Exhibit 13

                 (Portions of the Annual Report to Shareholders
                      for the Year Ended December 31, 2002)

Market for Common Stock and Dividends

         Although a limited number of shares of common stock of Clover Community
Bankshares,  Inc. (the  "Company") are traded from time to time on an individual
basis,  no  established  trading  market has  developed  and none is expected to
develop  in the near  future.  The  common  stock is not  traded  on the  NASDAQ
National  Market  System,  nor are there any market makers known to  management.
During 2002,  management was aware of a few  transactions in which the Company's
common stock traded at $25.00 per share. However, management has not ascertained
that these transactions are the result of arm's length negotiations  between the
parties, and because of the limited number of shares involved,  these prices may
not be indicative of the market value of the common stock.

         Shareholders  may purchase  additional  common shares in the Company by
reinvesting their cash dividends under the Company's dividend  reinvestment plan
that was placed in operation in 1999. Under the plan,  3,455,  3,708,  6,118 and
4,778 newly issued shares were purchased by shareholders in 2002, 2001, 2000 and
1999 at prices of $30.86, $30.46, $28.32 and $27.56, respectively, in accordance
with the plan's pricing  formula.  In 2002, 2001, 2000 and 1999,  4,332,  5,284,
3,180 and  1,702  shares,  respectively,  of the  Company's  common  stock  were
repurchased, primarily from eleemosynary organizations, and retired. The average
prices for such share  repurchases and retirements in 2002,  2001, 2000 and 1999
were $25.00, $25.38, $27.09 and $30.25,  respectively.  These prices were set at
the discretion of the Company's Board of Directors.  Prices  established for the
issuance of shares under the dividend  reinvestment plan and for repurchases may
not be indicative of the market value of the common stock.

         As of February 26, 2003, there were approximately 756 holders of record
of the Company's  common stock,  excluding  individual  participants in security
position listings.

         The Company has paid an annual cash  dividend  since 1991. In both 2002
and 2001, the Company  declared and paid cash dividends to  shareholders of $.75
per share.

         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.  Any of the Bank's  cash  dividends  to the Company in
excess of the current  year's  earnings are subject to the prior approval of the
South Carolina Commissioner of Banking. In addition,  dividends paid by the Bank
to the Company,  or by the Company to its  shareholders,  would be prohibited if
the effect  thereof  would  cause the  capital of the Bank or the  Company to be
reduced below minimum capital requirements.

Management's Discussion and Analysis

         This discussion is intended to assist in understanding the consolidated
financial  condition and results of operations of Clover  Community  Bankshares,
Inc. and its wholly-owned subsidiary,  Clover Community Bank (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.

Critical Accounting Policies

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



                                       1
<PAGE>

         Certain   accounting   policies  involve   significant   judgments  and
assumptions by management, which have a material impact on the carrying value of
certain assets and liabilities. Management considers such accounting policies to
be  critical  accounting  policies.   The  judgments  and  assumptions  used  by
management  are  based on  historical  experience  and other  factors  which are
believed to be reasonable under the circumstances.  Because of the nature of the
judgments and assumptions  made by management,  actual results could differ from
these  judgments  and  estimates,  which  could  have a  material  impact on the
carrying  values of assets and  liabilities and the results of operations of the
Company.

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

Forward Looking Statements

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

Earnings Performance

2002 Compared with 2001

         The Company recorded net income of $832,000 for the year ended December
31, 2002, an increase of $55,000, or 7.1%, from net income of $777,000 for 2001.
Net income per share for 2002 was $.82,  compared with $.76 for 2001.  Return on
average assets and return on average equity were 1.41% and 11.86%, respectively,
for 2002, and 1.41% and 10.21%, respectively, for 2001.

         The increase in the Company's  net income for 2002  resulted  primarily
from realized gains on sales of investment securities totaling $273,000 and from
an increase of $250,000 in service charges on deposit accounts.  However,  these
increases  were offset by an increase in the provision for loan losses and other
noninterest expense,  which increased $324,000 and $174,000,  respectively.  The
increase in service charges resulted  primarily from the implementation of a new
fee-based  automatic overdraft privilege product in 2002. The provision for loan
losses increased primarily as a result of a $257,000 increase in net charge-offs
during 2002,  the increase to $402,000 in nonaccrual  loans at December 31, 2002
as  compared  to none a year  earlier,  increases  in the  volume of loans,  and
management's judgment with respect to current and projected economic conditions.
Expenses related to the staffing and opening of the new Lake Wylie branch during
December 2002 accounted for a significant portion of the increase in noninterest
expense.

         Net interest  income was $2,424,000 for 2002 compared to $2,364,000 for
2001, an increase of $60,000, or 2.5%. This modest increase reflects the actions
during  2002 of the  Board of  Governors  of the  Federal  Reserve  System as it
continued to attempt to provide  stimulus to the national  economy  through low,
but stable, interest rates.



                                       2
<PAGE>


         Comprehensive  income for 2002,  2001 and 2000 was $816,000,  $957,000,
and  $1,123,000,  respectively.  Accounting  principles  generally  require that
recognized  revenue,  expenses,  gains and  losses be  included  in net  income.
Comprehensive  income for the Company is correlated directly to the effects that
changing  market  rates of  interest  have on the fair  values of the  Company's
holdings of available-for-sale  securities.  The resulting changes in unrealized
holding gains and losses on such securities are reported as a separate component
of  shareholders'   equity.   Such  items,  along  with  net  income,   comprise
comprehensive income.

2001 Compared with 2000


         The Company recorded net income of $777,000 for the year ended December
31,  2001,  a decrease of  $201,000,  or 20.6%,  from net income of $978,000 for
2000.  Net  income  per share for 2001 was  $.76,  compared  with $.96 for 2000.
Return on average  assets and return on average  equity  were 1.41% and  10.21%,
respectively, for 2001, and 1.85% and 13.62%, respectively, for 2000.

         Throughout  2001, the Board of Governors of the Federal  Reserve System
cut its discount and federal  funds target rates  significantly  in an effort to
stimulate  economic  activity.  The  frequency  and  amounts  of such  rate cuts
accelerated  following the terrorist attacks of September 11, 2001.  Significant
decreases in the yields on a bank's interest earning assets can result from such
reductions in discount and federal funds rates,  either  directly or indirectly.
Yields on variable rate loans, investment securities, and federal funds sold can
be expected to decline rapidly. Older mortgage and other loans with higher fixed
interest  rates become  subject to increased  prepayment  risk as borrowers  can
either  refinance  their loans or negotiate  for lower  interest  rates.  Higher
yielding fixed rate investment  securities are also more likely to be called for
early redemption by issuers.

         Fixed rate time deposits with higher  interest  rates  generally can be
repriced at lower rates in response to falling yields on interest earning assets
only as contractual  maturities are reached.  Rates paid on savings and interest
bearing  transaction  accounts are more indirectly affected by changes in market
rates  of  interest,   depending  to  a  degree  on  an  institution's   funding
requirements  and competitive  posture.  Interest rates paid on variable rate or
short-term  borrowings,  and variable  rate time  deposits can be adjusted  more
quickly in response to a falling interest rate environment.  Rates paid on fixed
rate  long-term   borrowings  can  be  adjusted   indirectly  by  prepayment  or
refinancing.

         The decrease in the Company's  net income for 2001  resulted  primarily
from lower net interest  income.  As market interest rates were falling in 2001,
interest  income  on loans  was  significantly  decreased  due to the  immediate
reduction  of yields  associated  with  variable  rate  loans,  which  comprised
approximately half of the loan portfolio. Prepayments and lower rates negotiated
by borrowers on existing fixed rate loans  decreased  interest  income from that
source also.  Early calls of investments in higher  yielding  taxable fixed rate
securities  resulted in substantially lower interest income as well. At the same
time, the Bank's interest expense  decreased only slightly.  Decreased  interest
expense resulting from lower interest rates paid on variable rate long-term debt
and interest bearing  transaction and savings deposit accounts was substantially
offset by increased  interest  expense on fixed-rate  time deposits.  During the
last half of 2000 and  continuing  into the first  quarter  of 2001,  management
offered higher  interest  rates for longer  maturity fixed rate time deposits in
order to increase  total  deposits and  liquidity.  For  example,  approximately
$3,000,000 of new 24-month maturity time deposits were acquired during that time
paying the above  market  fixed rate of 7.00%.  The  Company  had  approximately
$5,000,000  or 21% of total time  deposits  outstanding  as of December 31, 2001
paying fixed rates substantially  higher than current market rates being offered
as of that  date  for time  deposits  with  similar  remaining  maturities.  The
majority  of these time  deposits  matured  during  the fourth  quarter of 2002;
therefore,  these  time  deposits  continued  to have a  negative  effect on net
interest  income  throughout  2002. See also the discussion  under "Net Interest
Income".

         Other noninterest  income increased in 2001 primarily because of higher
service  charges applied to deposit  account  activity.  This increase more than
offset the  increase in  noninterest  operating  expenses in 2001.  Income taxes
decreased by $104,000  because of the Company's  reduced net income before taxes
and higher amounts of non-taxable investment income.


                                       3
<PAGE>

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.

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

         FTE net interest income was $2,536,000,  $2,474,000, and $2,784,000 for
2002,  2001,  and 2000,  respectively.  During  2002,  FTE  interest  income was
$3,547,000,  a decrease of $490,000 or 12.1% from the  $4,037,000  reported  for
2001.  Interest expense was $1,011,000 in 2002 compared to $1,563,000 in 2001, a
decrease of $552,000,  or 35.3%.  Interest rates were relatively  stable in 2002
compared to the sharp  decline in  interest  rates that  occurred  in 2001.  The
decreases  in both  interest  income and  interest  expense  experienced  by the
Company in 2002 were mainly attributable to the 2001 sharp decline in rates, the
effects of which were not fully  realized  until 2002. The combined rate paid on
total average interest  bearing  liabilities was down 148 basis points to 2.16%,
while the  overall  FTE yield on average  interest  earning  assets was down 135
basis points to 6.47%.

         For 2002, the average interest rate spread increased 13 basis points to
4.31% and the net yield on average interest earning assets decreased by 16 basis
points to 4.63%.

         During 2001, FTE interest income was $4,037,000, a decrease of $344,000
or 7.9% from the $4,381,000  reported for 2000.  Falling  interest rates in 2001
were primarily  responsible for this change.  Interest  expense was only $34,000
less in 2001 than in 2000 because reductions in interest expense associated with
the Company's variable rate long-term debt and its interest bearing  transaction
and savings  deposits were largely offset by increased  interest expense on time
deposits.  The combined rate paid on total average interest bearing deposits was
unchanged  from 2000 to 2001 at 3.57%,  while the  overall  FTE yield on average
interest earning assets was down 95 basis points to 7.82%.

         For 2001,  the average  interest rate spread dropped 73 basis points to
4.18% and the net yield on average interest earning assets decreased by 79 basis
points to 4.79%.




                                       4
<PAGE>


         The table,  "Average Balances,  Yields and Rates",  provides a detailed
analysis of the effective yields and rates on the categories of average interest
earning assets and interest bearing liabilities for the years ended December 31,
2002, 2001 and 2000.

