PORTIONS OF THE ANNUAL REPORT TO SHAREHOLDERS
                      FOR THE YEAR ENDED DECEMBER 31, 2000



Financial Summary*
<TABLE>
<CAPTION>
                                                                                   Years Ended December 31,
                                                                                   ------------------------
                                                                    2000          1999           1998           1997           1996
                                                                    ----          ----           ----           ----           ----
                                                                           (Dollars in thousands, except per share data)
Financial Condition
<S>                                                              <C>            <C>            <C>            <C>            <C>
     Securities .........................................        $17,893        $17,554        $16,300        $16,136        $16,016
     Allowance for loan losses ..........................            254            259            265            272            270
     Net loans ..........................................         30,514         29,260         28,850         31,614         31,282
     Premises and equipment - net .......................            811            874            716            760            842
     Total assets .......................................         51,928         52,340         56,921         52,909         52,611
     Noninterest bearing deposits .......................          3,126          3,084          3,962          3,890          3,341
     Interest bearing deposits ..........................         36,290         37,774         41,645         38,078         38,879
     Total deposits .....................................         39,416         40,858         45,607         41,968         42,220
     Long-term debt .....................................          4,000          4,000          4,000          4,000          4,000
     Total liabilities ..................................         44,265         45,178         49,999         46,368         46,574
     Total shareholders' equity .........................          7,663          7,162          6,922          6,541          6,037

Results of Operations
     Interest income ....................................        $ 4,282        $ 4,226        $ 4,302        $ 4,222        $ 3,986
     Interest expense ...................................          1,597          1,619          1,815          1,847          1,822
                                                                 -------        -------        -------        -------        -------
     Net interest income ................................          2,685          2,607          2,487          2,375          2,164
     Provision for loan losses ..........................             47              -              -              5             32
                                                                 -------        -------        -------        -------        -------
     Net interest income after provision ................          2,638          2,607          2,487          2,370          2,132
     Other income .......................................            493            476            411            341            297
     Other expenses .....................................          1,696          1,571          1,508          1,375          1,250
                                                                 -------        -------        -------        -------        -------
     Income before income taxes .........................          1,435          1,512          1,390          1,336          1,179
     Income tax expense .................................            457            493            459            433            375
                                                                 -------        -------        -------        -------        -------
     Net income .........................................        $   978        $ 1,019        $   931        $   903        $   804
                                                                 =======        =======        =======        =======        =======

Per Share Data
     Net income .........................................        $  0.96        $  1.00        $  0.92        $  0.89        $  0.80
     Cash dividends declared ............................           0.70           0.60           0.50           0.50           0.20
     Period end book value ..............................           7.53           7.06           6.85           6.47           5.97
</TABLE>

*  Clover Community  Bankshares,  Inc. became the bank holding company of Clover
   Community Bank  effective June 5, 1998 as part of a corporate  reorganization
   which  was  accounted  for  as  if  it  were  a   pooling-of-interests.   The
   consolidated  financial statements and related information for the year ended
   December  31, 1998 are  presented  as if the  reorganization  had occurred on
   January 1, 1998.  The financial  statements and related  information  for the
   years ended  December 31, 1997 and 1996 are the same as the amounts  reported
   previously by Clover Community Bank.



                                       13
<PAGE>


Market for Common Stock and Dividends

         Although a limited number of shares of common stock of Clover Community
Bankshares,  Inc. (the  "Company") are traded from time to time on an individual
basis,  no  established  trading  market has  developed  and none is expected to
develop  in the near  future.  The  common  stock is not  traded  on the  NASDAQ
National  Market  System,  nor are there any market makers known to  management.
During 2000,  management was aware of a few  transactions in which the Company's
common stock  traded in a price range from $25.00 to $35.00 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, 6,118 and 4,778 newly
issued  shares  were  purchased  by  shareholders  in 2000 and 1999 at prices of
$28.32 and $27.56, respectively,  in accordance with the plan's pricing formula.
In 2000 and 1999, 3,180 and 1,702 shares, respectively,  of the Company's common
stock were repurchased from eleemosynary  organizations and retired. The average
prices for such share  repurchases  and retirements in 2000 and 1999 were $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 28, 2001, there were approximately 678 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 2000 and
1999, the Company  declared and paid cash dividends to  shareholders of $.70 and
$.60 per share, respectively.

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


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.

Forward Looking Statements

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

Earnings Performance

2000 Compared with 1999

         The Company recorded net income of $978,000 for the year ended December
31,  2000, a decrease of $41,000,  or 4.0%,  from net income of  $1,019,000  for
1999.  Net  income  per share for 2000 was $.96,  compared  with $1.00 for 1999.
Return on average  assets and return on average  equity  were 1.85% and  13.62%,
respectively, for 2000, and 1.80% and 14.73%, respectively, for 1999.


                                       14
<PAGE>

         The decrease in net income for 2000 resulted from higher provisions for
loan losses and other noninterest  overhead  expenses.  During 2000, the Company
charged to expense  $47,000 to provide for loan losses.  No provisions were made
for loan losses in 1999.  Non-interest  expenses totaled $1,696,000 for 2000, an
increase  of  $125,000,  or 8.0% over the 1999  amount.  Salaries  and  employee
benefits  expenses  increased by $70,000 due to normal salary increases  granted
from  time-to-time  and  increased  costs  of  providing  health  insurance  for
employees.  Occupancy and furniture and equipment  expenses increased by $25,000
in 2000.  Costs directly  associated  with the Company's Year 2000  Preparedness
Program were  insignificant in 2000 and 1999, and there have been no significant
problems within the Company, nor among its suppliers or customers, caused by the
date change to the year 2000.

         Comprehensive income for 2000, 1999 and 1998 was $1,123,000,  $780,000,
and  $887,000,  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.


1999 Compared with 1998

         The  Company  recorded  net  income of  $1,019,000  for the year  ended
December 31, 1999, an increase of $88,000,  or 9.5%, over net income of $931,000
for 1998. Net income per share for 1999 was $1.00,  compared with $.92 for 1998.
Return on average assets and return on average  shareholders'  equity were 1.80%
and 14.73%,  respectively,  for 1999,  and 1.70% and 14.12%,  respectively,  for
1998.

         The  primary  factor  causing  the  increase  in 1999  earnings  was an
increase of $120,000 in net interest  income,  resulting  principally from lower
interest expenses.  Interest expenses decreased primarily because of lower rates
paid for interest bearing deposits and other funding sources. Noninterest income
increased by $65,000 in 1999 over the 1998 amount.  No provision for loan losses
was necessary in 1999 or 1998 because of the excellent  performance  of the loan
portfolio.

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

         FTE net interest income was $2,784,000,  $2,699,000, and $2,585,000 for
2000,  1999,  and 1998,  respectively.  The $85,000  growth in FTE net  interest
income for 2000 was  attributable  primarily  to higher rates earned on interest
earning assets. The average rate earned on such assets during 2000 was 8.77%, an
increase of 69 basis  points over the 1999  average  rate.  Also  affecting  net
interest  income  positively  in 2000 was a $3,540,000  reduction in the average
amount of interest  bearing  liabilities.  The positive effects of these factors
were offset  partially by decreased  amounts of average  interest earning assets
and somewhat higher rates paid for interest bearing liabilities.

         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,
2000, 1999 and 1998.


                                       15
<PAGE>

       Average Balances, Yields and Rates

<TABLE>
<CAPTION>
                                                                             Years ended December 31,
                                                                             ------------------------
                                                        2000                             1999                         1998
                                                        ----                             ----                         ----
                                                    FTE Interest                    FTE Interest                  FTE Interest
                                           Average    Income/     Yields/    Average   Income/   Yields/   Average   Income/ Yields/
                                         Balances(1)  Expense     Rates    Balances(1) Expense   Rates    Balances(1) Expense  Rates
                                         -----------  -------     -----    ----------- -------   -----    ----------- -------  -----
                                                                              (Dollars in thousands)
Assets
<S>                                         <C>        <C>       <C>       <C>        <C>        <C>      <C>        <C>      <C>
Interest-bearing deposits
 in other banks ..........................  $     63   $     3    4.76%    $    268   $    20    7.46%    $    351   $   20    5.70%
Securities
Taxable ..................................    13,597       917    6.74%      12,537       796    6.35%      11,447      756    6.60%
Tax-exempt (2) ...........................     4,044       292    7.22%       3,884       270    6.95%       4,188      289    6.90%
                                            --------   -------             --------   -------             --------   ------
    Total securities .....................    17,641     1,209    6.85%      16,421     1,066    6.49%      15,635    1,045    6.68%
Other investments ........................       250        19    7.60%         295        26    8.81%         377       27    7.16%
Federal funds sold .......................     2,384       152    6.38%       7,323       356    4.86%       4,970      259    5.21%
Loans (3) ................................    29,590     2,998   10.13%      29,159     2,850    9.77%      30,499    3,049   10.00%
                                            --------   -------             --------   -------             --------   ------
    Total interest earning assets ........    49,928     4,381    8.77%      53,466     4,318    8.08%      51,832    4,400    8.49%
Cash and due from banks ..................     1,842                          1,967                          1,760
Allowance for loan losses ................      (253)                          (263)                          (269)
Premises and equipment ...................       856                            687                            750
Other assets .............................       430                            613                            756
                                            --------                       --------                       --------
    Total assets .........................  $ 52,803                       $ 56,470                       $ 54,829
                                            ========                       ========                       ========

Liabilities and shareholders' equity
Interest bearing deposits
  Interest bearing transaction accounts ..  $ 13,559   $   193    1.42%    $ 14,658   $   232    1.58%    $ 13,043   $  279    2.14%
  Savings ................................     2,561        44    1.72%       2,682        46    1.72%       2,640       58    2.20%
  Time deposits $100M and over ...........     4,102       192    4.68%       4,389       201    4.58%       4,453      208    4.67%
  Other time deposits ....................    17,161       904    5.27%      19,213       926    4.82%      19,508    1,039    5.33%
                                            --------   -------             --------   -------             --------   ------
    Total interest bearing
      deposits ...........................    37,383     1,333    3.57%      40,942     1,405    3.43%      39,644    1,584    4.00%
Federal funds purchased ..................        22         1    4.55%           3         -    0.00%          35        3    8.57%
Long-term debt ...........................     4,000       263    6.58%       4,000       214    5.35%       4,000      228    5.70%
                                            --------   -------             --------   -------             --------   ------
    Total interest bearing
      liabilities ........................    41,405     1,597    3.86%      44,945     1,619    3.60%      43,679    1,815    4.16%
Noninterest bearing demand deposits ......     3,875                          4,209                          4,104
Other liabilities ........................       345                            398                            453
Shareholders' equity .....................     7,178                          6,918                          6,593
                                            --------                       --------                       --------
    Total liabilities and shareholders'
     equity ..............................  $ 52,803                       $ 56,470                       $ 54,829
                                            ========                       ========                       ========
Interest rate spread(4) ..................                        4.91%                          4.48%                         4.33%
Net interest income and net yield
     on earning assets(5) ................             $ 2,784    5.58%               $ 2,699    5.05%               $2,585    4.99%
Interest free funds supporting earning
     assets(6) ...........................   $ 8,523                       $  8,521                       $  8,153
</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.



