PORTIONS OF THE ANNUAL REPORT TO SHAREHOLDERS
                      FOR THE YEAR ENDED DECEMBER 31, 1998


<TABLE>
<CAPTION>
Financial Summary*
                                                                                     Years Ended December 31,
                                                                                     ------------------------
                                                              1998             1997            1996           1995            1994
                                                              ----             ----            ----           ----            ----
                                                                         (Dollars in thousands, except per share data)
Financial Condition
<S>                                                          <C>             <C>             <C>             <C>             <C>    
     Securities ....................................         $16,300         $16,136         $16,016         $17,009         $15,019
     Allowance for loan losses .....................             265             272             270             245             248
     Net loans .....................................          28,850          31,614          31,282          27,975          26,007
     Premises and equipment - net ..................             716             760             842             924             622
     Total assets ..................................          56,921          52,909          52,611          49,611          46,852
     Noninterest bearing deposits ..................           3,962           3,890           3,341           3,494           2,499
     Interest bearing deposits .....................          41,645          38,078          38,879          35,846          35,605
     Total deposits ................................          45,607          41,968          42,220          39,340          38,104
     Long-term debt ................................           4,000           4,000           4,000           4,000           4,000
     Total liabilities .............................          49,999          46,368          46,574          44,117          42,359
     Total shareholders' equity ....................           6,922           6,541           6,037           5,494           4,493

Results of Operations
     Interest income ...............................         $ 4,302         $ 4,222         $ 3,986         $ 3,891         $ 3,231
     Interest expense ..............................           1,815           1,847           1,822           1,807           1,381
                                                             -------         -------         -------         -------         -------
     Net interest income ...........................           2,487           2,375           2,164           2,084           1,850
     Provision for loan losses .....................               -               5              32              45               -
                                                             -------         -------         -------         -------         -------
     Net interest income after provision ...........           2,487           2,370           2,132           2,039           1,850
     Other income ..................................             411             341             297             267             253
     Other expenses ................................           1,508           1,375           1,250           1,231           1,183
                                                             -------         -------         -------         -------         -------
     Income before income taxes ....................           1,390           1,336           1,179           1,075             920
     Income tax expense ............................             459             433             375             357             334
                                                             -------         -------         -------         -------         -------
     Net income ....................................         $   931         $   903         $   804         $   718         $   586
                                                             =======         =======         =======         =======         =======
     Comprehensive income ..........................         $   887         $ 1,009         $   745         $ 1,153         $   243
                                                             =======         =======         =======         =======         =======

Per Share Data**
     Net income ....................................         $  0.92         $  0.89         $  0.80         $  0.71         $  0.58
     Cash dividends declared .......................            0.50            0.50            0.20            0.15           0.125
     Period end book value .........................            6.85            6.47            5.97            5.43            4.44
</TABLE>

*    Clover Community Bankshares, Inc. became the bank holding company of Clover
     Community Bank effective June 5, 1998 as part of a corporate reorganization
     which  was  accounted  for  as  if  it  were  a  pooling-of-interests.  The
     consolidated  financial  statements  and related  information  for the year
     ended December 31, 1998 are presented as if the reorganization had occurred
     on January 1, 1998. The financial  statements and related  information  for
     the years ended  December 31, 1994 through 1997 are the same as the amounts
     reported  previously  by Clover  Community  Bank.  Statement  of  Financial
     Accounting Standards No. 130, "Reporting  Comprehensive Income",  effective
     for 1998,  requires the reporting and display of comprehensive  income with
     reclassification of financial  statements for prior periods.  The Company's
     other  comprehensive  income  consists of the change in unrealized  holding
     gains and losses on available-for-sale securities, net of applicable income
     taxes, that was previously  reported only as an adjustment to shareholders'
     equity.
**   Per share  figures  have been  retroactively  adjusted to reflect a 2-for-1
     stock split effective May 11, 1995.


                                       1
<PAGE>

Market for Common Stock and Dividends

          Clover Community Bankshares,  Inc. (the "Company") was incorporated on
March  4,  1998  at the  direction  of  Clover  Community  Bank's  (the  "Bank")
management in order to effect a plan of corporate reorganization under which the
Bank  was  to  become  the  Company's  wholly-owned  subsidiary.   The  plan  of
reorganization was approved by the Bank's shareholders on April 20, 1998 and the
reorganization  plan was effected on June 5, 1998. The discussion and figures in
this 1998 Annual Report present information regarding the Company since the date
of  reorganization  and  information and figures of the Bank prior to that date.
Per share information  prior to the  reorganization is presented in terms of the
current  equivalent  of the  number  of  shares of the  Company's  common  stock
outstanding;  however,  the  number of shares  outstanding  of the  Company  has
remained the same as the number of shares  outstanding  of the Bank prior to the
exchange of shares pursuant to the reorganization plan.

          Although  a  limited  number  of  shares  of  common  stock of  Clover
Community  Bankshares,  Inc. (the  "Company") are traded from time to time on an
individual  basis,  no  established  trading  market has  developed  and none is
expected to develop in the near  future.  The common  stock is not traded on the
NASDAQ  National  Market  System,  nor are  there  any  market  makers  known to
management. During 1998, management was aware of a few transactions in which the
Company's  common stock traded in a price range from $32.50 to $45.00 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.

          As of  February  28,  1999,  there were  approximately  666 holders of
record of the  Company's  common stock,  excluding  individual  participants  in
security position listings.

          Prior  to the  aforementioned  reorganization,  the  Bank  has paid an
annual cash dividend  since 1991.  In 1998 and 1997,  the Bank declared and paid
cash dividends to  shareholders of $.50 per share during each year. In February,
1999,  the  Company's  Board of Directors  declared a $.60 per share annual cash
dividend  payable  March 8,  1999.  For the first  time,  shareholders  have the
opportunity to purchase  additional  shares in the Company by reinvesting  their
cash  dividends  under the new  dividend  reinvestment  plan that was  placed in
operation in 1999.

          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 subsidiary
Bank and its  ability  to pay cash  dividends  to the  Company.  South  Carolina
banking  regulations  restrict the amount of cash  dividends that can be paid by
the Bank to the  Company.  All of the Bank's cash  dividends  to the Company are
subject to the prior approval of the South Carolina Commissioner of Banking.


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 (the
"Bank"),  which are collectively referred to as the "Company".  This information
should be reviewed in conjunction with the consolidated financial statements and
related notes contained elsewhere in this report.

          Beginning  in  1998,   Statement  of  Financial  Accounting  Standards
("SFAS") No. 130, "Reporting  Comprehensive Income",  requires the reporting and
display of  comprehensive  income and its  components.  This SFAS  provides  for
reclassification  of financial  statements for earlier  periods for  comparative
purposes.  Comprehensive  income  includes  net income  and other  comprehensive
income or loss.  Other  comprehensive  income or loss  consists  of  changes  in
shareholders'  equity, other than those resulting from net income or investments
by or distributions to  shareholders,  that are due to transactions,  events and
circumstances from  non-shareholder  sources.  The Company's other comprehensive
income  consists  of the  change  in  unrealized  holding  gains  and  losses on
available-for-sale   securities,  net  of  applicable  income  taxes,  that  was
previously  reported only as an adjustment of shareholders'  equity.  Because of
the  material   amounts  of   available-for-sale   securities   carried  in  the
consolidated  balance sheet, changes in estimated fair values of such securities
could significantly affect the amount of other comprehensive income or loss used
to compute comprehensive income.


                                       2
<PAGE>

Forward Looking Statements

          Statements included in Management's  Discussion and Analysis which are
not  historical  in nature are  intended  to be, and are  hereby  identified  as
"forward looking statements" for purposes of the safe harbor provided by Section
21E of the  Securities  Exchange Act of 1934, as amended.  The Company  cautions
readers that forward looking  statements,  including without  limitation,  those
relating to the  Company's  response to the Year 2000 problem,  future  business
prospects,  revenues, working capital, liquidity, capital needs, interest costs,
and income,  are  subject to certain  risks and  uncertainties  that could cause
actual results to differ  materially from those indicated in the forward looking
statements,  due to several important factors herein  identified,  among others,
and  other  risks and  factors  identified  from  time to time in the  Company's
reports filed with the Securities and Exchange Commission.


Earnings Performance

1998 Compared with 1997

          For the year ended December 31, 1998, the Company  recorded net income
of $931,000,  an increase of $28,000,  or 3.1%,  over net income of $903,000 for
1997. Net income per share for 1998 was $.92 compared with $.89 for 1997. Return
on average  assets for 1998 was 1.70%  compared  with 1.72% for 1997.  Return on
average  shareholders' equity was 14.12% for 1998 compared with 14.84% for 1997.
Comprehensive  income was $887,000 for 1998 compared with  $1,009,000  for 1997.
Depreciation  in the estimated fair value of the  available-for-sale  securities
portfolio  of $44,000,  net of income tax  benefit,  was charged  against  other
comprehensive income for 1998 causing  comprehensive income to be lower than net
income.

          Net income  continued  to rise,  primarily as a result of the $112,000
increase in net interest income combined with a $70,000  increase in noninterest
service  charges on deposit  accounts  and other  income.  Net  interest  income
increased  due to higher  levels of interest  earning  assets and lower  overall
rates paid on interest bearing  liabilities.  Because of the continued excellent
performance  of the loan  portfolio,  no  provision  for loan  losses was deemed
necessary  in 1998.  A $5,000  provision  was charged to expense in 1997.  These
factors  which  increased  net  income,  were  partially  offset,   however,  by
nonrecurring  expenses of $34,000  associated with effecting the  reorganization
into the bank  holding  company  structure.  Incremental  costs  relating to the
Company's  Y2K  Preparedness  Program  have  been  negligible  as the  result of
implementing  the program using existing  personnel.  Additionally,  the Company
acquired new computer  equipment and software in 1996 which was mostly Year 2000
compliant when installed.

1997 Compared with 1996

          Net  income  of  $903,000  for  the  year  ended   December  31,  1997
represented  a  significant  increase  of  $99,000  or 12.3%  from the  $804,000
realized in 1996.  Net income per share was $.89 for 1997 compared with $.80 for
1996.  In 1997,  return on average  assets  was  1.72%,  up from 1.61% for 1996.
Return on average shareholders' equity increased to 14.84% from 14.14% for 1996.
The 1997 cash  dividend of $.50 per share  represented  an increase of 150% over
the cash  dividend of $.20 for 1996.  Other  comprehensive  income of  $106,000,
consisting of appreciation in the available-for-sale  securities portfolio,  net
of income  taxes,  was  added to net  income  to boost  comprehensive  income to
$1,009,000  for 1997.  Comprehensive  income was $745,000  for 1996,  or $59,000
lower than net income for that year.

          Higher net interest  income in 1997 was the principal  contributor  to
the  growth  in net  income  over the 1996  figure,  increasing  $211,000.  This
increase  was  due to  higher  volumes  of  interest  earning  assets  at a more
favorable interest rate spread. Also, the Company reduced its provision for loan
losses by $27,000 in 1997 because of the good performance of the loan portfolio.
Noninterest  income  increased  $44,000 mainly due to higher service  charges on
deposit accounts. Noninterest expenses increased $125,000 in 1997, primarily due
to  depreciation,  amortization  and  maintenance  expenses  of the  Bank's  new
computer equipment and software that was implemented during only a part of 1996.


Net Interest Income

          Net  interest  income is the  amount of  interest  earned on  interest
earning assets (loans, securities,  interest bearing deposits in other banks and
federal  funds sold),  less the interest  expense  incurred on interest  bearing
liabilities (primarily interest bearing deposits and long-term debt), and is the
principal source of the Company's  earnings.  Net interest income is affected by
the level of interest rates,  the volume and mix of interest  earning assets and
interest bearing liabilities, and the relative funding of the assets.


                                       3
<PAGE>

          For analysis purposes,  interest income from tax-exempt investments is
adjusted to an amount  which would have to be earned on taxable  investments  to
produce the same after-tax yields.  This adjusted amount is referred to as fully
taxable equivalent ("FTE") interest income.

          FTE net interest income was $2,585,000,  $2,467,000 and $2,250,000 for
1998,  1997 and 1996,  respectively.  The  $118,000  growth in FTE net  interest
income for 1998 was attributable primarily to larger volumes of interest earning
assets and lower rates paid on interest bearing liabilities. The yield earned on
average  interest  earning assets  decreased by 19 basis points in 1998 compared
with 1997. However,  volumes of interest earning assets increased by $2,104,000,
or 4.2%.  This volume  increase was more than sufficient to offset the reduction
in yield and resulted in an increase of $86,000 in FTE interest income.

          The rate paid on average interest bearing liabilities  decreased by 17
basis points in 1998,  resulting in a $32,000 reduction of interest expense, net
of the  offsetting  effect of interest paid on the  increased  volume of average
interest  bearing  liabilities.   While  average  interest  bearing  liabilities
increased in 1998 by $1,054,000 or 2.5%, interest-free funds supporting interest
earning  assets  increased  by  $1,050,000  or 14.8%.  This  increased  level of
interest-free  funds  caused the net yield on earning  assets to  increase  by 3
basis points.

