Exhibit 13




















                 Portions of 2003 Annual Report to Shareholders
                           Incorporated by Reference





<PAGE>

Market for Common Stock and Dividends

Although  a  limited  number of  shares  of  common  stock of  Clover  Community
Bankshares,  Inc. (the  "Company") are traded from time to time on an individual
basis,  no  established  trading  market has  developed  and none is expected to
develop  in the near  future.  The  common  stock is not  traded  on the  NASDAQ
National  Market  System,  nor are there any market makers known to  management.
During 2003,  management was aware of a few  transactions in which the Company's
common stock traded at $25.00 per share. However, management has not ascertained
that these transactions are the result of arm's length negotiations  between the
parties, and because of the limited number of shares involved,  these prices may
not be indicative of the market value of the common stock.

Shareholders may purchase additional common shares in the Company by reinvesting
their  cash  dividends  under  the  Company's  dividend  reinvestment  plan (the
"Reinvestment  Plan"). Under the Reinvestment Plan, 2,198 and 3,455 newly issued
shares were purchased by  shareholders  in 2003 and 2002 at prices of $28.56 and
$30.86 per share,  respectively,  in  accordance  with the  Reinvestment  Plan's
pricing formula. In 2003 and 2002, 4,000 and 4,332, shares, respectively, of the
Company's   common  stock  were   repurchased,   primarily   from   eleemosynary
organizations,  and retired.  The average price for such share  repurchases  and
retirements in 2003 and 2002 was $25.00 per share.  These prices were set at the
discretion  of the  Company's  Board of Directors.  Prices  established  for the
issuance of shares under the  Reinvestment  Plan and for  repurchases may not be
indicative of the market value of the common stock.

As of February 24, 2004, there were  approximately  725 holders of record of the
Company's common stock,  excluding individual  participants in security position
listings.

The Company has paid an annual cash dividend  since 1991. In 2003 and 2002,  the
Company  declared and paid cash dividends to shareholders of $0.50 and $0.75 per
share, respectively.

The Board of Directors  considers such factors as adequacy of capital to support
future growth,  regulatory  capital  requirements,  maximum legal lending limits
based on capital levels and profitability in making its decisions regarding cash
dividends.  The Company's  ability to declare and pay cash  dividends is largely
dependent upon the successful  operation of the 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 Bank 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 Bank or the Company to be reduced below minimum capital requirements.

Management's Discussion and Analysis

This  discussion  is  intended  to  assist  in  understanding  the  consolidated
financial  condition and results of operations of Clover  Community  Bankshares,
Inc. and its  wholly-owned  subsidiary,  Clover Community Bank. This information
should be reviewed in conjunction with the consolidated financial statements and
related notes contained elsewhere in this report.

Critical Accounting Policies

The  Company  has  adopted  various  accounting   policies,   which  govern  the
application of accounting  principles generally accepted in the United States of
America in the preparation of the Company's  consolidated  financial statements.
The significant accounting policies of the Company are described in the notes to
the consolidated financial statements.

Certain  accounting  policies involve  significant  judgments and assumptions by
management, which have a material impact on the carrying value of certain assets
and liabilities.  Management  considers such accounting  policies to be critical
accounting policies.  The judgments and assumptions used by management are based
on historical  experience  and other factors which are believed to be reasonable

<PAGE>

under the circumstances.  Because of the nature of the judgments and assumptions
made by  management,  actual  results  could  differ  from these  judgments  and
estimates,  which could have a material  impact on the carrying values of assets
and liabilities and the results of operations of the Company.

The Company  believes  the  allowance  for loan losses is a critical  accounting
policy that  requires  the most  significant  judgments  and  estimates  used in
preparation  of its  consolidated  financial  statements.  Refer to the  section
"Provision  for Loan Losses" and  "Allowance  for Loan Losses" and Note 1 to the
consolidated  financial  statements for a detailed  description of the Company's
estimation process and methodology related to the allowance for loan losses.

Forward Looking Statements

Statements  included  in  Management's  Discussion  and  Analysis  which are not
historical  in  nature  are  intended  to  be,  and  are  hereby  identified  as
"forward-looking statements" for purposes of the safe harbor provided by Section
21E  of the  Securities  Exchange  Act  of  1934,  as  amended.  Forward-looking
statements include statements concerning plans,  objectives,  goals, strategies,
future events or performance  and underlying  assumptions  and other  statements
which are other  than  statements  of  historical  facts.  Such  forward-looking
statements  may be  identified,  without  limitation,  by the  use of the  words
"anticipates,"   "believes,"   "estimates,"   "expects,"   "intends,"   "plans,"
"predicts,"  "projects," and similar  expressions.  The Company's  expectations,
beliefs and  projections  are  expressed  in good faith and are  believed by the
Company to have a reasonable basis,  including without limitation,  management's
examination  of historical  operating  trends,  data  contained in the Company's
records  and  other  data  available  from  third  parties,  but there can be no
assurance that management's expectations,  beliefs or projections will result or
be achieved or  accomplished.  The Company cautions readers that forward looking
statements,  including  without  limitation,  those relating to future  business
prospects,  revenues, working capital, liquidity, capital needs, interest costs,
adequacy of the  allowance for loan losses,  and income,  are subject to certain
risks and  uncertainties  that could cause actual  results to differ  materially
from those indicated in the forward-looking statements, due to several important
factors herein identified,  among others, and other risks and factors identified
from  time to time in the  Company's  reports  filed  with  the  Securities  and
Exchange Commission.

Earnings Performance

2003 Compared with 2002

The Company  recorded  net income of $766,000  for the year ended  December  31,
2003, a decrease of $66,000,  or 7.9%, from net income of $832,000 for 2002. Net
income per share for 2003 was  $0.75,  compared  with $0.82 for 2002.  Return on
average assets and return on average  equity were 1.06% and 9.68%,  respectively
for 2003 and 1.39% and 10.58%, respectively, for 2002.

The  Company's  net  income  for  2003 was  lower  than  2002.  An  increase  in
noninterest  expenses of $527,000 as a result of staffing and opening of the new
Lake Wylie  branch,  which opened in late 2002,  and realized  gains on sales of
investment  securities totaling $273,000 in 2002 as compared to no such gains in
2003 were major  contributors  to the decrease.  However,  these  decreases were
offset by a decrease in the provision for loan losses which  decreased  $261,000
to $96,000.  The provision for loan losses decreased  primarily as a result of a
$265,000  decrease in net  charge-offs  during 2003, the decrease to $194,000 in
nonaccrual  loans at December  31, 2003 as compared to $432,000 a year  earlier,
and  management's  judgment  with  respect to  current  and  projected  economic
conditions.

Net interest  income was $2,800,000 for 2003 compared to $2,424,000 for 2002, an
increase of $376,000,  or 15.51%.  This increase is a result of an approximately
$2,878,000  increase in average  earning  assets and  liabilities  offset by the
impact of a decline in interest  rates as a result of the actions during 2003 by
the Board of Governors of the Federal  Reserve System as it continued to provide
stimulus to the national economy through low, stable, interest rates.

Comprehensive income for 2003 and 2002 was $693,000 and $816,000,  respectively.
Accounting principles generally require that recognized revenue, expenses, gains
and losses be included in net  income.  Comprehensive  income for the Company is
correlated  directly to the effects that  changing  conditions  have on the fair
values of the Company's holdings of available-for-sale securities. The resulting
changes in unrealized  holding gains and losses on such  securities are reported
as a separate  component of  shareholders'  equity.  Such items,  along with net
income, comprise comprehensive income.



                                       2
<PAGE>

The table, "Average Balances, Yields and Rates", provides a detailed analysis of
the effective  yields and rates on the  categories of average  interest  earning
assets and interest  bearing  liabilities  for the years ended December 31, 2003
and 2002.
                       Average Balances, Yields and Rates

<TABLE>
<CAPTION>
                                                                          2003                                   2002
                                                       --------------------------------------    -----------------------------------
(Dollars in thousands)                                   Average         Income/      Yields/    Average        Income/      Yields/
                                                       Balances (1)     Expense        Rates     Balances (1)   Expense      Rates
                                                       ------------     -------        -----     ------------   -------      -----
Assets:
Interest-bearing deposits in other
<S>                                                    <C>              <C>             <C>     <C>            <C>             <C>
   Banks ........................................      $     15              1          6.66%   $     29       $     1         3.45%
Securities
   Taxable ......................................        13,075            409          3.13      12,161           585         4.81
    Tax-exempt (2) ..............................         5,502            323          5.87       4,514           329         7.29
                                                       --------         ------                  --------       -------

         Total securities .......................        18,577            732          3.94      16,675           914         5.48

Nonmarketable equity securities .................           250             10          4.00         250            13         5.20
Federal funds sold ..............................         6,345             84          1.32       4,187            66         1.58
Loans receivable (3) ............................        42,509          2,919          6.87      33,677         2,553         7.58
                                                       --------         ------                  --------       -------

       Total interest earning assets ............        67,696          3,746          5.53      54,818         3,547         6.47
Cash and due from banks .........................         1,721                                    2,766
Allowance for loan losses .......................          (444)                                    (307)
Premises, furniture and equipment ...............         2,316                                    1,615
Other assets ....................................           628                                      817
                                                       --------                                 --------

        Total assets ............................      $ 71,917                                 $ 59,709
                                                       ========                                 ========

Liabilities and shareholders' equity:
Interest-bearing deposits
  Interest-bearing transaction accounts .........      $ 23,441             87          0.37%   $ 15,352       $    81         0.53%
  Savings .......................................         7,240             18          0.25       3,076            21         0.68
  Time deposits $100M and over ..................         9,321            197          2.11       6,313           203         3.22
  Other time deposits ...........................        16,214            485          2.99      18,011           629         3.49
                                                       --------         ------                  --------       -------

       Total interest-bearing deposits ..........        56,216            787          1.40      42,752           934         2.18
Federal funds purchased .........................             -              -             -           5             -         -
Long-term debt ..................................             -             49             -       4,000            77         1.93
                                                       --------         ------                  --------       -------

        Total interest-bearing liabilities.......        56,216            836          1.49      46,757         1,011         2.16
Non-interest demand deposits ....................         7,542                                    4,733
Other liabilities ...............................           245                                      356
Shareholders' equity ............................         7,914                                    7,863
                                                       --------                                 --------
        Total liabilities and
          shareholders' equity ..................      $ 71,917                                 $ 59,709
                                                       ========                                 ========

Interest rate spread (4) ........................                                       4.04%                                  4.31%
Net interest income and net yield on
   earning assets (5) ...........................                     $  2,910          4.29%                  $ 2,536         4.63%
Interest free funds supporting earning
   assets (6) ...................................      $ 11,480                                $  8,061
</TABLE>
----
(1)  Average balances are computed on a daily basis.
(2)  Computed on a fully  taxable  equivalent  basis using a federal  income tax
     rate of 34%.
(3)  Nonaccruing  loans are included in the average loan  balances and income on
     such loans is recognized on a cash basis.
(4)  Total  interest  earning  assets  yield  less the  total  interest  bearing
     liabilities rate.
(5)  Net interest income divided by total interest earning assets.
(6)  Total interest earning assets less total interest bearing liabilities.



                                       3
<PAGE>


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

                        Volume and Rate Variance Analysis

<TABLE>
<CAPTION>
                                                                     2003 Compared with 2002              2002 Compared with 2001
                                                                     -----------------------              -----------------------
(Dollars in thousands)                                        Volume(1)     Rate(1)     Total        Volume(1)     Rate(1)     Total
                                                              ---------     -------     -----        ---------     -------     -----

<S>                                                          <C>          <C>          <C>          <C>          <C>          <C>
Interest-bearing deposits due from
    other banks ......................................       $   -        $   -        $   -        $   -        $  (1)       $  (1)
Taxable securities ...................................          41         (217)        (176)          (9)        (119)        (128)
Tax-exempt securities (2) ............................          43          (47)          (4)          12          (13)          (1)
Nonmarketable equity securities ......................           -           (3)          (3)           -           (3)          (3)
Federal funds sold ...................................          30          (12)          18           15          (73)         (58)
Loans ................................................         623         (257)         366          232         (531)        (299)
                                                             -----        -----        -----        -----        -----        -----

       Total interest income (expense) ...............         737         (536)         201          250         (740)        (490)
                                                             -----        -----        -----        -----        -----        -----

Interest-bearing deposits
  Interest-bearing transaction accounts ..............          35          (29)           6           18          (76)         (58)
  Savings ............................................          16          (19)          (3)           2          (18)         (16)
  Time deposits $100M and over .......................          77          (83)          (6)          48          (95)         (47)
  Other time deposits ................................         (83)         (61)        (144)          31         (362)        (331)
Federal funds purchased ..............................           -            -            -            -           (5)          (5)
Long-term debt .......................................         (28)           -            -            -          (85)         (85)
                                                             -----        -----        -----        -----        -----        -----

        Total interest expense (income) ..............          45         (192)        (147)          99         (651)        (552)
                                                             -----        -----        -----        -----        -----        -----

        Net interest income (expense) ................       $ 720        $(344)       $ 376        $ 151        $ (89)       $  62
                                                             =====        =====        =====        =====        =====        =====
</TABLE>

(1)  The  rate/volume  variance  for  each  category  has  been  allocated  on a
     consistent  basis between rate and volume  variance 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 differences.

