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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549



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FORM 10-KSB



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FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

|           |  |                                                                                         
|---------- |  | ----------------------------------------------------------------------------------------
|(Mark One)
|[X]        |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|           |  |                                                                                         
|           |  | For the fiscal year ended December 31, 2002                                             
|           |  |                                                                                         
|           |  | OR                                                                                      
|           |  |                                                                                         
|[  ]       |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|           |  |                                                                                         
|           |  | For the transition period from __________ to __________                                 

Commission File Number: 333-89972

Community Financial Holding Company, Inc.

(Exact Name of Small Business Issuer As Specified in Its Charter)


|                                         |  |                                     
|---------------------------------------- |  | ------------------------------------
|Georgia                                  |  | 04-3641019                          
|(State or Other Jurisdiction of          |  | (I.R.S. Employer Identification No.)
|Incorporation or Organization)           |  |                                     
|                                         |  |                                     
|2775 Buford Highway                      |  | 30096                               
|Duluth, Georgia                          |  | (Zip Code)                          
|(Address of Principal Executive Offices) |  |                                     

Registrants telephone number, including area code: (770) 476-2775

Securities registered pursuant to Section 12(b) of the Act:

|                    |  |                                     
|------------------- |  | ------------------------------------
|Title of Each Class |  | Name of Exchange on Which Registered
|                    |  |                                     
|None                |  | None                                

Securities registered pursuant to Section 12(g) of the Act:

None.

Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to
the best of Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. x

State issuers revenues for its most recent fiscal year. $10.3 million.

As of March 24, 2003, there were issued and outstanding 1,200,894 shares
of the registrants common stock.

Transition Small Business Disclosure Format. Yes o No x



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TABLE OF CONTENTS



|                                                                                                                                   |  |  |  |  |  |  |  | 
|---------------------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|PART I                                                                                                                            
|PART II                                                                                                                           
|MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                             
|Consolidated Financial Statements                                                                                                 
|REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                                                                                
|Consolidated Balance Sheets                                                                                                       
|Consolidated Statements of Operations                                                                                             
|Consolidated Statements of Comprehensive Income                                                                                   
|Consolidated Statements of Changes in Stockholders Equity                                                                        
|Consolidated Statements of Cash Flows For the Years Ended December 31, 2002, 2001 and 2000                                        
|Consolidated Notes to Financial Statements                                                                                        
|PART III                                                                                                                          
|SUMMARY COMPENSATION TABLE                                                                                                        
|SIGNATURES                                                                                                                        
|SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS
|CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002                                                           
|CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002                                                           
|EX-99.1 Safe Harbor Compliance Statement                                                                                          
|EX-99.2 SECTION 906 CERTIFICATION                                                                                                 



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Cautionary Notice Regarding Forward-Looking Statements

Community Financial Holding Company, Inc. (Community Financial, we or
us) may from time to time make written or oral forward-looking statements,
including statements contained in our filings with the Securities and Exchange
Commission (including this annual report on Form 10-KSB and the exhibits
thereto), in our reports to stockholders and in other communications by us,
which are made in good faith by us pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve risks and uncertainties, such as
statements of our plans, objectives, expectations, estimates and intentions,
that are subject to change based on various important factors, some of which
are beyond our control. Those factors could cause our financial performance to
differ materially from the plans, objectives, expectations, estimates and
intentions expressed in such forward-looking statements: the strength of the
United States economy in general and the strength of the local economies in
which we conduct operations; the effects of, and changes in, trade, monetary
and fiscal policies and laws, including interest rate policies of the Board of
Governors of the Federal Reserve System, inflation, interest rate, market and
monetary fluctuations; the effects of any actual or potential military action
or terrorist event; the timely development of and acceptance of new products
and services and the perceived overall value of these products and services by
users, including the features, pricing and quality compared to competitors
products and services; the willingness of users to substitute competitors
products and services for our products and services; our success in gaining
regulatory approval of our products and services, when required; the impact of
changes in financial services laws and regulations, including laws concerning
taxes, banking, securities and insurance; technological changes and
acquisitions; managing credit risk; changes in consumer spending and saving
habits; and our success at managing the risks involved in the foregoing.