          The  $217,000  increase in FTE net interest  income for 1997  resulted
from  increased   volumes  of  interest  earning  assets  and  interest  bearing
liabilities at a more favorable  interest rate spread.  Increased loan volume in
the mix of  interest  earning  assets  heavily  contributed  to the  higher  net
interest income. In addition,  lower rates paid on interest bearing  liabilities
was a contributing factor.

          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,
1998, 1997 and 1996.
<PAGE>

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

                                                                             Years ended December 31,
                                            ----------------------------------------------------------------------------------------
                                                          1998                         1997                           1996
                                            ----------------------------  ----------------------------  ----------------------------
                                                     FTE Interest                  FTE Interest                   FTE Interest
                                            Average      Income/ Yields/   Average     Income/ Yields/  Average      Income/ Yields/
                                            Balances(1)  Expense  Rates    Balances(1) Expense  Rates   Balances(1)  Expense  Rates
                                            ----------------------------  ----------------------------  ----------------------------
                                                                            (Dollars in thousands)

Assets
<S>                                           <C>      <C>       <C>       <C>       <C>        <C>     <C>         <C>        <C>  
Interest-bearing deposits in other banks      $    351 $    20    5.70%    $   481   $    29     6.03%  $    495    $    31    6.26%
Securities                                                                                                                   
Taxable                                         11,447     756    6.60%     11,793       766     6.50%    12,249        785    6.41%
Tax-exempt (2)                                   4,188     289    6.90%      4,040       272     6.73%     3,661        253    6.91%
                                              -------- -------             -------   -------            --------    -------  
        Total securities                        15,635   1,045    6.68%     15,833     1,038     6.56%    15,910      1,038    6.52%
Other investments                                  377      27    7.16%        377        26     6.90%       377         20    5.31%
Federal funds sold                               4,970     259    5.21%      2,004       109     5.44%     1,610         84    5.22%
Loans (3)                                       30,499   3,049   10.00%     31,033     3,112    10.03%    29,206      2,899    9.93%
                                              -------- -------             -------   -------            --------    -------  
        Total interest earning assets           51,832   4,400    8.49%     49,728     4,314     8.68%    47,598      4,072    8.55%
Cash and due from banks                          1,760                       1,555                         1,390             
Allowance for loan losses                         (269)                       (270)                         (247)            
Premises and equipment                             750                         800                           943             
Other assets                                       756                         673                           396             
                                              --------                     -------                      --------             
        Total assets                          $ 54,829                     $52,486                      $ 50,080             
                                              ========                     =======                      ========             
                                                                                                                             
Liabilities and shareholders' equity                                                                                         
Interest bearing deposits                                                                                                    
     Interest bearing transaction accounts    $ 13,043 $   279    2.14%    $11,824   $   261     2.21%  $  9,704    $   207    2.13%
     Savings                                     2,640      58    2.20%      2,624        65     2.48%     2,815         80    2.84%
     Time deposits $100M and over                4,453     208    4.67%      4,352       207     4.76%     3,840        184    4.79%
     Other time deposits                        19,508   1,039    5.33%     19,784     1,080     5.46%    20,122      1,122    5.58%
                                              -------- -------             -------   -------            --------    -------  
        Total interest bearing                                                                                               
          deposits                              39,644   1,584    4.00%     38,584     1,613     4.18%    36,481      1,593    4.37%
Federal funds purchased                             35       3    8.57%         41         2     4.88%        31          2    6.45%
Long-term debt                                   4,000     228    5.70%      4,000       232     5.80%     4,000        227    5.68%
                                              -------- -------             -------   -------            --------    -------  
        Total interest bearing                                                                                               
          liabilities                           43,679   1,815    4.16%     42,625     1,847     4.33%    40,512      1,822    4.50%
Noninterest bearing demand deposits              4,104                       3,362                         3,460             
Other liabilities                                  453                         416                           420             
Shareholders' equity                             6,593                       6,083                         5,688             
                                              --------                     -------                      --------             
        Total liabilities and shareholders'                                                                                  
        equity                                $ 54,829                     $52,486                      $ 50,080             
                                              ========                     =======                      ========             
Interest rate spread  (4)                                         4.33%                          4.35%                         4.05%
Net interest income and net yield                                                                                            
     on earning assets  (5)                            $ 2,585    4.99%              $ 2,467     4.96%              $ 2,250    4.73%
Interest free funds supporting earning                                                                                       
     assets  (6)                               $ 8,153                     $ 7,103                      $  7,086             
                                                                                                                            
</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.


                                       4
<PAGE>

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

                        Volume and Rate Variance Analysis

<TABLE>
<CAPTION>
                                                                 1998 Compared with 1997                  1997 Compared with 1996
                                                                 -----------------------                  -----------------------
                                                             Volume (1)     Rate (1)    Total         Volume (1)  Rate (1)    Total
                                                             ----------     --------    -----         ----------  --------    -----
                                                                                   (Dollars in thousands)

<S>                                                            <C>          <C>         <C>          <C>          <C>         <C>   
Interest-bearing deposits in other banks ...............       $  (7)       $ (2)       $  (9)       $  (1)       $ (1)       $  (2)
Taxable securities .....................................         (23)         13          (10)         (29)         10          (19)
Tax-exempt securities (2) ..............................          10           7           17           25          (6)          19
Other investments ......................................           -           1            1            -           6            6
Federal funds sold .....................................         155          (5)         150           21           4           25
Loans ..................................................         (53)        (10)         (63)         183          30          213
                                                               -----        ----        -----        -----        ----        -----
              Total interest income ....................          82           4           86          199          43          242
                                                               -----        ----        -----        -----        ----        -----
Interest bearing deposits
     Interest bearing transaction accounts .............          26          (8)          18           47           7           54
     Savings ...........................................           -          (7)          (7)          (5)        (10)         (15)
     Time deposits $100M and over ......................           5          (4)           1           24          (1)          23
     Other time deposits ...............................         (15)        (26)         (41)         (19)        (23)         (42)
Federal funds purchased ................................           -           1            1            1          (1)           -
Long-term debt .........................................           -          (4)          (4)           -           5            5
                                                               -----        ----        -----        -----        ----        -----
              Total interest expense ...................          16         (48)         (32)          48         (23)          25
                                                               -----        ----        -----        -----        ----        -----
              Net interest income ......................       $  66        $ 52        $ 118        $ 151        $ 66        $ 217
                                                               =====        ====        =====        =====        ====        =====
</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%.

          During 1999, management expects that interest rates will move within a
narrow range,  and  management  has not  identified any factors that would cause
interest  rates to increase or decrease  sharply in a short period of time.  Any
improvements  in net interest  income for 1999 are  expected,  therefore,  to be
largely the result of  increases  in the volume of interest  earning  assets and
liabilities.   Management  expects  to  continue  to  use  aggressive  marketing
strategies to increase the Company's  market share for both deposits and quality
loans within its service area.  These  strategies  involve  offering  attractive
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 adjustments in interest rate sensitivity can be timely made.

          The table,  "Interest  Sensitivity  Analysis",  indicates  that,  on a
cumulative basis through twelve months, rate sensitive liabilities exceeded rate
sensitive assets, resulting in a liability sensitive position at the end of 1998
of $6,175,000, and a cumulative gap ratio of .85. 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 1998  with  respect  to the  one-year  time  horizon.  For a bank  with a
negative gap, falling interest rates would be expected to have a positive effect
on net  interest  income and rising rates would be expected to have the opposite
effect.


                                       5
<PAGE>

          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.  Overnight  federal funds sold are  reflected in the earliest  contractual
repricing  interval  due to the  immediately  available  nature of these  funds.
Interest  bearing  liabilities  with no contractual  maturity,  such as interest
bearing transaction  accounts and savings deposits are reflected in the earliest
repricing  interval 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.

                          Interest Sensitivity Analysis

<TABLE>
<CAPTION>
                                                                                           December 31, 1998
                                                                                           -----------------
                                                                 Within            4-12         Over 1-5      Over 5
                                                                3 Months          Months         Years        Years          Total
                                                                --------          ------         -----        -----          -----
                                                                                        (Dollars in thousands)
Interest earning assets
<S>                                                               <C>           <C>             <C>           <C>            <C>    
     Interest-bearing deposits in other banks .............       $    26       $    294        $     -       $     -        $   320
     Securities available-for-sale ........................        10,868            147          1,626         3,659         16,300
     Other investments ....................................           377              -              -             -            377
     Federal funds sold ...................................         8,070              -              -             -          8,070
     Loans (1) ............................................        13,843          1,419         12,066         1,787         29,115
                                                                  -------       --------        -------       -------        -------
              Total interest earning assets ...............        33,184          1,860        $13,692       $ 5,446        $54,182
                                                                  -------       --------        =======       =======        =======

Interest bearing liabilities
     Interest bearing deposits
          Interest bearing transaction accounts ...........       $13,845       $      -        $     -       $     -        $13,845
          Savings .........................................         2,563              -              -             -          2,563
          Time deposits $100M and over ....................         1,315          2,462          1,912             -          5,689
          Other time deposits .............................         6,927         10,107          2,514             -         19,548
          Long-term debt ..................................         4,000              -              -             -          4,000
                                                                  -------       --------        -------       -------        -------
              Total interest bearing liabilities ..........        28,650         12,569        $ 4,426       $     -        $45,645
                                                                  -------       --------        =======       =======        =======

Interest sensitivity gap ..................................       $ 4,534       $(10,709)
Cumulative interest sensitivity gap .......................       $ 4,534       $ (6,175)
Gap ratio .................................................          1.16           0.15
Cumulative gap ratio ......................................          1.16           0.85
</TABLE>

-----------------------------------------------
(1)  Loans are net of net deferred loan fees of $28,000.

          During  1999,  management  plans to monitor  the  Company's  liability
sensitive position and take appropriate actions to promote a stable net interest
spread and soften the negative  effects of any  increase in interest  rates that
might occur.

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.  There was no provision  for loan losses in 1998  compared
with  $5,000  and  $32,000  for the  years  ended  December  31,  1997 and 1996,
respectively.  The  decreased  provision in 1998 is due mainly to a reduction in
loan volume as compared with prior years, and no material change in the ratio of
net loan  charge-offs  as a percentage of loans  outstanding.  Furthermore,  the
level of impaired or nonperforming loans has decreased, and identified potential
problem loans remain  immaterial.  The allowance for loan losses as a percentage
of total loans at year-end  was .91% for 1998  compared  with .85% at the end of
1997. Net loan  charge-offs  were $7,000 in 1998 compared with $3,000 and $7,000
for 1997 and 1996,  respectively.  See "Impaired  Loans" and "Allowance for Loan
Losses" for a discussion  of the factors  management  considers in its review of
the adequacy of the allowance and provision for loan losses.

                                       6
<PAGE>

Other Income

          Noninterest  income for 1998 increased  $70,000 or 20.5% compared with
an increase of $44,000 or 14.8% for 1997.  Service  charges on deposit  accounts
increased  $55,000 in 1998 and $39,000 in 1997.  These  increases were primarily
due to increased  chargeable account activity.  Credit life insurance commission
income was down $16,000 in 1998 due to lower consumer  demand,  after increasing
$2,000 in 1997.  There were no  realized  securities  gains or losses in 1998 or
1997,  and a  negligible  securities  loss in  1996.  Other  noninterest  income
increased  $32,000 in 1998  compared  with the  previous  year.  In 1998,  other
noninterest  income  included an  increase  of $25,000 in credit  card  merchant
services  income,  a $5,000  increase in safe  deposit box rental  fees,  and an
$11,000 gain from the sale of a Company vehicle.

Other Expenses

          Noninterest  expenses for 1998  increased  $133,000 or 9.7%,  compared
with an increase of $125,000 or 10.0% for 1997.  Salaries and employee  benefits
increased $34,000 or 4.5% in 1998, and $34,000 or 4.7% in 1997, primarily as the
result of salary increases.  Net occupancy and furniture and equipment  expenses
increased  $23,000 or 9.2%,  after a $56,000  or 28.8%  increase  for 1997.  The
increase in 1998 was caused  primarily by higher  amortization  and  maintenance
expenses for the Company's  computer  equipment and related  software.  The 1997
increase was attributable to a full year of higher depreciation and amortization
expenses  related to the Company's  acquisition  of its new  mainframe  computer
system,  software and other peripheral  equipment that was not placed in service
until late in the second quarter of 1996. Other noninterest expenses increased a
total of  $77,000 or 20.8% in 1998  compared  with  1997.  Included  in this net
increase  in expenses  were a $12,000  increase  for  stationery,  printing  and
postage,  and  nonrecurring  expenses in connection with the  reorganization  of
Clover Community Bank into the present bank holding company  structure  totaling
approximately $34,000.

          Noninterest  overhead  expenses  for 1999 are  expected to increase as
compared with 1998, due in part to continued  growth,  investment in technology,
operation of the bank  holding  company,  as well as some  general  inflationary
increases.  Management  believes  that  continued  investment  in  technology is
essential to allow for the expansion of products and services  necessary to keep
the Company  competitive in its market.  The Company's FDIC insurance  rates are
assessed based on the lowest rate available  under  regulations and are expected
to  continue  at  relatively  low  levels  for the  near  future.  Increases  in
noninterest  expenses are closely monitored and cost control will continue to be
emphasized  by  management  where  possible  in order to  achieve  profitability
objectives and attain the goals of growth and  outstanding  customer  service in
the Clover market area.