(2)  Computed on a fully  taxable  equivalent  basis using a federal  income tax
     rate of 34%.


Management  currently expects that interest rates may move slightly higher,  but
within a narrow  range in 2004.  Management  has not  presently  identified  any
factors  that would cause  interest  rates to increase or decrease  sharply in a
short  time  period.  However,  dramatic  changes  in  interest  rates  that can
significantly affect the Company, either positively or negatively, are possible.
Any significant  changes in net interest income for 2004 are currently  expected
to be the result of  changes  in the  volumes  of  interest  earning  assets and
liabilities.  Management expects to continue to use its marketing  strategies to
attempt to increase the  Company's  market  share for both  deposits and quality
loans within its service areas.  These strategies  include offering  competitive
interest rates, and continuing the Company's commitment to providing outstanding
customer service.

Interest Rate Sensitivity

Interest rate sensitivity  measures the timing and magnitude of the repricing of
assets  compared with the repricing of  liabilities  and is an important part of
asset/liability   management.   The  objective  of  interest  rate   sensitivity
management is to generate stable growth in net interest  income,  and to control
the  risks  associated  with  interest  rate  movements.  Management  constantly
monitors interest rate risk exposures and the expected interest rate environment
so that timely  adjustments  in interest  rate  sensitivity  can be made.  In an
effort to improve asset/liability  management and improve net interest income in
future  years,  the  Company  has engaged an  experienced  consultant  to advise
management  and the Board of  Directors  in this vital  area.  Throughout  2004,


                                       4
<PAGE>

management  intends  to  closely  monitor  the  Company's  interest  sensitivity
position and intends to take  appropriate  and timely  actions to promote stable
growth in net interest income.

The table,  "Interest  Sensitivity  Analysis",  indicates  that, on a cumulative
basis through twelve months, rate sensitive  liabilities exceeded rate sensitive
assets,  resulting  in a  liability  sensitive  position  at the  end of 2003 of
$29,433,000, and a cumulative gap ratio of 44.75%. From a long-term perspective,
the interest sensitivity analysis indicates that on a cumulative basis over five
years,  the  Company  is in an asset  sensitive  position  of  $15,349,000  or a
cumulative  gap of  23.44%.  When  interest  sensitive  assets  exceed  interest
sensitive  liabilities for a specific repricing  "horizon",  a positive interest
sensitivity gap results. The gap is negative when interest sensitive liabilities
exceed  interest  sensitive  assets,  as was the  case  at the end of 2003  with
respect to the one-year  time horizon.  For a bank with a negative gap,  falling
interest  rates  ordinarily  would be expected to have a positive  effect on net
interest  income and  rising  rates  ordinarily  would be  expected  to have the
opposite effect.  However,  in a rapidly falling interest rate environment,  net
interest income can decrease despite a negative  interest  sensitivity gap. This
occurs  because  debtors can obtain lower  interest rate financing by prepaying,
refinancing or  renegotiating  their existing,  higher  fixed-rate  mortgage and
other loans.  Similarly,  issuers of federal and local government securities can
exercise  early call options to prepay or  refinance  their debt  securities  at
lower rates. In a rising interest rate environment, a negative gap would have an
adverse impact on net income. Interest earning assets would not reprice, through
prepayment,  refinancing or other options while the interest bearing liabilities
would,  resulting  in a lower  interest  rate spread and  ultimately a lower net
income.

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

The table 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. Interest bearing deposits
in  other  banks  and debt  securities  are  reflected  at the  earlier  of each
instrument's  ultimate maturity or contractual  repricing date. Interest bearing
liabilities with no contractual  maturity,  such as interest bearing transaction
accounts and savings deposits,  are reflected in the earliest repricing interval
due to contractual  arrangements  which give  management the opportunity to vary
the rates paid on these deposits within a thirty-day or shorter period. However,
the  Company is under no  obligation  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.



                                       5
<PAGE>


                          Interest Sensitivity Analysis
                                December 31, 2003

<TABLE>
<CAPTION>
                                                                               After Three      Greater
                                                                   Within        Through        Than One        Over
                                                                    Three        Twelve        Less Than        Five
              (Dollars in thousands)                               Months        Months        Five Years       Years        Total
                                                                   ------        ------        ----------      -----         -----
Assets
   Earning Assets:
<S>                                                              <C>            <C>            <C>            <C>           <C>
      Interest-bearing deposits with other banks ...........     $     15       $      -       $      -       $      -      $     15
      Federal funds sold ...................................        3,371              -              -              -         3,371
      Securities available-for-sale ........................          123            227          3,283         14,765        18,398
      Nonmarketable equity securities ......................          250              -              -              -           250
      Loans receivable (1) .................................            -          4,811         19,299         10,629        43,742
                                                                 --------       --------       --------       --------      --------

           Total earning assets ............................       12,762          5,038         22,582         25,397        65,779

Liabilities
   Interest-bearing liabilities
       Interest-bearing transaction accounts ...............       21,065              -              -              -        21,065
       Savings deposits ....................................        3,950              -              -              -         3,950
       Time deposits $100,000 and over .....................        4,746          4,231            544            415         9,936
       Other time deposits .................................        5,877          7,364          2,084            154        15,479
        Borrowings .........................................            -              -              -              -             -
                                                                 --------       --------       --------       --------      --------

            Total interest bearing liabilities .............       35,638         11,595          2,628            569        50,430

Period gap .................................................     $(22,876)      $ (6,557)      $ 19,954       $  4,828      $ 15,349

Cumulative gap .............................................     $(22,876)      $(29,433)      $ (9,479)      $ 15,349

Ratio of cumulative gap to total earning assets ............      (34.78%)       (44.75%)       (14.41%)         23.44%
</TABLE>

(1)  Loans are net of deferred loan fees of $46,000.

Provision for Loan Losses

The  provision  for loan  losses is charged to  earnings  based on  management's
continuing  review and  evaluation of the loan  portfolio  and general  economic
conditions. Management provided $96,000 and $357,000 for loan losses in 2003 and
2002,  respectively.  The  significant  decrease in the 2003 provision  resulted
primarily  from the  reduction  of net  charge-offs  to $11,000  during  2003 as
compared to $273,000 during 2002. An increase in loans in non-accrual status, an
increase in past due loans and an increase in loan volume,  resulted in a higher
amount funded to the allowance during 2002. See "Allowance for Loan Loses" for a
discussion of the methodology  used and factors  considered by management in its
estimate of the allowance for loan losses.

Noninterest Income

Noninterest  income for 2003 was $832,000,  a decrease of $221,000 or 21.0% over
the 2002 amount of $1,053,000.  The decrease in 2003 primarily was  attributable
to the Company's having had realized gains on sales of investment  securities of
$273,000 in 2002 that were not present  during 2003.  The Company  implemented a
new fee-based  automatic overdraft privilege product in 2002 which accounted for
the significant increase in service charges.

Management  will continue to review and adjust when  appropriate  the pricing of
all fee based services.  As they arise,  opportunities to expand noninterest fee
income on both new and existing services will also be explored.




                                       6
<PAGE>


Other Expenses

Noninterest  expenses for 2003  increased by $527,000 or 27.5%,  to  $2,444,000.
This  increase is  attributable  to a number of factors.  Salaries  and employee
benefits increased by $297,000 or 27.8%, to $1,367,000.  This increase is mostly
attributable  to the  recognition of a full year of salary expense for the staff
for the Lake Wylie branch office,  which commenced  operations during late 2002.
Net  occupancy,  furniture and  equipment  and all other  expenses for 2003 were
$38,000, $92,000 and $100,000 higher than in 2002, respectively. These increases
were also primarily attributable to the Lake Wylie branch.

Increases in  noninterest  expenses are closely  monitored and cost control will
continue  to be  emphasized  by  management  where  possible in order to achieve
profitability objectives as well as attain the Company's goals of growth.

Income Taxes

For 2003,  federal and state  income tax  expenses  decreased  to $327,000  from
$371,000 in 2002. The Company's effective tax rate was 30 percent and 31 percent
in 2003 and 2002, respectively.

Securities

The following table  summarizes the carrying value amounts of securities held by
the Company at December 31, 2003 and 2002:

                        Securities Portfolio Composition

(Dollars in thousands)                                      2003          2002
                                                            ----          ----

Securities available-for-sale
   U. S. Government agencies ...................         $ 2,994         $ 1,560
   State, county, and municipal ................           5,504           4,469
   Mortgage-backed securities ..................           9,900          10,505
                                                         -------         -------

        Total ..................................         $18,398         $16,534
                                                         =======         =======

On an ongoing basis, management assigns securities upon purchase into one of the
categories  designated by Statement of Financial  Accounting  Standards ("SFAS")
No.  115  (trading,  available-for-sale  or  held-to-maturity)  based on intent,
taking into consideration other factors,  including  expectations for changes in
market  rates  of  interest,   liquidity   needs,   asset/liability   management
strategies, and capital requirements.  The Company has never held securities for
trading  purposes.  During  2003 and  2002,  there  have  been no  transfers  of
available-for-sale or held-to-maturity securities to other categories.

At December 31, 2003, the Company held one mortgage-backed  security that was in
a continuous loss position for a period of twelve months.  The Company  believes
that the  deterioration  in value is  attributable to changes in market interest
rates and not in credit quality and considers these losses to be temporary.  The
Company has the ability and intent to hold this security  until such time as the
value recovers or the security matures and thus believes there are no unrealized
losses in its securities portfolio that are other-than-temporary.

At December 31, 2003, the Company had no concentrated  investments  representing
10% or more of equity capital in the debt  securities of any  individual  state,
county or municipal issuer.



                                       7
<PAGE>


The  following  table  presents   maturities  and  weighted  average  yields  of
securities based on the carrying value at December 31, 2003.

                                    Securities Portfolio Maturities and Yields

<TABLE>
<CAPTION>
                                                             After One But    After Five But
                                                              Within Five       Within Ten
                                          Within One Year        Years             Years        After Ten Years         Total
                                          ---------------        -----             -----        ---------------         -----
(Dollars in thousands)                     Amount    Yield   Amount   Yield    Amount   Yield   Amount    Yield    Amount    Yield
                                           ------    -----   ------   -----    ------   -----   ------    -----    ------    -----
Available-for-sale securities
<S>                                        <C>       <C>     <C>       <C>     <C>      <C>     <C>       <C>     <C>         <C>
   U. S. Government agencies ...........   $  -         -    $1,499    2.90    $1,495   3.71    $    -        -   $ 2,994     3.31
   State, county and municipal(1) ......    350      7.59     1,210    6.78     3,231   5.00       713     7.36     5,504     5.84
   Mortgage-backed(2) ..................      -         -       574    3.00     3,115   3.73     6,211     3.84     9,900     3.75
                                           ----              ------            ------            -----            -------
      Total ............................   $350      7.59    $3,283    4.35    $7,841   4.25    $6,924     4.22   $18,398     4.31
                                           ====              ======            ======           ======            =======
</TABLE>

(1)  Computed on a fully  taxable  equivalent  basis using a federal  income tax
     rate of 34%.
(2)  Maturity  categories  based  upon  final  stated  maturity  dates.  Average
     maturity  is  substantially  shorter  because  of  the  monthly  return  of
     principal on certain securities.

Loan Portfolio

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

The amounts of loans  outstanding at December 31, 2003 and 2002 are shown in the
following  table  according to type of loan, and the percentage of each category
to total loans:

                           Loan Portfolio Composition

<TABLE>
<CAPTION>
                                                                             2003                               2002
                                                                             ----                               ----
(Dollars in thousands)                                              Amount           Percent           Amount           Percent
                                                                    ------           -------           ------           -------

<S>                                                                <C>                 <C>            <C>                  <C>
Real estate - Construction ...........................             $ 3,553             8.1%           $ 2,169              6.2%
Real estate - Mortgage
    Farmland .........................................               1,259             2.9              1,820              5.2
    1 - 4 family residential .........................              13,023            29.7             12,178             34.7
    Nonfarm, nonresidential ..........................               9,401            21.5             10,010             28.6
Commercial and industrial ............................              12,114            27.7              5,691             16.2
Consumer installment .................................               4,438            10.1              3,193              9.1
                                                                   -------           -----            -------            -----

         Total loans .................................             $43,788           100.0%           $35,061            100.0%
                                                                   =======           =====            =======            =====
</TABLE>

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

Commercial and industrial  loans  primarily  represent loans made to businesses,
and  may be made  on  either  a  secured  or an  unsecured  basis.  When  taken,
collateral  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. 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.