                       Average Balances, Yields and Rates

<TABLE>
<CAPTION>
                                                      2002                          2001                           2000
                                                      ----                          ----                           ----
                                        Average      Income/  Yields/   Average    Income/    Yields/   Average    Income/   Yields/
(Dollars in thousands)                 Balances(1)   Expense  Rates    Balances(1) Expense     Rates   Balances(1) Expense     Rates
                                       -----------   -------  -----    -------------------     -----   -------------------     -----
Assets:
<S>                                      <C>        <C>        <C>     <C>        <C>           <C>   <C>        <C>           <C>
  Interest-bearing deposits
   in other banks ..................     $     29   $      1   3.45%   $      46  $       2     4.35% $      63  $       3     4.76%
  Securities,
   Taxable .........................       12,161        585   4.81       12,318        713     5.79     13,597        917     6.74
   Tax-exempt(2) ...................        4,514        329   7.29        4,350        330     7.59      4,044        292     7.22
                                         --------   --------           ---------  ---------           ---------  ---------
     Total securities ..............       16,675        914   5.48       16,668      1,043     6.26     17,641      1,209     6.85
  Nonmarketable
   equity securities ...............          250         13   5.20          250         16     6.40        250         19     7.60
  Federal funds sold ...............        4,187         66   1.58        3,676        124     3.37      2,384        152     6.38
  Loans receivable(3) ..............       33,677      2,553   7.58       30,997      2,852     9.20     29,590      2,998    10.13
                                         --------   --------           ---------  ---------           ---------  ---------
     Total interest earning
      assets .......................       54,818      3,547   6.47       51,637      4,037     7.82     49,928      4,381     8.77
  Cash and due from banks ..........        1,913                          1,960                          1,842
  Allowance for loan losses ........         (307)                          (270)                          (253)
  Premises, furniture and
    equipment ......................        1,615                            837                            856
  Other assets .....................          817                            881                            430
                                         --------                      ---------                      ---------
   Total assets ....................     $ 58,856                      $  55,045                      $  52,803
                                         ========                      =========                      =========
Liabilities and shareholders' equity:
  Interest-bearing deposits
   Interest-bearing transaction
     accounts ......................     $ 15,352   $     81   0.53%   $  13,359  $     139     1.04% $  13,559  $     193     1.42%
   Savings .........................        3,076         21   0.68        2,891         37     1.28      2,561         44     1.72
   Time deposits $100M
     and over ......................        6,313        203   3.22        5,161        250     4.84      4,102        192     4.68
   Other time deposits .............       18,011        629   3.49       17,437        960     5.51     17,161        904     5.27
                                         --------   --------           ---------  ---------           ---------  ---------
     Total interest-bearing
      deposits .....................       42,752        934   2.18       38,848      1,386     3.57     37,383      1,333     3.57
   Federal funds purchased .........            5          0   0.00           84          5     5.95         22          1     4.55
   Long-term debt ..................        4,000         77   1.93        4,000        172     4.30      4,000        263     6.58
                                         --------   --------           ---------  ---------           ---------  ---------
      Total interest-bearing
        liabilities ................       46,757      1,011   2.16       42,932      1,563     3.64     41,405      1,597     3.86
  Non-interest-bearing demand
   deposits ........................        4,733                          3,984                          3,875
  Other liabilities ................          356                            520                            345
  Shareholders' equity .............        7,010                          7,609                          7,178
                                         --------                      ---------                      ---------
     Total liabilities and
        shareholders' equity .......     $ 58,856                      $  55,045                      $  52,803
                                         ========                      =========                      =========
Interest rate spread(4) ............                           4.31%                            4.18%                          4.91%
Net interest income and net
  yield on earning assets(5) .......                $ 2,536    4.63%              $    2,474    4.79%            $   2,784     5.58%
Interest free funds supporting
  earning assets(6) ................     $  8,061                      $   8,705                      $   8,523
</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.



                                       5
<PAGE>


46

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

                        Volume and Rate Variance Analysis

<TABLE>
<CAPTION>
                                                                2002 Compared with 2001               2001 Compared with 2000
                                                                -----------------------               -----------------------
                                                            Volume(1)     Rate(1)      Total       Volume(1)     Rate(1)      Total
                                                            ---------     -------      -----       ---------     -------      -----
(Dollars in thousands)
<S>                                                          <C>          <C>          <C>          <C>          <C>          <C>
Interest-bearing deposits in other banks .............       $   -        $  (1)       $  (1)       $  (1)       $   -        $  (1)
Taxable securities ...................................          (9)        (119)        (128)         (81)        (123)        (204)
Tax-exempt securities (2) ............................          12          (13)          (1)          23           15           38
Nonmarketable equity securities ......................           -           (3)          (3)           -           (3)          (3)
Federal funds sold ...................................          15          (73)         (58)          62          (90)         (28)
Loans ................................................         232         (531)        (299)         138         (284)        (146)
                                                             -----        -----        -----        -----        -----        -----
                Total interest income ................         250         (740)        (490)         141         (485)        (344)
                                                             -----        -----        -----        -----        -----        -----
Interest-bearing deposits
     Interest-bearing transaction accounts ...........          18          (76)         (58)          (3)         (51)         (54)
     Savings .........................................           2          (18)         (16)           5          (12)          (7)
     Time deposits $100M and over ....................          48          (95)         (47)          51            7           58
     Other time deposits .............................          31         (362)        (331)          15           41           56
Federal funds purchased ..............................           -           (5)          (5)           4            -            4
Long-term debt .......................................           -          (95)         (95)           -          (91)         (91)
                                                             -----        -----        -----        -----        -----        -----
               Total interest expense ................          99         (651)        (552)          72         (106)         (34)
                                                             -----        -----        -----        -----        -----        -----
               Net interest income ...................       $ 151        $ (89)       $  62        $  69        $(379)       $(310)
                                                             =====        =====        =====        =====        =====        =====
</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%.

         In an effort to improve  asset/liability  management  and  improve  net
interest  income in  future  years,  the  Company  has  engaged  an  experienced
consultant to advise  management  and the Board of Directors in this vital area.
Throughout 2003,  management  intends to closely monitor the Company's  interest
sensitivity  position  and  intends to take  appropriate  and timely  actions to
promote stable growth in net interest income.

         Management  currently  expects that  interest  rates may move  slightly
higher,  but  within  a  narrow  range in  2003.  Management  has not  presently
identified  any factors that would cause  interest rates to increase or decrease
sharply in a short time period. However, dramatic changes in interest rates that
can  significantly  affect the Company,  either  positively or  negatively,  are
possible.  Any significant changes in net interest income for 2003 are currently
expected to be the result of changes in the volumes of interest  earning  assets
and liabilities.  Management expects to continue to use its marketing strategies
to attempt to increase the Company's  market share for both deposits and quality
loans within its service areas.  These  strategies  include the opening,  during
December  2002,  of the new branch office in the Lake Wylie area of York County,
offering  competitive interest rates, and continuing the Company's commitment to
providing outstanding customer service.



                                       6
<PAGE>


Interest Rate Sensitivity

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

         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 2002
of  $23,846,000,  and a cumulative  gap ratio of .40.  When  interest  sensitive
assets exceed interest sensitive liabilities for a specific repricing "horizon",
a positive interest  sensitivity gap results.  The gap is negative when interest
sensitive  liabilities  exceed interest sensitive assets, as was the case at the
end of 2002  with  respect  to the  one-year  time  horizon.  For a bank  with a
negative gap,  falling  interest  rates  ordinarily  would be expected to have a
positive  effect on net  interest  income and rising rates  ordinarily  would be
expected to have the opposite  effect.  However,  in a rapidly falling  interest
rate  environment,  net interest income can decrease despite a negative interest
sensitivity  gap.  This occurs  because  debtors can obtain lower  interest rate
financing by prepaying,  refinancing or  renegotiating  their  existing,  higher
fixed-rate  mortgage  and other loans.  Similarly,  issuers of federal and local
government  securities  can  exercise  early call options to prepay or refinance
their debt securities at lower rates.

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

         The table reflects the balances of interest earning assets and interest
bearing liabilities at the earlier of their repricing or maturity dates. Amounts
of fixed rate loans are reflected at the loans' final maturity  dates.  Variable
rate loans are  reflected at the earlier of their  contractual  maturity date or
the date at which the  loans may be  repriced  contractually.  Interest  bearing
deposits in other banks and debt securities are reflected at the earlier of each
instrument's  ultimate maturity or contractual  repricing date. Interest bearing
liabilities with no contractual  maturity,  such as interest bearing transaction
accounts and savings deposits,  are reflected in the earliest repricing interval
due to contractual  arrangements  which give  management the opportunity to vary
the rates paid on these deposits within a thirty-day or shorter period. However,
the  Company is under no  obligation  to vary the rates  paid on those  deposits
within any given period. Fixed rate time deposits,  principally  certificates of
deposit, are reflected at their contractual  maturity dates.  Variable rate time
deposits,  principally  individual  retirement  accounts,  are  reflected at the
earlier of their next repricing or maturity dates.



                                       7
<PAGE>


                          Interest Sensitivity Analysis
                                December 31, 2002

<TABLE>
<CAPTION>
                                                                              After
                                                                              Three         Greater
                                                              Within          Through       Than One
                                                              Three           Twelve        Less Than       Over Five
                                                              Months          Months        Five Years         Years          Total
                                                              ------          ------        ----------         -----          -----
(Dollars in thousands)
Assets
Earning Assets:
<S>                                                          <C>             <C>             <C>             <C>            <C>
    Interest-bearing deposits with other banks .......       $     25        $      -        $      -        $      -       $     25
    Federal funds sold ...............................          3,221               -               -               -          3,221
    Securities available for sale ....................            141             188           2,526          13,679         16,534
    Nonmarketable equity securities ..................            250               -               -               -            250
    Loans receivable(1) ..............................          7,905           3,887          15,086           8,142         35,020
                                                             --------        --------        --------        --------       --------
        Total earning assets .........................         11,542           4,075          17,612          21,821         55,050
                                                             --------        --------        --------        --------       --------

Liabilities
Interest-bearing liabilities:
    Interest-bearing transaction accounts ............         14,432               -               -               -         14,432
    Savings deposits .................................          3,079               -               -               -          3,079
    Time deposits $100,000 & over ....................          1,903           2,252           4,040               -          8,195
    Other time deposits ..............................          5,239           8,558           4,266               -         18,063
    Borrowings .......................................          4,000               -               -               -          4,000
                                                             --------        --------        --------        --------       --------
        Total interest bearing liabilities ...........         28,653          10,810           8,306               -         47,769
                                                             --------        --------        --------        --------       --------

Period gap ...........................................       $(17,111)       $ (6,735)       $  9,306        $ 21,821       $  7,281
                                                             ========        ========        ========        ========       ========

Cumulative gap .......................................       $(17,111)       $(23,846)       $(14,540)       $  7,281       $      -
                                                             ========        ========        ========        ========       ========

Gap ratio (assets/liabilities) .......................           0.40            0.38            2.12              -

Cumulative gap ratio .................................           0.40            0.40            0.70           1.15
</TABLE>

(1)  Loans are net of deferred loan fees of $41,000.

Provision for Loan Losses

         The  provision  for  loan  losses  is  charged  to  earnings  based  on
management's  continuing review and evaluation of the loan portfolio and general
economic conditions.  Management provided $357,000, $34,000 and $47,000 for loan
losses in 2002, 2001, and 2000,  respectively.  The significant  increase in the
2002 provision resulted primarily from net charge-offs of $271,000,  an increase
to $402,000 of loans in non-accrual  status,  an increase in past due loans,  an
increase in loan volume,  and management's  judgment with respect to current and
projected economic  conditions and their potential impact on the loan portfolio.
If the sluggishness in the economy continues through 2003,  management  believes
that further increases in the provision may be necessary.

Other Income

         Noninterest income for 2002 was $1,053,000,  an increase of $510,000 or
93.9% over the 2001  amount of  $543,000.  The  increase in 2002  primarily  was
attributable to an increase of $250,000 in service  charges on deposit  accounts
and realized  gains on sales of investment  securities  totaling  $273,000.  The
Company  implemented a new fee-based  automatic  overdraft  privilege product in
2002  which  accounted  for a  significant  portion of the  increase  in service
charges. There were no realized securities gains or losses in the 2001 period.

          Management  will  continue  to review and adjust  when  necessary  the
current pricing of all fee based services.  Opportunities to expand  noninterest
fee income on both new and existing services will also be explored.


                                       8
<PAGE>

         Noninterest  income for 2001 was  $543,000,  an  increase of $50,000 or
10.1% over the 2000  amount of  $493,000.  The  increase in 2001  primarily  was
attributable  to  increased  amounts  of  service  charges  and other fee income
derived from deposit  accounts.  Management  revised its service  charge pricing
schedules in the first quarter of 2001 to more closely align those fees with the
levels of service provided to the Company's customers.

Other Expenses

            Noninterest  expenses for 2002  increased  by $174,000 or 10.0%,  to
$1,917,000.  This increase is attributable to a number of factors.  Salaries and
employee  benefits  increased  by $196,000  or 22.4%,  to  $1,070,000.  Employee
salaries  increased  $133,000 from the amount recorded in 2001. This increase is
mostly  attributable to the hiring of the staff for the Lake Wylie branch office
during the latter half of 2002. This branch commenced operations during December
2002.  In 2002,  the  Company  also  experienced  a $29,000  increase  in health
insurance  expenses for  employees.  Net  occupancy  and furniture and equipment
expenses  were  $32,000  less in the  2002  period  due  primarily  to  expenses
recognized in the 2001 period for refurbishing of the Company's main office, and
a reduction of $20,000 in depreciation  expenses  resulting from  expirations of
depreciation  periods of a significant  number of assets,  principally  computer
equipment,  which subsequently was replaced at a substantially lower cost. Other
expenses for 2002 were $83,000 higher than in 2001.