Income Taxes

          For 1998,  federal and state income tax expenses increased to $459,000
from $433,000 in 1997 and $375,000 in 1996.  The increases in income tax expense
are due to higher  earnings and taxable  income.  The effective  income tax rate
(income tax expense  divided by income  before income taxes) was 33.0% for 1998,
compared  with  32.4%  and 31.8% for 1997 and  1996,  respectively.  The  higher
effective  rate for 1998 was  attributable  to the  nondeductibility  of certain
expenses incurred to form the bank holding company.

                                       7
<PAGE>

Securities

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

      Securities Portfolio Composition


                                                  December 31,
                                                  ------------
                                      1998            1997            1996
                                      ----            ----            ----
                                   Available-      Available-      Available-
                                    for-Sale        for-Sale        for-Sale
                                    --------        --------        --------
                                             (Dollars in thousands)

U. S. Treasury .................   $  1,002        $    998        $    994
U. S. Government agencies ......      2,980           2,978           2,987
State, county and municipal ....      5,198           4,188           4,087
Mortgage-backed securities .....      7,120           7,972           7,948 
                                   --------        --------        -------- 
     Total .....................   $ 16,300        $ 16,136        $ 16,016 
                                   ========        ========        ======== 

          On an ongoing basis,  management assigns securities upon purchase into
one of the categories designated by 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 1998, 1997, and 1996, there
have been no transfers of available-for-sale  or held-to-maturity  securities to
other categories.

          At December 31, 1998, the Company had  concentrated  an amortized cost
of $750,000 into Clover,  South Carolina  School  District bonds (Moody's rating
AA) carried in the  consolidated  balance  sheet at an  estimated  fair value of
$752,000.  An amortized cost of $686,000 was concentrated into Fairfield County,
South Carolina  School District bonds (Moody's rating AAA) which were carried in
the  consolidated  balance  sheet at an  estimated  fair value of  $689,000.  An
amortized cost of $945,000 was concentrated into Town of Clover,  South Carolina
bonds (not rated) which were  carried in the  consolidated  balance  sheet at an
estimated  fair value of $945,000.  Management is not aware of any special risks
involving these investments.

                                       8
<PAGE>

          The following table presents maturities and weighted average yields of
securities at December 31, 1998.

                   Securities Portfolio Maturities and Yields

                                                         December 31, 1998
                                                         -----------------
                                                    Available-
                                                     for-Sale             Yield
                                                     --------             -----
                                                       (Dollars in thousands)
U. S. Treasury                                 
     Within one year .......................         $ 1,002              5.82%
                                                     -------
U. S. Government agencies                          
     Within one year .......................           1,457              5.55%
     After one through five years ..........               -              0.00%
     After five through ten years ..........           1,523              7.36%
     After ten years .......................               -              0.00%
                                                     -------
                                                       2,980              6.48%
                                                     ------
                                                   
State, county and municipal (1)                    
     Within one year .......................           1,500              6.55%
     After one through five years ..........           1,626              7.16%
     After five through ten years ..........           1,957              7.45%
     After ten years .......................             115              7.58%
                                                     -------
                                                       5,198              7.10%
                                                     ------
Mortgage-backed securities (2)                     
     Within one year .......................              26              5.54%
     After one through five years ..........               -              0.00%
     After five through ten years ..........           1,177              5.97%
     After ten years .......................           5,917              6.48%
                                                     -------
                                                       7,120              6.39%
                                                     -------
Total                                              
     Within one year .......................           3,985              5.99%
     After one through five years ..........           1,626              7.16%
     After five through ten years ..........           4,657              7.05%
     After ten years .......................           6,032              6.50%
                                                     -------
                                                   
        Total ..............................         $16,300              6.60%
                                                     =======
------------------------
(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.

                                       9
<PAGE>

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, 1998,  1997 and 1996
are shown in the following  table  according to type of loan, and the percentage
of each category to total loans:

                           Loan Portfolio Composition
<TABLE>
<CAPTION>
                                                                                        December 31,
                                                                                        ------------
                                                                   1998                     1997                         1996
                                                                   ----                     ----                         ----
                                                            Amount         %        Amount            %           Amount         %
                                                            ------      ------      ------         -----          ------       -----
                                                                                           (Dollars in thousands)

<S>                                                       <C>          <C>        <C>             <C>            <C>          <C>  
Commercial and industrial .........................       $ 4,540       15.6%     $ 5,611          17.6%         $ 5,917       18.7%
Real estate - construction ........................         4,966       17.0%       6,447          20.2%           5,445       17.2%
Real estate - mortgage                                                                                           
     Farmland .....................................           187         .6%         244            .7%             185         .6%
     1-4 family residential .......................        11,079       38.0%      11,359          35.6%          11,034       35.0%
     Nonfarm, nonresidential ......................         5,243       18.0%       5,092          16.0%           5,966       18.9%
Consumer installment ..............................         3,128       10.8%       3,163           9.9%           3,037        9.6%
                                                          -------      -----      -------         -----          -------      -----
                         Total loans ..............       $29,143      100.0%     $31,916         100.0%         $31,584      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  consists of liens on  receivables,  equipment,  inventories,
furniture and fixtures.  Unsecured business loans are generally  short-term with
emphasis on  repayment  strengths  and low  debt-to-worth  ratios.  During 1998,
commercial and industrial  loans  decreased  $1,071,000 or 19.1%.  This category
accounted for a significant  portion of the decrease in total loans in 1998, and
was  attributable to lower demand and interest rate competition in the Company's
market.  Loans mainly for business and  investment  purposes that are secured by
real estate (nonfarm, nonresidential) increased by $151,000 or 3.0% during 1998.
Commercial  lending involves  significant risk because repayment usually depends
on the cash flows  generated  by a  borrower's  business,  and the debt  service
capacity of a business  can  deteriorate  because of  downturns  in national and
local economic conditions. To control risk, more in-depth initial and continuing
financial  analysis of a 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-cost ratios are limited to 75% and permanent financing
commitments are usually  required prior to the advancement of loan proceeds.  In
1998, this category of loans decreased  $1,481,000 or 23.0%.  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%,
52% and 55% of the Company's loan  portfolio at the end of 1998,  1997 and 1996,
respectively.  Real estate  mortgage  loans of all types  decreased  by $186,000
during  1998  after  declining  by  $490,000  in  1997.   These  reductions  are
attributable  primarily  to the current  "buyer's  market" in  mortgage  lending
rates. The Company purposely has not originated  fixed-rate  long-term  mortgage
loans at the low rates prevalent  throughout the past few years,  opting instead
to lend for these purposes using instruments with fixed-rate terms not exceeding
five years.  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.

                                       10
<PAGE>

Maturity Distribution of Loans

          The  following  table  sets  forth the  maturity  distribution  of the
Company's  loans,  by type,  as of  December  31,  1998,  as well as the type of
interest requirement on such loans.

<TABLE>
<CAPTION>
                                                                                               December 31, 1998
                                                                                               -----------------
                                                                             One Year         One to       Five Years
                                                                              or Less       Five Years       or More          Total
                                                                              -------       ----------       -------          -----
                                                                                            (Dollars in thousands)

<S>                                                                          <C>             <C>             <C>             <C>    
Commercial and industrial ..........................................         $ 1,945         $ 2,306         $   289         $ 4,540
Real estate - construction .........................................           2,902           2,029              35           4,966
Real estate - mortgage .............................................           1,821           8,575           6,113          16,509
Consumer installment loans .........................................           1,046           2,047              35           3,128
                                                                             -------         -------         -------         -------
              Total loans ..........................................         $ 7,714         $14,957         $ 6,472         $29,143
                                                                             =======         =======         =======         =======


Predetermined rate, maturity greater than one year .................                         $11,649         $ 1,937         $13,586
                                                                                             =======         =======         =======

Variable rate or maturity within one year ..........................         $ 7,714         $ 3,308         $ 4,535         $15,557
                                                                             =======         =======         =======         =======
</TABLE>

Impaired Loans

          Impaired loans are those loans on which, based on current  information
and  events,  it is  probable  that the  Company  will be unable to collect  all
amounts due  according to the  contractual  terms of the loan  agreement.  Loans
which management has identified as impaired  generally are nonperforming  loans.
Nonperforming  loans include nonaccrual loans or loans which are 90 days or more
delinquent as to principal or interest  payments.  Following is a summary of the
Company's impaired loans:

                          Nonaccrual and Past Due Loans

<TABLE>
<CAPTION>
                                                                                                  December 31, 1998
                                                                                                  -----------------
                                                                                    1998                1997               1996
                                                                                    ----                ----               ----
                                                                                               (Dollars in thousands)

<S>                                                                                  <C>                <C>                <C> 
Nonaccrual loans .........................................................           $  -               $  70              $ 50
Accruing loans 90 days or more past due ..................................              1                   7                 -
                                                                                     ----               -----              ----
              Total ......................................................           $  1               $  77              $ 50
                                                                                     ====               =====              ====

Percent of total loans ...................................................            0.0%                0.2%              0.2%
</TABLE>

          When an  impaired  loan is 90 days or more past due as to  interest or
principal or there is serious doubt as to ultimate  collectibility,  the accrual
of interest income is generally  discontinued.  Previously  accrued  interest on
loans placed in a nonaccrual  status is reversed  against  current  income,  and
subsequent interest income is recognized on a cash basis when received. When the
collectibility  of a  significant  amount  of  principal  is in  serious  doubt,
collections  are credited  first to the  remaining  principal  balance on a cost
recovery  basis.  An impaired  nonaccrual loan is not returned to accrual status
unless  principal and interest are current and the borrower has demonstrated the
ability to continue  making  payments as agreed.  The effects of interest income
accrued and  collected on impaired  loans were  immaterial  to the  consolidated
financial statements for 1998, 1997 and 1996.

          As of December 31, 1998,  there were no commitments to lend additional
funds to debtors owing amounts on impaired loans.

                                       11
<PAGE>

Potential Problem Loans

          Management has  identified  and maintains a list of potential  problem
loans.  These are loans that are not included in impaired  loans  (nonaccrual or
past due 90 days or more and still  accruing).  A loan is added to the potential
problem list when management  becomes aware of information about possible credit
problems of borrowers  that causes doubts as to the ability of such borrowers to
comply  with the  current  loan  repayment  terms.  The  total  amount  of loans
outstanding  at December  31, 1998  determined  by  management  to be  potential
problem loans was $34,000. This amount does not represent  management's estimate
of potential losses since a portion of such loans is secured by various types of
collateral.

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.

          In  reviewing  the adequacy of the  allowance  for loan losses at each
year  end,  management  took  into  consideration  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
possible  future loan losses  inherent in the loan  portfolio as of December 31,
1998.

          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,  as well as
other  off-balance-sheet  credit  risks  such as loan  commitments  and  standby
letters of credit. 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.

                                       12
<PAGE>

                         Summary of Loan Loss Experience

<TABLE>
<CAPTION>
                                                                                         Years Ended December 31,
                                                                                         ------------------------
                                                                          1998          1997       1996        1995         1994
                                                                          ----          ----       ----        ----         ----
                                                                                         (Dollars in thousands)

<S>                                                                     <C>          <C>          <C>          <C>          <C>    
Total loans outstanding at end of period ..........................     $29,115      $31,886      $31,552      $28,220      $26,255
Average amount of loans outstanding ...............................      30,499       31,033       29,206       27,307       26,649

Balance of allowance for loan losses - beginning ..................     $   272      $   270      $   245      $   248      $   257
                                                                        -------      -------      -------      -------      -------
Loans charged off
     Commercial and industrial ....................................           -            4            -           40            -
     Consumer installment .........................................           9            6           10           10           20
                                                                        -------      -------      -------      -------      -------
             Total charge-offs ....................................           9           10           10           50           20
                                                                        -------      -------      -------      -------      -------
Recoveries of loans previously charged off
     Commercial and industrial ....................................           -            4            -            -            -
     Real estate - mortgage .......................................           -            -            -            -            9
     Consumer installment .........................................           2            3            3            2            2
                                                                        -------      -------      -------      -------      -------
             Total recoveries .....................................           2            7            3            2           11
                                                                        -------      -------      -------      -------      -------
Net charge-offs ...................................................           7            3            7           48            9
                                                                        -------      -------      -------      -------      -------
Additions to allowance charged to expense .........................           -            5           32           45            -
                                                                        -------      -------      -------      -------      -------
Balance of allowance for loan losses - ending .....................     $   265      $   272      $   270      $   245      $   248
                                                                        =======      =======      =======      =======      =======

Ratios
     Net charge-offs to average loans .............................        0.02%        0.01%        0.02%        0.18%        0.03%
     Net charge-offs to loans at end of period ....................        0.02%        0.01%        0.02%        0.17%        0.03%
     Allowance for loan losses to average loans ...................        0.87%        0.88%        0.92%        0.90%        0.93%
     Allowance for loan losses to loans at end of period ..........        0.91%        0.85%        0.86%        0.87%        0.94%
     Net charge-offs to allowance for loan losses .................        2.64%        1.10%        2.59%       19.59%        3.63%
     Net charge-offs to provision for loan losses .................          NA        60.00%       21.88%      106.67%          NA
</TABLE>

          The following  table presents the allocation of the allowance for loan
losses at the end of each of the last three years,  compared with the percent of
loans in the applicable categories to total loans.

