EXHIBIT 13


















                        CLOVER COMMUNITY BANKSHARES, INC.

                            Portions of Registrant's
                              2004 Annual Report to
                            Shareholders Incorporated
                       by Reference into 2004 Form 10-KSB




<PAGE>
Market for Common Stock and Dividends

Although  a  limited  number of  shares  of  common  stock of  Clover  Community
Bankshares,  Inc.  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  2004,
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, 1,561 and 2,198 newly issued
shares were purchased by  shareholders  in 2004 and 2003 at prices of $29.41 and
$28.56 per share,  respectively,  in  accordance  with the  Reinvestment  Plan's
pricing formula. In 2004 and 2003, 3,254 and 4,000, shares, respectively, of the
Company's   common  stock  were   repurchased,   primarily   from   eleemosynary
organizations,  and retired.  The average prices for such share  repurchases and
retirements  in 2004 and 2003 were  $23.53 and  $25.00 per share,  respectively.
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 March 15,  2005,  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 2004 and 2003,  the
Company  declared and paid cash dividends to shareholders of $0.40 and $0.50 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
under the circumstances.  Because of the nature of the judgments and assumptions
made by  management,  actual  results  could  differ  from these  judgments  and


                                       1
<PAGE>

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 this  report  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

2004 Compared with 2003
The Company  recorded net income of $1,041,000  for the year ended  December 31,
2004,  an increase of $275,000 or 35.90 %, from net income of $766,000 for 2003.
Net income per share for 2004 was $1.03 compared with $0.75 for 2003.  Return on
average assets and return on average equity were 1.37% and 12.74%,  respectively
for 2004 and 1.06% and 9.68%, respectively for 2003.

The  Company's  net  income  for 2004  increased  from 2003.  This  increase  is
principally  the result of  increased  interest  income and  noninterest  income
partially offset by increased  non-interest  expenses.  The increase in interest
income is  primarily a result of a $696,000  increase  in  interest  income from
loans and origination  fees from $2,919,000 in 2003 to $3,615,000 in 2004 caused
by the overall growth in the loan portfolio combined with a higher interest rate
environment in 2004. Interest expense decreased $61,000 to $776,000 in 2004. The
decrease in interest  expense was primarily a result of repricing  time deposits
at lower rates. The increase in noninterest  income is principally the result of
$909,000  in fee income from  service  charges on deposit  accounts in 2004,  an
increase of $138,000 from  $771,000 in 2003 related to the  Automatic  Overdraft
product.  The largest  increase  contributing to the higher level of noninterest
expenses  of was the result of a $137,000  increase  in  salaries  and  employee
benefits  from the 2003 period  caused by  additional  personnel  combined  with
normal salary increases.

Net interest  income was $3,466,000 for 2004 compared to $2,800,000 for 2003, an
increase of  $666,000,  or 23.79%.  This  increase is a result of an increase in
average net interest  earning  assets of $1,673,000  comprised of an increase in
average earning assets of $3,744,000  offset by an increase in average  interest
bearing liabilities of $2,071,000. This increase in average net interest earning
assets is further impacted by the increases in interest rates during 2004 due to
action by the Board of Governors of the Federal Reserve System.

Comprehensive   income  for  2004  and  2003  was   $1,005,000   and   $693,000,
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.


                                       2
<PAGE>

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.

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, 2004
and 2003.
                       Average Balances, Yields and Rates
<TABLE>
<CAPTION>
                                                                            2004                                  2003
                                                                            ----                                  ----
(Dollars in thousands)                                     Average        Income/    Yields/     Average         Income/   Yields/
                                                           Balances (1)   Expense    Rates       Balances (1)    Expense    Rates
                                                           ------------   -------    -----       ------------    -------    -----
Assets:
Interest-earning deposits in other
<S>                                                         <C>           <C>         <C>          <C>          <C>          <C>
   Banks ..............................................     $    16       $    -         -%        $    15      $    1       6.66%
Securities
   Taxable ............................................      10,191          346      3.40          13,075         409       3.13
    Tax-exempt (2) ....................................       5,334          300      5.62           5,502         323       5.87
                                                            -------       ------                   -------      ------
         Total securities .............................      15,525          646      4.16          18,577         732       3.94

Nonmarketable equity securities .......................         258            9      3.49             250          10       4.00
Federal funds sold ....................................       4,237           62      1.46           6,345          84       1.32
Loans receivable (3) ..................................      51,404        3,615      7.03          42,509       2,919       6.87
                                                            -------       ------                   -------      ------
       Total interest earning assets ..................      71,440        4,332      6.06          67,696       3,746       5.53

Cash and due from banks ...............................       2,158                                  1,721
Allowance for loan losses .............................        (501)                                  (444)
Premises, furniture and equipment .....................       2,270                                  2,316
Other assets ..........................................         510                                    628
                                                            -------                                -------
        Total assets ..................................     $75,877                                $71,917
                                                            =======                                =======
Liabilities and shareholders' equity:
Interest bearing deposits
  Interest bearing transaction accounts ...............     $23,394          105      0.45%        $23,441          87       0.37%
  Savings .............................................       7,891           18      0.23           3,613          18       0.50
  Time deposits $100M and over ........................      11,079          216      1.95           9,321         197       2.11
  Other time deposits .................................      15,923          408      2.56          16,214         485       2.99
                                                            -------       ------                   -------      ------
       Total interest-bearing deposits ................      58,287          747      1.28          52,589         787       1.50

Federal funds purchased ...............................           7            -         -               -           -          -
Long-term debt ........................................       1,180           29      2.46           3,627          49       1.35
                                                            -------       ------                   -------      ------

        Total interest-bearing liabilities ............      59,474          776      1.30          56,216         836       1.49

Non-interest demand deposits ..........................       7,949                                  7,542
Other liabilities .....................................         280                                    245
Shareholders' equity ..................................       8,174                                  7,914
                                                            -------                                -------
        Total liabilities and
           shareholders' equity .......................     $75,877                                $71,917
                                                            =======                                =======

Interest rate spread (4) ..............................                               4.76%                                  4.04%
Net interest income and net yield on
   earning assets (5) .................................                   $3,556      4.98%                     $2,910       4.29%
                                                                          ======                                ======
Interest free funds supporting earning  assets (6) ....     $11,966                                $11,480
</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>
                                                                 2004 Compared with 2003               2003 Compared with 2002
                                                                 -----------------------               -----------------------
(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 ...................................          33          (96)         (63)          41         (217)        (176)
Tax-exempt securities (2) ............................         (12)         (11)         (23)          43          (47)          (4)
Nonmarketable equity securities ......................          (1)           -           (1)           -           (3)          (3)
Federal funds sold ...................................           8          (30)         (22)          30          (12)          18
Loans ................................................          69          627          696          623          (12)         366
                                                             -----        -----        -----        -----        -----        -----

       Total interest income (expense) ...............          96          490          586          737          (12)         201
                                                             -----        -----        -----        -----        -----        -----

Interest-bearing deposits
  Interest-bearing transaction accounts ..............         (18)           -           18           35          (29)           6
  Savings ............................................          (2)           2            -           16          (19)          (3)
  Time deposits $100M and over .......................         (16)          35           19           77          (83)          (6)
  Other time deposits ................................         (68)          (9)         (77)         (83)         (61)        (144)
Long-term debt .......................................         (20)           -          (20)           -            -            -
                                                             -----        -----        -----        -----        -----        -----

        Total interest expense (income) ..............         (88)          28          (60)          45         (192)        (147)
                                                             -----        -----        -----        -----        -----        -----

        Net interest income (expense) ................       $ 184        $ 462        $ 646        $ 720        $(344)       $ 376
                                                             =====        =====        =====        =====        =====        =====
</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 2005.  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 2005 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  2005,
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.