         Noninterest  overhead  expenses  for 2003 are  expected  to increase as
compared  with 2002.  This is due in large part to the expenses  relating to the
new Lake Wylie  branch,  which  opened in  December  2002.  In  addition  to the
personnel expenses related to this branch, depreciation and maintenance expenses
will increase on the new  building,  equipment,  furniture  and fixtures.  Other
categories of expense will also be expected to increase,  including  advertising
and public relations, data processing,  stationery,  printing,  postage, etc. In
general, expenses associated with the start-up of the new branch can be expected
to have an overall negative effect on net income in the near term.

         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.  Accordingly,  the Company  continually
upgrades  its computer  hardware  and software  systems so that a high degree of
customer service and operational efficiency can be maintained.

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

         Noninterest  expenses  for 2001  totaled  $1,743,000,  an  increase  of
$47,000 or 2.8% over the 2000 amount.  Salaries and employee benefits  decreased
by  $54,000  or 5.8% due  mainly  to the  resignation  of the  Company's  former
president  and chief  executive  officer  during  2001.  Net  occupancy  expense
increased  by  $32,000  or  44.9%  mainly  because  of a major  maintenance  and
refurbishing  of the interior of the Company's  banking office  facility.  Other
expenses  for 2001  increased by $100,000 or 21.7%.  Advertising  expense was up
$7,000 due to increased  advertising  efforts.  Professional  services increased
$33,000,  which included additional external auditing procedures.  This increase
also  included  engaging  an outside  consultant  to assess the Bank's  lending,
deposit,  and  other  policies  and  practices  on a  routine  basis  to  advise
management and the Board of Directors as to continuing  compliance  with various
banking  regulations.  Other expense in 2001 also included a $40,000  payment to
the  Company's  former  president  and chief  executive  officer  pursuant  to a
settlement  agreement  associated  with his  resignation.  Also,  furniture  and
equipment  expense  for  2001 was  lower by  $30,000  because  of a  significant
reduction  in  depreciation  expense.  A  substantial  portion of the  Company's
equipment became fully depreciated during 2001.



                                       9
<PAGE>


Income Taxes

         For 2002,  federal and state income tax expenses  increased to $371,000
from  $354,000  in 2001.  The  increase in income tax expense for 2002 is due to
higher  before tax  income.  For 2001,  federal  and state  income  tax  expense
decreased to $353,000 from $457,000 in 2000.  The decrease in income tax expense
for 2001 was due to lower  before tax income and higher  amounts of  non-taxable
municipal  investment  income. The effective income tax rate (income tax expense
divided by income before  income taxes) was 30.9% for 2002,  compared with 31.2%
and 31.8% for 2001 and 2000, respectively.

Securities

         The following table summarizes the carrying value amounts of securities
held by the Company at December 31, 2002, 2001 and 2000:

                        Securities Portfolio Composition
<TABLE>
<CAPTION>

Securities available for sale                                                     2002                  2001                   2000
                                                                                  ----                  ----                   ----
(Dollars in thousands)
<S>                                                                            <C>                    <C>                    <C>
U.S. Government agencies ......................................                $ 1,560                $ 3,187                $ 7,282
State, county, and municipal ..................................                  4,469                  4,356                  4,238
Mortgage-backed securities ....................................                 10,505                  9,381                  6,373
                                                                               -------                -------                -------

          Total ...............................................                $16,534                $16,924                $17,893
                                                                               =======                =======                =======
</TABLE>

         On an ongoing basis,  management  assigns securities upon purchase into
one of the categories  designated by Statement of Financial Accounting Standards
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 2002, 2001 and 2000,  there have been no transfers of
available-for-sale or held-to-maturity securities to other categories.

         At  December  31,  2002,  the  Company  had  no  concentrated   amounts
representing  10% or  more of  equity  capital  in the  debt  securities  of any
individual state, county or municipal issuer.

         The following table presents  maturities and weighted average yields of
securities based on the carrying value at December 31, 2002.

                   Securities Portfolio Maturities and Yields

<TABLE>
<CAPTION>
                                                            After One But      After Five But
                                       Within One Year    Within Five Years   Within Ten Years    After Ten Years        Total
                                       ---------------    -----------------   ----------------    ---------------        -----
                                      Amount    Yield      Amount    Yield    Amount    Yield     Amount    Yield    Amount   Yield
                                      ------    -----      ------    -----    ------    -----     ------    -----    ------   -----
(Dollars in thousands)
<S>                                 <C>           <C>     <C>         <C>     <C>        <C>     <C>         <C>     <C>       <C>
Available for sale securities
U.S. Government
   agencies ....................     $    -          -%   $   515     8.20%   $ 1,045    6.39%   $     -        -%   $ 1,560   6.90%
State, county
   and municipal(1) ............        328       7.03      1,547     6.83      1,401    5.50      1,193     7.05      4,469   6.48
Mortgage-backed(2) .............          -          -        464     3.59      3,423    4.90      6,618     5.00     10,505   4.91
                                    -------               -------             -------            -------             -------

    Total ......................    $   328       7.03%   $ 2,526     6.51%   $ 5,869    5.31%   $ 7,811     5.31%   $16,534   5.52%
                                    =======               =======             =======            =======             =======
</TABLE>
(1)  Computed on a fully  taxable  equivalent  basis using a federal  income tax
     rate of 34%.
(2)  Maturity  categories  based  upon  final  stated  maturity  dates.  Average
     maturity  is  substantially  shorter  because  of  the  monthly  return  of
     principal on certain securities.



                                       10
<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, 2002,  2001 and 2000
are shown in the following  table  according to type of loan, and the percentage
of each category to total loans:

                           Loan Portfolio Composition

<TABLE>
<CAPTION>
                                                            2002                        2001                         2000
                                                            ----                        ----                         ----
  (Dollars in thousands)                          Amount         Percent       Amount        Percent        Amount           Percent
                                                  ------         -------       ------        -------        ------           -------
<S>                                              <C>               <C>         <C>            <C>          <C>               <C>
Real Estate  - Construction .............        $ 2,169             6.2%      $ 2,576           8.1%      $ 2,287             7.4%
Real Estate - Mortgage
      Farmland ..........................          1,820             5.2         1,682           5.3         1,170             3.8
      1-4 family residential ............         12,178            34.7        11,259          35.4         9,374            30.5
      Nonfarm, nonresidential ...........         10,010            28.6         9,253          29.1         8,995            29.3
Commercial and Industrial ...............          5,691            16.2         2,391           7.5         2,550             8.3
Consumer installment ....................          3,193             9.1         4,652          14.6         6,392            20.7
                                                 -------           -----       -------         -----       -------           -----

  Total Loans ...........................        $35,061           100.00%     $31,813         100.00%     $30,768           100.00%
                                                 =======           ======      =======         ======      =======           ======
</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. 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.  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 69% of
the Company's loan portfolio at December 31, 2002. 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.



                                       11
<PAGE>


Maturity Distribution of Loans

         The  following  table  sets  forth  the  maturity  distribution  of the
Company's  loans,  by type,  as of  December  31,  2002,  as well as the type of
interest requirement on such loans.

<TABLE>
<CAPTION>
                                                                          One Year          One to        Over Five
(Dollars in thousands)                                                     or Less        Five Years         Years            Total
                                                                           -------        ----------         -----            -----
<S>                                                                       <C>              <C>              <C>              <C>
Real Estate - Construction .....................................          $ 1,366          $   143          $   660          $ 2,169
Real Estate - Mortgage .........................................            2,840           12,072            9,096           24,008
Commercial & Industrial ........................................            1,660            2,707            1,324            5,691
Consumer .......................................................            1,238            1,924               31            3,193
                                                                          -------          -------          -------          -------

                                                                          $ 7,104          $16,846          $11,111          $35,061
                                                                          =======          =======          =======          =======

Predetermined rate, maturity greater than one year .............                           $15,106          $ 8,147          $23,253
                                                                                           =======          =======          =======

Variable rate or maturity within one year ......................          $ 7,104          $ 1,740          $ 2,964          $11,808
                                                                          =======          =======          =======          =======
</TABLE>

Nonperforming Loans

         When a loan is 90 days or more past due as to interest or  principal or
there is serious  doubt as to ultimate  collectibility,  the accrual of interest
income is generally discontinued. Previously accrued interest on loans placed in
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. A nonaccrual
loan is not returned to accrual status unless principal and interest are current
and the borrower has  demonstrated  the ability to continue  making  payments as
agreed.

         At  December  31,  2002,  nonaccruing  loans  consisted  of four  loans
totaling  $402,000.  Two of the loans totaling $335,000 were to one customer and
are secured by real estate having an estimated market value of $491,000. Another
one of the loans in the amount of $62,000 is also secured by real estate with an
estimated  market value of $68,000.  Both of these  borrowers  are  currently in
bankruptcy;  however,  they are  continuing to make their monthly  principal and
interest payments.

         While the percentage of nonperforming  loans to total loans outstanding
at December 31, 2002 is greater than the allowance for loan losses percentage of
1.03% to total loans outstanding at December 31, 2002,  management believes that
in the  event of  foreclosure  on the three  loans  discussed  in the  preceding
paragraph the Bank will not incur a  significant  loss on those loans because of
the estimated market value of the related collateral.  However,  there can be no
assurance  that in the case of  liquidation  the  collateral can be sold for its
estimated  fair market  value or even for an amount at least equal to or greater
than the amount owed to the Bank.




                                       12
<PAGE>


         Following is a summary of the Company's nonperforming loans at December
31, 2002, 2001 and 2000:

(Dollars in thousands)                                   2002    2001      2000
                                                         ----    ----      ----
   Nonaccrual loans ...............................     $402      $ -      $  -
   Accruing loans 90 days or more past due ........       30        -         1
                                                        ----      ---      ----

     Total ........................................     $432      $ -      $  1
                                                        ====      ===      ====

Percent of total loans ............................     1.23%     0.0%      0.0%

         The effects of interest  income  accrued and  collected on  nonaccruing
loans were immaterial to the  consolidated  financial  statements for 2002, 2001
and 2000.

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


Potential Problem Loans

         Management  has  identified  and maintains a list of potential  problem
loans. These are loans that are not included in nonaccrual status, or loans that
are  past  due 90  days or more  and  still  accruing.  A loan is  added  to the
potential  problem  list when  management  becomes  aware of  information  about
possible  credit  problems of borrowers  that causes doubts as to the ability of
such  borrowers to comply with the current loan repayment  terms  Management has
determined that there are no potential problem loans at December 31, 2002.

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 loan losses  inherent in the
loan portfolio as of December 31, 2002.

         In  calculating  the amount  required in the allowance for loan losses,
management  applies a  consistent  methodology  that is updated  quarterly.  The
methodology  utilizes a loan risk grading  system and  detailed  loan reviews to
assess credit risks and the overall  quality of the loan  portfolio.  Also,  the
calculation provides for management's assessment of trends in national and local
economic conditions that might affect the general quality of the loan portfolio.
Management  believes the allowance for loan losses is adequate to cover inherent
losses in the portfolio.



                                       13
<PAGE>


                         Summary of Loan Loss Experience

<TABLE>
<CAPTION>
  (Dollars in thousands)                                              2002         2001          2000          1999           1998
                                                                      ----         ----          ----          ----           ----
<S>                                                                 <C>           <C>           <C>           <C>           <C>
 Total loans outstanding at end of period .....................     $35,061       $31,811       $30,768       $29,519       $29,115
                                                                    =======       =======       =======       =======       =======
Average loans outstanding ....................................      $33,677       $30,997       $29,590       $29,159       $30,499
                                                                    =======       =======       =======       =======       =======
Balance of allowance for loan losses - beginning .............      $   274       $   254       $   259       $   265       $   272
                                                                    -------       -------       -------       -------       -------

Loans charged off:
  Commercial and industrial ..................................          225             -            46             -             -
  Consumer installment .......................................           48            15             7             9             9
                                                                    -------       -------       -------       -------       -------
    Total charge offs ........................................          273            15            53             9             9
                                                                    -------       -------       -------       -------       -------
Recoveries of previous charge offs:
  Commercial and industrial ..................................            -             -             -             -             -
  Consumer installment .......................................            2             1             1             3             2
                                                                    -------       -------       -------       -------       -------
    Total recoveries .........................................            2             1             1             3             2
                                                                    -------       -------       -------       -------       -------
Net charge offs ..............................................          271            14            52             6             7
                                                                    -------       -------       -------       -------       -------
Additions to allowance charged to expense ....................          357            34            47             -             -
                                                                    -------       -------       -------       -------       -------
Balance of allowance for loan losses - ending ................      $   360       $   274       $   254       $   259       $   265
                                                                    =======       =======       =======       =======       =======

    Net charge-offs to average loans .........................         0.80%         0.05%         0.18%         0.02%         0.02%
    Net charge-offs to loans at end of period ................         0.77%         0.04%         0.17%         0.02%         0.02%
    Allowance for loan losses to average loans ...............         1.07%         0.88%         0.86%         0.89%         0.87%
    Allowance for loan losses to loans at end of period ......         1.03%         0.86%         0.83%         0.88%         0.91%
    Net charge-offs to allowance for loan losses .............        75.28%         5.11%        20.47%         2.32%         2.64%
    Net charge-offs to provision for loan losses .............        75.91%        41.18%       110.64%           NA            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. The allowance is available to
support losses in all categories.