                     Allocation of Allowance for Loan Losses

<TABLE>
<CAPTION>
                                                                                      December 31,
                                                                                      ------------
                                                             1998                         1997                        1996
                                                             ----                         ----                        ----
                                                                     % of                        % of                         % of
                                                    Amount          Loans        Amount         Loans        Amount          Loans
                                                    ------          -----        ------         -----        ------          -----
                                                                                 (Dollars in thousands)
                                          
<S>                                                 <C>             <C>           <C>          <C>           <C>           <C>  
Commercial and industrial ................          $ 48             15.6%        $ 57          17.6%        $ 56           18.7%
Real estate- construction ................            37             17.0%          48          20.2%          42           17.2%
Real estate - mortgage ...................           122             56.6%         125          52.3%         130           54.5%
Consumer installment .....................            38             10.8%          42           9.9%          42            9.6%
Unallocated ..............................            20              0.0%           -           0.0%           -            0.0%
                                                    ----            -----         ----         -----         ----          -----
            Total ........................          $265            100.0%        $272         100.0%        $270          100.0%
                                                    ====            =====         ====         =====         ====          =====
</TABLE>

                                       13
<PAGE>

Deposits

          The average amounts and percentage composition of deposits held by the
Company for the years ended  December 31, 1998,  1997 and 1996,  are  summarized
below:

                                Average Deposits

<TABLE>
<CAPTION>
                                                                                   Years Ended December 31,
                                                                                   ------------------------
                                                                      1998                    1997                        1996
                                                                      ----                    ----                        ----
                                                           Amount            %       Amount            %        Amount          %
                                                           ------            -       ------            -        ------          -
                                                                                    (Dollars in thousands)

<S>                                                       <C>            <C>         <C>            <C>         <C>           <C> 
Noninterest bearing demand ........................       $ 4,104          9.4%      $ 3,362          8.0%      $ 3,460         8.7%
Interest bearing transaction accounts .............        13,043         29.8%       11,824         28.2%        9,704        24.3%
Savings ...........................................         2,640          6.0%        2,624          6.3%        2,815         7.0%
Time deposits $100M and over ......................         4,453         10.2%        4,352         10.4%        3,840         9.6%
Other time ........................................        19,508         44.6%       19,784         47.1%       20,122        50.4%
                                                          -------        -----       -------        -----       -------       -----
               Total deposits .....................       $43,748        100.0%      $41,946        100.0%      $39,941       100.0%
                                                          =======        =====       =======        =====       =======       =====
                                                                                                          
</TABLE>

          As of December 31, 1998,  there were  $5,689,000  in time  deposits of
$100,000 or more with  approximately  $1,315,000  maturing  within three months,
$666,000  maturing over three through six months,  $1,796,000  maturing over six
through  twelve  months and  $1,912,000  maturing  after one year.  Average time
deposits $100,000 and over comprised approximately 10% of total average deposits
during 1998, 1997 and 1996. The vast majority of time deposits $100,000 and over
are acquired from  customers  within the Company's  service 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.  Certificates of deposit  $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.


Return on Equity and Assets

          The following  table shows the return on assets (net income divided by
average total assets),  return on equity (net income divided by average equity),
dividend  payout ratio  (dividends  declared per share divided by net income per
share),  and equity to assets ratio  (average  equity  divided by average  total
assets) for each period indicated.

                                            Years Ended December 31, 
                                            ------------------------ 
                                       1998            1997           1996
                                       ----            ----           ----

         Return on assets             1.70%           1.72%          1.61%
         Return on equity            14.12%          14.84%         14.14%
         Dividend payout ratio       54.35%          56.18%         25.00%
         Equity to assets ratio      12.02%          11.59%         11.36%

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  service 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  71.7% of average
total assets during 1998 compared with 71.6% during 1997, and 72.1% during 1996.

                                       14
<PAGE>

          The  banking  subsidiary  has  available  at the  end of  1998  unused
short-term  lines of credit to purchase up to  $2,250,000  of federal funds from
unrelated  correspondent  institutions.  In addition,  the Bank has  outstanding
long-term  debt of  $4,000,000  from the Federal  Home Loan Bank of Atlanta (the
"FHLB") used to fund earning assets with longer  maturities.  In connection with
this long-term debt, the Bank has a further undrawn  long-term debt availability
from the FHLB of approximately $3,881,000.

           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, also provide a secondary source of
liquidity.  In addition,  funds from  maturing  loans are a source of liquidity.
Asset  liquidity,  particularly  in the category of federal funds sold increased
considerably in 1998 by $6,535,000.  The reduction in loan volume in 1998, along
with increased deposits, provided the source of funds for this asset. Management
took a conservative  approach in investing these funds,  electing to remain in a
liquid  position in an asset that would reprice  quickly if interest rates moved
upward. If stronger quality loan demand does not materialize in the near future,
management  may  consider  investing  some of these funds in  available-for-sale
securities.

          Clover  Community   Bankshares,   Inc.'s  ability  to  meet  its  cash
obligations  or to pay any possible  future cash  dividends to  shareholders  is
dependent  primarily on the successful  operation of the subsidiary bank and its
ability  to  pay  cash  dividends  to the  parent  company.  All of the  banking
subsidiary's  cash  dividends  are  subject to the prior  approval  of the South
Carolina  Commissioner  of  Banking  and are  generally  payable  only  from its
undivided  profits.  At December 31, 1998,  the banking  subsidiary's  available
undivided profits totaled  $3,004,000.  Under Federal Reserve Board regulations,
the  amounts of loans or  advances  from the  banking  subsidiary  to the parent
company are also restricted. During 1998, the parent company received a $500,000
cash  dividend  from its  banking  subsidiary  after the  effective  date of the
corporate reorganization.

          Management  believes  that the overall  liquidity  sources of both the
Company and its banking subsidiary are adequate to meet their operating needs.

Capital Resources

          Shareholders'  equity  increased by $381,000 and $504,000  during 1998
and 1997,  respectively.  During 1998, net income increased shareholders' equity
$931,000,  while cash dividends of $506,000 and the change in unrealized holding
gains  and  losses on  available-for-sale  securities  of  $44,000,  charged  to
accumulated  other  comprehensive   income,   decreased   shareholders'  equity.
Management  continues  to retain a portion of earnings to support  future  asset
growth.  Beginning  in 1999,  the  Board of  Directors  established  a  dividend
reinvestment plan to provide  shareholders with the opportunity to automatically
reinvest  all or some of their  cash  dividends  into  additional  shares of the
Company's common stock. This plan may provide  additional capital resources from
those shareholders who elect to participate.

          The Company and its banking  subsidiary are each subject to regulatory
risk-based  capital  adequacy  standards.  Under these  standards,  bank holding
companies and banks are required to maintain  certain  minimum ratios of capital
to  risk-weighted  assets and average total assets.  Under the provisions of the
Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA),  federal
bank  regulatory  authorities  are  required  to  implement  prescribed  "prompt
corrective  actions" upon the deterioration of the capital position of a bank or
bank holding company. If the capital position of an affected institution were to
fall below certain levels,  increasingly stringent regulatory corrective actions
are  mandated.   Unrealized  holding  gains  and  losses  on  available-for-sale
securities are generally excluded for purposes of calculating regulatory capital
ratios.  However,  the extent of any unrealized  appreciation or depreciation on
securities  will continue to be a factor that regulatory  examiners  consider in
their overall assessment of capital adequacy.

          Quantitative  measures  established  by regulation  to ensure  capital
adequacy  require both the Company and Clover Community 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, 1998 and 1997, that the Company and Clover  Community Bank exceeded
all capital adequacy minimum requirements to which they were subject.

                                       15
<PAGE>

          To  be  categorized  as  well  capitalized,  the  Company  and  Clover
Community 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 Clover  Community  Bank as less than well
capitalized based on subjective  criteria.  Management knows of no conditions or
events that would cause the Company or Clover  Community  Bank to be categorized
as less than well capitalized.


<TABLE>
<CAPTION>
                                                                                                 Minimum for          Minimum to be
                                                                      Actual                  Capital Adequacy      Well Capitalized
                                                                      ------                  ----------------      ----------------
                                                                      Amount      Ratio       Amount    Ratio       Amount     Ratio
                                                                      ------      -----       ------    -----       ------     -----
December 31, 1998                                                                       (Dollars in thousands)                      
     The Company                                                                                                   
<S>                                                                   <C>         <C>         <C>        <C>        <C>        <C>  
          Total Capital to risk weighted assets ................      $7,063      21.3%       $2,657     8.0%       $3,321     10.0%
          Tier 1 Capital to risk weighted assets ...............      $6,798      20.5%       $1,328     4.0%       $1,992      6.0%
          Tier 1 Capital to average assets (leverage) ..........      $6,798      11.9%       $1,717     3.0%       $2,862      5.0%
     Clover Community Bank                                                                                         
          Total Capital to risk weighted assets ................      $6,603      19.9%       $2,657     8.0%       $3,321     10.0%
          Tier 1 Capital to risk weighted assets ...............      $6,338      19.1%       $1,328     4.0%       $1,992      6.0%
          Tier 1 Capital to average assets (leverage) ..........      $6,338      11.1%       $1,717     3.0%       $2,862      5.0%
                                                                                                                   
December 31, 1997                                                                                                  
     Clover Community Bank                                                                                         
          Total Capital to risk weighted assets ................      $6,645      19.3%       $2,753     8.0%       $3,441     10.0%
          Tier 1 Capital to risk weighted assets ...............      $6,373      18.5%       $1,376     4.0%       $2,065      6.0%
          Tier 1 Capital to average assets (leverage) ..........      $6,373      12.1%       $1,585     3.0%       $2,642      5.0%
</TABLE>


Year 2000 Readiness Disclosure

          The  Company  is  presently  on  schedule  in  implementing   its  Y2K
Preparedness Plan. The plan has five phases: (1) Awareness, (2) Assessment,  (3)
Renovation, (4) Validation, and (5) Implementation. The awareness and assessment
phases have been  substantially  completed as of December 31, 1998. These phases
included  the  identification  of  critical  systems and  equipment  potentially
vulnerable to the year 2000 problem as well as the identification of significant
loan customers  whose  businesses  could  possibly be adversely  affected by the
problem and communication  with them about their progress in addressing the Year
2000  changeover.  The  renovation  phase,  consisting of upgrading or replacing
systems and equipment,  had also been largely  completed by the end of 1998. The
validation  portion  of the plan calls for the  actual  testing  of systems  and
equipment as of certain critical dates with such testing to be completed by June
30,  1999.  This  testing  is  presently  on  schedule  with no  major  problems
encountered.  Finally,  the implementation  phase, which requires addressing any
problems  encountered in the validation  phase,  along with continued review and
assessment of the Company's  systems and  equipment,  is presently  underway and
will continue until the year 2000 has arrived.

          Management is of the opinion that the Company's  systems and equipment
will be ready for the Year 2000 in a timely manner without any material  adverse
effect on the Company's business.  Because of the planned comprehensive computer
hardware and software  upgrade begun in 1995 and completed in 1996,  the Company
has incurred no material  expenditures in 1998 or 1997 relating  directly to the
Year 2000 problem.  The new  components,  which were largely Year 2000 compliant
when  installed,  were  acquired in the normal course of business to upgrade the
Bank's computer  capabilities.  The previous system was over seven years old and
was becoming  functionally  obsolete.  The Company has been able to use existing
internal personnel and resources to carry out its Y2K Preparedness Plan, and has
used few  outside  resources  that would  incur  significant  additional  costs.
Management is not aware of any material future expenditures required to complete
its preparedness plan.

                                       16
<PAGE>

Inflation

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

          While the effect of inflation on banks is normally not as  significant
as is its influence on those  businesses  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.




                                       17
<PAGE>

Independent Auditors' Report




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

        We have audited the  accompanying  consolidated  balance sheet of Clover
Community Bankshares,  Inc. and subsidiary as of December 31, 1998 and 1997, and
the related consolidated statements of income,  comprehensive income, changes in
shareholders'  equity,  and cash flows for each of the three years in the period
ended December 31, 1998. These financial  statements are the  responsibility  of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

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

        In our  opinion,  the  financial  statements  referred to above  present
fairly, in all material respects,  the consolidated financial position of Clover
Community Bankshares,  Inc. and subsidiary as of December 31, 1998 and 1997, and
the consolidated  results of their operations and their  consolidated cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.


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


Donald G. Jones and Company, P.A.
Certified Public Accountants
Columbia, South Carolina
January 22, 1999

                                       18
<PAGE>

Consolidated Balance Sheet
Clover Community Bankshares, Inc.