                                       8
<PAGE>

To control risk, more in-depth  initial and continuing  financial  analysis of a
commercial  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.  The volume of real
estate  construction  loans can vary significantly in any given period depending
on building activity in the local market.

Loans  secured  by real  estate  mortgages  comprised  approximately  54% of the
Company's  loan  portfolio at December 31, 2003.  Residential  real estate loans
consist   mainly  of  first  and  second   mortgages  on  single  family  homes.
Loan-to-value  ratios  for  these  instruments  are  generally  limited  to 80%.
Nonfarm,  nonresidential loans are secured by business and commercial properties
with  loan-to-value  ratios  generally  limited to 75%.  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.

Maturity Distribution of Loans

The following table sets forth the maturity distribution of the Company's loans,
by type, as of December 31, 2003, as well as the type of interest requirement on
such loans.

<TABLE>
<CAPTION>
                                                                  One Year            One to            Over Five
(Dollars in thousands)                                            or Less           Five Years            Years               Total
                                                                  -------           ----------            -----               -----

<S>                                                              <C>                 <C>                 <C>                 <C>
Real estate - Construction .........................             $ 1,954             $ 1,506             $    93             $ 3,553
Real estate - Mortgage .............................               3,062              11,011               9,610              23,683
Commercial and Industrial ..........................               3,570               5,582               2,962              12,114
Consumer ...........................................               2,009               2,332                  97               4,438
                                                                 -------             -------             -------             -------
         Total loans ...............................             $10,595             $20,431             $12,762             $43,788
                                                                 =======             =======             =======             =======

Predetermined rate, maturity greater than one year .                                                                         $25,348

Variable rate, maturity greater than one year ......                                                                         $ 7,845
</TABLE>


Nonperforming Loans

When a 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
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. A 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.

At December 31, 2003, nonaccruing loans consisted of 5 loans totaling $194,000.

As of December 31, 2003, management believes that in the event of foreclosure on
the 5 loans  discussed  in the  preceding  paragraph  the Bank  will not incur a
significant  loss on those loans  because of the  estimated  market value of the
related  collateral.  However,  there  can be no  assurance  that in the case of
liquidation  the  collateral  can be sold for its estimated fair market value or
even for an amount at least  equal to or  greater  than the  amount  owed to the
Bank.



                                       9
<PAGE>


Following is a summary of the Company's nonperforming loans at December 31, 2003
and 2002:

              (Dollars in thousands)                          2003         2002
                                                              ----         ----

Nonaccrual loans .....................................        $194         $402
Accruing loans 90 days or more past due ..............           -           30
                                                              ----         ----

        Total ........................................        $194         $432
                                                              ====         ====

Percent of total loans ...............................        0.44%        1.23%

The effects of interest  income accrued and collected on nonaccruing  loans were
immaterial to the consolidated financial statements for 2003 and 2002.

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

Impaired Loans

A loan will be considered to be impaired when, in management's judgment based on
current  information  and events,  it is probable  that the loan's  principal or
interest will not be  collectible  in accordance  with the terms of the original
loan  agreement.  Impaired  loans,  when not  material,  will be  carried in the
balance sheet at a value not to exceed their observable market price or the fair
value of the  collateral if the repayment of the loan is expected to be provided
solely  by the  underlying  collateral.  The  carrying  values  of any  material
impaired  loans will be measured  based on the present value of expected  future
cash  flows  discounted  at the loan's  effective  interest  rate,  which is the
contractual  interest rate adjusted for any deferred loan fees or costs, premium
or discount existing at the inception or acquisition of the loan.

Loans which  management  identifies as impaired  generally will be nonperforming
loans. Non performing loans include  nonaccrual loans or loans which are 90 days
or more  delinquent as to principal or interest  payments.  At December 31, 2003
and 2002, the Bank had nonaccrual loans of $194,000 and $402,000,  respectively,
and loans 90 days or more past due of $-0- and $30,000, respectively. There were
no restructured loans at December 31, 2003 and 2002.

Generally,  the accrual of interest will be  discontinued  on impaired loans and
any previously  accrued  interest on such loans will be reversed against current
income.  Any subsequent  interest income will be 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  will not be
returned to accrual  status  unless  principal  and interest are current and the
borrower has demonstrated the ability to continue making payments as agreed.

Potential Problem Loans

Management  reviews and identifies a list of potential problem loans.  These are
loans that are not included in  nonaccrual  status or loans that are 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.  At December  31, 2003,  there were no loans
identified as potential problem loans.

Allowance for Loan Losses

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

                                       10
<PAGE>

In  reviewing  the adequacy of the  allowance  for loan losses at each year end,
management  considered  the historical  loan losses  experienced by the Company,
current  economic  conditions  affecting the  borrowers'  ability to repay,  the
volume of loans, the trends in delinquent,  nonaccruing,  and potential  problem
loans, and the quality of collateral  securing  nonperforming and problem loans.
After charging off all known losses, management considers the allowance for loan
losses  adequate  to cover its  estimate  of loan  losses  inherent  in the loan
portfolio at December 31, 2003.

In calculating the amount required in the allowance for loan losses,  management
applies a consistent  methodology  that is updated  quarterly.  The  methodology
utilizes a loan risk grading  system and detailed  loan reviews to assess credit
risks and the  overall  quality of the loan  portfolio.  Also,  the  calculation
provides for  management's  assessment of trends in national and local  economic
conditions  that might  affect the general  quality of the loan  portfolio.  See
"Allowance for Loan Losses" in Note 1 to the consolidated  financial  statements
for further information about the allowance for loan losses.

                         Summary of Loan Loss Experience

<TABLE>
<CAPTION>
(Dollars in thousands)                                                    2003        2002          2001        2000          1999
                                                                          ----        ----          ----        ----          ----

<S>                                                                     <C>          <C>          <C>          <C>          <C>
Total loans outstanding at end of period ..........................     $43,788      $35,061      $31,811      $30,768      $29,519
                                                                        =======      =======      =======      =======      =======

Average loans outstanding .........................................     $42,509      $33,677      $30,997      $29,590      $29,159
                                                                        =======      =======      =======      =======      =======

Balance of allowance for loan losses - beginning ..................     $   360      $   274      $   254      $   259      $   265
                                                                        =======      =======      =======      =======      =======

Loans charged off:
   Commercial and industrial ......................................     $     -      $   225      $     -      $    46      $     -
   Consumer installment ...........................................          11           48           15            7            9
                                                                        -------      -------      -------      -------      -------

      Total charge offs ...........................................          11          273           15           53            9
                                                                        -------      -------      -------      -------      -------

Recoveries of previous charge offs:
   Consumer installment ...........................................           5            2            1            1            3
                                                                        -------      -------      -------      -------      -------

      Total recoveries ............................................           5            2            1            1            3
                                                                        -------      -------      -------      -------      -------

Net charge offs ...................................................           6          271           14           52            6
                                                                        -------      -------      -------      -------      -------

Additions to allowance charged to expense .........................          96          357           34           47            -
                                                                        -------      -------      -------      -------      -------

Balance of allowance for loan losses - ending .....................     $   450      $   360      $   274      $   254      $   259
                                                                        =======      =======      =======      =======      =======

     Net charge offs to average loans .............................        0.01%        0.80%        0.05%        0.18%        0.02%
     Net charge offs to loans at end of period ....................        0.01%        0.77%        0.04%        0.17%        0.02%
     Allowance for loan losses to average loans ...................        1.06%        1.07%        0.88%        0.86%        0.89%
     Allowance for loan losses to loans at end of period ..........        1.03%        1.03%        0.86%        0.83%        0.88%
     Net charge offs to allowance for loan losses .................        1.33%       75.28%        5.11%       20.47%        2.32%
     Net charge offs to provision for loan losses .................        6.25%       75.91%       41.18%      110.64%         N/A
</TABLE>


                                       11
<PAGE>

The following  table presents the allocation of the allowance for loan losses at
the end of each of the last two years, compared with the percent of loans in the
applicable  categories to total loans.  The allowance is, however,  available to
support losses in all categories.

                     Allocation of Allowance for Loan Losses

                                               2003                 2002
                                               ----                 ----
 (Dollars in thousands)                  Amount    Percent    Amount    Percent

Commercial and industrial ..........      $125      27.8%      $ 51        14.1%
Real estate - construction .........        36       8.0         19         5.3
Real estate - mortgage .............       243      54.0        215        59.7
Consumer installment ...............        46      10.2         29         8.1
Unallocated ........................         -       -           46        12.8
                                          ----     -----       ----       -----

         Total loans ...............      $450     100.0%      $360       100.0%
                                          ====     =====       ====       =====

Deposits

The average  amounts and percentage  composition of deposits held by the Company
for each of the past two years are summarized below:

                                Average Deposits

<TABLE>
<CAPTION>
                                                                                 2003                              2002
                                                                                 ----                              ----
          (Dollars in thousands)                                        Amount            Percent        Amount              Percent

<S>                                                                    <C>                <C>           <C>                   <C>
Noninterest bearing demand .................................           $ 8,155            12.67%        $ 4,733                9.97%
Interest bearing transaction accounts ......................            23,441            36.42          15,352               32.33
Savings accounts ...........................................             7,240            11.25           3,076                6.48
Time deposits of $100,000 or over ..........................             9,321            14.48           6,313               13.29
Other time .................................................            16,214            25.18          18,011               37.93
                                                                       -------           ------         -------              ------

         Total deposits ....................................           $64,371           100.00%        $47,485              100.00%
                                                                       =======           ======         =======              ======
</TABLE>

As of December 31, 2003,  there were $10,047,000 in time deposits of $100,000 or
more with  approximately  $4,856,000  maturing  within three months,  $2,003,000
maturing  over three  through six months,  $2,228,000  maturing over six through
twelve  months,  and $960,000  maturing  after one year.  Average time  deposits
$100,000 and over comprised approximately 14.4% of total average deposits during
2003 and approximately 13.3% of total average deposits during 2002. The majority
of time  deposits  $100,000  and over are  acquired  from  customers  within the
Company's local market area. Such deposits  generally are acquired in the normal
course of business. The Company does not purchase brokered deposits.  While most
of the large time deposits are acquired  from  customers  with standing  banking
relationships,  it is a common industry  practice not to consider these types of
deposits as core deposits  because their retention can be expected to be heavily
influenced   by  rates   offered,   and   therefore   such   deposits  have  the
characteristics of shorter-term purchased funds. Time deposits $100,000 and over
involve the maintenance of an appropriate matching of maturity  distribution and
a diversification of sources to achieve an appropriate level of liquidity.

Total deposits as of December 31, 2003 were approximately $62,672,000, or 28.7%,
more than at December 31,  2002.  Management  believes  that the majority of the
increase in deposits was attributable to its ability to compete successfully for
deposits in the local service areas  through its  marketing  efforts,  offers of
attractive  interest rates for deposit accounts and its reputation for excellent
customer service.


                                       12
<PAGE>


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 the
years ended December 31, 2003 and 2002.

                                                          2003            2002
                                                          ----            ----

Return on assets .............................            1.06%            1.39%
Return on equity .............................            9.68%           10.58%
Dividend payout ratio ........................           66.78%           91.47%
Equity to assets ratio .......................           10.15%           13.17%


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 may be immediately
converted  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 area.  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  76.5% of average
total assets during 2003 compared with 70.0% during 2002.

The banking  subsidiary had available at the end of 2003 unused short-term lines
of  credit  to  purchase  up to  $2,400,000  of  federal  funds  from  unrelated
correspondent  institutions.  Additionally,  the Bank has undrawn long-term debt
availability  from the FHLB of  approximately  $10,328,000.  Asset  liquidity is
provided  from  several  sources,  including  amounts due from banks and federal
funds sold.  Available-for-sale  securities,  particularly those maturing within
one year,  provide a secondary  source of  liquidity.  In  addition,  funds from
maturing loans are a source of liquidity.

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 Bank and its ability to pay cash dividends to the Company.  Any
of the  Bank's  cash  dividends  in an  amount  exceeding  current  year-to-date
earnings 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 such payment  would cause the Bank's  capital to be reduced below
applicable  minimum  regulatory   requirements.   Under  Federal  Reserve  Board
regulations, the amounts of loans or advances from the banking subsidiary to the
Company are also restricted.