                     Allocation of Allowance for Loan Losses

<TABLE>
<CAPTION>
                                                              2002                       2001                        2000
                                                              ----                       ----                        ----
                                                     Amounts        Percent     Amounts        Percent       Amounts       Percent
                                                     -------        -------     -------        -------       -------       -------
(Dollars in thousands)
<S>                                                    <C>            <C>          <C>            <C>          <C>            <C>
Commercial and industrial ......................       $ 51            16.2%       $  9             7.5%       $ 19             8.3%
Real estate - construction .....................         19             6.2          10             8.1          17             7.4
Real estate - mortgage .........................        215            68.5          87            69.8         144            63.6
Consumer installment ...........................         29             9.1          18            14.6          47            20.7
Unallocated ....................................         46             0.0         150             0.0          27             0.0
                                                       ----           -----        ----           -----        ----           -----

            Total ..............................       $360           100.0%       $274           100.0%       $254           100.0%
                                                       ====           =====        ====           =====        ====           =====
</TABLE>






                                       14
<PAGE>

Deposits

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

                                Average Deposits

<TABLE>
<CAPTION>
                                                                                    Years Ended December 31
                                                                                    -----------------------
                                                                  2002                       2001                     2000
                                                                  ----                       ----                     ----
   (Dollars in thousands)                               Amount         Percent      Amount       Percent     Amount          Percent
                                                        ------         -------      ------       -------     ------          -------
<S>                                                    <C>             <C>        <C>             <C>        <C>             <C>
Noninterest bearing demand .....................       $ 4,733           9.97%    $ 3,984           9.3%     $ 3,875           9.4%
Interest bearing transaction accounts ..........        15,352          32.33      13,359          31.2       13,559          32.9
Savings accounts ...............................         3,076           6.48       2,891           6.8        2,561           6.2
Time deposits of $100,000  or over .............         6,313          13.29       5,161          12.0        4,102           9.9
Other time deposits ............................        18,011          37.93      17,437          40.7       17,161          41.6
                                                       -------         ------     -------         ------     -------         ------

 Total deposits ................................       $47,485         100.00%    $42,832         100.00%    $41,258         100.00%
                                                       =======         ======     =======         ======     =======         ======
</TABLE>

         As of December  31, 2002,  there were  $8,195,000  in time  deposits of
$100,000 or more with  approximately  $1,903,000  maturing  within three months,
$901,000  maturing over three through six months,  $1,351,000  maturing over six
through  twelve  months and  $4,040,000  maturing  after one year.  Average time
deposits $100,000 and over comprised approximately 13% of total average deposits
during 2002 and  approximately 12% and 10% of total average deposits during 2001
and 2000,  respectively.  The  majority of time  deposits  $100,000 and over are
acquired from customers  within the Company's  local market area.  Such deposits
generally  are acquired in the normal  course of business.  The Company does not
purchase brokered  deposits.  While most of the large time deposits are acquired
from  customers with standing  banking  relationships,  it is a common  industry
practice not to consider these types of deposits as core deposits  because their
retention  can be  expected  to be  heavily  influenced  by rates  offered,  and
therefore  such  deposits have the  characteristics  of  shorter-term  purchased
funds. Time deposits $100,000 and over involve the maintenance of an appropriate
matching of maturity distribution and a diversification of sources to achieve an
appropriate level of liquidity.

         Total deposits as of December 31, 2002 were  approximately  $3,738,000,
or 8.3%,  more than the level  reported  as of  December  31,  2001.  Management
believes that the majority of the increase in deposits was  attributable  to its
ability to compete  successfully for deposits in the local service areas through
its marketing efforts,  offers of attractive interest rates for deposit accounts
and its reputation for excellent customer service.

Return on Equity and Assets

         The following  table shows the return on assets (net income  divided by
average total assets),  return on equity (net income divided by average equity),
dividend  payout ratio  (dividends  declared per share divided by net income per
share),  and equity to assets ratio  (average  equity  divided by average  total
assets) for the years ended December 31, 2002, 2001, and 2000.

                                          2002           2001             2000
                                          ----           ----             ----
            Return on assets              1.41%           1.41%          1.85%
            Return on equity             11.86%          10.21%         13.62%
            Dividend payout ratio        91.47%          98.68%         72.92%
            Equity to assets ratio       11.91%          13.82%         13.59%





                                       15
<PAGE>


Liquidity

         Liquidity is the ability to meet current and future obligations through
liquidation  or maturity of existing  assets or the  acquisition  of  additional
liabilities.  Adequate  liquidity  is  necessary  to meet  the  requirements  of
customers for loans and deposit  withdrawals  in the most timely and  economical
manner. Some liquidity is ensured by maintaining assets which may be immediately
converted  into cash at minimal cost  (amounts due from banks and federal  funds
sold).  However,  the most  manageable  sources of  liquidity  are  composed  of
liabilities, with the primary focus of liquidity management being on the ability
to obtain  deposits  within the  Company's  market area.  Core  deposits  (total
deposits,  less time deposits of $100,000 and over) provide a relatively  stable
funding base,  and the average of these  deposits  represented  70.0% of average
total assets during 2002 compared with 68.4% during 2001, and 70.4% during 2000.

         The  banking  subsidiary  had  available  at  the  end of  2002  unused
short-term  lines of credit to purchase up to  $2,300,000  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 $3,104,000.  The FHLB debt is secured by liens on
all of the Bank's 1-4 family residential first lien mortgage loans.

         Asset liquidity is provided from several sources, including amounts due
from banks and federal funds sold. Available-for-sale  securities,  particularly
those  maturing  within one year,  provide a secondary  source of liquidity.  In
addition, funds from maturing loans are a source of liquidity

         The  Company's  ability  to meet  its  cash  obligations  or to pay any
possible  future cash dividends to  shareholders  is dependent  primarily on the
successful  operation  of the  subsidiary  bank  and  its  ability  to pay  cash
dividends to the parent company.  Any of the banking subsidiary's cash dividends
in an amount exceeding  current  year-to-date  earnings are subject to the prior
approval  of the  South  Carolina  Commissioner  of  Banking  and are  generally
allowable only from its undivided  profits.  In addition,  dividends paid by the
Bank to the Company  would be  prohibited if such payment would cause the Bank's
capital  to be reduced  below  applicable  minimum  regulatory  requirements  At
December 31, 2002, the banking subsidiary's  available undivided profits totaled
$3,715,000.  Under Federal  Reserve Board  regulations,  the amounts of loans or
advances from the banking subsidiary to the parent company are also restricted.

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

Off-Balance Sheet Risk

         The Company's  off-balance  sheet  arrangements  presently include only
contractual  commitments of the Bank to extend credit in the ordinary  course of
its business  activities.  These  commitments are legally binding  agreements to
lend  money to  customers  of the Bank at  predetermined  interest  rates  for a
specified  period of time as long as there is no violation  of any  condition in
the contract.  These  commitments  have elements of credit risk in excess of the
amount recognized in the balance sheet. Generally, the same credit policies used
for on-balance  sheet  arrangements,  such as loans,  are used in extending such
commitments.  At December 31, 2002,  the Bank had issued  commitments  to extend
credit of $5,739,000 through various types of lending. A significant  portion of
these  commitments  will expire within one year. Past experience  indicates that
many of these  commitments to extend credit will expire unused;  therefore,  the
total amount of loan  commitments  does not  necessarily  represent  future cash
requirements. However, as described in "Liquidity," the Company believes that it
has adequate sources of liquidity to fund commitments that are drawn upon by the
borrower.

         There were no standby  letters of credit  outstanding  at December  31,
2002.



                                       16
<PAGE>


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

Capital Resources

         Shareholders'  equity increased by $53,000 and $173,000 during 2002 and
2001,  respectively.  During 2002, net income increased  shareholders' equity by
$832,000,   cash  dividends  decreased  shareholders'  equity  by  $761,000  and
unrealized  losses  on  available-for-sale  securities  decreased  shareholders'
equity by $16,000.

         The  Company in 1999  established  a dividend  reinvestment  program to
provide  shareholders  with the opportunity to reinvest  automatically  all or a
portion of their cash dividends into additional  shares of the Company's  common
stock.  Reinvestment of dividends in 2002 resulted in an increase of $107,000 in
shareholders'  equity. Also during 1999, the Company initiated a limited program
to redeem shares of its stock held by not-for-profit organizations. During 2002,
repurchases  and  retirements  of common stock reduced  shareholders'  equity by
$108,000.

         During 2001,  net income  increased  shareholders'  equity by $777,000,
cash dividends decreased  shareholders'  equity by $763,000 and unrealized gains
on available-for-sale securities increased shareholders' equity by $180,000. Net
sales and  repurchases  of the Company's  common stock  decreased  shareholders'
equity by $21,000.  Reinvested  dividends and  repurchases  and  retirements  of
common stock during 2001 totaled $113,000 and $134,000, respectively.

         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, 2002 and 2001, that the Company and Clover  Community Bank exceeded
all capital adequacy minimum requirements to which they were subject.

         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.



                                       17
<PAGE>


Risk-Based Capital Ratio
<TABLE>
<CAPTION>
                                                                                                                     To Be Well-
                                                                                                                 Capitalized Under
                                                                                            For Capital          Prompt Corrective
                                                                      Actual             Adequacy Purposes       Action Provisions
                                                                      ------             -----------------       -----------------
(Dollars in thousands)                                         Amount        Ratio      Amount         Ratio    Amount        Ratio
                                                               ------        -----      ------         -----    ------        -----
December 31, 2002
The Company
<S>                                                            <C>            <C>       <C>            <C>      <C>            <C>
   Total capital to risk-weighted assets .................     $8,055         19.7%     $3,265         8.0%     $4,082         10.0%
   Tier 1 capital to risk-weighted assets ................      7,695         18.9       1,633         4.0       2,449          6.0
   Tier 1 capital to average assets (leverage) ...........      7,695         13.0       1,783         3.0       2,972          5.0

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

December 31, 2001
The Company
   Total capital to risk-weighted assets .................     $7,901         21.0%     $3,008         8.0%     $3,760         10.0%
   Tier 1 capital to risk-weighted assets ................      7,626         20.3       1,504         4.0       2,256          6.0
   Tier 1 capital to average assets (leverage) ...........      7,626         13.3       1,725         3.0       2,874          5.0

Clover Community Bank
   Total capital to risk-weighted assets .................     $7,234         19.2%     $3,008         8.0%     $3,760         10.0%
   Tier 1 capital to risk-weighted assets ................      6,959         18.5       1,504         4.0       2,256          6.0
   Tier 1 capital to average assets (leverage) ...........      6,959         12.1       1,725         3.0       2,874          5.0
</TABLE>

Inflation

         Since the assets and  liabilities  of a bank are primarily  monetary in
nature (payable in fixed,  determinable  amounts),  the performance of a bank is
affected  more by changes in interest  rates than by inflation.  Interest  rates
generally increase as the rate of inflation increases,  but the magnitude of the
change in rates may not be the same.  While the effect of  inflation on banks is
normally not as significant as is its influence on those  businesses  which have
large  investments  in plant and  inventories,  it does have an  effect.  During
periods of high  inflation,  there are normally  corresponding  increases in the
money supply, and banks will normally experience above-average growth in assets,
loans and deposits.  Also, general increases in the prices of goods and services
will result in increased operating expenses.

Impact of Recent Accounting Changes

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

         In August 2001, the Financial  Accounting Standards Board (FASB) issued
Statement of Financial  Accounting Standards (SFAS) No. 144, "Accounting for the
Impairment  or  Disposal  of  Long-Lived   Assets,"   which   supersedes   prior
pronouncements  associated with impairment or disposal of long-lived assets. The
statement  establishes  methodologies  for  assessing  impairment  of long-lived
assets,  including  assets  to be  disposed  of by sale or by other  means.  The
adoption  of this  standard  had no  impact  on the  financial  position  of the
Company.