<TABLE>
<CAPTION>
                                                                                                              December 31,
                                                                                                              ------------
                                                                                                        1998                  1997
                                                                                                        ----                  ----
Assets
<S>                                                                                                 <C>                  <C>        
     Cash and due from banks (Note C) ....................................................          $ 1,727,391          $ 1,450,549
     Interest-bearing deposits in other banks ............................................              320,267              440,602
     Federal funds sold ..................................................................            8,070,000            1,535,000
     Securities available-for-sale (Note D) ..............................................           16,299,880           16,135,915
     Other investments (Note E) ..........................................................              377,400              377,400
     Loans-net (Note F) ..................................................................           28,849,664           31,614,019
     Premises and equipment - net (Note G) ...............................................              715,632              759,733
     Accrued interest receivable .........................................................              316,239              344,590
     Other assets ........................................................................              244,804              250,831
                                                                                                    -----------          -----------

            Total assets .................................................................          $56,921,277          $52,908,639
                                                                                                    ===========          ===========

Liabilities
     Deposits (Note H)
         Noninterest bearing .............................................................          $ 3,962,262          $ 3,890,742
         Interest bearing ................................................................           41,644,373           38,077,630
                                                                                                    -----------          -----------
            Total deposits ...............................................................           45,606,635           41,968,372
     Long-term debt (Note I) .............................................................            4,000,000            4,000,000
     Accrued interest payable ............................................................              392,644              351,346
     Other liabilities ...................................................................                    -               48,353
                                                                                                    -----------          -----------
            Total liabilities ............................................................           49,999,279           46,368,071
                                                                                                    -----------          -----------

Commitments and contingent liabilities (Note N)

Shareholders' equity (Notes B and J)
     Common stock - par value - $.01 for 1998 and $1.25 for 1997;10,000,000
         shares authorized; issued and outstanding - 1,011,020
         shares for 1998 and 1997 ........................................................               10,110            1,263,775
     Capital surplus .....................................................................            3,323,861            2,070,196
     Retained earnings ...................................................................            3,464,499            3,038,658
     Accumulated other comprehensive income ..............................................              123,528              167,939
                                                                                                    -----------          -----------
            Total shareholders' equity ...................................................            6,921,998            6,540,568
                                                                                                    -----------          -----------

            Total liabilities and shareholders' equity ...................................          $56,921,277          $52,908,639
                                                                                                    ===========          ===========
</TABLE>













See accompanying notes to consolidated financial statements.

                                       19
<PAGE>

Consolidated Statement of Income
Clover Community Bankshares, Inc.

<TABLE>
<CAPTION>
                                                                                            Years Ended December 31,
                                                                                            ------------------------
                                                                                   1998                1997                1996
                                                                                   ----                ----                ----
Interest Income
<S>                                                                           <C>                  <C>                  <C>        
     Loans, including fees ........................................           $3,048,653           $3,112,053           $ 2,899,062
     Interest-bearing deposits in other banks .....................               20,575               28,955                30,623
     Securities
         Taxable ..................................................              756,518              765,822               785,466
         Tax-exempt ...............................................              190,766              179,662               166,966
     Federal funds sold ...........................................              258,544              109,441                84,303
     Other investments ............................................               26,975               26,130                19,821
                                                                              ----------           ----------           -----------
            Total interest income .................................            4,302,031            4,222,063             3,986,241
                                                                              ----------           ----------           -----------

Interest expense
     Time deposits $100,000 and over ..............................              208,304              207,534               184,120
     Other deposits ...............................................            1,375,007            1,405,942             1,408,962
     Federal funds purchased ......................................                3,012                2,039                 1,812
     Long-term debt ...............................................              228,377              231,674               227,346
                                                                              ----------           ----------           -----------
            Total interest expense ................................            1,814,700            1,847,189             1,822,240
                                                                              ----------           ----------           -----------

Net interest income ...............................................            2,487,331            2,374,874             2,164,001
Provision for loan losses (Note F) ................................                    -                5,000                31,500
                                                                              ----------           ----------           -----------
Net interest income after provision ...............................            2,487,331            2,369,874             2,132,501
                                                                              ----------           ----------           -----------

Other income
     Service charges on deposit accounts ..........................              349,143              294,572               255,081
     Credit life insurance commissions ............................                9,059               25,474                23,103
     Securities losses ............................................                    -                    -                   (64)
     Other income .................................................               53,090               20,648                18,712
                                                                              ----------           ----------           -----------
            Total other income ....................................              411,292              340,694               296,832
                                                                              ----------           ----------           -----------

Other expenses (Notes K and M)
     Salaries and employee benefits ...............................              791,958              757,882               723,810
     Net occupancy expense ........................................               65,083               48,091                56,661
     Furniture and equipment expense ..............................              206,186              200,247               136,095
     Other expense ................................................              445,385              368,750               333,341
                                                                              ----------           ----------           -----------
            Total other expenses ..................................            1,508,612            1,374,970             1,249,907
                                                                              ----------           ----------           -----------

Income before income taxes ........................................            1,390,011            1,335,598             1,179,426
Income tax expense (Note L) .......................................              458,660              432,382               375,440
                                                                              ----------           ----------           -----------
Net income ........................................................           $  931,351           $  903,216           $   803,986
                                                                              ==========           ==========           ===========

Per share
     Average shares outstanding ...................................            1,011,020            1,011,020             1,011,020
     Net income ...................................................           $     0.92           $     0.89           $      0.80
</TABLE>






See accompanying notes to consolidated financial statements.

                                       20
<PAGE>

Consolidated Statement of Comprehensive Income
Clover Community Bankshares, Inc.

<TABLE>
<CAPTION>
                                                                                              Years Ended December 31,
                                                                                              ------------------------
                                                                                      1998                1997                1996
                                                                                      ----                ----                ----

<S>                                                                               <C>                 <C>                 <C>      
Net income .............................................................          $ 931,351           $  903,216          $ 803,986
                                                                                  ---------           ----------          ---------
Other comprehensive income (loss)
     Change in unrealized holding gains and
          losses on available-for-sale securities ......................            (69,285)             164,399            (91,435)
     Income tax expense (benefit) on other
         comprehensive income (loss) ...................................            (24,874)              59,020            (32,825)
                                                                                  ---------           ----------          ---------
            Total other comprehensive income (loss) ....................            (44,411)             105,379            (58,610)
                                                                                  ---------           ----------          ---------
Comprehensive income ...................................................          $ 886,940           $1,008,595          $ 745,376
                                                                                  =========           ==========          =========
</TABLE>







































See accompanying notes to consolidated financial statements.

                                       21

<PAGE>

Consolidated Statement of Changes in Shareholder's Equity
Clover Community Bankshares, Inc.


<TABLE>
<CAPTION>
                                                           Common Stock                                     
                                                           ------------                                      Accumulated
                                                     Number of                    Capital      Retained  Other Comprehensive
                                                      Shares         Amount       Surplus      Earnings        Income        Total
                                                      ------         ------       -------      --------        ------        -----
                                                                                                        
<S>              <C>                              <C>           <C>            <C>           <C>              <C>        <C>       
Balance, January 1, 1996 ......................   1,011,020     $ 1,263,775    $2,070,196    $2,039,169       $121,170   $5,494,310
                                                                                                            
Cash dividends declared - $.20 per share ......                                                (202,204)                   (202,204)
Change in unrealized holding gains                                                                          
      and losses on available-for-sale                                                                      
      securities, net of income tax                                                                         
      benefit of $32,825 ......................                                                                (58,610)     (58,610)
Net income ....................................           -               -             -       803,986              -      803,986
                                                 ----------     -----------    ----------    ----------       --------   ----------
Balance, December 31, 1996 ....................   1,011,020       1,263,775     2,070,196     2,640,951         62,560    6,037,482
                                                                                                            
Cash dividends declared - $.50 per share ......                                                (505,509)                   (505,509)
Change in unrealized holding gains                                                                          
      and losses on available-for-sale                                                                      
      securities, net of income taxes                                                                       
      of $59,020 ..............................                                                                105,379      105,379
Net income ....................................           -               -             -       903,216              -      903,216
                                                 ----------     -----------    ----------    ----------       --------   ----------
Balance, December 31, 1997 ....................   1,011,020       1,263,775     2,070,196     3,038,658        167,939    6,540,568
                                                                                                            
Cash dividends declared - $.50 per share ......                                                (505,510)                   (505,510)
Change in unrealized holding gains                                                                          
      and losses on available-for-sale ........                                                             
      securities, net of income tax                                                                         
      benefit 'of $24,874 .....................                                                                (44,411)     (44,411)
Exchange of $.01 par value common stock                                                                     
      of Clover Community Bankshares, Inc. ....                                                             
      for all of the outstanding shares                                                                     
      of Clover Community Bank (Note B) .......                  (1,253,665)    1,253,665             -
Net income ....................................           -               -             -       931,351              -      931,351
                                                 ----------     -----------    ----------    ----------       --------   ----------
Balance, December 31, 1998 ....................   1,011,020     $    10,110    $3,323,861    $3,464,499       $123,528   $6,921,998
                                                 ==========     ===========    ==========    ==========       ========   ==========
</TABLE>




















See accompanying notes to consolidated financial statements.

                                       22
<PAGE>
Consolidated Statement of Cash Flows
Clover Community Bankshares, Inc.

<TABLE>
<CAPTION>
                                                                                                 Years Ended December 31,
                                                                                                 ------------------------
                                                                                        1998              1997                1996
                                                                                        ----              ----                ----
Operating Activities
<S>                                                                               <C>                <C>                <C>        
     Net income ...........................................................       $   931,351        $   903,216        $   803,986
     Adjustments to reconcile net income to net
         cash provided by operating activities
            Provision for loan losses .....................................                 -              5,000             31,500
            Depreciation ..................................................           119,406            114,672             95,476
            Deferred income taxes .........................................           (38,286)            32,804            (37,446)
            Securities accretion and premium amortization .................            15,891             22,116             15,461
            Securities losses .............................................                 -                  -                 64
            Amortization of net loan fees and costs .......................            (2,236)           (42,496)           (33,001)
            Gain on sale of other real estate .............................                 -                  -             (5,638)
            (Gain) loss on disposal of fixed assets .......................           (10,890)               117                  -
            Decrease (increase) in interest receivable ....................            28,351            (11,410)             3,505
            Increase in interest payable ..................................            41,298              5,966              3,585
            Decrease (increase) in prepaid expenses
                and other assets ..........................................            20,834            (51,404)           (92,921)
            Decrease in other liabilities and accrued expenses ............                 -             (8,249)           (99,932)
                                                                                  -----------        -----------        -----------
                Net cash provided by operating activities .................         1,105,719            970,332            684,639
                                                                                  -----------        -----------        -----------

Investing activities
     Net decrease in interest-bearing deposits in other banks .............            98,000             98,000                  -
     Purchases of available-for-sale securities ...........................        (1,803,179)        (1,120,031)        (1,724,190)
     Sales of available-for-sale securities ...............................                 -                  -            999,492
     Maturities of available-for-sale securities ..........................         1,554,038          1,141,966          1,610,719
     Net decrease (increase) in loans made to customers ...................         2,766,591           (294,985)        (3,412,097)
     Proceeds from sale of other real estate ..............................                 -                  -            112,484
     Purchases of premises and equipment ..................................           (78,415)           (32,441)           (13,336)
     Proceeds from sale of equipment ......................................            14,000                  -                  -
                                                                                  -----------        -----------        -----------
                Net cash provided (used) by investing activities ..........         2,551,035           (207,491)        (2,426,928)
                                                                                  -----------        -----------        -----------

Financing activities
     Net increase in demand deposits, interest
         bearing transaction accounts and savings accounts ................         1,745,816            736,734          2,446,045
     Net increase (decrease) in certificates of deposit and other
         time deposits ....................................................         1,892,447           (988,091)           433,546
     Net decrease in federal funds purchased ..............................                 -                  -           (300,000)
     Proceeds from long-term debt .........................................                 -          4,000,000                  -
     Repayment of long-term debt ..........................................                 -         (4,000,000)                 -
     Cash dividends paid ..................................................          (505,510)          (505,509)          (202,204)
                                                                                  -----------        -----------        -----------
                Net cash provided (used) by financing activities ..........         3,132,753           (756,866)         2,377,387
                                                                                  -----------        -----------        -----------
Increase in cash and cash equivalents .....................................         6,789,507              5,975            635,098
Cash and cash equivalents, beginning ......................................         3,034,151          3,028,176          2,393,078
                                                                                  -----------        -----------        -----------
Cash and cash equivalents, ending .........................................       $ 9,823,658        $ 3,034,151        $ 3,028,176
                                                                                  ===========        ===========        ===========
</TABLE>





See accompanying notes to consolidated financial statements.




                                       23

<PAGE>

Notes to Consolidated Financial Statements
Clover Community Bankshares, Inc.

NOTE A - ORGANIZATION AND 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.  The Company is a South Carolina
corporation and its banking subsidiary is a state chartered commercial bank with
its deposits insured by the Federal Deposit Insurance  Corporation (the "FDIC").
Therefore,  the Company and its bank subsidiary  operate under the  supervision,
rules and  regulations  of the Federal  Reserve  Board,  FDIC and South Carolina
State Board of Financial  Institutions.  The holding company was incorporated on
March 4, 1998,  pursuant to a plan of  reorganization  as described in Note B to
the consolidated  financial  statements.  Clover Community Bank was organized in
1986 and first commenced commercial operations on October 1, 1987.