Management  believes that the overall  liquidity sources of both the Company and
the Bank are adequate to meet their  operating  needs in the ordinary  course of
business.

Off-Balance Sheet Risk

The Company's off-balance sheet arrangements  presently include only contractual
commitments of the Bank to extend credit in the ordinary  course of its business
activities.  These  commitments are legally binding  agreements to lend money to
customers of the Bank at predetermined  interest rates for a specified period of
time as long as there is no violation of any  condition in the  contract.  These
commitments  have elements of credit risk in excess of the amount  recognized in
the balance sheet. Generally, the same credit policies used for on-balance sheet
arrangements, such as loans, are used in extending such commitments. At December
31,  2003,  the Bank had  issued  commitments  to extend  credit of  $12,937,940
through  various types of lending.  A significant  portion of these  commitments
will  expire  within  one year.  Past  experience  indicates  that many of these
commitments to extend credit will expire unused;  therefore, the total amount of
loan  commitments  does not  necessarily  represent  future  cash  requirements.
However,  as described in "Liquidity," the Company believes that it has adequate
sources of liquidity to fund commitments that are drawn upon by the borrower.

                                       13
<PAGE>

There were no standby letters of credit outstanding at December 31, 2003.

Neither  the  Company  nor the Bank are  involved  in  other  off-balance  sheet
contractual relationships, unconsolidated related entities that have off-balance
sheet arrangements or transactions that could result in liquidity needs or other
commitments or significantly impact earnings.

Capital Resources

Shareholders'  equity  increased by $149,000  and $53,000  during 2003 and 2002,
respectively.

The  Company  in 1999  established  a dividend  reinvestment  program to provide
shareholders with the opportunity to reinvest  automatically all or a portion of
their cash  dividends  into  additional  shares of the  Company's  common stock.
Reinvestment  of  dividends  in 2003  resulted  in an  increase  of  $63,000  in
shareholders'  equity. Also during 1999, the Company initiated a limited program
to redeem shares of its stock held by not-for-profit organizations. During 2003,
repurchases  and  retirements  of common stock reduced  shareholders'  equity by
$100,000.

During  2003,  net  income  increased  shareholders'  equity by  $766,000,  cash
dividends  decreased  shareholders'  equity by $507,000 and unrealized losses on
available-for-sale securities decreased shareholders' equity by $72,000.

The  Company  and the Bank 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 set
forth in the  table  below  of  Total  and Tier 1  Capital,  as  defined  in the
regulation,  to risk  weighted  assets,  as defined,  and of Tier 1 Capital,  as
defined, to average assets, as defined.  Management believes, as of December 31,
2003 and 2002,  that the Company  and the Bank  exceeded  all  capital  adequacy
minimum requirements to which they were subject.

To be  categorized as well  capitalized,  the Company and the Bank must maintain
minimum Total risk-based,  Tier 1 risk-based,  and Tier 1 leverage ratios as set
forth in the table below. The federal regulators may also categorize the Company
or the  Bank as  less  than  well  capitalized  based  on  subjective  criteria.
Management  knows of no conditions or events that would cause the Company or the
Bank to be categorized as less than well capitalized.




                                       14
<PAGE>


                            Risk-Based Capital Ratio

<TABLE>
<CAPTION>
                                                                                                             To be Well- Capitalized
                                                                                                                    Under Prompt
                                                                                            For Capital           Corrective Action
                                                                     Actual              Adequacy Purposes           Provisions
(Dollars in thousands)                                         Amount       Ratio       Amount       Ratio       Amount       Ratio
                                                               ------       -----       ------       -----       ------       -----
            December 31, 2003
The Company
<S>                                                            <C>           <C>         <C>            <C>       <C>          <C>
   Total capital to risk-weighted assets ..................    $7,771        15.76%      $3,944         8.0%      $4,931       10.0%
   Tier 1 capital to risk-weighted assets .................     7,328        14.85        1,972         4.0        2,959        6.0
   Tier 1 capital to average assets .......................     7,325        10.25        2,149         3.0        3,573        5.0

Clover Community Bank
   Total capital to risk-weighted assets ..................    $7,772        15.76%      $3,945         8.0%      $4,931       10.0%
   Tier 1 capital to risk-weighted assets .................     7,322        14.85        1,974         4.0        2,961        6.0
   Tier 1 capital to average assets .......................     7,322        10.25        2,144         3.0        3,573        5.0

            December 31, 2002

The Company
   Total capital to risk-weighted assets ..................    $8,055         19.7%      $3,265         8.0%      $4,082       10.0%
   Tier 1 capital to risk-weighted assets .................     7,695         18.9        1,633         4.0        2,449        6.0
   Tier 1 capital to average assets .......................     7,695         12.9        1,783         3.0        2,972        5.0

Clover Community Bank
   Total capital to risk-weighted assets ..................    $7,409         18.1%      $3,268         8.0%      $4,086       10.0%
   Tier 1 capital to risk-weighted assets .................     7,049         17.3        1,634         4.0        2,451        6.0
   Tier 1 capital to average assets .......................     7,049         11.9        1,783         3.0        2,972        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  which have large
investments in plant and inventories,  it does have an effect. During periods of
high inflation,  there are normally corresponding increases in the money supply,
and banks will normally  experience  above-average  growth in assets,  loans and
deposits.  Also,  general  increases  in the prices of goods and  services  will
result in increased operating expenses.

Impact of Recent Accounting Changes

The following is a summary of recent  authoritative  pronouncements  that affect
accounting, reporting, and disclosure of financial information by the Company:

In December 2002, the Financial  Accounting Standards Board ("FASB") issued SFAS
No. 148, Accounting for Stock-Based  Compensation-Transition  and Disclosure, an
amendment of FASB Statement No. 123, "Accounting for Stock-Based  Compensation",
to provide  alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. SFAS No.
148  also  amends  the  disclosure  provisions  of SFAS No.  123 and  Accounting
Principles Board ("APB") Opinion No. 28, Interim Financial Reporting, to require
disclosure in the summary of significant  accounting  policies of the effects of
an entity's accounting policy with respect to stock-based employee  compensation
on reported net income and  earnings  per share in annual and interim  financial
statements.  While SFAS No. 148 does not amend SFAS No. 123 to require companies
to  account  for  employee  stock  options  using  the fair  value  method,  the
disclosure  provisions  of SFAS No. 148 are  applicable  to all  companies  with
stock-based employee  compensation,  regardless of whether they account for that


                                       15
<PAGE>

compensation  using the fair value method of SFAS No. 123 or the intrinsic value
method of APB Opinion No. 25. The  provisions of SFAS No. 148 were effective for
annual financial statements for fiscal years ending after December 15, 2002, and
for financial  reports  containing  condensed  financial  statements for interim
periods  beginning after December 15, 2002. The adoption of SFAS No. 148 did not
have a  material  impact on the  Company's  financial  position  or  results  of
operations.

In April  2003,  the FASB issued SFAS No. 149,  Amendment  of  Statement  133 on
Derivative  Instruments  and  Hedging  Activities,  which  amends and  clarifies
accounting for derivative instruments,  including certain derivative instruments
embedded in other contracts and loan  commitments that relate to the origination
of mortgage loans held-for-sale,  and for hedging activities under SFAS No. 133.
SFAS No. 149 was  generally  effective  for  contracts  entered into or modified
after June 30, 2003. The adoption of SFAS No. 149 did not have a material impact
on the financial condition or operating results of the Company.

In May 2003,  the FASB  issued SFAS No. 150,  Accounting  for Certain  Financial
Instruments with  Characteristics  of both Liabilities and Equity.  SFAS No. 150
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments with  characteristics  of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some  circumstances).  Many of those  instruments
were previously  classified as equity.  SFAS No. 150 was generally effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
was effective at the beginning of the first interim period  beginning after June
15,  2003.  The  adoption of SFAS No. 150 did not have a material  impact on the
financial condition or operating results of the Company.

In  November  2002,  the  FASB  issued  FASB  Interpretation   ("FIN")  No.  45,
Guarantor's  Accounting and Disclosure  Requirements  for Guarantees,  Including
Indirect Guarantees of Indebtedness of Others. FIN No. 45 requires a company, at
the time it issues a guarantee,  to recognize an initial  liability for the fair
value of  obligations  assumed under the  guarantee  and  elaborates on existing
disclosure  requirements  related to  guarantees  and  warranties.  The  initial
recognition  requirements of FIN No. 45 were effective for guarantees  issued or
modified after December 31, 2002. The disclosure  requirements are effective for
financial  statements of periods ending after December 15, 2002. The adoption of
FIN No. 45 did not have a material effect on the Company's financial position or
results of operations.

In January 2003, the FASB issued FIN No. 46,  Consolidation of Variable Interest
Entities. FIN No. 46 requires a variable interest entity to be consolidated by a
company if that  company  is subject to a majority  of the risk of loss from the
variable interest  entity's  activities or entitled to receive a majority of the
entity's residual returns,  or both. FIN No. 46 also requires  disclosures about
variable interest entities that a company is not required to consolidate, but in
which it has a significant  variable interest.  FIN No. 46 provides guidance for
determining  whether  an  entity  qualifies  as a  variable  interest  entity by
considering,  among other  considerations,  whether the entity lacks  sufficient
equity  or  its  equity  holders  lack  adequate  decision-making  ability.  The
consolidation  requirements  of FIN  No.  46  applied  immediately  to  variable
interest entities created after January 31, 2003. The consolidation requirements
applied  to  existing  entities  in the  first  fiscal  year or  interim  period
beginning after June 15, 2003. Certain of the disclosure requirements applied to
all financial  statements issued after January 31, 2003,  regardless of when the
variable  interest  entity was  established.  The adoption of FIN No. 46 did not
have a  material  effect on the  Company's  financial  position  or  results  of
operations.

In November  2003, the Emerging  Issues Task Force ("EITF")  reached a consensus
that certain  quantitative  and qualitative  disclosures  should be required for
debt and  marketable  equity  securities  classified  as  available-for-sale  or
held-to-maturity  under SFAS No. 115 and SFAS No. 124 that are  impaired  at the
balance sheet date but for which an other-than-temporary impairment has not been
recognized.   Accordingly  the  EITF  issued  EITF  No.  03-1,  The  Meaning  of
Other-Than-Temporary Impairment and Its Application to Certain Investments. This
issue  addresses  the  meaning  of   other-than-temporary   impairment  and  its
application  to   investments   classified  as  either   available-for-sale   or
held-to-maturity  under SFAS No. 115 and provides  guidance on quantitative  and
qualitative  disclosures.  EITF No. 03-1 was  effective  for fiscal years ending
after December 15, 2003. Adopting the disclosure provisions of EITF No. 03-1 did
not have a material  effect on the  Company's  financial  position or results of
operations.

Other  accounting  standards  that have been  issued or  proposed by the FASB or
other standards-setting  bodies that do not require adoption until a future date
are not  expected  to  have a  material  impact  on the  consolidated  financial
statements upon adoption.


                                       16
<PAGE>







               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS




The Shareholders and Board of Directors
Clover Community Bankshares, Inc. and Subsidiary
Clover, South Carolina


           We have  audited  the  accompanying  consolidated  balance  sheets of
Clover Community Bankshares,  Inc. and Subsidiary (the "Company") as of December
31,  2003  and  2002  and  the  related   consolidated   statements  of  income,
shareholders'  equity and comprehensive income and cash flows for the years then
ended.  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  auditing  standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audits to obtain reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall consolidated 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 financial position of Clover
Community  Bankshares,  Inc. and Subsidiary as of December 31, 2003 and 2002 and
the results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.


