PORTIONS OF THE ANNUAL REPORT TO SHAREHOLDERS
                      FOR THE YEAR ENDED DECEMBER 31, 1999

Financial Summary*
<TABLE>
<CAPTION>
                                                                                     Years Ended December 31,
                                                                                     ------------------------
                                                                  1999            1998           1997           1996          1995
                                                                  ----            ----           ----           ----          ----
                                                                            (Dollars in thousands, except per share data)
Financial Condition
<S>                                                              <C>            <C>            <C>            <C>            <C>
     Securities .........................................        $17,554        $16,300        $16,136        $16,016        $17,009
     Allowance for loan losses ..........................            259            265            272            270            245
     Net loans ..........................................         29,260         28,850         31,614         31,282         27,975
     Premises and equipment - net .......................            874            716            760            842            924
     Total assets .......................................         52,340         56,921         52,909         52,611         49,611
     Noninterest bearing deposits .......................          3,084          3,962          3,890          3,341          3,494
     Interest bearing deposits ..........................         37,774         41,645         38,078         38,879         35,846
     Total deposits .....................................         40,858         45,607         41,968         42,220         39,340
     Long-term debt .....................................          4,000          4,000          4,000          4,000          4,000
     Total liabilities ..................................         45,178         49,999         46,368         46,574         44,117
     Total shareholders' equity .........................          7,162          6,922          6,541          6,037          5,494

Results of Operations
     Interest income ....................................        $ 4,226        $ 4,302        $ 4,222        $ 3,986        $ 3,891
     Interest expense ...................................          1,619          1,815          1,847          1,822          1,807
                                                                 -------        -------        -------        -------        -------
     Net interest income ................................          2,607          2,487          2,375          2,164          2,084
     Provision for loan losses ..........................              -              -              5             32             45
                                                                 -------        -------        -------        -------        -------
     Net interest income after provision ................          2,607          2,487          2,370          2,132          2,039
     Other income .......................................            476            411            341            297            267
     Other expenses .....................................          1,571          1,508          1,375          1,250          1,231
                                                                 -------        -------        -------        -------        -------
     Income before income taxes .........................          1,512          1,390          1,336          1,179          1,075
     Income tax expense .................................            493            459            433            375            357
                                                                 -------        -------        -------        -------        -------
     Net income .........................................        $ 1,019        $   931        $   903        $   804        $   718
                                                                 =======        =======        =======        =======        =======

Per Share Data
     Net income .........................................        $  1.00        $  0.92        $  0.89        $  0.80        $  0.71
     Cash dividends declared ............................           0.60           0.50           0.50           0.20           0.15
     Period end book value ..............................           7.06           6.85           6.47           5.97           5.43
</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,
1995  through  1997 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 1999,  management was aware of a few  transactions in which the Company's
common stock  traded in a price range from $25.00 to $38.00 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.  For the first time,  shareholders had the opportunity to purchase
additional  common  shares in the Company by  reinvesting  their cash  dividends
under the new dividend  reinvestment  plan that was placed in operation in 1999.
Under the plan, 4,778 newly issued shares were purchased by shareholders in 1999
at a price of $27.56 per share in accordance with the plan's pricing formula. In
1999,  1,702  shares  of  the  Company's  common  stock  were  repurchased  from
eleemosynary  organizations  at an  average  price of $30.25  and  retired.  The
repurchases were effected at prices set at the discretion of the Company's Board
of Directors.  Prices established for the issuance for shares under the dividend
reinvestment  plan and for such  repurchases may not be indicative of the market
value of the common stock.

         As of February 29, 2000, there were approximately 714 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 1999 and
1998, the Bank declared and paid cash dividends to shareholders of $.60 and $.50
per share, respectively.

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



                                       14
<PAGE>

Earnings Performance

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.  Costs  directly  associated
with the Company's Year 2000  Preparedness  Program were  insignificant in 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. No provision
for loan  losses  was  necessary  in 1999  because  of the  continued  excellent
performance of the loan portfolio.

         The  Company  adopted  Statement  of  Financial   Accounting  Standards
("SFAS")  No.  130,  "Reporting  Comprehensive  Income,"  as of January 1, 1998.
Accounting principles generally require that recognized revenue, expenses, gains
and losses be included in net income. Certain changes in assets and liabilities,
such as unrealized  holding gains and losses on  available-for-sale  securities,
are reported as a separate component of the shareholders'  equity section of the
consolidated balance sheet. Such items, along with net income, are components of
comprehensive income. Comprehensive income for 1999, 1998 and 1997 was $780,000,
$887,000 and $1,009,000,  respectively.  Comprehensive  income for 1999 and 1998
was impacted negatively by the effects of increasing market rates of interest on
the market values of the Company's available-for-sale  securities. The magnitude
of this effect on comprehensive income for 1999 was a decrease of $239,000,  net
of tax effects,  compared  with a decrease of $44,000,  net of tax effects,  for
1998. This increased  negative effect was caused by a relatively larger increase
in market rates of interest throughout 1999.  However,  the adoption of SFAS No.
130 had no effect on the Company's net income or total shareholders' equity.


1998 Compared with 1997

         For the year ended December 31, 1998,  the Company  recorded net income
of $931,000,  an increase of $28,000,  or 3.1%,  over net income of $903,000 for
1997. Net income per share for 1998 was $.92 compared with $.89 for 1997. Return
on average  assets for 1998 was 1.70%  compared  with 1.72% for 1997.  Return on
average shareholders' equity was 14.12% for 1998 compared with 14.84% for 1997.

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

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.


                                       15
<PAGE>

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

         FTE net interest income was  $2,699,000,  $2,585,000 and $2,467,000 for
1999,  1998 and 1997,  respectively.  The  $114,000  growth in FTE net  interest
income for 1999 was  attributable  primarily  to lower  rates  paid on  interest
bearing liabilities.  The average rate paid for such funding sources in 1999 was
3.60%,  a decrease of 56 basis points from the 1998  average rate of 4.16%.  The
average amount of such liabilities  increased by $1,266,000 or 2.9% during 1999.
The  combination  of these two  factors  resulted  in a  $196,000  reduction  in
interest expense.

         FTE interest income  decreased in 1999,  also, but by only $82,000 from
the 1998 amount.  The average  rate earned on average  interest  earning  assets
decreased to 8.08% in 1999 from 8.49% in 1998. The average volume of such assets
increased by $1,634,000, or 3.2%, in 1999. However, the average amount of loans,
the Company's highest yielding asset, decreased by $1,340,000,  or 4.4%, in 1999
from the 1998 amount.

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

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

















                                       16
<PAGE>

         The table,  "Average Balances,  Yields and Rates",  provides a detailed
analysis of the effective yields and rates on the categories of average interest
earning assets and interest bearing liabilities for the years ended December 31,
1999, 1998 and 1997.

                       Average Balances, Yields and Rates

<TABLE>
<CAPTION>
                                                                           Years ended December 31,
                                                                           ------------------------
                                                       1999                           1998                           1997
                                                       ----                           ----                           ----
                                                   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 $    268   $    20      7.46%   $    351    $    20    5.70%   $    481     $   29    6.03%
Securities
Taxable ................................   12,537       796      6.35%     11,447        756    6.60%     11,793        766    6.50%
Tax-exempt(2) ..........................    3,884       270      6.95%      4,188        289    6.90%      4,040        272    6.73%
                                          -------   -------              --------    -------            --------     ------
        Total securities ...............   16,421     1,066      6.49%     15,635      1,045    6.68%     15,833      1,038    6.56%
Other investments ......................      295        26      8.81%        377         27    7.16%        377         26    6.90%
Federal funds sold .....................    7,323       356      4.86%      4,970        259    5.21%      2,004        109    5.44%
Loans(3) ...............................   29,159     2,850      9.77%     30,499      3,049   10.00%     31,033      3,112   10.03%
                                          -------   -------              --------    -------            --------     ------
        Total interest earning assets ..   53,466     4,318      8.08%     51,832      4,400    8.49%     49,728      4,314    8.68%
Cash and due from banks ................    1,967                           1,760                          1,555
Allowance for loan losses ..............     (263)                           (269)                          (270)
Premises and equipment .................      687                             750                            800
Other assets ...........................      613                             756                            673
                                         --------                        --------                       --------
        Total assets ................... $ 56,470                        $ 54,829                       $ 52,486
                                         ========                        ========                       ========