                                       4
<PAGE>

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 2004 of
$18,214,000, and a cumulative gap ratio of 23.59%. 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  $14,086,000  or a
cumulative  gap of  18.24%.  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 2004  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, 2004

<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-earning deposits with other banks ............     $     21       $      -       $      -      $      -      $     21
      Federal funds sold ....................................        6,750              -              -             -         6,750
      Securities available for sale .........................          311              -          3,792        10,099        14,202
      Nonmarketable equity securities .......................          372              -              -             -           372
      Loans receivable (1) ..................................       24,543          4,256         23,799         3,271        55,869
                                                                  --------       --------       --------      --------      --------

           Total earning assets .............................       31,997          4,256         27,591        13,370        77,214

Liabilities
   Interest-bearing liabilities
       Interest-bearing transaction accounts ................       26,859              -              -             -        26,859
       Savings deposits .....................................        4,214              -              -             -         4,214
       Time deposits $100,000 and over ......................        4,240          5,633          1,332           195        11,400
       Other time deposits ..................................        5,004          8,517          2,897           237        16,655
        Borrowings ..........................................            -              -          4,000             -         4,000
                                                                  --------       --------       --------      --------      --------

            Total interest bearing liabilities ..............       40,317         14,150          8,229           432        63,128

Period gap ..................................................      $(8,320)       $(9,984)       $19,362       $12,138       $14,086

Cumulative gap ..............................................      $(8,320)      $(18,214)        $1,148       $14,086

Ratio of cumulative gap to total earning assets .............      (10.78%)       (23.59%)          1.49%        18.24%
</TABLE>

(1) Loans are net of deferred loan fees of $53.

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 $206,000 and $96,000 for loan losses in 2004 and
2003,  respectively.  The  significant  increase in the 2004 provision  resulted
primarily from the increase in loans in non-accrual  status, an increase in past
due loans and an increase in loan volume, resulting in a higher amount funded to
the allowance  during 2004.  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 2004 was $981,000, an increase of $149,000 or 17.91% over
the 2003 amount of $832,000.  The increase in 2004 primarily was attributable to
the Company's having implemented a new fee-based  automatic  overdraft privilege
product in 2002 which accounted for the significant increase in service charges,
from $771,000 in 2003 to $909,000 in 2004, an increase of $138,000 or 17.90%.

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 2004  increased by $301,000 or 12.32%,  to $2,745,000.
This  increase is  attributable  to a number of factors.  Salaries  and employee
benefits increased by $137,000 or 10.02%, to $1,504,000.  This increase over the
2003 period was caused by the addition of more  personnel  combined  with normal
salary increases. Net occupancy,  furniture and equipment and all other expenses
for 2004 were $20,000,  $35,000 and $109,000 higher than in 2003,  respectively.
These  increases were  primarily  attributable  to renovations  made in the main
branch along with the addition of imaging technology.

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 2004,  federal and state  income tax  expenses  increased  to $455,000  from
$327,000 in 2003.  The Company's  effective tax rate was 30 percent in both 2004
and 2003.

Securities

The following table  summarizes the carrying value amounts of securities held by
the Company at December 31, 2004 and 2003:

                        Securities Portfolio Composition

(Dollars in thousands)                                     2004           2003
                                                           ----           ----

Securities available for sale
   U. S. Government agencies ...................          $1,985          $2,994
   State, county, and municipal ................           5,347           5,504
   Mortgage-backed securities ..................           6,870           9,900
                                                         -------         -------

        Total ..................................         $14,202         $18,398
                                                         =======         =======

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 2004 and 2003, there were no transfers of available for
sale or held to maturity securities to other categories.

At December 31, 2004, the Company held one U.S.  Government  agency security and
two  mortgage-backed  securities  that were 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 these securities until such time as the value recovers or the securities
matures  and thus  believes  there are no  unrealized  losses in its  securities
portfolio that are other-than-temporary.

At December 31, 2004, 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, 2004.

                   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 ...........       $  -      -    $1,488    2.90    $  497   3.13    $    -        -   $ 1,985     2.95
   State, county and municipal (1) .....        291   6.34     2,111    5.71     1,822   5.10     1,123     6.05     5,347     5.60
   Mortgage-backed (2) .................          -      -       212    3.14     2,348   3.47     4,310     3.94     6,870     3.76
                                               ----           ------            ------           ------            -------

      Total ............................       $291   6.34    $3,811    4.47    $4,667   4.07    $5,433     4.38   $14,202     4.34
                                               ====           ======            ======           ======            =======
</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, 2004 and 2003 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>
                                                                           2004                        2003
                                                                           ----                        ----
(Dollars in thousands)                                             Amount       Percent        Amount       Percent
                                                                   ------       -------        ------       -------

<S>                                                               <C>           <C>           <C>             <C>
Real estate - Construction ....................................   $ 8,883        15.9%        $ 3,553           8.1%
Real estate - Mortgage
    Farmland ..................................................       575         1.0           1,259           2.9
    1 - 4 family residential ..................................    13,785        24.7          13,023          29.7
    Nonfarm, nonresidential ...................................     8,298        14.9           9,401          21.5
Commercial and industrial .....................................    20,515        36.8          12,114          27.7
Consumer installment ..........................................     3,760         6.8           4,438          10.1
                                                                  -------       -----         -------         -----

         Total loans ..........................................   $55,816       100.0%        $43,788         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  57% of the
Company's  loan  portfolio at December 31, 2004.  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, 2004, 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 ............................       $ 5,661       $ 3,136       $    86       $ 8,883
Real estate - Mortgage ................................         2,052         9,721        10,144        21,917
Commercial and Industrial .............................         5,434        13,844         1,237        20,515
Consumer ..............................................         1,714         2,625           162         4,501
                                                              -------       -------       -------       -------

         Total loans ..................................       $14,861       $29,326       $11,629       $55,816
                                                              =======       =======       =======       =======

Predetermined rate, maturity greater than one year ....                                                 $27,070

Variable rate, maturity greater than one year .........                                                 $13,885
</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,  2004,  nonaccruing  loans  consisted  of three loans  totaling
$226,000.

