such loans generally is recognized on a cash basis.
(4)  Includes immaterial amounts of loan fees.
(5)  Total  interest  earning  assets  yield  less the  total  interest  bearing
     liabilities rate.
(6)  Net interest income divided by total interest earning assets.
(7)  Total interest earning assets less total interest bearing liabilities.


                                       8
<PAGE>

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



         Volume and Rate Variance Analysis

<TABLE>
<CAPTION>
                                                                  2008 Compared with 2007                2007 Compared with 2006
                                                                  -----------------------                -----------------------
                                                            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 ..............     $    16     $    (4)     $    12      $     3      $    (1)     $     2
Taxable securities ....................................         481         437          918         (410)         432           22
Tax-exempt securities .................................          43         (27)          16          129           52          181
Federal funds sold ....................................          88        (665)        (577)         (53)          87           34
Federal Home Loan Bank stock ..........................           9         (17)          (8)          (4)           8            4
Loans .................................................       2,553      (1,941)         612        3,143          592        3,735
                                                            -------     -------      -------      -------      -------      -------
           Total interest income ......................       3,190      (2,217)         973        2,808        1,170        3,978
                                                            -------     -------      -------      -------      -------      -------
Interest bearing deposits
    Interest bearing transaction accounts .............           9        (743)        (734)         311          114          425
    Savings ...........................................           4        (322)        (318)         (91)          13          (78)
    Time deposits $100M and over ......................       1,088        (816)         272          566          535        1,101
    Other time deposits ...............................       1,047        (739)         308          594          837        1,431
Short-term borrowings .................................          11           -           11           (2)           -           (2)
Long-term debt ........................................          67          (2)          65          (40)           8          (32)
                                                            -------     -------      -------      -------      -------      -------
           Total interest expense .....................       2,226      (2,622)        (396)       1,338        1,507        2,845
                                                            -------     -------      -------      -------      -------      -------
           Net interest income ........................     $   964     $   405      $ 1,369      $ 1,470      $  (337)     $ 1,133
                                                            =======     =======      =======      =======      =======      =======
</TABLE>
----------------------------------------------------
(1)  The rate/volume variance
     for each category has been allocated on a consistent basis between rate and
     volume  variances based on the percentage of rate or volume variance to the
     sum of the two absolute  variances except in categories  having balances in
     only one period. In such cases, the entire variance is attributed to volume
     variances.

         Management currently is not able to predict with any significant degree
of certainty either the direction or frequency of changes in interest rates that
may occur  during  2009.  While  many  government  programs  have been  recently
implemented or are currently being  implemented in an effort to provide economic
stimulus,  the actual  results  of those  programs  currently  are  unknown.  In
addition, other programs have been approved, but are not yet implemented and the
results of those programs cannot be predicted with confidence.  Accordingly, the
Company  faces a high  level of  uncertainty  with  respect  to future  costs of
funding and returns on earning assets.


Provision for Loan Losses

         The  provision  for  loan  losses  is  charged  to  earnings  based  on
management's  continuing  review and  evaluation  of the loan  portfolio and its
estimate of the related  allowance for loan losses.  Provisions  for loan losses
were  $4,550,000,  $594,000  and $65,000 for the years ended  December 31, 2008,
2007 and 2006,  respectively.  During 2008, the Company had significantly higher
amounts of nonaccrual, past due and other potential problem loans. Some signs of
deterioration in the local real estate market were observed in the first quarter
of 2008 and the rate of  deterioration  was  gradual  through  the  first  three
quarters of the year.  However,  during the fourth  quarter of 2008, the rate of
deterioration   increased   significantly.   The  Company  is  monitoring  these
developments  closely and is working with its  customers in an effort to collect
the maximum amounts  possible.  For 2008, the Company charged off loans totaling
$1,666,000,  an  increase of  $1,374,000,  or 471%,  more than the 2007  amount.
Recoveries of charge-offs were not significant in either period.  Charge-offs in
2008 were experienced in all sectors of the loan portfolio,  but were especially
noteworthy in the real estate mortgage and commercial and industrial categories.
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.

         The provision for 2007 increased over the 2006 amount due to higher net
charge-offs, a significant increase in loans outstanding at the end of the year,
uncertainty about whether the Company's market areas would be susceptible to the
declines  in real  estate  values  that have been  exhibited  elsewhere,  and an


                                       9
<PAGE>

increase in the amount of nonaccrual  loans.  The allowance for loan losses as a
percentage of total loans at year-end was 1.05% for 2007 compared with 1.10% for
2006. Net charge-offs  for 2007 were $262,000,  an increase of $173,000 over the
2006 amount.

Other Income

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

         Noninterest  income for 2007  increased  by $52,000 over the amount for
2006 due to increases in the cash  surrender  value of life  insurance  policies
owned by the  Bank and  higher  amounts  of  income  from  ATM and  other  debit
card-related  services.  There  were no  realized  gains or  losses  on sales of
investment securities in 2007. Service charges on deposit accounts for 2007 were
$42,000  less than in 2006 due to lower  activity  associated  with an overdraft
protection product.  Mortgage brokerage income declined to less than half of its
2006 level as the Company originated more residential mortgage loans for its own
portfolio in 2007.

Other Expenses

2008 Compared with 2007

         Noninterest  expense  for  2008  totaled  $8,067,000,  an  increase  of
$935,000,  or 13.1%,  over the amount for 2007.  Salaries and employee  benefits
increased  by  $416,000,  or 10.1%,  over the 2007  amount due to an increase of
$219,000 in salaries and wages,  an increase of $139,000 for employee  insurance
benefits expenses, and a $48,000 increase in deferred compensation expenses. Net
occupancy  and  furniture  and  equipment  expenses  increased by $70,000 due to
increased expenses for real estate taxes,  utilities,  and building depreciation
and maintenance.  Transaction  expenses related to debit card services increased
in 2008 to  $373,000,  or $96,000  more than for 2007 due to higher  transaction
volumes.  Other  expenses  for 2008  were  $352,000  more  than the 2007  amount
primarily  due to an  increase  of  $151,000  in the  Bank's  deposit  insurance
assessments and an increase of $107,000 in data processing expenses.

         Certain  noninterest  expenses  are expected to continue to increase in
2009.  Expenses  of the  FDIC's  Temporary  Liquidity  Guarantee  Program  and a
recently  announced  "special  emergency  assessment"  are expected to result in
significant  increases  in the  amounts of the Bank's  assessments  for  deposit
insurance.  In 2007,  the Company  acquired  property for future  expansion near
Powdersville,  SC, but has not yet determined when it will begin construction of
a banking office on that site.  Management closely monitors noninterest expenses
so that  profitability  objectives may be achieved while promoting growth in the
Company's market share in Oconee and Anderson counties.


2007 Compared with 2006

         Noninterest  expense for 2007 increased by $380,000,  or 5.6%, over the
amount for 2006. Salaries and employee benefits increased by $474,000, or 13.0%,
over the amount for 2006  primarily  due to $386,000  in  deferred  compensation
expense recognized under the compensation and retention  agreements entered into
with the Company's Chief Executive  Officer,  which was partially  offset by the
non-recurring  effects of the  adoption of SFAS 123(R) and  acceleration  of the
vesting  schedules of all  affected  options in 2006.  Share-based  compensation
expense  recognized in salaries and employee  benefits in 2006 was approximately
$302,000.  During 2006, the Company  discontinued  granting stock options to its
officers and directors;  therefore, there was no comparable expense in 2007. The
remainder of the increase in salaries  and  benefits is  attributable  to normal
salary increases,  and increases in personnel related to the continued expansion
of the Bank's network of offices.

         Net occupancy and furniture and equipment expense for 2007 increased by
$96,000 over the amounts for 2006 due to higher depreciation,  real estate taxes
and other expenses related to operating the expanded office network.

         Other expenses for 2007 decreased by $190,000 from the 2006 amount. The
non-recurring  effects of  adopting  SFAS  123(R) in 2006  included  $291,000 of
directors'  compensation  that was then  included in other  operating  expenses.
Other expenses decreasing in 2007 including expenses for printing and stationery
(down  $13,000),  advertising  and promotion  (down  $6,000),  other real estate
expenses  (down  $5,000),  and  data  processing  and  software  expenses  (down
$22,000).  Other  notable  increases in other  expenses  were noted in telephone
expense  which  increased  by $9,000 and  professional  services  expense  which
increased by $83,000,  primarily for fees paid to a compensation  consultant for
services related to the CEO's compensation and retention agreements.


                                       10
<PAGE>


Income Taxes

         Income tax expense for 2008 fell by  $1,244,000  from the 2007  amount,
due to the  $3,233,000  decrease in income before  income  taxes.  The effective
income tax rates (income tax expense divided by income before income taxes) were
15.9% for  2008,  31.0% for 2007,  and  33.7% for 2006.  For 2008,  income  from
tax-exempt  investment  securities and nontaxable increases in the value of life
insurance contracts were approximately 76% of income before income taxes.

         For 2007,  federal and state income taxes decreased by $37,000 from the
2006 amount.  Tax-exempt securities income and nontaxable increases in the value
of bank-owned  life  insurance  policies  totaled  $925,000 for 2007.  For 2006,
income from  tax-exempt  securities  income was $636,000 and the Company had not
yet obtained bank-owned life insurance contracts.


Securities

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


                                                            December 31,
                                                            ------------
                                                     2008       2007       2006
                                                     ----       ----       ----
                                                        (Dollars in thousands)
Available-for-sale
   Mortgage-backed securities issued by
       US Government agencies .................   $  1,829   $      -   $      -
   Government-sponsored enterprises (GSEs) ....     63,981     56,545     56,204
   Mortgage-backed securities issued by GSEs ..     41,357     22,193     27,344
   State, county and municipal ................     19,469     20,288     18,939
                                                  --------   --------   --------
       Total available-for-sale ...............    126,636     99,026    102,487
                                                  --------   --------   --------
Held-to-maturity
   Mortgage-backed securities issued by GSEs ..     11,910      5,663      6,595
                                                  --------   --------   --------
       Total securities .......................   $138,546   $104,689   $109,082
                                                  ========   ========   ========


                                       11
<PAGE>

         The following table presents  maturities and weighted average yields of
securities  at  December  31,  2008.  Yields on  tax-exempt  state,  county  and
municipal obligations have not been computed on a taxable-equivalent basis.

      Securities Portfolio Maturities and Yields

<TABLE>
<CAPTION>
                                                                              December 31, 2008
                                                                              -----------------
                                                                  After             After
                                                                 One Year         Five Years
                                                Within           Through           Through              After
                                               One Year         Five Years        Ten Years           Ten Years           Total
                                               --------         ----------        ---------           ---------           -----
                                           Amount   Yield    Amount    Yield    Amount   Yield     Amount   Yield    Amount    Yield
                                           ------   -----    ------    -----    ------   -----     ------   -----    ------    -----
                                                                             (Dollars in thousands)
<S>                                       <C>       <C>     <C>        <C>     <C>        <C>     <C>        <C>    <C>        <C>
Mortgage-backed securities
      issued by US Government
      agencies (1) ..................     $    -    0.00%   $     -    0.00%   $     -    0.00%   $ 1,829    4.20%  $  1,829   4.20%
Government-sponsored
      enterprises (GSEs) ............      2,043    4.55%    10,638    4.70%    40,429    5.07%    10,871    5.48%    63,981   5.06%
Mortgage-backed securities
      issued by GSEs (1) ............      1,260    4.21%     8,176    3.76%     4,922    4.45%    38,909    5.00%    53,267   4.74%
State, county and municipal .........          -    0.00%     1,133    3.65%     3,172    4.19%    15,164    4.09%    19,469   4.08%
                                          ------            -------            -------            -------           --------
          Total .....................     $3,303    4.42%   $19,947    4.26%   $48,523    4.95%   $66,773    4.85%  $138,546   4.79%
                                          ======            =======            =======            =======           ========

</TABLE>
____________________________
(1)  Maturity  categories  based  upon  final  stated  maturity  dates.  Average
     maturity  is  substantially  shorter  because  of  the  monthly  return  of
     principal on certain securities.

         Government-sponsored enterprises ("GSEs") are agencies and corporations
established by the U.S.  Government,  including,  among others, the Federal Home
Loan Banks,  Federal National Mortgage  Association,  Federal Home Loan Mortgage
Corporation  and  Federal  Farm  Credit  Banks.   Securities   issued  by  these
enterprises are not obligations of the U.S. Government and are not backed by the
full faith and credit of the U.S. Government or otherwise guaranteed by the U.S.
Government.  Evidencing the quality of the issuers,  however,  these  securities
generally  are eligible to be used as security  for public  deposits of the U.S.
Treasury,  government  agencies and  corporations and states and other political
subdivisions  and may used as collateral to secure  borrowings  from the Federal
Reserve  Bank's  Discount  Window.  As of December 31, 2008,  securities  with a
carrying value of $64,131,000 were pledged to secure public deposits.

         On an ongoing basis,  management  assigns securities upon purchase into
one of three categories (trading,  available-for-sale or held-to-maturity) based
on intent,  taking into consideration  other factors including  expectations for
changes in market rates of interest, liquidity needs, asset/liability management
strategies, and capital requirements.  The Company has never held securities for
trading purposes.  During 2008, the Company realized net losses of $3,000 on the
sales of  securities.  During 2007 and 2006,  the  Company  realized no gains or
losses on sales of investment securities.  No transfers of available-for-sale or
held-to-maturity  securities to other  categories  were made in any of the years
2006 through 2008.

         The investment portfolio increased by $33,857,000 in 2008 from the 2007
year-end amount.  The Company invested  significant  amounts in  mortgage-backed
securities issued by GSEs and other GSE securities,  increasing these categories
by  $32,847,000  over the prior  year  amounts.  Yields  associated  with  these
securities  at the time of their  purchase  were  generally  superior  to yields
available for other categories of securities with similar expected lives and the
Company's  management  believed that, because these types of securities are held
worldwide,  there was no more than a remote probability that the U.S. Government
would fail to provide a commitment to repay these obligations.

         The investment  portfolio decreased by $4,393,000 in 2007 from the 2006
year-end amount.  During 2007, the Company's  investment in securities issued by
GSEs increased only minimally,  securities issued by state, county and municipal
governments increased by $1,349,000, or 7.1%, and investments in mortgage-backed
securities issued by GSEs decreased by $6,083,000,  or 17.9%.  Prior to the 2008
purchases, the Company last purchased mortgage-backed  securities issued by GSEs
in July 2005.  Income  from  securities  issued by state,  county and  municipal
governments is generally exempt from federal income taxes.  Through the interest
rate  cycle,  the  advantages  of holding  different  types of  securities,  and
management's   preferences   among   categories  of  earning   assets,   change.
Consequently,  the  composition  of  the  investment  portfolio  may  change  as
management  continually seeks to maximize the yield realized from earning assets
within the constraints of other risk mitigation policies.

                                       12
<PAGE>

         The overall yield on investment securities held as of December 31, 2008
was 4.79%,  compared with 4.44% as of December 31, 2007 and 4.10% as of December
31, 2006.

         All  mortgage-backed  securities  held by the  Company in 2008 and 2007
were issued by the Federal Home Loan Mortgage Corporation,  the Federal National
Mortgage Association or the Government National Mortgage Association.


Loan Portfolio

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

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


                           Loan Portfolio Composition

<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                            ------------
                                                              2008             2007            2006           2005             2004
                                                              ----             ----            ----           ----             ----
                                                                                      (Dollars in thousands)
Commercial, financial and industrial
<S>                                                         <C>             <C>             <C>             <C>             <C>
      Commercial and industrial ....................        $ 21,372        $ 22,042        $ 22,268        $ 20,873        $ 21,907
      Purchasing or carrying securities ............           1,815           1,823           2,000           2,136           2,372
Real estate - construction .........................          30,451           2,201           1,982             674             338
Real estate - mortgage
      1-4 family residential .......................         109,153         131,944          98,708          72,774          65,360
      Multifamily (5 or more) residential ..........              66           2,421           1,900           1,229           1,036
      Nonfarm, nonresidential ......................          73,450          50,833          47,337          46,544          43,589
Consumer installment
      Credit card and checking credit ..............           1,517           1,407           1,334           1,148           1,036
      Other ........................................          32,589          31,460          27,437          23,940          22,137
                                                            --------        --------        --------        --------        --------
                     Total loans ...................        $270,413        $244,131        $202,966        $169,318        $157,775
                                                            ========        ========        ========        ========        ========
</TABLE>


                      Percentage Loan Portfolio Composition

<TABLE>
<CAPTION>
                                                                                               December 31,
                                                                                               ------------
                                                                        2008          2007         2006          2005          2004
                                                                        ----          ----         ----          ----          ----
 Commercial, financial and industrial
<S>                                                                   <C>           <C>           <C>           <C>           <C>
      Commercial and industrial ..............................          7.9%          9.0%         11.0%         12.3%         13.9%
      Purchasing or carrying securities ......................          0.7%          0.8%          1.0%          1.3%          1.5%
Real estate - construction ...................................         11.2%          0.9%          1.0%          0.4%          0.2%
Real estate - mortgage
      1-4 family residential .................................         40.4%         54.0%         48.6%         43.0%         41.4%
      Multifamily (5 or more) residential ....................          0.0%          1.0%          0.9%          0.7%          0.7%
      Nonfarm, nonresidential ................................         27.2%         20.8%         23.3%         27.5%         27.6%
Consumer installment
      Credit card and checking credit ........................          0.6%          0.6%          0.7%          0.7%          0.7%
      Other ..................................................         12.0%         12.9%         13.5%         14.1%         14.0%
                                                                      -----         -----         -----         -----         -----
                     Total loans .............................        100.0%        100.0%        100.0%        100.0%        100.0%
                                                                      =====         =====         =====         =====         =====
</TABLE>

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


                                       13
<PAGE>

Such policies and practices include limitations on loan-to-collateral values for
various  types  of  collateral,  requirements  for  appraisals  of  real  estate
collateral,  problem loan management  practices and collection  procedures,  and
nonaccrual and charge-off guidelines.