                                       18
<PAGE>


         In April  2002,  the FASB  issued  SFAS No.  145,  "Rescission  of FASB
Statements No. 4, 44, and 64,  Amendment of FASB Statement No. 13, and Technical
Corrections."  This statement  rescinds SFAS No. 4, "Reporting  Gains and Losses
from Extinguishments of Debt" and SFAS No. 64,  "Extinguishments of Debt Made to
Satisfy  Sinking-Fund  Requirements."  This statement also rescinds SFAS No. 44,
"Accounting  for  Intangible  Assets of Motor  Carriers" and amends SFAS No. 13,
"Accounting  for  Leases."  This new  statement  requires  gains and losses from
extinguishment  of debt to be classified as an  extraordinary  item only if they
meet  the   criteria  of  APB  Opinion  No.  30,   "Reporting   the  Results  of
Operations--Reporting  the Effects of  Disposal of a Segment of a Business,  and
Extraordinary,  Unusual and  Infrequently  Occurring  Events and  Transactions,"
which  will  distinguish  transactions  that are part of an  entity's  recurring
operations  from those that are unusual or  infrequent or that meet the criteria
for  classification as an extraordinary  item. The adoption of the provisions of
SFAS No. 145 had no impact on the  Company's  financial  position  or results of
operations.

         In  June  2002,  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
Associated  with  Exit  or  Disposal   Activities,"  which  addresses  financial
accounting and reporting for costs  associated with exit or disposal  activities
and  nullifies  Emerging  Issues Task Force (EITF)  Issue No.  94-3,  "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)."  This Statement
applies  to costs  associated  with  specific  exit  activities  and  requires a
liability  for a cost  associated  with  an  exit  or  disposal  activity  to be
recognized  and measured  initially at its fair value in the period in which the
liability  is  incurred.  A  liability  for a cost  associated  with  an exit or
disposal  activity is incurred  when the  definition  of a liability is met. The
provisions of this statement are effective for exit or disposal  activities that
are initiated  after  December 31, 2002.  The  provisions of this statement were
adopted by the Company on January 1, 2003 with no impact on  financial  position
or results of operations.

         In October 2002, the FASB issued SFAS No. 147,  "Acquisition of Certain
Financial Institutions - an amendment of FASB Statements No. 72 and 144 and FASB
Interpretation  No.  9,"  which  brings  all  business  combinations   involving
financial institutions,  except mutual financial institutions, into the scope of
SFAS  No.  141,  Business   Combinations.   This  statement  requires  that  all
acquisitions of financial  institutions  that meet the definition of a business,
including  acquisitions  of a part of a  financial  institution  that  meets the
definition of a business,  must be account for in  accordance  with SFAS No. 141
and the related intangibles  accounted for in accordance with SFAS No. 142. SFAS
No. 147 removes such acquisitions from the scope of SFAS No. 72, "Accounting for
Certain  Acquisitions  of  Banking  or Thrift  Institutions."  SFAS No. 147 also
amends  SFAS No.  144 to include in its scope  long-term  customer  relationship
intangibles of financial institutions.  SFAS No. 147 was effective upon issuance
and had no impact on the Company's financial statements.

         In  December  2002,  the FASB  issued  SFAS No.  148,  "Accounting  for
Stock-Based   Compensation--Transition  and  Disclosure--an  amendment  of  FASB
Statement No. 123." This Statement  amends FASB  Statement No. 123,  "Accounting
for Stock-Based  Compensation," to provide alternative methods of transition for
a voluntary  change in the fair value based method of accounting for stock-based
employee  compensation.  In  addition,  this  statement  amends  the  disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual and
interim  financial  statements  about the  method  of  account  for  stock-based
employee compensation and the effect of the method used on the reported results.
The Company has no stock-based  employee  compensation  and the adoption of this
statement had no impact on its financial statements.

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



                                       19
<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.,  as of  December  31,  2002,  and  the  related  consolidated
statement of income,  changes in shareholders' equity and comprehensive  income,
and cash flows for the year then ended. These consolidated  financial statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an  opinion  on these  consolidated  financial  statements  based on our
audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Clover Community
Bankshares,  Inc., as of December 31, 2002, and the results of their  operations
and cash flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.


                                        s/Elliott Davis, LLC


Elliott Davis, LLC
Greenville, South Carolina
February 7, 2003



                                       20
<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, 2001,  and the
related consolidated  statements of income, changes in shareholders' equity, and
cash flows for the years  ended  December  31,  2001 and 2000.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

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



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


Donald G. Jones and Company, P.A.
Certified Public Accountants
Columbia, South Carolina
January 24, 2002


                                       21

<PAGE>

                        CLOVER COMMUNITY BANKSHARES, INC.

                          Consolidated Balance Sheets
                           December 31, 2002 and 2001

<TABLE>
<CAPTION>
                                                                                                   2002                     2001
                                                                                                   ----                     ----
Assets:
  Cash and cash equivalents:
<S>                                                                                           <C>                      <C>
    Cash and due from banks (Note B) .............................................            $  3,280,267             $  1,458,095
    Interest-bearing deposits in other banks .....................................                  24,507                   10,091
    Federal funds sold ...........................................................               3,221,000                5,086,000
                                                                                              ------------             ------------
      Total cash and cash equivalents ............................................               6,525,774                6,554,186
                                                                                              ------------             ------------

  Investment securities:
    Securities available-for-sale (Note C) .......................................              16,533,582               16,924,339
    Nonmarketable equity securities (Note D) .....................................                 250,000                  250,000
                                                                                              ------------             ------------
      Total investment securities ................................................              16,783,582               17,174,339
                                                                                              ------------             ------------

  Loans receivable ...............................................................              35,060,780               31,811,668
    Less allowance for loan losses ...............................................                (359,906)                (274,347)
                                                                                              ------------             ------------
      Loans, net (Note E) ........................................................              34,700,874               31,537,321
                                                                                              ------------             ------------

  Premises, furniture and equipment, net (Note F) ................................               2,281,538                1,444,970
  Accrued interest receivable ....................................................                 272,060                  264,873
  Other assets ...................................................................                 220,198                  216,614
                                                                                              ------------             ------------

      Total assets ...............................................................            $ 60,784,026             $ 57,192,303
                                                                                              ============             ============

Liabilities:
  Deposits: (Note G)
    Noninterest-bearing ..........................................................            $  4,921,609             $  4,287,824
    Interest-bearing .............................................................              43,769,189               40,665,302
                                                                                              ------------             ------------
      Total deposits .............................................................              48,690,798               44,953,126

  Advances from Federal Home Loan Bank (Note H) ..................................               4,000,000                4,000,000
  Accrued interest payable .......................................................                 203,098                  376,087
  Other liabilities ..............................................................                     372                   26,660
                                                                                              ------------             ------------
      Total liabilities ..........................................................              52,894,268               49,355,873
                                                                                              ------------             ------------

Commitments and Contingencies (Note L)

Shareholders' equity: (Note I)
  Common  stock - par value  $.01, 10,000,000 shares
    authorized; issued and outstanding - 1,014,581 shares
    for 2002 and 1,015,458 shares for 2001 .......................................                  10,146                   10,154
  Capital surplus ................................................................               3,454,709                3,456,396
  Retained earnings ..............................................................               4,230,403                4,159,474
  Accumulated other comprehensive income .........................................                 194,500                  210,406
                                                                                              ------------             ------------
      Total shareholders' equity .................................................               7,889,758                7,836,430
                                                                                              ------------             ------------

      Total liabilities and shareholders' equity .................................            $ 60,784,026             $ 57,192,303
                                                                                              ============             ============
</TABLE>





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



                                       22
<PAGE>

                        CLOVER COMMUNITY BANKSHARES, INC.

                        Consolidated Statements of Income
              for the years ended December 31, 2002, 2001, and 2000

<TABLE>
<CAPTION>
                                                                                     2002                2001               2000
                                                                                     ----                ----               ----
Interest income:
<S>                                                                               <C>                 <C>                 <C>
  Loans, including fees ................................................          $2,553,342          $2,851,774          $2,998,296
  Interest-bearing deposits in other banks .............................                 457               2,209               3,477
  Investment securities:
    Taxable ............................................................             585,441             713,476             916,692
    Tax-exempt .........................................................             217,048             218,952             192,893
    Nonmarketable equity securities ....................................              12,563              16,405              18,518
  Federal funds sold ...................................................              65,940             123,994             152,240
                                                                                  ----------          ----------          ----------
      Total ............................................................           3,434,791           3,926,810           4,282,116
                                                                                  ----------          ----------          ----------

Interest expense:
  Time deposits $100,000 and over ......................................             202,980             250,041             192,230
  Other deposits .......................................................             730,359           1,136,314           1,140,137
  Federal funds purchased ..............................................                 117               4,885               1,156
  Advances from Federal Home Loan Bank .................................              77,164             171,572             263,366
                                                                                  ----------          ----------          ----------
      Total ............................................................           1,010,620           1,562,812           1,596,889
                                                                                  ----------          ----------          ----------

Net interest income ....................................................           2,424,171           2,363,998           2,685,227
Provision for loan losses (Note E) .....................................             357,000              33,500              46,700
                                                                                  ----------          ----------          ----------

Net interest income after provision for loan losses ....................           2,067,171           2,330,498           2,638,527
                                                                                  ----------          ----------          ----------

Other income:
  Service charges on deposit accounts ..................................             719,566             469,189             417,873
  Credit life insurance commissions ....................................               1,496              12,581              16,650
  Gain on sale of securities available-for-sale ........................             273,376                   -                   -
  Other ................................................................              58,875              61,264              58,455
                                                                                  ----------          ----------          ----------
      Total ............................................................           1,053,313             543,034             492,978
                                                                                  ----------          ----------          ----------

Other expenses: (Note K)
  Salaries and employee benefits .......................................           1,070,399             874,794             929,218
  Net occupancy ........................................................              88,347             102,284              70,588
  Furniture and equipment ..............................................             187,095             204,999             235,450
  Printing, postage and stationery .....................................             142,887             111,345             106,267
  Professional services ................................................              88,884             111,379              78,248
  Data processing ......................................................              59,991              55,984              50,427
  ATM/Debit card .......................................................              50,300              53,653              47,481
  Directors fees .......................................................              38,000              45,600              38,800
  Other operating ......................................................             191,559             183,216             139,799
                                                                                  ----------          ----------          ----------
      Total ............................................................           1,917,462           1,743,254           1,696,278
                                                                                  ----------          ----------          ----------

Income before income taxes .............................................           1,203,022           1,130,278           1,435,227

Income tax expense (Note J) ............................................             371,175             353,621             456,972
                                                                                  ----------          ----------          ----------

Net income .............................................................          $  831,847          $  776,657          $  978,255
                                                                                  ==========          ==========          ==========

Earnings per share
Weighted average shares outstanding ....................................           1,015,247           1,017,386           1,017,645
Basic earnings per share ...............................................          $      .82          $      .76          $      .96
</TABLE>

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



                                       23
<PAGE>
                        CLOVER COMMUNITY BANKSHARES, INC.