                                        s/Elliott Davis, LLC



Greenville, South Carolina
February 6, 2004



                                       17
<PAGE>


                CLOVER COMMUNITY BANKSHARES, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                             December 31,
                                                                                                             ------------
                                                                                                       2003                 2002
                                                                                                       ----                 ----
ASSETS
    Cash and cash equivalents:
<S>                                                                                               <C>                  <C>
      Cash and due from banks ............................................................        $  2,561,973         $  3,280,267
      Interest-bearing deposits in other banks ...........................................              14,851               24,507
      Federal funds sold .................................................................           3,371,000            3,221,000
                                                                                                  ------------         ------------
         Total cash and cash equivalents .................................................           5,947,824            6,525,774
                                                                                                  ------------         ------------

    Investment securities:
      Securities available-for-sale ......................................................          18,398,485           16,533,582
      Nonmarketable equity securities ....................................................             250,000              250,000
                                                                                                  ------------         ------------
         Total investment securities .....................................................          18,648,485           16,783,582
                                                                                                  ------------         ------------

    Loans receivable .....................................................................          43,788,077           35,060,780
      Less allowance for loan losses .....................................................            (449,541)            (359,906)
                                                                                                  ------------         ------------
         Loans, net ......................................................................          43,338,536           34,700,874
                                                                                                  ------------         ------------

    Premises, furniture and equipment, net ...............................................           2,307,793            2,281,538
    Accrued interest receivable ..........................................................             321,943              272,060
    Other assets .........................................................................             359,970              220,198
                                                                                                  ------------         ------------

         Total assets ....................................................................        $ 70,924,551         $ 60,784,026
                                                                                                  ============         ============

LIABILITIES
    Deposits:
      Noninterest-bearing ................................................................        $  9,348,902         $  4,921,609
      Interest-bearing ...................................................................          53,323,266           43,769,189
                                                                                                  ------------         ------------
         Total deposits ..................................................................          62,672,168           48,690,798

      Advances from Federal Home Loan Bank ...............................................                   -            4,000,000
      Accrued interest payable ...........................................................             202,073              203,098
      Other liabilities ..................................................................              11,827                  372
                                                                                                  ------------         ------------

         Total liabilities ...............................................................          62,886,068           52,894,268
                                                                                                  ------------         ------------

COMMITMENTS AND CONTINGENCIES - NOTE 12 ..................................................                   -                    -

SHAREHOLDERS' EQUITY
    Common stock, par value $.01 per share, 10,000,000 shares authorized and
      outstanding - 1,012,779 and 1,014,581 shares
      for 2003 and 2002, respectively ....................................................              10,128               10,146
    Capital surplus ......................................................................           3,417,261            3,454,709
    Retained earnings ....................................................................           4,488,686            4,230,403
    Accumulated other comprehensive income ...............................................             122,408              194,500
                                                                                                  ------------         ------------

         Total shareholders' equity ......................................................           8,038,483            7,889,758
                                                                                                  ------------         ------------

         Total liabilities and shareholders' equity ......................................        $ 70,924,551         $ 60,784,026
                                                                                                  ============         ============
</TABLE>

         The  accompanying  notes  are an  integral  part of these  consolidated
financial statements.


                                       18
<PAGE>


                CLOVER COMMUNITY BANKSHARES, INC. AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                                   For the years ended December 31,
                                                                                                   --------------------------------
                                                                                                      2003                  2002
                                                                                                      ----                  ----
Interest income:
<S>                                                                                                <C>                    <C>
    Loans, including fees ............................................................             $2,918,743             $2,553,342
    Interest-bearing deposits in other banks .........................................                  1,326                    457
    Investment securities:
      Taxable ........................................................................                409,035                585,441
      Tax-exempt .....................................................................                213,067                217,048
      Nonmarketable equity securities ................................................                  9,818                 12,563
    Federal funds sold ...............................................................                 84,292                 65,940
                                                                                                   ----------             ----------

         Total interest income .......................................................              3,636,281              3,434,791
                                                                                                   ----------             ----------

Interest expense:
    Time deposits $100,000 and over ..................................................                197,276                202,980
    Other deposits ...................................................................                589,836                730,359
    Federal funds purchased ..........................................................                      -                    117
    Advances from Federal Home Loan Bank .............................................                 49,201                 77,164
                                                                                                   ----------             ----------

         Total interest expense ......................................................                836,313              1,010,620
                                                                                                   ----------             ----------

         Net interest income .........................................................              2,799,968              2,424,171

Provision for loan losses ............................................................                 96,000                357,000
                                                                                                   ----------             ----------

Net interest income after provision for loan losses ..................................              2,703,968              2,067,171
                                                                                                   ----------             ----------
Noninterest income:
    Service charges on deposit accounts ..............................................                770,763                719,566
    Credit life insurance commissions ................................................                  3,077                  1,496
    Gain on sale of securities available-for-sale ....................................                      -                273,376
    Other ............................................................................                 58,367                 58,875
                                                                                                   ----------             ----------

         Total noninterest income ....................................................                832,207              1,053,313
                                                                                                   ----------             ----------

Noninterest expense:
    Salaries and employee benefits ...................................................              1,366,756              1,070,399
    Net occupancy ....................................................................                126,389                 88,347
    Furniture and equipment ..........................................................                279,338                187,095
    Printing, postage and stationery .................................................                148,882                142,887
    Professional services ............................................................                103,574                 88,884
    Data processing ..................................................................                 82,105                 59,991
    ATM/Debit card ...................................................................                 67,844                 50,300
    Directors fees ...................................................................                 46,000                 38,000
    Other operating ..................................................................                222,934                191,559
                                                                                                   ----------             ----------

         Total noninterest expense ...................................................              2,443,822              1,917,462
                                                                                                   ----------             ----------

Income before income taxes ...........................................................              1,092,353              1,203,022

Income tax expense ...................................................................                326,825                371,175
                                                                                                   ----------             ----------

Net income ...........................................................................             $  765,528             $  831,847
                                                                                                   ==========             ==========

Earnings per share
    Weighted average number of common shares outstanding .............................              1,014,665              1,015,247
    Basic earnings per share .........................................................             $     0.75             $     0.82
</TABLE>


         The  accompanying  notes  are an  integral  part of these  consolidated
financial statements.



                                       19
<PAGE>


                CLOVER COMMUNITY BANKSHARES, INC. AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                            AND COMPREHENSIVE INCOME
                 For the years ended December 31, 2003 and 2002


<TABLE>
<CAPTION>
                                                                                                          Accumulated
                                                                                                            other
                                                       Common stock          Capital          Retained   comprehensive
                                                   Shares         Amount     surplus          earnings   income (loss)     Total
                                                   ------         ------     -------          --------   -------------     -----


<S>                                             <C>          <C>            <C>            <C>            <C>           <C>
Balance, December 31, 2001 ................     1,015,458    $    10,154    $ 3,456,396    $ 4,159,474    $   210,406   $ 7,836,430
                                                                                                                        -----------

Net income ................................                                                    831,847                      831,847

Other comprehensive loss:
   Unrealized holding losses on
   securities available-for-sale,
   net of income tax benefit of $(8,908)...                                                                  (15,906)       (15,906)
                                                                                                                        -----------


Comprehensive income ......................                                                                                 815,941

Cash dividends declared - $0.75
   per share ..............................                                                   (760,918)                    (760,918)

Sale of common stock under
   dividend reinvestment plan .............         3,455             35        106,625                                     106,660

Repurchase and retirement of
   common stock ...........................        (4,332)           (43)      (108,312)                                   (108,355)
                                                ---------       --------    -----------    -----------    -----------   -----------

Balance, December 31, 2002 ................     1,014,581         10,146      3,454,709      4,230,403        194,500     7,889,758
                                                                                                                        -----------

Net income                                                                                     765,528                      765,528

Other comprehensive loss:
   Unrealized holding losses on
   securities available-for-sale,
   net of income tax benefit of $(40,374)..                                                                   (72,092)      (72,092)
                                                                                                                        -----------


Comprehensive income
                                                                                                                            693,436

Cash dividends declared - $0.50
   per share ..............................                                                   (507,245)                    (507,245)

Sale of common stock under
   dividend reinvestment plan .............         2,198             22         62,552                                      62,574

Repurchase and retirement of
   common stock ...........................        (4,000)           (40)      (100,000)                                   (100,040)
                                              -----------    -----------    -----------    -----------    -----------   -----------

Balance, December 31, 2003 ................     1,012,779    $    10,128    $ 3,417,261    $ 4,488,686    $   122,408   $ 8,038,483
                                              ===========    ===========    ===========    ===========    ===========   ===========
</TABLE>


         The  accompanying  notes  are an  integral  part of these  consolidated
financial statements.


                                       20
<PAGE>


                CLOVER COMMUNITY BANKSHARES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                   For the years ended December 31,
                                                                                                   --------------------------------
                                                                                                     2003                   2002
                                                                                                     ----                   ----
Cash flows from operating activities:
<S>                                                                                             <C>                    <C>
    Net income .......................................................................          $    765,528           $    831,847
    Adjustments to reconcile net income to net cash provided by
    operating activities:
      Provision for loan losses ......................................................                96,000                357,000
      Depreciation ...................................................................               172,361                 74,633
      Amortization of net loan fees and costs ........................................                 5,489                  9,357
      Discount accretion and premium amortization ....................................                41,956                (17,982)
      Deferred income tax benefit ....................................................                (9,512)               (42,090)
      Gain on sales of securities available-for-sale .................................                     -               (273,376)
      Increase in accrued interest receivable ........................................               (49,883)                (7,187)
      Decrease in accrued interest payable ...........................................                (1,025)              (172,989)
      Increase in other assets .......................................................               (88,861)                (3,584)
      Increase in other liabilities ..................................................                10,430                 69,978
                                                                                                ------------           ------------

           Net cash provided by operating activities .................................               942,483                825,607
                                                                                                ------------           ------------

Cash flows from investing activities:
    Purchases of securities available-for-sale .......................................           (11,073,596)           (10,305,314)
    Maturities of securities available-for-sale ......................................             9,054,271              4,483,977
    Proceeds from sales of securities available-for-sale .............................                     -              6,442,674
    Net increase in loans made to customers ..........................................            (8,739,151)            (3,543,212)
    Purchase of premises, furniture and equipment ....................................              (198,616)              (911,203)
                                                                                                ------------           ------------
           Net cash used for investing activities ....................................           (10,957,092)            (3,833,078)
                                                                                                ------------           ------------

Cash flows from financing activities:
    Net increase in demand deposits, interest-bearing
      transaction accounts and savings accounts ......................................            11,202,882              1,438,792
    Net increase in certificates of deposit and other time deposits ..................             2,778,488              2,302,880
    Repayment of advances from Federal Home Loan Bank ................................            (4,000,000)                     -
    Cash dividends paid ..............................................................              (507,245)              (760,918)
    Sales of common stock under dividend reinvestment plan ...........................                62,574                106,660
    Repurchase and retirement of common stock ........................................              (100,040)              (108,355)
                                                                                                ------------           ------------

           Net cash provided by financing activities .................................             9,436,659              2,979,059
                                                                                                ------------           ------------

           Net decrease in cash and cash equivalents .................................              (577,950)               (28,412)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR .........................................             6,525,774              6,554,186
                                                                                                ------------           ------------

CASH AND CASH EQUIVALENTS, END OF YEAR ...............................................          $  5,947,824           $  6,525,774
                                                                                                ============           ============
</TABLE>






         The  accompanying  notes  are an  integral  part of these  consolidated
financial statements.


                                       21
<PAGE>


                CLOVER COMMUNITY BANKSHARES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization - Clover Community Bankshares, Inc. (the "Company"), a bank holding
company,  and its wholly-owned  subsidiary,  Clover Community Bank (the "Bank"),
are  engaged  in  providing  domestic  commercial  banking  services  from their
headquarters  office in Clover,  South Carolina and from a branch office in Lake
Wylie, South Carolina.  The Company is a South Carolina corporation and the Bank
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 Company was incorporated on March 4, 1998 and the Bank was organized in 1986
and first commenced commercial operations on October 1, 1987.

Clover Community 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 the
Clover and Lake  Wylie  areas of York  County,  South  Carolina.  The Bank has a
diversified  loan portfolio and borrowers'  abilities to repay are not dependent
upon any specific economic sector.  Also,  substantially all of its deposits are
acquired within its local market area and no brokered deposits are accepted.

Principles  of  Consolidation  and  Basis  of  Presentation  - The  consolidated
financial  statements  include  the  accounts  of the Company and the Bank after
elimination of all significant intercompany balances and transactions.

Use  of  Estimates  - In  preparing  financial  statements  in  conformity  with
accounting  principles  generally  accepted  in the  United  States of  America,
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.

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

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

Loans  Receivable 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, when not material,  are carried in
the balance sheet at a value not to exceed their observable  market price or the
fair value of the  collateral  if the  repayment  of the loan is  expected to be
provided solely by the underlying collateral. The carrying value of any material
impaired  loan is measured  based on the present  value of expected  future cash
flows discounted at the loan's effective interest rate, which is the contractual
interest rate adjusted for any deferred loan fees or costs,  premium or discount
existing at the inception or acquisition of the loan.

                                                                     (Continued)

                                       22
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

Generally,  the accrual of interest is  discontinued  on impaired  loans and any
previously  accrued  interest on such loans is reversed  against current income.
Any  subsequent  interest  income is  recognized  on a cash basis when  received
unless  collectibility of a significant amount of principal is in serious doubt.
In such cases, collections are credited first to the remaining principal balance
on a cost recovery  basis.  An impaired  loan is not returned to accrual  status
unless  principal and interest are current and the borrower has demonstrated the
ability to continue making payments as agreed.