                                       16
<PAGE>


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

                        Volume and Rate Variance Analysis

<TABLE>
<CAPTION>
                                                               2000 Compared with 1999                  1999 Compared with 1998
                                                               -----------------------                  -----------------------
                                                            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 .............       $ (12)       $  (5)       $ (17)       $  (5)       $   5        $  -
Taxable securities ...................................          69           52          121           70          (30)          40
Tax-exempt securities (2) ............................          11           11           22          (21)           2          (19)
Other investments ....................................          (3)          (4)          (7)          (7)           6           (1)
Federal funds sold ...................................        (291)          87         (204)         115          (18)          97
Loans ................................................          43          105          148         (132)         (67)        (199)
                                                             -----        -----        -----        -----        -----        -----
            Total interest income ....................        (183)         246           63           20         (102)         (82)
                                                             -----        -----        -----        -----        -----        -----
Interest bearing deposits
     Interest bearing transaction accounts ...........         (17)         (22)         (39)          32          (79)         (47)
     Savings .........................................          (2)           -           (2)           1          (13)         (12)
     Time deposits $100M and over ....................         (13)           4           (9)          (3)          (4)          (7)
     Other time deposits .............................        (104)          82          (22)         (16)         (97)        (113)
Federal funds purchased ..............................           -            1            1           (1)          (2)          (3)
Long-term debt .......................................           -           49           49            -          (14)         (14)
                                                             -----        -----        -----        -----        -----        -----
            Total interest expense ...................        (136)         114          (22)          13         (209)        (196)
                                                             -----        -----        -----        -----        -----        -----
            Net interest income ......................       $ (47)       $ 132        $  85        $   7        $ 107        $ 114
                                                             =====        =====        =====        =====        =====        =====
</TABLE>
--------------------------------
(1)  The  rate/volume  variance  for  each  category  has  been  allocated  on a
     consistent  basis between rate and volume  variance based on the percentage
     of rate or volume variance to the sum of the two absolute variances, except
     in categories having balances in only one period. In such cases, the entire
     variance is attributed to volume differences.
(2)  Computed on a fully  taxable  equivalent  basis using a federal  income tax
     rate of 34%.

         During 2001,  management expects that interest rates will move within a
narrow range,  and  management  has not  identified any factors that would cause
interest  rates to  increase  or  decrease  sharply  in a short  period of time.
However,  to a large degree,  changes in interest  rates that affect the Company
are not under its sole control.  Any  significant  improvements  in net interest
income for 2001 are  expected to be largely the result of changes in the volumes
of interest  earning assets and liabilities.  Management  expects to continue to
use its marketing  strategies  to increase the  Company's  market share for both
deposits and quality loans within its service  area.  These  strategies  involve
offering  attractive  interest rates and continuing the Company's  commitment to
providing outstanding customer service.

Interest Rate Sensitivity

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

         The  table,  "Interest  Sensitivity  Analysis",  indicates  that,  on a
cumulative basis through twelve months, rate sensitive liabilities exceeded rate
sensitive assets, resulting in a liability sensitive position at the end of 2000
of  $11,598,000,  and a cumulative  gap ratio of .67.  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 2000  with  respect  to the  one-year  time  horizon.  For a bank  with a
negative gap, falling interest rates would be expected to have a positive effect
on net  interest  income and rising rates would be expected to have the opposite
effect.


                                       17
<PAGE>

         The table reflects the balances of interest earning assets and interest
bearing liabilities at the earlier of their repricing or maturity dates. Amounts
of fixed rate loans are reflected at the loans' final maturity  dates.  Variable
rate loans are  reflected at the earlier of their  contractual  maturity date or
the date at which the  loans may be  repriced  contractually.  Interest  bearing
deposits in other banks and debt securities are reflected at the earlier of each
instrument's  ultimate maturity or contractual  repricing date. 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.  Overnight  federal  funds
purchased  are  reflected  in the  earliest  repricing  interval  due  to  their
short-term maturity.

       Interest Sensitivity Analysis

<TABLE>
<CAPTION>
                                                                                        December 31, 2000
                                                                                        -----------------
                                                                   Within            4-12       Over 1-5       Over 5
                                                                  3 Months          Months        Years        Years          Total
                                                                  --------          ------        -----        -----          -----
                                                                                     (Dollars in thousands)
Interest earning assets
<S>                                                               <C>            <C>            <C>           <C>           <C>
     Interest-bearing deposits in other banks ..............      $     40       $      -       $      -      $      -      $     40
     Securities available-for-sale .........................         7,623            361          3,517         6,392        17,893
     Other investments .....................................           250              -              -             -           250
     Loans (1) .............................................        13,519          1,561         11,738         3,950        30,768
                                                                  --------       --------       --------      --------      --------
            Total interest earning assets ..................        21,432          1,922       $ 15,255      $ 10,342      $ 48,951
                                                                  --------       --------       ========      ========      ========

Interest bearing liabilities
     Interest bearing deposits
        Interest bearing transaction accounts ..............      $ 12,600       $      -       $      -      $      -      $ 12,600
        Savings ............................................         2,760              -              -             -         2,760
        Time deposits $100M and over .......................           317          1,244          2,565             -         4,126
        Other time deposits ................................         5,304          8,257          3,239             4        16,804
     Federal funds purchased ...............................           470              -              -             -           470
     Long-term debt ........................................         4,000              -              -             -         4,000
                                                                  --------       --------       --------      --------      --------
            Total interest bearing liabilities .............        25,451          9,501       $  5,804      $      4      $ 40,760
                                                                  --------       --------       ========      ========      ========

Interest sensitivity gap ...................................      $ (4,019)      $ (7,579)
Cumulative interest sensitivity gap ........................      $ (4,019)      $(11,598)
Gap ratio ..................................................          0.84           0.20
Cumulative gap ratio .......................................          0.84           0.67
</TABLE>
(1)  Loans are net of net deferred loan fees of $19,000.

         During  2001,  management  plans to  monitor  the  Company's  liability
sensitive position and take appropriate actions to promote a stable net interest
spread and soften the negative  effects of any  increase in interest  rates that
might occur.

Provision for Loan Losses

         The  provision  for  loan  losses  is  charged  to  earnings  based  on
management's  continuing review and evaluation of the loan portfolio and general
economic  conditions.  Management  provided  $47,000  for loan  losses  in 2000,
primarily  due to net  charge-offs  of $52,000  experienced  during the year. No
provisions  for loan  losses  were made in 1999 and 1998,  due mainly to reduced
loan  volume,  low net loan  charge-offs,  and low levels of  nonperforming  and
potential problem loans.

         The levels of impaired or nonperforming loans and identified  potential
problem loans as of December 31, 2000 are insignificant.  The allowance for loan
losses as a  percentage  of total loans at year-end  was .83% for 2000  compared
with  .88% at the end of 1999.  Net loan  charge-offs  were  $6,000  in 1999 and
$7,000 for 1998.  See  "Impaired  Loans" and  "Allowance  for Loan Losses" for a
discussion of the factors management  considers in its review of the adequacy of
the allowance and provision for loan losses.



                                       18
<PAGE>


Other Income

         Noninterest  income for 2000 was  $493,000,  an  increase of $17,000 or
3.6% over the 1999 amount of $476,000.  The increase in 2000 was attributable to
higher  service  charges  on  deposit  accounts.  Noninterest  income  for  1999
increased $65,000 or 15.8% over the amount for 1998.  Service charges on deposit
accounts  increased  $51,000 in 1999.  These  increases  were  primarily  due to
increased  chargeable account activity.  Credit life insurance commission income
increased  $8,000 in 1999  because of  increased  marketing  efforts  and higher
consumer loan demand. There were no realized securities gains or losses in 2000,
1999 or 1998.


Other Expenses

         Noninterest  expenses  for 2000  totaled  $1,696,000,  an  increase  of
$125,000 or 8.0% over the 1999 amount.  Salaries and employee benefits increased
by $70,000 or 8.1% due mainly to normal salary  adjustments  and higher costs of
employee health  insurance.  Net occupancy and furniture and equipment  expenses
increased by $25,000 or 8.9% due to increased amounts of depreciation related to
acquisition of data  processing  equipment  required to enhance and maintain the
Company's  technological  capabilities.  Other  expenses  for 2000  increased by
$31,000 or 7.2%.  Expenses associated with the Bank's ATM/debit and credit cards
increased by $15,000 and $4,000 in 2000 and 1999, respectively. During 2000, the
Company incurred significant start-up expenses when it entered an agreement with
a new card services provider.  In addition,  fees paid for professional services
increased  by  $12,000  or 18.2%  in 2000 due  primarily  to the  Company's  due
diligence efforts related to a proposed  acquisition of a non-banking  financial
services  company.  All negotiations  between the parties  ultimately  ceased in
2000.

         Noninterest  expenses for 1999 increased $63,000 or 4.2%.  Salaries and
employee benefits increased $67,000 or 8.5% in 1999,  primarily as the result of
salary increases.  Net occupancy and furniture and equipment  expenses increased
$10,000 or 3.7%.  The  increase  was caused by a $24,000  increase  in  software
amortization  expense,  which was offset partially by a $12,000 reduction in the
amount of equipment service  contracts.  Other expenses  decreased by $15,000 in
1999,  primarily  because of a $23,000  decline  in the  amount of  professional
services  expenses in 1999.  Professional  services  expenses for 1998  included
expenses incurred in connection with the reorganization of Clover Community Bank
into the present holding company structure.

         Noninterest  overhead  expenses  for 2001 are  expected  to increase as
compared with 2000, due in part to growth,  investment in technology,  operation
of the bank holding  company,  as well as some general  inflationary  increases.
Management  believes  that  continued  investment  in technology is essential to
allow for the  expansion of products and services  necessary to keep the Company
competitive in its market.  Accordingly,  the Company  continually  upgrades its
hardware and software  systems so that a high degree of  operational  efficiency
can be maintained and personnel  costs  contained.  The Company's FDIC insurance
rates are assessed based on the lowest rate available under  regulations and are
expected to continue at relatively low levels for the near future.  Increases in
noninterest  expenses are closely monitored and cost control will continue to be
emphasized  by  management  where  possible  in order to  achieve  profitability
objectives and attain the goals of growth and  outstanding  customer  service in
the Clover market area.


Income Taxes

         For 2000,  federal and state income tax expenses  decreased to $457,000
from $493,000 in 1999 and $459,000 in 1998.  The decreases in income tax expense
for 2000 are due to lower taxable income.  The effective income tax rate (income
tax expense divided by income before income taxes) was 31.8% for 2000,  compared
with  32.6%  and  33.0% for 1999 and 1998,  respectively.  The  somewhat  higher
effective  rates  for 1999 and  1998  were  attributable  to  lower  amounts  of
tax-exempt interest income in 1999 and the  nondeductibility of certain expenses
incurred to form the bank holding company in 1998.