We do not undertake to update any forward-looking statement, whether
written or oral, that may be made from time to time by us or on our behalf.

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PART I

Item 1. Description of Business.

General

Community Financial Holding Company, Inc. is a $169 million asset bank
holding company headquartered in Duluth, Georgia. We were organized as a
business corporation under the laws of the State of Georgia in 2002 and are a
registered bank holding company under the Federal Bank Holding Company Act of
1956, as amended, and under the bank holding company laws of the State of
Georgia. We conduct operations in Gwinnett County, Georgia through our
wholly-owned subsidiary, Gwinnett Community Bank, which was organized in 1999
as a state banking corporation under the banking laws of the State of Georgia.

On March 29, 2002, we completed the acquisition of Gwinnett Community Bank
as part of a corporate reorganization of Gwinnett Community Bank into a
one-bank holding company structure. We had no material operations prior to our
acquisition of Gwinnett Community Bank.

Our executive offices and the full-service bank are located at 2775 Buford
Highway, Duluth, Georgia 30096.

Gwinnett Community Bank

Through Gwinnett Community Bank, we offer a broad line of banking and
financial products and services using a strategy of combining community bank
service and responsiveness with innovative products and services. Gwinnett
Community Bank is a full-service commercial bank offering a variety of services
customary for community banks of similar size which are designed to meet the
banking needs of individuals and small- to medium-sized businesses. Gwinnett
Community Bank attracts most of its deposits and conducts most of its lending
transactions from and within its primary service area encompassing Gwinnett
County, Georgia.

As a convenience to our customers, we offer drive-thru teller windows,
24-hour automated teller machines, and Saturday banking hours. Gwinnett
Community Bank is a member of the STAR ATM network of automated teller machines
which permits our customers to perform monetary transactions in most cities
throughout the southeast and other regions. We also offer commercial Internet
banking services through our Website at www.gwinnettcommunitybank.com.

Deposit Services

Deposits are a key component of our banking business, serving as a source
of funding for lending as well as for increasing customer account
relationships. We offer a full range of competitively priced deposit services
including checking accounts, NOW accounts, savings accounts and other time
deposits of various types, ranging from money market accounts to longer-term
certificates of deposit.

As of December 31, 2002, we had deposits of approximately $153 million and
approximately 5,300 deposit accounts. No material portion of our deposits has
been obtained from one or a few persons or entities (including federal, state
and local governments and agencies), the loss of any one or more of which would
have a materially adverse effect on us.

The following table sets forth our mix of depository accounts as a
percentage of total deposits at December 31, 2002.

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Deposit Mix

|                                |                |  |                      |        |  
|------------------------------- | -------------- |  | -------------------- | ------ | -
|                                |                |  | At December 31, 2002
|                                |                |  |                     
|Non-interesting bearing demand  |                |  | 9.36                 | %     
|NOW accounts and money market   |                |  | 23.57                | %     
|Savings                         |                |  | 2.63                 | %     
|Time Deposits Under $100,000    |                |  | 35.53                | %     
|Time Deposits $100,000 and over |                |  | 28.91                | %     
|                                |                |  |                      |       
|                                | Total Deposits |  |                      | 100.00 | %
|                                |                |  |                      |       

Lending Services

Our lending business consists principally of making consumer loans to
individuals and commercial loans to small and medium-sized businesses and
professional concerns. In addition, we make secured real estate loans,
including residential and commercial construction loans, and first and second
mortgage loans for the acquisition or improvement of personal residences. As
of December 31, 2002, we had approximately $128 million in total loans
outstanding, representing 76% of our total assets of approximately $169
million. The loan portfolio is made up of both fixed and adjustable rate
loans. Approximately 65% of our total loan portfolio is fixed rate and 35% is
adjustable rate as of December 31, 2002. The following table summarizes the
historical mix of loans in our portfolio:

|            |  |                   |      |                   |  |                   |      |   |  |  |      |  
|----------- |  | ----------------- | ---- | ----------------- |  | ----------------- | ---- | - |  |  | ---- | -
|Loan Type   |  | December 31, 2000 |      | December 31, 2001 |  | December 31, 2002
|            |  |                   |      |                   |  |                  
|Commercial  |  |                   | 28.5 | %                 |  |                   | 21.5 | % |  |  | 25.4 | %
|Real estate |  |                   | 59.1 | %                 |  |                   | 70.4 | % |  |  | 65.4 | %
|Consumer    |  |                   | 12.4 | %                 |  |                   | 8.1  | % |  |  | 9.2  | %