Allowance  for Loan Losses - An allowance for possible loan losses is maintained
at a level deemed  appropriate by management to adequately provide for known and
estimated losses inherent 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 loan is uncollectible, the estimated amount
of the loss is charged off and deducted  from the  allowance.  The provision for
possible loan losses and recoveries on loans previously charged off are added to
the  allowance.  Determining  the amount and adequacy of the  allowance for loan
losses involves  estimating  uncertain  future events and their effects based on
judgment  applied to  currently  known facts and  circumstances.  Changes in the
estimated  allowance  for loan losses  necessitated  as new events occur or more
information is obtained are accounted for as changes in accounting  estimates in
the accounting period in which the change occurs.

Management  considers the Company's  historical  loan loss  experience,  current
national and local  economic  conditions  affecting  the  borrowers'  ability to
repay,  the volume of loans,  the trends in  delinquent,  impaired and potential
problem loans,  and the amount and quality of collateral  securing such loans in
reviewing  the adequacy of the  allowance for loan losses.  In  calculating  its
estimate, management applies a consistent methodology that is updated quarterly.
The calculation  involves applying various estimated  percentage  factors to the
loan  portfolio  categorized  by purpose and type of underlying  collateral  and
utilizing  assessed  risk grades from the Company's  ongoing  system of detailed
loan reviews.  For some loans,  particularly  those  identified as impaired or a
potential problem, specific allocations are made in the calculation.

Premises, Furniture and Equipment - Premises, furniture and equipment are stated
at cost,  less  accumulated  depreciation.  The  provision for  depreciation  is
computed predominantly using the straight-line method. Rates of depreciation are
generally based on the following estimated useful lives:  building - 31.5 years;
furniture  and  equipment - 5 to 7 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
statements of income.  Maintenance and repairs are charged to current expense as
incurred and the costs of major renewals and improvements are capitalized.

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

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
current tax rates which are assumed 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.

Earnings Per Share - Earnings 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.  The Company has no potential  dilutive common shares,  stock
options or warrants outstanding and therefore has not presented diluted earnings
per share.




                                                                     (Continued)


                                       23
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

Comprehensive  Income -  Comprehensive  income  consists  of net  income 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 or loss by 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. The components of other comprehensive
income or loss and related tax effects are as follows:


<TABLE>
<CAPTION>
                                                                                                    For the years ended December 31,
                                                                                                    --------------------------------
                                                                                                      2003                  2002
                                                                                                      ----                  ----

<S>                                                                                                  <C>                  <C>
Change in unrealized gains (losses) on securities available-for-sale .....................           $(112,466)           $ 248,562

Reclassification adjustment for gains realized in net income .............................                   -             (273,376)
                                                                                                     ---------            ---------

Change in net unrealized gains (losses) on
  securities available-for-sale ..........................................................            (112,466)             (24,814)

Tax effect ...............................................................................             (40,374)              (8,908)
                                                                                                     ---------            ---------

Net-of-tax amount ........................................................................           $ (72,092)           $ (15,906)
                                                                                                     =========            =========
</TABLE>

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

The following summarizes  supplemental cash flow information for the years ended
December 31, 2003 and 2002:


<TABLE>
<CAPTION>
                                                                                                      2003                  2002
                                                                                                      ----                  ----

Cash paid for:
<S>                                                                                              <C>                    <C>
  Interest ...........................................................................           $   836,313            $ 1,010,620
  Income taxes .......................................................................               389,244                411,000

Supplemental noncash investing and financing activities:
  Change in unrealized gain or loss on securities available-for-
     sale, net of tax ................................................................               (72,092)               (15,906)
</TABLE>

Fair  Value  Of  Financial  Instruments  -  Statement  of  Financial  Accounting
Standards   ("SFAS")  No.  107,   Disclosures  about  Fair  Value  of  Financial
Instruments,  requires  disclosure  of fair  value  information,  whether or not
recognized  in the balance  sheets,  when it is  practical  to estimate the fair
value.  SFAS No. 107  defines a  financial  instrument  as cash,  evidence of an
ownership  interest in an entity or contractual  obligations,  which require the
exchange of cash or other financial instruments.  Certain items are specifically
excluded from the disclosure requirements, including the Company's common stock,
premises and equipment and other assets and liabilities.

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

                                                                     (Continued)

                                       24
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued


Fair value approximates  carrying value for the following financial  instruments
due to the  short-term  nature  of the  instrument:  cash  and due  from  banks,
interest-bearing deposits in other banks and federal funds sold.

Securities  are valued  using  quoted  fair  market  prices.  Fair value for the
Company's  off-balance  sheet  financial  instruments is based on the discounted
present value of the estimated future cash flows.

Fair  value for  variable  rate  loans  that  reprice  frequently,  credit  card
receivables and lines of credit is based on the carrying  value.  Fair value for
fixed rate  mortgage  loans,  personal  loans,  and all other  loans  (primarily
commercial)  is based on the  discounted  present value of the estimated  future
cash flows.  Discount  rates used in these  computations  approximate  the rates
currently offered for similar loans of comparable terms and credit quality.

Fair value for demand  deposit  accounts and  interest-bearing  accounts with no
fixed  maturity  date  is  equal  to the  carrying  value.  The  fair  value  of
certificate  of deposit  accounts is  estimated by  discounting  cash flows from
expected maturities using current interest rates on similar instruments.

Fair value for  advances  from the Federal  Home Loan Bank is  estimated  at the
carrying amount because rates  approximate  rates currently  offered for similar
borrowings of comparable terms and credit quality.

Fair value of off balance sheet  investments is based on fees currently  charged
to enter into similar agreements; taking into account the remaining terms of the
agreements and the counterparties' credit standing.

Reclassifications  -  Certain  captions  and  amounts  in the 2002  consolidated
financial  statements were  reclassified to conform with the 2003  presentation.
These  reclassifications  had no impact on  previously  reported  net  income or
shareholders' equity.

Recently  Issued  Accounting  Standards - The  following  is a summary of recent
authoritative  pronouncements that affect accounting,  reporting, and disclosure
of financial information by the Company:

     In December 2002, the Financial  Accounting Standards Board ("FASB") issued
     SFAS  No.  148,  Accounting  for  Stock-Based  Compensation-Transition  and
     Disclosure,  an  amendment  of FASB  Statement  No.  123,  "Accounting  for
     Stock-Based Compensation", to provide alternative methods of transition for
     a  voluntary  change  to the fair  value  based  method of  accounting  for
     stock-based employee compensation.  SFAS No. 148 also amends the disclosure
     provisions of SFAS No. 123 and Accounting  Principles Board ("APB") Opinion
     No. 28, Interim Financial  Reporting,  to require disclosure in the summary
     of significant accounting policies of the effects of an entity's accounting
     policy with respect to stock-based  employee  compensation  on reported net
     income and earnings per share in annual and interim  financial  statements.
     While SFAS No. 148 does not amend  SFAS No.  123 to  require  companies  to
     account  for  employee  stock  options  using the fair  value  method,  the
     disclosure  provisions of SFAS No. 148 are applicable to all companies with
     stock-based employee  compensation,  regardless of whether they account for
     that  compensation  using  the fair  value  method  of SFAS No.  123 or the
     intrinsic  value method of APB Opinion No. 25. The  provisions  of SFAS No.
     148 were effective for annual financial  statements for fiscal years ending
     after December 15, 2002,  and for financial  reports  containing  condensed
     financial statements for interim periods beginning after December 15, 2002.
     The  adoption  of SFAS  No.  148  did not  have a  material  impact  on the
     Company's financial position or results of operations.

     In April 2003, the FASB issued SFAS No. 149,  Amendment of Statement 133 on
     Derivative  Instruments and Hedging Activities,  which amends and clarifies
     accounting  for  derivative   instruments,   including  certain  derivative
     instruments embedded in other contracts and loan commitments that relate to
     the origination of mortgage loans held-for-sale, and for hedging activities
     under SFAS No. 133.  SFAS No. 149 was  generally  effective  for  contracts
     entered into or modified  after June 30, 2003. The adoption of SFAS No. 149
     did not have a material  impact on the  financial  condition  or  operating
     results of the Company.





                                                                     (Continued)


                                       25
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

Recently Issued Accounting Standards, Continued
     In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
     Instruments with  Characteristics of both Liabilities and Equity.  SFAS No.
     150 establishes standards for how an issuer classifies and measures certain
     financial  instruments with characteristics of both liabilities and equity.
     It requires that an issuer  classify a financial  instrument that is within
     its scope as a liability (or an asset in some circumstances). Many of those
     instruments  were  previously  classified  as  equity.  SFAS  No.  150  was
     generally  effective  for  financial  instruments  entered into or modified
     after May 31, 2003,  and  otherwise  was  effective at the beginning of the
     first interim  period  beginning  after June 15, 2003. The adoption of SFAS
     No.  150 did not have a  material  impact  on the  financial  condition  or
     operating results of the Company.

     In  November  2002,  the FASB issued  FASB  Interpretation  ("FIN") No. 45,
     Guarantor's   Accounting  and  Disclosure   Requirements   for  Guarantees,
     Including  Indirect  Guarantees  of  Indebtedness  of  Others.  FIN No.  45
     requires a company,  at the time it issues a  guarantee,  to  recognize  an
     initial  liability  for the fair  value of  obligations  assumed  under the
     guarantee and  elaborates on existing  disclosure  requirements  related to
     guarantees and warranties.  The initial recognition requirements of FIN No.
     45 were  effective for  guarantees  issued or modified  after  December 31,
     2002. The disclosure  requirements were effective for financial  statements
     of periods  ending after  December 15, 2002. The adoption of FIN No. 45 did
     not have a material effect on the Company's  financial  position or results
     of operations.

     In January  2003,  the FASB  issued FIN No. 46,  Consolidation  of Variable
     Interest  Entities.  FIN No. 46 requires a variable  interest  entity to be
     consolidated  by a company if that  company is subject to a majority of the
     risk of loss from the variable interest entity's  activities or entitled to
     receive a majority of the entity's  residual  returns,  or both. FIN No. 46
     also requires  disclosures  about variable interest entities that a company
     is not required to consolidate,  but in which it has a significant variable
     interest.  FIN No. 46 provides  guidance for determining  whether an entity
     qualifies  as a  variable  interest  entity  by  considering,  among  other
     considerations,  whether the entity lacks  sufficient  equity or its equity
     holders  lack   adequate   decision-making   ability.   The   consolidation
     requirements  of FIN  No.  46  applied  immediately  to  variable  interest
     entities  created after January 31, 2003.  The  consolidation  requirements
     applied to  existing  entities in the first  fiscal year or interim  period
     beginning  after  June 15,  2003.  Certain of the  disclosure  requirements
     applied  to  all  financial  statements  issued  after  January  31,  2003,
     regardless  of when the  variable  interest  entity  was  established.  The
     adoption  of FIN No. 46 did not have a  material  effect  on the  Company's
     financial position or results of operations.

     In  November  2003,  the  Emerging  Issues  Task Force  ("EITF")  reached a
     consensus that certain  quantitative and qualitative  disclosures should be
     required  for  debt  and  marketable   equity   securities   classified  as
     available-for-sale or held-to-maturity  under SFAS No. 115 and SFAS No. 124
     that  are   impaired   at  the   balance   sheet  date  but  for  which  an
     other-than-temporary  impairment has not been  recognized.  Accordingly the
     EITF issued EITF No. 03-1, The Meaning of  Other-Than-Temporary  Impairment
     and Its  Application  to  Certain  Investments.  This issue  addresses  the
     meaning  of   other-than-temporary   impairment  and  its   application  to
     investments  classified as either  available-for-sale  or  held-to-maturity
     under SFAS No. 115 and provides  guidance on  quantitative  and qualitative
     disclosures.  EITF No. 03-1 was  effective  for fiscal  years  ending after
     December 15, 2003. Adopting the disclosure  provisions of EITF No. 03-1 did
     not have a material effect on the Company's  financial  position or results
     of operations.

Risks and  Uncertainties  - In the normal  course of its  business  the  Company
encounters two significant  types of risks:  economic and regulatory.  There are
three main  components of economic  risk:  interest rate risk,  credit risk, and
market risk. The Company is subject to interest rate risk to the degree that its
interest-bearing  liabilities  mature  or  reprice  at  different  times,  or on
different bases, than its  interest-earning  assets.  Credit risk is the risk of
default on the Company's loan and investments securities portfolios that results
from a borrower's  inability or  unwillingness  to make  contractually  required
payments.  Market risk reflects  changes in the value of  collateral  underlying
loans receivable and the valuation of real estate held by the Company.




                                                                     (Continued)

                                       26
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

The  Company is subject to the  regulations  of various  governmental  agencies.
These  regulations can and do change  significantly  from period to period.  The
Company also undergoes periodic  examinations by the regulatory agencies,  which
may subject it to further changes with respect to asset  valuations,  amounts of
required  loss  allowances  and  operating  restrictions  from  the  regulators'
judgments  based  on  information  available  to  them  at  the  time  of  their
examination.