                                       19
<PAGE>


Securities

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

                        Securities Portfolio Composition

<TABLE>
<CAPTION>
                                                                                                  December 31,
                                                                                                  ------------
                                                                               2000                   1999                   1998
                                                                               ----                   ----                   ----
                                                                            Available-             Available-             Available-
                                                                             for-Sale               for-Sale               for-Sale
                                                                             --------               --------               --------
                                                                                             (Dollars in thousands)

   <S>                                                                         <C>                    <C>                    <C>
   U. S. Treasury .............................................                $     -                $     -                $ 1,002
   U. S. Government agencies ..................................                  7,282                  6,803                  2,980
   State, county and municipal ................................                  4,238                  4,327                  5,198
   Mortgage-backed securities .................................                  6,373                  6,424                  7,120
                                                                               -------                -------                -------
     Total ....................................................                $17,893                $17,554                $16,300
                                                                               =======                =======                =======
</TABLE>

         On an ongoing basis,  management  assigns securities upon purchase into
one of the categories  designated by Statement of Financial Accounting Standards
("SFAS") No. 115  (trading,  available-for-sale  or  held-to-maturity)  based on
intent,  taking into  consideration  other factors  including  expectations  for
changes in market rates of interest, liquidity needs, asset/liability management
strategies, and capital requirements.  The Company has never held securities for
trading  purposes.  During 2000, 1999, and 1998, there have been no transfers of
available-for-sale or held-to-maturity securities to other categories.

         At December 31, 2000, the Company had concentrated an amortized cost of
$820,000  into Town of Clover,  South  Carolina  general  obligation  bonds (not
rated) which were carried in the consolidated balance sheet at an estimated fair
value of $820,000.  Management is not aware of any special risks involving these
investments.


         The following table presents  maturities and weighted average yields of
securities at December 31, 2000.

Securities Portfolio Maturities and Yields

<TABLE>
<CAPTION>
                                                                             December 31, 2000
                                                                             -----------------
                                                                   After           After
                                                                 One Year        Five Years
                                                Within            Through         Through              After
                                               One Year          Five Years       Ten Years           Ten Years          Total
                                               --------          ----------       ---------           ---------          -----
                                             Amount   Yield    Amount   Yield   Amount   Yield    Amount    Yield     Amount   Yield
                                             ------   -----    ------   -----   ------   -----    ------    -----     ------   -----
                                                                           (Dollars in thousands)
Available-for-sale
<S>                                         <C>        <C>    <C>        <C>    <C>        <C>    <C>        <C>    <C>        <C>
     U. S. Government agencies ...........  $     -    0.00%  $ 1,965    5.54%  $ 4,582    6.81%  $   735    6.57%  $ 7,282    6.44%
     State, county and municipal(1) ......      325    6.07%    1,552    6.70%    1,823    6.96%      538    8.47%    4,238    6.99%
     Mortgage-backed securities(2) .......        -    0.00%        -    0.00%    1,055    6.89%    5,318    6.64%    6,373    6.68%
                                            -------    ----   -------           -------           -------           -------
        Total ............................  $   325    6.07%  $ 3,517    6.05%  $ 7,460    6.86%  $ 6,591    6.78%  $17,893    6.66%
                                            =======    ====   =======           =======           =======           =======
</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.




                                       20
<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, 2000,  1999 and 1998
are shown in the following  table  according to type of loan, and the percentage
of each category to total loans:

                           Loan Portfolio Composition

<TABLE>
<CAPTION>
                                                                                       December 31,
                                                                                       ------------
                                                                2000                         1999                        1998
                                                                ----                         ----                        ----
                                                      Amount            %          Amount          %             Amount          %
                                                      ------         ------        ------        ------          ------       ------
                                                                                  (Dollars in thousands)

<S>                                                  <C>             <C>         <C>             <C>         <C>              <C>
Commercial and industrial ...................        $ 8,502          27.6%      $ 5,822          19.7%      $ 4,540           15.6%
Real estate - construction ..................          4,422          14.4%        4,993          16.9%        4,966           17.0%
Real estate - mortgage
     Farmland ...............................            108            .3%          105            .4%          187             .6%
     1-4 family residential .................          9,913          32.2%       10,558          35.7%       11,079           38.0%
     Nonfarm, nonresidential ................          3,111          10.1%        4,101          13.9%        5,243           18.0%
Consumer installment ........................          4,731          15.4%        3,954          13.4%        3,128           10.8%
                                                     -------         -----       -------         -----       -------          -----
                     Total loans ............        $30,787         100.0%      $29,533         100.0%      $29,143          100.0%
                                                     =======         =====       =======         =====       =======          =====
</TABLE>

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

         Commercial  and  industrial  loans  primarily  represent  loans made to
businesses,  and may be made on either a secured  or an  unsecured  basis.  When
taken,  collateral  consists of liens on  receivables,  equipment,  inventories,
furniture and fixtures.  Unsecured business loans are generally  short-term with
emphasis on  repayment  strengths  and low  debt-to-worth  ratios.  During 2000,
commercial and industrial  loans increased  $2,680,000 or 46.0% after increasing
$1,282,000  or 28.2% in 1999.  This  category  accounted for the majority of the
increase  in total loans in 2000 and 1999 as the  Company  responded  to greater
demand in the local market. 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.  In 2000,  $46,000 or 86.8% of loans
charged off were commercial  loans.  To control risk, more in-depth  initial and
continuing  financial  analysis of a commercial  borrower's cash flows and other
financial information is generally required.

         Real estate  construction  loans  generally  consist of  financing  the
construction  of 1-4 family  dwellings  and some  nonfarm,  nonresidential  real
estate. Usually,  loan-to-cost ratios are limited to 75% and permanent financing
commitments are usually  required prior to the advancement of loan proceeds.  In
2000,  this category of loans  decreased  $571,000 or 11.4%.  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 43%, 50%
and 57% of the  Company's  loan  portfolio at the end of 2000,  1999,  and 1998,
respectively.  Real estate  mortgage loans of all types  decreased by $1,632,000
during  2000  after  declining  by  $1,745,000  and  $186,000  in 1999 and 1998,
respectively.  These  reductions  are  attributable  primarily  to the  "buyer's
market" in mortgage lending rates which has existed in recent years. The Company
purposely has not  originated  long-term  fixed-rate  mortgage  loans at the low
rates  then  prevailing,  opting  instead  to  lend  for  these  purposes  using
instruments  with  fixed-rate  terms  not  exceeding  five  years.  The  Company
continually   reevaluates  its  strategies   with  regard  to   mortgage-lending
activities.  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.

                                       21
<PAGE>


Maturity Distribution of Loans

         The  following  table  sets  forth  the  maturity  distribution  of the
Company's  loans,  by type,  as of  December  31,  2000,  as well as the type of
interest requirement on such loans.

<TABLE>
<CAPTION>
                                                                                              December 31, 2000
                                                                                              -----------------
                                                                           One Year          One to         Five Years
                                                                           or Less         Five Years        or More           Total
                                                                           -------         ----------        -------           -----
                                                                                           (Dollars in thousands)

<S>                                                                          <C>             <C>             <C>             <C>
Commercial and industrial ..........................................         $ 4,009         $ 3,475         $ 1,018         $ 8,502
Real estate - construction .........................................           2,791           1,481             150           4,422
Real estate - mortgage .............................................             844           6,697           5,591          13,132
Consumer installment ...............................................           1,649           2,794             288           4,731
                                                                             -------         -------         -------         -------
              Total loans ..........................................         $ 9,293         $14,447         $ 7,047         $30,787
                                                                             =======         =======         =======         =======


Predetermined rate, maturity greater than one year .................                         $11,738         $ 3,950         $15,688
                                                                                             =======         =======         =======

Variable rate or maturity within one year ..........................         $ 9,293         $ 2,709         $ 3,097         $15,099
                                                                             =======         =======         =======         =======
</TABLE>


Impaired Loans

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

                          Nonaccrual and Past Due Loans

                                                             December 31,
                                                             ------------
                                                        2000     1999       1998
                                                        ----     ----       ----
                                                        (Dollars in thousands)

Nonaccrual loans .................................      $ -       $ 8       $ -
Accruing loans 90 days or more past due ..........        1         2         1
                                                        ---       ---       ---
              Total ..............................      $ 1       $10       $ 1
                                                        ===       ===       ===

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


         When an  impaired  loan is 90 days or more past due as to  interest  or
principal or there is serious doubt as to ultimate  collectibility,  the accrual
of interest income is generally  discontinued.  Previously  accrued  interest on
loans placed in a nonaccrual  status is reversed  against  current  income,  and
subsequent interest income is recognized on a cash basis when received. When the
collectibility  of a  significant  amount  of  principal  is in  serious  doubt,
collections  are credited  first to the  remaining  principal  balance on a cost
recovery  basis.  An impaired  nonaccrual loan is not returned to accrual status
unless  principal and interest are current and the borrower has demonstrated the
ability to continue  making  payments as agreed.  The effects of interest income
accrued and  collected on impaired  loans were  immaterial  to the  consolidated
financial statements for 2000, 1999 and 1998.

         As of December 31, 2000,  there were no commitments to lend  additional
funds to debtors owing amounts on impaired loans.



                                       22
<PAGE>


Potential Problem Loans

         Management  has  identified  and maintains a list of potential  problem
loans.  These are loans that are not included in impaired  loans  (nonaccrual or
past due 90 days or more and still  accruing).  A loan is added to the potential
problem list when management  becomes aware of information about possible credit
problems of borrowers  that causes doubts as to the ability of such borrowers to
comply  with the  current  loan  repayment  terms.  The  total  amount  of loans
outstanding  at December  31, 2000  determined  by  management  to be  potential
problem loans was $26,000. This amount does not represent  management's estimate
of potential losses since a portion of such loans is secured by various types of
collateral.


Allowance for Loan Losses

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

         In reviewing the adequacy of the allowance for loan losses at each year
end,  management took into  consideration the historical loan losses experienced
by the Company,  current economic conditions affecting the borrowers' ability to
repay, the volume of loans, the trends in delinquent, nonaccruing, and potential
problem loans, and the quality of collateral securing  nonperforming and problem
loans. After charging off all known losses,  management  considers the allowance
for loan losses  adequate to cover its  estimate of possible  future loan losses
inherent in the loan portfolio as of December 31, 2000.

         In  calculating  the amount  required in the allowance for loan losses,
management  applies a  consistent  methodology  that is updated  quarterly.  The
methodology  utilizes a loan risk grading  system and  detailed  loan reviews to
assess credit risks and the overall  quality of the loan  portfolio,  as well as
other  off-balance-sheet  credit  risks  such as loan  commitments  and  standby
letters of credit. Also, the calculation provides for management's assessment of
trends in national and local economic  conditions  that might affect the general
quality of the loan portfolio.