           Consolidated Statements of Changes in Shareholders' Equity
 and Comprehensive Income for the years ended December 31, 2002, 2001, and 2000

<TABLE>
<CAPTION>
                                                                                                         Accumulated
                                                       Common Stock                                         Other
                                                       ------------           Capital      Retained     Comprehensive
                                                  Shares         Amount       Surplus      Earnings      Income(Loss)      Total
                                                  ------         ------       -------      --------      ------------      -----
<S>                                             <C>          <C>            <C>            <C>           <C>            <C>
Balance, December 31, 1999 ................     1,014,096    $    10,141    $ 3,390,436    $ 3,877,203   $  (115,536)   $ 7,162,244
                                                                                                                        -----------
Net income ................................                                                    978,255                      978,255
Other comprehensive income:
   Unrealized holding gains on securities
     available-for-sale, net of income
      taxes of $81,264 ....................                                                                  145,100        145,100
                                                                                                                        -----------
Comprehensive income ......................                                                                               1,123,355
Cash dividends declared -$.70 per
   share ..................................                                                   (709,867)                    (709,867)
Sales of common stock under dividend
   reinvestment plan -  (Note I) ..........         6,118             61        173,181                                     173,242
Repurchase and retirement of common
   stock ..................................        (3,180)           (32)       (86,102)             -             -        (86,134)
                                              -----------    -----------    -----------    -----------   -----------    -----------

Balance, December 31, 2000 ................     1,017,034         10,170      3,477,515      4,145,591        29,564      7,662,840
                                                                                                                        -----------
Net income ................................                                                    776,657                      776,657
Other comprehensive income:
   Unrealized holding gains on securities
      available-for-sale, net of income
      taxes of $101,284 ...................                                                                  180,842        180,842
                                                                                                                        -----------
Comprehensive income ......................                                                                                 957,499
Cash dividends declared -$.75 per
   share ..................................                                                   (762,774)                    (762,774)
Sales of common stock under dividend
   reinvestment plan -  (Note I) ..........         3,708             37        112,915                                     112,952
Repurchase and retirement of common
   stock ..................................        (5,284)           (53)      (134,034)                                   (134,087)
                                              -----------    -----------    -----------    -----------   -----------    -----------

Balance, December 31, 2001 ................     1,015,458         10,154      3,456,396      4,159,474       210,406      7,836,430
                                                                                                                        -----------
Net income ................................                                                    831,847                      831,847
Other comprehensive income:
   Unrealized holding losses on
     securities available-for-sale, net
     of income taxes of $(8,908) ..........                                                                  (15,906)       (15,906)
                                                                                                                        -----------
Comprehensive income ......................                                                                                 815,941
Cash dividends declared -$.75 per
   share ..................................                                                   (760,918)                    (760,918)
Sales of common stock under dividend
   reinvestment plan -  (Note I) ..........         3,455             35        106,625                                     106,660
Repurchase and retirement of common
   stock ..................................        (4,332)           (43)      (108,312)                                   (108,355)
                                              -----------    -----------    -----------    -----------   -----------    -----------

Balance, December 31, 2002 ................     1,014,581    $    10,146    $ 3,454,709    $ 4,230,403   $   194,500    $ 7,889,758
                                              ===========    ===========    ===========    ===========   ===========    ===========
</TABLE>








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




                                       24
<PAGE>

                        CLOVER COMMUNITY BANKSHARES, INC.


                      Consolidated Statements of Cash Flows
              for the years ended December 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>
                                                                                      2002                2001              2000
                                                                                      ----                ----              ----
Cash flows from operating activities:
<S>                                                                              <C>                <C>                <C>
  Net income ..............................................................      $    831,847       $    776,657       $    978,255
  Adjustments to reconcile net income to net cash provided by
   operating activities:
    Provision for loan losses .............................................           357,000             33,500             46,700
    Depreciation ..........................................................            74,633             94,613            134,115
    Amortization of net loan fees and costs ...............................             9,357            (37,591)           (23,680)
    Discount accretion and premium amortization ...........................           (17,982)             3,890              3,094
    Deferred income tax benefit ...........................................           (42,090)           (72,403)           (22,719)
    Gain on sales of securities available-for-sale ........................          (273,376)                 -                  -
    Gain on disposal of premises and equipment ............................                 -             (6,844)                 -
    (Increase) decrease in accrued interest receivable ....................            (7,187)           145,374            (48,784)
    Increase (decrease) in accrued interest payable .......................          (172,989)            (2,398)            59,036
    (Increase) decrease in other assets ...................................            (3,584)           101,911            (33,091)
    Increase in other liabilities .........................................            69,978              9,854                189
                                                                                 ------------       ------------       ------------
      Net cash provided by operating activities ...........................           825,607          1,046,563          1,093,115
                                                                                 ------------       ------------       ------------

Cash flows from investing activities:
  Purchases of securities available-for-sale ..............................       (10,305,314)        (4,347,611)        (1,526,980)
  Maturities of securities available-for-sale .............................         4,483,977          5,594,324          1,411,894
  Proceeds from sales of securities available-for-sale ....................         6,442,674                  -                  -
  Net increase in loans made to customers .................................        (3,543,212)        (1,014,653)        (1,294,441)
  Purchase of premises, furniture and equipment ...........................          (911,203)          (774,552)           (71,228)
  Proceeds from sale of equipment .........................................                 -             53,305                  -
  Proceeds from sale of other assets ......................................                 -              4,760             18,276
                                                                                 ------------       ------------       ------------
      Net cash used by investing activities ...............................        (3,833,078)          (484,427)        (1,462,479)
                                                                                 ------------       ------------       ------------

Cash flows from financing activities:
  Net increase in demand deposits, interest-bearing
   transaction accounts and savings accounts ..............................         1,438,792          2,508,046            153,365
  Net increase (decrease) in certificates of deposit and other time
   deposits ...............................................................         2,302,880          3,029,080         (1,594,889)
  Advances from Federal Home Loan Bank ....................................                 -                  -          4,000,000
  Repayment of advances from Federal Home Loan Bank .......................                 -                  -         (4,000,000)
  Cash dividends paid .....................................................          (760,918)          (762,774)          (709,867)
  Increase (decrease) in federal funds purchased ..........................                 -           (470,000)           470,000
  Sales of common stock under dividend reinvestment plan (Note I) .........           106,660            112,952            173,242
  Repurchase and retirement of common stock ...............................          (108,355)          (134,087)           (86,134)
                                                                                 ------------       ------------       ------------
      Net cash provided (used) by financing activities ....................         2,979,059          4,283,217         (1,594,283)
                                                                                 ------------       ------------       ------------

Net increase (decrease) in cash and cash equivalents ......................           (28,412)         4,845,353         (1,963,647)

Cash and cash equivalents, beginning of year ..............................         6,554,186          1,708,833          3,672,480
                                                                                 ------------       ------------       ------------

Cash and cash equivalents, end of year ....................................      $  6,525,774       $  6,554,186       $  1,708,833
                                                                                 ============       ============       ============
</TABLE>





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



                                       25
<PAGE>

                        CLOVER COMMUNITY BANKSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization - Clover Community Bankshares, Inc. (the "Company"), a bank holding
company,  and its wholly-owned  subsidiary,  Clover Community Bank (the "Bank"),
are  engaged  in  providing  domestic  commercial  banking  services  from their
headquarters office in Clover,  South Carolina.  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  and  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  and  Lake  Wylie  areas of York  County,  South
Carolina.  The Bank has a diversified loan portfolio and borrowers' abilities to
repay are not dependent upon any specific economic factor.  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.

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.

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

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



                                       26
<PAGE>

                        CLOVER COMMUNITY BANKSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, ( continued)

Loans  Receivables and Interest Income - Loans are carried at principal  amounts
outstanding,  increased or reduced by deferred net loan costs or fees.  Interest
income on loans is recognized using the interest method based upon the principal
amounts  outstanding.  Loan  origination  and commitment fees and certain direct
loan origination costs (principally salaries and employee benefits) are deferred
and  amortized as an adjustment of the related  loan's yield.  Generally,  these
amounts  are  amortized  over  the  contractual  life of the  related  loans  or
commitments.  A loan is considered to be impaired when, in management's judgment
based on current  information and events,  it is probable that the  obligation's
principal or interest will not be  collectible  in accordance  with the terms of
the original loan agreement.  Impaired loans, when not material,  are carried in
the balance sheet at a value not to exceed their observable  market price or the
fair value of the  collateral  if the  repayment  of the loan is  expected to be
provided solely by the underlying collateral. The carrying value of any material
impaired  loan is measured  based on the present  value of expected  future cash
flows discounted at the loan's effective interest rate, which is the contractual
interest rate adjusted for any deferred loan fees or costs,  premium or discount
existing at the inception or acquisition of the loan. Generally,  the accrual of
interest is discontinued on impaired loans and any previously  accrued  interest
on such loans is reversed against current income. Any subsequent interest income
is  recognized  on  a  cash  basis  when  received  unless  collectibility  of a
significant amount of principal is in serious doubt. In such cases,  collections
are credited first to the remaining  principal balance on a cost recovery basis.
An impaired loan is not returned to accrual status unless principal and interest
are current and the borrower  has  demonstrated  the ability to continue  making
payments as agreed.

Allowance  for Loan Losses - An allowance for possible loan losses is maintained
at a level deemed  appropriate by management to 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.

Premises, Furniture and Equipment - Premises, furniture and equipment are stated
at cost,  less  accumulated  depreciation.  The  provision for  depreciation  is
computed predominantly using the straight-line method. Rates of depreciation are
generally based on the following estimated useful lives:  building - 31.5 years;
furniture  and  equipment - 5 to 7 years.  The cost of assets sold or  otherwise
disposed of, and the related  allowance for  depreciation is eliminated from the
accounts and the  resulting  gains or losses are  reflected in the  consolidated
income  statement.  Maintenance  and repairs  are charged to current  expense as
incurred and the costs of major renewals and improvements are capitalized.



                                       27
<PAGE>

                        CLOVER COMMUNITY BANKSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, ( continued)

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

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 - Earnings per share is  calculated by dividing net income by
the weighted average number of shares of the Company's common stock  outstanding
during the period.  The Company has no potential  dilutive common shares,  stock
options or warrants outstanding and therefore has not presented diluted earnings
per share.

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

<TABLE>
<CAPTION>
                                                                                             For the Years Ended December 31,
                                                                                             --------------------------------
                                                                                         2002               2001             2000
                                                                                         ----               ----             ----
<S>                                                                                   <C>                <C>               <C>
Change in unrealized gains on securities available-for-sale .................         $ 248,562          $ 282,126         $ 226,364
Reclassification adjustment for gains realized in net income ................          (273,376)                 -                 -
                                                                                      ---------          ---------         ---------
Change in net unrealized gains (losses) on
  securities available-for-sale .............................................           (24,814)           282,126           226,364

Tax effect ..................................................................            (8,908)           101,284            81,264
                                                                                      ---------          ---------         ---------

Net-of-tax amount ...........................................................         $ (15,906)         $ 180,842         $ 145,100
                                                                                      =========          =========         =========
</TABLE>

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

The following summarizes  supplemental cash flow information for the years ended
December 31, 2002, 2001, and 2000:

<TABLE>
<CAPTION>
                                                                                         2002              2001             2000
                                                                                         ----              ----             ----
Cash Paid for:
<S>                                                                                 <C>                <C>               <C>
   Interest .................................................................       $ 1,010,620        $ 1,565,210       $ 1,537,853
   Income taxes .............................................................           411,000            330,000           568,500

Supplemental noncash investing and financing activities:
   Real estate acquired in settlement of loans ..............................                 -                  -             9,149
   Change in unrealized gain or loss on securities available-for-
     sale, net of tax .......................................................           (15,906)           180,842           145,100
</TABLE>

                                       28
<PAGE>
                        CLOVER COMMUNITY BANKSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

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

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

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

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

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

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

Reclassifications  - Certain captions and amounts in the 2001 and 2000 financial
statements were reclassified to conform with the 2002 presentation.

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

In August 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment
or  Disposal  of  Long-Lived  Assets,"  which  supersedes  prior  pronouncements
associated  with  impairment  or disposal of  long-lived  assets.  The statement
establishes   methodologies  for  assessing  impairment  of  long-lived  assets,
including  assets to be disposed of by sale or by other  means.  The adoption of
this standard had no impact on the financial position of the Company.



                                       29
<PAGE>

                        CLOVER COMMUNITY BANKSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recently Issued Accounting Standards - (continued)

In April 2002, the FASB issued SFAS No. 145,  "Rescission of FASB Statements No.
4, 44, and 64,  Amendment of FASB Statement No. 13, and Technical  Corrections."
This  statement   rescinds  SFAS  No.  4,  "Reporting   Gains  and  Losses  from
Extinguishments  of Debt"  and SFAS No.  64,  "Extinguishments  of Debt  Made to
Satisfy  Sinking-Fund  Requirements."  This statement also rescinds SFAS No. 44,
"Accounting  for  Intangible  Assets of Motor  Carriers" and amends SFAS No. 13,
"Accounting  for  Leases."  This new  statement  requires  gains and losses from
extinguishment  of debt to be classified as an  extraordinary  item only if they
meet  the   criteria  of  APB  Opinion  No.  30,   "Reporting   the  Results  of
Operations--Reporting  the Effects of  Disposal of a Segment of a Business,  and
Extraordinary,  Unusual and  Infrequently  Occurring  Events and  Transactions,"
which  will  distinguish  transactions  that are part of an  entity's  recurring
operations  from those that are unusual or  infrequent or that meet the criteria
for  classification as an extraordinary  item. The adoption of the provisions of
SFAS No. 145 had no impact on the  Company's  financial  position  or results of
operations.