NOTE 2 - CASH AND DUE FROM BANKS

Banks are  generally  required by regulation to maintain an average cash reserve
balance  based on a  percentage  of  deposits.  The average  amounts of the cash
reserve balances at December 31, 2003 and 2002 were  approximately  $332,000 and
$230,000, respectively.


NOTE 3 - SECURITIES AVAILABLE-FOR-SALE

The amortized cost and estimated fair values of securities available-for-sale at
December 31, 2003 and 2002 were as follows:

<TABLE>
<CAPTION>
                                                                                                                         Estimated
                                                            Amortized                  Gross unrealized                     fair
December 31, 2003                                             cost                  gains               losses              value
                                                              ----                  -----               ------              -----

<S>                                                       <C>                  <C>                  <C>                  <C>
U.S. Government agencies .......................          $ 3,002,579          $    10,704          $    18,906          $ 2,994,377
State, county and municipal ....................            5,288,050              225,230                9,416            5,503,864
Mortgage-backed securities .....................            9,916,890               35,972               52,618            9,900,244
                                                          -----------          -----------          -----------          -----------

        Total ..................................          $18,207,519          $   271,906          $    80,940          $18,398,485
                                                          ===========          ===========          ===========          ===========

December 31, 2002

U.S. Government agencies .......................          $ 1,519,771          $    40,053          $         -          $ 1,559,824
State, county and municipal ....................            4,331,977              156,073               19,478            4,468,572
Mortgage-backed securities .....................           10,378,402              131,298                4,514           10,505,186
                                                          -----------          -----------          -----------          -----------

        Total ..................................          $16,230,150          $   327,424          $    23,992          $16,533,582
                                                          ===========          ===========          ===========          ===========
</TABLE>

Proceeds from sales of securities  available-for-sale  were $6,442,674 resulting
in gross realized  gains of $273,376 in 2002.  There were no sales of securities
available-for-sale during 2003.














                                                                     (Continued)

                                       27
<PAGE>

NOTE 3 - SECURITIES AVAILABLE-FOR-SALE, Continued

The following table shows gross unrealized losses and fair value,  aggregated by
investment category,  and length of time that individual securities have been in
a continuous unrealized loss position at December 31, 2003.

Securities Available-for-Sale:


<TABLE>
<CAPTION>
                                                    Less than 12 Months           12 Months or More                Total
                                                    -------------------           -----------------                -----
                                                   Fair       Unrealized        Fair        Unrealized        Fair        Unrealized
                                                   value         losses         value         losses          value         losses
                                                   -----         ------         -----         ------          -----         ------

US Government and agency
<S>                                            <C>            <C>            <C>            <C>            <C>            <C>
Securities ...............................     $1,481,093     $   18,906     $        -     $        -     $1,481,093     $   18,906
State, county and municipal securities ...      1,808,737          9,416              -              -      1,808,737          9,416
Mortgage-backed securities ...............      5,690,102         51,478        200,606          1,140      5,890,708         52,618
                                               ----------     ----------     ----------     ----------     ----------     ----------

Total ....................................     $8,979,932     $   79,800     $  200,606     $    1,140     $9,180,538     $   80,940
                                               ==========     ==========     ==========     ==========     ==========     ==========
</TABLE>


At December 31, 2003,  the amounts  included in the category  "twelve  months or
more" in the above table consisted of one individual mortgage-backed security in
a  continuous  loss  position  for twelve  months.  The security is protected by
mortgage  insurance as well as the direct credit of Fannie Mae.  Therefore,  the
Company  believes that the  deterioration in value is attributable to changes in
market interest rates and not in credit quality and considers these losses to be
temporary.  The Company has the ability and intent to hold this  security  until
such time as the value recovers.

The following is a summary of maturities of securities  available-for-sale as of
December 31, 2003 and 2002.  The amortized  cost and  estimated  fair values are
based on the  contractual  maturity  dates.  Actual  maturities  may differ from
contractual  maturities  because  borrowers may have the right to call or prepay
obligations with or without penalty.

<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                                           ------------
                                                                           2003                                     2002
                                                                           ----                                     ----
                                                               Amortized          Estimated            Amortized          Estimated
                                                                 cost             fair value             cost            fair value
                                                                 ----             ----------             ----            ----------
<S>                                                          <C>                 <C>                 <C>                 <C>
Due in less than one year ..........................         $   338,776         $   350,222         $   325,125         $   328,350
Due after one through five years ...................           2,627,673           2,709,129           1,969,884           2,062,076
Due after five through ten years ...................           4,661,068           4,725,533           2,409,027           2,445,561
Due after ten years ................................             663,112             713,357           1,147,712           1,192,409
                                                             -----------         -----------         -----------         -----------

                                                               8,290,629           8,498,241           5,851,748           6,028,396
Mortgage-backed securities .........................           9,916,890           9,900,244          10,378,402          10,505,186
                                                             -----------         -----------         -----------         -----------

    Total ..........................................         $18,207,519         $18,398,485         $16,230,150         $16,533,582
                                                             ===========         ===========         ===========         ===========
</TABLE>

At December 31, 2003 and 2002,  securities  with a carrying amount of $1,033,898
and  $1,527,296,  respectively,  were  pledged as  collateral  to secure  public
deposits.



                                       28
<PAGE>


NOTE 4 - NONMARKETABLE EQUITY SECURITIES

Nonmarketable equity securities at December 31, 2003 and 2002 consist of:

                                                        2003              2002
                                                        ----              ----

Federal Home Loan Bank stock .................         $200,000         $200,000
Bankers' Bank stock ..........................           50,000           50,000
                                                       --------         --------

      Total ..................................         $250,000         $250,000
                                                       ========         ========

The Bank, as a member institution,  is required to own certain stock investments
in the Federal  Home Loan Bank  ("FHLB")  and the  Bankers'  Bank.  The stock is
generally  pledged  against any borrowings  from the FHLB (see Note 8). No ready
market  exists  for  the  stock  and it has no  quoted  market  value;  however,
redemption of this stock has historically been at par value.


NOTE 5 - LOANS RECEIVEABLE AND ALLOWANCE FOR LOAN LOSSES

Major  classifications  of loans  receivable  at December  31, 2003 and 2002 are
summarized as follows:

                                                    2003                  2002
                                                    ----                  ----

Commercial and industrial ..................     $ 12,114,249      $  5,690,871
Real estate - construction .................        3,552,795         2,169,447
Real estate - mortgage .....................       23,682,712        24,007,689
Consumer and other .........................        4,438,321         3,192,773
                                                 ------------      ------------

      Total ................................       43,788,077        35,060,780
Less allowance for possible loan losses ....         (449,541)         (359,906)
                                                 ------------      ------------

Loans, net .................................     $ 43,338,536      $ 34,700,874
                                                 ============      ============

Nonperforming  loans include nonaccrual loans or loans which are 90 days or more
delinquent as to principal or interest payments. Nonperforming loans amounted to
$193,742 and $431,757 at December 31, 2003 and 2002, respectively.

Transactions  in the allowance for loan losses for the years ended  December 31,
2003 and 2002 are summarized below:


                                                          2003            2002
                                                          ----            ----

Balance, beginning of year .......................     $ 359,906      $ 274,347
Provision charged to operations ..................        96,000        357,000
Recoveries on loans previously charged-off .......         4,878          2,375


Loans charged-off ................................       (11,243)      (273,816)
                                                       ---------      ---------

Balance, end of year .............................     $ 449,541      $ 359,906
                                                       =========      =========

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,   as  those   prevailing  at  the  time  for  comparable
transactions  with unrelated parties and do not involve more than normal risk of
collectibility.  The aggregate  dollar amount of these loans was  $2,268,173 and
$1,826,802 at December 31, 2003 and 2002,  respectively.  During 2003, new loans
were $1,798,338 and repayments totaled $1,356,967.



                                       29
<PAGE>


NOTE 6 - PREMISES, FURNITURE AND EQUIPMENT
Premises,  furniture  and  equipment  consisted of the following at December 31,
2003 and 2002:
                                                       2003             2002
                                                       ----             ----

Land ...........................................    $   979,273     $   978,822
Buildings and land improvements ................      1,140,393         620,399
Furniture and equipment ........................      1,575,904       1,158,282
Construction in progress .......................              -         739,451
                                                    -----------     -----------

       Total ...................................      3,695,570       3,496,954
Less, accumulated depreciation .................     (1,387,777)     (1,215,416)
                                                    -----------     -----------

      Premises, furniture and equipment, net ...    $ 2,307,793     $ 2,281,538
                                                    ===========     ===========

Depreciation expense for the years ended December 31, 2003 and 2002 was $172,361
and $74,633, respectively.

Construction  in  progress in 2002  consisted  of costs of  construction  of the
branch office in Lake Wylie, South Carolina, which opened in late 2002. In 2003,
these amounts are included in building and equipment.


NOTE 7 - DEPOSITS

A summary of deposits at December 31, 2003 and 2002 follows:

                                                       2003               2002
                                                       ----               ----

Noninterest bearing demand ...................      $ 9,348,902      $ 4,921,609
Interest bearing transaction accounts ........       23,957,824       14,432,234
Savings ......................................        3,950,327        3,078,637
Time, $100,000 and over ......................       10,047,467        8,195,453
Other time deposits ..........................       15,367,648       18,062,865
                                                    -----------      -----------

    Total deposits ...........................      $62,672,168      $48,690,798
                                                    ===========      ===========

At December 31, 2003 the scheduled  maturities of certificates of deposit are as
follows:

          2004 ..............................    $ 22,217,745
          2005 ..............................       2,549,032
          2006 ..............................          79,516
          2007 ..............................         128,969
          2008 ..............................         439,853
                                                 ------------

             Total ..........................    $ 25,415,115
                                                 ============

NOTE 8 - ADVANCES FROM FEDERAL HOME LOAN BANK (FHLB)

Advances from the FHLB at December 31, 2002 were as follows:

                                                                         2002
                                                                         ----
Floating rate notes issued to the FHLB
     Due November 28, 2003 ..............................         $   4,000,000
     Interest rate at period end ........................                  1.51%


                                       30
<PAGE>


NOTE 9 - 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 Bank's  dividends to the Company in an amount exceeding the amount 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 would be prohibited if the effect thereof would cause the Bank's capital
to be reduced  below  applicable  minimum  capital  requirements.  Under Federal
Reserve  Board  regulations,  the amounts of loans or advances  from the banking
subsidiary to the parent company are also restricted.

Accumulated  Other  Comprehensive  Income - As of  December  31,  2003 and 2002,
accumulated other comprehensive  income included in shareholders'  equity in the
accompanying consolidated balance sheets consisted of the accumulated changes in
the unrealized holding gains and losses on available-for-sale securities, net of
income tax effects.

Dividend  Reinvestment Plan - As of February 4, 1999, the Company registered and
reserved  50,000  shares of its  authorized  but unissued  common stock for sale
through its Dividend  Reinvestment  Plan (the "Plan").  Under the Plan, which is
available  only to  residents  of  South  Carolina,  shareholders  may  purchase
additional shares by foregoing the payment in cash of cash dividends declared by
the Company and instead accepting additional shares of common stock. Such shares
of additional  stock are issued at a price  determined  in  accordance  with the
Plan's  pricing  formula.  There  are no  provisions  for other  periodic  stock
purchases under the Plan.  Shares issued under the Plan are newly issued shares.
As of December 31, 2003, a total of 20,257  shares had been issued,  with 29,743
of the reserved shares available for future issuance.

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

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Company and its banking  subsidiary to maintain  minimum amounts and
ratios set forth in the table  below of Total and Tier 1 Capital,  as defined in
the regulations,  to risk weighted assets, as defined, and of Tier 1 Capital, as
defined, to average assets, as defined.  Management believes, as of December 31,
2003 and 2002,  that the Company  and the Bank  exceeded  all  capital  adequacy
minimum requirements.

As of December 31, 2003, the most recent  notification from the FDIC categorized
the  Bank  as  well  capitalized  under  the  regulatory  framework  for  prompt
corrective  action. To be categorized as well  capitalized,  the Company and the
Bank must maintain  minimum  Total  risk-based,  Tier 1  risk-based,  and Tier 1
leverage  ratios as set forth in the table.  There are no  conditions  or events
since  that  notification  that  management  believes  have  changed  the Bank's
category.  The Company's and the Bank's  actual  capital  amounts and ratios are
also presented in the table.