         Total loans grew $26,282,000, or 10.8%, during 2008 and $41,165,000, or
20.3%,  in 2007.  The ratio of total loans to total  deposits at the end of 2008
was 65.0%  compared  with 68.6% at the end of 2007.  During  2008,  the  Company
changed  the way it  categorizes  loans,  including  the 1-4 family  residential
sub-category  of  the  Real   estate-mortgage   grouping,   the  Real  estate  -
construction  category,   and  the  non-farm,   non-residential  loan  category.
Accordingly,  the  categories  shown  for  2008  are not in all  cases  directly
comparable to amounts reported in previous years.

         Commercial  and  industrial   loans   primarily   represent   loans  to
businesses,  and may be made on either a secured  or an  unsecured  basis.  When
taken,   collateral  usually  consists  of  liens  on  receivables,   equipment,
inventories,  furniture and  fixtures.  Unsecured  business  loans are generally
short-term with emphasis on repayment  strengths and low  debt-to-worth  ratios.
During 2008,  commercial and industrial  loans  decreased by $670,000,  or 3.0%,
compared  with a decrease of $226,000,  or 1.0%,  during 2007.  Loans mainly for
business  and  investment  purposes  that are secured by real  estate  (nonfarm,
nonresidential)  increased by  $22,617,000,  or 44.5%,  in 2008 compared with an
increase  of  $3,496,000,   or  7.4%,  in  2007.   Commercial  lending  involves
significant risk because  repayment  usually depends on the cash flows generated
by a  borrower's  business,  and the debt  service  capacity  of a business  can
deteriorate because of downturns in national and local economic  conditions.  To
control  risk,  more in-depth  initial and  continuing  financial  analysis of a
borrower's cash flows and other financial information is generally required.

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

         Loans secured by real estate mortgages,  excluding  construction loans,
comprised  approximately  68% and 76% of the Company's loan portfolio at the end
of 2008 and 2007, respectively.  Real estate mortgage loans of all types totaled
$182,669,000  at the end of 2008  and  $185,198,000  at the end of  2007.  These
amounts  are  not  comparable  due to the  2008  changes  in the way  loans  are
categorized, as discussed above. Residential real estate loans consist mainly of
first and second  mortgages on single family homes,  with some  multifamily home
loans.  Loan-to-value ratios for these instruments are generally limited to 80%.
Nonfarm, nonresidential real estate loans are secured by business and commercial
properties with loan-to-value  ratios generally limited to 70%. The repayment of
both  residential  and business real estate loans is dependent  primarily on the
income  and cash  flows of the  borrowers,  with the real  estate  serving  as a
secondary or  liquidation  source of  repayment.  The Company does not originate
high-risk  mortgage  loans  such as  so-called  option  ARMs,  loans  with  high
loan-to-value ratios (without requiring the purchaser to obtain private mortgage
insurance),  loans with fixed  monthly  payment  amounts  that are less than the
interest  accrued on the loan, or loans with low initial  monthly  payments that
increase to much higher levels at some future time.

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

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


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,  2008,  as well as the type of
interest requirement on such loans.


                                       14
<PAGE>

<TABLE>
<CAPTION>
                                                                                           December 31, 2008
                                                                                           -----------------
                                                                     Due in            Due after
                                                                    One Year          One through        Due after
                                                                    or Less            Five Years       Five Years            Total
                                                                    -------            ----------       ----------            -----
                                                                                         (Dollars in thousands)

<S>                                                                <C>                <C>                <C>                <C>
Commercial, financial and industrial ...................           $  9,689           $ 12,847           $    651           $ 23,187
Real estate - construction .............................             24,337              5,291                823             30,451
Real estate - mortgage .................................             37,226             96,007             49,436            182,669
Consumer installment ...................................              9,861             21,574              2,671             34,106
                                                                   --------           --------           --------           --------
                    Total loans ........................           $ 81,113           $135,719           $ 53,581           $270,413
                                                                   ========           ========           ========           ========

Maturity greater than one year:
Predetermined rate .....................................                                                                    $136,641
                                                                                                                            ========
Variable rate ..........................................                                                                    $ 52,659
                                                                                                                            ========
</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.  The  Company had no loans
accounted for as troubled debt restructurings in the past five years.  Following
is a summary of the Company's impaired loans:

      Nonaccrual and Past Due Loans

<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                                           ------------
                                                              2008            2007            2006            2005            2004
                                                              ----            ----            ----            ----            ----
                                                                                    (Dollars in thousands)
 <S>                                                        <C>             <C>             <C>             <C>             <C>
Nonaccrual loans ...................................        $11,799         $   625         $    50         $   900         $ 1,465
Accruing loans 90 days or more past due ............              -               -               -               5               9
                                                            -------         -------         -------         -------         -------
               Total ...............................        $11,799         $   625         $    50         $   905         $ 1,474
                                                            =======         =======         =======         =======         =======
Percent of total loans .............................            4.4%            0.3%            0.0%            0.5%            0.9%
</TABLE>

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

         As of December 31, 2008,  nonaccrual  loans  totaling  $11,376,000,  or
96.41% of such loans, were secured by real estate.

         As of December 31, 2008, there were no irrevocable  commitments to lend
additional funds to debtors owing amounts on nonaccrual loans.


                                       15
<PAGE>

Potential Problem Loans

         Management  has  identified  and maintains a list of potential  problem
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, 2008  determined by  management  to be potential  problem loans was
$6,910,000,  an  increase  of  $3,822,000  from the  amount of such  loans as of
December  31,  2007.  This amount does not  represent  management's  estimate of
potential  losses since a large  proportion  of such loans is secured by various
types of collateral. The following table presents information about the types of
collateral securing potential problem loans.




                                                           December 31, 2008
                                                           -----------------
                                                         Amount            %
                                                         ------          -------
                                                        (Dollars in thousands)

Real estate mortgage .......................            $5,002            72.4%
Vehicles ...................................               353             5.1%
Mobile homes ...............................                 6             0.1%
Other ......................................             1,034            15.0%
Unsecured ..................................               515             7.4%
                                                        ------           -----
              Total ........................            $6,910           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.  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.



                                       16
<PAGE>

                         Summary of Loan Loss Experience

<TABLE>
<CAPTION>
                                                                                         Years Ended December 31,
                                                                                         ------------------------
                                                                         2008         2007         2006         2005         2004
                                                                         ----         ----         ----         ----         ----
                                                                                          (Dollars in thousands)
<S>                                                                    <C>          <C>          <C>          <C>          <C>
Total loans outstanding at end of period ..........................    $270,413     $244,131     $202,966     $169,318     $157,775
Average amount of loans outstanding ...............................     259,055      224,353      184,032      164,243      152,546

Balance of allowance for loan losses - beginning ..................    $  2,574     $  2,242     $  2,266     $  2,240     $  2,197
                                                                       --------     --------     --------     --------     --------
Loans charged off
     Commercial and industrial ....................................         652           88           13            -           31
     Real estate - mortgage .......................................         667           13            6           61          104
     Consumer installment .........................................         347          191          115          242          226
                                                                       --------     --------     --------     --------     --------
           Total charge-offs ......................................       1,666          292          134          303          361
                                                                       --------     --------     --------     --------     --------
Recoveries of loans previously charged off
     Commercial and industrial ....................................           5            -            -            -            6
     Real estate - mortgage .......................................           -            -           31           10            -
     Consumer installment .........................................          12           30           14           69           18
                                                                       --------     --------     --------     --------     --------
           Total recoveries .......................................          17           30           45           79           24
                                                                       --------     --------     --------     --------     --------
Net charge-offs ...................................................       1,649          262           89          224          337
                                                                       --------     --------     --------     --------     --------
Additions to allowance charged to expense .........................       4,550          594           65          250          380
                                                                       --------     --------     --------     --------     --------
Balance of allowance for loan losses - ending .....................    $  5,475     $  2,574     $  2,242     $  2,266     $  2,240
                                                                       ========     ========     ========     ========     ========

Ratios
     Net charge-offs to average loans .............................        0.64%        0.12%        0.05%        0.14%        0.22%
     Net charge-offs to loans at end of period ....................        0.61%        0.11%        0.04%        0.13%        0.21%
     Allowance for loan losses to average loans ...................        2.11%        1.15%        1.22%        1.38%        1.47%
     Allowance for loan losses to loans at end of period ..........        2.02%        1.05%        1.10%        1.34%        1.42%
     Net charge-offs to allowance for loan losses .................       30.12%       10.18%        3.97%        9.89%       15.04%
     Net charge-offs to provision for loan losses .................       36.24%       44.11%      136.92%       89.60%       88.68%
</TABLE>

Deposits

         The average amounts and percentage  composition of deposits held by the
Company for the years ended  December 31, 2008,  2007 and 2006,  are  summarized
below:

                                Average Deposits

<TABLE>
<CAPTION>
                                                                                    Years Ended December 31,
                                                                                    ------------------------
                                                                 2008                        2007                      2006
                                                                 ----                        ----                      ----
                                                         Amount         %            Amount         %           Amount          %
                                                         ------       -----          ------       -----         ------        ------
                                                                                 (Dollars in thousands)
<S>                                                    <C>           <C>           <C>           <C>          <C>             <C>
Noninterest bearing demand .....................       $ 41,173       10.7%        $ 40,099       12.0%        $ 38,197        12.7%
Interest bearing transaction accounts ..........         57,416       15.0%          57,117       17.1%          46,942        15.6%
Savings ........................................         25,181        6.6%          25,042        7.5%          28,513         9.5%
Time deposits $100M and over ...................        111,780       29.1%          85,815       25.6%          72,936        24.3%
Other time deposits ............................        148,295       38.6%         126,588       37.8%         114,091        37.9%
                                                       --------      -----         --------      -----         --------       -----
             Total deposits ....................       $383,845      100.0%        $334,661      100.0%        $300,679       100.0%
                                                       ========      =====         ========      =====         ========       =====
</TABLE>

         As of December 31, 2008,  there were  $126,492,000  in time deposits of
$100,000  or  more.  Approximately   $35,383,000  mature  within  three  months,


                                       17
<PAGE>

$19,875,000  mature over three through six months,  $61,413,000  mature over six
through twelve months and $9,821,000  mature after one year. This level of large
time deposits,  as well as the growth in other  deposits,  is attributed both to
growth  planned by management and the recent efforts of some customers to spread
their deposits  among several  financial  institutions  in order to maximize the
amount of deposit  insurance  applicable  to their  funds.  The  FDIC's  deposit
insurance  coverage  limit was  increased to $250,000 per account  owner for all
deposit  accounts at all insured  financial  institutions  through  December 31,
2009.  For  financial  institutions  that  elect to  participate  in the  FDIC's
Temporary  Liquidity  Guarantee  Program for  deposits,  an unlimited  amount of
deposit insurance will be in place for noninterest-bearing  transaction accounts
through  December 31, 2009. The Company and the Bank are  participating  in this
program. As of December 31, 2008, approximately  $33,380,000 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,
                                                 ------------------------
                                               2008          2007          2006
                                               ----          ----          ----

Return on assets .....................         0.31%         0.88%         0.89%
Return on equity .....................         3.38%         9.46%         9.87%
Dividend payout ratio ................         0.00%         0.00%         0.00%
Equity to assets ratio ...............         9.12%         9.31%         9.00%


Liquidity

         Liquidity is the ability to meet current and future obligations through
liquidation  or maturity of existing  assets or the  acquisition  of  additional
liabilities.  Adequate  liquidity  is  necessary  to meet  the  requirements  of
customers for loans and deposit  withdrawals  in the most timely and  economical
manner.  Some liquidity is ensured by maintaining  assets which are  convertible
immediately  into cash at minimal cost (amounts due from banks and federal funds
sold).  However,  the most  manageable  sources of  liquidity  are  composed  of
liabilities, with the primary focus of liquidity management being on the ability
to obtain  deposits  within the  Company's  market areas.  Core deposits  (total
deposits less time  deposits of $100,000 and over)  provide a relatively  stable
funding base,  and the average of these  deposits  represented  62.6% of average
total assets during 2008  compared  with 65.8% during 2007.  Deposits of several
local  governmental  entities  comprised  approximately  14%  and  12% of  total
deposits at the end of 2008 and 2007,  respectively.  Because of the potentially
volatile  nature of this funding  source,  the Bank maintains  membership in the
Federal  Home Loan Bank of Atlanta  (the  "FHLB") in order to gain access to its
credit programs.  As of December 31, 2008, the Bank had borrowed $9,500,000 from
the FHLB and was  eligible  to  borrow  up to an  additional  $22,515,000.  Such
borrowings may be secured by a lien on its investment in FHLB stock,  the Bank's
unencumbered  holdings  of  securities  issued by the FHLB,  and  certain  first
mortgage  residential  loans  held.  The  amount  of  eligible  mortgage-related
collateral instruments remaining available as of December 31, 2008 to secure any
additional FHLB borrowings totaled approximately $12,856,000.  The amount of the
Bank's unencumbered  investment  securities issued by the FHLB was approximately
$12,296,000  as of December 31, 2008. In addition,  the banking  subsidiary  has
available  unused  short-term  lines of credit to purchase up to  $6,900,000  of
federal funds from unrelated  correspondent  institutions.  The lines  generally
limit the period of time that any related  borrowings may be outstanding and are
cancelable at any time in the sole discretion of the lender.

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

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



                                       18
<PAGE>

         The  Company's  ability  to meet  its  cash  obligations  or to pay any
possible  future cash dividends to  shareholders  is dependent  primarily on the
successful  operation  of the  subsidiary  bank  and  its  ability  to pay  cash
dividends  to the  Company.  Any of the Bank's cash  dividends  in excess of the
amount of the subsidiary's current year-to-date earnings ($1,390,000 at December
31, 2008) are subject to the prior approval of the South  Carolina  Commissioner
of Banking.  In  addition,  dividends  paid by the Bank to the Company  would be
prohibited if the effect  thereof  would cause the Bank's  capital to be reduced
below applicable  minimum regulatory  requirements.  In 2008, 2007 and 2006, the
Company  received no cash dividends from its banking  subsidiary.  Under Federal
Reserve Board regulations, the amounts of loans or advances from the Bank to the
Company are also restricted.

         Management  believes  that, by continuing to participate in both of the
FDIC's Temporary Liquidity Guarantee Programs,  the Company and the Bank will be
able to  obtain  sufficient  funds to meet  their  operating  needs in the local
marketplace.


Capital Resources

         Shareholders' equity increased by $2,017,000 and $4,696,000 during 2008
and 2007,  respectively.  During 2008, net income increased shareholders' equity
by $1,342,000  and the exercise of stock options and related income tax benefits
resulted in increases totaling  $431,000.  Other  comprehensive  income or loss,
consisting   of  the  change  in   unrealized   holding   gains  and  losses  on
available-for-sale  securities  adjusted for the effects of realized losses, net
of  deferred  tax   effects,   increased   shareholders'   equity  by  $247,000.
Approximately $3,000 was payable in lieu of the issuance of fractional shares in
conjunction with the 5% stock dividend declared in 2008. During 2007, net income
increased  shareholders'  equity by $3,331,000 and the exercise of stock options
and related income tax benefits  provided  increases  totaling  $566,000.  Other
comprehensive  income or loss,  which  consisted  of the  change  in  unrealized
holding gains and losses on available-for-sale  securities,  net of deferred tax
effects,  increased  shareholders' equity by $804,000.  Approximately $5,000 was
paid in lieu of the issuance of fractional  shares in  conjunction  with the 10%
stock dividend declared in 2007.

         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, 2008 and 2007,  that the Company and the Bank exceeded all capital  adequacy
minimum requirements to which they were subject.