                                       23
<PAGE>

                         Summary of Loan Loss Experience

<TABLE>
<CAPTION>
                                                                                           Years Ended December 31,
                                                                                           ------------------------
                                                                          2000         1999         1998         1997         1996
                                                                          ----         ----         ----         ----         ----
                                                                                           (Dollars in thousands)

<S>                                                                     <C>          <C>          <C>          <C>          <C>
Total loans outstanding at end of period ..........................     $30,768      $29,519      $29,115      $31,886      $31,552
Average amount of loans outstanding ...............................      29,590       29,159       30,499       31,033       29,206

Balance of allowance for loan losses - beginning ..................     $   259      $   265      $   272      $   270      $   245
                                                                        -------      -------      -------      -------      -------
Loans charged off
     Commercial and industrial ....................................          46            -            -            4            -
     Consumer installment .........................................           7            9            9            6           10
                                                                        -------      -------      -------      -------      -------
           Total charge-offs ......................................          53            9            9           10           10
                                                                        -------      -------      -------      -------      -------
Recoveries of loans previously charged off
     Commercial and industrial ....................................           -            -            -            4            -
     Consumer installment .........................................           1            3            2            3            3
                                                                        -------      -------      -------      -------      -------
           Total recoveries .......................................           1            3            2            7            3
                                                                        -------      -------      -------      -------      -------
Net charge-offs ...................................................          52            6            7            3            7
                                                                        -------      -------      -------      -------      -------
Additions to allowance charged to expense .........................          47            -            -            5           32
                                                                        -------      -------      -------      -------      -------
Balance of allowance for loan losses - ending .....................     $   254      $   259      $   265      $   272      $   270
                                                                        =======      =======      =======      =======      =======

Ratios
     Net charge-offs to average loans .............................        0.18%        0.02%        0.02%        0.01%        0.02%
     Net charge-offs to loans at end of period ....................        0.17%        0.02%        0.02%        0.01%        0.02%
     Allowance for loan losses to average loans ...................        0.86%        0.89%        0.87%        0.88%        0.92%
     Allowance for loan losses to loans at end of period ..........        0.83%        0.88%        0.91%        0.85%        0.86%
     Net charge-offs to allowance for loan losses .................       20.47%        2.32%        2.64%        1.10%        2.59%
     Net charge-offs to provision for loan losses .................      110.64%          NA           NA        60.00%       21.88%
</TABLE>

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

                     Allocation of Allowance for Loan Losses

<TABLE>
<CAPTION>
                                                                                        December 31,
                                                                                        ------------
                                                                  2000                      1999                     1998
                                                                  ----                      ----                     ----
                                                                         % of                      % of                     % of
                                                        Amount          Loans      Amount          Loans      Amount        Loans
                                                        ------          -----      ------          -----      ------        -----
                                                                                    (Dollars in thousands)

<S>                                                      <C>           <C>          <C>           <C>          <C>           <C>
Commercial and industrial ......................         $ 64           27.6%       $ 58           19.7%       $ 48           15.6%
Real estate - construction .....................           33           14.4%         37           16.9%         37           17.0%
Real estate - mortgage .........................           98           42.6%        111           50.0%        122           56.6%
Consumer installment ...........................           32           15.4%         47           13.4%         38           10.8%
Unallocated ....................................           27            0.0%          6            0.0%         20            0.0%
                                                         ----          -----        ----          -----        ----          -----
          Total ................................         $254          100.0%       $259          100.0%       $265          100.0%
                                                         ====          =====        ====          =====        ====          =====
</TABLE>



                                       24
<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,
                                                                                ------------------------
                                                                   2000                      1999                     1998
                                                                   ----                      ----                     ----
                                                           Amount          %        Amount           %         Amount           %
                                                           ------       ------      ------         ------      ------        ------
                                                                                  (Dollars in thousands)

<S>                                                       <C>            <C>        <C>            <C>        <C>            <C>
Noninterest bearing demand ........................       $ 3,875          9.4%     $ 4,209          9.3%     $ 4,104          9.4%
Interest bearing transaction accounts .............        13,559         32.9%      14,658         32.5%      13,043         29.8%
Savings ...........................................         2,561          6.2%       2,682          5.9%       2,640          6.0%
Time deposits $100M and over ......................         4,102          9.9%       4,389          9.7%       4,453         10.2%
Other time ........................................        17,161         41.6%      19,213         42.6%      19,508         44.6%
                                                          -------        -----      -------        -----      -------        -----
             Total deposits .......................       $41,258        100.0%     $45,151        100.0%     $43,748        100.0%
                                                          =======        =====      =======        =====      =======        =====
</TABLE>

         As of December  31, 2000,  there were  $4,126,000  in time  deposits of
$100,000 or more with  approximately  $317,000  maturing  within  three  months,
$331,000  maturing  over three  through six months,  $913,000  maturing over six
through  twelve  months and  $2,565,000  maturing  after one year.  Average time
deposits $100,000 and over comprised approximately 10% of total average deposits
during 2000, 1999 and 1998. The vast 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.   Certificates  of  deposit  $100,000  and  over  involve  the
maintenance  of  an  appropriate   matching  of  maturity   distribution  and  a
diversification of sources to achieve an appropriate level of liquidity.

         Total deposits as of December 31, 2000 were  $1,442,000,  or 3.5%, less
than the level  reported as of December 31, 1999.  Management  believes that the
majority of the  decrease in  deposits  was  attributable  to  competition  from
non-bank financial services companies.

Return on Equity and Assets

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

                                                   Years Ended December 31,
                                                   ------------------------
                                               2000          1999           1998
                                               ----          ----           ----

Return on assets .....................         1.85%         1.80%         1.70%
Return on equity .....................        13.62%        14.73%        14.12%
Dividend payout ratio ................        72.92%        60.00%        54.35%
Equity to assets ratio ...............        13.59%        12.25%        12.02%

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


                                       25
<PAGE>

funding base,  and the average of these  deposits  represented  70.4% of average
total assets during 2000 compared with 72.2% during 1999, and 71.7% during 1998.

         The  banking  subsidiary  had  available  at  the  end of  2000  unused
short-term  lines of credit to purchase up to  $2,280,000  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 $1,041,000.

          Asset liquidity is provided from several  sources,  including  amounts
due  from  banks  and  federal   funds  sold.   Available-for-sale   securities,
particularly  those  maturing  within one year,  provide a  secondary  source of
liquidity. In addition, funds from maturing loans are a source of liquidity. The
availability  of asset  liquidity  provided by federal  funds sold  decreased by
$2,440,000 at the end of 2000. This was primarily because of the need to provide
funds for the  reduction  of  deposit  liabilities.  Management  influences  the
acquisition of deposits by varying the rates paid for such  liabilities,  and by
its practices with regard to service charges and other associated fees.

         Clover   Community   Bankshares,   Inc.'s  ability  to  meet  its  cash
obligations  or to pay any possible  future cash  dividends to  shareholders  is
dependent  primarily on the successful  operation of the subsidiary bank and its
ability  to  pay  cash  dividends  to the  parent  company.  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 payable only from its undivided profits. At December 31, 2000,
the banking subsidiary's  available undivided profits totaled $3,701,000.  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.

Capital Resources

         Shareholders' equity increased by $501,000 and $240,000 during 2000 and
1999,  respectively.  During 2000, net income increased  shareholders' equity by
$978,000,   cash  dividends  decreased  shareholders'  equity  by  $709,000  and
unrealized gains on available-for-sale  securities increased stockholders equity
by $145,000.  Net sales and repurchases of stock increased  stockholders' equity
by $87,000.  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 2000 resulted in an increase of $173,000 in
shareholders'  equity. Also during 1999, the Company initiated a limited program
to redeem  shares of its stock held by  charitable  organizations.  During 2000,
repurchases and retirements of stock reduced shareholders' equity by $86,000.

         During 1999,  net income  increased  shareholders'  equity  $1,019,000,
while cash dividends of $607,000 and the change in unrealized  holding gains and
losses on  available-for-sale  securities  of $239,000,  charged to  accumulated
other comprehensive income, decreased shareholders' equity. Reinvested dividends
and  repurchases  and  retirements  of stock  during 1999  totaled  $118,000 and
$51,000, 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, 2000 and 1999, that the Company and Clover  Community Bank exceeded
all capital adequacy minimum requirements to which they were subject.



                                       26
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                Minimum for         Minimum to be
                                                                             Actual          Capital Adequacy     Well Capitalized
                                                                             ------          ----------------     ----------------
                                                                      Amount       Ratio     Amount      Ratio   Amount       Ratio
                                                                      ------       -----     ------      -----   ------       -----
December 31, 2000                                                                        (Dollars in thousands)
      The Company
<S>                                                                   <C>          <C>      <C>          <C>     <C>          <C>
           Total Capital to risk weighted assets ...............      $7,887       23.5%    $2,684       8.0%    $3,355       10.0%
           Tier 1 Capital to risk weighted assets ..............      $7,633       22.8%    $1,342       4.0%    $2,013        6.0%
           Tier 1 Capital to average assets (leverage) .........      $7,633       14.7%    $1,561       3.0%    $2,602        5.0%
      Clover Community Bank
           Total Capital to risk weighted assets ...............      $7,289       21.7%    $2,684       8.0%    $3,355       10.0%
           Tier 1 Capital to risk weighted assets ..............      $7,035       21.0%    $1,342       4.0%    $2,013        6.0%
           Tier 1 Capital to average assets (leverage) .........      $7,035       13.5%    $1,561       3.0%    $2,602        5.0%

December 31, 1999
      The Company
           Total Capital to risk weighted assets ...............      $7,421       22.6%    $2,627       8.0%    $3,284       10.0%
           Tier 1 Capital to risk weighted assets ..............      $7,162       21.8%    $1,314       4.0%    $1,970        6.0%
           Tier 1 Capital to average assets (leverage) .........      $7,162       13.1%    $1,643       3.0%    $2,738        5.0%
      Clover Community Bank
           Total Capital to risk weighted assets ...............      $6,900       21.2%    $2,610       8.0%    $3,262       10.0%
           Tier 1 Capital to risk weighted assets ..............      $6,641       20.4%    $1,305       4.0%    $1,957        6.0%
           Tier 1 Capital to average assets (leverage) .........      $6,641       12.1%    $1,641       3.0%    $2,734        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.



                                       27
<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, 2000 and 1999, and
the related consolidated  statements of income, changes in shareholders' equity,
and cash flows for each of the three  years in the  period  ended  December  31,
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 generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion,  the  financial  statements  referred to above  present
fairly, in all material respects,  the consolidated financial position of Clover
Community Bankshares,  Inc. and subsidiary as of December 31, 2000 and 1999, and
the consolidated  results of their operations and their  consolidated cash flows
for each of the three years in the period ended December 31, 2000, in conformity
with generally accepted accounting principles.


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


Donald G. Jones and Company, P.A.
Certified Public Accountants
Columbia, South Carolina
January 19, 2001



                                       28
<PAGE>

Consolidated Balance Sheet
Clover Community Bankshares, Inc.

<TABLE>
<CAPTION>
                                                                                                           December 31,
                                                                                                           ------------
                                                                                                   2000                     1999
                                                                                                   ----                     ----
Assets
<S>                                                                                           <C>                      <C>
     Cash and due from banks (Note C) ...........................................             $  1,668,386             $  1,197,482
     Interest-bearing deposits in other banks ...................................                   40,447                   34,998
     Federal funds sold .........................................................                        -                2,440,000
     Securities available-for-sale (Note D) .....................................               17,892,816               17,554,460
     Other investments (Note E) .................................................                  250,000                  250,000
     Loans-net (Note F) .........................................................               30,514,188               29,259,606
     Premises and equipment - net (Note G) ......................................                  811,492                  874,379
     Accrued interest receivable ................................................                  410,247                  361,463
     Other assets ...............................................................                  340,706                  367,597
                                                                                              ------------             ------------

            Total assets ........................................................             $ 51,928,282             $ 52,339,985
                                                                                              ============             ============

Liabilities
     Deposits (Note H)
         Noninterest bearing ....................................................             $  3,125,584             $  3,083,477
         Interest bearing .......................................................               36,290,416               37,774,047
                                                                                              ------------             ------------
            Total deposits ......................................................               39,416,000               40,857,524
     Federal funds purchased ....................................................                  470,000                        -
     Long-term debt (Note I) ....................................................                4,000,000                4,000,000
     Accrued interest payable ...................................................                  378,485                  319,449
     Other liabilities ..........................................................                      957                      768
                                                                                              ------------             ------------
            Total liabilities ...................................................               44,265,442               45,177,741
                                                                                              ------------             ------------

Commitments and contingent liabilities (Note N)

Shareholders' equity (Notes B and J)
     Common stock - par value $.01, 10,000,000 shares
         authorized; issued and outstanding - 1,017,034
         shares for 2000 and 1,014,096 shares for 1999 ..........................                   10,170                   10,141
     Capital surplus ............................................................                3,477,515                3,390,436
     Retained earnings ..........................................................                4,145,591                3,877,203
     Accumulated other comprehensive income (loss) ..............................                   29,564                 (115,536)
                                                                                              ------------             ------------
            Total shareholders' equity ..........................................                7,662,840                7,162,244
                                                                                              ------------             ------------

            Total liabilities and shareholders' equity ..........................             $ 51,928,282             $ 52,339,985
                                                                                              ============             ============
</TABLE>













See accompanying notes to consolidated financial statements.