No material portion of our loans is concentrated within a single industry
or group of related industries. We are not dependent to any material degree
upon any single borrower or a few principal borrowers. The loss of any
individual borrower or a few principal borrowers would not likely have a
material adverse effect on our operations or earnings. Management is satisfied
with the mix of loans within our loan portfolio.

Procedures for Establishment of the Allowance for Loan Losses. Gwinnett
Community Bank has a dedicated internal loan review function that it
supplements with outsourced assistance. All loans of $100,000 or more and a
sample of other loans are reviewed. Additionally, past due, watch list, and
regulatory criticized loans are reviewed. Loans are reviewed annually and
placed in various loan grading categories which assist in developing lists of
potential problem loans. These loans are monitored to ensure early
identification of repayment problems so that adequate allowances can be made
through the provision for loan losses. The formal allowance for loss adequacy
test is performed at month end. Specific amounts of loss are estimated on
problem loans and historical loss percentages (using peer group loss ratios )
are applied to the balance of the portfolio using certain portfolio
stratifications. Additionally, the evaluation takes into consideration such
factors as changes in the nature and volume of the loan portfolio, current
economic conditions, regulatory examination results, and the existence of loan
concentrations. The results of the evaluation are compared to the recorded
allowance for loan losses and material differences are adjusted by increasing
or decreasing the provision for loan losses. While components of the allowance
for loan losses will include specific allocations to individual non-performing
loans, the allowance for loan losses is not allocated by type of loan. The
entire allowance is available to absorb losses from any and all loans.

Management uses available information to recognize losses on loans;
however, future additions to the allowance may be necessary based on changes in
economic conditions. In addition, regulators, as an integral part of their
examination process, periodically review the allowance for loan losses. Such
regulators may require additions to the allowance based on their judgments of
information available to them at the time of their examination.

Real Estate Loans.Loans secured by real estate make up the primary
component of our loan portfolio, constituting approximately $84 million, or
65%, of total loans as of December 31, 2002. Approximately 60% of the real
estate loans are fixed rate and 40% are adjustable rate. These loans consist
of commercial real estate loans, construction
and development loans, residential real estate loans and home equity
loans. Real estate loans are collateralized by

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commercial and residential real
estate in our primary and secondary market areas. The types of real estate
that typically constitute collateral include primary and secondary residences
for individuals, including multi-family projects, places of business, real
estate for agricultural uses and undeveloped land.

Commercial Loans. We make loans for commercial purposes to various
industries located in our market area. As of December 31, 2002, commercial
loans constituted approximately $33 million, or 26% of total loans.
Approximately 74% of commercial loans are fixed rate, while 26% are adjustable.
The typical commercial loan has a maturity of three years or less. Loans in
this category exclude commercial loans secured by real estate. Commercial
loans secured by real estate are included in the real estate category described
above. The typical commercial loan has collateral such as equipment for
business use and inventory and may include unsecured working capital lines.

Consumer Loans. We make a variety of loans to individuals for personal
and household purposes, including secured and unsecured installment and term
loans and lines of credit. As of December 31, 2002, we held approximately $12
million of consumer loans, representing 9% of total loans.

Consumer loans are primarily fixed rate in nature with 70% of this loan
category carrying fixed rates. These loans are typically collateralized by
personal automobiles, recreational vehicles or household items and may include
unsecured loans to individuals.

Other Lending Activities.We also engage in secondary-market mortgage
activities whereby we originate mortgage loans on behalf of investor
correspondent lenders who fund the loans. The investor correspondent lenders
underwrite and price the loans and we receive a fee for originating and
packaging the loans. Periodically we receive discount points depending on the
pricing of the loan. No mortgage loans are held by us for resale, nor do we
service third-party loans.