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


                                       19
<PAGE>

<TABLE>
<CAPTION>
                                                                                          Minimum for              Minimum to be
                                                                     Actual             Capital Adequacy         Well Capitalized
                                                                     ------             ----------------         ----------------
                                                             Amount        Ratio      Amount        Ratio      Amount        Ratio
                                                             ------        -----      ------        -----      ------        -----
<S>                                                         <C>            <C>       <C>            <C>      <C>             <C>
December 31, 2008                                                                   (Dollars in thousands)
     The Company
         Total Capital to risk weighted assets ..........   $ 43,470       14.1%     $ 24,633       8.0%           NA           NA
         Tier 1 Capital to risk weighted assets .........   $ 39,601       12.9%     $ 12,317       4.0%           NA           NA
         Tier 1 Capital to average assets (leverage) ....   $ 39,601        8.8%     $ 18,010       4.0%           NA           NA
     Community First Bank
         Total Capital to risk weighted assets ..........   $ 41,513       13.5%     $ 24,622       8.0%     $ 30,777        10.0%
         Tier 1 Capital to risk weighted assets .........   $ 37,646       12.2%     $ 12,311       4.0%     $ 18,466         6.0%
         Tier 1 Capital to average assets (leverage) ....   $ 37,646        8.4%     $ 18,004       4.0%     $ 22,505         5.0%

December 31, 2007
     The Company
         Total Capital to risk weighted assets ..........   $ 40,405       17.3%     $ 18,642       8.0%           NA           NA
         Tier 1 Capital to risk weighted assets .........   $ 37,831       16.2%     $  9,321       4.0%           NA           NA
         Tier 1 Capital to average assets (leverage) ....   $ 37,831        9.7%     $ 15,594       4.0%           NA           NA
     Community First Bank
         Total Capital to risk weighted assets ..........   $ 38,763       17.3%     $ 18,642       8.0%     $ 23,302        10.0%
         Tier 1 Capital to risk weighted assets .........   $ 36,189       16.2%     $  9,321       4.0%     $ 13,981         6.0%
         Tier 1 Capital to average assets (leverage) ....   $ 36,189        9.7%     $ 15,594       4.0%     $ 19,492         5.0%
</TABLE>


Inflation

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

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


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

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

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

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


                                       20
<PAGE>

                                                               December 31,
                                                               ------------
                                                           2008            2007
                                                           ----            ----
                                                          (Dollars in thousands)

Loan commitments .............................          $30,486          $35,954
Standby letters of credit ....................              915            1,039


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

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

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

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


Short-Term Borrowings

         The Company did not have any material short-term borrowings outstanding
at any time during 2008.


The Application of Critical Accounting Policies

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

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

Provision and Allowance for Loan Losses

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

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

                                       21
<PAGE>

         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 a particular 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  validated  by the  Company's  independent
external credit review firm.

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

         During the fourth  quarter of 2008,  approximately  $8,494,000 of loans
were transferred to nonaccrual  status. Of those loans,  $5,949,000  represented
loans secured by owner-occupied  residential properties,  $1,755,000 represented
loans for  construction and land  development,  and $643,000  represented  loans
secured by commercial real estate. Of the remaining amount,  $80,000 represented
a few  small-balance  consumer  loans,  and the  remaining  $67,000 was composed
primarily  of loans for  commercial  vehicles.  As of the end of 2008,  impaired
loans  increased  to  $11,799,000  compared  with  $625,000  one  year  earlier,
representing an increase of $11,474,000. Potential problem loans were $6,910,000
as of the end of  2008  compared  with  $3,088,000  as of the  end of  2007  and
$3,176,000  at the end of 2006.  The values of real  estate and  vehicles  which
serve as collateral  for many of the loans  recognized as impaired and potential
problem loans in prior years helped keep charge-offs  relatively low considering
the total credit exposures present in those loans. However, circumstances at the
end of 2008 indicate that, in most cases, the values of such items may have been
significantly reduced.

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

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

         Higher  levels of loans  collateralized  by  mortgages  on real estate,
lower amounts of  nonperforming  loans,  and a significantly  lower incidence in
loan  charge-offs in 2006  contributed to the decrease in the 2006 provision for

                                       22
<PAGE>

loan losses as compared with 2005. The Company's loan portfolio  increasingly is
collateralized  by residential  and  commercial  real estate.  Such  collateral,
combined with other conservative  underwriting  standards,  is believed to offer
the Company substantial protection from ultimately incurring losses in the event
that  foreclosure and  liquidation of the collateral is necessary,  though there
can be no assurances to that effect.

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

         In 2004, the $380,000 provision for loan losses resulted primarily from
higher  levels of  charge-offs,  increased  levels of  nonaccrual  and potential
problem loans,  changes in the economic  characteristics of the Company's market
area,  uncertainty  about  the  effect  of  increasing  interest  rates  on loan
customers' abilities to cope with potentially higher repayment requirements, and
growth of the loan portfolio.

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


Impact of Recent Accounting Changes

In December  2007, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of  Financial  Accounting  Standard  ("SFAS")  No.  141(R),  "Business
Combinations"  ("SFAS 141(R)") which replaces SFAS 141. SFAS 141(R)  establishes
principles  and  requirements  for how an  acquirer  in a  business  combination
recognizes  and measures in its financial  statements  the  identifiable  assets
acquired, the liabilities assumed, and any controlling interest;  recognizes and
measures  goodwill  acquired  in the  business  combination  or any gain  from a
bargain purchase; and determines what information to disclose to enable users of
the  financial  statements  to evaluate  the nature and effects of the  business
combination.  SFAS 141(R) is effective for  acquisitions  by the Company  taking
place on or after January, 1, 2009. Early adoption is prohibited. Accordingly, a
calendar   year-end   entity  is  required  to  record  and  disclose   business
combinations  following existing  accounting guidance until January 1, 2009. The
Company  will assess the effect of SFAS 141(R) if and when a future  acquisition
occurs.

In December  2007,  the FASB issued SFAS No. 160,  "Noncontrolling  Interests in
Consolidated  Financial  Statements - an amendment of ARB No. 51" ("SFAS  160").
SFAS  160   establishes   new  accounting   and  reporting   standards  for  the
noncontrolling  interest  in a  subsidiary  and  for  the  deconsolidation  of a
subsidiary.  Before this  statement,  limited  guidance  existed  for  reporting
noncontrolling interests (formerly known as "minority interests").  As a result,
diversity in practice exists. In some cases,  minority interests are reported as
a liability and in other cases it is reported in the mezzanine  section  between
liabilities  and equity.  Specifically,  SFAS 160 requires the  recognition of a
noncontrolling  interest as equity in the consolidated  financial statements and
separate from the parent company's equity. The amount of net income attributable
to the  noncontrolling  interest will be included in consolidated  net income in
the consolidated income statement. SFAS 160 clarifies that changes in a parent's
ownership  interest in a subsidiary  that do not result in  deconsolidation  are
equity transactions if the parent retains its controlling financial interest. In
addition,  this statement requires that the parent recognize gain or loss in net
income when a subsidiary is  deconsolidated.  Such gain or loss will be measured
using  the  fair  value  of  the   noncontrolling   equity   investment  on  the
deconsolidation  date. SFAS 160 also includes expanded  disclosure  requirements
regarding the interest of the parent and its noncontrolling  interests. SFAS 160
was  effective  for the  Company  on  January  1,  2009 and had no effect on the
Company's financial position, results of operations or cash flows.

                                       23
<PAGE>

In March  2008,  the FASB issued SFAS No.  161,  "Disclosures  about  Derivative
Instruments and Hedging  Activities"  ("SFAS 161").  SFAS 161 requires  enhanced
disclosure  about  an  entity's  derivative  and  hedging  activities,   thereby
improving  the  transparency  of  financial  reporting.  It  requires  that  the
objectives for using derivative  instruments be disclosed in terms of underlying
risk and accounting  designation thereby conveying the purpose of derivative use
in terms of the risks that the entity is intending to manage. SFAS was effective
for the Company on January 1, 2009 and will result in  additional  disclosure if
the Company enters into any material derivative or hedging activities.

In February 2008, the FASB issued FASB Staff Position No. 142-3,  "Determination
of the Useful Life of Intangible  Assets"  ("FSP  142-3").  This Staff  Position
amends the factors that should be considered in developing  renewal or extension
assumptions  used to determine the useful life of a recognized  intangible asset
under SFAS No. 142,  "Goodwill and Other  Intangible  Assets" ("SFAS 142").  The
intent of this Staff Position is to improve the  consistency  between the useful
life of a recognized  intangible asset under SFAS 142 and the period of expected
cash  flows used to measure  the fair value of the asset  under SFAS  141(R) and
other U.S. generally  accepted  accounting  principles.  This Staff Position was
effective  for the Company on January 1, 2009 and had no material  impact on the
Company's financial position, results of operations or cash flows.

In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally  Accepted
Accounting  Principles"  ("SFAS  162").  SFAS  162  identifies  the  sources  of
accounting principles and the framework for selecting the principles used in the
preparation  of  financial  statements  of  nongovernmental  entities  that  are
presented in conformity with generally accepted  accounting  principles ("GAAP")
is the United States (the GAAP hierarchy).  SFAS 162 was effective  November 15,
2008. The FASB has stated that it does not expect that SFAS 162 will result in a
change in current  practice.  The  application  of SFAS 162 had no effect on the
Company's financial position, results of operations or cash flows.

In May 2008, the FASB issued FASB Staff Position No. APB 14-1,  "Accounting  for
Convertible  Debt  Instruments  That  May Be  Settled  in Cash  upon  Conversion
(Including  Partial  Cash  Settlement)"  ("FSP APB 14-1").  This Staff  Position
specifies that issuers of convertible  debt  instruments  that may be settled in
cash upon  conversion  should  separately  account for the  liability and equity
components  in a manner  that will  reflect  the  entity's  nonconvertible  debt
borrowing rate when interest cost is recognized in a subsequent  period. FSP APB
14-1  provides  guidance  for  initial  and  subsequent  measurement  as well as
derecognition provisions. The Staff Position was effective as of January 1, 2009
and had no  material  effect on the  Company's  financial  position,  results of
operations or cash flows.

In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1,  "Determining
Whether   Instruments   Granted  in   Share-Based   Payment   Transactions   are
Participating Securities" ("FSP EITF 03-6-1"). This Staff Position provides that
unvested  share-based  payment  awards  that  contain  nonforfeitable  rights to
dividends  or dividend  equivalents  are  participating  securities  and must be
included in the earnings per share  computation.  FSP EITF 03-6-1 was  effective
January 1, 2009 and had no effect on the Company's financial  position,  results
of operations, earnings per share or cash flows.

FASB  Staff  Position  SFAS  133-1  and  FIN  45-4  "Disclosures   about  Credit
Derivatives and Certain  Guarantees:  An Amendment of FASB Statement No. 133 and
FASB  Interpretation  No. 45; and  Clarification  of the Effective  Date of FASB
Statement No. 161" ("FSP SFAS 133-1 and FIN 45-4") was issued in September  2008
effective for reporting  periods  (annual or interim)  ending after November 15,
2008.  FSP SFAS  133-1 and FIN 45-4  amends  SFAS 133 to  require  the seller of
credit derivatives to disclose the nature of the credit derivative,  the maximum
potential amount of future payments,  the fair value of the derivative,  and the
nature of any recourse  provisions.  Disclosures  must be made for entire hybrid
instruments that have embedded credit derivatives.

FSP SFAS 133-1 and FIN 45-4 also amends FASB Interpretation No. 45 ("FIN 45") to
require disclosure of the current status of the payment/performance  risk of the
credit derivative guarantee. If an entity utilizes internal groupings as a basis
for the risk,  disclosure  must also be made of how the groupings are determined
and how the risks are managed.

The Staff Position encourages that the amendments be provided in periods earlier
than the effective  date to facilitate  comparisons at initial  adoption.  After
initial  adoption,  comparative  disclosures  are required  only for  subsequent
periods.

FSP SFAS 133-1 and FIN 45-4  clarifies the effective  date of SFAS 161 such that
required  disclosures  should be provided for any  reporting  period  (annual or
interim)  beginning after November 15, 2008. The adoption of this Staff Position
had  no  material  effect  on  the  Company's  financial  position,  results  of
operations or cash flows.

The Securities and Exchange  Commission's Office of the Chief Accountant and the
staff of the FASB issued press  release  2008-234 on September  30, 2008 ("Press
Release")  to  provide  clarification  about fair  value  accounting.  The Press
Release includes  guidance on the use of management's  internal  assumptions and


                                       24
<PAGE>

the use of  "market"  quotes.  It  also  reiterates  the  factors  in SEC  Staff
Accounting  Bulletin  Topic 5M  which  should  be  considered  when  determining
other-than-temporary  impairment:  the  length  of time and  extent to which the
market  value  has been  less  than  cost;  financial  condition  and  near-term
prospects of the issuer;  and the intent and ability of the holder to retain its
investment for a period of time sufficient to allow for any anticipated recovery
in market value.

On October 10, 2008, the FASB issued FSP SFAS 157-3  "Determining the Fair Value
of a Financial  Asset When the Market for That Asset Is Not  Active"  ("FSP SFAS
157-3").  This FSP  clarifies  the  application  of SFAS  No.  157  "Fair  Value
Measurements"  ) (see Note N) in a market  that is not  active and  provides  an
example to illustrate  key  considerations  in  determining  the fair value of a
financial  asset  when the  market  for that  asset is not  active.  The FSP was
effective upon issuance,  including prior periods for which financial statements
had not yet been issued.

The Company considered  guidance in the Press Release and in FSP SFAS 157-3 when
conducting  its review for  other-than  temporary  impairment as of December 31,
2008 as discussed in Note C.

FSP SFAS 140-4 and FIN 46(R)-8  "Disclosures  by Public  Entities  (Enterprises)
about Transfers of Financial Assets and Interest in Variable Interest  Entities"
was issued in December 2008 to require public  companies to disclose  additional
information  about  transfers  of  financial  assets  and any  involvement  with
variable interest entities. The FSP also requires certain disclosures for public
entities that are sponsors and servicers of qualifying special purpose entities.
The FSP is effective for the first  reporting  period ending after  December 15,
2008.  Application  of this FSP had no impact on the  financial  position of the
Company.

Quantitative and Qualitative Disclosures about Market Risk

         Market risk for the Company  consists  primarily of interest rate risk,
particularly   with   respect   to   appropriately    aligning   the   repricing
characteristics  of its earning  assets and interest  bearing  funding  sources.
Management  actively  monitors  and manages  the  Company's  interest  rate risk
exposure.  Other risks,  such as credit  quality and  liquidity  risk,  are also
managed in the normal course of business, but management considers interest rate
risk to be the most significant  market risk facing the Company.  Other types of
market risks, such as foreign currency exchange risk and commodity price risk do
not constitute significant risks to the Company in the conduct of its business.

         The  Company's  primary  goal  is  to  manage  the  mix  and  repricing
characteristics of its interest earning assets and interest bearing  liabilities
within the context of a dynamic interest rate environment in such a way that net
interest income grows consistently.  To be successful,  the Company must be able
to achieve this result while  simultaneously  maintaining  adequate  capital and
liquidity to meet its other obligations.

         All of the Company's  interest  bearing deposits and its long-term debt
mature or reprice within five years. Accordingly,  the interest rates offered by
the Company to attract such deposits are determined  principally by reference to
(1) the  yield  curve  for U. S.  Treasury  securities  with  similar  remaining
maturities  (adjusted  for credit  quality)  and (2) the rates  offered by other
financial institutions in the Company's local market areas.

         Rates  charged  for loans and  accepted  in return for  investments  in
securities are determined similarly.  Certain loan products, such as residential
mortgage  loans and loans for the purpose of  financing  commercial  real estate
development,  may be relatively long-lived  instruments.  As such, the life-time
funding of these types of loans usually consists of several  short-term  deposit
or other debt instruments  acquired  serially  throughout the life of the asset.
Each of  those  funding  events  is  associated  with  its own  borrowing  cost.
Therefore,  the profitability of the Company's  interest earning assets may vary
as the  funding  sources  for the assets  change  through  time.  In some cases,
longer-term  deposits and  borrowings  may be acquired on a variable rate basis.
The repricing characteristics of those sources do not necessarily match with the
repricing characteristics of the assets that may be purchased with those funds.

         Management  limits the risks inherent in funding  long-term assets with
short-term  sources  primarily by limiting the potential period of "mismatch" in
the  repricing   characteristics  of  affected  assets  and  liabilities  or  by
attempting to limit the amount by which the rates may vary. Generally, all loans
with  original  maturities  in excess of five years are made on a variable  rate
basis  with  frequent  interest  rate  "reset"  dates.  Alternatively,  when the
repayment term of a loan is initially  established in excess of five years,  the
Company  ordinarily  requires  that the loan be reviewed and the  interest  rate
changed to reflect  current  market  conditions  at least as often as every five
years.