                                       29
<PAGE>

Consolidated Statement of Income
Clover Community Bankshares, Inc.

<TABLE>
<CAPTION>
                                                                                           Years Ended December 31,
                                                                                           ------------------------
                                                                                 2000                  1999                   1998
                                                                                 ----                  ----                   ----
Interest income
<S>                                                                           <C>                   <C>                   <C>
     Loans, including fees .......................................            $2,998,296            $2,849,542            $3,048,653
     Interest-bearing deposits in other banks ....................                 3,477                19,523                20,575
     Securities
         Taxable .................................................               916,692               796,151               756,518
         Tax-exempt ..............................................               192,893               178,334               190,766
     Federal funds sold ..........................................               152,240               356,433               258,544
     Other investments ...........................................                18,518                25,576                26,975
                                                                              ----------            ----------            ----------
            Total interest income ................................             4,282,116             4,225,559             4,302,031
                                                                              ----------            ----------            ----------

Interest expense
     Time deposits $100,000 and over .............................               192,230               201,113               208,304
     Other deposits ..............................................             1,140,137             1,204,309             1,375,007
     Federal funds purchased .....................................                 1,156                   161                 3,012
     Long-term debt ..............................................               263,366               213,458               228,377
                                                                              ----------            ----------            ----------
            Total interest expense ...............................             1,596,889             1,619,041             1,814,700
                                                                              ----------            ----------            ----------

Net interest income ..............................................             2,685,227             2,606,518             2,487,331
Provision for loan losses (Note F) ...............................                46,700                     -                     -
                                                                              ----------            ----------            ----------
Net interest income after provision ..............................             2,638,527             2,606,518             2,487,331
                                                                              ----------            ----------            ----------

Other income
     Service charges on deposit accounts .........................               417,873               400,383               349,143
     Credit life insurance commissions ...........................                16,650                16,723                 9,059
     Other income ................................................                58,455                59,045                53,090
                                                                              ----------            ----------            ----------
            Total other income ...................................               492,978               476,151               411,292
                                                                              ----------            ----------            ----------

Other expenses (Notes K and M)
     Salaries and employee benefits ..............................               929,218               859,406               791,958
     Net occupancy expense .......................................                70,588                63,647                65,083
     Furniture and equipment expense .............................               235,450               217,801               206,186
     Other expense ...............................................               461,022               429,592               445,385
                                                                              ----------            ----------            ----------
            Total other expenses .................................             1,696,278             1,570,446             1,508,612
                                                                              ----------            ----------            ----------

Income before income taxes .......................................             1,435,227             1,512,223             1,390,011
Income tax expense (Note L) ......................................               456,972               492,907               458,660
                                                                              ----------            ----------            ----------
Net income .......................................................            $  978,255            $1,019,316            $  931,351
                                                                              ==========            ==========            ==========

Per share
     Average shares outstanding ..................................             1,017,645             1,014,655             1,011,020
     Net income ..................................................            $     0.96            $     1.00            $     0.92
</TABLE>






See accompanying notes to consolidated financial statements.



                                       30
<PAGE>

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

<TABLE>
<CAPTION>
                                                      Common Stock
                                                ---------------------                                    Accumulated
                                                Number of                     Capital       Retained  Other Comprehensive
                                                Shares         Amount         Surplus       Earnings     Income (Loss)       Total
                                                ------         ------         -------       --------     -------------       -----

<S>                                            <C>          <C>            <C>            <C>            <C>            <C>
Balance, January 1, 1998 ..................    1,011,020    $ 1,263,775    $ 2,070,196    $ 3,038,658    $   167,939    $ 6,540,568

Comprehensive income:
      Net income ..........................            -              -              -        931,351              -        931,351
      Change in unrealized holding gains
        and losses on available-for-sale
        securities, net of income tax effects          -              -              -              -        (44,411)       (44,411)
                                                                                                                        -----------
           Total comprehensive income ......           -              -              -              -              -        886,940
                                                                                                                        -----------
Cash dividends declared - $.50 per share ..            -              -              -       (505,510)             -       (505,510)
Exchange of $.01 par value common stock
      of Clover Community Bankshares, Inc.
      for all of the outstanding shares
      of Clover Community Bank (Note B) ...            -     (1,253,665)     1,253,665              -              -              -
                                             -----------    -----------    -----------    -----------    -----------    -----------
Balance, December 31, 1998 ................    1,011,020         10,110      3,323,861      3,464,499        123,528      6,921,998

Comprehensive income:
      Net income ..........................            -              -              -      1,019,316              -      1,019,316
      Change in unrealized holding gains
        and losses on available-for-sale
        securities, net of income tax effects          -              -              -              -       (239,064)      (239,064)
                                                                                                                        -----------
          Total comprehensive income ......            -              -              -              -              -        780,252
                                                                                                                        -----------
Cash dividends declared - $.60 per share ..            -              -              -       (606,612)             -       (606,612)
Sales of common stock under dividend
      reinvestment plan, net of plan
      expenses of $13,580 (Note J) ........        4,778             48        118,043              -              -        118,091
Repurchase and retirement of common stock .       (1,702)           (17)       (51,468)             -              -        (51,485)
                                             -----------    -----------    -----------    -----------    -----------    -----------
Balance, December 31, 1999 ................    1,014,096         10,141      3,390,436      3,877,203       (115,536)     7,162,244

Comprehensive income:
      Net income ..........................            -              -              -        978,255              -        978,255
      Change in unrealized holding gains
        and losses on available-for-sale
        securities, net of income tax effects          -              -              -              -        145,100        145,100
                                                                                                                        -----------
          Total comprehensive income ......            -              -              -              -              -      1,123,355
                                                                                                                        -----------
Cash dividends declared - $.70 per share ..            -              -              -       (709,867)             -       (709,867)
Sales of common stock under dividend
      reinvestment plan (Note J) ..........        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
                                             ===========    ===========    ===========    ===========    ===========    ===========
</TABLE>












See accompanying notes to consolidated financial statements.


                                       31
<PAGE>

Consolidated Statement of Cash Flows
Clover Community Bankshares, Inc.

<TABLE>
<CAPTION>
                                                                                                 Years Ended December 31,
                                                                                                 ------------------------
                                                                                         2000              1999              1998
                                                                                         ----              ----              ----
Operating activities
<S>                                                                                 <C>               <C>               <C>
     Net income ..............................................................      $   978,255       $ 1,019,316       $   931,351
     Adjustments to reconcile net income to net
         cash provided by operating activities
            Provision for loan losses ........................................           46,700                 -                 -
            Depreciation .....................................................          134,115           121,198           119,406
            Deferred income taxes ............................................          (22,719)           77,119           (38,286)
            Securities accretion and premium amortization ....................            3,094           (28,426)           15,891
            Amortization of net loan fees and costs ..........................          (23,680)          (13,163)           (2,236)
            Gain on disposal of fixed assets .................................                -                 -           (10,890)
            (Increase) decrease in interest receivable .......................          (48,784)          (45,224)           28,351
            Increase (decrease) in interest payable ..........................           59,036           (73,195)           41,298
            (Increase) decrease in prepaid expenses
                and other assets .............................................          (33,091)          (55,435)           20,834
            Increase in other liabilities and accrued expenses ...............              189               768                 -
                                                                                    -----------       -----------       -----------
                Net cash provided by operating activities ....................        1,093,115         1,002,958         1,105,719
                                                                                    -----------       -----------       -----------

Investing activities
     Net decrease in interest-bearing deposits in other banks ................                -           294,000            98,000
     Purchases of available-for-sale securities ..............................       (1,526,980)       (7,508,873)       (1,803,179)
     Maturities of available-for-sale securities .............................        1,411,894         5,909,764         1,554,038
     Proceeds of sales of other investments ..................................                -           127,400                 -
     Net (increase) decrease in loans made to customers ......................       (1,294,441)         (421,865)        2,766,591
     Purchases of premises and equipment .....................................          (71,228)         (279,945)          (78,415)
     Proceeds from sale of other assets ......................................           18,276            14,500                 -
     Proceeds from sale of equipment .........................................                -                 -            14,000
                                                                                    -----------       -----------       -----------
                Net cash (used) provided by investing activities .............       (1,462,479)       (1,865,019)        2,551,035
                                                                                    -----------       -----------       -----------

Financing activities
     Net increase (decrease) in demand deposits, interest
         bearing transaction accounts and savings accounts ...................          153,365        (2,037,802)        1,745,816
     Net (decrease) increase in certificates of deposit and other
         time deposits .......................................................       (1,594,889)       (2,711,309)        1,892,447
     Increase in federal funds purchased .....................................          470,000                 -                 -
     Proceeds from long-term debt ............................................        4,000,000                 -                 -
     Repayment of long-term debt .............................................       (4,000,000)                -                 -
     Sales of common stock under dividend reinvestment plan,
         net of plan expenses in 1999 (Note J) ...............................          173,242           118,091                 -
     Repurchase and retirement of common stock ...............................          (86,134)          (51,485)                -
     Cash dividends paid .....................................................         (709,867)         (606,612)         (505,510)
                                                                                    -----------       -----------       -----------
                Net cash (used) provided by financing activities .............       (1,594,283)       (5,289,117)        3,132,753
                                                                                    -----------       -----------       -----------
(Decrease) increase in cash and cash equivalents .............................       (1,963,647)       (6,151,178)        6,789,507
Cash and cash equivalents, beginning .........................................        3,672,480         9,823,658         3,034,151
                                                                                    -----------       -----------       -----------
Cash and cash equivalents, ending ............................................      $ 1,708,833       $ 3,672,480       $ 9,823,658
                                                                                    ===========       ===========       ===========
</TABLE>



See accompanying notes to consolidated financial statements.


                                       32
<PAGE>

Notes to Consolidated Financial Statements
Clover Community Bankshares, Inc.


NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

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

The  subsidiary,  Clover  Community  Bank, is a  community-oriented  institution
offering a full range of  traditional  banking  services,  with the exception of
trust  services.  Substantially  all of its  loans are made to  individuals  and
businesses  within  the  Clover  area  of York  County,  South  Carolina.  Also,
substantially  all of its deposits are acquired within its local market area and
no brokered deposits are accepted.

Principles  of  Consolidation  and  Basis  of  Presentation.   The  consolidated
financial  statements include the accounts of the parent company and its banking
subsidiary  after  elimination  of all  significant  intercompany  balances  and
transactions.  The  accounting  and  reporting  policies  of the Company and its
subsidiary are in conformity with generally accepted  accounting  principles and
general practices within the banking industry.

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.