As of December 31, 2004, management believes that in the event of foreclosure on
the three 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, 2004
and 2003:

          (Dollars in thousands)                              2004        2003
                                                              ----        ----

          Nonaccrual loans ................................   $226        $194
          Accruing loans 90 days or more past due .........      -           -
                                                              ----        ----

                  Total ...................................   $226        $194
                                                              ====        ====

          Percent of total loans ..........................   0.40%       0.44%

The effects of interest  income accrued and collected on nonaccruing  loans were
immaterial to the consolidated financial statements for 2004 and 2003.

As of December 31, 2004,  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.  Nonperforming  loans include nonaccrual loans or loans which are 90 days
or more  delinquent as to principal or interest  payments.  At December 31, 2004
and 2003, the Bank had nonaccrual loans of $226,000 and $194,000,  respectively.
There were no loans 90 days or more past due and still accruing  interest and no
restructured loans at December 31, 2004 and 2003.

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  interest.  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, 2004,  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, 2004. The increase in the allowance for loan losses as
a percent of loans can be attributed to continued  growth of the Bank and change
in portfolio mix.

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)                                                    2004        2003          2002         2001        2000
                                                                          ----        ----          ----         ----        ----

<S>                                                                     <C>          <C>          <C>          <C>          <C>
Total loans outstanding at end of period ..........................     $55,816      $43,788      $35,061      $31,811      $30,768
                                                                        =======      =======      =======      =======      =======

Average loans outstanding .........................................     $51,404      $42,509      $33,677      $30,997      $29,590
                                                                        =======      =======      =======      =======      =======

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

Loans charged off:
   Commercial and industrial ......................................     $     -      $     -      $   225      $     -      $    46
   Consumer installment ...........................................          36           11           48           15            7
                                                                        -------      -------      -------      -------      -------

      Total charge offs ...........................................          36           11          273           15           53
                                                                        -------      -------      -------      -------      -------

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

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

Net charge offs ...................................................          31            6          271           14           52
                                                                        -------      -------      -------      -------      -------

Additions to allowance charged to expense .........................         206           96          357           34           47
                                                                        -------      -------      -------      -------      -------

Balance of allowance for loan losses - ending .....................     $   625      $   450      $   360      $   274      $   254
                                                                        =======      =======      =======      =======      =======

     Net charge offs to average loans .............................        0.06%        0.01%        0.80%        0.05%        0.18%
     Net charge offs to loans at end of period ....................        0.06%        0.01%        0.77%        0.04%        0.17%
     Allowance for loan losses to average loans ...................        1.22%        1.06%        1.07%        0.88%        0.86%
     Allowance for loan losses to loans at end of period ..........        1.12%        1.03%        1.03%        0.86%        0.83%
     Net charge offs to allowance for loan losses .................        4.96%        1.33%       75.28%        5.11%       20.47%
     Net charge offs to provision for loan losses .................       15.05%        6.25%       75.91%       41.18%      110.64%
</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

                                           2004                      2003
                                           ----                      ----
(Dollars in thousands)             Amount       Percent      Amount      Percent
                                   ------       -------      ------      -------

Commercial and industrial           $230        36.8%        $125         27.8%
Real estate - construction            99        15.8           36          8.0
Real estate - mortgage               253        40.5          243         54.0
Consumer installment                  43         6.9           46         10.2
                                    ----       -----         ----         ----

         Total allowance            $625       100.0%        $450        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>
                                                                      2004                      2003
                                                                      ----                      ----
     (Dollars in thousands)                                   Amount      Percent       Amount      Percent
                                                              ------      -------       ------      -------

<S>                                                            <C>           <C>         <C>          <C>
     Noninterest bearing demand ..........................     $ 8,510        12.74%     $ 8,155       12.67%
     Interest bearing transaction accounts ...............      23,394        35.02       23,441       36.42
     Savings accounts ....................................       7,891        11.81        7,240       11.25
     Time deposits of $100,000 or over ...................      11,079        16.59        9,321       14.48
     Other time ..........................................      15,923        23.84       16,214       25.18
                                                               -------       ------      -------      ------

              Total deposits .............................     $66,797       100.00%     $64,371      100.00%
                                                               =======       ======      =======      ======
</TABLE>

As of December 31, 2004, there were  approximately  $11,400,000 in time deposits
of $100,000 or more with approximately  $4,240,000 maturing within three months,
$3,541,000 maturing over three through six months,  $2,092,000 maturing over six
through twelve  months,  and  $1,527,000  maturing after one year.  Average time
deposits  $100,000  and over  comprised  approximately  16.59% of total  average
deposits during 2004 and  approximately  14.48% of total average deposits during
2003. The majority of time deposits $100,000 and over is 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,  2004 were  approximately  $67,973,000,  a
$5,301,000 or 8.46%  increase from December 31, 2003.  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, 2004 and 2003.

                                                             2004        2003
                                                             ----        ----

              Return on assets                               1.37%       1.06%
              Return on equity                              12.74%       9.68%
              Dividend payout ratio                         38.83%      66.78%
              Equity to assets ratio                        10.77%      10.15%


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  73.4% of average
total assets during 2004 compared with 76.5% during 2003.

The banking  subsidiary had available at the end of 2004 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  $28,000,000.  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,  2004,  the Bank had  issued  commitments  to extend  credit of  $14,667,000
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.


                                       13
<PAGE>

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.

The  Company had  standby  letters of credit  totaling  $37,000  outstanding  at
December  31,  2004.  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 $569,000 and $149,000  during 2004 and 2003,
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 2004  resulted  in an  increase  of  $46,000  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 2004,
repurchases  and  retirements  of common stock reduced  shareholders'  equity by
$77,000.

During 2004,  net income  increased  shareholders'  equity by  $1,041,000,  cash
dividends  decreased  shareholders'  equity by $405,000 and unrealized losses on
available for sale securities decreased shareholders' equity by $36,000.

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,
2004 and 2003,  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, 2004

The Company
<S>                                                         <C>           <C>         <C>            <C>       <C>            <C>
   Total capital to risk-weighted assets ................   $9,146        14.31%      $5,113         8.0%      $6,391         10.0%
   Tier 1 capital to risk-weighted assets ...............    8,521        13.33        2,556         4.0        3,834          6.0
   Tier 1 capital to average assets .....................    8,521        10.45        2,447         3.0        4,078          5.0

Clover Community Bank
   Total capital to risk-weighted assets ................   $8,585        13.43%      $5,113         8.0%      $6,391         10.0%
   Tier 1 capital to risk-weighted assets ...............    7,960        12.46        2,556         4.0        3,834          6.0
   Tier 1 capital to average assets .....................    7,960         9.76        2,447         3.0        4,078          5.0

            December 31, 2003

The Company
   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

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
</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 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.