         To mitigate other types of risks that are indirectly related to changes
in interest  rate,  such as those risks that could arise for  customers who have
sufficient resources to service their debts as long as interest rates remain low
but  insufficient  resources if interest rates rise, the Company  generally does
not  promote or grant  loans to  borrowers  who  qualify  for credit only if the
associated  initial  interest  rate is unusually  low.  Also,  consumers are not
encouraged to borrow the maximum amount for which they might qualify.

                                       25
<PAGE>

         In addition,  the Company does not offer  interest-only  type loans for
protracted periods,  and discourages loans where there are high loan-to-value or
high  debt-to-income  ratios.  The Company generally does not use credit scoring
techniques in isolation as a basis for extending consumer credit.


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 2008 by  $218,786,000,  resulting in a cumulative
gap ratio of .38.  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 2008 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.
During  2008,  the  maturities  of certain time  deposits  shifted to within the
one-year horizon, the Company invested in longer-term  securities and more loans
were originated with extended maturities or repricing periods.


         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.


                                       26
<PAGE>

                 Interest Sensitivity Analysis

<TABLE>
<CAPTION>
                                                                                           December 31, 2008
                                                                                           -----------------
                                                                   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 ............     $  12,969      $       -      $       -      $       -     $  12,969
      Securities ..........................................         1,781          1,522         19,947        115,296       138,546
      Federal Home Loan Bank stock ........................         1,220              -              -              -         1,220
      Federal funds sold ..................................        18,793              -              -              -        18,793
      Loans (1) ...........................................        65,610         33,417        148,094         11,493       258,614
                                                                ---------      ---------      ---------      ---------     ---------
              Total interest earning assets ...............       100,373         34,939        168,041        126,789     $ 430,142
                                                                ---------      ---------      ---------      ---------     =========

Interest bearing liabilities
      Interest bearing deposits
          Interest bearing transaction accounts ...........     $  54,800            $ -            $ -            $ -     $  54,800
          Savings .........................................        24,859              -              -              -        24,859
          Time deposits $100M and over ....................        35,383         81,288          9,821              -       126,492
          Other time deposits .............................        22,311        130,457         15,234              -       168,002
      Long-term debt ......................................         3,500          1,500          4,500              -         9,500
                                                                ---------      ---------      ---------      ---------     ---------
              Total interest bearing liabilities ..........       140,853        213,245         29,555              -     $ 383,653
                                                                ---------      ---------      ---------      ---------     =========

Interest sensitivity gap ..................................     $ (40,480)     $(178,306)     $ 138,486      $ 126,789
Cumulative interest sensitivity gap .......................     $ (40,480)     $(218,786)     $ (80,300)     $  46,489
Gap ratio .................................................          0.71           0.16
Cumulative gap ratio ......................................          0.71           0.38
</TABLE>
______________________________________________________
(1)  Loans are net of nonaccruing loans totaling $11,799,000.


         The following table shows the Company's financial  instruments that are
sensitive to changes in interest rates. The Company uses certain  assumptions to
estimate fair values and expected  maturities.  For assets,  expected maturities
are based upon  contractual  maturity,  projected  repayments and prepayments of
principal,  and potential and probable calls of investment securities.  For core
deposits without  contractual  maturity (i.e.,  interest  checking,  savings and
money market  accounts),  the table  presents  cash flows based on  management's
estimate  of their most  likely  runoff  pattern.  Actual  cash flows could vary
significantly from the estimated amounts presented.


                                       27
<PAGE>


<TABLE>
<CAPTION>
                                          2008 Year-
                                            End
                                          Average                                                                         Estimated
                                         Yield/Rate     2009     2010       2011      2012     2013  Thereafter  Balance  Fair Value
                                         ----------     ----     ----       ----      ----     ----  ----------  -------  ----------
                                                                              (Dollars in thousands)
<S>                                           <C>    <C>       <C>       <C>       <C>       <C>       <C>       <C>        <C>
Interest earning assets
         Interest-bearing deposits
           with other banks ................  0.10%  $ 12,969  $     -   $     -   $     -   $     -   $      -  $ 12,969   $ 12,969
         Investment securities .............  4.79%     3,303    6,236     4,058     2,601     7,052    115,296   138,546    138,874
         Federal funds sold ................  0.10%    18,793        -         -         -         -          -    18,793     18,793
         Loans .............................  6.15%    99,027   89,705    53,187    14,213    11,054      3,227   270,413    265,053


Interest bearing liabilities
         Savings ...........................  0.27%  $ 24,859  $     -   $     -   $     -   $     -   $      -  $ 24,859   $ 24,859
         Interest bearing
           transaction accounts ............  1.42%    54,800        -         -         -         -          -    54,800     54,800
         Time deposits .....................  3.83%   269,439   21,393       803     2,153       706          -   294,494    296,384
                                                     --------  -------   -------   -------   -------   --------  --------   --------
                 Total interest
                    bearing deposits .......  3.20%   349,098   21,393       803     2,153       706          -   374,153    376,043
         Long-term debt ....................  3.83%     1,500    1,500         -         -     1,500      5,000     9,500     10,232

</TABLE>





                                       28
<PAGE>


Management's Report on Internal Control Over Financial Reporting

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

Under the supervision and with the  participation  of management,  including the
Chief Executive Officer and the Chief Financial  Officer,  the Company conducted
an evaluation of the effectiveness of internal control over financial  reporting
as of December 31, 2008 based on the framework in "Internal Control - Integrated
Framework"  promulgated  by the  Committee of  Sponsoring  Organizations  of the
Treadway  Commission and the interpretive  guidance issued by the Securities and
Exchange  Commission  in  Release  No.  34-55929.   Based  on  this  evaluation,
management   concluded  that  the  Company's  internal  control  over  financial
reporting was effective as of December 31, 2008.

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




                                       29
<PAGE>


Report of Independent Registered Public Accounting Firm




The Shareholders and Board of Directors
    of Community First Bancorporation

         We  have  audited  the  accompanying  consolidated  balance  sheets  of
Community First Bancorporation and subsidiary (the "Company") as of December 31,
2008 and 2007,  and the related  consolidated  statements of income,  changes in
shareholders'  equity,  and cash flows for each of the three years in the period
ended  December  31,  2008.  These  consolidated  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Community First  Bancorporation and subsidiary as of December 31, 2008 and 2007,
and the  consolidated  results of their operations and their  consolidated  cash
flows for each of the three years in the period  ended  December  31,  2008,  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
Columbia, South Carolina
March 30, 2009


                                       30
<PAGE>


Consolidated Balance Sheets
Community First Bancorporation and Subsidiary

<TABLE>
<CAPTION>
                                                                                                           December 31,
                                                                                                           ------------
                                                                                                     2008                  2007
                                                                                                     ----                  ----
Assets
<S>                                                                                             <C>                   <C>
     Cash and due from banks (Note B) ..................................................        $   9,204,306         $  10,272,260
     Interest bearing deposits due from banks ..........................................           12,969,193               164,781
     Federal funds sold ................................................................           18,793,000            24,236,000
                                                                                                -------------         -------------
         Cash and cash equivalents .....................................................           40,966,499            34,673,041
     Securities available-for-sale (Note C) ............................................          126,635,534            99,026,049
     Securities held-to-maturity (fair value of $12,238,445 for 2008 and
         $5,625,083 for 2007) (Note C) .................................................           11,910,268             5,663,113
     Federal Home Loan Bank stock, at cost .............................................            1,219,600               839,900
     Loans (Note D) ....................................................................          270,413,317           244,131,013
         Allowance for loan losses .....................................................           (5,475,294)           (2,573,758)
                                                                                                -------------         -------------
            Loans - net ................................................................          264,938,023           241,557,255
     Premises and equipment - net (Note E) .............................................            8,655,253             8,621,525
     Accrued interest receivable .......................................................            2,775,788             2,529,155
     Bank-owned life insurance .........................................................            8,482,802             7,107,784
     Other assets ......................................................................            3,888,880             2,130,413
                                                                                                -------------         -------------

            Total assets ...............................................................        $ 469,472,647         $ 402,148,235
                                                                                                =============         =============

Liabilities
     Deposits (Note F)
         Noninterest bearing ...........................................................        $  41,961,968         $  42,288,971
         Interest bearing ..............................................................          374,153,215           313,577,582
                                                                                                -------------         -------------
            Total deposits .............................................................          416,115,183           355,866,553
     Accrued interest payable ..........................................................            3,044,981             3,479,569
     Long-term debt (Note H) ...........................................................            9,500,000             4,500,000
     Other liabilities .................................................................              884,860               391,125
                                                                                                -------------         -------------
            Total liabilities ..........................................................          429,545,024           364,237,247
                                                                                                -------------         -------------

     Commitments and contingent liabilities (Note M)

Shareholders' equity (Note I)
     Preferred Stock - no par value; 10,000,000 shares authorized;
         None issued and outstanding ...................................................                    -                     -
     Common stock - no par value; 10,000,000 shares authorized;
         issued and outstanding - 3,564,279 for 2008 and
         3,324,105 for 2007 ............................................................           37,084,462            35,008,926
     Additional paid-in capital ........................................................              747,621               681,498
     Retained earnings .................................................................            1,768,552             2,140,465
     Accumulated other comprehensive income (loss) .....................................              326,988                80,099
                                                                                                -------------         -------------
            Total shareholders' equity .................................................           39,927,623            37,910,988
                                                                                                -------------         -------------

            Total liabilities and shareholders' equity .................................        $ 469,472,647         $ 402,148,235
                                                                                                =============         =============
</TABLE>

See accompanying notes to consolidated financial statements.



                                       31
<PAGE>


Consolidated Statements of Income
Community First Bancorporation and Subsidiary

<TABLE>
<CAPTION>
                                                                                           Years Ended December 31,
                                                                                           ------------------------
                                                                                2008                  2007                  2006
                                                                                ----                  ----                  ----
Interest income
<S>                                                                          <C>                   <C>                  <C>
       Loans, including fees .......................................         $ 18,212,174          $ 17,600,104         $ 13,864,479
       Securities
            Taxable ................................................            4,807,778             3,890,240            3,868,407
            Tax-exempt .............................................              833,677               816,428              635,967
       Federal funds sold ..........................................              632,265             1,208,738            1,174,768
       Other .......................................................               47,714                55,829               52,121
       Interest bearing deposits due from banks ....................               17,787                 6,277                4,393
                                                                             ------------          ------------         ------------
            Total interest income ..................................           24,551,395            23,577,616           19,600,135
                                                                             ------------          ------------         ------------

Interest expense
       Time deposits $100,000 and over .............................            4,325,891             4,054,315            2,952,983
       Other deposits ..............................................            8,228,274             8,972,052            7,193,745
       Short-term borrowings .......................................               11,051                     -                1,789
       Long-term debt ..............................................              269,208               203,871              236,864
                                                                             ------------          ------------         ------------
            Total interest expense .................................           12,834,424            13,230,238           10,385,381
                                                                             ------------          ------------         ------------

Net interest income ................................................           11,716,971            10,347,378            9,214,754
Provision for loan losses (Note D) .................................            4,550,000               594,000               65,000
                                                                             ------------          ------------         ------------
Net interest income after provision ................................            7,166,971             9,753,378            9,149,754
                                                                             ------------          ------------         ------------

Other income
       Service charges on deposit accounts .........................            1,478,495             1,473,469            1,515,390
       Credit life insurance commissions ...........................               14,375                28,587               48,303
       Mortgage brokerage income ...................................               26,646                33,203               68,194
       Loss on sales of securities available-for-sale ..............               (3,396)                    -                    -
       Debit card transaction fees .................................              473,265               378,671              302,038
       Increase in value of life insurance contracts ...............              375,012               107,784                    -
       Other income ................................................              130,885               184,685              219,817
                                                                             ------------          ------------         ------------
            Total other income .....................................            2,495,282             2,206,399            2,153,742
                                                                             ------------          ------------         ------------

Other expenses (Notes J and L)
       Salaries and employee benefits ..............................            4,537,173             4,120,766            3,647,451
       Net occupancy expense .......................................              514,488               432,852              346,610
       Furniture and equipment expense .............................              429,850               441,010              431,078
       Debit card transaction expenses .............................              373,382               276,993              279,388
       Other expense ...............................................            2,212,477             1,859,975            2,047,238
                                                                             ------------          ------------         ------------
            Total other expenses ...................................            8,067,370             7,131,596            6,751,765
                                                                             ------------          ------------         ------------

Income before income taxes .........................................            1,594,883             4,828,181            4,551,731
Income tax expense (Note K) ........................................              252,385             1,497,469            1,533,762
                                                                             ------------          ------------         ------------
Net income .........................................................         $  1,342,498          $  3,330,712         $  3,017,969
                                                                             ============          ============         ============

Per share (Note I)
       Net income, basic ...........................................         $       0.38          $       0.97         $       0.89
       Net income, assuming dilution ...............................                 0.36                  0.91                 0.83
</TABLE>

See accompanying notes to consolidated financial statements.



                                       32
<PAGE>

Consolidated Statements of Changes in Shareholders' Equity
Community First Bancorporation and Subsidiary

<TABLE>
<CAPTION>

                                                          Common Stock                                    Accumulated
                                                          ------------         Additional                    Other
                                                     Number of                  Paid-in     Retained     Comprehensive
                                                      Shares       Amount       Capital     Earnings     Income (Loss)    Total
                                                      ------       ------       -------     --------     -------------    -----

<S>                                                  <C>         <C>           <C>        <C>            <C>            <C>
Balance, January 1, 2006 .........................   2,798,409   $26,955,661   $      -   $ 3,296,060    $(1,397,333)   $28,854,388
Comprehensive income:
    Net income ...................................           -             -          -     3,017,969              -      3,017,969
                                                                                                                        -----------
    Unrealized net holding gains on available-
      for-sale securities arising during the period,
      net of income tax effects of $377,023 ......           -             -          -             -        673,179        673,179
                                                                                                                        -----------
         Total other comprehensive income (loss) .           -             -          -             -              -        673,179
                                                                                                                        -----------
           Total comprehensive income ............           -             -          -             -              -      3,691,148
                                                                                                                        -----------
Issuance of 5% stock dividend,
    including cash payment for
    fractional shares ............................     140,570     3,022,534          -    (3,029,337)             -         (6,803)
Share-based compensation, net of tax benefits ....           -             -    593,100             -              -        593,100
Exercise of employee stock options ...............      19,579        83,197          -             -              -         83,197
                                                     ---------   -----------   --------   -----------    -----------    -----------
Balance, December 31, 2006 .......................   2,958,558    30,061,392    593,100     3,284,692       (724,154)    33,215,030
Comprehensive income:
    Net income ...................................           -             -          -     3,330,712              -      3,330,712
                                                                                                                        -----------
    Unrealized net holding gains on available-
      for-sale securities arising during the period,
      net of income tax effects of $450,431 ......           -             -          -             -        804,253        804,253
                                                                                                                        -----------
         Total other comprehensive income (loss) .           -             -          -             -              -        804,253
                                                                                                                        -----------
           Total comprehensive income ............           -             -          -             -              -      4,134,965
                                                                                                                        -----------
Income tax benefits from exercises of
    non-qualified stock options in excess of
    amount previously provided ...................           -             -     88,398             -              -         88,398
Declaration of 10% stock dividend
    distributed on January 15, 2008 and
    cash payment for fractional shares ...........     295,470     4,469,444          -    (4,474,939)             -         (5,495)
Exercise of employee stock options ...............      70,077       478,090          -             -              -        478,090
                                                     ---------   -----------   --------   -----------    -----------    -----------
Balance, December 31, 2007 .......................   3,324,105    35,008,926    681,498     2,140,465         80,099     37,910,988
Comprehensive income:
    Net income ...................................           -             -          -     1,342,498              -      1,342,498
                                                                                                                        -----------
    Unrealized net holding gains on available-
      for-sale securities arising during the period,
      net of income tax effects of $137,053 ......           -             -          -             -        244,712        244,712
    Reclassification adjustment,
      net of income tax effects of $1,219 ........           -             -          -             -          2,177          2,177
                                                                                                                        -----------
         Total other comprehensive income (loss) .           -             -          -             -              -        246,889
                                                                                                                        -----------
           Total comprehensive income ............           -             -          -             -              -      1,589,387
                                                                                                                        -----------
Income tax benefits from exercises of
    non-qualified stock options in excess of
    amount previously provided ...................           -             -     66,123             -              -         66,123
Declaration of 5% stock dividend
    distributed on January 20, 2009 and
    cash payable for fractional shares ...........     169,406     1,711,001          -    (1,714,411)             -         (3,410)
Exercise of employee stock options ...............      70,768       364,535          -             -              -        364,535
                                                     ---------   -----------   --------   -----------    -----------    -----------
Balance, December 31, 2008 .......................   3,564,279   $37,084,462   $747,621   $ 1,768,552    $   326,988    $39,927,623
                                                     =========   ===========   ========   ===========    ===========    ===========
</TABLE>


See accompanying notes to consolidated financial statements.