Risks Associated with Lending Activities

The principal economic risk associated with each category of loans that we
make is the creditworthiness of the borrower. Borrower creditworthiness is
affected by general economic conditions and the strength of the relevant
business market segment. General economic factors affecting a borrowers
ability to repay include interest, inflation and employment rates, as well as
other factors affecting a borrowers customers, suppliers and employees.

Because consumer loans are often secured by rapidly depreciating assets
such as automobiles or other personal property, any repossessed collateral for
a defaulted consumer loan may not provide an adequate source of repayment of
the outstanding loan balance as a result of the greater likelihood of damage,
loss or depreciation. In addition, consumer loan collections are dependent on
the borrowers continuing financial stability, and thus are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.

Repayment of commercial loans and loans secured by commercial and
multi-family real estate properties are often dependent on the successful
operation of the business or management of the property. As a result, the
quality of the commercial borrowers management and its ability both to
properly evaluate changes in the supply and demand characteristics affecting
its markets for products and services and to respond effectively to these
changes are significant factors in a commercial borrowers creditworthiness.
Risks associated with commercial real estate loans also include fluctuations in
the value of real estate, new job creation trends and tenant vacancy rates.
Our practice is to underwrite these loans based on our analysis of the amount
of cash flow generated by the business and the resulting ability of the
borrower to meet its payment obligations. In addition, we generally seek to
obtain a personal guarantee of the loan by the owner(s) of the business and,
under certain circumstances, seek additional collateral.

Risk of loss on a construction loan is dependent largely upon the accuracy
of the initial estimate of the security propertys value upon completion of
construction as compared to the estimated costs of construction, including
interest and fees. In addition, we assume certain risks associated with the
borrowers ability to complete construction in a timely and workmanlike manner.
If the estimate of value proves to be inaccurate, or if construction is not
performed timely or in a quality manner, we may be confronted with a project
which, when completed, has a value insufficient to assure full repayment or to
advance funds beyond the amount originally committed to permit completion of
the project.

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Legal Lending Limit

We are subject to Georgia banking laws which limit the amount we lend to a
single borrower and its related interests. See Supervision and Regulation.
In general, the legal lending limit for a single borrower is 15% of Gwinnett
Community Banks statutory capital base, or 25% of its statutory capital base
if the entire amount of the loan is fully secured. Gwinnett Community Banks
statutory capital base is the sum of its capital stock, additional paid-in
capital and any retained earnings it has designated as being unavailable for
distribution to shareholders.

Loan Underwriting Standards

Management recognizes the importance of character and past performance as
consideration in the lending decision process. In analyzing a credit
relationship, primary emphasis is placed on adequacy of cash flow and the
ability of the obligor to service the debt. Secondary emphasis is placed on
the past performance of the borrower, the type or value of the collateral, the
amount of net worth present or any performance of endorsers or guarantor that
has not been proven.

Collateral is not considered a substitute for the borrowers ability to
repay. Collateral serves as a way to control the borrower and provide
additional sources of repayment in the event of default. The quality and
liquidity of the collateral are of paramount importance and must be confirmed
before the loan is made. We have established loan-to-value and margin
guidelines that are varied depending on the type of collateral offered. Loans
secured by liquid assets and securities carry margins of 50% to 100% depending
on the liquidity and price volatility of the asset. In general, loans to value
on various types of real estate range from a high of 90% to a low of 65%.
Installment loans, in general, require a loan to collateral value of at least
80%. In addition, we impose limits on terms of repayment of loans for
automobiles and other depreciable collateral that are dependent on the age of
the asset. We may make some exceptions to the loan-to-value guidelines that
are dependent on the overall creditworthiness of the borrower.

Market Area

Our primary market area includes all of Duluth, Gwinnett County, Georgia.
Approximately 97% of our customers reside in Gwinnett County, although we
attract some loan business from neighboring Forsyth and Fulton Counties. Our
secondary market area adds an additional ten-mile radius and incorporates
portions of DeKalb, Forsyth, and Fulton Counties. Gwinnett County is located
approximately 20 miles northeast of Atlanta. Gwinnett Countys major
industries include manufacturing, wholesale trade, food processing, paper and
lumber products, construction, retail sales, and health services.