Liabilities and shareholders' equity
Interest bearing deposits
     Interest bearing transaction
       accounts ........................ $ 14,658   $   232      1.58%   $ 13,043    $   279    2.14%    $11,824     $  261    2.21%
     Savings ...........................    2,682        46      1.72%      2,640         58    2.20%      2,624         65    2.48%
     Time deposits $100M and over ......    4,389       201      4.58%      4,453        208    4.67%      4,352        207    4.76%
     Other time deposits ...............   19,213       926      4.82%     19,508      1,039    5.33%     19,784      1,080    5.46%
                                         --------   -------              --------    -------            --------     ------
        Total interest bearing
          deposits .....................   40,942     1,405      3.43%     39,644      1,584    4.00%     38,584      1,613    4.18%
Federal funds purchased ................        3         -      0.00%         35          3    8.57%         41          2    4.88%
Long-term debt .........................    4,000       214      5.35%      4,000        228    5.70%      4,000        232    5.80%
                                         --------   -------              --------    -------            --------     ------
        Total interest bearing
          liabilities ..................   44,945     1,619      3.60%     43,679      1,815    4.16%     42,625      1,847    4.33%
Noninterest bearing demand deposits ....    4,209                           4,104                          3,362
Other liabilities ......................      398                             453                            416
Shareholders' equity ...................    6,918                           6,593                          6,083
                                         --------                        --------                       --------
        Total liabilities and
         shareholders' equity .......... $ 56,470                        $ 54,829                       $ 52,486
                                         ========                       =========                       ========
Interest rate spread(4) ................                         4.48%                          4.33%                          4.35%
Net interest income and net yield
     on earning assets(5) ..............            $ 2,699      5.05%               $ 2,585    4.99%                $2,467    4.96%
Interest free funds supporting
     earning assets(6) ................. $  8,521                        $  8,153                       $  7,103
</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.

                                       17
<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>
                                                                1999 Compared with 1998                1998 Compared with 1997
                                                                -----------------------                -----------------------
                                                         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 .............       $  (5)       $   5        $   -        $  (7)       $  (2)       $  (9)
Taxable securities ...................................          70          (30)          40          (23)          13          (10)
Tax-exempt securities (2) ............................         (21)           2          (19)          10            7           17
Other investments ....................................          (7)           6           (1)           -            1            1
Federal funds sold ...................................         115          (18)          97          155           (5)         150
Loans ................................................        (132)         (67)        (199)         (53)         (10)         (63)
                                                             -----        -----        -----        -----        -----        -----
            Total interest income ....................          20         (102)         (82)          82            4           86
                                                             -----        -----        -----        -----        -----        -----
Interest bearing deposits
     Interest bearing transaction accounts ...........          32          (79)         (47)          26           (8)          18
     Savings .........................................           1          (13)         (12)           -           (7)          (7)
     Time deposits $100M and over ....................          (3)          (4)          (7)           5           (4)           1
     Other time deposits .............................         (16)         (97)        (113)         (15)         (26)         (41)
Federal funds purchased ..............................          (1)          (2)          (3)           -            1            1
Long-term debt .......................................           -          (14)         (14)           -           (4)          (4)
                                                             -----        -----        -----        -----        -----        -----
            Total interest expense ...................          13         (209)        (196)          16          (48)         (32)
                                                             -----        -----        -----        -----        -----        -----
            Net interest income ......................       $   7        $ 107        $ 114        $  66        $  52        $ 118
                                                             =====        =====        =====        =====        =====        =====
</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 2000,  management expects that interest rates will move within a
narrow range,  and  management  has not  identified any factors that would cause
interest  rates to increase or decrease  sharply in a short period of time.  Any
improvements  in net interest  income for 2000 are  expected,  therefore,  to be
largely the result of  increases  in the volume of interest  earning  assets and
liabilities.   Management  expects  to  continue  to  use  aggressive  marketing
strategies to increase the Company's  market share for both deposits and quality
loans within its service area.  These  strategies  involve  offering  attractive
interest rates and continuing the Company's commitment to providing  outstanding
customer service.

Interest Rate Sensitivity

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

         The  table,  "Interest  Sensitivity  Analysis",  indicates  that,  on a
cumulative basis through twelve months, rate sensitive liabilities exceeded rate
sensitive assets, resulting in a liability sensitive position at the end of 1999

                                       18
<PAGE>

of  $20,625,000,  and a cumulative  gap ratio of .48.  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 1999  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.

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

       Interest Sensitivity Analysis

<TABLE>
<CAPTION>
                                                                                           December 31, 1999
                                                                                           -----------------
                                                                    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 ..............      $     35       $      -       $      -      $      -      $     35
     Securities available-for-sale .........................           861            717          3,343        12,633        17,554
     Other investments .....................................           250              -              -             -           250
     Federal funds sold ....................................         2,440              -              -             -         2,440
     Loans (1) .............................................        13,512          1,081         13,201         1,725        29,519
                                                                  --------       --------       --------      --------      --------
            Total interest earning assets ..................        17,098          1,798       $ 16,544      $ 14,358      $ 49,798
                                                                  --------       --------       ========      ========      ========

Interest bearing liabilities
     Interest bearing deposits
        Interest bearing transaction accounts ..............      $ 12,889       $      -       $      -      $      -      $ 12,889
        Savings ............................................         2,360              -              -             -         2,360
        Time deposits $100M and over .......................           837          2,641            617             -         4,095
        Other time deposits ................................         7,271          9,523          1,636             -        18,430
     Long-term debt ........................................         4,000              -              -             -         4,000
                                                                  --------       --------       --------      --------      --------
            Total interest bearing liabilities .............        27,357         12,164       $  2,253      $      -      $ 41,774
                                                                  --------       --------       ========      ========      ========

Interest sensitivity gap ...................................      $(10,259)      $(10,366)
Cumulative interest sensitivity gap ........................      $(10,259)      $(20,625)
Gap ratio ..................................................          0.62           0.15
Cumulative gap ratio .......................................          0.62           0.48
</TABLE>

(1)  Loans are net of net deferred loan fees of $15,000.

         During  2000,  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.



                                       19
<PAGE>

Provision for Loan Losses

         The  provision  for  loan  losses  is  charged  to  earnings  based  on
management's  continuing review and evaluation of the loan portfolio and general
economic conditions.  There were no provisions for loan losses in 1999 and 1998,
compared  with a provision of $5,000 for the year ended  December 31, 1997.  The
lack of provisions  in 1999 and 1998 is due mainly to reduced loan  volumes,  as
compared with prior years, and low net loan charge-offs.  Furthermore, the level
of impaired or nonperforming loans decreased,  and identified  potential problem
loans were  immaterial.  The  allowance for loan losses as a percentage of total
loans at year-end was .88% for 1999 compared  with .91% at the end of 1998.  Net
loan  charge-offs  were $6,000 in 1999  compared with $7,000 and $3,000 for 1998
and 1997, respectively. See "Impaired Loans" and "Allowance for Loan Losses" for
a discussion of the factors  management  considers in its review of the adequacy
of the allowance and provision for loan losses.

Other Income

         Noninterest income for 1999 increased $65,000 or 15.8% compared with an
increase  of $70,000  or 20.5% for 1998.  Service  charges  on deposit  accounts
increased  $51,000 in 1999 and $55,000 in 1998.  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,  after  decreasing  $16,000 in 1998.  There were no
realized  securities  gains or losses in 1999, 1998 or 1997.  Other  noninterest
income  increased $6,000 in 1999 compared with the previous year. In 1998, other
noninterest  income  included an  increase  of $25,000 in credit  card  merchant
services  income,  a $5,000  increase in safe  deposit box rental  fees,  and an
$11,000 gain from the sale of a Company vehicle.

Other Expenses

         Noninterest  expenses for 1999 increased $63,000 or 4.2%, compared with
an  increase  of  $133,000  or 9.7% for 1998.  Salaries  and  employee  benefits
increased $67,000 or 8.5% in 1999, and $34,000 or 4.5% in 1998, primarily as the
result of salary increases.  Net occupancy and furniture and equipment  expenses
increased  $10,000 or 3.7%,  after a $23,000 or 9.2% increase for 1998. The 1999
increase was caused by a $24,000 increase in the amount of software amortization
expense,  which was offset  partially  by a $12,000  reduction  in the amount of
equipment service contracts. The increase in 1998 was caused primarily by higher
amortization and maintenance  expenses for the Company's  computer equipment and
related software.  Other expenses  decreased by $15,000 in 1999,  primarily as a
result of a $23,000 decline in the amount of professional  services  expenses in
1999. Other expenses increased a total of $77,000 or 20.8% in 1998 compared with
1997.  Included in this net  increase in expenses  were a $12,000  increase  for
stationery,   printing  and  postage,  and  nonrecurring  professional  services
expenses in connection with the reorganization of Clover Community Bank into the
present bank holding company structure totaling approximately $34,000.

         Noninterest  overhead  expenses  for 2000 are  expected  to increase as
compared with 1999, due in part to continued  growth,  investment in technology,
operation of the bank  holding  company,  as well as some  general  inflationary
increases.  Management  believes  that  continued  investment  in  technology is
essential to allow for the expansion of products and services  necessary to keep
the Company  competitive in its market.  The Company's FDIC insurance  rates are
assessed based on the lowest rate available  under  regulations and are expected
to  continue  at  relatively  low  levels  for the  near  future.  Increases  in
noninterest  expenses are closely monitored and cost control will continue to be
emphasized  by  management  where  possible  in order to  achieve  profitability
objectives and attain the goals of growth and  outstanding  customer  service in
the Clover market area.