                                       33
<PAGE>

Consolidated Statements of Cash Flows
Community First Bancorporation and Subsidiary
<TABLE>
<CAPTION>
                                                                                                 Years Ended December 31,
                                                                                                 ------------------------
                                                                                          2008              2007           2006
                                                                                          ----              ----           ----
Operating activities
<S>                                                                                  <C>              <C>              <C>
       Net income ...............................................................    $  1,342,498     $  3,330,712     $  3,017,969
       Adjustments to reconcile net income to net
             cash provided by operating activities
                   Provision for loan losses ....................................       4,550,000          594,000           65,000
                   Writedowns of foreclosed assets ..............................               -                -                -
                   Depreciation .................................................         416,971          399,456          373,883
                   Deferred income taxes ........................................        (956,973)        (266,418)        (131,488)
                   Amortization of net loan fees and costs ......................        (179,539)        (225,117)        (224,944)
                   Securities accretion and premium amortization ................          75,087           53,843          152,566
                   Losses realized on sales of available-for-sale securities ....           3,396                -                -
                   Accretion of cash surrender value of life insurance ..........        (375,012)        (107,784)               -
                   Loss (gain) on sale of foreclosed assets .....................           6,000             (354)         (30,621)
                   Increase in interest receivable ..............................        (246,633)        (347,583)        (552,818)
                   (Decrease) increase in interest payable ......................        (434,588)         776,623          885,813
                   Increase in prepaid expenses and other assets ................        (273,766)        (506,041)        (179,823)
                   Increase (decrease) in other accrued expenses ................          56,209          (29,408)         (13,753)
                   Deferred compensation expense ................................         434,116          386,446                -
                   Share-based compensation expense .............................               -                -          593,100
                                                                                     ------------     ------------     ------------
                         Net cash provided by operating activities ..............       4,417,766        4,058,375        3,954,884
                                                                                     ------------     ------------     ------------

Investing activities
       Purchases of available-for-sale securities ...............................     (84,156,840)     (25,224,140)     (25,209,833)
       Maturities, calls and paydowns of available-for-sale securities ..........      47,120,613       29,879,688       25,682,329
       Proceeds of sales of available-for-sale securities .......................       9,732,462                -                -
       Purchases of securities held-to-maturity .................................      (7,490,035)               -                -
       Maturities, calls and paydowns of held-to-maturity securities ............       1,243,838          938,552        1,163,035
       Purchases of Federal Home Loan Bank stock ................................        (379,700)               -          (31,800)
       Proceeds of redemptions of Federal Home Loan Bank stock ..................               -          140,300                -
       Net increase in loans made to customers ..................................     (28,457,229)     (41,202,385)     (33,566,455)
       Purchases of premises and equipment ......................................        (450,699)      (1,083,499)      (1,506,718)
       Proceeds from sale of foreclosed assets ..................................          34,000           14,589          167,942
       Proceeds from sale of real estate held for sale ..........................               -           36,449                -
       Purchases of bank-owned life insurance ...................................      (1,000,006)      (7,000,000)               -
                                                                                     ------------     ------------     ------------
                         Net cash used by investing activities ..................     (63,803,596)     (43,500,446)     (33,301,500)
                                                                                     ------------     ------------     ------------

Financing activities
       Net increase (decrease) in demand deposits, interest
             bearing transaction accounts and savings accounts ..................       2,485,387       (4,715,971)      25,163,011
       Net increase in certificates of deposit and other
             time deposits ......................................................      57,763,243       52,625,215        2,801,699
       Net (decrease) increase in short-term borrowings .........................               -       (4,500,000)       1,000,000
       Proceeds of issuances of long-term debt ..................................       6,000,000                -                -
       Repayment of long-term debt ..............................................      (1,000,000)      (1,000,000)      (1,000,000)
       Payment of cash in lieu of fractional shares
             for stock dividend .................................................               -           (5,495)          (6,803)
       Exercise of employee stock options .......................................         364,535          478,090           83,197
       Excess tax benefits of exercises of stock options ........................          66,123           88,398                -
                                                                                     ------------     ------------     ------------
                         Net cash provided by financing activities ..............      65,679,288       42,970,237       28,041,104
                                                                                     ------------     ------------     ------------
Increase (decrease) in cash and cash equivalents ................................       6,293,458        3,528,166       (1,305,512)
Cash and cash equivalents, beginning ............................................      34,673,041       31,144,875       32,450,387
                                                                                     ------------     ------------     ------------
Cash and cash equivalents, ending ...............................................    $ 40,966,499     $ 34,673,041     $ 31,144,875
                                                                                     ============     ============     ============

Supplemental  Disclosure  of Cash Flow  Information  Cash paid
       during the period for:
             Interest (net of amount capitalized) ...............................    $ 13,269,012     $ 12,453,615     $  9,499,568
             Income taxes .......................................................       1,644,000        1,700,000        1,851,154
       Noncash investing and financing activities:
             Transfer of loans to foreclosed assets .............................         706,000                -           54,235
             Transfers from retained earnings to common stock
                   in connection with stock dividends ...........................       1,711,001        4,469,444        3,022,534
             Other comprehensive income (loss) ..................................         246,889          804,253          673,179
             Cash payable in lieu of issuing fractional shares ..................           3,410                -                -
</TABLE>

See accompanying notes to consolidated financial statements.

                                       34
<PAGE>

Notes to Consolidated Financial Statements
Community First Bancorporation and Subsidiary


NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

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

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

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.

Concentrations  of  Credit  Risk  - Most  of  the  Company's,  and  its  banking
subsidiary's,  activities  are with  customers  located  within the local market
areas of Oconee and Anderson  Counties of South  Carolina.  Note C discloses the
types of  securities  invested  in,  and Note D  discusses  the types of lending
engaged  in. The  ability of  borrowers  to comply  with the terms of their loan
contracts  is largely  dependent  upon local real  estate and  general  economic
conditions in the Company's  market areas. The Company and its subsidiary do not
have any  significant  concentrations  to any single  industry or customer.  The
Company  does not engage in  originating,  holding,  guaranteeing,  servicing or
investing  in  loans  where  the  terms  of the  loan  product  give  rise  to a
concentration  of credit  risk as that term is used in  Statement  of  Financial
Accounting  Standards  No.  107,  "Disclosures  about Fair  Values of  Financial
Instruments."

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

                                       35
<PAGE>

three  categories of securities.  Realized gains and losses on all categories of
securities are included in other operating  income,  based on the amortized cost
of the specific security on a trade date basis.

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

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

A loan is considered  to be impaired  when, in  management's  judgment  based on
current  information and events, it is probable that the obligation's  principal
or interest will not be collectible in accordance with the terms of the original
loan  agreement.  Impaired  loans include  non-accrual  loans and loans past due
according to their contractual terms 90 days or more with respect to interest or
principal  payments.  Impaired loans that individually have been evaluated under
the  Company's  normal loan review  process are carried in the balance  sheet at
either (1) the present  value of expected  future cash flows  discounted  at the
loan's effective interest rate, which is the contractual  interest rate adjusted
for any  deferred  loan fees or  costs,  premium  or  discount  existing  at the
inception  or  acquisition  of the loan or (2) at a value  not to  exceed  their
observable  market price or the fair value of the collateral if repayment of the
loan is expected to be provided solely by the underlying collateral.  Generally,
the accrual of interest is  discontinued  on impaired  loans and any  previously
accrued  interest  on  such  loans  is  reversed  against  current  income.  Any
subsequent  interest  income is recognized on a cash basis when received  unless
collectibility of a significant amount of principal is in serious doubt. In such
cases,  collections are credited first to the remaining  principal  balance on a
cost recovery  basis.  An impaired loan is not returned to accrual status unless
principal and interest are current and the borrower has demonstrated the ability
to continue making payments as agreed.

Allowance  for Loan Losses - An  allowance  for loan losses is  maintained  at a
level deemed  appropriate  by  management  to provide  adequately  for known and
inherent  losses in the loan portfolio.  When management  determines that a loan
will not perform  substantially  as agreed, a review of the loan is initiated to
ascertain whether it is more likely than not that a loss has occurred.  If it is
determined  that a loss has been incurred,  the estimated  amount of the loss is
charged off and deducted from the  allowance.  The provision for loan losses and
recoveries  on  loans  previously  charged  off  are  added  to  the  allowance.
Determining  the amount and adequacy of the allowance  for loan losses  involves
estimating  losses  incurred in the loan  portfolio  based on factors  discussed
below and their potential  effects based on judgments applied to currently known
facts and  circumstances.  Changes in the  estimated  allowance  for loan losses
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 particular  borrower's  circumstances.  Typically,  these
loans are  considered  impaired or have been  assigned  internal  risk grades of
management attention,  special mention, substandard or doubtful. General amounts
are provided for all other loans,  excluding  those for which  specific  amounts
were  determined,  by  applying  estimated  loss  percentages  to the  portfolio
categorized  using risk  grades.  These  percentages  are based on  management's
current evaluation with consideration  given to historical loss experience.  The
unallocated portion of the allowance consists of an amount deemed appropriate to
provide for the elements of  imprecision  and  estimation  risk  inherent in the
specific and general amounts and is determined based on management's  evaluation
of various  conditions that are not directly measured by the other components of
the allowance.  This evaluation  includes  consideration of general national and
local  economic and business  conditions  affecting  key lending  market  areas,
credit quality trends, collateral values, loan volumes, portfolio seasoning, and
any identified  credit  concentrations.  The findings of internal credit reviews
and  results  from  external  audits  and  regulatory   examinations   are  also
considered.

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

                                       36
<PAGE>

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

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

Foreclosed  Assets  - Assets  (primarily  real  estate  and  vehicles)  acquired
through, or in lieu of, foreclosure are held for sale and are initially recorded
at fair  value,  less  estimated  costs  to sell,  at the  date of  foreclosure,
establishing a new cost basis.  Loan losses arising from the acquisition of such
property as of that date are  charged  against the  allowance  for loan  losses.
Subsequent to foreclosure,  valuations are periodically  performed by management
and the  assets are  carried  at the lower of the new cost basis or fair  value,
less estimated costs to sell.  Revenues and expenses from operations and changes
in any  subsequent  valuation  allowance are included in net  foreclosed  assets
costs and  expenses.  The carrying  value of foreclosed  assets  included in the
balance  sheets was  $706,000  and  $40,000 as of  December  31,  2008 and 2007,
respectively.

Bank-owned  Life Insurance - The Company  accounts for bank-owned life insurance
in accordance  with Emerging  Issues Task Force Issue No. 06-4,  "Accounting for
Deferred   Compensation  and  Postretirement   Benefit  Aspects  of  Endorsement
Split-Dollar  Life  Insurance  Arrangements"  which  concludes  that an employer
should not offset the liability to provide postretirement benefits with the cash
surrender value of an endorsement  split-dollar life insurance  arrangement held
to fund the benefit.

Transfers of Financial  Assets - Transfers of financial assets are accounted for
as sales  when  control  over the  assets  has been  surrendered.  Control  over
transferred  assets is deemed to be  surrendered  when (1) the assets  have been
isolated  from the  Company,  (2) the  transferee  obtains  the  right  (free of
conditions  that constrain it from taking  advantage of that right) to pledge or
exchange the transferred assets, and (3) the Company does not maintain effective
control over the  transferred  assets  through an agreement to  repurchase  them
before their maturity.

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

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

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

Stock-Based  Compensation  - As of  December  31,  2008,  the  Company  has  two
stock-based employee  compensation plans, which are described more fully in Note
I.  Effective  January 1, 2006,  the  Company  adopted  Statement  of  Financial
Accounting  Standards  No.  123  (revised  2004)  ("SFAS  123(R)")  "Share-Based
Payment."  Prior to adoption of SFAS  123(R),  the Company  accounted  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.  Accordingly,  prior to  adoption of SFAS  123(R),  no
stock-based  employee  compensation  cost was  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.

No options were granted during 2008 or 2007.  The fair value of options  granted
during 2006 were $9.90 per share which was  estimated as of the grant date using
the Black-Scholes options pricing model and the following assumptions:  dividend
yield of 0%,  expected  life of 10 years,  risk free  interest rate of 5.08% and
stock price  volatility of 25.35%.  Because of the limited time during which the

                                       37
<PAGE>

Company's stock had traded in a public market, the Company estimated stock price
volatility  based  primarily on the historic  volatility of another bank holding
company  domiciled in South  Carolina that was founded at about the same time as
the  Company.  Management  believes  that the other  bank  holding  company  was
sufficiently  similar  to the  Company  in its  operating  history  to make it a
suitable reference for estimating the volatility of the Company's stock price.

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 I.

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

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


NOTE B - CASH AND DUE FROM BANKS

Banks are  generally  required by regulation to maintain an average cash reserve
balance  based on a  percentage  of  deposits.  The average  amounts of the cash
reserve balances at December 31, 2008 and 2007 were approximately $2,502,000 and
$1,847,000, 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:


                                       38
<PAGE>

<TABLE>
<CAPTION>
                                                                              December 31,
                                                                              ------------
                                                       2008                                               2007
                                                       ----                                               ----
                                              Gross          Gross                                  Gross       Gross
                                            Unrealized    Unrealized     Estimated                Unrealized  Unrealized   Estimated
                                Amortized     Holding       Holding        Fair        Amortized    Holding    Holding       Fair
                                  Cost        Gains         Losses        Value          Cost        Gains     Losses        Value
                                  ----        -----         ------        -----          ----        -----     ------        -----
<S>                          <C>            <C>          <C>          <C>            <C>           <C>        <C>        <C>
Available-for-sale
Mortgage-backed securities
  issued by US Government
  agencies ...............   $  1,790,998   $   37,439   $        -   $  1,828,437   $         -   $      -   $      -   $         -
Government sponsored
  enterprises (GSEs) .....     62,840,000    1,141,220          500     63,980,720    56,098,415    511,039     64,423    56,545,031
Mortgage-backed securities
  issued by GSEs .........     40,753,955      625,965       22,768     41,357,152    22,471,385     48,925    327,297    22,193,013
State, county and
  municipal ..............     20,740,461       41,197    1,312,433     19,469,225    20,331,290     92,261    135,546    20,288,005
                             ------------   ----------   ----------   ------------   -----------   --------   --------   -----------
          Total ..........   $126,125,414   $1,845,821   $1,335,701   $126,635,534   $98,901,090   $652,225   $527,266   $99,026,049
                             ============   ==========   ==========   ============   ===========   ========   ========   ===========

Held-to-maturity
Mortgage-backed securities
  issued by US Government
  agencies ...............   $          -   $        -   $        -   $          -   $         -   $      -   $      -   $         -
Government sponsored
  enterprises ............              -            -            -              -             -          -          -             -
Mortgage-backed securities
  issued by GSEs .........     11,910,268      328,177            -     12,238,445     5,663,113        967     38,997     5,625,083
State, county and
  municipal ..............              -            -            -              -             -          -          -             -
                             ------------   ----------   ----------   ------------   -----------   --------   --------   -----------
          Total ..........   $ 11,910,268   $  328,177   $        -   $ 12,238,445   $ 5,663,113   $    967   $ 38,997   $ 5,625,083
                             ============   ==========   ==========   ============   ===========   ========   ========   ===========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                             December 31, 2008
                                                                                             -----------------
                                                                              Available-for-sale          Held-to-maturity
                                                                              ------------------          ----------------
                                                                            Amortized    Estimated      Amortized      Estimated
                                                                              Cost       Fair Value       Cost         Fair Value
                                                                              ----       ----------       ----         ----------
<S>                                                                      <C>            <C>            <C>            <C>
       Due within one year ...........................................   $  1,998,100   $  2,043,440   $          -   $          -
       Due after one through five years ..............................     11,576,381     11,771,609              -              -
       Due after five through ten years ..............................     43,086,242     43,600,978              -              -
       Due after ten years ...........................................     26,919,738     26,033,918              -              -
                                                                         ------------   ------------   ------------   ------------
                                                                           83,580,461     83,449,945              -              -
       Mortgage-backed securities issued by:
            US Government agencies ...................................      1,790,998      1,828,437              -              -
            GSEs .....................................................     40,753,955     41,357,152     11,910,268     12,238,445
                                                                         ------------   ------------   ------------   ------------
            Total ....................................................   $126,125,414   $126,635,534   $ 11,910,268   $ 12,238,445
                                                                         ============   ============   ============   ============
</TABLE>
The estimated  fair values and gross  unrealized  losses of all of the Company's
investment  securities whose estimated fair values were less than amortized cost
as  of  December  31,  2008  and  2007  which  had  not  been  determined  to be
other-than-temporarily  impaired,  are presented below. The securities have been
aggregated  by  investment  category  and the  length  of time  that  individual
securities have been in a continuous unrealized loss position.