Duluth, Gwinnett County continues to be the largest deposit base in our
primary and secondary market area, with Barrow, Hall, Rockdale, and Walton
Counties to its east and DeKalb, Forsyth, and Fulton Counties to its west
emerging as deposit growth areas for us. The amount of total deposits in
Gwinnett County was approximately $6.4 billion at June 30, 2002, compared to
total deposits of approximately $2.9 billion in 1993. We held a market share
of 2.06% of total deposits in Gwinnett County at June 30, 2002.

Significant development has taken place in the Georgia area along the
Interstate 85 corridor. Due to its close proximity to downtown Atlanta and
easy access to I-85, Gwinnett County is receiving a significant boost from the
continued expansion of the northeastern portion of metro Atlanta. The
development of communities northeast of metro Atlanta such as Norcross and
Duluth will have an impact on our primary and secondary market areas. Retail
developments such as the Mall of Georgia and the Discover Mills complex, along
with a number of large residential developments, are anticipated to have a
positive economic impact on the County.

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Competition

We operate in a highly competitive environment. We compete for deposits
and loans with commercial banks, savings and loan associations, credit unions,
finance companies, mutual funds, insurance companies and other financial
entities operating locally and elsewhere. In addition, because the
Gramm-Leach-Bliley Act now permits banks, securities firms and insurance
companies to affiliate, a number of larger financial institutions and other
corporations offering wider variety of financial services than we currently
offer may now enter and aggressively compete in the market we currently serve.
Many of these competitors have substantially greater resources and lending
limits than us and may offer certain services that we do not or cannot provide.

According to the FDIC Market Share Report, as of June 30, 2002, Gwinnett
County was served by a total of 32 financial institutions, with a total of 163
offices in Gwinnett County. The primary factors in competing for deposits are
interest rates, personalized services, the quality and range of financial
services, convenience of office locations and office hours. The primary
factors in competing for loans are interest rates, loan origination fees, the
quality and range of lending services and personalized services. To compete
with other financial services providers, we principally rely upon local
promotional activities, personal relationships established by officers,
directors and employees with our customers, and specialized services tailored
to meet our customers needs. We offer many personalized services and attract
customers by being responsive and sensitive to the needs of the community. We
rely not only on the goodwill and referrals of satisfied customers, as well as
traditional media advertising to attract new customers, but also on individuals
who develop new relationships to build our customer base.

As a community banking operation, we offer convenient service, local
decision-making and competitive financial products and services. Additionally,
by focusing our operations on the community we serve, we believe that we are
able to respond to changes in our market more quickly than large, centralized
institutions.

Employees

As of December 31, 2002, Gwinnett Community Bank had 35 full-time
equivalent employees, including 5 part-time employees, none of whom is a party
to a collective bargaining agreement. Certain executive officers of Gwinnett
Community Bank also serve as our officers (we do not have compensated
employees). We believe that we enjoy satisfactory relations with our
employees.

Supervision and Regulation

We and our bank subsidiary are extensively regulated under federal and
state laws and regulations. These laws and regulations generally are intended
to protect depositors, not shareholders. The following is a summary
description of certain provisions of selected laws and regulations which affect
bank holding companies and banks. To the extent that the following summary
describes statutory or regulatory provisions, it is qualified in its entirety
by reference to the particular statutory and regulatory provisions. Any change
in applicable laws or regulations may have a material effect on our business
operations and prospects and those of our bank subsidiary.

Beginning with the enactment of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 (FIRREA) and following with the Federal
Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), numerous
additional regulatory requirements have been placed on the banking industry in
the past thirteen years, and additional changes have been proposed. The
banking industry has also changed significantly as a result of the passage of
the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
Interstate Banking Act) and the Gramm-Leach-Bliley Act of 1999 (the
Gramm-Leach-Bliley Act). Our operations may be affected by legislative
changes and new policies of various regulatory authorities. We cannot predict
the nature or the extent of the effect on our business and earnings that fiscal
or monetary policies, economic conditions, or new federal or state legislation
may have in the future.