In June 2002, FASB issued SFAS No. 146,  "Accounting  for Costs  Associated with
Exit or Disposal Activities," which addresses financial accounting and reporting
for costs  associated  with exit or disposal  activities and nullifies  Emerging
Issues Task Force  (EITF)  Issue No. 94-3,  "Liability  Recognition  for Certain
Employee  Termination  Benefits  and Other Costs to Exit an Activity  (including
Certain Costs Incurred in a  Restructuring)."  This  Statement  applies to costs
associated  with  specific exit  activities  and requires a liability for a cost
associated  with an exit or disposal  activity  to be  recognized  and  measured
initially at its fair value in the period in which the liability is incurred.  A
liability for a cost  associated  with an exit or disposal  activity is incurred
when the  definition of a liability is met. The provisions of this statement are
effective for exit or disposal  activities that are initiated after December 31,
2002. The provisions of this statement were adopted by the Company on January 1,
2003 with no impact on financial position or results of operations.

In  October  2002,  the FASB  issued  SFAS No.  147,  Acquisitions  for  Certain
Financial Institutions - an amendment of FASB Statements No. 72 and 144 and FASB
Interpretation  No.  9,"  which  brings  all  business  combinations   involving
financial institutions,  except mutual financial institutions, into the scope of
SFAS  No.  141,  Business   Combinations.   This  statement  requires  that  all
acquisitions of financial  institutions  that meet the definition of a business,
including  acquisitions  of a part of a  financial  institution  that  meets the
definition of a business,  must be account for in  accordance  with SFAS No. 141
and the related intangibles  accounted for in accordance with SFAS No. 142. SFAS
No. 147 removes such acquisitions from the scope of SFAS No. 72, "Accounting for
Certain  Acquisitions  of  Banking  or Thrift  Institutions."  SFAS No. 147 also
amends  SFAS No.  144 to include in its scope  long-term  customer  relationship
intangibles of financial institutions.  SFAS No. 147 was effective upon issuance
and had no impact on the Company's financial statements.

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation--Transition  and  Disclosure--an  amendment of FASB  Statement  No.
123." This Statement amends FASB Statement No. 123,  "Accounting for Stock-Based
Compensation,"  to provide  alternative  methods of  transition  for a voluntary
change in the fair value based method of  accounting  for  stock-based  employee
compensation.  In addition, this statement amends the disclosure requirements of
SFAS No.  123 to  require  prominent  disclosures  in both  annual  and  interim
financial  statements  about the  method of  account  for  stock-based  employee
compensation  and the effect of the method  used on the  reported  results.  The
Company  has no  stock-based  employee  compensation  and the  adoption  of this
statement had no impact on its financial statements.

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



                                       30
<PAGE>

                        CLOVER COMMUNITY BANKSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

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


NOTE B - CASH AND DUE FROM BANKS

Banks are  generally  required by regulation to maintain an average cash reserve
balance  based on a  percentage  of  deposits.  The average  amounts of the cash
reserve balances at December 31, 2002 and 2001, were approximately  $230,000 and
$216,000, respectively.


NOTE C - SECURITIES AVAILABLE-FOR-SALE

The amortized cost and estimated fair values of securities available-for-sale at
December 31, 2002 and 2001 were as follows:

<TABLE>
<CAPTION>
                                                                                           Gross
                                                                                         Unrealized                       Estimated
                                                             Amortized                   ----------                          Fair
                                                               Cost               Gains                Losses                Value
                                                               ----               -----                ------                -----
December 31, 2002
<S>                                                       <C>                  <C>                  <C>                  <C>
   U.S. Government agencies ....................          $ 1,519,771          $    40,053          $         -          $ 1,559,824
   State, county and municipal .................            4,331,977              156,073               19,478            4,468,572
   Mortgage-backed securities ..................           10,378,402              131,298                4,514           10,505,186
                                                          -----------          -----------          -----------          -----------

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


<TABLE>
<CAPTION>
                                                                                           Gross
                                                                                         Unrealized                       Estimated
                                                             Amortized                   ----------                          Fair
                                                               Cost               Gains                Losses                Value
                                                               ----               -----                ------                -----

December 31, 2001
<S>                                                       <C>                  <C>                  <C>                  <C>
   U.S. Government agencies ....................          $ 3,122,733          $    66,040          $     1,119          $ 3,187,654
   State, county and municipal .................            4,259,767              114,367               18,338            4,355,796
   Mortgage-backed securities ..................            9,213,592              195,931               28,634            9,380,889
                                                          -----------          -----------          -----------          -----------

     Total .....................................          $16,596,092          $   376,338          $    48,091          $16,924,339
                                                          ===========          ===========          ===========          ===========
</TABLE>

Proceeds from sales of securities available-for-sale during 2002 were $6,442,674
resulting in gross realized gains of $273,376. There were no sales of securities
in 2001 or 2000.




                                       31
<PAGE>

                        CLOVER COMMUNITY BANKSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE C - SECURITIES AVAILABLE-FOR-SALE (Continued)

The following is a summary of maturities of securities  available-for-sale as of
December 31, 2002 and 2001.  The amortized  cost and  estimated  fair values are
based on the  contractual  maturity  dates.  Actual  maturities  may differ from
contractual  maturities  because  borrowers may have the right to call or prepay
obligations with or without penalty.

<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                                           ------------
                                                                           2002                                    2001
                                                                           ----                                    ----
                                                                Amortized         Estimated           Amortized            Estimated
                                                                  Cost            Fair Value             Cost             Fair Value
                                                                  ----            ----------             ----             ----------
<S>                                                          <C>                 <C>                 <C>                 <C>
Due in one year or less ............................         $   325,125         $   328,350         $   280,000         $   285,332
Due after one through five years ...................           1,969,884           2,062,076           2,032,979           2,081,016
Due after five through ten years ...................           2,409,027           2,445,561           3,202,404           3,310,828
Due after ten years ................................           1,147,712           1,192,409           1,867,117           1,866,274
                                                             -----------         -----------         -----------         -----------
                                                               5,851,748           6,028,396           7,382,500           7,543,450
Mortgage-backed securities .........................          10,378,402          10,505,186           9,213,592           9,380,889
                                                             -----------         -----------         -----------         -----------

   Total ...........................................         $16,230,150         $16,533,582         $16,596,092         $16,924,339
                                                             ===========         ===========         ===========         ===========
</TABLE>

At December 31, 2002 and 2001,  securities  with a carrying amount of $1,527,296
and  $1,401,149,  respectively,  were  pledged as  collateral  to secure  public
deposits.


NOTE D - NONMARKETABLE EQUITY SECURITIES

Nonmarketable equity securities consist of:
                                                              December 31,
                                                              ------------
                                                          2002            2001
                                                          ----            ----
Federal Home Loan Bank stock .................         $200,000         $200,000
Bankers' Bank  stock .........................           50,000           50,000
                                                       --------         --------

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

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




                                       32
<PAGE>

                        CLOVER COMMUNITY BANKSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE E - LOANS RECEIVEABLE AND ALLOWANCE FOR LOAN LOSSES

Major  classifications  of loans  receivable  at December  31, 2002 and 2001 are
summarized as follows:

                                                     2002                2001
                                                     ----                ----
Commercial and industrial ................      $  5,690,871       $  2,391,435
Real estate - construction ...............         2,169,447          2,575,577
Real estate - mortgage ...................        24,007,689         22,192,260
Consumer and other .......................         3,192,773          4,652,396
                                                ------------       ------------
   Total .................................        35,060,780         31,811,668
Less, allowance for loan losses ..........          (359,906)          (274,347)
                                                ------------       ------------

                Loans - net ..............      $ 34,700,874       $ 31,537,321
                                                ============       ============

Nonperforming  loans include nonaccrual loans or loans which are 90 days or more
delinquent as to principal or interest payments. Nonperforming loans amounted to
$431,757 and $0 at December 31, 2002 and 2001, respectively.

Transactions  in the allowance for loan losses for the years ended  December 31,
2002, 2001 and 2000 are summarized below:

                                             2002           2001         2000
                                             ----           ----         ----
Balance, beginning of year ...........    $ 274,347     $ 253,967     $ 258,762
Provision charged to operations ......      357,000        33,500        46,700
Recoveries on loans
    previously charged-off ...........        2,375         1,297           872
Loans charged-off ....................     (273,816)      (14,417)      (52,367)
                                          ---------     ---------     ---------

   Balance, end of year ..............    $ 359,906     $ 274,347     $ 253,967
                                          =========     =========     =========

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  $1,826,802 and
$3,301,290 at December 31, 2002 and 2001,  respectively.  During 2002, new loans
were $821,917, repayments totaled $1,233,093, and reclassifications from related
party loans for retirements and resignations of directors totaled $1,063,312.


NOTE F - PREMISES, FURNITURE AND EQUIPMENT

Premises,  furniture  and  equipment  consisted of the following at December 31,
2002 and 2001:

                                                       2002               2001
                                                       ----               ----
Land .........................................     $   978,822      $   978,822
Buildings and land improvements ..............         620,399          600,041
Furniture and equipment ......................       1,158,282        1,006,888
Construction in progress .....................         739,451                -
                                                   -----------      -----------
   Total .....................................       3,496,954        2,585,751
Less, accumulated depreciation ...............      (1,215,416)      (1,140,781)
                                                   -----------      -----------

   Premises, furniture and equipment, net ....     $ 2,281,538      $ 1,444,970
                                                   ===========      ===========


                                       33
<PAGE>

                        CLOVER COMMUNITY BANKSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE F - PREMISES, FURNITURE AND EQUIPMENT (Continued)

Depreciation  expense for the years ended  December 31, 2002,  2001 and 2000 was
$74,633, $94,613 and $134,115, respectively.

Construction in progress consists of all of the related costs of construction of
the  branch  office in Lake  Wylie,  South  Carolina,  which  was  substantially
completed at December 31, 2002.


NOTE G - DEPOSITS

A summary of deposits at December 31, 2002 and 2001 follows:

                                                       2002              2001
                                                       ----              ----
Noninterest-bearing demand ...................      $ 4,921,609      $ 4,287,824
Interest-bearing transaction accounts ........       14,432,234       13,893,808
Savings ......................................        3,078,637        2,812,056
Time deposits $100,000 and over ..............        8,195,453        6,729,660
Other time deposits ..........................       18,062,865       17,229,778
                                                    -----------      -----------

       Total deposits ........................      $48,690,798      $44,953,126
                                                    ===========      ===========

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

Maturing In                                                             Amount
-----------                                                             ------
2003                                                                 $17,950,444
2004                                                                   6,650,158
2005                                                                   1,231,284
2006                                                                     249,431
2007                                                                     177,001
                                                                     -----------
Total                                                                $26,258,318
                                                                     ===========


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

Advances from FHLB at December 31, 2002 and 2001 consisted of a $4,000,000  note
issued by the Bank to the Federal Home Loan Bank.

                                                     2002                2001
                                                     ----                ----
                                                    Amount              Amount
                                                    ------              ------
Floating rate notes issued to the FHLB
    Due November 28, 2003 ..................    $   4,000,000     $   4,000,000
    Interest rate at period end ............             1.51%             2.02%

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  $9,476,159 as
of December 31,  2002.  The Bank has an  additional  borrowing  availability  of
approximately  $3,104,000  from the FHLB that had not been drawn at December 31,
2002.



                                       34
<PAGE>

                        CLOVER COMMUNITY BANKSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE I - SHAREHOLDERS' EQUITY

Restrictions on Subsidiary Dividends, Loans or Advances - South Carolina banking
regulations restrict the amount of dividends that banks can pay to shareholders.
Any of the Bank's  dividends to the parent  company in an amount  exceeding  the
amount of the current  year's  earnings are subject to the prior approval of the
South Carolina Commissioner of Banking and are generally allowable only from its
undivided profits. In addition, dividends paid by the Bank to the parent company
would be prohibited if the effect  thereof would cause the Bank's  capital to be
reduced below applicable minimum capital requirements. At December 31, 2002, the
Bank's  undivided  profits  totaled  $3,714,753.  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,  2002 and 2001,
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, net of income tax effects.

Dividend  Reinvestment Plan - As of February 4, 1999, the Company registered and
reserved  50,000  shares of its  authorized  but unissued  common stock for sale
through its Dividend  Reinvestment  Plan (the "Plan").  Under the Plan, which is
open only to residents of South Carolina,  shareholders may purchase  additional
shares by  foregoing  the  payment  in cash of cash  dividends  declared  by the
Company and instead accepting  additional shares of common stock. Such shares of
additional  stock are issued at a price determined in accordance with the plan's
pricing  formula.  There are no provisions for other  periodic  stock  purchases
under the Plan.  Shares  issued  under the Plan are newly issued  shares.  As of
December 31, 2002, a total of 18,059 shares had been issued,  with 31,941 of the
reserved shares available for future issuance.