The  subsidiary,  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  area  of York  County,  South  Carolina.  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 parent company and its banking subsidiary
after elimination of all significant intercompany balances and transactions. The
accounting  and  reporting  policies of the Company  and its  subsidiary  are in
conformity with generally accepted  accounting  principles and general practices
within the banking industry.

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.

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

Loans 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.

                                       24
<PAGE>

Allowance for Loan Losses An allowance for possible loan losses is maintained at
a level deemed  appropriate  by management to provide  adequately  for known and
inherent risks in the loan  portfolio.  When  management  determines that a loan
will not perform  substantially  as agreed, a review of the loan is initiated to
ascertain whether it is more likely than not that a loss has occurred.  If it is
determined  that a loss is likely,  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
potential  problem,  specific  allocations  are  made  in the  calculation.  The
methodology also includes  assessing the risk associated with  off-balance-sheet
extensions of credit such as loan commitments and standby letters of credit.

Premises  and  Equipment  Premises  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
income  statement.  Maintenance  and repairs  are charged to current  expense as
incurred and the costs of major renewals and improvements are capitalized.

Other Real  Estate  Other  real  estate  includes  properties  acquired  through
foreclosure or acceptance of a deed in lieu of foreclosure. Other real estate is
initially recorded at the lower of cost or the estimated fair market value, less
estimated  selling  costs.  Loan losses  arising  from the  acquisition  of such
property are charged to the allowance  for loan losses.  An allowance for losses
on  other  real  estate  is  maintained   for  subsequent   downward   valuation
adjustments.  Gains or  losses  on  other  real  estate  sold,  writedowns  from
subsequent  reevaluation  and other holding costs are charged to other operating
expense as incurred.

Retirement Plan The Company has a salary  reduction profit sharing plan pursuant
to Section 401(k) of the Internal  Revenue Code as more fully  described in Note
M. The Company does not sponsor any postretirement or postemployment benefits.

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

Earnings Per Share Net income per share is  calculated by dividing net income by
the weighted average number of shares of the Company's common stock  outstanding
during the period.  The Company has no dilutive  potential common shares,  stock
options or warrants outstanding.

Comprehensive  Income In June,  1997, the Financial  Accounting  Standards Board
issued its  Statement  of  Financial  Accounting  Standards  ("SFAS")  No.  130,
"Reporting   Comprehensive   Income".  As  required,  the  Company  adopted  the
provisions  of this SFAS  beginning  January  1,  1998,  with  reclassifications
included for any earlier comparative accounting periods presented. Comprehensive
income  consists  of net  income  or  loss  for the  current  period  and  other
comprehensive income, defined as income,  expenses, gains and losses that bypass
the  consolidated  statement of income and are  reported  directly in a separate
component of shareholders'  equity. SFAS No. 130 provides that the Company is to
classify and report items of other  comprehensive  income by their  nature,  and
report  total  comprehensive  income in a  financial  statement  and display the
accumulated   balance  of  other   comprehensive   income   separately   in  the
shareholders' equity section of the consolidated balance sheet.

                                       25
<PAGE>


The  Company  has  elected to report  comprehensive  income in the  accompanying
consolidated  statement of comprehensive  income.  The only other  comprehensive
income  category the Company has is the change in  unrealized  holding gains and
losses on available-for-sale  securities,  net of income tax effects,  which had
previously been accounted for only in the  consolidated  statement of changes in
shareholders' equity. See Note J.

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

During  1998,  1997 and 1996,  interest  paid on deposits  and other  borrowings
amounted to $1,773,402,  $1,841,223  and  $1,818,655,  respectively.  Income tax
payments of  $502,440,  $426,056 and  $522,880  were made during 1998,  1997 and
1996,  respectively.  Effective June 5, 1998, Clover Community Bankshares,  Inc.
acquired all of the then outstanding shares of Clover Community Bank's $5.00 par
value common stock in exchange for shares of Clover Community Bankshares, Inc.'s
$.01 par value common stock. As a result,  a noncash  transfer of $1,253,665 was
made from common stock to capital surplus.  During 1998, 1997 and 1996,  noncash
valuation  adjustments  totaling  $69,285,  $164,399 and $91,435 were made which
decreased,  increased  and  decreased,  respectively,  the  carrying  amount  of
available-for-sale  securities.  In 1998, accumulated other comprehensive income
decreased  $44,411  and  deferred  tax  assets  increased   $24,874;   in  1997,
accumulated  other  comprehensive  income  increased  $105,379  and deferred tax
assets decreased $59,020;  and in 1996,  accumulated other comprehensive  income
decreased $58,610 and deferred tax assets increased $32,825.  In 1996, a noncash
transfer of $106,846 was made from loans to other real estate.

Fair Value  Estimates Fair value  estimates are made at a specific point in time
based on relevant  market  information  about the  financial  instrument.  These
estimates do not reflect any premium or discount that could result from offering
for sale at one 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  estimates are based on existing on and  off-balance-sheet  financial
instruments  without  attempting  to estimate  the value of  anticipated  future
business  and the  value of  assets  and  liabilities  that  are not  considered
financial   instruments.   Significant  assets  and  liabilities  that  are  not
considered  financial assets or liabilities  include net deferred tax assets and
premises and equipment. In addition, the income tax ramifications related to the
realization of unrealized gains and losses can have a significant effect on fair
value estimates and have not been considered in the estimates.

For cash and due from banks,  interest-bearing  deposits in other banks, federal
funds sold, other investments,  and accrued interest receivable and payable, the
carrying amount approximates estimated fair value.

NOTE B - CORPORATE REORGANIZATION

Clover  Community  Bankshares,  Inc.  was  incorporated  on March 4, 1998 at the
direction  of  Clover  Community  Bank's  management.  On April  20,  1998,  the
shareholders   of  Clover   Community   Bank   approved  a  plan  of   corporate
reorganization  under which Clover  Community  Bank would become a  wholly-owned
subsidiary of Clover Community  Bankshares,  Inc. The authorized common stock of
Clover Community Bankshares,  Inc. is 10,000,000 shares with a par value of $.01
per share.  Pursuant to the reorganization,  which was effected on June 5, 1998,
the parent company issued  1,011,020  shares of its common stock in exchange for
all of the 1,011,020 then outstanding common shares of Clover Community Bank.

The reorganization was accounted for as if it were a pooling-of-interests.  As a
result,  the consolidated  financial  statements for the year ended December 31,
1998 are presented as if the reorganization had occurred on January 1, 1998. The
consolidated financial statements for the years ended December 31, 1997 and 1996
are unchanged from the amounts  previously  reported by Clover  Community  Bank.
There have been no changes in earnings per share computations.

                                       26
<PAGE>

NOTE C - 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, 1998 and 1997, were approximately  $253,000 and
$169,000, respectively.

NOTE D - SECURITIES

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

<TABLE>
<CAPTION>
                                                                            December 31,
                                                                            ------------
                                                   1998                                                 1997
                                                   ----                                                 ----
                                            Gross       Gross                                     Gross        Gross
                                          Unrealized  Unrealized    Estimated                   Unrealized  Unrealized    Estimated
                              Amortized    Holding     Holding         Fair        Amortized     Holding      Holding        Fair
                                Cost        Gains       Losses        Value           Cost        Gains       Losses        Value
                                ----        -----       ------        -----           ----        -----       ------        -----
Available-for-sale
<S>                         <C>            <C>         <C>         <C>            <C>            <C>         <C>         <C>        
      U.S. Treasury ....    $   999,576    $  2,299    $      -    $ 1,001,875    $   996,908    $  1,217    $      -    $   998,125
      U.S. Government
          agencies .....      2,956,378      23,439         312      2,979,505      2,955,519      24,495       2,078      2,977,936
      State, county and
          municipal ....      5,079,713     118,158           -      5,197,871      4,107,940      80,380           -      4,188,320
      Mortgage-backed
          securities ...      7,071,501     197,835     148,707      7,120,629      7,813,552     285,496     127,514      7,971,534
                            -----------    --------    --------    -----------    -----------    --------    --------    -----------
              Total ....    $16,107,168    $341,731    $149,019    $16,299,880    $15,873,919    $391,588    $129,592    $16,135,915
                            ===========    ========    ========    ===========    ===========    ========    ========    ===========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                             ------------
                                                                             1998                                 1997
                                                                             ----                                 ----
                                                                 Amortized            Estimated        Amortized         Estimated
                                                                   Cost              Fair Value           Cost           Fair Value
                                                                   ----              ----------           ----           ----------
Available-for-sale
<S>                                                             <C>                <C>                <C>                <C>        
      Due in one year or less ..........................        $ 3,952,424        $ 3,958,478        $   807,044        $   808,473
      Due after one through five years .................          1,589,098          1,625,561          4,958,373          4,981,242
      Due after five through ten years .................          3,379,145          3,480,212          2,294,950          2,374,666
      Due after ten years ..............................            115,000            115,000                  -                  -
                                                                -----------        -----------        -----------        -----------
                                                                  9,035,667          9,179,251          8,060,367          8,164,381
      Mortgage-backed securities .......................          7,071,501          7,120,629          7,813,552          7,971,534
                                                                -----------        -----------        -----------        -----------
          Total ........................................        $16,107,168        $16,299,880        $15,873,919        $16,135,915
                                                                ===========        ===========        ===========        ===========
</TABLE>

The fair value of U.S. Treasury and U.S.  Government agencies debt securities is
estimated based on published closing quotations. The fair value of state, county
and municipal  securities is generally not available from published  quotations;
consequently,  their fair value  estimates are based on matrix pricing or quoted
market prices of similar  instruments  adjusted for credit  quality  differences
between the quoted  instruments and the securities being valued.  Fair value for
mortgage-backed securities is estimated primarily using dealers' quotes.

There were no transfers to other categories of available-for-sale  securities in
1998,  1997 and 1996.  In 1996, a $64 loss was realized on a security  sale with
gross proceeds of $999,492.

                                       27
<PAGE>

At December 31, 1998 and 1997,  securities  with a carrying amount of $1,954,744
and  $1,951,053,  respectively,  were  pledged as  collateral  to secure  public
deposits.

As of December 31, 1998 and 1997,  the Company had  concentrated  investments in
state,  county and  municipal  obligations  secured by or payable  from the same
taxing   authority  or  revenue   source  and  that   exceeded  ten  percent  of
shareholders' equity as follows:

<TABLE>
<CAPTION>
                                                                                                December 31,
                                                                                                ------------
                                                                                     1998                          1997
                                                                                     ----                          ----
                                                                          Amortized       Estimated     Amortized         Estimated
                                                                            Cost          Fair Value       Cost          Fair Value
                                                                            ----          ----------       ----          ----------

<S>                                                                        <C>            <C>            <C>              <C>       
Clover, S.C. School District (Moody's rating AA) ...................       $750,000       $752,000       $1,276,329       $1,280,434
Fairfield County, S.C. School District (Moody's rating AAA) ........        686,000        689,000          704,106          711,079
Town of Clover, S.C. (Not rated) ...................................        945,000        945,000                -                -
</TABLE>

NOTE E - OTHER INVESTMENTS

Other investments consisted of:

<TABLE>
<CAPTION>
                                                                                                            December 31,
                                                                                                            ------------
                                                                                                    1998                      1997
                                                                                                    ----                      ----

<S>                                                                                               <C>                       <C>     
Federal Home Loan Bank stock ...................................................                  $327,400                  $327,400
Community Financial Services, Inc. stock .......................................                    50,000                    50,000
                                                                                                  --------                  --------
              Total ............................................................                  $377,400                  $377,400
                                                                                                  ========                  ========
</TABLE>

NOTE F - LOANS

Loans consisted of the following:

<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                                         ------------
                                                                        1998                                      1997
                                                                        ----                                      ----
                                                           Carrying              Estimated             Carrying           Estimated
                                                            Amount              Fair Value              Amount           Fair Value
                                                            ------              ----------              ------           ----------

<S>                                                      <C>                   <C>                 <C>                   <C>        
Commercial and industrial ......................         $  4,540,039          $ 4,499,442         $  5,611,469          $ 5,557,059
Real estate- construction ......................            4,965,677            4,934,277            6,447,441            6,397,089
Real estate - mortgage .........................           16,509,049           16,415,371           16,694,162           16,537,829
Consumer installment ...........................            3,128,003            3,096,106            3,163,234            3,134,512
                                                         ------------          -----------         ------------          -----------
        Total ..................................           29,142,768           28,945,196           31,916,306           31,626,489
Less
    Allowance for loan losses ..................             (265,149)                   -             (272,096)                   -
    Deferred net loan fees .....................              (27,955)                   -              (30,191)                   -
                                                         ------------          -----------         ------------          -----------
        Loans - net ............................         $ 28,849,664          $28,945,196         $ 31,614,019          $31,626,489
                                                         ============          ===========         ============          ===========
</TABLE>

                                       28
<PAGE>

Fair  values  are  estimated  for  loan   categories   with  similar   financial
characteristics.  Within each category, the fair value of loans is calculated by
discounting  estimated cash flows through the estimated maturity using estimated
market discount rates that reflect the credit and interest rate risk inherent in
the loan. For certain  categories of loans, such as variable rate loans,  credit
card receivables,  and other lines of credit, the carrying amount,  adjusted for
credit  risk,  is a  reasonable  estimate  of fair  value  because  there  is no
contractual maturity or because the Company has the ability to reprice the loans
as interest rate changes  occur.  Since the discount  rates are based on current
loan rates offered as well as management's estimates,  the fair values presented
may not  necessarily  be indicative  of the value  negotiated in an actual sale.