Income Taxes

         For 1999,  federal and state income tax expenses  increased to $493,000
from $459,000 in 1998 and $433,000 in 1997.  The increases in income tax expense
are due to higher  earnings and taxable  income.  The effective  income tax rate
(income tax expense  divided by income  before income taxes) was 32.6% for 1999,
compared  with  33.0% and 32.4% for 1998 and 1997,  respectively.  The  somewhat
higher  effective  rate for 1998 was  attributable  to the  nondeductibility  of
certain expenses incurred to form the bank holding company.

                                       20
<PAGE>

Securities

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

<TABLE>
<CAPTION>
                                                                                                   December 31,
                                                                                                   ------------
                                                                                1999                  1998                   1997
                                                                                ----                  ----                   ----
                                                                              Available-            Available-           Available-
                                                                               for-Sale              for-Sale             for-Sale
                                                                               --------              --------             --------
                                                                                             (Dollars in thousands)
<S>                                                                            <C>                    <C>                    <C>
U. S. Treasury ................................................                $     -                $ 1,002                $   998
U. S. Government agencies .....................................                  6,803                  2,980                  2,978
State, county and municipal ...................................                  4,327                  5,198                  4,188
Mortgage-backed securities ....................................                  6,424                  7,120                  7,972
                                                                               -------                -------                -------
     Total ....................................................                $17,554                $16,300                $16,136
                                                                               =======                =======                =======
</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 1999, 1998, and 1997, there have been no transfers of
available-for-sale or held-to-maturity securities to other categories.

         At December 31, 1999, the Company had concentrated an amortized cost of
$885,000  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 $885,000.  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, 1999.

Securities Portfolio Maturities and Yields

<TABLE>
<CAPTION>
                                                                        December 31, 1999
                                                                        -----------------
                                                           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%   $ 1,914    5.54%   $ 4,157    6.49%   $   732    6.07%   $ 6,803      6.18%
State, county and municipal(1) ...      656    6.61%     1,429    6.75%     1,968    6.70%       274    7.20%     4,327      6.73%
Mortgage-backed securities(2) ....        -    0.00%         -    0.00%     1,071    6.68%     5,353    6.57%     6,424      6.59%
                                    -------            -------            -------            -------            -------
        Total ....................  $   656    6.61%   $ 3,343    6.06%   $ 7,196    6.58%   $ 6,359    6.54%   $17,554      6.47%
                                    =======            =======            =======            =======            =======
</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.

                                       21
<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, 1999,  1998 and 1997
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,
                                                                                      ------------
                                                               1999                        1998                           1997
                                                               ----                        ----                           ----
                                                      Amount           %          Amount          %           Amount             %
                                                      ------           -          ------          -           ------             -
                                                                                (Dollars in thousands)

<S>                                                  <C>             <C>         <C>             <C>         <C>             <C>
Commercial and industrial ...................        $ 5,822          19.7%      $ 4,540          15.6%      $ 5,611          17.6%
Real estate - construction ..................          4,993          16.9%        4,966          17.0%        6,447          20.2%
Real estate - mortgage
     Farmland ...............................            105            .4%          187            .6%          244            .7%
     1-4 family residential .................         10,558          35.7%       11,079          38.0%       11,359          35.6%
     Nonfarm, nonresidential ................          4,101          13.9%        5,243          18.0%        5,092          16.0%
Consumer installment ........................          3,954          13.4%        3,128          10.8%        3,163           9.9%
                                                     -------         -----       -------         -----       -------         -----

                     Total loans ............        $29,533         100.0%      $29,143         100.0%      $31,916         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 1999,
commercial and industrial  loans  increased  $1,282,000 or 28.2%.  This category
accounted  for a  significant  portion of the increase in total loans in 1999 as
the Company  responded to greater  demand in the local market.  Loans mainly for
business  and  investment  purposes  that are secured by real  estate  (nonfarm,
nonresidential)  decreased by  $1,142,000  or 21.8%  during  1999,  due to lower
demand.  Commercial lending involves  significant risk because repayment usually
depends on the cash  flows  generated  by a  borrower's  business,  and the debt
service capacity of a business can deteriorate  because of downturns in national
and local  economic  conditions.  To control  risk,  more  in-depth  initial and
continuing  financial  analysis of a commercial  borrower's cash flows and other
financial information is generally required.

         Real estate  construction  loans  generally  consist of  financing  the
construction  of 1-4 family  dwellings  and some  nonfarm,  nonresidential  real
estate. Usually,  loan-to-cost ratios are limited to 75% and permanent financing
commitments are usually  required prior to the advancement of loan proceeds.  In
1999, this category of loans increased $27,000 or .5%. The volume of real estate
construction  loans can vary  significantly  in any given  period  depending  on
building activity in the local market.


                                       22
<PAGE>

         Loans secured by real estate mortgages comprised approximately 50%, 57%
and 52% of the  Company's  loan  portfolio  at the end of 1999,  1998 and  1997,
respectively.  Real estate  mortgage loans of all types  decreased by $1,745,000
during  1999  after  declining  by  $186,000  and  $490,000  in 1998  and  1997,
respectively.  These  reductions  are  attributable  primarily  to the  "buyer's
market" in mortgage  lending  rates which  existed  throughout  most of the past
three years.  The Company  purposely  has not  originated  fixed-rate  long-term
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.
Recent  events,  however,  have caused  significant  increases  in market  rates
charged  for  long-term   mortgage  loans,  and  the  Company  will  continually
reevaluate  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.

Maturity Distribution of Loans

         The  following  table  sets  forth  the  maturity  distribution  of the
Company's  loans,  by type,  as of  December  31,  1999,  as well as the type of
interest requirement on such loans.

<TABLE>
<CAPTION>
                                                                                               December 31, 1999
                                                                                               -----------------
                                                                            One Year          One to       Five Years
                                                                            or Less         Five Years       or More          Total
                                                                          -----------     -------------     ---------         -----
                                                                                             (Dollars in thousands)

<S>                                                                          <C>             <C>             <C>             <C>
Commercial and industrial ..........................................         $ 2,319         $ 2,474         $ 1,029         $ 5,822
Real estate - construction .........................................           2,517           2,374             102           4,993
Real estate - mortgage .............................................           1,170           8,221           5,373          14,764
Consumer installment ...............................................           1,434           2,309             211           3,954
                                                                             -------         -------         -------         -------
              Total loans ..........................................         $ 7,440         $15,378         $ 6,715         $29,533
                                                                             =======         =======         =======         =======


Predetermined rate, maturity greater than one year .................                         $11,829         $ 3,099         $14,928
                                                                                             =======         =======         =======

Variable rate or maturity within one year ..........................         $ 7,440         $ 3,549         $ 3,616         $14,605
                                                                             =======         =======         =======         =======
</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:


                                       23
<PAGE>

     Nonaccrual and Past Due Loans

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

<S>                                                                                     <C>                 <C>                 <C>
Nonaccrual loans .......................................................                $ 8                 $ -                 $70
Accruing loans 90 days or more past due ................................                  2                   1                   7
                                                                                        ---                 ---                 ---
              Total ....................................................                $10                 $ 1                 $77
                                                                                        ===                 ===                 ===

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

         When an  impaired  loan is 90 days or more past due as to  interest  or
principal or there is serious doubt as to ultimate  collectibility,  the accrual
of interest income is generally  discontinued.  Previously  accrued  interest on
loans placed in a nonaccrual  status is reversed  against  current  income,  and
subsequent interest income is recognized on a cash basis when received. When the
collectibility  of a  significant  amount  of  principal  is in  serious  doubt,
collections  are credited  first to the  remaining  principal  balance on a cost
recovery  basis.  An impaired  nonaccrual loan is not returned to accrual status
unless  principal and interest are current and the borrower has demonstrated the
ability to continue  making  payments as agreed.  The effects of interest income
accrued and  collected on impaired  loans were  immaterial  to the  consolidated
financial statements for 1999, 1998 and 1997.

         As of December 31, 1999,  there were no commitments to lend  additional
funds to debtors owing amounts on impaired loans.

Potential Problem Loans

         Management  has  identified  and maintains a list of potential  problem
loans.  These are loans that are not included in 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, 1999  determined  by  management  to be  potential
problem loans was $44,000. 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, 1999.

         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.