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

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Company and its banking  subsidiary to maintain  minimum amounts and
ratios set forth in the table  below of Total and Tier 1 Capital,  as defined in
the regulations,  to risk weighted assets, as defined, and of Tier 1 Capital, as
defined, to average assets, as defined.  Management believes, as of December 31,
31 2002 and 2001,  that the Company and its subsidiary bank exceeded all capital
adequacy minimum requirements.



                                       35
<PAGE>

                        CLOVER COMMUNITY BANKSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE I - SHAREHOLDERS' EQUITY (continued)

Regulatory Capital, (continued)

As of December 31, 2002, 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.

<TABLE>
<CAPTION>
                                                                                                                     To Be Well-
                                                                                                                 Capitalized Under
                                                                                            For Capital          Prompt Corrective
                                                                        Actual           Adequacy Purposes       Action Provisions
                                                                        ------           -----------------       -----------------
(Dollars in thousands)                                           Amount       Ratio      Amount      Ratio      Amount        Ratio
                                                                 ------       -----      ------      -----      ------        -----
December 31, 2002
The Company
<S>                                                              <C>           <C>       <C>           <C>      <C>           <C>
   Total capital to risk-weighted assets .................       $8,055        19.7%     $3,265        8.0%     $4,082        10.0%
   Tier 1 capital to risk-weighted assets ................        7,695        18.9       1,633        4.0       2,449         6.0
   Tier 1 capital to average assets (leverage) ...........        7,695        13.0       1,783        3.0       2,972         5.0

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

December 31, 2001
The Company
   Total capital to risk-weighted assets .................       $7,901        21.0%     $3,008        8.0%     $3,760        10.0%
   Tier 1 capital to risk-weighted assets ................        7,626        20.3       1,504        4.0       2,256         6.0
   Tier 1 capital to average assets (leverage) ...........        7,626        13.3       1,725        3.0       2,874         5.0

Clover Community Bank
   Total capital to risk-weighted assets .................       $7,234        19.2%     $3,008        8.0%     $3,760        10.0%
   Tier 1 capital to risk-weighted assets ................        6,959        18.5       1,504        4.0       2,256         6.0
   Tier 1 capital to average assets (leverage) ...........        6,959        12.1       1,725        3.0       2,874         5.0
</TABLE>





                                       36
<PAGE>
                        CLOVER COMMUNITY BANKSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE J - INCOME TAXES

Income tax expense  (benefit) for the years ended  December 31, 2002,  2001, and
2000 is summarized as follows:
<TABLE>
<CAPTION>
                                                                             2002                    2001                   2000
                                                                             ----                    ----                   ----
Currently payable:
<S>                                                                       <C>                     <C>                     <C>
   Federal .................................................              $ 375,832               $ 385,279               $ 433,802
   State ...................................................                 37,433                  40,745                  45,889
                                                                          ---------               ---------               ---------
     Total current .........................................                413,265                 426,024                 479,691
                                                                          ---------               ---------               ---------
Change in deferred income taxes:
   Federal .................................................                (42,090)                (73,959)                (20,896)
   State ...................................................                      -                   1,556                  (1,823)
                                                                          ---------               ---------               ---------
     Total deferred ........................................                (42,090)                (72,403)                (22,719)
                                                                          ---------               ---------               ---------

Income tax expense .........................................              $ 371,175               $ 353,621               $ 456,972
                                                                          =========               =========               =========
</TABLE>

The gross amounts of deferred tax assets  (liabilities)  as of December 31, 2002
and 2001 are as follows:
<TABLE>
<CAPTION>
                                                                                                       2002                   2001
                                                                                                       ----                   ----
Deferred tax assets:
<S>                                                                                                 <C>                   <C>
  Allowance for loan losses ...........................................................             $ 100,229             $  66,795
  Net deferred loan fees ..............................................................                 7,512                10,385
  Accrual to cash adjustment ..........................................................                59,304                34,012
                                                                                                    ---------             ---------
    Gross deferred tax assets .........................................................               167,045               111,192
                                                                                                    ---------             ---------
Deferred tax liabilities:
  Unrealized holding gains on securities available-for-sale ...........................               108,932               117,841
  Depreciation ........................................................................                22,963                 5,770
  Other ...............................................................................                     -                 3,430
                                                                                                    ---------             ---------
    Gross deferred tax liabilities ....................................................               131,895               127,041
                                                                                                    ---------             ---------
    Net deferred tax asset (liability) ................................................             $  35,150             $ (15,849)
                                                                                                    =========             =========
</TABLE>

The net  deferred  tax asset  (liability)  is included in other  liabilities  at
December  31,  2002 and 2001.  A portion  of the  change in net  deferred  taxes
relates to the change in unrealized net gains and losses on securities available
for-sale.  The related 2002 deferred tax benefit of $8,909 and the 2001 deferred
tax expense of $101,284 have been recorded directly to shareholders' equity. The
balance of the change in net  deferred  taxes  results  from the current  period
deferred tax benefit.

Reconciliation  between  the  income tax  expense  and the  amount  computed  by
applying the federal statutory rate of 34% to income before income taxes for the
years ended December 31, 2002, 2001, and 2000 follows:

<TABLE>
<CAPTION>
                                                                                     2002                2001                2000
                                                                                     ----                ----                ----
<S>                                                                               <C>                 <C>                 <C>
Tax expense at statutory rate ..........................................          $ 412,369           $ 384,294           $ 487,977
State income tax, net of federal income tax benefit ....................             24,706              23,259              29,084
Tax-exempt interest income .............................................            (69,820)            (72,449)            (65,002)
Non-deductible interest expense ........................................              5,940               8,722               8,470
Other, net .............................................................             (2,020)              9,795              (3,557)
                                                                                  ---------           ---------           ---------

    Total ..............................................................          $ 371,175           $ 353,621           $ 456,972
                                                                                  =========           =========           =========
</TABLE>

                                       37
<PAGE>

                        CLOVER COMMUNITY BANKSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                            NOTE K - 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 for the years ended  December 31, 2002,  2001 and
2000 totaled $17,545, $17,104 and $18,552, respectively.


NOTE L - 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 at December 31, 2002 and 2001:

                                                         2002             2001
                                                         ----             ----
Loan commitments .................................     $5,738,998     $5,955,910
Commitment to purchase when-issued security ......              -        500,000
Standby letters of credit ........................              -              -

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

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

Other Commitment - The Company entered into a contractual  commitment to build a
branch office. The construction was substantially completed at December 31, 2002
and at that date $739,451 of cost had been incurred.

Short-term Borrowing Availability - At December 31, 2002, the banking subsidiary
had an unused  short-term line of credit to purchase up to $2,300,000 in federal
funds from a correspondent  financial institution.  This line expires October 1,
2003;  however,  the lender reserves the right to withdraw the accommodations at
any time.

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





                                       38
<PAGE>

                        CLOVER COMMUNITY BANKSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS

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

The estimated fair values of the Company's financial  instruments as of December
31, 2002 and 2001 are as follows:

<TABLE>
<CAPTION>
                                                                              2002                                  2001
                                                                              ----                                  ----
                                                                     Carrying        Estimated           Carrying          Estimated
                                                                      Amount         Fair Value           Amount         Fair Value
                                                                      ------         ----------           ------         ----------
 Financial Assets:
<S>                                                                <C>               <C>               <C>               <C>
  Cash and due from banks ..................................       $ 3,280,267       $ 3,280,267       $ 1,458,095       $ 1,458,095
  Interest-bearing deposits in other banks .................            24,507            24,507            10,091            10,091
  Federal funds sold .......................................         3,221,000         3,221,000         5,086,000         5,086,000
  Securities available-for-sale ............................        16,533,582        16,533,582        16,924,339        16,924,339
  Nonmarketable equity securities ..........................           250,000           250,000           250,000           250,000
  Loans, net ...............................................        34,700,874        37,160,289        31,537,321        31,800,925
  Accrued interest receivable ..............................           272,060           272,060           264,873           264,873

Financial Liabilities:
  Deposits .................................................       $48,690,798       $48,865,399       $44,953,126       $44,998,186
     Advances from Federal Home Loan Bank ..................         4,000,000         4,000,000         4,000,000         4,000,000
  Accrued interest payable .................................           203,098           203,098           376,087           376,087

Off-Balance Sheet Financial Instruments:
  Loan commitments .........................................       $ 5,738,998       $ 5,738,998       $ 5,955,910       $ 5,955,910
  Commitment to purchase when-issued
    security ...............................................                 -                 -           500,000           500,000
  Letters of credit ........................................                 -                 -                 -                 -
</TABLE>




                                       39
<PAGE>


                        CLOVER COMMUNITY BANKSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

                            Condensed Balance Sheets
                           December 31, 2002 and 2001

<TABLE>
<CAPTION>
                                                                                                   2002                      2001
                                                                                                   ----                      ----
Assets
<S>                                                                                             <C>                       <C>
  Cash .........................................................................                $  636,709                $  662,095
  Investment in banking subsidiary .............................................                 7,243,224                 7,169,129
  Other assets .................................................................                     9,825                     5,206
                                                                                                ----------                ----------

    Total assets ...............................................................                $7,889,758                $7,836,430
                                                                                                ==========                ==========

Liabilities and shareholders' equity
  Shareholders' equity .........................................................                $7,889,758                $7,836,430
                                                                                                ----------                ----------

    Total liabilities and shareholders' equity .................................                $7,889,758                $7,836,430
                                                                                                ==========                ==========
</TABLE>


                         Condensed Statements of Income
              for the years ended December 31, 2002, 2001, and 2000

<TABLE>
<CAPTION>
                                                                                   2002                 2001                  2000
                                                                                   ----                 ----                  ----
Income
<S>                                                                             <C>                  <C>                  <C>
Dividends received from banking subsidiary ..........................           $ 760,918            $ 862,775            $ 709,867
Interest income .....................................................               7,186                7,740                6,483
                                                                                ---------            ---------            ---------
  Total income ......................................................             768,104              870,515              716,350

Expenses ............................................................              36,082               23,052               20,554
                                                                                ---------            ---------            ---------

Income before income taxes and equity in
  undistributed earnings of banking subsidiary ......................             732,022              847,463              695,796

Income tax benefit ..................................................              (9,825)              (5,206)              (4,784)


Equity (deficit) in undistributed
  earnings of banking subsidiary ....................................              90,000              (76,012)             277,675
                                                                                ---------            ---------            ---------

  Net income ........................................................           $ 831,847            $ 776,657            $ 978,255
                                                                                =========            =========            =========
</TABLE>






                                       40
<PAGE>

                        CLOVER COMMUNITY BANKSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                       Condensed Statements of Cash Flows
              for the years ended December 31, 2002, 2001, and 2000

<TABLE>
<CAPTION>
                                                                                       2002               2001              2000
                                                                                       ----               ----              ----
Cash flows from operating activities
<S>                                                                                 <C>                <C>                <C>
  Net income ..............................................................         $ 831,847          $ 776,657          $ 978,255
  Adjustments to reconcile net income to net cash
   provided by operating activities:
    Equity in undistributed earnings of banking subsidiary ................           (90,000)            76,012           (277,675)
    Decrease (increase) in other assets ...................................            (4,620)             2,884             (4,783)
                                                                                    ---------          ---------          ---------
    Net cash provided by operating activities .............................           737,227            855,553            695,797
                                                                                    ---------          ---------          ---------

Cash flows from investing activities
  Proceeds from transfer of land to banking subsidiary ....................                 -                  -            221,020
                                                                                    ---------          ---------          ---------

Cash flows from financing activities
  Sales of common stock under dividend reinvestment plan ..................           106,660            112,952            173,242
  Repurchase and retirement of common stock ...............................          (108,355)          (134,087)           (86,134)
  Cash dividend paid ......................................................          (760,918)          (762,774)          (709,867)
                                                                                    ---------          ---------          ---------
    Net cash used by financing activities .................................          (762,613)          (783,909)          (622,759)
                                                                                    ---------          ---------          ---------

Increase (decrease) in cash and cash equivalents ..........................           (25,386)            71,644            294,058

Cash and cash equivalents, beginning of year ..............................           662,095            590,451            296,393
                                                                                    ---------          ---------          ---------

Cash and cash equivalents, end of year ....................................         $ 636,709          $ 662,095          $ 590,451
                                                                                    =========          =========          =========
</TABLE>


                                       41