                                       15
<PAGE>

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   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.  The  disclosure  requirements  of EITF  No.  03-1 are
effective for annual financial statements for fiscal years ending after June 15,
2004. The effective date for the measurement  and  recognition  guidance of EITF
No. 03-1 has been delayed.  The FASB staff has issued a proposed  Board-directed
FASB Staff Position ("FSP"),  FSP EITF 03-1-a,  Implementation  Guidance for the
Application  of Paragraph 16 of Issue No. 03-1.  The proposed FSP would  provide
implementation guidance with respect to debt securities that are impaired solely
due   to   interest    rates   and/or   sector    spreads   and   analyzed   for
other-than-temporary   impairment   under  the   measurement   and   recognition
requirements  of  EITF  No.  03-1.  The  delay  of the  effective  date  for the
measurement  and  recognition  requirements  of EITF No. 03-1 will be superseded
concurrent  with the final issuance of FSP EITF 03-1-a.  Adopting the disclosure
provisions of EITF No. 03-1 did not have any impact on the  Company's  financial
position or results of operations.

In March 2004,  the  Securities  and Exchange  Commission  ("SEC")  issued Staff
Accounting  Bulletin  ("SAB") No. 105,  Application of Accounting  Principles to
Loan Commitments,  to inform registrants of the Staff's view that the fair value
of the recorded loan  commitments  should not consider the expected  future cash
flows related to the associated  servicing of the future loan. The provisions of
SAB No. 105 must be applied to loan  commitments  accounted  for as  derivatives
that are  entered  into after March 31,  2004.  The Staff will not object to the
application of existing accounting  practices to loan commitments  accounted for
as  derivatives  that  are  entered  into on or  before  March  31,  2004,  with
appropriate  disclosures.  The Company  adopted the provisions of SAB No. 105 on
April 1, 2004. The adoption of SAB No. 105 did not have a material impact on the
Company's financial condition or results of operations.

Other  accounting  standards  that have been  issued or  proposed  by the Public
Company Accounting Oversight Board ("PCAOB") 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 REGISTERED PUBLIC ACCOUNTING FIRM




To 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, 2004 and 2003, and the related consolidated statements of income, changes in
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 the standards of the
Public Company  Accounting  Oversight  Board (United  States).  Those  standards
require that we plan and perform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement.
An audit includes  examining,  on a test basis,  evidence supporting the amounts
and disclosures in the consolidated 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, 2004 and 2003 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 11, 2005




                                       17
<PAGE>


                CLOVER COMMUNITY BANKSHARES, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                              December 31,
                                                                                                              ------------
                                                                                                      2004                  2003
                                                                                                      ----                  ----
ASSETS
    Cash and cash equivalents:
<S>                                                                                               <C>                  <C>
      Cash and due from banks ............................................................        $  1,383,919         $  2,561,973
      Interest-earning deposits in other banks ...........................................              20,763               14,851
      Federal funds sold .................................................................           6,750,000            3,371,000
                                                                                                  ------------         ------------
         Total cash and cash equivalents .................................................           8,154,682            5,947,824
                                                                                                  ------------         ------------

    Investment securities:
      Securities available for sale ......................................................          14,201,616           18,398,485
      Nonmarketable equity securities ....................................................             371,900              250,000
                                                                                                  ------------         ------------
         Total investment securities .....................................................          14,573,516           18,648,485
                                                                                                  ------------         ------------

    Loans receivable .....................................................................          55,816,104           43,788,077
      Less allowance for loan losses .....................................................            (624,965)            (449,541)
                                                                                                  ------------         ------------
         Loans, net ......................................................................          55,191,139           43,338,536
                                                                                                  ------------         ------------

    Premises, furniture and equipment, net ...............................................           2,193,674            2,307,793
    Accrued interest receivable ..........................................................             341,435              321,943
    Other assets .........................................................................             472,696              428,527
                                                                                                  ------------         ------------

         Total assets ....................................................................        $ 80,927,142         $ 70,993,108
                                                                                                  ============         ============

LIABILITIES
    Deposits:
      Noninterest-bearing ................................................................          $8,845,397           $9,348,902
      Interest-bearing ...................................................................          59,127,972           53,323,266
                                                                                                  ------------         ------------
         Total deposits ..................................................................          67,973,369           62,672,168

      Advances from Federal Home Loan Bank ...............................................           4,000,000                    -
      Accrued interest payable ...........................................................             256,210              202,073
      Other liabilities ..................................................................              90,938               80,384
                                                                                                  ------------         ------------

         Total liabilities ...............................................................          72,320,517           62,954,625
                                                                                                  ------------         ------------

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

SHAREHOLDERS' EQUITY
    Common stock, par value $.01 per share, 10,000,000 shares authorized and
      outstanding - 1,011,056 and 1,012,779 shares
       for 2004 and 2003, respectively ...................................................              10,111               10,128
    Capital surplus ......................................................................           3,385,909            3,417,261
    Retained earnings ....................................................................           5,124,541            4,488,686
    Accumulated other comprehensive income ...............................................              86,064              122,408
                                                                                                  ------------         ------------

         Total shareholders' equity ......................................................           8,606,625            8,038,483
                                                                                                  ------------         ------------

         Total liabilities and shareholders' equity ......................................        $ 80,927,142         $ 70,993,108
                                                                                                  ============         ============
</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,
                                                                                                    --------------------------------
                                                                                                      2004                  2003
                                                                                                      ----                  ----
Interest income:
<S>                                                                                                <C>                    <C>
    Loans, including fees ............................................................             $3,614,956             $2,918,743
    Interest-earning deposits in other banks .........................................                    360                  1,326
    Investment securities:
      Taxable ........................................................................                346,086                409,035
      Tax-exempt .....................................................................                209,721                213,067
      Nonmarketable equity securities ................................................                  8,717                  9,818
    Federal funds sold ...............................................................                 61,551                 84,292
                                                                                                   ----------             ----------

         Total interest income .......................................................              4,241,391              3,636,281
                                                                                                   ----------             ----------

Interest expense:
    Time deposits $100,000 and over ..................................................                215,931                197,276
    Other deposits ...................................................................                530,260                589,836
    Federal funds purchased ..........................................................                     95                      -
    Advances from Federal Home Loan Bank .............................................                 29,441                 49,201
                                                                                                   ----------             ----------

         Total interest expense ......................................................                775,727                836,313
                                                                                                   ----------             ----------

            Net interest income ......................................................              3,465,664              2,799,968

Provision for loan losses ............................................................                206,000                 96,000
                                                                                                   ----------             ----------