(Continued)


                                       31
<PAGE>


NOTE 9 - SHAREHOLDERS' EQUITY, Continued

<TABLE>
<CAPTION>
                                                                                                             To be well capitalized
                                                                                             For capital     under prompt corrective
                                                                        Actual            adequacy purposes     action provisions
                                                                        ------            -----------------     -----------------
                                                                 Amount        Ratio      Amount      Ratio     Amount       Ratio
                                                                 ------        -----      ------      -----     ------       -----
(Dollars in thousands)
December 31, 2003

The Company
<S>                                                             <C>            <C>       <C>           <C>      <C>            <C>
    Total Capital (to risk weighted assets) .............       $7,771         15.76%    $3,944        8.0%     $4,931         10.0%
    Tier 1 Capital (to risk weighted assets) ............        7,328         14.85      1,972        4.0       2,959          6.0
    Tier 1 Capital (to average assets) ..................        7,325         10.25      2,149        3.0       3,573          5.0

Clover Community Bank
    Total Capital (to risk weighted assets) .............       $7,772         15.76%    $3,945        8.0%     $4,931         10.0%
    Tier 1 Capital (to risk weighted assets) ............        7,322         14.85      1,974        4.0       2,961          6.0
    Tier 1 Capital (to average assets) ..................        7,322         10.25      2,144        3.0       3,573          5.0

December 31, 2002

The Company
    Total Capital (to risk weighted assets) .............       $8,055         19.7%     $3,265        8.0%     $4,082         10.0%
    Tier 1 Capital (to risk weighted assets) ............        7,695         18.9       1,633        4.0       2,449          6.0
    Tier 1 Capital (to average assets) ..................        7,695         13.0       1,783        3.0       2,972          5.0

Clover Community Bank
    Total Capital (to risk weighted assets) .............       $7,409         18.1%     $3,268        8.0%     $4,086         10.0%
    Tier 1 Capital (to risk weighted assets) ............        7,049         17.3       1,634        4.0       2,451          6.0
    Tier 1 Capital (to average assets) ..................        7,049         11.9       1,783        3.0       2,972          5.0
</TABLE>


NOTE 10 - INCOME TAXES

Income tax expense  (benefit) for the years ended  December 31, 2003 and 2002 is
summarized as follows:


                                                      2003                2002
                                                      ----                ----

Currently payable:
  Federal ....................................       $ 301,212        $ 375,832
  State ......................................          35,125           37,433
                                                     ---------        ---------
     Total current ...........................         336,337          413,265
                                                     ---------        ---------

Change in deferred income taxes:
  Federal ....................................          (9,512)         (42,090)
  State ......................................               -                -
                                                     ---------        ---------
     Total deferred ..........................          (9,512)         (42,090)
                                                     ---------        ---------

Income tax expense ...........................       $ 326,825        $ 371,175
                                                     =========        =========



                                                                     (Continued)


                                       32
<PAGE>

NOTE 10 - INCOME TAXES, Continued

The gross amounts of deferred tax assets  (liabilities)  as of December 31, 2003
and 2002 are as follows:

<TABLE>
<CAPTION>
                                                                                                          2003               2002
                                                                                                          ----               ----
Deferred tax assets:
<S>                                                                                                    <C>                  <C>
    Allowance for loan losses ............................................................             $130,507             $100,229
    Net deferred loan fees ...............................................................               15,741                7,512
    Accrual to cash adjustment ...........................................................               67,638               59,304
                                                                                                       --------             --------
      Gross deferred tax assets ..........................................................              213,886              167,045
                                                                                                       --------             --------

Deferred tax liabilities:
    Unrealized holding gains on securities available-for-sale ............................               68,558              108,932
    Depreciation .........................................................................               60,292               22,963
                                                                                                       --------             --------
        Gross deferred tax liability .....................................................              128,850              131,895
                                                                                                       --------             --------

Net deferred tax asset ...................................................................             $ 85,036             $ 35,150
                                                                                                       ========             ========
</TABLE>

The net  deferred tax asset is included in other assets at December 31, 2003 and
2002.  A portion of the change in net  deferred  taxes  relates to the change in
unrealized  net gains and losses on securities  available-for-sale.  The related
2003 deferred tax benefit of $40,374 and the 2002 deferred tax benefit of $8,909
have been recorded directly to shareholders'  equity.  The balance of the change
in net deferred taxes results from the current period deferred tax benefit.

Reconciliation  between  the  income tax  expense  and the  amount  computed  by
applying the federal statutory rate of 34% to income before income taxes for the
years ended December 31, 2003 and 2002 follows:

<TABLE>
<CAPTION>
                                                                                      2003                           2002
                                                                                      ----                           ----

<S>                                                                         <C>               <C>         <C>                 <C>
Tax expense at statutory rate ......................................        $ 373,171         34.0%       $ 412,369           34.0%
State income tax, net of federal income tax benefit ................           23,183          2.1           24,706            2.1
Tax-exempt interest income .........................................          (70,868)        (6.2)         (69,820)          (5.8)
Non-deductible interest expense ....................................            4,211            -            5,940            0.5
Other, net .........................................................           (2,872)           -           (2,020)             -
                                                                            ---------         ----        ---------           ----

     Total .........................................................        $ 326,825         29.9%       $ 371,175           30.8%
                                                                            =========         ====        =========           ====
</TABLE>


NOTE 11 - RETIREMENT PLAN

In 1993, the Company established the Clover Community Bank Employees' Retirement
Savings  Plan (the  "Savings  Plan") for the  exclusive  benefit of all eligible
employees and their beneficiaries.  Employees are eligible to participate in the
Savings Plan after attaining age 21 and completing twelve months of service, and
are  credited  with at  least  1000  hours of  service  during  the  eligibility
computation  period.  Employees  are  allowed  to defer  their  salary up to the
maximum dollar amount  determined by federal laws and regulations each year. The
Company  matches $.50 for each dollar  contributed  by the employees up to 6% of
each  employee's  total  pay.  The  Board of  Directors  can also  elect to make
discretionary contributions. Employees are fully vested in both the matching and
any  discretionary  contributions  after  six  years of  service.  The  employer
contributions to the Savings Plan for the years ended December 31, 2003 and 2002
totaled $17,254 and $17,545, respectively.



                                       33
<PAGE>




NOTE 12 - COMMITMENTS AND CONTINGENCIES

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

Following are the off-balance-sheet financial instruments whose contract amounts
represent credit risk at December 31, 2003 and 2002:

                                                    2003                 2002
                                                    ----                 ----

Loan commitments .......................         $12,937,940         $ 5,738,998
Standby letters of credit ..............                   -                   -

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.

Lines of Credit and FHLB  Borrowing  Availability  - The banking  subsidiary had
available at the end of 2003 unused short-term lines of credit to purchase up to
$2,400,000  of  federal  funds  from   unrelated   correspondent   institutions.
Additionally,  the Bank has undrawn long-term debt availability from the FHLB of
approximately $10,328,000.

Litigation  - The Company and the Bank were not  involved as  defendants  in any
litigation  at  December  31,  2003.  Management  is not aware of any pending or
threatened litigation,  or unasserted claims or assessments that are expected to
result in losses,  if any, that would be material to the consolidated  financial
statements.


NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company has used management's best estimate of fair value based on the above
assumptions  described in Note 1. Thus, the fair values presented may not be the
amounts  which could be  realized  in an  immediate  sale or  settlement  of the
instrument.  In  addition,  any income  taxes or other  expenses  which would be
incurred in an actual sale or settlement are not taken into consideration in the
fair value presented.








                                       34
<PAGE>


                                                                     (Continued)
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued

The estimated fair values of the Company's financial  instruments as of December
31, 2003 and 2002 are as follows:

<TABLE>
<CAPTION>
                                                                               2003                                 2002
                                                                               ----                                 ----
                                                                    Carrying          Estimated          Carrying          Estimated
                                                                     amount          fair value           amount          fair value
                                                                     ------          ----------           ------          ----------

Financial Assets:
<S>                                                                <C>               <C>               <C>               <C>
   Cash and due from banks .................................       $ 2,561,973       $ 2,561,973       $ 3,280,267       $ 3,280,267
   Interest-bearing deposits in other banks ................            14,851            14,851            24,507            24,507
   Federal funds sold ......................................         3,371,000         3,371,000         3,221,000         3,221,000
   Securities available-for-sale ...........................        18,398,485        18,398,485        16,533,582        16,533,582
   Nonmarketable equity securities .........................           250,000           250,000           250,000           250,000
   Loans, net ..............................................        43,338,536        45,335,936        34,700,874        37,160,289
   Accrued interest receivable .............................           321,943           321,943           272,060           272,060

Financial Liabilities:
   Deposits ................................................       $62,672,168       $62,750,529       $48,690,798       $48,865,399
   Advances from Federal Home Loan Bank ....................                 -                 -         4,000,000         4,000,000
   Accrued interest payable ................................           202,073           202,073           203,098           203,098
</TABLE>

                                                        Notional       Notional
                                                         amount        amount
                                                         ------        ------
Off-Balance Sheet Financial Instruments:
   Loan commitments ..............................     $1,524,000     $5,738,998


NOTE 14 - CLOVER COMMUNITY BANKSHARES, INC. (PARENT COMPANY ONLY)

Presented  below are the condensed  financial  statements  for Clover  Community
Bankshares, Inc. (Parent Company Only).

             CLOVER COMMUNITY BANKSHARES, INC. (PARENT COMPANY ONLY)
                            CONDENSED BALANCE SHEETS

                                                              December 31,
                                                              ------------
                                                          2003            2002
                                                          ----            ----
Assets:
    Cash ...........................................    $  594,033    $  636,709
    Investment in banking subsidiary ...............     7,444,450     7,243,224
    Other assets ...................................             -         9,825
                                                        ----------    ----------

      Total assets .................................    $8,038,483    $7,889,758
                                                        ==========    ==========

Liabilities and shareholders' equity:
    Shareholders' equity ...........................    $8,038,483    $7,889,758
                                                        ----------    ----------

    Total liabilities and shareholders' equity .....    $8,038,483    $7,889,758
                                                        ==========    ==========



                                       35
<PAGE>


                                                                     (Continued)

NOTE 14 - CLOVER COMMUNITY BANKSHARES, INC. (PARENT COMPANY ONLY), Continued

             CLOVER COMMUNITY BANKSHARES, INC. (PARENT COMPANY ONLY)
                         CONDENSED STATEMENTS OF INCOME


<TABLE>
<CAPTION>
                                                                                                   For the years ended December 31,
                                                                                                   --------------------------------
                                                                                                     2003                   2002
                                                                                                     ----                   ----
Income
<S>                                                                                               <C>                     <C>
    Dividends received from banking subsidiary ....................................               $ 507,244               $ 760,918
    Interest income ...............................................................                   4,066                   7,186
                                                                                                  ---------               ---------

         Total income .............................................................                 511,310                 768,104
                                                                                                  ---------               ---------


Expenses ..........................................................................                  19,100                  36,082
                                                                                                  ---------               ---------

Income before income taxes and equity in
    undistributed earnings of banking subsidiary ..................................                 492,210                 732,022

Income tax benefit ................................................................                       -                  (9,825)

Equity in undistributed earnings of
    banking subsidiary ............................................................                 273,318                  90,000
                                                                                                  ---------               ---------

Net income ........................................................................               $ 765,528               $ 831,847
                                                                                                  =========               =========
</TABLE>


             CLOVER COMMUNITY BANKSHARES, INC. (PARENT COMPANY ONLY)
                       CONDENSED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                                   For the years ended December 31,
                                                                                                   --------------------------------
                                                                                                       2003                 2002
                                                                                                       ----                 ----
Cash flows from operating activities:
<S>                                                                                                 <C>                   <C>
    Net income .........................................................................            $ 765,528             $ 831,847
    Adjustments to reconcile net income to net cash provided by
    operating activities:
      Equity in undistributed earnings of banking subsidiary ...........................             (273,318)              (90,000)
      (Increase) decrease in other assets ..............................................                9,825                (4,620)
                                                                                                    ---------             ---------

           Net cash provided by operating activities ...................................              502,035               737,227
                                                                                                    ---------             ---------

Cash flows from financing activities:
    Sales of common stock under dividend reinvestment plan .............................               62,574               106,660
    Repurchase and retirement of common stock ..........................................             (100,040)             (108,355)
    Cash dividends paid ................................................................             (507,245)             (760,918)
                                                                                                    ---------             ---------

           Net cash provided by financing activities ...................................             (544,711)             (762,613)
                                                                                                    ---------             ---------

              Net decrease in cash and cash equivalents ................................              (42,676)              (25,386)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ...........................................              636,709               662,095
                                                                                                    ---------             ---------

CASH AND CASH EQUIVALENTS, END OF YEAR .................................................            $ 594,033             $ 636,709
                                                                                                    =========             =========
</TABLE>