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

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

Loans and Interest Income.  Loans are carried at principal amounts  outstanding,
increased  or reduced by  deferred  net loan costs or fees.  Interest  income on
loans is recognized  using the interest method based upon the principal  amounts
outstanding.  Loan  origination  and  commitment  fees and  certain  direct loan
origination costs (principally salaries and employee benefits) are deferred and


                                       33
<PAGE>

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.  The
methodology also includes  assessing the risk associated with  off-balance-sheet
extensions of credit such as loan commitments and standby letters of credit.

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

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

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

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

Deferred  Income  Taxes.  The Company uses an asset and  liability  approach for
financial accounting and reporting of deferred income taxes. Deferred tax assets
and  liabilities  are determined  based on the difference  between the financial
statement  and income tax bases of assets and  liabilities  as  measured  by the
currently enacted tax rates which are assumed will be in effect when these


                                       34
<PAGE>

differences reverse. If it is more likely than not that some portion or all of a
deferred tax asset will not be realized,  a valuation  allowance is  recognized.
Deferred  income tax expense or credit is the result of changes in deferred  tax
assets and liabilities.

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

Comprehensive  Income.  Comprehensive  income consists of net income or loss for
the current period and other comprehensive income, defined as income,  expenses,
gains and  losses  that  bypass  the  consolidated  statement  of income and are
reported directly in a separate  component of shareholders'  equity. The Company
classifies  and  reports  items of other  comprehensive  income 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>
                                                                                            Years Ended December 31,
                                                                                            ------------------------
                                                                                 2000                  1999                 1998
                                                                                 ----                  ----                 ----
<S>                                                                            <C>                  <C>                   <C>
Change in unrealized holding gains and
       losses on available-for-sale securities ....................            $ 226,364            $(372,955)            $ (69,285)
Income tax expense (benefit) on other
     comprehensive income (loss) ..................................               81,264             (133,891)              (24,874)
                                                                               ---------            ---------             ---------
         Net-of-tax amount ........................................            $ 145,100            $(239,064)            $ (44,411)
                                                                               =========            =========             =========
</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,  federal funds sold and securities
purchased under agreements to resell.

During  2000,  1999 and 1998,  interest  paid on deposits  and other  borrowings
amounted to $1,537,853,  $1,692,236  and  $1,773,402,  respectively.  Income tax
payments of  $568,500,  $422,800 and  $502,440  were made during 2000,  1999 and
1998, respectively.  In 2000 and 1999, non-cash transfers of $9,149 and $25,086,
respectively,  were made from loans to other assets for the repossession of loan
collateral.  Effective June 5, 1998, Clover Community Bankshares,  Inc. acquired
all of the then  outstanding  shares of Clover  Community Bank's $1.25 par value
common stock in exchange for shares of Clover Community Bankshares,  Inc.'s $.01
par value common stock. As a result,  a noncash  transfer of $1,253,665 was made
from  common  stock to capital  surplus.  During  2000,  1999 and 1998,  noncash
valuation adjustments totaling $226,364,  $372,955,  and $69,285 were made which
increased,  decreased,  and  decreased,  respectively,  the  carrying  amount of
available-for-sale  securities.  In 2000, accumulated other comprehensive income
increased  $145,100  and  deferred  tax  assets  decreased  $81,264;   in  1999,
accumulated  other  comprehensive  income  decreased  $239,064  and deferred tax
assets increased $133,891;  and, in 1998, accumulated other comprehensive income
decreased $44,411 and deferred tax assets increased $24,874.

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

Fair value  estimates are based on existing on and  off-balance-sheet  financial
instruments  without  attempting  to estimate  the value of  anticipated  future
business  and the  value of  assets  and  liabilities  that  are not  considered
financial   instruments.   Significant  assets  and  liabilities  that  are  not
considered  financial assets or liabilities  include net deferred tax assets and
premises and equipment. In addition, the income tax ramifications related to the
realization of unrealized gains and losses can have a significant effect on fair
value estimates and have not been considered in the estimates.

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

                                       35
<PAGE>

NOTE B - CORPORATE REORGANIZATION

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

The reorganization was accounted for as if it were a pooling-of-interests.  As a
result,  the consolidated  financial  statements for the year ended December 31,
1998 are  presented  as if the  reorganization  had occurred on January 1, 1998.
There were no changes in earnings per share computations.


NOTE C - CASH AND DUE FROM BANKS

Banks are  generally  required by regulation to maintain an average cash reserve
balance  based on a  percentage  of  deposits.  The average  amounts of the cash
reserve balances at December 31, 2000 and 1999, were approximately  $224,000 and
$193,000, respectively.


NOTE D - SECURITIES

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

<TABLE>
<CAPTION>
                                                                           December 31,
                                                                           ------------
                                                  2000                                                   1999
                                                  ----                                                   ----
                                          Gross        Gross                                      Gross        Gross
                                       Unrealized    Unrealized   Estimated                    Unrealized   Unrealized     Estimated
                         Amortized       Holding      Holding       Fair         Amortized       Holding      Holding        Fair
                           Cost           Gains        Losses       Value          Cost           Gains       Losses         Value
                           ----           -----        ------       -----          ----           -----       ------         -----
<S>                    <C>           <C>           <C>           <C>           <C>           <C>           <C>           <C>
Available-for-sale
   U.S. Government
        agencies ...   $ 7,329,060   $    23,281   $    70,246   $ 7,282,095   $ 7,022,489   $     1,250   $   220,803   $ 6,802,936
   State, county and
        municipal ..     4,171,924        65,537             -     4,237,461     4,308,730        32,945        14,602     4,327,073
   Mortgage-backed
        securities .     6,345,713       155,676       128,129     6,373,260     6,403,484       170,945       149,978     6,424,451
                       -----------   -----------   -----------   -----------   -----------   -----------   -----------   -----------
              Total    $17,846,697   $   244,494   $   198,375   $17,892,816   $17,734,703   $   205,140   $   385,383   $17,554,460
                       ===========   ===========   ===========   ===========   ===========   ===========   ===========   ===========
</TABLE>


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

<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                             ------------
                                                                              2000                                 1999
                                                                              ----                                 ----
                                                                  Amortized         Estimated          Amortized         Estimated
                                                                     Cost           Fair Value           Cost            Fair Value
                                                                     ----           ----------           ----            ----------
Available-for-sale
<S>                                                             <C>                <C>                <C>                <C>
      Due in one year or less ..........................        $   325,097        $   325,302        $   655,000        $   656,351
      Due after one through five years .................          3,529,226          3,516,642          3,410,510          3,342,513
      Due after five through ten years .................          6,375,412          6,404,975          6,248,433          6,125,214
      Due after ten years ..............................          1,271,249          1,272,637          1,017,276          1,005,931
                                                                -----------        -----------        -----------        -----------
                                                                 11,500,984         11,519,556         11,331,219         11,130,009
      Mortgage-backed securities .......................          6,345,713          6,373,260          6,403,484          6,424,451
                                                                -----------        -----------        -----------        -----------
           Total .......................................        $17,846,697        $17,892,816        $17,734,703        $17,554,460
                                                                ===========        ===========        ===========        ===========
</TABLE>


The fair value of U.S. Treasury and U.S.  Government agencies debt securities is
estimated based on published closing quotations. The fair value of state, county
and municipal  securities is generally not available from published  quotations;

                                       36
<PAGE>

consequently,  their fair value  estimates are based on matrix pricing or quoted
market prices of similar  instruments  adjusted for credit  quality  differences
between the quoted  instruments and the securities being valued.  Fair value for
mortgage-backed securities is estimated primarily using dealers' quotes.

There were no transfers to other categories of available-for-sale  securities in
2000, 1999 and 1998.

At December 31, 2000 and 1999,  securities  with a carrying amount of $1,714,382
and  $1,796,775,  respectively,  were  pledged as  collateral  to secure  public
deposits.

As of December 31, 2000 and 1999,  the Company had  concentrated  investments in
state,  county and  municipal  obligations  secured by or payable  from the same
taxing   authority  or  revenue   source  and  that   exceeded  ten  percent  of
shareholders' equity as follows:

<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                            ------------
                                                                              2000                                 1999
                                                                              ----                                 ----
                                                                  Amortized         Estimated           Amortized          Estimated
                                                                     Cost           Fair Value             Cost           Fair Value
                                                                     ----           ----------             ----           ----------

<S>                                                                <C>                <C>                <C>                <C>
Town of Clover, S.C. (Not rated) .......................           $820,000           $820,000           $885,000           $885,000
</TABLE>


NOTE E - OTHER INVESTMENTS

Other investments consisted of:

                                                               December 31,
                                                               ------------
                                                            2000           1999
                                                            ----           ----

Federal Home Loan Bank stock .....................       $200,000       $200,000
Community Financial Services, Inc. stock .........         50,000         50,000
                                                         --------       --------
              Total ..............................       $250,000       $250,000
                                                         ========       ========


NOTE F - LOANS

Loans consisted of the following:

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                          ------------
                                                                         2000                                     1999
                                                                         ----                                     ----
                                                            Carrying            Estimated           Carrying             Estimated
                                                             Amount             Fair Value            Amount             Fair Value
                                                             ------             ----------            ------             ----------

<S>                                                       <C>                  <C>                 <C>                  <C>
Commercial and industrial ........................        $  8,502,147         $  8,353,209        $  5,822,313         $  5,756,295
Real estate- construction ........................           4,422,181            4,334,487           4,992,536            4,939,899
Real estate - mortgage ...........................          13,131,338           12,745,441          14,764,030           14,510,386
Consumer installment .............................           4,731,355            4,672,042           3,954,281            3,889,967
                                                          ------------         ------------        ------------         ------------
          Total ..................................          30,787,021           30,105,179          29,533,160           29,096,547
Less
      Allowance for loan losses ..................            (253,967)                   -            (258,762)                   -
      Deferred net loan fees .....................             (18,866)                   -             (14,792)                   -
                                                          ------------         ------------        ------------         ------------
          Loans - net ............................        $ 30,514,188         $ 30,105,179        $ 29,259,606         $ 29,096,547
                                                          ============         ============        ============         ============
</TABLE>


Fair  values  are  estimated  for  loan   categories   with  similar   financial
characteristics.  Within each category, the fair value of loans is calculated by
discounting  estimated cash flows through the estimated maturity using estimated
market discount rates that reflect the credit and interest rate risk inherent in
the loan. For certain  categories of loans, such as variable rate loans,  credit

                                       37
<PAGE>

card receivables,  and other lines of credit, the carrying amount,  adjusted for
credit  risk,  is a  reasonable  estimate  of fair  value  because  there  is no
contractual maturity or because the Company has the ability to reprice the loans
as interest rate changes  occur.  Since the discount  rates are based on current
loan rates offered as well as management's estimates,  the fair values presented
may not necessarily be indicative of the value negotiated in an actual sale.

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

<TABLE>
<CAPTION>
                                                                                                              December 31,
                                                                                                              ------------
                                                                                                         2000                 1999
                                                                                                         ----                 ----
Investment in impaired loans
<S>                                                                                                    <C>                   <C>
     Nonaccrual ........................................................................               $    10               $ 8,476
     Accruing 90 days and over past due ................................................                   619                 1,798
                                                                                                       -------               -------
         Total .........................................................................               $   629               $10,274
                                                                                                       =======               =======

Average total investment in impaired loans during the year .............................               $14,157               $ 3,500
Allowance for loan losses on impaired loans ............................................                     -                     -
</TABLE>

The average total  investment in impaired  loans during 1998 was $25,250.  There
were no outstanding commitments at December 31, 2000 to lend additional funds to
debtors owing amounts on impaired loans.