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

<TABLE>
<CAPTION>
                                                                                                               December 31,
                                                                                                               ------------
                                                                                                         1998                1997
                                                                                                         ----                ----
Investment in impaired loans
<S>                                                                                                    <C>                   <C>    
     Nonaccrual ........................................................................               $   118               $70,143
     Accruing 90 days and over past due ................................................                 1,214                 6,697
                                                                                                       -------               -------
         Total .........................................................................               $ 1,332               $76,840
                                                                                                       =======               =======

Average total investment in impaired loans during the year .............................               $25,250               $55,250
Allowance for loan losses on impaired loans ............................................                     -                   650
</TABLE>


The average total  investment in impaired  loans during 1996 was $38,891.  There
were no outstanding  commitments at December 31, 1998, to lend additional  funds
to debtors owing amounts on impaired loans.

As of December 31, 1998 and 1997,  there were no significant  concentrations  of
credit risk in any single  borrower or groups of borrowers.  The Company's  loan
portfolio   consists  primarily  of  extensions  of  credit  to  businesses  and
individuals in its market area within York County,  South Carolina.  The economy
of this area is diversified  and does not depend on any one industry or group of
related industries.  Management has established loan policies and practices that
include set  limitations  on  loan-to-collateral  value for  different  types of
collateral,  requirements  for  appraisals,  obtaining and  maintaining  current
credit and financial information on borrowers, and credit approvals.

Transactions in the allowance for loan losses are summarized below:

<TABLE>
<CAPTION>
                                                                                           Years Ended December 31,
                                                                                           ------------------------
                                                                           1998                     1997                    1996
                                                                           ----                     ----                    ----

<S>                                                                     <C>                      <C>                      <C>      
Balance at January 1 ....................................               $ 272,096                $ 270,393                $ 244,924
Provision charged to expense ............................                       -                    5,000                   31,500
Recoveries ..............................................                   2,650                    7,092                    3,893
Charge-offs .............................................                  (9,597)                 (10,389)                  (9,924)
                                                                        ---------                ---------                ---------
Balance at December 31 ..................................               $ 265,149                $ 272,096                $ 270,393
                                                                        =========                =========                =========
</TABLE>

Certain  officers  and  directors  of the  Company  and  its  subsidiary,  their
immediate  families and business interests were loan customers of, and had other
transactions  with the  banking  subsidiary  in the normal  course of  business.
Related party loans are made on substantially the same terms, including interest
rates  and  collateral,   as  those   prevailing  at  the  time  for  comparable
transactions  with unrelated parties and do not involve more than normal risk of
collectibility.  The aggregate  dollar amount of these loans was  $1,495,770 and
$2,187,683 at December 31, 1998 and 1997, respectively. During 1998, $571,459 of
new loans were made and repayments totaled $1,263,372.

                                       29
<PAGE>

NOTE G - PREMISES AND EQUIPMENT

Premises and equipment consisted of the following:

<TABLE>
<CAPTION>
                                                                                                   Accumulated
                                                                                                   Depreciation
                                                                                                       and                   Book
                                                                              Cost                 Amortization              Value
                                                                              ----                 ------------              -----
December 31, 1998
<S>                                                                         <C>                      <C>                    <C>     
 Land .......................................................               $   88,030               $      -               $ 88,030
 Buildings and land improvements ............................                  563,459                208,226                355,233
 Furniture and equipment ....................................                  996,533                724,164                272,369
                                                                            ----------               --------               --------
          Total .............................................               $1,648,022               $932,390               $715,632
                                                                            ==========               ========               ========

December 31, 1997
 Land .......................................................               $   88,030                    $ -               $ 88,030
 Buildings and land improvements ............................                  563,459                188,495                374,964
 Furniture and equipment ....................................                  930,850                634,111                296,739
                                                                            ----------               --------               --------
          Total .............................................               $1,582,339               $822,606               $759,733
                                                                            ==========               ========               ========
</TABLE>


Depreciation  expense for the years ended  December 31, 1998,  1997 and 1996 was
$119,406, $114,672 and $95,476, respectively.


NOTE H - DEPOSITS

A summary of deposits follows:

<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                                           ------------
                                                                          1998                                   1997
                                                                          ----                                   ----
                                                               Carrying           Estimated           Carrying           Estimated
                                                                Amount            Fair Value           Amount            Fair Value
                                                                ------            ----------           ------            ----------

<S>                                                          <C>                 <C>                 <C>                 <C>        
Noninterest bearing demand .........................         $ 3,962,262         $ 3,962,262         $ 3,890,742         $ 3,890,742
Interest bearing transaction accounts ..............          13,844,565          13,844,565          12,294,040          12,294,040
Savings ............................................           2,563,252           2,563,252           2,439,481           2,439,481
Time deposits $100,000 and over ....................           5,689,420           5,729,557           4,252,562           4,269,085
Other time deposits ................................          19,547,136          19,583,041          19,091,547          19,098,196
                                                             -----------         -----------         -----------         -----------
      Total deposits ...............................         $45,606,635         $45,682,677         $41,968,372         $41,991,544
                                                             ===========         ===========         ===========         ===========
</TABLE>

The fair value of deposits with no stated maturity  (noninterest bearing demand,
interest  bearing  transaction  accounts  and  savings)  is equal to the  amount
payable on demand,  or carrying  amount,  as of December 31, 1998 and 1997.  The
fair  value of time  deposits  is  estimated  based on the  discounted  value of
contractual  cash flows. The discount rate is estimated using the rate currently
offered as of December,  31, 1998 and 1997,  for  deposits of similar  remaining
maturities.

                                       30
<PAGE>

At December 31, 1998, the scheduled maturities of time deposits were as follows:

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

                    1999                                     $ 18,326,541
                    2000                                        6,460,278
                    2001                                          287,562
                    2002                                          152,003
                    2003 and thereafter                            10,172

NOTE I - LONG-TERM DEBT

Long-term  debt at December 31, 1998 and 1997  consisted  of a  $4,000,000  note
issued by the Bank to the Federal  Home Loan Bank of Atlanta (the  "FHLB").  The
note is due on November 28,  2000,  and has a variable  interest  rate which was
5.69% at the end of 1998 and 6.04% at the end of 1997.  The note is secured by a
lien on all of the Bank's 1-4 family residential first lien mortgage loans which
had a carrying value of  approximately  $10,344,000 as of December 31, 1998. The
Bank has an additional  long-term debt availability of approximately  $3,881,000
from the FHLB that had not been drawn at December 31, 1998.

The fair value of the variable rate  long-term debt is estimated at the carrying
amount because the interest rate associated with such debt reprices  immediately
with changes in the lender's  program rate,  and  management is not aware of any
significant change in the credit risk associated with the debt.

NOTE J - SHAREHOLDERS' EQUITY

Restrictions  on  Subsidiary   Dividends,   Loans  or  Advances  South  Carolina
regulations restrict the amount of dividends that banks can pay to shareholders.
All of the Bank's  dividends  to the  parent  company  are  subject to the prior
approval of the South Carolina Commissioner of Banking and are generally payable
only from its  undivided  profits.  At December 31, 1998,  the Bank's  undivided
profits totaled $3,003,667. 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,  1998 and  1997,
accumulated other comprehensive  income included as an increase in shareholders'
equity  in  the  accompanying   consolidated  balance  sheet  consisted  of  the
accumulated   changes   in  the   unrealized   holding   gains  and   losses  on
available-for-sale securities amounting to $123,528 and $167,939, respectively.

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

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Company and its banking  subsidiary to maintain  minimum amounts and
ratios set forth in the table  below of Total and Tier 1 Capital,  as defined in
the regulations,  to risk weighted assets, as defined, and of Tier 1 Capital, as
defined, to average assets, as defined.  Management believes, as of December 31,
1998 and 1997,  that the Company and its  subsidiary  bank  exceeded all capital
adequacy minimum requirements.

As of December 31, 1998, 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
its  banking   subsidiary  must  maintain  minimum  Total  risk-based,   Tier  1
risk-based,  and Tier 1 leverage ratios as set forth in the table.  There are no
conditions  or events since that  notification  that  management  believes  have
changed Clover  Community  Bank's  category.  The Company's and Clover Community
Bank's actual capital amounts and ratios are also presented in the table.

                                       31
<PAGE>

<TABLE>
<CAPTION>
                                                                                               Minimum for           Minimum to be
                                                                           Actual           Capital Adequacy        Well Capitalized
                                                                           ------           ----------------        ----------------
                                                                     Amount      Ratio      Amount      Ratio      Amount      Ratio
                                                                     ------      -----      ------      -----      ------      -----
December 31, 1998                                                                        (Dollars in thousands)
     The Company
<S>                                                                  <C>         <C>        <C>          <C>       <C>         <C>  
          Total Capital to risk weighted assets ................     $7,063      21.3%      $2,657       8.0%      $3,321      10.0%
          Tier 1 Capital to risk weighted assets ...............     $6,798      20.5%      $1,328       4.0%      $1,992       6.0%
          Tier 1 Capital to average assets (leverage) ..........     $6,798      11.9%      $1,717       3.0%      $2,862       5.0%
     Clover Community Bank                                                                                      
          Total Capital to risk weighted assets ................     $6,603      19.9%      $2,657       8.0%      $3,321      10.0%
          Tier 1 Capital to risk weighted assets ...............     $6,338      19.1%      $1,328       4.0%      $1,992       6.0%
          Tier 1 Capital to average assets (leverage) ..........     $6,338      11.1%      $1,717       3.0%      $2,862       5.0%
                                                                                                                
December 31, 1997                                                                                               
     Clover Community Bank                                                                                      
          Total Capital to risk weighted assets ................     $6,645      19.3%      $2,753       8.0%      $3,441      10.0%
          Tier 1 Capital to risk weighted assets ...............     $6,373      18.5%      $1,376       4.0%      $2,065       6.0%
          Tier 1 Capital to average assets (leverage) ..........     $6,373      12.1%      $1,585       3.0%      $2,642       5.0%
                                                                                                                
</TABLE>


NOTE K - OTHER EXPENSES

Other expenses are summarized below:

<TABLE>
<CAPTION>
                                                                                         Years Ended December 31,
                                                                                         ------------------------
                                                                               1998                 1997                  1996
                                                                               ----                 ----                  ----

<S>                                                                       <C>                  <C>                   <C>        
Salaries and employee benefits ....................................       $   791,958          $   757,882           $   723,810
Net occupancy expense .............................................            65,083               48,091                56,661
Furniture and equipment expense ...................................           206,186              200,247               136,095
Other expense
     Stationery, printing and postage .............................            96,286               84,725                85,474
     Telephone ....................................................            15,707               11,735                12,064
     Advertising and promotion ....................................             8,613                9,667                 9,003
     Professional services ........................................            88,540               50,636                47,578
     Insurance ....................................................            11,266               11,858                11,513
     FDIC insurance assessment ....................................             3,824                5,313                 2,291
     Directors' fees ..............................................            33,600               31,200                28,800
     Data processing expenses .....................................            46,295               42,985                40,524
     Other ........................................................           141,254              120,631                96,094 
                                                                          -----------          -----------           ----------- 
         Total ....................................................       $ 1,508,612          $ 1,374,970           $ 1,249,907 
                                                                          ===========          ===========           =========== 
</TABLE>

NOTE L - INCOME TAXES

Income tax expense consisted of:

<TABLE>
<CAPTION>
                                                                                             Years Ended December 31,
                                                                                             ------------------------
                                                                            1998                    1997                     1996
                                                                            ----                    ----                     ----
Current
<S>                                                                     <C>                      <C>                      <C>      
   Federal .............................................                $ 449,969                $ 361,308                $ 375,055
   State ...............................................                   46,977                   38,270                   37,831
                                                                        ---------                ---------                ---------
        Total current ..................................                  496,946                  399,578                  412,886
                                                                        ---------                ---------                ---------
Deferred                                                                                           
   Federal .............................................                  (35,215)                  30,173                  (34,443)
   State ...............................................                   (3,071)                   2,631                   (3,003)
                                                                        ---------                ---------                ---------
        Total deferred .................................                  (38,286)                  32,804                  (37,446)
                                                                        ---------                ---------                ---------
        Total income tax expense .......................                $ 458,660                $ 432,382                $ 375,440
                                                                        =========                =========                =========
</TABLE>

                                       32
<PAGE>

Income before income taxes presented in the consolidated statement of income for
the years ended December 31, 1998, 1997 and 1996 included no foreign  component.
A  reconciliation  between  the income tax  expense  and the amount  computed by
applying  the  federal  statutory  rate of 34% to  income  before  income  taxes
follows:

<TABLE>
<CAPTION>
                                                                                           Years Ended December 31,
                                                                                           ------------------------
                                                                              1998                   1997                    1996
                                                                              ----                   ----                    ----