                                       24
<PAGE>

      Summary of Loan Loss Experience

<TABLE>
<CAPTION>
                                                                                          Years Ended December 31,
                                                                                          ------------------------
                                                                       1999           1998          1997         1996        1995
                                                                       ----           ----          ----         ----      ----
                                                                                          (Dollars in thousands)

<S>                                                                  <C>           <C>           <C>           <C>           <C>
Total loans outstanding at end of period .....................       $29,519       $29,115       $31,886       $31,552       $28,220
Average amount of loans outstanding ..........................        29,159        30,499        31,033        29,206        27,307

Balance of allowance for loan losses - beginning .............       $   265       $   272       $   270       $   245       $   248
                                                                     -------       -------       -------       -------       -------
Loans charged off
     Commercial and industrial ...............................             -             -             4             -            40
     Consumer installment ....................................             9             9             6            10            10
                                                                     -------       -------       -------       -------       -------
           Total charge-offs .................................             9             9            10            10            50
                                                                     -------       -------       -------       -------       -------
Recoveries of loans previously charged off
     Commercial and industrial ...............................             -             -             4             -             -
     Consumer installment ....................................             3             2             3             3             2
                                                                     -------       -------       -------       -------       -------
           Total recoveries ..................................             3             2             7             3             2
                                                                     -------       -------       -------       -------       -------
Net charge-offs ..............................................             6             7             3             7            48
                                                                     -------       -------       -------       -------       -------
Additions to allowance charged to expense ....................             -             -             5            32            45
                                                                     -------       -------       -------       -------       -------
Balance of allowance for loan losses - ending ................       $   259       $   265       $   272       $   270       $   245
                                                                     =======       =======       =======       =======       =======

Ratios
     Net charge-offs to average loans ........................          0.02%        0.02%         0.01%         0.02%         0.18%
     Net charge-offs to loans at end of period ...............          0.02%        0.02%         0.01%         0.02%         0.17%
     Allowance for loan losses to average loans ..............          0.89%        0.87%         0.88%         0.92%         0.90%
     Allowance for loan losses to loans at end of period .....          0.88%        0.91%         0.85%         0.86%         0.87%
     Net charge-offs to allowance for loan losses ............          2.32%        2.64%         1.10%         2.59%        19.59%
     Net charge-offs to provision for loan losses ............            NA           NA         60.00%        21.88%       106.67%
</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,
                                                                                         ------------
                                                                  1999                       1998                      1997
                                                                  ----                       ----                      ----
                                                                        % of                        % of                     % of
                                                         Amount         Loans       Amount          Loans       Amount       Loans
                                                         ------         -----       ------          -----       ------       -----
                                                             (Dollars in thousands)

<S>                                                      <C>           <C>          <C>           <C>         <C>           <C>
Commercial and industrial ......................         $ 58           19.7%       $ 48           15.6%       $ 57           17.6%
Real estate- construction ......................           37           16.9%         37           17.0%         48           20.2%
Real estate - mortgage .........................          111           50.0%        122           56.6%        125           52.3%
Consumer installment ...........................           47           13.4%         38           10.8%         42            9.9%
Unallocated ....................................            6            0.0%         21            0.0%          -            0.0%
                                                         ----          -----        ----          -----        ----          -----
          Total ................................         $259          100.0%       $265          100.0%       $272          100.0%
                                                         ====          =====        ====          =====        ====          =====
</TABLE>

                                       25
<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,
                                                                                     ------------------------
                                                                    1999                        1998                   1997
                                                                    ----                        ----                   ----
                                                           Amount           %          Amount         %       Amount           %
                                                           ------           -          ------         -       ------           -
                                                                                 (Dollars in thousands)

<S>                                                       <C>            <C>        <C>            <C>        <C>            <C>
Noninterest bearing demand ........................       $ 4,209          9.3%     $ 4,104          9.4%     $ 3,362          8.0%
Interest bearing transaction accounts .............        14,658         32.5%      13,043         29.8%      11,824         28.2%
Savings ...........................................         2,682          5.9%       2,640          6.0%       2,624          6.3%
Time deposits $100M and over ......................         4,389          9.7%       4,453         10.2%       4,352         10.4%
Other time ........................................        19,213         42.6%      19,508         44.6%      19,784         47.1%
                                                          -------        -----      -------        -----      -------        -----
              Total deposits .......................      $45,151        100.0%     $43,748        100.0%     $41,946        100.0%
                                                          =======        =====      =======        =====      =======        =====
</TABLE>

         As of December  31, 1999,  there were  $4,095,000  in time  deposits of
$100,000 or more with  approximately  $736,000  maturing  within  three  months,
$1,173,000 maturing over three through six months,  $1,569,000 maturing over six
through  twelve  months  and  $617,000  maturing  after one year.  Average  time
deposits $100,000 and over comprised approximately 10% of total average deposits
during 1999, 1998 and 1997. 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, 1999 were $4,749,000,  or 10.4%, less
than the  level  reported  as of  December  31,  1998.  This  decrease  resulted
primarily from the activities of two large customers.  These customers had large
construction  projects underway as of the end of 1998.  However,  these projects
had been completed by the end of 1999.  Consequently,  the majority of the funds
for these  projects  were on hand as of the end of 1998,  but had been  expended
prior to the end of 1999.  Management  was  aware  that  the  deposits  would be
short-term in nature and, accordingly, invested the majority of these in federal
funds sold during 1999.

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,
                                                  ------------------------
                                              1999           1998           1997
                                              ----           ----           ----

Return on assets .................            1.80%         1.70%         1.72%
Return on equity .................           14.73%        14.12%        14.84%
Dividend payout ratio ............           60.00%        54.35%        56.18%
Equity to assets ratio ...........           12.25%        12.02%        11.59%

Liquidity

         Liquidity is the ability to meet current and future obligations through
liquidation  or maturity of existing  assets or the  acquisition  of  additional

                                       26
<PAGE>

liabilities.  Adequate  liquidity  is  necessary  to meet  the  requirements  of
customers for loans and deposit  withdrawals  in the most timely and  economical
manner. Some liquidity is ensured by maintaining assets which may be immediately
converted  into cash at minimal cost  (amounts due from banks and federal  funds
sold).  However,  the most  manageable  sources of  liquidity  are  composed  of
liabilities, with the primary focus of liquidity management being on the ability
to obtain  deposits  within the  Company's  market area.  Core  deposits  (total
deposits,  less time deposits of $100,000 and over) provide a relatively  stable
funding base,  and the average of these  deposits  represented  72.2% of average
total assets during 1999 compared with 71.7% during 1998, and 71.6% during 1997.

         The  banking  subsidiary  has  available  at  the  end of  1999  unused
short-term  lines of credit to purchase up to  $2,750,000  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 $2,054,000.

          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.
Asset liquidity  provided by federal funds sold decreased by $5,630,000 in 1999,
primarily 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, 1999,
the banking subsidiary's  available undivided profits totaled $3,423,000.  Under
Federal  Reserve  Board  regulations,  the amounts of loans or advances from the
banking  subsidiary to the parent company are also restricted.  During 1998, the
parent company received a $500,000 cash dividend from its banking subsidiary.

         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 $240,000 and $381,000 during 1999 and
1998,  respectively.  During 1999, net income increased  shareholders' equity by
$1,019,000,   cash  dividends  and  unrealized   losses  on   available-for-sale
securities decreased stockholders equity by $607,000 and $239,000, respectively,
and net  sales  and  repurchases  of stock  increased  stockholders'  equity  by
$67,000.  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 1999, net of plan expenses,  resulted in an
increase of $118,000 in  stockholders'  equity.  Also during  1999,  the Company
initiated  a limited  program to redeem  shares of its stock held by  charitable
organizations which resulted in the repurchase and retirement of 1,702 shares of
stock and a reduction of $51,000 in shareholders' equity.

         During 1998, net income increased shareholders' equity $931,000,  while
cash dividends of $506,000 and the change in unrealized holding gains and losses
on  available-for-sale  securities  of  $44,000,  charged to  accumulated  other
comprehensive income, decreased shareholders' equity.


                                       27
<PAGE>

         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, 1999 and 1998, that the Company and Clover  Community Bank exceeded
all capital adequacy minimum requirements to which they were subject.

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

<TABLE>
<CAPTION>
                                                                                             Minimum for             Minimum to be
                                                                      Actual              Capital Adequacy          Well Capitalized
                                                                      ------              ----------------          ----------------
                                                              Amount        Ratio         Amount     Ratio          Amount     Ratio
                                                              ------        -----         ------     -----          ------     -----
December 31, 1999                                                                      (Dollars in thousands)
     The Company
<S>                                                           <C>           <C>            <C>        <C>           <C>        <C>
        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%

December 31, 1998
     The Company
        Total Capital to risk weighted assets ............    $7,063        21.3%          $2,657     8.0%          $3,321     10.0%
        Tier 1 Capital to risk weighted assets ...........    $6,798        20.5%          $1,328     4.0%          $1,992      6.0%
        Tier 1 Capital to average assets (leverage).......    $6,798        11.9%          $1,717     3.0%          $2,862      5.0%
     Clover Community Bank
        Total Capital to risk weighted assets ............    $6,603        19.9%          $2,657     8.0%          $3,321     10.0%
        Tier 1 Capital to risk weighted assets ...........    $6,338        19.1%          $1,328     4.0%          $1,992      6.0%
        Tier 1 Capital to average assets (leverage).......    $6,338        11.1%          $1,717     3.0%          $2,862      5.0%
</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.