As of December 31, 2000 and 1999,  there were no significant  concentrations  of
credit risk in any single  borrower or groups of borrowers.  The Company's  loan
portfolio   consists  primarily  of  extensions  of  credit  to  businesses  and
individuals in its market area within York County,  South Carolina.  The economy
of this area is diversified  and does not depend on any one industry or group of
related industries.  Management has established loan policies and practices that
include set  limitations  on  loan-to-collateral  value for  different  types of
collateral,  requirements  for  appraisals,  obtaining and  maintaining  current
credit and financial information on certain borrowers, and credit approvals.

Transactions in the allowance for loan losses are summarized below:

<TABLE>
<CAPTION>
                                                                                          Years Ended December 31,
                                                                                          ------------------------
                                                                           2000                      1999                    1998
                                                                           ----                      ----                    ----

<S>                                                                     <C>                      <C>                      <C>
Balance at January 1 ....................................               $ 258,762                $ 265,149                $ 272,096
Provision charged to expense ............................                  46,700                        -                        -
Recoveries ..............................................                     872                    2,365                    2,650
Charge-offs .............................................                 (52,367)                  (8,752)                  (9,597)
                                                                        ---------                ---------                ---------
Balance at December 31 ..................................               $ 253,967                $ 258,762                $ 265,149
                                                                        =========                =========                =========
</TABLE>


Certain  officers  and  directors  of the  Company  and  its  subsidiary,  their
immediate  families and business interests were loan customers of, and had other
transactions  with the  banking  subsidiary  in the normal  course of  business.
Related party loans are made on substantially the same terms, including interest
rates  and  collateral,   as  those   prevailing  at  the  time  for  comparable
transactions  with unrelated parties and do not involve more than normal risk of
collectibility.  The aggregate  dollar amount of these loans was  $1,822,988 and
$1,727,544 at December 31, 2000 and 1999, respectively.  During 2000, $1,513,494
of new loans were made and repayments totaled $1,418,050.

                                       38
<PAGE>


NOTE G - PREMISES AND EQUIPMENT

Premises and equipment consisted of the following:

<TABLE>
<CAPTION>
                                                                                                           December 31,
                                                                                                           ------------
                                                                                                2000                         1999
                                                                                                ----                         ----

<S>                                                                                          <C>                          <C>
Land .....................................................................                   $  322,949                   $  309,050
Buildings and land improvements ..........................................                      600,041                      566,959
Furniture and equipment ..................................................                    1,076,206                    1,051,959
                                                                                             ----------                   ----------
     Total ...............................................................                    1,999,196                    1,927,968
Accumulated depreciation .................................................                    1,187,704                    1,053,589
                                                                                             ----------                   ----------
     Premises and equipment - net ........................................                   $  811,492                   $  874,379
                                                                                             ==========                   ==========
</TABLE>


Depreciation  expense for the years ended  December 31, 2000,  1999 and 1998 was
$134,115, $121,198, and $119,406, respectively.


NOTE H - DEPOSITS

A summary of deposits follows:

<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                             ------------
                                                                               2000                                1999
                                                                               ----                                ----
                                                                  Carrying           Estimated          Carrying         Estimated
                                                                   Amount           Fair Value           Amount          Fair Value
                                                                   ------           ----------           ------          ----------

<S>                                                             <C>                <C>                <C>                <C>
Noninterest bearing demand .............................        $ 3,125,584        $ 3,125,584        $ 3,083,477        $ 3,083,477
Interest bearing transaction accounts ..................         12,600,193         12,600,193         12,888,643         12,888,643
Savings ................................................          2,759,865          2,759,865          2,360,157          2,360,157
Time deposits $100,000 and over ........................          4,126,342          4,147,529          4,095,215          4,096,004
Other time deposits ....................................         16,804,016         16,829,363         18,430,032         18,426,405
                                                                -----------        -----------        -----------        -----------
     Total deposits ....................................        $39,416,000        $39,462,534        $40,857,524        $40,854,686
                                                                ===========        ===========        ===========        ===========
</TABLE>


The fair value of deposits with no stated maturity  (noninterest bearing demand,
interest  bearing  transaction  accounts  and  savings)  is equal to the  amount
payable on demand,  or carrying  amount,  as of December 31, 2000 and 1999.  The
fair  value of time  deposits  is  estimated  based on the  discounted  value of
contractual cash flows. The discount rate is estimated using the rates currently
offered as of December,  31, 2000 and 1999,  for  deposits of similar  remaining
maturities.

At December 31, 2000, the scheduled maturities of time deposits were as follows:

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

             2001                                       $ 14,535,787
             2002                                          5,937,140
             2003                                            453,319
             2004                                                  -
             2005 and thereafter                               4,112


NOTE I - LONG-TERM DEBT

Long-term  debt at December 31, 2000 and 1999  consisted  of a  $4,000,000  note
issued by the Bank to the Federal  Home Loan Bank of Atlanta (the  "FHLB").  For
2000,  the note is due on November 28, 2003 and has a variable  interest rate of
6.71% as of December 31, 2000.  For 1999,  the note was due on November 28, 2000

                                       39
<PAGE>

and had a variable  interest rate of 6.55% as of December 31, 1999.  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  $6,722,000  as of
December 31, 2000.  The Bank has an additional  long-term debt  availability  of
approximately  $1,041,000  from the FHLB that had not been drawn at December 31,
2000.

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


NOTE J - SHAREHOLDERS' EQUITY

Restrictions  on  Subsidiary  Dividends,   Loans  or  Advances.  South  Carolina
regulations restrict the amount of dividends that banks can pay to shareholders.
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  payable only from its
undivided  profits.  At December 31, 2000, the Bank's undivided  profits totaled
$3,700,765.  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,  2000 and 1999,
accumulated  other  comprehensive  income or loss  included  as an  increase  or
decrease 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
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.

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,
2000 and 1999,  that the Company and its  subsidiary  bank  exceeded all capital
adequacy minimum requirements.

As of December 31, 2000, 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.

                                       40
<PAGE>

<TABLE>
<CAPTION>
                                                                                              Minimum for            Minimum to be
                                                                           Actual            Capital Adequacy      Well Capitalized
                                                                           ------            ----------------      ----------------
                                                                      Amount     Ratio       Amount     Ratio      Amount      Ratio
                                                                      ------     -----       ------     -----      ------      -----
December 31, 2000                                                                        (Dollars in thousands)
      The Company
<S>                                                                   <C>        <C>         <C>         <C>        <C>        <C>
          Total Capital to risk weighted assets ................      $7,887     23.5%       $2,684      8.0%       $3,355     10.0%
          Tier 1 Capital to risk weighted assets ...............      $7,633     22.8%       $1,342      4.0%       $2,013      6.0%
          Tier 1 Capital to average assets (leverage) ..........      $7,633     14.7%       $1,561      3.0%       $2,602      5.0%
      Clover Community Bank
          Total Capital to risk weighted assets ................      $7,289     21.7%       $2,684      8.0%       $3,355     10.0%
          Tier 1 Capital to risk weighted assets ...............      $7,035     21.0%       $1,342      4.0%       $2,013      6.0%
          Tier 1 Capital to average assets (leverage) ..........      $7,035     13.5%       $1,561      3.0%       $2,602      5.0%

December 31, 1999
      The Company
          Total Capital to risk weighted assets ................      $7,421     22.6%       $2,627      8.0%       $3,284     10.0%
          Tier 1 Capital to risk weighted assets ...............      $7,162     21.8%       $1,314      4.0%       $1,970      6.0%
          Tier 1 Capital to average assets (leverage) ..........      $7,162     13.1%       $1,643      3.0%       $2,738      5.0%
      Clover Community Bank
          Total Capital to risk weighted assets ................      $6,900     21.2%       $2,610      8.0%       $3,262     10.0%
          Tier 1 Capital to risk weighted assets ...............      $6,641     20.4%       $1,305      4.0%       $1,957      6.0%
          Tier 1 Capital to average assets (leverage) ..........      $6,641     12.1%       $1,641      3.0%       $2,734      5.0%

</TABLE>

NOTE K - OTHER EXPENSES

Other expenses are summarized below:

<TABLE>
<CAPTION>
                                                                                             Years Ended December 31,
                                                                                             ------------------------
                                                                                 2000                   1999                  1998
                                                                                 ----                   ----                  ----

<S>                                                                           <C>                   <C>                   <C>
Salaries and employee benefits ...................................            $  929,218            $  859,406            $  791,958
Net occupancy expense ............................................                70,588                63,647                65,083
Furniture and equipment expense ..................................               235,450               217,801               206,186
Other expense
      Stationery, printing and postage ...........................               106,267               110,717                96,286
      Telephone ..................................................                17,311                16,662                15,707
      Advertising ................................................                 7,208                 9,082                 8,613
      Professional services ......................................                78,248                65,699                88,540
      Insurance ..................................................                10,841                10,840                11,266
      FDIC insurance assessment ..................................                 8,826                 5,312                 3,824
      Directors' fees ............................................                38,800                33,600                33,600
      Data processing expenses ...................................                50,427                58,104                46,295
      Other ......................................................               143,094               119,576               141,254
                                                                              ----------            ----------            ----------
          Total ..................................................            $1,696,278            $1,570,446            $1,508,612
                                                                              ==========            ==========            ==========
</TABLE>


                                       41
<PAGE>


NOTE L - INCOME TAXES

Income tax expense consisted of:

<TABLE>
<CAPTION>
                                                                                              Years Ended December 31,
                                                                                              ------------------------
                                                                                  2000                   1999                   1998
                                                                                  ----                   ----                   ----
Current
<S>                                                                            <C>                   <C>                  <C>
      Federal .....................................................            $ 433,802             $ 375,584            $ 449,969
      State .......................................................               45,889                40,204               46,977
                                                                               ---------             ---------            ---------
                 Total current ....................................              479,691               415,788              496,946
                                                                               ---------             ---------            ---------
Deferred
      Federal .....................................................              (20,896)               70,932              (35,215)
      State .......................................................               (1,823)                6,187               (3,071)
                                                                               ---------             ---------            ---------
                 Total deferred ...................................              (22,719)               77,119              (38,286)
                                                                               ---------             ---------            ---------
                 Total income tax expense .........................            $ 456,972             $ 492,907            $ 458,660
                                                                               =========             =========            =========
</TABLE>


Income before income taxes presented in the consolidated statement of income for
the years ended December 31, 2000, 1999 and 1998 included no foreign  component.
A  reconciliation  between  the income tax  expense  and the amount  computed by
applying  the  federal  statutory  rate of 34% to  income  before  income  taxes
follows:


<TABLE>
<CAPTION>
                                                                                          Years Ended December 31,
                                                                                          ------------------------
                                                                                2000                  1999                   1998
                                                                                ----                  ----                   ----

<S>                                                                         <C>                    <C>                    <C>
Tax expense at statutory rate .................................             $ 487,977              $ 514,156              $ 472,604
State income tax, net of federal
      income tax benefit ......................................                29,084                 30,618                 28,977
Tax-exempt interest income ....................................               (65,002)               (60,542)               (64,778)
Non-deductible interest expense to
      carry tax-exempt instruments ............................                 8,470                  8,111                  9,408
Non-deductible corporate
      reorganization expenses .................................                     -                      -                 11,513
Other, net ....................................................                (3,557)                   564                    936
                                                                            ---------              ---------              ---------
                 Total ........................................             $ 456,972              $ 492,907              $ 458,660
                                                                            =========              =========              =========
</TABLE>