Net interest income after provision for loan losses ..................................              3,259,664              2,703,968
                                                                                                   ----------             ----------
Noninterest income:
    Service charges on deposit accounts ..............................................                908,551                770,763
    Credit life insurance commissions ................................................                  7,755                  3,077
    Gain on sale of securities available for sale ....................................                    740                      -
    Other ............................................................................                 64,123                 58,367
                                                                                                   ----------             ----------

         Total noninterest income ....................................................                981,169                832,207
                                                                                                   ----------             ----------

Noninterest expense:
    Salaries and employee benefits ...................................................              1,503,745              1,366,756
    Net occupancy ....................................................................                146,128                126,389
    Furniture and equipment ..........................................................                314,432                279,338
    Printing, postage and stationery .................................................                133,710                148,882
    Professional services ............................................................                 99,037                103,574
    Data processing ..................................................................                 99,058                 82,105
    ATM/Debit card ...................................................................                 82,843                 67,844
    Directors fees ...................................................................                 42,500                 46,000
    Other operating ..................................................................                323,417                222,934
                                                                                                   ----------             ----------

         Total noninterest expense ...................................................              2,744,870              2,443,822
                                                                                                   ----------             ----------

Income before income taxes ...........................................................              1,495,963              1,092,353

Income tax expense ...................................................................                455,000                326,825
                                                                                                   ----------             ----------

Net income ...........................................................................             $1,040,963             $  765,528
                                                                                                   ==========             ==========

Earnings per share
    Weighted average number of common shares outstanding .............................              1,012,216              1,014,665
    Basic earnings per share .........................................................             $     1.03             $     0.75
</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, 2004 and 2003


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

<S>                                           <C>              <C>         <C>            <C>              <C>          <C>
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:
   Net 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
                                                                                                                       -----------
Net income .................................          -              -              -      1,040,963              -      1,040,963

Other comprehensive loss:
   Net unrealized holding losses on
   securities available for sale, net
   of income tax benefit of $(20,355) ......          -              -              -              -        (36,344)       (36,344)
                                                                                                                       -----------

Comprehensive income .......................                                                                             1,004,619

Cash dividends declared - $0.40 ............          -              -              -       (405,108)             -       (405,108)
   per share

Sale of common stock under
   dividend reinvestment plan ..............      1,561             16         45,889              -              -         45,905

Repurchase and retirement of
   common stock ............................     (3,284)           (33)       (77,241)             -              -        (77,274)
                                              ---------        -------     ----------     ----------    -----------    -----------
Balance, December 31, 2004 .................  1,011,056        $10,111     $3,385,909     $5,124,541    $    86,064    $ 8,606,625
                                              =========        =======     ==========     ==========    ===========    ===========
</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,
                                                                                                    --------------------------------
                                                                                                      2004                   2003
                                                                                                      ----                   ----
Cash flows from operating activities:
<S>                                                                                              <C>                   <C>
    Net income .........................................................................         $  1,040,963          $    765,528
    Adjustments to reconcile net income to net cash provided by
    operating activities:
      Provision for loan losses ........................................................              206,000                96,000
      Depreciation .....................................................................              213,029               172,361
      Increase in deferred loan fees and costs .........................................                6,629                 5,489
      Discount accretion and premium amortization ......................................               25,599                41,956
      Deferred income tax expense (benefit) ............................................               13,257                (9,512)
      Gain on sale of securities available for sale ....................................                 (740)                    -
      Increase in accrued interest receivable ..........................................              (19,492)              (49,883)
      Increase (decrease) in accrued interest payable ..................................               54,137                (1,025)
      Increase in other assets .........................................................              (57,426)              (88,861)
      Increase in other liabilities ....................................................               30,909                10,430
                                                                                                 ------------          ------------

           Net cash provided by operating activities ...................................            1,512,865               942,483
                                                                                                 ------------          ------------

Cash flows from investing activities:
    Purchases of securities available for sale .........................................           (2,006,536)          (11,073,596)
    Maturities of securities available for sale ........................................            4,683,521             9,054,271
    Proceeds from sales of securities available for sale ...............................            1,438,326                     -
    Purchase of nonmarketable equity securities ........................................             (121,900)                    -
    Net increase in loans made to customers ............................................          (12,065,232)           (8,739,151)
    Purchase of premises, furniture and equipment ......................................              (98,910)             (198,616)
                                                                                                 ------------          ------------
           Net cash used for investing activities ......................................           (8,170,731)          (10,957,092)
                                                                                                 ------------          ------------

Cash flows from financing activities:
    Net increase in demand deposits, interest-bearing
      transaction accounts and savings accounts ........................................            2,661,071            11,202,882
    Net increase in certificates of deposit and other time deposits ....................            2,640,130             2,778,488
    Borrowings (repayments) of advances from Federal Home Loan Bank ....................            4,000,000            (4,000,000)
    Cash dividends paid ................................................................             (405,108)             (507,245)
    Sales of common stock under dividend reinvestment plan .............................               45,905                62,574
    Repurchase and retirement of common stock ..........................................              (77,274)             (100,040)
                                                                                                 ------------          ------------

           Net cash provided by financing activities ...................................            8,864,724             9,436,659
                                                                                                 ------------          ------------

                Net increase (decrease) in cash and cash equivalents ...................            2,206,858              (577,950)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ...........................................            5,947,824             6,525,774
                                                                                                 ------------          ------------

CASH AND CASH EQUIVALENTS, END OF YEAR .................................................         $  8,154,682          $  5,947,824
                                                                                                 ============          ============
</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 assets and liabilities and disclosure of contingent  assets
and  liabilities as well as amounts of income 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.



                                       22
<PAGE>


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

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. 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.

                                                                     (Continued)

                                       23
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

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.

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 comprehensive  income,  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,
                                                                                                    --------------------------------
                                                                                                      2004                  2003
                                                                                                      ----                  ----

<S>                                                                                                <C>                    <C>
Unrealized losses on securities available for sale ...................................             $ (55,959)             $(112,466)

Reclassification adjustment for gains realized in net income .........................                  (740)                     -
                                                                                                   ---------              ---------

Net unrealized losses on securities available for sale ...............................               (56,699)              (112,466)

Tax effect ...........................................................................                20,355                 40,374
                                                                                                   ---------              ---------

Net-of-tax amount ....................................................................             $ (36,344)             $ (72,092)
                                                                                                   =========              =========
</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 cash flows on cash and cash  equivalents.
Cash  equivalents  include  amounts  due from banks and  federal  funds sold and
generally have an original maturity of three months or less.

The following summarizes  supplemental cash flow information for the years ended
December 31, 2004 and 2003:

<TABLE>
<CAPTION>
                                                                                                    For the years ended December 31,
                                                                                                    --------------------------------
                                                                                                       2004                  2003
                                                                                                       ----                  ----

Cash paid for:
<S>                                                                                                  <C>                   <C>
  Interest .............................................................................             $721,590              $836,313
  Income taxes .........................................................................              404,300               389,244

Supplemental noncash investing and financing activities:
  Change in unrealized gain or loss on securities available for
     sale, net of tax ..................................................................             $(36,344)             $(72,092)
</TABLE>



                                                                     (Continued)


                                       24
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

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, furniture 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.