Community Financial

We are a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended (the BHCA). Under the BHCA, we are subject
to periodic examination by the Federal Reserve and are required to file
periodic reports of our operations and such additional information as the
Federal Reserve may require.

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Investments, Control and Activities.With certain limited exceptions, the
BHCA requires every bank holding company to obtain prior approval of the
Federal Reserve:



| |  |  | to acquire the ownership or control of more than 5% of
any class of voting stock of any bank not already controlled by
it;
| | - |  | --------------------------------------------------------------------------------------------------------------------------
|
| |  |  | for it or any subsidiary (other than a bank) to acquire all or substantially all of the assets of a bank; and             
|
| |  |  | to merge or consolidate with any other bank holding company.                                                              

The BHCA further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly, or the effect of which may be
substantially to lessen competition in any section of the country, or that in
any other manner would be in restraint of trade, unless the transactions
anticompetitive effects are clearly outweighed by the public interest. The
Federal Reserve is also required to consider the financial and managerial
resources and future prospects of the bank holding companies and banks
concerned and the convenience and needs of the community to be served.

In addition, and subject to certain exceptions, the BHCA and the Change in
Bank Control Act, together with regulations thereunder, require Federal Reserve
approval (or, depending on the circumstances, no notice of disapproval) prior
to any person or company acquiring control of a bank holding company.
Control is conclusively presumed to exist if an individual or company acquires
25% or more of any class of voting securities of the bank holding company.
Control is presumed to exist, subject to rebuttal, if a person acquires 10% or
more but less than 25% of any class of voting securities and either the bank
holding company has registered securities under Section 12 of the Exchange Act
or no other person will own a greater percentage of that class of voting
securities immediately after the transaction. Our common stock is registered
under Section 12 of the Exchange Act. Applicable regulations provide a
procedure for challenge of the rebuttable control presumption.

Gramm-Leach-Bliley Act.Until passage of the Gramm-Leach-Bliley Act of
1999, a bank holding companys activities generally were limited to banking,
managing or controlling banks, furnishing services to or performing services
for its subsidiaries or engaging in any other activity that the Federal Reserve
determines to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. Activities determined by the Federal
Reserve to fall under this category include:



| |  |  | making, acquiring or servicing loans and certain leases; 
| | - |  | ---------------------------------------------------------
|
| |  |  | providing certain data processing services;              
|
| |  |  | acting as a fiduciary or investment or financial advisor,
|
| |  |  | providing discount brokerage services;                   
|
| |  |  | underwriting bank eligible securities; and               
|
| |  |  | making investments designed to promote community welfare.

On November 12, 1999, the President signed into law the Gramm-Leach-Bliley Act
which repealed many of the restrictions on the activities of banks and bank
holding companies. The law established two new structures  financial holding
companies and financial subsidiaries  that enable qualifying bank holding
companies and banks to provide an expanded array of financial services that
formerly could be performed only by insurance companies and securities firms.
The law also permits bank affiliations with insurance and securities firms. We
do not have any current plans to enter into these expanded financial
activities.

Source of Strength; Cross-Guarantee.Under Federal Reserve policy, a bank
holding company is expected to act as a source of financial strength to its
bank subsidiaries and to commit resources to support these subsidiaries. This
support may be required at times when, absent such policy, the bank holding
company might not otherwise provide such support. Under this policy, a bank
holding company may be required to loan money to its subsidiary banks in the
form of capital notes or other instruments that qualify for capital under
regulatory rules. Under the BHCA, the Federal Reserve also may require a bank
holding company to terminate any activity or relinquish control of a non-bank
subsidiary (other
than a non-bank subsidiary of a bank) upon the Federal Reserves
determination that such activity or control constitutes a serious risk to the
financial soundness or stability of any subsidiary depository institution of
the bank holding company.

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Federal bank regulatory agencies have additional discretion to require a
bank holding company to divest itself of any bank or non-bank subsidiary if the
agency determines that divestiture may aid the depository institutions
financial condition. Gwinnett Community Bank may be required to indemnify, or
cross-guarantee, the FDIC against losses it incurs with respect to any other
bank we control, which in effect makes our equity investments in healthy bank
subsidiaries available to the FDIC to assist any failing or failed bank
subsidiary we may have. At present, we have no subsidiary other than Gwinnett
Community Bank.