                                       28
<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, 1999 and 1998, 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,
1999.  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, 1999 and 1998, and
the consolidated  results of their operations and their  consolidated cash flows
for each of the three years in the period ended December 31, 1999, 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 14, 2000



                                       29
<PAGE>

Consolidated Balance Sheet
Clover Community Bankshares, Inc.

<TABLE>
<CAPTION>
                                                                                                         December 31,
                                                                                                         ------------
                                                                                                   1999                     1998
                                                                                                   ----                     ----
Assets
<S>                                                                                           <C>                       <C>
     Cash and due from banks (Note C) ...........................................             $  1,197,482              $  1,727,391
     Interest-bearing deposits in other banks ...................................                   34,998                   320,267
     Federal funds sold .........................................................                2,440,000                 8,070,000
     Securities available-for-sale (Note D) .....................................               17,554,460                16,299,880
     Other investments (Note E) .................................................                  250,000                   377,400
     Loans-net (Note F) .........................................................               29,259,606                28,849,664
     Premises and equipment - net (Note G) ......................................                  874,379                   715,632
     Accrued interest receivable ................................................                  361,463                   316,239
     Other assets ...............................................................                  367,597                   244,804
                                                                                              ------------              ------------

            Total assets ........................................................             $ 52,339,985              $ 56,921,277
                                                                                              ============              ============

Liabilities
     Deposits (Note H)
         Noninterest bearing ....................................................             $  3,083,477              $  3,962,262
         Interest bearing .......................................................               37,774,047                41,644,373
                                                                                              ------------              ------------
            Total deposits ......................................................               40,857,524                45,606,635
     Long-term debt (Note I) ....................................................                4,000,000                 4,000,000
     Accrued interest payable ...................................................                  319,449                   392,644
     Other liabilities ..........................................................                      768                         -
                                                                                              ------------              ------------
            Total liabilities ...................................................               45,177,741                49,999,279
                                                                                              ------------              ------------

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 - 1,014,096
         shares for 1999 and 1,011,020 shares for 1998 ..........................                   10,141                    10,110
     Capital surplus ............................................................                3,390,436                 3,323,861
     Retained earnings ..........................................................                3,877,203                 3,464,499
     Accumulated other comprehensive income (loss) ..............................                 (115,536)                  123,528
                                                                                              ------------              ------------
            Total shareholders' equity ..........................................                7,162,244                 6,921,998
                                                                                              ------------              ------------

            Total liabilities and shareholders' equity ..........................             $ 52,339,985              $ 56,921,277
                                                                                              ============              ============
</TABLE>









See accompanying notes to consolidated financial statements.


                                       30
<PAGE>

Consolidated Statement of Income
Clover Community Bankshares, Inc.

<TABLE>
<CAPTION>
                                                                                             Years Ended December 31,
                                                                                             ------------------------
                                                                                 1999                   1998                 1997
                                                                                 ----                   ----                 ----
Interest Income
<S>                                                                           <C>                   <C>                   <C>
     Loans, including fees .......................................            $2,849,542            $3,048,653            $3,112,053
     Interest-bearing deposits in other banks ....................                19,523                20,575                28,955
     Securities
         Taxable .................................................               796,151               756,518               765,822
         Tax-exempt ..............................................               178,334               190,766               179,662
     Federal funds sold ..........................................               356,433               258,544               109,441
     Other investments ...........................................                25,576                26,975                26,130
                                                                              ----------            ----------            ----------
            Total interest income ................................             4,225,559             4,302,031             4,222,063
                                                                              ----------            ----------            ----------

Interest expense
     Time deposits $100,000 and over .............................               201,113               208,304               207,534
     Other deposits ..............................................             1,204,309             1,375,007             1,405,942
     Federal funds purchased .....................................                   161                 3,012                 2,039
     Long-term debt ..............................................               213,458               228,377               231,674
                                                                              ----------            ----------            ----------
            Total interest expense ...............................             1,619,041             1,814,700             1,847,189
                                                                              ----------            ----------            ----------

Net interest income ..............................................             2,606,518             2,487,331             2,374,874
Provision for loan losses (Note F) ...............................                     -                     -                 5,000
                                                                              ----------            ----------            ----------
Net interest income after provision ..............................             2,606,518             2,487,331             2,369,874
                                                                              ----------            ----------            ----------

Other income
     Service charges on deposit accounts .........................               400,383               349,143               294,572
     Credit life insurance commissions ...........................                16,723                 9,059                25,474
     Other income ................................................                59,045                53,090                20,648
                                                                              ----------            ----------            ----------
            Total other income ...................................               476,151               411,292               340,694
                                                                              ----------            ----------            ----------

Other expenses (Notes K and M)
     Salaries and employee benefits ..............................               859,406               791,958               757,882
     Net occupancy expense .......................................                63,647                65,083                48,091
     Furniture and equipment expense .............................               217,801               206,186               200,247
     Other expense ...............................................               429,592               445,385               368,750
                                                                              ----------            ----------            ----------
            Total other expenses .................................             1,570,446             1,508,612             1,374,970
                                                                              ----------            ----------            ----------

Income before income taxes .......................................             1,512,223             1,390,011             1,335,598
Income tax expense (Note L) ......................................               492,907               458,660               432,382
                                                                              ----------            ----------            ----------
Net income .......................................................            $1,019,316            $  931,351            $  903,216
                                                                              ==========            ==========            ==========

Per share
     Average shares outstanding ..................................             1,014,655             1,011,020             1,011,020
     Net income ..................................................            $     1.00            $     0.92            $     0.89
</TABLE>






See accompanying notes to consolidated financial statements.


                                       31
<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 or (Loss)      Total
                                               -------        ------         -------      --------      ----------------      -----

<S>                                            <C>          <C>            <C>            <C>            <C>            <C>
Balance, January 1, 1997 .................     1,011,020    $ 1,263,775    $ 2,070,196    $ 2,640,951    $    62,560    $ 6,037,482

Comprehensive income:
     Net income ..........................             -              -              -        903,216              -        903,216
     Change in unrealized holding gains
       and losses on available-for-sale
       securities, net of income tax effects           -              -              -              -        105,379        105,379
                                                                                                                        -----------
          Total comprehensive income .....             -              -              -              -              -      1,008,595
                                                                                                                        -----------
Cash dividends declared - $.50 per share .             -              -              -       (505,509)             -       (505,509)
                                              ----------    -----------    -----------    -----------    -----------    -----------
Balance, December 31, 1997 ...............     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
                                              ==========    ===========    ===========    ===========    ===========    ===========
</TABLE>












See accompanying notes to consolidated financial statements.

                                       32
<PAGE>

Consolidated Statement of Cash Flows
Clover Community Bankshares, Inc.

<TABLE>
<CAPTION>
                                                                                                   Years Ended December 31,
                                                                                                   ------------------------
                                                                                        1999                 1998              1997
                                                                                        ----                 ----               ----
Operating Activities
<S>                                                                                 <C>               <C>               <C>
     Net income ..............................................................      $ 1,019,316       $   931,351       $   903,216
     Adjustments to reconcile net income to net
         cash provided by operating activities
            Provision for loan losses ........................................                -                 -             5,000
            Depreciation .....................................................          121,198           119,406           114,672
            Deferred income taxes ............................................           77,119           (38,286)           32,804
            Securities accretion and premium amortization ....................          (28,426)           15,891            22,116
            Amortization of net loan fees and costs ..........................          (13,163)           (2,236)          (42,496)
            (Gain) loss on disposal of fixed assets ..........................                -           (10,890)              117
            (Increase) decrease in interest receivable .......................          (45,224)           28,351           (11,410)
            (Decrease) increase in interest payable ..........................          (73,195)           41,298             5,966
            (Increase) decrease in prepaid expenses
                and other assets .............................................          (55,435)           20,834           (51,404)
            Increase (decrease) in other liabilities
                and accrued expenses .........................................              768                 -            (8,249)
                                                                                    -----------       -----------       -----------
                Net cash provided by operating activities ....................        1,002,958         1,105,719           970,332
                                                                                    -----------       -----------       -----------