                                       42
<PAGE>


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

<TABLE>
<CAPTION>
                                                                                                            December 31,
                                                                                                            ------------
                                                                                                      2000                   1999
                                                                                                      ----                   ----
Deferred tax assets
<S>                                                                                                <C>                      <C>
      Allowance for loan losses ..................................................                 $ 65,304                 $ 67,026
      Net deferred loan fees .....................................................                    6,773                    5,310
      Accrued interest payable ...................................................                  135,876                  114,682
      Unrealized holding gains and losses on
        available-for-sale securities ............................................                        -                   64,707
                                                                                                   --------                 --------
                 Gross deferred tax assets .......................................                  207,953                  251,725
      Valuation allowance ........................................................                        -                        -
                                                                                                   --------                 --------
                 Total ...........................................................                  207,953                  251,725
                                                                                                   --------                 --------

Deferred tax liabilities
      Accrued interest receivable ................................................                  126,836                  110,278
      Prepaid expenses ...........................................................                   43,397                   56,416
      Accelerated depreciation ...................................................                    4,518                   12,140
      Unrealized holding gains and losses on
        available-for-sale securities ............................................                   16,557                        -
      Other ......................................................................                    3,612                    1,313
                                                                                                   --------                 --------
                 Gross deferred tax liabilities ..................................                  194,920                  180,147
                                                                                                   --------                 --------
Net deferred income tax assets ...................................................                 $ 13,033                 $ 71,578
                                                                                                   ========                 ========
</TABLE>

A portion of the change in net  deferred  tax assets or  liabilities  related to
unrealized holding gains and losses on available-for-sale  securities is charged
or credited directly to other comprehensive income. The balance of the change in
net deferred  tax assets is charged or credited to income tax expense.  In 2000,
1999 and 1998,  $81,264 was  charged,  $133,891  was  credited,  and $24,874 was
credited to other comprehensive  income,  respectively.  In 2000, 1999 and 1998,
$22,719 was  credited,  $77,119 was charged,  and $38,286 was credited to income
tax expense, respectively.

Management  believes that the Company will fully realize the deferred tax assets
as of December 31, 2000 and 1999 based on refundable income taxes available from
carryback years, as well as estimates of future taxable income.


NOTE M - RETIREMENT PLAN

 In  1993,  the  Company   established  the  Clover  Community  Bank  Employees'
Retirement  Savings Plan (the "Plan") for the exclusive  benefit of all eligible
employees and their beneficiaries.  Employees are eligible to participate in the
Plan after  attaining age 21 and  completing  twelve months of service,  and are
credited with at least 1000 hours of service during the eligibility  computation
period.  Employees  are allowed to defer their  salary up to the maximum  dollar
amount  determined by federal  government  laws and  regulations  each year. The
Company  matches $.50 for each dollar  contributed  by the employees up to 6% of
their total pay.  The Board of  Directors  can also elect to make  discretionary
contributions.  Employees  are  fully  vested  in  both  the  matching  and  any
discretionary   contributions   after  six  years  of  service.   The   employer
contributions to the plan for 2000, 1999 and 1998 totaled $18,552,  $16,475, and
$15,228, respectively.


NOTE N - COMMITMENTS AND CONTINGENCIES

Commitments  to Extend  Credit.  In the normal  course of business,  the banking
subsidiary is party to financial instruments with off-balance-sheet  risk. These
financial  instruments  include commitments to extend credit and standby letters
of credit,  and have elements of credit risk in excess of the amount  recognized
in the balance sheet. The exposure to credit loss in the event of nonperformance
by the other parties to the financial instruments for commitments to extend

                                       43
<PAGE>

credit and standby letters of credit is represented by the contractual  notional
amount  of those  instruments.  Generally,  the same  credit  policies  used for
on-balance-sheet  instruments,  such  as  loans,  are  used  in  extending  loan
commitments and standby letters of credit.

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

                                                             December 31,
                                                            ------------
                                                       2000               1999
                                                       ----               ----

Loan commitments .........................         $6,216,642         $6,951,821
Standby letters of credit ................             31,575             42,075


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

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

The estimated fair values of  off-balance-sheet  financial  instruments  such as
loan  commitments  and standby  letters of credit are generally  based upon fees
charged to enter into  similar  agreements,  taking into  account the  remaining
terms  of the  agreements  and the  counterparties'  creditworthiness.  The vast
majority  of the  banking  subsidiary's  loan  commitments  do not  involve  the
charging of a fee,  and fees  associated  with  outstanding  standby  letters of
credit are not  material.  Therefore,  as of  December  31,  2000 and 1999,  the
estimated  fair  values  of these  off-balance-sheet  financial  instruments  is
nominal.  For loan  commitments  and standby  letters of credit,  the  committed
interest rates are either variable or approximate current interest rates offered
for similar  commitments.  Management is not aware of any significant  change in
the credit risk associated with these commitments.

Short-term Borrowing  Commitments.  At December 31, 2000, the banking subsidiary
had unused  short-term  lines of credit to purchase up to  $2,280,000 in federal
funds from correspondent financial institutions. One line for $2,000,000 expires
October  1,  2001;  however,  all  lenders  reserve  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, 2000.  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.




                                       44
<PAGE>


NOTE O - FAIR VALUE OF FINANCIAL INSTRUMENTS

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

<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                            ------------
                                                                              2000                                  1999
                                                                              ----                                  ----
                                                                     Carrying         Estimated         Carrying         Estimated
                                                                      Amount          Fair Value         Amount         Fair Value
                                                                     of Assets        of Assets         of Assets        of Assets
                                                                   (Liabilities)    (Liabilities)     (Liabilities)    (Liabilities)
                                                                   -------------    -------------     -------------    -------------

<S>                                                              <C>               <C>               <C>               <C>
Cash and due from banks (Note A) ...........................     $  1,668,386      $  1,668,386      $  1,197,482      $  1,197,482
Interest-bearing deposits in other banks (Note A) ..........           40,447            40,447            34,998            34,998
Federal funds sold (Note A) ................................                -                 -         2,440,000         2,440,000
Securities (Note C) ........................................       17,892,816        17,892,816        17,554,460        17,554,460
Other investments (Notes A and E) ..........................          250,000           250,000           250,000           250,000
Loans (Note F) .............................................       30,514,188        30,105,179        29,259,606        29,096,547
Accrued interest receivable (Note A) .......................          410,247           410,247           361,463           361,463
Deposits (Note H) ..........................................      (39,416,000)      (39,462,534)      (40,857,524)      (40,854,686)
Federal funds purchased (Note A) ...........................         (470,000)         (470,000)                -                 -
Long-term debt (Note I) ....................................       (4,000,000)       (4,000,000)       (4,000,000)       (4,000,000)
Accrued interest payable (Note A) ..........................         (378,485)         (378,485)         (319,449)         (319,449)
Loan commitments (Note N) ..................................                         (6,216,642)                         (6,951,821)
Standby letters of credit (Note N) .........................                            (31,575)                            (42,075)
</TABLE>


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

<TABLE>
<CAPTION>
                                                                                                             December 31,
                                                                                                             ------------
                                                                                                     2000                    1999
                                                                                                     ----                    ----
Condensed Balance Sheet
<S>                                                                                               <C>                     <C>
     Assets
         Cash ......................................................................              $  590,451              $  296,393
         Investment in banking subsidiary ..........................................               7,064,299               6,641,524
         Land ......................................................................                       -                 221,020
         Other assets ..............................................................                   8,090                   3,306
                                                                                                  ----------              ----------
            Total assets ...........................................................              $7,662,840              $7,162,243
                                                                                                  ==========              ==========
     Liabilities
         Other liabilities .........................................................              $        -              $        -
     Shareholders' equity ..........................................................               7,662,840               7,162,243
                                                                                                  ----------              ----------
            Total liabilities and shareholders' equity .............................              $7,662,840              $7,162,243
                                                                                                  ==========              ==========
</TABLE>








                                       45
<PAGE>

<TABLE>
<CAPTION>
                                                                                           Years Ended December 31,
                                                                                           ------------------------
                                                                                   2000                1999                1998
                                                                                   ----                ----                ----
Condensed Statement of Income
<S>                                                                                 <C>               <C>               <C>
     Income
         Dividends received from banking subsidiary ..........................      $   709,867       $   606,612       $ 1,005,510
         Interest income .....................................................            6,483            10,833             2,319
                                                                                    -----------       -----------       -----------
            Total income .....................................................          716,350           617,445         1,007,829
                                                                                    -----------       -----------       -----------
     Expenses
         Other expenses ......................................................           20,554            20,558            44,674
                                                                                    -----------       -----------       -----------
            Total expenses ...................................................           20,554            20,558            44,674
                                                                                    -----------       -----------       -----------
     Income before income taxes and equity in
         undistributed earnings of banking subsidiary ........................          695,796           596,887           963,155
     Income tax expense (credit) .............................................           (4,784)           (3,306)           (2,887)
     Equity in undistributed earnings
         of banking subsidiary ...............................................          277,675           419,123           (34,691)
                                                                                    -----------       -----------       -----------
     Net income ..............................................................      $   978,255       $ 1,019,316       $   931,351
                                                                                    ===========       ===========       ===========


<CAPTION>
                                                                                           Years Ended December 31,
                                                                                           ------------------------
                                                                                   2000                1999                1998
                                                                                   ----                ----                ----

Condensed Statement of Cash Flows
     Operating activities
<S>                                                                                 <C>               <C>               <C>
         Net income ..........................................................      $   978,255       $ 1,019,316       $   931,351
            Adjustments to reconcile net income to net
                cash provided by operating activities
                    Equity in undistributed earnings
                      of banking subsidiary ..................................         (277,675)         (419,123)           34,691
                    Increase in other assets .................................           (4,783)             (419)           (2,887)
                                                                                    -----------       -----------       -----------
                         Net cash provided by operating activities ...........          695,797           599,774           963,155
                                                                                    -----------       -----------       -----------
     Investing activities
         Proceeds from transfer of land to banking subsidiary ................          221,020                 -                 -
         Purchase of land ....................................................                -          (221,020)                -
                                                                                    -----------       -----------       -----------
                         Net cash provided (used) by
                           investing activities ..............................          221,020          (221,020)                -
                                                                                    -----------       -----------       -----------
     Financing activities
         Sales of common stock under dividend reinvestment
              plan, net ......................................................          173,242           118,091                 -
         Repurchase and retirement of common stock ...........................          (86,134)          (51,485)                -
         Cash dividends paid .................................................         (709,867)         (606,612)         (515,510)
                                                                                    -----------       -----------       -----------
                         Net cash used by financing activities ...............         (622,759)         (540,006)         (515,510)
                                                                                    -----------       -----------       -----------
     Increase (decrease) in cash and cash equivalents ........................          294,058          (161,252)          447,645
     Cash and cash equivalents, beginning ....................................          296,393           457,645                 -
                                                                                    -----------       -----------       -----------
     Cash and cash equivalents, ending .......................................      $   590,451       $   296,393       $   447,645
                                                                                    ===========       ===========       ===========
</TABLE>
                                       46