                                       39
<PAGE>
<TABLE>
<CAPTION>

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

<TABLE>
<CAPTION>
                                                                             December 31, 2007
                                                                             -----------------
                                                        Continuously in Unrealized Loss Position for a Period of
                                                        --------------------------------------------------------
                                              Less than 12 Months            12 Months or more                     Total
                                              -------------------            -----------------                     -----
Available-for-sale                         Estimated       Unrealized    Estimated        Unrealized      Estimated      Unrealized
                                          Fair Value          Loss       Fair Value           Loss        Fair Value         Loss
                                          ----------          ----       ----------           ----        ----------         ----
<S>                                      <C>             <C>             <C>             <C>             <C>             <C>
GSEs ...............................     $ 3,993,971     $     4,322     $16,072,715     $    60,101     $20,066,686     $    64,423
Mortgage-backed securities
  issued by GSEs ...................         293,088           1,269      18,403,894         326,028      18,696,982         327,297
State, county and
  municipal securities .............       7,681,060          78,781       3,201,751          56,765      10,882,811         135,546
                                         -----------     -----------     -----------     -----------     -----------     -----------
                  Total ............     $11,968,119     $    84,372     $37,678,360     $   442,894     $49,646,479     $   527,266
                                         ===========     ===========     ===========     ===========     ===========     ===========
Held-to-maturity
  GSEs .............................     $         -     $         -     $ 4,719,740     $    38,997     $ 4,719,740     $    38,997
                                         -----------     -----------     -----------     -----------     -----------     -----------
                                         $         -     $         -     $ 4,719,740     $    38,997     $ 4,719,740     $    38,997
                                         ===========     ===========     ===========     ===========     ===========     ===========
</TABLE>

At December 31, 2008, 56 securities had been  continuously in an unrealized loss
position for less than 12 months and 12 securities had been  continuously  in an
unrealized  loss  position for 12 months or more.  The Company does not consider
these investments to be  other-than-temporarily  impaired because the unrealized
losses involve  primarily  issuances of state,  county and municipal  government
issuers,  resulted primarily from current credit market disruptions  including a
"flight to  quality"  and there have been no  failures  by the  issuers to remit
their periodic interest payments as required.  Although the Company classifies a
majority of its investment securities as available-for-sale,  management has not
determined  that any specific  securities  will be disposed of prior to maturity
and believes  that the Company has both the ability and the intent to hold those
investments   until  a  recovery  of  fair  value,   including  until  maturity.
Substantially all of the issuers of state, county and municipal  securities held
were rated at least "investment grade" as of December 31, 2008 and 2007.

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

During 2008,  the Company sold sixteen  available-for-sale  securities for gross
sales  proceeds of $9,732,462.  Gross  realized gains and losses  resulting from
these sales  totaled  $127,830 and $131,226,  respectively.  The Company did not
sell  any  available-for-sale  securities  during  2007 or 2006.  There  were no
transfers of available-for-sale  securities to other categories in 2008, 2007 or
2006.

                                       40
<PAGE>

At December 31, 2008 and 2007,  securities  with a carrying value of $64,130,700
and  $63,853,671,  respectively,  were pledged as  collateral  to secure  public
deposits.


NOTE D - LOANS

Loans consisted of the following:


                                                           December 31,
                                                           ------------
                                                    2008                2007
                                                    ----                ----
Commercial, financial and industrial .....     $  23,187,252      $  23,865,216
Real estate- construction ................        30,450,996          2,201,343
Real estate - mortgage ...................       182,668,353        185,198,250
Consumer installment .....................        34,106,716         32,866,204
                                               -------------      -------------
     Total ...............................       270,413,317        244,131,013
Allowance for loan losses ................        (5,475,294)        (2,573,758)
                                               -------------      -------------
     Loans - net .........................     $ 264,938,023      $ 241,557,255
                                               =============      =============

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


<TABLE>
<CAPTION>
                                                                                                               December 31,
                                                                                                               ------------
                                                                                                          2008               2007
                                                                                                          ----               ----
Investment in impaired loans
<S>                                                                                                   <C>                <C>
     Nonaccrual ..............................................................................        $11,798,654        $   625,017
     Accruing 90 days and over past due ......................................................                  -                  -
                                                                                                      -----------        -----------
         Total ...............................................................................        $11,798,654        $   625,017
                                                                                                      ===========        ===========

Average total investment in impaired loans during the year ...................................        $ 4,712,000        $   413,500
Amount of impaired loans for which an allowance for loan losses is established
     under SFAS No. 114 ......................................................................         11,296,779            625,017
Amount of allowance for loan losses under SFAS No. 114 related to impaired loans .............          1,129,678             75,002
Amount of impaired loans for which no allowance for loan losses is established
     under SFAS No. 114 ......................................................................            501,875                  -
Allowance for loan losses on impaired loans at year end ......................................          1,603,493            145,038
</TABLE>

For 2008, the amount of interest  income that would have been included in income
if  nonaccrual  loans  had been  current  in  accordance  with  their  terms was
approximately  $821,000 and the amount of interest income actually collected and
included in interest income was approximately $480,000. Such amounts of interest
income were  immaterial to the  consolidated  financial  statements for 2007 and
2006.  The average total  investment in impaired loans during 2006 was $399,000.
There were no irrevocable  commitments to lend additional funds to debtors owing
amounts on impaired loans at December 31, 2008.

As of December 31, 2008 and 2007,  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:


                                       41
<PAGE>

                                                Years Ended December 31,
                                                ------------------------
                                          2008            2007           2006
                                          ----            ----           ----

Balance at January 1 ..............   $ 2,573,758    $ 2,241,947    $ 2,266,086
Provision charged to expense ......     4,550,000        594,000         65,000
Recoveries ........................        18,062         30,098         44,981
Charge-offs .......................    (1,666,526)      (292,287)      (134,120)
                                      -----------    -----------    -----------
Balance at December 31 ............   $ 5,475,294    $ 2,573,758    $ 2,241,947
                                      ===========    ===========    ===========

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  $9,272,390 and
$7,885,064 at December 31, 2008 and 2007, respectively.  During 2008, $2,422,122
of new loans were made and repayments totaled $1,034,796

NOTE E - PREMISES AND EQUIPMENT

Premises and equipment consisted of the following:

                                                            December 31,
                                                            ------------
                                                       2008              2007
                                                       ----              ----

Land .......................................       $ 2,916,997       $ 2,916,997
Buildings and land improvements ............         5,617,252         5,400,702
Furniture and equipment ....................         3,296,538         3,279,919
                                                   -----------       -----------
     Total .................................        11,830,787        11,597,618
Accumulated depreciation ...................         3,175,534         2,976,093
                                                   -----------       -----------
     Premises and equipment - net ..........       $ 8,655,253       $ 8,621,525
                                                   ===========       ===========

Depreciation  expense for the years ended  December 31, 2008,  2007 and 2006 was
$416,971,  $399,456,  and  $373,883,  respectively.  During  2006,  the  Company
capitalized interest of $18,218 to construction in progress.


NOTE F - DEPOSITS

A summary of deposits follows:

                                                             December 31,
                                                             ------------
                                                        2008            2007
                                                        ----            ----

Noninterest bearing demand ...................     $ 41,961,968     $ 42,288,971
Interest bearing transaction accounts ........       54,800,195       55,389,292
Savings ......................................       24,859,154       21,457,667
Time deposits $100,000 and over ..............      126,492,251       96,547,178
Other time deposits ..........................      168,001,615      140,183,445
                                                   ------------     ------------
     Total deposits ..........................     $416,115,183     $355,866,553
                                                   ============     ============

As of  December  31,  2008  and  2007,  local  governmental  deposits  comprised
approximately  14% and 12% of total deposits,  respectively.  As of December 31,
2008 and 2007, $204,623 and $153,964,  respectively, of overdrawn demand deposit
balances  have been  reclassified  as loans.  As of December  31, 2008 and 2007,
deposits of directors,  officers and their related  business  interests  totaled
approximately $6,558,000 and $7,817,000, respectively.


                                       42
<PAGE>

At December 31, 2008, the scheduled maturities of time deposits are as follows:


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

                        2009                        $ 269,438,732
                        2010                           21,392,871
                        2011                              802,858
                        2012                            2,153,307
                        2013                              706,098
                  Thereafter                                    -

NOTE G - SHORT-TERM BORROWINGS

There were no short-term borrowings outstanding at December 31, 2008 and 2007.

As of December 31, 2008, the banking  subsidiary had an unused short-term credit
accommodation  available  from  an  unrelated  bank  which  allows  the  banking
subsidiary  to purchase up to  $6,900,000 of federal  funds.  The  accommodation
limits  the Bank's  ability to obtain  funds to  fourteen  days in any  calendar
month.  The  counterparties  may,  in their sole  discretion,  allow the banking
subsidiary to borrow for time periods  longer than indicated  above,  but higher
rates would be charged for such borrowings.


NOTE H - LONG-TERM DEBT

Long-term debt consisted of:

                                                              December 31,
                                                              ------------
                                                       2008                2007
                                                       ----                ----

Fixed rate notes due to FHLB .................       $3,000,000       $1,000,000
Variable rate notes due to FHLB ..............        6,500,000        3,500,000
                                                     ----------       ----------
                                                     $9,500,000       $4,500,000
                                                     ==========       ==========

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


                                       43
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                    December 31, 2008
                                                                                                    -----------------
                                                                                      Fixed Rate      Variable Rate          Total
                                                                                      ----------      -------------          -----
Due to Federal Home Loan Bank:
<S> <C>                                                                               <C>               <C>               <C>
Due 2009, interest rate 3.603% ...............................................        $1,500,000        $        -        $1,500,000
Due 2010, interest rate 3.834% ...............................................         1,500,000                 -         1,500,000
Due 2013, interest rate 3.7475% convertible to variable rate at ..............                 -         1,500,000         1,500,000
    lender's option on June 27, 2011
Due 2014, interest rate 3.9200% convertible to variable rate at ..............                 -         3,500,000         3,500,000
    lender's option on March 18, 2009
Due 2015, interest rate 3.9250% convertible to variable rate at ..............                 -         1,500,000         1,500,000
                                                                                      ----------        ----------        ----------
    lender's option on June 29, 2012
     Total long-term debt ....................................................        $3,000,000        $6,500,000        $9,500,000
                                                                                      ==========        ==========        ==========
</TABLE>

The  Company  has  pledged  certain  of its  first  mortgage  loans  secured  by
one-to-four  family  residential  properties  and its  holdings  of FHLB  stock,
included in the balance sheet in other investments,  (collectively,  "qualifying
collateral instruments") to secure its debt due to the FHLB under a blanket lien
agreement.  The amount of qualifying  collateral  instruments as of December 31,
2008  was  approximately  $26,427,000.  The  qualifying  collateral  instruments
required to secure the Company's  long-term debt as of December 31, 2008 totaled
approximately $13,571,000.

The banking  subsidiary had unused credit  availability under the FHLB's blanket
lien agreement of up to an additional $9,000,000 under the FHLB's various credit
programs,  subject  to  pledging  and  other  requirements.  The  amount of such
eligible collateral  instruments  remaining available as of December 31, 2008 to
secure any additional FHLB borrowings  totaled  approximately  $12,856,000.  The
Company also had unencumbered  investment securities issued by the FHLB totaling
$12,296,000  and  FHLB  stock  of  $1,219,600  which  could  be used  to  secure
additional advances of up to $13,515,600.


NOTE I - SHAREHOLDERS' EQUITY

Restrictions on Subsidiary Dividends, Loans or Advances - South Carolina banking
regulations restrict the amount of dividends that banks can pay to shareholders.
Any of the banking subsidiary's  dividends to the parent company which exceed in
amount the subsidiary's  current  year-to-date  earnings ($1,390,396 at December
31, 2008) are subject to the prior approval of the South  Carolina  Commissioner
of Banking. In addition,  dividends paid by the banking subsidiary to the parent
company would be prohibited if the effect thereof would cause the Bank's capital
to be reduced  below  applicable  minimum  capital  requirements.  Under Federal
Reserve  Board  regulations,  the amounts of loans or advances  from the banking
subsidiary  to the parent  company  are  generally  limited to 10% of the Bank's
capital stock and surplus on a secured basis.

Stock Dividends - For stockholders of record on December 20, 2008,  December 20,
2007 and December 18, 2006,  the  Company's  Board of Directors  declared  stock
dividends of 5%, 10% and 5%,  respectively.  All per share  information has been
retroactively adjusted to give effect to the stock dividends.

Accumulated  Other  Comprehensive  Income  (Loss) - As of December  31, 2008 and
2007,  accumulated other comprehensive  income (loss) included as a component of
shareholders'  equity in the accompanying  consolidated balance sheets consisted
of  accumulated  changes  in  the  unrealized  holding  gains  and  (losses)  on
available-for-sale  securities, net of income tax effects, amounting to $326,988
and $80,099, respectively.

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

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

                                       44
<PAGE>

<TABLE>
<CAPTION>
                                                                                                Years Ended December 31,
                                                                                                ------------------------
                                                                                        2008              2007              2006
                                                                                        ----              ----              ----
Net income per share, basic
<S>                                                                                 <C>                <C>                <C>
  Numerator - net income ..................................................         $1,342,498         $3,330,712         $3,017,969
                                                                                    ==========         ==========         ==========
  Denominator
     Weighted average common shares issued and outstanding ................          3,543,109          3,432,494          3,404,627
                                                                                    ==========         ==========         ==========
                     Net income per share, basic ..........................         $      .38         $      .97         $      .89
                                                                                    ==========         ==========         ==========

Net income per share, assuming dilution
  Numerator - net income ..................................................         $1,342,498         $3,330,712         $3,017,969
                                                                                    ==========         ==========         ==========
  Denominator
     Weighted average common shares issued and outstanding ................          3,543,109          3,432,494          3,404,627
     Effect of dilutive stock options .....................................            151,499            219,521            226,106
                                                                                    ----------         ----------         ----------
                     Total shares .........................................          3,694,608          3,652,015          3,630,733
                                                                                    ==========         ==========         ==========
                     Net income per share, assuming dilution ..............         $      .36         $      .91         $      .83
                                                                                    ==========         ==========         ==========
</TABLE>

For both 2008 and 2007,  the effect of dilutive  stock options  excludes  92,551
options that would have been anti-dilutive if included in the calculation of net
income per share,  assuming dilution.  There were no such anti-dilutive  options
excluded  from the  calculation  for 2006.  If the market price of the Company's
stock increases sufficiently, such shares may be included in future calculations
of earnings per share, assuming dilution.

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

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Company and its banking  subsidiary to maintain  minimum amounts and
ratios set forth in the table  below of Total and Tier 1 Capital,  as defined in
the regulations,  to risk weighted assets, as defined, and of Tier 1 Capital, as
defined, to average assets, as defined.  Management believes, as of December 31,
2008 and 2007,  that the Company and its  subsidiary  bank  exceeded all capital
adequacy minimum requirements.

As of December 31, 2008, the most recent  notification from the FDIC categorized
Community  First Bank as well  capitalized  under the  regulatory  framework for
prompt  corrective  action.  To be categorized as well capitalized as defined in
the Federal Deposit  Insurance Act,  Community First Bank must maintain  minimum
total risk-based,  Tier 1 risk-based, and Tier 1 leverage ratios as set forth in
the  table.  There are no  conditions  or events  since that  notification  that
management  believes have changed Community First Bank's category.  Bank holding
companies with higher levels of risk, or that are  experiencing  or anticipating
significant growth, are expected by the Federal Reserve to maintain capital well
above the minimums.  The Company's  and  Community  First Bank's actual  capital
amounts and ratios are also presented in the table.