Investing activities
     Net decrease in interest-bearing deposits in other banks ................          294,000            98,000            98,000
     Purchases of available-for-sale securities ..............................       (7,508,873)       (1,803,179)       (1,120,031)
     Maturities of available-for-sale securities .............................        5,909,764         1,554,038         1,141,966
     Sales of other investments ..............................................          127,400                 -                 -
     Net (increase) decrease in loans made to customers ......................         (421,865)        2,766,591          (294,985)
     Purchases of premises and equipment .....................................         (279,945)          (78,415)          (32,441)
     Proceeds from sale of other assets ......................................           14,500                 -                 -
     Proceeds from sale of equipment .........................................                -            14,000                 -
                                                                                    -----------       -----------       -----------
                Net cash (used) provided by investing activities .............       (1,865,019)        2,551,035          (207,491)
                                                                                    -----------       -----------       -----------

Financing activities
     Net (decrease) increase in demand deposits, interest
         bearing transaction accounts and savings accounts ...................       (2,037,802)        1,745,816           736,734
     Net (decrease) increase in certificates of deposit and other
         time deposits .......................................................       (2,711,309)        1,892,447          (988,091)
     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 ................................................          118,091                 -                 -
     Repurchase and retirement of common stock ...............................          (51,485)                -                 -
     Cash dividends paid .....................................................         (606,612)         (505,510)         (505,509)
                                                                                    -----------       -----------       -----------
                Net cash (used) provided by financing activities .............       (5,289,117)        3,132,753          (756,866)
                                                                                    -----------       -----------       -----------
(Decrease) increase in cash and cash equivalents .............................       (6,151,178)        6,789,507             5,975
Cash and cash equivalents, beginning .........................................        9,823,658         3,034,151         3,028,176
                                                                                    -----------       -----------       -----------
Cash and cash equivalents, ending ............................................      $ 3,672,480       $ 9,823,658       $ 3,034,151
                                                                                    ===========       ===========       ===========
</TABLE>



See accompanying notes to consolidated financial statements.


                                       33
<PAGE>

Notes to Consolidated Financial Statements
Clover Community Bankshares, Inc.


NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

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

Loans and Interest.  Income Loans are carried at principal amounts  outstanding,
increased  or reduced by  deferred  net loan costs or fees.  Interest  income on
loans is recognized  using the interest method based upon the principal  amounts
outstanding.  Loan  origination  and  commitment  fees and  certain  direct loan
origination costs (principally  salaries and employee benefits) are deferred and
amortized as an adjustment of the related loan's yield. Generally, these amounts
are amortized over the contractual life of the related loans or commitments.

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


                                       34
<PAGE>

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.

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.


                                       35
<PAGE>

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

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

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

The components of other comprehensive income or loss and related tax effects are
as follows:

<TABLE>
<CAPTION>
                                                                                             Years Ended December 31,
                                                                                             ------------------------
                                                                                  1999                   1998                 1997
                                                                                  ----                   ----                 ----
<S>                                                                            <C>                   <C>                   <C>
Change in unrealized holding gains and
       losses on available-for-sale securities ....................            $(372,955)            $ (69,285)            $ 164,399
Income tax expense (benefit) on other
     comprehensive income (loss) ..................................             (133,891)              (24,874)               59,020
                                                                               ---------             ---------             ---------
         Net-of-tax amount ........................................            $(239,064)            $ (44,411)            $ 105,379
                                                                               =========             =========             =========
</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.

                                       36
<PAGE>

During  1999,  1998 and 1997,  interest  paid on deposits  and other  borrowings
amounted to $1,692,236,  $1,773,402  and  $1,841,223,  respectively.  Income tax
payments of  $422,800,  $502,440 and  $426,056  were made during 1999,  1998 and
1997, respectively.  In 1999, a non-cash transfer of $25,086 was 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 1999, 1998 and 1997,  noncash valuation  adjustments  totaling  $372,955,
$69,285  and  $164,399  were made  which  decreased,  decreased  and  increased,
respectively,  the carrying amount of  available-for-sale  securities.  In 1999,
accumulated  other  comprehensive  income  decreased  $239,064  and deferred tax
assets increased  $133,891;  in 1998,  accumulated  other  comprehensive  income
decreased  $44,411 and  deferred  tax assets  increased  $24,874;  and, in 1997,
accumulated  other  comprehensive  income  increased  $105,379  and deferred tax
assets decreased $59,020.

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

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

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


NOTE B - CORPORATE REORGANIZATION

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

The reorganization was accounted for as if it were a pooling-of-interests.  As a
result,  the consolidated  financial  statements for the year ended December 31,
1998 are presented as if the reorganization had occurred on January 1, 1998. The
consolidated  financial  statements  for the year ended  December  31,  1997 are
unchanged from the amounts  previously  reported by Clover Community Bank. 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, 1999 and 1998, were approximately  $193,000 and
$253,000, respectively.



                                       37
<PAGE>

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,
                                                                        ------------
                                                 1999                                                   1998
                                                 ----                                                   ----
                                         Gross          Gross                                     Gross       Gross
                                       Unrealized    Unrealized    Estimated                    Unrealized  Unrealized    Estimated
                         Amortized      Holding       Holding        Fair         Amortized      Holding      Holding        Fair
                           Cost          Gains         Losses        Value          Cost          Gains       Losses        Value
                           ----          -----         ------        -----          ----          -----       ------        -----
Available-for-sale
<S>                    <C>           <C>           <C>           <C>           <C>           <C>           <C>           <C>
U.S. Treasury ......   $         -   $             $         -   $         -   $   999,576   $     2,299   $         -   $ 1,001,875
U.S. Government
    agencies .......     7,022,489         1,250       220,803     6,802,936     2,956,378        23,439           312     2,979,505
State, county and
    municipal ......     4,308,730        32,945        14,602     4,327,073     5,079,713       118,158             -     5,197,871
Mortgage-backed
    securities .....     6,403,484       170,945       149,978     6,424,451     7,071,501       197,835       148,707     7,120,629
                       -----------   -----------   -----------   -----------   -----------   -----------   -----------   -----------
        Total ......   $17,734,703   $   205,140   $   385,383   $17,554,460   $16,107,168   $   341,731   $   149,019   $16,299,880
                       ===========   ===========   ===========   ===========   ===========   ===========   ===========   ===========
</TABLE>


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

<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                                           ------------
                                                                            1999                                 1998
                                                                            ----                                 ----
                                                               Amortized          Estimated           Amortized          Estimated
                                                                 Cost             Fair Value            Cost            Fair Value
                                                                 ----             ----------            ----            ----------
Available-for-sale
<S>                                                          <C>                 <C>                 <C>                 <C>
     Due in one year or less .......................         $   655,000         $   656,351         $ 3,952,424         $ 3,958,478
     Due after one through five years ..............           3,410,510           3,342,513           1,589,098           1,625,561
     Due after five through ten years ..............           6,248,433           6,125,214           3,379,145           3,480,212
     Due after ten years ...........................           1,017,276           1,005,931             115,000             115,000
                                                             -----------         -----------         -----------         -----------
                                                              11,331,219          11,130,009           9,035,667           9,179,251
     Mortgage-backed securities ....................           6,403,484           6,424,451           7,071,501           7,120,629
                                                             -----------         -----------         -----------         -----------
          Total ....................................         $17,734,703         $17,554,460         $16,107,168         $16,299,880
                                                             ===========         ===========         ===========         ===========
</TABLE>


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

There were no transfers to other categories of available-for-sale  securities in
1999, 1998 and 1997.

At December 31, 1999 and 1998,  securities  with a carrying amount of $1,796,775
and  $1,954,744,  respectively,  were  pledged as  collateral  to secure  public
deposits.


                                       38
<PAGE>

As of December 31, 1999 and 1998,  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,
                                                                                                  ------------
                                                                                        1999                            1998
                                                                                        ----                            ----
                                                                             Amortized      Estimated        Amortized     Estimated
                                                                                Cost        Fair Value          Cost      Fair Value
                                                                                ----        ----------          ----      ----------

<S>                                                                            <C>            <C>            <C>            <C>
Clover, S.C. School District (Moody's rating AA) .......................       $      -       $      -       $750,000       $752,000
Fairfield County, S.C. School District (Moody's rating AAA) ............              -              -        686,000        689,000
Town of Clover, S.C. (Not rated) .......................................        885,000        885,000        945,000        945,000
</TABLE>



NOTE E - OTHER INVESTMENTS

Other investments consisted of:

<TABLE>
<CAPTION>
                                                                                                             December 31,
                                                                                                             ------------
                                                                                                     1999                    1998
                                                                                                     ----                    ----

<S>                                                                                               <C>                       <C>
Federal Home Loan Bank stock ...................................................                  $200,000                  $327,400
Community Financial Services, Inc. stock .......................................                    50,000                    50,000
                                                                                                  --------                  --------
              Total ............................................................                  $250,000                  $377,400
                                                                                                  ========                  ========
</TABLE>


NOTE F - LOANS

Loans consisted of the following:

<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                            ------------
                                                                          1999                                     1998
                                                                          ----                                     ----
                                                              Carrying          Estimated               Carrying          Estimated
                                                               Amount           Fair Value               Amount           Fair Value
                                                               ------           ----------               ------            ---------

<S>                                                       <C>                  <C>                 <C>                  <C>
Commercial and industrial ........................        $  5,822,313         $  5,756,295        $  4,540,039         $  4,499,442
Real estate- construction ........................           4,992,536            4,939,899           4,965,677            4,934,277
Real estate - mortgage ...........................          14,764,030           14,510,386          16,509,049           16,415,371
Consumer installment .............................           3,954,281            3,889,967           3,128,003            3,096,106
                                                          ------------         ------------        ------------         ------------
          Total ..................................          29,533,160           29,096,547          29,142,768           28,945,196
Less
      Allowance for loan losses ..................            (258,762)                   -            (265,149)                   -
      Deferred net loan fees .....................             (14,792)                   -             (27,955)                   -
                                                          ------------         ------------        ------------         ------------
          Loans - net ............................        $ 29,259,606         $ 29,096,547        $ 28,849,664         $ 28,945,196
                                                          ============         ============        ============         ============
</TABLE>


                                       39
<PAGE>

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

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

<TABLE>
<CAPTION>
                                                                                                             December 31,
                                                                                                             ------------
                                                                                                        1999                   1998
                                                                                                        ----                   ----
Investment in impaired loans
<S>                                                                                                    <C>                   <C>
      Nonaccrual .......................................................................               $ 8,476               $   118
      Accruing 90 days and over past due ...............................................                 1,798                 1,214
                                                                                                       -------               -------
          Total ........................................................................               $10,274               $ 1,332
                                                                                                       =======               =======

Average total investment in impaired loans during the year .............................               $ 3,500               $25,250
Allowance for loan losses on impaired loans ............................................                     -                     -
</TABLE>

The average total  investment in impaired  loans during 1997 was $55,250.  There
were no outstanding  commitments at December 31, 1999, to lend additional  funds
to debtors owing amounts on impaired loans.

As of December 31, 1999 and 1998,  there were no significant  concentrations  of
credit risk in any single  borrower or groups of borrowers.  The Company's  loan
portfolio   consists  primarily  of  extensions  of  credit  to  businesses  and
individuals in its market area within York County,  South Carolina.  The economy
of this area is diversified  and does not depend on any one industry or group of
related industries.  Management has established loan policies and practices that
include set  limitations  on  loan-to-collateral  value for  different  types of
collateral,  requirements  for  appraisals,  obtaining and  maintaining  current
credit and financial information on borrowers, and credit approvals.

Transactions in the allowance for loan losses are summarized below:

<TABLE>
<CAPTION>
                                                                                         Years Ended December 31,
                                                                                         ------------------------
                                                                           1999                      1998                   1997
                                                                           ----                      ----                   ----
<S>                                                                     <C>                      <C>                      <C>
Balance at January 1 ....................................               $ 265,149                $ 272,096                $ 270,393
Provision charged to expense ............................                       -                        -                    5,000
Recoveries ..............................................                   2,365                    2,650                    7,092
Charge-offs .............................................                  (8,752)                  (9,597)                 (10,389)
                                                                        ---------                ---------                ---------
Balance at December 31 ..................................               $ 258,762                $ 265,149                $ 272,096
                                                                        =========                =========                =========
</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  $1,727,544 and
$1,495,770 at December 31, 1999 and 1998, respectively.  During 1999, $1,456,636
of new loans were made and repayments totaled $1,224,862.

                                       40
<PAGE>

NOTE G - PREMISES AND EQUIPMENT

Premises and equipment consisted of the following:

<TABLE>
<CAPTION>
                                                                                                                             Net
                                                                                                Accumulated                  Book
                                                                             Cost               Depreciation                Value
                                                                             ----               ------------                -----
December 31, 1999
<S>                                                                       <C>                     <C>                     <C>
  Land .....................................................              $  309,050              $        -              $  309,050
  Buildings and land improvements ..........................                 566,959                 228,294                 338,665
  Furniture and equipment ..................................               1,051,959                 825,295                 226,664
                                                                          ----------              ----------              ----------
     Total .................................................              $1,927,968              $1,053,589              $  874,379
                                                                          ==========              ==========              ==========

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

Depreciation  expense for the years ended  December 31, 1999,  1998 and 1997 was
$121,198, $119,406, and $114,672, respectively.


NOTE H - DEPOSITS

A summary of deposits follows:

<TABLE>
<CAPTION>
                                                                                               December 31,
                                                                                               ------------
                                                                               1999                                 1998
                                                                               ----                                 ----
                                                                  Carrying            Estimated          Carrying          Estimated
                                                                   Amount            Fair Value           Amount          Fair Value
                                                                   ------            ----------           ------          ----------

<S>                                                             <C>                <C>                <C>                <C>
Noninterest bearing demand .............................        $ 3,083,477        $ 3,083,477        $ 3,962,262        $ 3,962,262
Interest bearing transaction accounts ..................         12,888,643         12,888,643         13,844,565         13,844,565
Savings ................................................          2,360,157          2,360,157          2,563,252          2,563,252
Time deposits $100,000 and over ........................          4,095,215          4,096,004          5,689,420          5,729,557
Other time deposits ....................................         18,430,032         18,426,405         19,547,136         19,583,041
                                                                -----------        -----------        -----------        -----------
      Total deposits ...................................        $40,857,524        $40,854,686        $45,606,635        $45,682,677
                                                                ===========        ===========        ===========        ===========
</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, 1999 and 1998.  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, 1999 and 1998,  for  deposits of similar  remaining
maturities.

At December 31, 1999, the scheduled maturities of time deposits were as follows:

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

            2000                                     $ 19,896,296
            2001                                        2,188,964
            2002                                          163,923
            2003                                          274,212
            2004 and thereafter                             1,852

                                       41
<PAGE>

NOTE I - LONG-TERM DEBT

Long-term  debt at December 31, 1999 and 1998  consisted  of a  $4,000,000  note
issued by the Bank to the Federal  Home Loan Bank of Atlanta (the  "FHLB").  The
note is due on November 28,  2000,  and has a variable  interest  rate which was
6.55% at the end of 1999 and 5.69% at the end of 1998.  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  $7,805,000 as of December 31, 1999. The
Bank has an additional  long-term debt availability of approximately  $2,054,000
from the FHLB that had not been drawn at December 31, 1999.

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, 1999, the Bank's undivided  profits totaled
$3,423,090.  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,  1999 and 1998,
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.

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 set arbitrarily by the Company at four times the per
share  book  value of the  common  stock at the end of the month  preceding  the
purchase.  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,
1999 and 1998,  that the Company and its  subsidiary  bank  exceeded all capital
adequacy minimum requirements.

As of December 31, 1999, 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.

                                       42
<PAGE>

<TABLE>
<CAPTION>
                                                                                               Minimum for          Minimum to be
                                                                           Actual           Capital Adequacy      Well Capitalized
                                                                           ------           ----------------      ----------------
                                                                       Amount    Ratio      Amount      Ratio      Amount      Ratio
                                                                       ------    -----      ------      -----      ------      -----
December 31, 1999                                                                        (Dollars in thousands)
      The Company
<S>                                                                   <C>        <C>        <C>         <C>        <C>         <C>
          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%

December 31, 1998
      The Company
          Total Capital to risk weighted assets ................      $7,063     21.3%      $2,657      8.0%       $3,321      10.0%
          Tier 1 Capital to risk weighted assets ...............      $6,798     20.5%      $1,328      4.0%       $1,992       6.0%
          Tier 1 Capital to average assets (leverage) ..........      $6,798     11.9%      $1,717      3.0%       $2,862       5.0%
      Clover Community Bank
          Total Capital to risk weighted assets ................      $6,603     19.9%      $2,657      8.0%       $3,321      10.0%
          Tier 1 Capital to risk weighted assets ...............      $6,338     19.1%      $1,328      4.0%       $1,992       6.0%
          Tier 1 Capital to average assets (leverage) ..........      $6,338     11.1%      $1,717      3.0%       $2,862       5.0%
</TABLE>

NOTE K - OTHER EXPENSES

Other expenses are summarized below:

<TABLE>
<CAPTION>
                                                                                              Years Ended December 31,
                                                                                              ------------------------
                                                                                 1999                  1998                   1997
                                                                                 ----                  ----                   ----