State Regulation.Our activities are subject to certain provisions of the
Financial Institutions Code of Georgia and regulations issued pursuant to such
code. These provisions are administered by the Georgia Department of Banking
and Finance (DBF), which has concurrent jurisdiction with the Federal Reserve
over our activities. The laws and regulations administered by the DBF are
generally consistent with, or supplemental to, the federal laws and regulations
discussed herein.

Gwinnett Community Bank

As a banking corporation organized under the laws of the State of Georgia,
Gwinnett Community Bank is subject to supervision and examination by the DBF
and the FDIC. Deposits in Gwinnett Community Bank are insured by the FDIC up
to a maximum amount (generally $100,000 per depositor, subject to aggregation
rules). The DBF and the FDIC regulate or monitor all areas of Gwinnett
Community Banks banking operations, including security devices and procedures,
adequacy of capitalization and loan loss reserves, loans, investments,
borrowings, deposits, mergers, consolidations, reorganizations, issuance of
securities, payment of dividends, interest rates, establishment of branches,
and other aspects of its operations. These agencies require Gwinnett Community
Bank to maintain certain capital ratios and impose limitations on Gwinnett
Community Banks aggregate investment in real estate, bank premises and
furniture and fixtures. Gwinnett Community Bank is currently required by the
FDIC to prepare quarterly reports on Gwinnett Community Banks financial
condition and to conduct an annual audit of its financial affairs in compliance
with minimum standards and procedures prescribed by the FDIC.

Under FDICIA, all insured depository institutions must undergo periodic
on-site examination by the appropriate federal banking agency. The cost of
examinations of insured depository institutions and any affiliates may be
assessed by the appropriate agency against each institution or affiliate as it
deems necessary or appropriate. All insured institutions are required to
submit annual reports to the FDIC and the appropriate federal agency (or state
supervisor when applicable). FDICIA also directs the FDIC to develop with
other appropriate agencies a method for insured depository institutions to
provide supplemental disclosure of the estimated fair market value of assets
and liabilities, to the extent feasible and practicable, in any balance sheet,
financial statement, report of condition or other report of any insured
depository institution.

FDICIA also requires the federal banking regulatory agencies to prescribe,
by regulation, standards for all insured depository institutions and depository
institution holding companies relating, among other things, to: (i) internal
controls, information systems and audit systems; (ii) loan documentation; (iii)
credit underwriting; (iv) interest rate risk exposure; and (v) asset quality.

Community Reinvestment Act.The Community Reinvestment Act (the CRA)
requires that, in connection with examinations of financial institutions within
their respective jurisdictions, the Federal Reserve, the FDIC, and any other
federal banking agency, shall evaluate the record of the financial institution
in meeting the credit needs of its local community, including low and moderate
income neighborhoods. A financial institutions CRA record is considered in
evaluating applications to the agencies for mergers, acquisitions, and new
branch facilities. Failure to comply with the CRA could submit a financial
institution to additional requirements and limitations. Gwinnett Community
Bank was examined for CRA compliance as of October 30, 2001, and received a CRA
rating of Satisfactory.

Other Rules and Regulations.Interest and certain other charges collected
or contracted for by Gwinnett Community Bank are subject to Georgia usury laws;
in general, charges, interest and fees cannot exceed the 5% per month limit
established by the criminal provisions of Georgia usury law.

Gwinnett Community Banks loan operations are also subject to certain
federal laws, and their implementing regulations, such as the:

9



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##### Table of Contents





| |  |  | Truth-In-Lending Act governing disclosures of credit
terms to consumer borrowers;                                                                                                                                                                                              
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Home Mortgage Disclosure Act of 1975 requiring financial
institutions to provide information to enable the public and
public officials to determine whether a financial institution is
fulfilling its CRA obligation to help meet the housing needs of
the community it serves;
|
| |  |  | Equal Credit Opportunity Act prohibiting discrimination
on the basis of race, creed or other prohibited factors in
extending credit;                                                                                                                                           
|
| |  |  | Fair Credit Reporting Act of 1978 governing the use and
provision of information to credit reporting agencies;                                                                                                                                                                 
|
| |  |  | Fair Debt Collection Act governing the manner in which
consumer debts may be collected by collection agencies, and the
rules and regulations of the various federal agencies charged with
the responsibility of implementing such federal laws; and                            
|
| |  |  | Soldiers and Sailors Civil Relief Act, which governs
the repayment terms of, and property rights underlying, secured
obligations of persons in military service.                                                                                                             