                                       45
<PAGE>

<TABLE>
<CAPTION>
                                                                                              Minimum for          Minimum to be
                                                                          Actual          Capital Adequacy       Well Capitalized
                                                                          ------          ----------------       ----------------
                                                                    Amount      Ratio     Amount      Ratio     Amount       Ratio
                                                                    ------      -----     ------      -----     ------       -----
<S>                                                                <C>          <C>      <C>           <C>     <C>            <C>
December 31, 2008                                                                       (Dollars in thousands)
      The Company
           Total Capital to risk weighted assets                   $ 43,470     14.1%    $ 24,633      8.0%          NA          NA
           Tier 1 Capital to risk weighted assets                  $ 39,601     12.9%    $ 12,317      4.0%          NA          NA
           Tier 1 Capital to average assets (leverage)             $ 39,601      8.8%    $ 18,010      4.0%          NA          NA
      Community First Bank
           Total Capital to risk weighted assets                   $ 41,513     13.5%    $ 24,622      8.0%    $ 30,777       10.0%
           Tier 1 Capital to risk weighted assets                  $ 37,646     12.2%    $ 12,311      4.0%    $ 18,466        6.0%
           Tier 1 Capital to average assets (leverage)             $ 37,646      8.4%    $ 18,004      4.0%    $ 22,505        5.0%

December 31, 2007
      The Company
           Total Capital to risk weighted assets                   $ 40,405     17.3%    $ 18,642      8.0%          NA          NA
           Tier 1 Capital to risk weighted assets                  $ 37,831     16.2%    $  9,321      4.0%          NA          NA
           Tier 1 Capital to average assets (leverage)             $ 37,831      9.7%    $ 15,594      4.0%          NA          NA
      Community First Bank
           Total Capital to risk weighted assets                   $ 38,763     17.3%    $ 18,642      8.0%    $ 23,302       10.0%
           Tier 1 Capital to risk weighted assets                  $ 36,189     16.2%    $  9,321      4.0%    $ 13,981        6.0%
           Tier 1 Capital to average assets (leverage)             $ 36,189      9.7%    $ 15,594      4.0%    $ 19,492        5.0%
</TABLE>

Stock  Options - In 1998,  the  Company's  shareholders  approved the 1998 Stock
Option Plan under which an aggregate of 749,140 shares  (adjusted for subsequent
stock  dividends  and a stock split) of the  Company's  authorized  but unissued
common  stock was reserved  for  possible  issuance  pursuant to the exercise of
stock options.  Generally,  options could be granted to directors,  officers and
employees under terms and conditions, including expiration date, exercise price,
and vesting as determined by the Board of Directors.  In 1990, the  shareholders
approved the 1989  Incentive  Stock Option Plan.  The 1989 plan provided for the
granting of options to certain  eligible  employees and reserved  523,587 shares
(adjusted  for stock  dividends  and  splits)  of  authorized  common  stock for
issuance upon the exercise of such options.  Both the 1998 Stock Option Plan and
the 1989 Stock Option Plan have now  terminated.  Although some options  granted
under the 1998 and 1989 Plans can still be exercised,  no further options may be
granted.  For all stock options ever granted  under the two plans,  the exercise
price was the fair market  value of the  Company's  common stock on the date the
option was granted as determined by the Board of  Directors.  Options  terminate
according to the  conditions of the grant,  not to exceed 10 years from the date
of  grant.  The  expiration  of the  options  accelerates  upon  the  optionee's
termination  of  employment  with the  Company or death,  and vesting of options
accelerates  upon a change in control of the  Company,  in  accordance  with the
provisions of the two plans.

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



                                       46
<PAGE>

Transactions under the plans during 2008 are summarized as follows:

<TABLE>
<CAPTION>
                                                                              Year Ended December 31, 2008
                                                                              ----------------------------
                                                                                                    Weighted Average
                                                                                        Weighted         Remaining      Aggregate
                                                                                    Average Exercise  Contractual Life  Intrinsic
                                                                   Shares            Price Per share       (Years)       Value
                                                                   ------            ---------------       -------       -----
                                                                        (Dollars in thousands, except per share)
<S>                                                              <C>                  <C>                   <C>           <C>
Outstanding at beginning of year .........................       472,628              $   11.04
Granted ..................................................             -                      -
Exercised ................................................       (74,307)                  4.91
Forfeited or expired .....................................           (10)                  4.91
                                                                 -------
Outstanding at end of year ...............................       398,311              $   12.18             3.80          $ -
                                                                 =======                                                  ===

Options outstanding ......................................       398,311              $   12.18             3.80          $ -
  and expected to vest

Options exercisable at year-end ..........................       398,311              $   12.18             3.80          $ -
</TABLE>
---------------------------------------------
Numbers of shares and exercise  prices have been adjusted in the table above for
a 5% stock dividend effective December 20, 2008.

The aggregate  intrinsic  value of a stock option in the table above  represents
the pre-tax intrinsic value (the amount, if any, by which the current fair value
of the  underlying  stock  exceeds the amount  required to exercise the options)
that  would have been  received  by the  option  holder  had all option  holders
exercised  their options on December 31, 2008. At that date, the exercise prices
of all of the  Company's  outstanding  options  exceeded  the fair  value of the
Company's stock.

Information  pertaining to the fair values of stock  options  issued in 2006 and
the methods and  assumptions  used to estimate those values are included in Note
A.

The 1998 plan  terminated  on March 19,  2008,  and no  further  options  may be
granted  under the plan after that date.  The  Company  has no current  plans to
adopt a new stock option plan, though the Company's Board of Directors may do so
in the future.


                                       47
<PAGE>

NOTE J - OTHER EXPENSES

Other expenses are summarized below:

<TABLE>
<CAPTION>
                                                                                              Years Ended December 31,
                                                                                              ------------------------
                                                                                    2008                2007                 2006
                                                                                    ----                ----                 ----

<S>                                                                             <C>                  <C>                  <C>
Salaries and employee benefits ......................................           $4,537,173           $4,120,766           $3,647,451
Net occupancy expense ...............................................              514,488              432,852              346,610
Furniture and equipment expense .....................................              429,850              441,010              431,078
Debit card transaction expense ......................................              373,382              276,993              279,388
Other expense
     Stationery, printing and postage ...............................              328,126              286,382              299,042
     Telephone ......................................................              176,972              152,656              143,422
     Advertising and promotion ......................................              129,327              118,565              124,968
     Professional services ..........................................              290,528              284,907              202,278
     Insurance ......................................................               57,384               73,991               75,507
     FDIC insurance assessment ......................................              188,000               37,168               35,654
     Directors' compensation ........................................              115,400               94,400              392,471
     Foreclosed assets costs and expenses, net ......................                8,306                3,142                8,154
     Data processing expenses .......................................              357,561              250,728              272,867
     Other ..........................................................              560,873              558,036              492,875
                                                                                ----------           ----------           ----------
         Total ......................................................           $8,067,370           $7,131,596           $6,751,765
                                                                                ==========           ==========           ==========
</TABLE>

NOTE K - INCOME TAXES

Income tax expense consisted of:

                                               Years Ended December 31,
                                               ------------------------
                                          2008           2007           2006
                                          ----           ----           ----
Current
    Federal .......................   $ 1,146,790    $ 1,613,312    $ 1,528,379
    State .........................        62,568        150,575        136,871
                                      -----------    -----------    -----------
          Total current ...........     1,209,358      1,763,887      1,665,250
Deferred
    Federal .......................      (956,973)      (266,418)      (131,488)
                                      -----------    -----------    -----------
          Total income tax expense    $   252,385    $ 1,497,469    $ 1,533,762
                                      ===========    ===========    ===========

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


                                                 Years Ended December 31,
                                                 ------------------------
                                              2008         2007         2006
                                              ----         ----         ----

Provision for loan losses ............    $(892,982)    $(109,564)    $   7,971
Accelerated depreciation .............       87,063        (5,049)      (18,701)
Deferred net loan costs and fees .....       (7,710)      (24,201)      (34,576)
Writedowns of other real estate ......            -             -         9,906
Non-qualified stock options ..........            -             -       (96,088)
Deferred compensation expense ........     (143,344)     (127,604)            -
                                          ---------     ---------     ---------
          Total ......................    $(956,973)    $(266,418)    $(131,488)
                                          =========     =========     =========

Income before income taxes  presented in the  consolidated  statements of income
for the years  ended  December  31,  2008,  2007 and 2006  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:

                                       48
<PAGE>

<TABLE>
<CAPTION>
                                                                                              Years Ended December 31,
                                                                                      2008              2007             2006
                                                                                      ----              ----             ----

<S>                                                                             <C>                 <C>                 <C>
Tax expense at statutory rate ..........................................        $   542,260         $ 1,641,582         $ 1,547,589
State income tax, net of federal
     income tax benefit ................................................             41,295              99,380              90,335
Tax-exempt interest income .............................................           (282,276)           (276,416)           (220,098)
Non-deductible interest expense to
     carry tax-exempt instruments ......................................             41,195              46,616              34,608
Non-taxable increase in value of life insurance contracts ..............           (127,504)            (36,647)                  -
Other, net .............................................................             37,415              22,954              81,328
                                                                                -----------         -----------         -----------
             Total .....................................................        $   252,385         $ 1,497,469         $ 1,533,762
                                                                                ===========         ===========         ===========
</TABLE>

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

                                                               December 31,
                                                               ------------
                                                          2008             2007
                                                          ----             ----
Deferred tax assets
     Allowance for loan losses ...................     $1,595,604     $  702,622
     Deferred net loan fees ......................        133,924        126,214
     Non-qualified stock options .................         96,088         96,088
     Deferred compensation .......................        270,948        127,604
     Unrealized net holding losses on
       available-for-sale securities .............              -              -
                                                       ----------     ----------
             Gross deferred tax assets ...........      2,096,564      1,052,528
     Valuation allowance .........................              -              -
                                                       ----------     ----------
             Total ...............................      2,096,564      1,052,528
                                                       ----------     ----------

Deferred tax liabilities
     Accelerated depreciation ....................        282,474        195,411
     Unrealized net holding gains on
       available-for-sale securities .............        183,132         44,860
                                                       ----------     ----------
             Gross deferred tax liabilities ......        465,606        240,271
                                                       ----------     ----------
Net deferred income tax assets ...................     $1,630,958     $  812,257
                                                       ==========     ==========

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 2008, 2007 and 2006,  $138,272 was charged,  $450,431 and
$377,023,  respectively,  was  charged  to other  comprehensive  income or loss,
respectively.  In  2008,  2007  and  2006,  $956,973,  $266,418,  and  $131,488,
respectively, was credited to income tax expense.

Management  believes that the Company will fully realize the deferred tax assets
as of December 31, 2008 and 2007 based on refundable income taxes available from
carryback years, as well as estimates of future taxable income.

As of December  31, 2008 and 2007,  the Company had no tax  benefits  disallowed
under FASB  Interpretation 48 "Accounting for Uncertainty in Income Taxes" ("FIN
48"). A tax position is  recognized as a benefit only if it is "more likely than
not" that the tax position would be sustained in a tax  examination,  with a tax
examination being presumed to occur. The amount recognized is the largest amount
of tax  benefit  that  is  greater  than  50%  likely  of  being  realized  upon
examination. For tax benefits that do meet the "more likely than not" criterion,
no tax benefit is recorded.

The Company and its  subsidiary  are subject to US federal income tax as well as
income tax of the State of South  Carolina.  The Company is no longer subject to
examination  by these taxing  authorities  for years before 2005 for federal and
state income tax.

                                       49
<PAGE>

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

NOTE L - RETIREMENT PLAN

The Company  sponsors the Community  First Bank 401(k) Plan (the "401(k)  Plan")
for the exclusive  benefit of all eligible  employees  and their  beneficiaries.
Employees  are  eligible to  participate  in the 401(k) Plan with no minimum age
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 2008, 2007 and 2006 totaled $73,039,
$84,941, and $66,764, respectively.

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

NOTE M - COMMITMENTS AND CONTINGENCIES

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

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

                                                           December 31,
                                                           ------------
                                                    2008                2007
                                                    ----                ----

Loan commitments .......................         $30,485,940         $35,953,550
Standby letters of credit ..............             914,735           1,038,600

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.

Litigation - The Company and its  subsidiary  were not involved as defendants in
any  litigation at December 31, 2008.  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.

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

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

                                       50
<PAGE>

NOTE N - DISCLOSURES ABOUT FAIR VALUES

SFAS No. 157, "Fair Value  Measurements," which became effective for the Company
on January 1, 2008 provides a consistent definition of fair value, establishes a
framework for measuring fair value and expands the disclosures about fair value.
In February 2008, the Financial  Accounting Standards Board Staff issued FSP FAS
157-2 which deferred for one year the effective date of the  application of SFAS
No.  157 to  nonfinancial  assets  and  liabilities,  except  for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually).  Accordingly,  the Company has only partially applied
SFAS No. 157.  There are currently no major  categories of assets or liabilities
disclosed at fair value in the  financial  statements  for which the Company has
not applied  the  provisions  of SFAS No.  157. It is expected  that the initial
application of the deferred  provisions of SFAS No. 157 will not have a material
effect on the  Company's  financial  position,  its result of operations or cash
flows.

No cumulative effect adjustments were required upon initial  application of SFAS
No.  157.  Available-for-sale  securities  continue to be measured at fair value
with  unrealized  gains and  losses,  net of  income  taxes,  recorded  in other
comprehensive income or (loss).

SFAS No.  159,  "The Fair  Value  Option  for  Financial  Assets  and  Financial
Liabilities,  Including an amendment of FASB  Statement  No. 115," was effective
for the Company on January 1, 2008. This Statement permits entities to choose to
measure many  financial  instruments  and certain other items at fair value with
changes in the unrealized  gains and losses on those items included in earnings.
The Company's  decision  about whether to elect the fair value option  generally
may be applied on an  instrument-by-instrument  basis, is irrevocable  (unless a
new election date  occurs),  and is applied to an entire  instrument  and not to
only specific  risks,  specific cash flows or portions of that  instrument.  The
objective  of the  Statement  is to improve  financial  reporting  by  providing
entities with the  opportunity to mitigate the  volatility of reported  earnings
caused by  measuring  related  assets and  liabilities  without  having to apply
complex hedge  accounting  provisions.  The Statement also provided for enhanced
presentation  and  disclosure  requirements  to facilitate  comparisons  between
entities  that choose  different  measurement  attributes  for similar  types of
assets and liabilities.  Generally, the option to value an asset or liability at
fair value must be exercised at the date that the Company first  recognizes  the
asset or  liability.  The  Company  has not  elected  to  value  any  assets  or
liabilities at fair value pursuant to SFAS No. 159.

Under SFAS No.  157,  fair value is the price that would be  received to sell an
asset  or  transfer  a  liability  in  an  orderly  transaction  between  market
participants at the measurement date. Fair value under this Standard may reflect
actual transaction prices or may reflect the application of valuation techniques
if the transaction was between related parties,  the transaction  occurred under
duress, or other circumstances where the transaction price may not be indicative
of  the  fair  value  of the  particular  asset  or  liability.  When  valuation
techniques are used, the inputs may be either  observable or unobservable.  SFAS
157 establishes a three level hierarchy for fair value  measurements  based upon
the transparency of inputs to the valuation technique. Assets or liabilities may
be measured at fair value on either a recurring basis or a non-recurring  basis.
SFAS No. 157 proscribes different  disclosures  requirements for those different
measurement attributes.

When available,  fair value is based upon quoted market prices in active markets
for identical  assets or liabilities  (Level 1 inputs) or for similar assets and
liabilities  or upon  inputs  that are  observable  for the asset or  liability,
either directly or indirectly (Level 2 inputs). When neither Level 1 nor Level 2
inputs are  available,  the Company  may use  unobservable  inputs  which may be
significant to the fair value  measurement  (Level 3). The lowest level of input
that  is  significant  to  the  fair  value  measurement  determines  an  item's
categorization within the fair value hierarchy.

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

                                       51
<PAGE>

<TABLE>
<CAPTION>
                                                                                Fair Value Measurement at Reporting Date Using
                                                                                ----------------------------------------------
                                                                        Quoted Prices
                                                                          in Active            Significant
                                                                         Markets for              Other                 Significant
                                                                          Identical            Observable               Unobservable
                                                                           Assets                Inputs                    Inputs
Description                                  December 31, 2008           (Level 1)             (Level 2)                 (Level 3)
-----------                                  -----------------           ---------             ---------                 ---------

<S>                                                                      <C>                 <C>                           <C>
Securities available-for-sale ............                               $       -           $126,635,534                  $    -
</TABLE>

Pricing for the  Company's  securities  available-for-sale  is obtained  from an
independent third-party that uses a process that may incorporate current prices,
benchmark  yields,  broker/dealer  quotes,  issuer spreads,  two-sided  markets,
benchmark  securities,  bids,  offers,  other  reference  items and industry and
economic events that a market  participant would be expected to use as inputs in
valuing the  securities.  Not all of the inputs listed apply to each  individual
security at each measurement  date. The independent third party assigns specific
securities  into an "asset  class" for the purpose of assigning  the  applicable
level of the fair value hierarchy used to value the securities. The methods used
after adoption of SFAS No. 157 are consistent with the methods used previously.