<S>                                                                           <C>                   <C>                   <C>
Salaries and employee benefits ...................................            $  859,406            $  791,958            $  757,882
Net occupancy expense ............................................                63,647                65,083                48,091
Furniture and equipment expense ..................................               217,801               206,186               200,247
Other expense
      Stationery, printing and postage ...........................               110,717                96,286                84,725
      Telephone ..................................................                16,662                15,707                11,735
      Advertising ................................................                 9,082                 8,613                 9,667
      Professional services ......................................                65,699                88,540                50,636
      Insurance ..................................................                10,840                11,266                11,858
      FDIC insurance assessment ..................................                 5,312                 3,824                 5,313
      Directors' fees ............................................                33,600                33,600                31,200
      Data processing expenses ...................................                58,104                46,295                42,985
      Other ......................................................               119,576               141,254               120,631
                                                                              ----------            ----------            ----------
          Total ..................................................            $1,570,446            $1,508,612            $1,374,970
                                                                              ==========            ==========            ==========
</TABLE>

                                       43
<PAGE>

NOTE L - INCOME TAXES

Income tax expense consisted of:

<TABLE>
<CAPTION>
                                                                                              Years Ended December 31,
                                                                                              ------------------------
                                                                                   1999                 1998                 1997
                                                                                   ----                 ----                 ----
Current
<S>                                                                             <C>                  <C>                   <C>
      Federal ......................................................            $ 375,584            $ 449,969             $ 361,308
      State ........................................................               40,204               46,977                38,270
                                                                                ---------            ---------             ---------
                 Total current .....................................              415,788              496,946               399,578
                                                                                ---------            ---------             ---------
Deferred
      Federal ......................................................               70,932              (35,215)               30,173
      State ........................................................                6,187               (3,071)                2,631
                                                                                ---------            ---------             ---------
                 Total deferred ....................................               77,119              (38,286)               32,804
                                                                                ---------            ---------             ---------
                 Total income tax expense ..........................            $ 492,907            $ 458,660             $ 432,382
                                                                                =========            =========             =========
</TABLE>

Income before income taxes presented in the consolidated statement of income for
the years ended December 31, 1999, 1998 and 1997 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,
                                                                                            ------------------------
                                                                               1999                   1998                   1997
                                                                               ----                   ----                   ----
<S>                                                                         <C>                    <C>                    <C>
Tax expense at statutory rate .................................             $ 514,156              $ 472,604              $ 454,103
State income tax, net of federal
      income tax benefit ......................................                30,618                 28,977                 26,995
Tax-exempt interest income ....................................               (60,542)               (64,778)               (61,020)
Non-deductible interest expense to
      carry tax-exempt instruments ............................                 8,111                  9,408                  9,762
Non-deductible corporate
      reorganization expenses .................................                     -                 11,513                      -
Other, net ....................................................                   564                    936                  2,542
                                                                            ---------              ---------              ---------
                 Total ........................................             $ 492,907              $ 458,660              $ 432,382
                                                                            =========              =========              =========
</TABLE>

                                       44
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                            December 31,
                                                                                                            ------------
                                                                                                     1999                   1998
                                                                                                     ----                   ----
Deferred tax assets
<S>                                                                                                <C>                      <C>
      Allowance for loan losses ..................................................                 $ 67,026                 $ 69,319
      Net deferred loan fees .....................................................                    5,310                   10,036
      Accrued interest payable ...................................................                  114,682                  140,959
      Unrealized holding gains and losses on
        available-for-sale securities ............................................                   64,707                        -
                                                                                                   --------                 --------
                 Gross deferred tax assets .......................................                  251,725                  220,314
      Valuation allowance ........................................................                        -                        -
                                                                                                   --------                 --------
                 Total ...........................................................                  251,725                  220,314
                                                                                                   --------                 --------

Deferred tax liabilities
      Accrued interest receivable ................................................                  110,278                   86,497
      Prepaid expenses ...........................................................                   56,416                   29,556
      Accelerated depreciation ...................................................                   12,140                   19,006
      Unrealized holding gains and losses on
        available-for-sale securities ............................................                        -                   69,183
      Other ......................................................................                    1,313                    1,265
                                                                                                   --------                 --------
                 Gross deferred tax liabilities ..................................                  180,147                  205,507
                                                                                                   --------                 --------
Net deferred income tax assets ...................................................                 $ 71,578                 $ 14,807
                                                                                                   ========                 ========
</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 1999,
1998 and 1997,  $133,891 was  credited,  $24,874 was  credited,  and $59,020 was
charged to other  comprehensive  income,  respectively.  In 1999, 1998 and 1997,
$77,119 was charged, $38,286 was credited, and $32,804 was charged to income tax
expense, respectively.

Management  believes that the Company will fully realize the deferred tax assets
as of December 31, 1999 and 1998 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 1999, 1998 and 1997 totaled  $16,475,  $15,228 and
$16,681, respectively.

                                       45
<PAGE>

NOTE N - COMMITMENTS AND CONTINGENCIES

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

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

                                                           December 31,
                                                           ------------
                                                      1999                1998
                                                      ----                ----

Loan commitments .....................             $6,951,821         $5,471,229
Standby letters of credit ............                 42,075             62,075

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,  1999 and 1998,  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, 1999, the banking subsidiary
had unused  short-term  lines of credit to purchase up to  $2,750,000 in federal
funds from correspondent  financial institutions One line for $2,000,000 expires
October  1,  2000;  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, 1999.  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.

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.

                                       46
<PAGE>

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.

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,
                                                                                            ------------
                                                                              1999                                1998
                                                                              ----                                ----
                                                                    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) ...........................     $  1,197,482      $  1,197,482      $  1,727,391      $  1,727,391
Interest-bearing deposits in other banks (Note A) ..........           34,998            34,998           320,267           320,267
Federal funds sold (Note A) ................................        2,440,000         2,440,000         8,070,000         8,070,000
Securities (Note C) ........................................       17,554,460        17,554,460        16,299,880        16,299,880
Other investments (Notes A and E) ..........................          250,000           250,000           377,400           377,400
Loans (Note F) .............................................       29,259,606        29,096,547        28,849,664        28,945,196
Accrued interest receivable (Note A) .......................          361,463           361,463           316,239           316,239
Deposits (Note H) ..........................................      (40,857,524)      (40,854,686)      (45,606,635)      (45,682,677)
Long-term debt (Note I) ....................................       (4,000,000)       (4,000,000)       (4,000,000)       (4,000,000)
Accrued interest payable (Note A) ..........................         (319,449)         (319,449)         (392,644)         (392,644)
Loan commitments (Note N) ..................................                         (6,951,821)                         (5,471,229)
Standby letters of credit (Note N) .........................                            (42,075)                            (62,075)
</TABLE>


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

<TABLE>
<CAPTION>
                                                                                                           December 31,
                                                                                                           ------------
                                                                                                    1999                       1998
                                                                                                    ----                        ----
Condensed Balance Sheet
Assets
<S>                                                                                              <C>                      <C>
    Cash .........................................................................               $  296,393               $  457,645
    Investment in banking subsidiary .............................................                6,641,524                6,461,466
    Land .........................................................................                  221,020                        -
    Other assets .................................................................                    3,306                    2,887
                                                                                                 ----------               ----------
        Total assets .............................................................               $7,162,243               $6,921,998
                                                                                                 ==========               ==========
Liabilities
    Other liabilities ............................................................               $        -               $        -
Shareholders' equity .............................................................                7,162,243                6,921,998
                                                                                                 ----------               ----------
        Total liabilities and shareholders' equity ...............................               $7,162,243               $6,921,998
                                                                                                 ==========               ==========
</TABLE>



                                       47
<PAGE>

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

<CAPTION>
                                                                                                       Years Ended December 31,
                                                                                                       ------------------------
                                                                                                     1999                    1998
                                                                                                     ----                    ----
Condensed Statement of Cash Flows
  Operating activities
      Net income ...............................................................                $ 1,019,316            $   931,351
          Adjustments to reconcile net income to net
             cash provided by operating activities
                 Equity in undistributed earnings
                   of banking subsidiary .......................................                   (419,123)                34,691
                 Increase in other assets ......................................                       (419)                (2,887)
                                                                                                -----------            -----------
                      Net cash provided by operating activities ................                    599,774                963,155
                                                                                                -----------            -----------
  Investing activities
      Purchase of land .........................................................                   (221,020)                     -
                                                                                                -----------            -----------
                      Net cash used by investing activities ....................                   (221,020)                     -
                                                                                                -----------            -----------
  Financing activities
      Sales of common stock under dividend reinvestment plan, net ..............                    118,091                      -
      Repurchase and retirement of common stock ................................                    (51,485)                     -
      Cash dividends paid ......................................................                   (606,612)              (505,510)
                                                                                                -----------            -----------
                      Net cash used by financing activities ....................                   (540,006)              (505,510)
                                                                                                -----------            -----------
  (Decrease) increase in cash and cash equivalents .............................                   (161,252)               457,645
  Cash and cash equivalents, beginning .........................................                    457,645                      -
                                                                                                -----------            -----------
  Cash and cash equivalents, ending ............................................                $   296,393            $   457,645
                                                                                                ===========            ===========
</TABLE>

                                       48