<S>                                                                       <C>                     <C>                     <C>      
Tax expense at statutory rate ..............................              $ 472,604               $ 454,103               $ 401,005
State income tax, net of federal
     income tax benefit ....................................                 28,977                  26,995                  22,986
Tax-exempt interest income .................................                (64,778)                (61,020)                (46,840)
Non-deductible interest expense to
     carry tax-exempt instruments ..........................                  9,408                   9,762                   9,031
Non-deductible corporate
     reorganization expenses ...............................                 11,513                       -                       -
Other, net .................................................                    936                   2,542                 (10,742)
                                                                          ---------               ---------               ---------
               Total .......................................              $ 458,660               $ 432,382               $ 375,440
                                                                          =========               =========               =========
</TABLE>


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

<TABLE>
<CAPTION>
                                                                                                           December 31,
                                                                                                           ------------
                                                                                                   1998                     1997
                                                                                                   ----                     ----
Deferred tax assets
<S>                                                                                              <C>                      <C>      
     Allowance for loan losses .................................................                 $ 69,319                 $  71,813
     Net deferred loan fees ....................................................                   10,036                    10,839
     Accrued interest payable ..................................................                  140,959                   126,133
                                                                                                 --------                 ---------
               Gross deferred tax assets .......................................                  220,314                   208,785
     Valuation allowance .......................................................                        -                         -
                                                                                                 --------                 ---------
               Total ...........................................................                  220,314                   208,785
                                                                                                 --------                 ---------

Deferred tax liabilities
     Accrued interest receivable ...............................................                   86,497                   101,221
     Prepaid expenses ..........................................................                   29,556                    41,724
     Accelerated depreciation ..................................................                   19,006                    18,843
     Unrealized holding gains and losses on
     available-for-sale securities .............................................                   69,183                    94,057
     Other .....................................................................                    1,265                     1,293
                                                                                                 --------                 ---------
               Gross deferred tax liabilities ..................................                  205,507                   257,138
                                                                                                 --------                 ---------
Net deferred income tax assets (liabilities) ...................................                 $ 14,807                 $ (48,353)
                                                                                                 ========                 =========
</TABLE>

A portion of the change in net  deferred  tax assets or  liabilities  related to
unrealized holding gains and losses on available-for-sale  securities is charged
or credited directly to other comprehensive income. The balance of the change in
net deferred  tax assets is charged or credited to income tax expense.  In 1998,
1997 and 1996,  $24,874  was  credited,  $59,020  was  charged,  and $32,825 was
credited to other comprehensive  income,  respectively.  In 1998, 1997 and 1996,
$38,286 was credited, $32,804 was charged and $37,446 was credited to income tax
expense, respectively.

Management  believes that the Company will fully realize the deferred tax assets
as of December 31, 1998 and 1997 based on refundable income taxes available from
carryback years, as well as estimates of future taxable income.

                                       33
<PAGE>

NOTE M - RETIREMENT PLAN

 In  1993,  the  Company   established  the  Clover  Community  Bank  Employees'
Retirement  Savings Plan (the "Plan") for the exclusive  benefit of all eligible
employees and their beneficiaries.  Employees are eligible to participate in the
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  government  laws and  regulations  each year. The
Company  matches $.50 for each dollar  contributed  by the employees up to 6% of
their total pay.  The Board of  Directors  can also elect to make  discretionary
contributions.  Employees  are  fully  vested  in  both  the  matching  and  any
discretionary   contributions   after  six  years  of  service.   The   employer
contributions to the plan for 1998, 1997 and 1996 totaled  $15,228,  $16,681 and
$14,309, respectively.

NOTE N - COMMITMENTS AND CONTINGENCIES

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

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

                                                   December 31,
                                                   ------------
                                              1998                1997
                                              ----                ----

      Loan commitments                   $ 5,471,229         $ 5,687,350
      Standby letters of credit               62,075              30,500

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

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

The estimated fair values of  off-balance-sheet  financial  instruments  such as
loan  commitments  and standby  letters of credit are generally  based upon fees
charged to enter into  similar  agreements,  taking into  account the  remaining
terms  of the  agreements  and the  counterparties'  creditworthiness.  The vast
majority  of the  banking  subsidiary's  loan  commitments  do not  involve  the
charging of a fee,  and fees  associated  with  outstanding  standby  letters of
credit are not  material.  Therefore,  as of  December  31,  1998 and 1997,  the
estimated  fair  values  of these  off-balance-sheet  financial  instruments  is
nominal.  For loan  commitments  and standby  letters of credit,  the  committed
interest rates are either variable or approximate current interest rates offered
for similar  commitments.  Management is not aware of any significant  change in
the credit risk associated with these commitments.

Short-term  Borrowing  Commitments At December 31, 1998, the banking  subsidiary
had unused  short-term  lines of credit to purchase up to  $2,250,000 in federal
funds from correspondent financial institutions. One line for $1,500,000 expires
October 1, 1999,  and the  remaining  $750,000 may be withdrawn at the option of
the lender.

Litigation The Company and its subsidiary were not involved as defendants in any
litigation  at  December  31,  1998.  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.

                                       34
<PAGE>

Accounting  Estimates In  preparing  financial  statements  in  conformity  with
generally  accepted  accounting  principles,  management  is  required  to  make
estimates  and  assumptions  that affect the  reported  amounts of revenues  and
expenses during the reporting period.  Actual results could differ significantly
from those estimates.  Material  estimates that are particularly  susceptible to
significant change in the near-term relate to the determination of the allowance
for loan losses.  In connection with the determination of the allowance for loan
losses, management has identified specific loans as well as adopting a policy of
providing amounts for loan valuation  purposes which are not identified with any
specific loans but are derived from actual loss experience  ratios,  loan types,
loan volume, economic conditions and industry standards.

Management  believes  that the  allowance  for loan  losses is  adequate.  While
management  uses  available  information  to recognize  losses on loans,  future
additions  to the  allowance  may be  necessary  based on  changes  in  economic
conditions.  In  addition,  regulatory  agencies,  as an integral  part of their
examination process,  periodically review the banking subsidiary's allowance for
loan  losses.  Such  agencies  may require the  recognition  of additions to the
allowance based on their judgments  about  information  available to them at the
time of their examination.

Year 2000  Readiness  Management  believes  that the  Company  is  presently  on
schedule in implementing  its Y2K  Preparedness  Plan. The plan has five phases:
(1)  Awareness,  (2)  Assessment,   (3)  Renovation,  (4)  Validation,  and  (5)
Implementation.  The awareness  and  assessment  phases have been  substantially
completed as of December 31, 1998. These phases included the  identification  of
critical systems and equipment  potentially  vulnerable to the year 2000 problem
as well as the  identification  of significant  loan customers whose  businesses
could possibly be adversely  affected by the problem and communication with them
about their  progress in addressing  the Year 2000  changeover.  The  renovation
phase, consisting of upgrading or replacing systems and equipment, had also been
largely  completed by the end of 1998. The validation  portion of the plan calls
for the actual  testing of systems and  equipment as of certain  critical  dates
with such testing to be completed by June 30, 1999. This testing is presently on
schedule with no major problems encountered.  Finally, the implementation phase,
which  requires  addressing any problems  encountered  in the validation  phase,
along  with  continued  review  and  assessment  of the  Company's  systems  and
equipment,  is  presently  underway  and will  continue  until the year 2000 has
arrived.

Management  is of the opinion that the Company's  systems and equipment  will be
ready for the Year 2000 in a timely manner  without any material  adverse effect
on the  Company's  business.  Because  of  the  planned  comprehensive  computer
hardware and software  upgrade begun in 1995 and completed in 1996,  the Company
has incurred no material  expenditures in 1998 or 1997 relating  directly to the
Year 2000 problem.  The new  components,  which were largely Year 2000 compliant
when  installed,  were  acquired in the normal course of business to upgrade the
Bank's computer  capabilities.  The previous system was over seven years old and
was becoming  functionally  obsolete.  The Company has been able to use existing
internal personnel and resources to carry out its Y2K Preparedness Plan, and has
used few  outside  resources  that would  incur  significant  additional  costs.
Management is not aware of any material future expenditures required to complete
its preparedness plan.

                                       35

<PAGE>

NOTE O - FAIR VALUE OF FINANCIAL INSTRUMENTS

Following  is summary  information  on the  estimated  fair  value of  financial
instruments,  cross  referenced  to the location in the  consolidated  financial
statements and notes where more detailed information can be obtained:

<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                                           ------------
                                                                            1998                                 1997
                                                                            ----                                 ----
                                                                 Carrying          Estimated           Carrying          Estimated
                                                                  Amount           Fair Value           Amount          Fair Value
                                                                 of Assets         of Assets          of Assets          of Assets
                                                               (Liabilities)     (Liabilities)      (Liabilities)      (Liabilities)
                                                               -------------     -------------      -------------      -------------

<S>                                                           <C>                <C>                <C>                <C>         
Cash and due from banks (Note A) .......................      $  1,727,391       $  1,727,391       $  1,450,549       $  1,450,549
Interest-bearing deposits in other banks (Note A) ......           320,267            320,267            440,602            440,602
Federal funds sold (Note A) ............................         8,070,000          8,070,000          1,535,000          1,535,000
Securities (Note C) ....................................        16,299,880         16,299,880         16,135,915         16,135,915
Other investments (Notes A and E) ......................           377,400            377,400            377,400            377,400
Loans (Note E) .........................................        28,849,664         28,945,196         31,614,019         31,626,489
Accrued interest receivable (Note A) ...................           316,239            316,239            344,590            344,590
Deposits (Note H) ......................................       (45,606,635)       (45,682,677)       (41,968,372)       (41,991,544)
Long-term debt (Note I) ................................        (4,000,000)        (4,000,000)        (4,000,000)        (4,000,000)
Accrued interest payable (Note A) ......................          (392,644)          (392,644)          (351,346)          (351,346)
Loan commitments (Note N) ..............................                           (5,471,229)                           (5,687,350)
Standby letters of credit (Note N) .....................                              (62,075)                              (30,500)
</TABLE>

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

<TABLE>
<CAPTION>

                                                                                                                   December 31,
                                                                                                                       1998
                                                                                                                       ----
Condensed Balance Sheet
     Assets
<S>                                                                                                                 <C>       
         Cash ........................................................................................              $  457,645
         Investment in banking subsidiary ............................................................               6,461,466
         Other assets ................................................................................                   2,887
                                                                                                                    ----------
            Total assets .............................................................................              $6,921,998
                                                                                                                    ==========
     Liabilities
         Other liabilities ...........................................................................              $        -
     Shareholders' equity ............................................................................               6,921,998
                                                                                                                    ----------
            Total liabilities and shareholders' equity ...............................................              $6,921,998
                                                                                                                    ==========

</TABLE>

                                       36
<PAGE>

<TABLE>
<CAPTION>
                                                                                                             Year Ended December 31,
                                                                                                                       1998
                                                                                                                       ----
Condensed Statement of Income
     Income
<S>                                                                                                                <C>        
         Dividends received from banking subsidiary .................................................              $ 1,005,510
         Interest income ............................................................................                    2,319
                                                                                                                   -----------
            Total income ............................................................................                1,007,829
                                                                                                                   -----------
     Expenses                                                                                                     
         Interest expense ...........................................................................                        -
         Other expenses .............................................................................                   44,674
                                                                                                                   -----------
            Total expenses ..........................................................................                   44,674
                                                                                                                   -----------
     Income before income taxes and equity in                                                                     
         undistributed earnings of banking subsidiary ...............................................                  963,155
     Income tax expense (credit) ....................................................................                   (2,887)
     Equity in undistributed earnings                                                                             
         of banking subsidiary ......................................................................                  (34,691)
                                                                                                                   -----------
     Net income .....................................................................................              $   931,351
                                                                                                                   ===========
                                                                                                                  
</TABLE>

<TABLE>
<CAPTION>
                                                                                                       Year Ended December 31,
                                                                                                                  1998
                                                                                                                  ----
Condensed Statement of Comprehensive Income
<S>                                                                                                             <C>      
     Net income ....................................................................................            $ 931,351
     Equity in other comprehensive income
        (loss) of banking subsidiary ...............................................................              (44,411)
                                                                                                                ---------
     Comprehensive income ..........................................................................            $ 886,940
                                                                                                                =========
</TABLE>

<TABLE>
<CAPTION>
                                                                                                            Year Ended December 31,
                                                                                                                     1998
                                                                                                                     ----
Condensed Statement of Cash Flows
     Operating activities
<S>                                                                                                               <C>      
         Net income .....................................................................................         $ 931,351
            Adjustments to reconcile net income to net
                cash provided by operating activities
                    Equity in undistributed earnings
                      of banking subsidiary .............................................................            34,691
                    Increase in other assets ............................................................            (2,887)
                                                                                                                  ---------
                         Net cash provided by operating activities ......................................           963,155
                                                                                                                  ---------
     Financing activities
         Cash dividends paid ............................................................................          (505,510)
                                                                                                                  ---------
                         Net cash provided by financing activities ......................................          (505,510)
                                                                                                                  ---------
     Increase in cash and cash equivalents ..............................................................           457,645
     Cash and cash equivalents, beginning ...............................................................                 -
                                                                                                                  ---------
     Cash and cash equivalents, ending ..................................................................         $ 457,645
                                                                                                                  =========

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