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

<TABLE>
<CAPTION>
                                                                                Fair Value Measurement at Reporting Date Using
                                                                                ----------------------------------------------
                                                                        Quoted Prices
                                                                          in Active              Significant
                                                                         Markets for                Other              Significant
                                                                          Identical              Observable            Unobservable
                                                                           Assets                  Inputs                 Inputs
Description                                  December 31, 2008           (Level 1)               (Level 2)              (Level 3)
-----------                                  -----------------           ---------               ---------              ---------

<S>                                                                       <C>                    <C>                     <C>
Collateral dependent impaired loans                                       $     -                $ 10,159,899            $     -
</TABLE>

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

SFAS No. 107,  "Disclosures  about Fair  Values of  Financial  Instruments,"  as
amended,  requires  disclosure of the estimated fair value of certain on-balance
sheet  and  off-balance   sheet  financial   instruments  and  the  methods  and
assumptions  used to  estimate  their fair  values.  A financial  instrument  is
defined 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.  Financial  instruments within the scope of SFAS
No. 157 that are not carried at fair value on the  Consolidated  Balance  Sheets
are  discussed  below.  Additionally,  certain  financial  instruments  and  all
nonfinancial   instruments  are  excluded  from  the  scope  of  SFAS  No.  157.
Accordingly,  the fair value disclosures required by SFAS No. 157 provide only a
partial estimate of the Company's fair value.

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

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

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


                                       52
<PAGE>

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

The fair value of deposits with no stated maturity  (noninterest bearing demand,
interest  bearing  transaction  accounts and savings) is estimated as the amount
payable on demand,  or carrying  amount,  as required by SFAS No. 157.  The fair
value of time  deposits is estimated  using a discounted  cash flow  calculation
that applies rates currently offered to aggregate expected maturities.

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

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

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

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

<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                             ------------
                                                                              2008                                 2007
                                                                              ----                                 ----
                                                                   Carrying         Estimated          Carrying          Estimated
                                                                   Amount          Fair Value           Amount          Fair Value
                                                                   ------          ----------           ------          ----------
Financial assets
<S>                                                            <C>                <C>                <C>                <C>
   Cash and due from banks .............................       $  9,204,306       $  9,204,306       $ 10,272,260       $ 10,272,260
   Interest bearing deposits due from banks ............         12,969,193         12,969,193            164,781            164,781
   Federal funds sold ..................................         18,793,000         18,793,000         24,236,000         24,236,000
   Securities available-for-sale .......................        126,635,534        126,635,534         99,026,049         99,026,049
   Securities held-to-maturity .........................         11,910,268         12,238,445          5,663,113          5,625,083
   Federal Home Loan Bank stock ........................          1,219,600          1,219,600            839,900            839,900
   Loans ...............................................        264,938,023        265,053,000        241,557,255        238,670,000
   Accrued interest receivable .........................          2,775,788          2,775,788          2,529,155          2,529,155
Financial liabilities
   Deposits ............................................        416,115,183        376,043,000        355,866,553        357,308,000
   Accrued interest payable ............................          3,044,981          3,044,981          3,479,569          3,479,569
   Long-term debt ......................................          9,500,000         10,232,000          4,500,000          4,483,000
</TABLE>

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


                                       53
<PAGE>

<TABLE>
<CAPTION>
                                                                                               December 31,
                                                                                               ------------
                                                                                 2008                                2007
                                                                                 ----                                ----
                                                                     Notional/        Estimated             Notional/      Estimated
                                                                      Contract          Fair                Contract         Fair
                                                                      Amount           Value                Amount           Value
                                                                      ------           -----                ------           -----
Off-balance sheet commitments
<S>                                                                 <C>               <C>                 <C>              <C>
Loan commitments .......................................            $30,485,940       $      -            $35,953,550      $       -
Standby letters of credit ..............................                914,735              -              1,038,600              -
</TABLE>

NOTE O - ACCOUNTING CHANGES

In December  2007, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of  Financial  Accounting  Standard  ("SFAS")  No.  141(R),  "Business
Combinations"  ("SFAS 141(R)") which replaces SFAS 141. SFAS 141(R)  establishes
principles  and  requirements  for how an  acquirer  in a  business  combination
recognizes  and measures in its financial  statements  the  identifiable  assets
acquired, the liabilities assumed, and any controlling interest;  recognizes and
measures  goodwill  acquired  in the  business  combination  or any gain  from a
bargain purchase; and determines what information to disclose to enable users of
the  financial  statements  to evaluate  the nature and effects of the  business
combination.  SFAS 141(R) is effective for  acquisitions  by the Company  taking
place on or after January, 1, 2009. Early adoption is prohibited. Accordingly, a
calendar   year-end   entity  is  required  to  record  and  disclose   business
combinations  following existing  accounting guidance until January 1, 2009. The
Company  will assess the effect of SFAS 141(R) if and when a future  acquisition
occurs.

In December  2007,  the FASB issued SFAS No. 160,  "Noncontrolling  Interests in
Consolidated  Financial  Statements - an amendment of ARB No. 51" ("SFAS  160").
SFAS  160   establishes   new  accounting   and  reporting   standards  for  the
noncontrolling  interest  in a  subsidiary  and  for  the  deconsolidation  of a
subsidiary.  Before this  statement,  limited  guidance  existed  for  reporting
noncontrolling interests (formerly known as "minority interests").  As a result,
diversity in practice exists. In some cases,  minority interests are reported as
a liability and in other cases it is reported in the mezzanine  section  between
liabilities  and equity.  Specifically,  SFAS 160 requires the  recognition of a
noncontrolling  interest as equity in the consolidated  financial statements and
separate from the parent company's equity. The amount of net income attributable
to the  noncontrolling  interest will be included in consolidated  net income in
the consolidated income statement. SFAS 160 clarifies that changes in a parent's
ownership  interest in a subsidiary  that do not result in  deconsolidation  are
equity transactions if the parent retains its controlling financial interest. In
addition,  this statement requires that the parent recognize gain or loss in net
income when a subsidiary is  deconsolidated.  Such gain or loss will be measured
using  the  fair  value  of  the   noncontrolling   equity   investment  on  the
deconsolidation  date. SFAS 160 also includes expanded  disclosure  requirements
regarding the interest of the parent and its noncontrolling  interests. SFAS 160
was  effective  for the  Company  on  January  1,  2009 and had no effect on the
Company's financial position, results of operations or cash flows.

In March  2008,  the FASB issued SFAS No.  161,  "Disclosures  about  Derivative
Instruments and Hedging  Activities"  ("SFAS 161").  SFAS 161 requires  enhanced
disclosure  about  an  entity's  derivative  and  hedging  activities,   thereby
improving  the  transparency  of  financial  reporting.  It  requires  that  the
objectives for using derivative  instruments be disclosed in terms of underlying
risk and accounting  designation thereby conveying the purpose of derivative use
in terms of the risks that the entity is intending to manage. SFAS was effective
for the Company on January 1, 2009 and will result in  additional  disclosure if
the Company enters into any material derivative or hedging activities.

In February 2008, the FASB issued FASB Staff Position No. 142-3,  "Determination
of the Useful Life of Intangible  Assets"  ("FSP  142-3").  This Staff  Position
amends the factors that should be considered in developing  renewal or extension
assumptions  used to determine the useful life of a recognized  intangible asset
under SFAS No. 142,  "Goodwill and Other  Intangible  Assets" ("SFAS 142").  The
intent of this Staff Position is to improve the  consistency  between the useful
life of a recognized  intangible asset under SFAS 142 and the period of expected
cash  flows used to measure  the fair value of the asset  under SFAS  141(R) and
other U.S. generally  accepted  accounting  principles.  This Staff Position was
effective  for the Company on January 1, 2009 and had no material  impact on the
Company's financial position, results of operations or cash flows.

In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally  Accepted
Accounting  Principles"  ("SFAS  162").  SFAS  162  identifies  the  sources  of
accounting principles and the framework for selecting the principles used in the
preparation  of  financial  statements  of  nongovernmental  entities  that  are
presented in conformity with generally accepted  accounting  principles ("GAAP")
is the United States (the GAAP hierarchy).  SFAS 162 was effective  November 15,

                                       54
<PAGE>

2008. The FASB has stated that it does not expect that SFAS 162 will result in a
change in current  practice.  The  application  of SFAS 162 had no effect on the
Company's financial position, results of operations or cash flows.

In May 2008, the FASB issued FASB Staff Position No. APB 14-1,  "Accounting  for
Convertible  Debt  Instruments  That  May Be  Settled  in Cash  upon  Conversion
(Including  Partial  Cash  Settlement)"  ("FSP APB 14-1").  This Staff  Position
specifies that issuers of convertible  debt  instruments  that may be settled in
cash upon  conversion  should  separately  account for the  liability and equity
components  in a manner  that will  reflect  the  entity's  nonconvertible  debt
borrowing rate when interest cost is recognized in a subsequent  period. FSP APB
14-1  provides  guidance  for  initial  and  subsequent  measurement  as well as
derecognition provisions. The Staff Position was effective as of January 1, 2009
and had no  material  effect on the  Company's  financial  position,  results of
operations or cash flows.

In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1,  "Determining
Whether   Instruments   Granted  in   Share-Based   Payment   Transactions   are
Participating Securities" ("FSP EITF 03-6-1"). This Staff Position provides that
unvested  share-based  payment  awards  that  contain  nonforfeitable  rights to
dividends  or dividend  equivalents  are  participating  securities  and must be
included in the earnings per share  computation.  FSP EITF 03-6-1 was  effective
January 1, 2009 and had no effect on the Company's financial  position,  results
of operations, earnings per share or cash flows.

FASB  Staff  Position  SFAS  133-1  and  FIN  45-4  "Disclosures   about  Credit
Derivatives and Certain  Guarantees:  An Amendment of FASB Statement No. 133 and
FASB  Interpretation  No. 45; and  Clarification  of the Effective  Date of FASB
Statement No. 161" ("FSP SFAS 133-1 and FIN 45-4") was issued in September  2008
effective for reporting  periods  (annual or interim)  ending after November 15,
2008.  FSP SFAS  133-1 and FIN 45-4  amends  SFAS 133 to  require  the seller of
credit derivatives to disclose the nature of the credit derivative,  the maximum
potential amount of future payments,  the fair value of the derivative,  and the
nature of any recourse  provisions.  Disclosures  must be made for entire hybrid
instruments that have embedded credit derivatives.

FSP SFAS 133-1 and FIN 45-4 also amends FASB Interpretation No. 45 ("FIN 45") to
require disclosure of the current status of the payment/performance  risk of the
credit derivative guarantee. If an entity utilizes internal groupings as a basis
for the risk,  disclosure  must also be made of how the groupings are determined
and how the risks are managed.

The Staff Position encourages that the amendments be provided in periods earlier
than the effective  date to facilitate  comparisons at initial  adoption.  After
initial  adoption,  comparative  disclosures  are required  only for  subsequent
periods.

FSP SFAS 133-1 and FIN 45-4  clarifies the effective  date of SFAS 161 such that
required  disclosures  should be provided for any  reporting  period  (annual or
interim)  beginning after November 15, 2008. The adoption of this Staff Position
had  no  material  effect  on  the  Company's  financial  position,  results  of
operations or cash flows.

The Securities and Exchange  Commission's Office of the Chief Accountant and the
staff of the FASB issued press  release  2008-234 on September  30, 2008 ("Press
Release")  to  provide  clarification  about fair  value  accounting.  The Press
Release includes  guidance on the use of management's  internal  assumptions and
the use of  "market"  quotes.  It  also  reiterates  the  factors  in SEC  Staff
Accounting  Bulletin  Topic 5M  which  should  be  considered  when  determining
other-than-temporary  impairment:  the  length  of time and  extent to which the
market  value  has been  less  than  cost;  financial  condition  and  near-term
prospects of the issuer;  and the intent and ability of the holder to retain its
investment for a period of time sufficient to allow for any anticipated recovery
in market value.

On October 10, 2008, the FASB issued FSP SFAS 157-3  "Determining the Fair Value
of a Financial  Asset When the Market for That Asset Is Not  Active"  ("FSP SFAS
157-3").  This FSP  clarifies  the  application  of SFAS  No.  157  "Fair  Value
Measurements"  ) (see Note N) in a market  that is not  active and  provides  an
example to illustrate  key  considerations  in  determining  the fair value of a
financial  asset  when the  market  for that  asset is not  active.  The FSP was
effective upon issuance,  including prior periods for which financial statements
had not yet been issued.

The Company considered  guidance in the Press Release and in FSP SFAS 157-3 when
conducting  its review for  other-than  temporary  impairment as of December 31,
2008 as discussed in Note C.

FSP SFAS 140-4 and FIN 46(R)-8  "Disclosures  by Public  Entities  (Enterprises)
about Transfers of Financial Assets and Interest in Variable Interest  Entities"
was issued in December 2008 to require public  companies to disclose  additional
information  about  transfers  of  financial  assets  and any  involvement  with
variable interest entities. The FSP also requires certain disclosures for public
entities that are sponsors and servicers of qualifying special purpose entities.
The FSP is effective for the first  reporting  period ending after  December 15,
2008.  Application  of this FSP had no impact on the  financial  position of the
Company.

                                       55
<PAGE>

NOTE P - COMMUNITY FIRST BANCORPORATION (PARENT COMPANY ONLY)

<TABLE>
<CAPTION>
                                                                                                              December 31,
                                                                                                              ------------
                                                                                                       2008                 2007
                                                                                                       ----                 ----
Condensed Balance Sheets
        Assets
<S>                                                                                                <C>                   <C>
               Cash ....................................................................           $ 1,794,968           $ 1,633,623
               Investment in banking subsidiary ........................................            37,972,839            36,269,433
               Land ....................................................................               138,551                     -
               Other assets ............................................................                24,675                 7,932
                                                                                                   -----------           -----------
                     Total assets ......................................................           $39,931,033           $37,910,988
                                                                                                   ===========           ===========
        Liabilities
               Other liabilities .......................................................           $     3,410           $         -
        Shareholders' equity ...........................................................            39,927,623            37,910,988
                                                                                                   -----------           -----------
                     Total liabilities and shareholders' equity ........................           $39,931,033           $37,910,988
                                                                                                   ===========           ===========
</TABLE>


<TABLE>
<CAPTION>
                                                                                             Years Ended December 31,
                                                                                             ------------------------
                                                                                    2008               2007                 2006
                                                                                    ----               ----                 ----
Condensed Statements of Income
        Income
<S>                                                                             <C>                 <C>                 <C>
               Interest income .........................................        $    27,590         $    41,048         $    38,182
               Other income ............................................                  -                   -                   -
                                                                                -----------         -----------         -----------
                     Total income ......................................             27,590              41,048              38,182
                                                                                -----------         -----------         -----------
        Expenses
               Other expenses ..........................................            100,163              64,378              73,953
                                                                                -----------         -----------         -----------
                     Total expenses ....................................            100,163              64,378              73,953
                                                                                -----------         -----------         -----------
        Income (loss) before income taxes and equity in
               undistributed earnings of banking subsidiary ............            (72,573)            (23,330)            (35,771)
        Income tax expense (credit) ....................................            (24,675)             (7,932)            (12,162)
        Equity in undistributed earnings
               of banking subsidiary ...................................          1,390,396           3,346,110           3,041,578
                                                                                -----------         -----------         -----------
        Net income .....................................................        $ 1,342,498         $ 3,330,712         $ 3,017,969
                                                                                ===========         ===========         ===========
</TABLE>



                                       56
<PAGE>


<TABLE>
<CAPTION>
                                                                                                  Years Ended December 31,
                                                                                                  ------------------------
                                                                                            2008           2007            2006
                                                                                            ----           ----            ----
Condensed Statements of Cash Flows
        Operating activities
<S>                                                                                     <C>             <C>             <C>
               Net income ..........................................................    $ 1,342,498     $ 3,330,712     $ 3,017,969
                     Adjustments to reconcile net income to net
                            cash used by operating activities
                                  Equity in undistributed earnings
                                    of banking subsidiary ..........................     (1,390,396)     (3,346,110)     (3,041,578)
                                  (Increase) decrease in other assets ..............        (16,743)          4,230          (1,337)
                                  Other ............................................              2               -               -
                                                                                        -----------     -----------     -----------
                                    Net cash used by operating activities ..........        (64,639)        (11,168)        (24,946)
                                                                                        -----------     -----------     -----------
        Investing activities
               Purchase of land ....................................................       (138,551)              -               -
                                                                                        -----------     -----------     -----------
                                  Net cash used by investing activities ............       (138,551)              -               -
                                                                                        -----------     -----------     -----------
        Financing activities
               Exercise of employee stock options ..................................        364,535         478,090          83,197
               Payment of cash in lieu of fractional
                     shares for stock dividend .....................................              -          (5,495)         (6,803)
                                                                                        -----------     -----------     -----------
                                    Net cash provided by financing activities ......        364,535         472,595          76,394
                                                                                        -----------     -----------     -----------
        Increase in cash and cash equivalents ......................................        161,345         461,427          51,448
        Cash and cash equivalents, beginning .......................................      1,633,623       1,172,196       1,120,748
                                                                                        -----------     -----------     -----------
        Cash and cash equivalents, ending ..........................................    $ 1,794,968     $ 1,633,623     $ 1,172,196
                                                                                        ===========     ===========     ===========
</TABLE>


                                       57