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.

Investment  securities are valued using quoted 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.  The  carrying  value of
nonmarketable  equity  securities  is  considered a reasonable  estimate of fair
value since no ready  market  exists for these  securities  and it has no quoted
market value;  however,  redemption of this stock has  historically  been at par
value.

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 ("FHLB") is estimated at
the carrying  amount for variable  rate advance as the rates  approximate  rates
currently offered for similar borrowings of comparable terms and credit quality.
For fixed rate advances,  fair value is estimated by discounting cash flows from
maturities using current interest rates on similar instruments.

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 2003  consolidated
financial  statements were  reclassified to conform with the 2004  presentation.
These  reclassifications  had no impact on  previously  reported  net  income or
retained earnings.


                                                                     (Continued)

                                       25
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

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 May 2003, the Financial  Accounting Standards Board ("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 any  impact on the
     financial condition or operating results of the Company.

     In January  2003,  the FASB  issued  FASB  Interpretation  ("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 any  impact 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  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.  The
     disclosure requirements of EITF No. 03-1 are effective for annual financial
     statements  for fiscal years ending after June 15, 2004. The effective date
     for the  measurement  and  recognition  guidance  of EITF No. 03-1 has been
     delayed.  The FASB staff has issued a  proposed  Board-directed  FASB Staff
     Position  ("FSP"),  FSP  EITF  03-1-a,   Implementation  Guidance  for  the
     Application  of  Paragraph  16 of Issue No.  03-1.  The  proposed FSP would
     provide  implementation  guidance with respect to debt  securities that are
     impaired  solely due to interest  rates and/or sector  spreads and analyzed
     for  other-than-temporary  impairment under the measurement and recognition
     requirements  of EITF No.  03-1.  The delay of the  effective  date for the
     measurement  and  recognition   requirements  of  EITF  No.  03-1  will  be
     superseded concurrent with the final issuance of FSP EITF 03-1-a.  Adopting
     the  disclosure  provisions of EITF No. 03-1 did not have any impact on the
     Company's financial position or results of operations.

                                                                     (Continued)

                                       26
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

     In March 2004, the Securities and Exchange  Commission ("SEC") issued Staff
     Accounting Bulletin ("SAB") No. 105,  Application of Accounting  Principles
     to Loan  Commitments,  to inform  registrants  of the Staff's view that the
     fair  value of the  recorded  loan  commitments  should  not  consider  the
     expected  future  cash flows  related to the  associated  servicing  of the
     future  loan.  The  provisions  of SAB  No.  105  must be  applied  to loan
     commitments  accounted for as derivatives that are entered into after March
     31,  2004.  The  Staff  will not  object  to the  application  of  existing
     accounting practices to loan commitments  accounted for as derivatives that
     are entered into on or before March 31, 2004, with appropriate disclosures.
     The Company  adopted the  provisions  of SAB No. 105 on April 1, 2004.  The
     adoption of SAB No. 105 did not have any impact on the Company's  financial
     condition or results of operations.

Other  accounting  standards  that have been  issued or  proposed  by the Public
Company Accounting Oversight Board ("PCAOB") 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.

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.

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, 2004 and 2003 were  approximately  $406,000 and
$332,000, respectively.

NOTE 3 - SECURITIES AVAILABLE FOR SALE

The amortized cost and estimated fair values of securities available for sale at
December 31, 2004 and 2003 were as follows:

<TABLE>
<CAPTION>
                                                                                     Gross unrealized                     Estimated
                                                            Amortized                ----------------                       fair
December 31, 2004                                             Cost                 gains            losses                  value
                                                              ----                 -----            ------                  -----

<S>                                                       <C>                  <C>                  <C>                  <C>
U.S. Government agencies .......................          $ 2,000,000          $         -          $    14,531          $ 1,985,469
State, county and municipal ....................            5,192,301              164,927               10,680            5,346,548
Mortgage-backed securities .....................            6,875,049               16,473               21,923            6,869,599
                                                          -----------          -----------          -----------          -----------

        Total ..................................          $14,067,350          $   181,400          $    47,134          $14,201,616
                                                          ===========          ===========          ===========          ===========
</TABLE>

                                                                     (Continued)

                                       27
<PAGE>

NOTE 3 - SECURITIES AVAILABLE FOR SALE, Continued
<TABLE>
<CAPTION>
                                                                                      Gross unrealized                     Estimated
                                                            Amortized                 ----------------                       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
                                                          ===========          ===========          ===========          ===========
</TABLE>

The  following  table shows gross  unrealized  losses and related  fair  values,
aggregated by investment category, and length of time that individual securities
have been in a continuous unrealized loss position at December 31, 2004.


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

<S>                                            <C>            <C>            <C>            <C>            <C>            <C>
U.S. Government agencies .................     $1,488,438     $   11,562     $  497,031     $    2,969     $1,985,469     $   14,531
State, county and municipal ..............        863,178         10,680              -              -        863,178         10,680
Mortgage-backed securities ...............      4,546,105         17,926        473,592          3,997      5,019,697         21,923
                                               ----------     ----------     ----------     ----------     ----------     ----------

Total ....................................     $6,897,721     $   40,168     $  970,623     $    6,966     $7,868,344     $   47,134
                                               ==========     ==========     ==========     ==========     ==========     ==========
</TABLE>

Securities  classified  as available for sale are recorded at fair market value.
At December 31, 2004,  the amounts  included in the category  "twelve  months or
more" in the  above  table  consisted  of one  U.S.  Government  agency  and two
mortgage-backed  securities in a continuous loss position for 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 these securities until
such time as the value recovers.

The following is a summary of maturities of securities  available for sale as of
December 31, 2004 and 2003.  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,
                                                                                           ------------
                                                                          2004                                     2003
                                                                          ----                                     ----
                                                              Amortized            Estimated           Amortized           Estimated
                                                                 cost             fair value              cost            fair value
                                                                 ----             ----------              ----            ----------

<S>                                                          <C>                 <C>                 <C>                 <C>
Due in less than one year ..........................         $   290,171         $   290,485         $   338,776         $   350,222
Due after one through five years ...................           3,554,454           3,599,519           2,627,673           2,709,129
Due after five through ten years ...................           2,279,623           2,318,659           4,661,068           4,725,533
Due after ten years ................................           1,068,053           1,123,354             663,112             713,357
                                                             -----------         -----------         -----------         -----------

                                                               7,192,301           7,332,017           8,290,629           8,498,241
Mortgage-backed securities .........................           6,875,049           6,869,599           9,916,890           9,900,244
                                                             -----------         -----------         -----------         -----------

    Total ..........................................         $14,067,350         $14,201,616         $18,207,519         $18,398,485
                                                             ===========         ===========         ===========         ===========
</TABLE>

At December 31, 2004 and 2003,  securities  with a carrying amount of $1,467,631
and  $1,033,898,  respectively,  were  pledged as  collateral  to secure  public
deposits.


                                       28
<PAGE>

NOTE 4 - NONMARKETABLE EQUITY SECURITIES

Nonmarketable equity securities at December 31, 2004 and 2003 consist of:

                                                       2004               2003
                                                       ----               ----

FHLB stock ...............................           $321,900           $200,000
Bankers' Bank stock ......................             50,000             50,000
                                                     --------           --------

      Total ..............................           $371,900           $250,000
                                                     ========           ========

The Bank, as a member institution,  is required to own certain stock investments
in the FHLB and the Bankers' Bank. The FHLB stock is generally  pledged  against
any  borrowings  from the FHLB (See Note 8). No ready market exists for the FHLB
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, 2004 and 2003 are
summarized as follows:
                                                     2004               2003
                                                     ----               ----

Commercial and industrial ..................     $ 20,515,048      $ 12,114,249
Real estate - construction .................        8,882,968         3,552,795
Real estate - mortgage .....................       21,916,960        23,682,712
Consumer and other .........................        4,501,128         4,438,321
                                                 ------------      ------------

      Total ................................       55,816,104        43,788,077
Less allowance for possible loan losses ....         (624,965)         (449,541)
                                                 ------------      ------------

Loans, net .................................     $ 55,191,139      $ 43,338,536
                                                 ============      ============

Nonperforming  loans include nonaccrual loans or loans which are 90 days or more
delinquent as to principal or interest payments. Nonperforming loans amounted to
$226,200 and $193,742 at December 31, 2004 and 2003,  respectively.  The Company
had no impaired loans at December 31, 2004 or 2003.

Transactions  in the allowance for loan losses for the years ended  December 31,
2004 and 2003 are summarized below:


                                                         2004             2003
                                                         ----             ----

Balance, beginning of year .......................     $ 449,541      $ 359,906
Provision charged to operations ..................       206,000         96,000
Recoveries on loans previously charged-off .......         5,334          4,878


Loans charged-off ................................       (35,910)       (11,243)
                                                       ---------      ---------

Balance, end of year .............................     $ 624,965      $ 449,541
                                                       =========      =========

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 Bank 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  $1,046,446  and  $2,268,173 at
December 31, 2004 and 2003,  respectively.  During 2004, new loans were $794,915
and repayments totaled $2,016,642.

                                       29
<PAGE>

NOTE 6 - PREMISES, FURNITURE AND EQUIPMENT

Premises,  furniture  and  equipment  consisted of the following at December 31,
2004 and 2003:

                                                        2004             2003
                                                        ----             ----

Land ...........................................    $   979,273     $   979,273
Buildings and land improvements ................      1,168,185       1,140,393
Furniture and equipment ........................      1,647,022       1,575,904
                                                    -----------     -----------

       Total ...................................      3,794,480       3,695,570
Less, accumulated depreciation .................     (1,600,806)     (1,387,777)
                                                    -----------     -----------

      Premises, furniture and equipment, net ...    $ 2,193,674     $ 2,307,793
                                                    ===========     ===========



Depreciation expense for the years ended December 31, 2004 and 2003 was $213,029
and $172,361, respectively.

NOTE 7 - DEPOSITS

A summary of deposits at December 31, 2004 and 2003 follows:



                                                        2004              2003
                                                        ----              ----

Non-interest bearing demand ..................      $ 8,845,397      $ 9,348,902
Interest bearing transaction accounts ........       26,859,142       23,957,824
Savings ......................................        4,213,585        3,950,327
Time, $100,000 and over ......................       11,400,416       10,047,467
Other time deposits ..........................       16,654,829       15,367,648
                                                    -----------      -----------

    Total deposits ...........................      $67,973,369      $62,672,168
                                                    ===========      ===========




At December 31, 2004 the scheduled  maturities of certificates of deposit are as
follows:

                      2005                                   $ 9,244,307
                      2006                                    14,150,248
                      2007                                     4,228,889
                      2008                                       431,801
                                                             -----------

                         Total                               $28,055,245
                                                             ===========

NOTE 8 - ADVANCES FROM FEDERAL HOME LOAN BANK

At December 31, 2004, the Company had advances from the FHLB as follows:

    Amount             Interest Rate         Maturity Date          Terms
    ------             -------------         -------------          -----
 $2,000,000               2.48%               09/14/2006        Variable rate
  2,000,000               3.28                09/14/2007         Fixed rate
 ----------

 $4,000,000
 ==========

At December 31, 2003, the Company had no borrowings from the FHLB.

Collateral pledged for these advances are 1-4 family residential mortgages.

The Company also has a credit  availability  agreement with the FHLB totaling 40
percent of the Bank's assets as of any quarter end. As of December 31, 2004, the
available credit totaled approximately $28,000,000.


                                       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,  2004 and 2003,
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, 2004, a total of 23,541  shares had been issued,  with 26,459
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  classifications 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,
2004 and 2003,  that the Company  and the Bank  exceeded  all  capital  adequacy
minimum requirements.

As of December 31, 2004, the most recent  notification from the FDIC categorized
Clover  Community 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.



                                       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, 2004

The Company
<S>                                                             <C>           <C>        <C>          <C>       <C>          <C>
    Total Capital (to risk weighted assets) .............       $9,146        14.31%     $5,113       8.0%      $6,391       10.0%
    Tier 1 Capital (to risk weighted assets) ............        8,521        13.33       2,556       4.0        3,834        6.0
    Tier 1 Capital (to average assets) ..................        8,521        10.45       2,447       3.0        4,078        5.0

The Bank
    Total Capital (to risk weighted assets) .............       $8,585        13.43%     $5,113       8.0%      $6,391       10.0%
    Tier 1 Capital (to risk weighted assets) ............        7,960        12.46       2,556       4.0        3,834        6.0
    Tier 1 Capital (to average assets) ..................        7,960         9.76       2,447       3.0        4,078        5.0

December 31, 2003

The Company
    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

The 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
</TABLE>


NOTE 10 - INCOME TAXES

Income tax expense  (benefit) for the years ended  December 31, 2004 and 2003 is
summarized as follows:


                                                     2004                2003
                                                     ----                ----

Currently payable:
  Federal .............................            $394,805            $301,212
  State ...............................              46,938              35,125
                                                   --------            --------
     Total current ....................             441,743             336,337

     Total deferred ...................              13,257              (9,512)
                                                   --------            --------

Income tax expense ....................            $455,000            $326,825
                                                   ========            ========





                                                                     (Continued)

                                       32
<PAGE>

NOTE 10 - INCOME TAXES, Continued

The gross amounts of deferred tax assets  (liabilities)  as of December 31, 2004
and 2003 are as follows:

                                                        2004             2003
                                                        ----             ----
Deferred tax assets:
    Allowance for loan losses ................       $ 184,757        $ 130,507
    Net deferred loan fees ...................          13,487           15,741
    Accrual to cash adjustment ...............          49,648           67,638
                                                                      ---------
       Gross deferred tax assets ..............        247,892          213,886
                                                     ---------        ---------

Deferred tax liabilities:
    Unrealized holding gains on
     securities available for sale ...........         (48,202)         (68,558)
    Depreciation .............................        (107,555)         (60,292)
                                                     ---------        ---------
        Gross deferred tax liability .........        (155,757)        (128,850)
                                                     ---------        ---------

Net deferred tax asset .......................       $  92,135        $  85,036
                                                     =========        =========

The net  deferred tax asset is included in other assets at December 31, 2004 and
2003.  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
2004  deferred  tax  benefit of $20,356  and the 2003  deferred  tax  benefit of
$40,374 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, 2004 and 2003 follows:

<TABLE>
<CAPTION>
                                                                                        2004                           2003
                                                                                        ----                           ----
<S>                                                                         <C>               <C>          <C>                <C>
Tax expense at statutory rate ......................................        $ 509,339         34.0%        $373,171           34.0%
State income tax, net of federal income tax benefit ................           30,979          2.1           23,183            2.1
Tax-exempt interest income .........................................          (71,305)        (4.8)         (70,868)          (6.2)
Non-deductible interest expense ....................................            5,884            -            4,211              -
Other, net .........................................................          (19,897)        (0.1)          (2,872)             -
                                                                            ---------         ----         --------           ----

     Total .........................................................        $ 455,000         31.2%        $326,825           29.9%
                                                                            =========         ====         ========           ====
</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 $0.50 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
matching contributions to the Savings Plan for the years ended December 31, 2004
and 2003 totaled $22,878 and $17,254, 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, 2004 and 2003:

                                                     2004               2003
                                                     ----               ----

Loan commitments .......................         $14,667,368         $12,937,940
Standby letters of credit ..............              37,496                   -

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.

Short-term Borrowing Availability - At December 31, 2004, the banking subsidiary
had an unused  short-term line of credit to purchase up to $2,400,000 in federal
funds from a correspondent  financial institution.  This line expires October 1,
2005;  however,  the lender reserves the right to withdraw the accommodations at
any time.

Litigation  - The Company and the Bank were not  involved as  defendants  in any
litigation  at  December  31,  2004.  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.



                                                                     (Continued)

                                       34
<PAGE>

NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued

The estimated fair values of the Company's financial  instruments as of December
31, 2004 and 2003 are as follows:

<TABLE>
<CAPTION>
                                                                               2004                                2003
                                                                               ----                                ----
                                                                    Carrying         Estimated         Carrying          Estimated
                                                                     amount         fair value          amount           fair value
                                                                     ------         ----------          ------           ----------
Financial Assets:
<S>                                                                <C>               <C>               <C>               <C>
   Cash and due from banks .................................       $ 1,383,919       $ 1,383,919       $ 2,561,973       $ 2,561,973
   Interest-earning deposits in other banks ................            20,763            20,763            14,851            14,851
   Federal funds sold ......................................         6,750,000         6,750,000         3,371,000         3,371,000
   Securities available for sale ...........................        14,201,616        14,201,616        18,398,485        18,398,485
   Nonmarketable equity securities .........................           371,900           371,900           250,000           250,000
   Loans, net ..............................................        55,191,139        56,090,149        43,338,536        45,335,936
   Accrued interest receivable .............................           341,435           341,435           321,943           321,943

Financial Liabilities:
   Deposits ................................................        67,973,369        67,978,759        62,672,168        62,750,529
   Advances from Federal Home Loan Bank ....................         4,000,000         4,040,008                 -                 -
   Accrued interest payable ................................           256,210           256,210           202,073           202,073
</TABLE>


<TABLE>
<CAPTION>
                                                                     Notional                             Notional
                                                                      amount                               amount
                                                                      ------                               ------
Off-Balance Sheet Financial Instruments:
<S>                                                                  <C>                                 <C>
   Loan commitments ........................................         14,667,368                          12,937,940
   Standby letters of credit ...............................             37,496                                   -
</TABLE>

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,
                                                            ------------
                                                         2004             2003
                                                         ----             ----
 Assets:
    Cash .....................................       $  560,569       $  594,033
    Investment in banking subsidiary .........        8,046,056        7,444,450
                                                     ----------       ----------

                                                     $8,606,625       $8,038,483
                                                     ==========       ==========


Shareholders' equity: ........................       $8,606,625       $8,038,483
                                                     ==========       ==========




                                       35
<PAGE>




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,
                                                                                                    --------------------------------
                                                                                                       2004                  2003
                                                                                                       ----                  ----
 Income
<S>                                                                                                  <C>                  <C>
    Dividends received from banking subsidiary ...........................................           $  405,108           $  507,244
    Interest income ......................................................................                3,020                4,066
                                                                                                     ----------           ----------

         Total income ....................................................................              408,128              511,310
                                                                                                     ----------           ----------


Expenses .................................................................................                5,115               19,100
                                                                                                     ----------           ----------

Income before equity in undistributed earnings of banking subsidiary .....................              403,013              492,210

Equity in undistributed earnings of
    banking subsidiary ...................................................................              637,950              273,318
                                                                                                     ----------           ----------

Net income ...............................................................................           $1,040,963             $765,528
                                                                                                     ==========           ==========
</TABLE>


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


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

                                                                                                     2004                    2003
                                                                                                     ----                    ----
Cash flows from operating activities:
<S>                                                                                             <C>                     <C>
    Net income .....................................................................            $ 1,040,963             $   765,528
    Adjustments to reconcile net income
    to net cash provided by operating  activities:
      Equity in undistributed earnings of banking subsidiary .......................               (637,950)               (273,318)
      Decrease in other assets .....................................................                      -                   9,825
                                                                                                -----------             -----------

           Net cash provided by operating activities ...............................                403,013                 502,035
                                                                                                -----------             -----------

Cash flows from financing activities:
    Sales of common stock under dividend reinvestment plan .........................                 45,905                  62,574
    Repurchase and retirement of common stock ......................................                (77,274)               (100,040)
    Cash dividends paid ............................................................               (405,108)               (507,245)
                                                                                                -----------             -----------

           Net cash used for financing activities ..................................               (436,477)               (544,711)
                                                                                                -----------             -----------

           Net decrease in cash and cash equivalents ...............................                (33,464)                (42,676)

CASH, BEGINNING OF YEAR ............................................................                594,033                 636,709
                                                                                                -----------             -----------

CASH, END OF YEAR ..................................................................            $   560,569             $   594,033
                                                                                                ===========             ===========
</TABLE>



                                       36