In addition, the Georgia Fair Lending Act (GFLA) became effective on
October 1, 2002. GFLA imposes new restrictions and procedural requirements on
most mortgage loans made in Georgia, including home equity loans and lines of
credit. While many of the GFLA requirements will apply regardless of the
interest rate or charges on the loan, high cost home loans, as defined by
GFLA, are subject to the most stringent requirements. GFLA was substantially
amended effective March 7, 2003 to ease its restrictions on loans other than
high cost home loans and to provide for exemption of state banks like Gwinnett
Community Bank from GFLA if national banks are exempted from GFLA by their
regulator, the Comptroller of the Currency. Gwinnett Community Bank has
implemented procedures to comply with GFLA requirements applicable to all loans
covered by GFLA, including high cost home loans. Gwinnett Community Bank
generally has not made a significant number of high cost home loans in prior
years

The deposit operations of Gwinnett Community Bank also are subject to the
Right to Financial Privacy Act, which imposes a duty to maintain
confidentiality of consumer financial records and prescribes procedures for
complying with administrative subpoenas of financial records, and the
Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve to
implement that act, which governs automatic deposits to and withdrawals from
deposit accounts and customers rights and liabilities arising from the use of
automated teller machines and other electronic banking services.

Gwinnett Community Banks commercial transactions are also subject to the
provisions of Georgia law governing such transactions. These laws include the
Uniform Commercial Code and other provisions of the Georgia Code Annotated.

Deposit Insurance

The deposits of Gwinnett Community Bank are currently insured to a maximum
of $100,000 per depositor, subject to aggregation rules. The FDIC establishes
rates for the payment of premiums by federally insured banks and thrifts for
deposit insurance. Since 1993, insured depository institutions like Gwinnett
Community Bank have paid for deposit insurance under a risk-based premium
system. Insurance of deposits may be terminated by the FDIC upon a finding
that the financial institution has engaged in unsafe and unsound practices, is
in an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order, or condition imposed by the FDIC.

Based on Gwinnett Community Banks risk classification, Gwinnett Community
Bank was not required to pay an assessment for deposit insurance in 2001, nor
was it be required to pay a deposit insurance assessment in 2002. Gwinnett
Community Bank was required to pay the Bank Insurance Fund Financial
Corporation (FICO) assessment in 2001, and will also pay this assessment in
2002. For the fourth quarter of 2002, the FICO assessment rate was 1.70 cents
per $100 of assessable Bank deposits.

Dividends

Community Financial.We are a legal entity separate and distinct from
Gwinnett Community Bank. The principal source of our cash flow is dividends
from Gwinnett Community Bank. The amount of dividends that may be paid by
10Table of ContentsGwinnett Community Bank to us depends on Gwinnett Community Banks earnings and
capital position and is limited by various federal and state statutory and
regulatory limitations.In addition to the availability of funds from Gwinnett Community Bank, our
future dividend policy is subject to the discretion of our Board of Directors
and will depend upon a number of factors, including future earnings, financial
condition, cash needs and general business conditions. If we should declare
dividends in the future, the amount of such dividends cannot be estimated at
this time and we cannot know whether such dividends would continue for future
periods.Gwinnett Community Bank.As a Georgia banking corporation, Gwinnett
Community Bank may pay cash dividends on its outstanding capital stock out of
its earnings without any requirement to notify the DBF or request the approval
of the DBF under the following conditions:
        
        Total classified assets at the most recent examination of
Gwinnett Community Bank, the conclusions of which may have been
presented to the Board, do not exceed 80% of Tier 1 Capital plus
the Allowance for Loan Losses as reflected at such examination;
        
        The aggregate amount of dividends declared or anticipated
to be declared in the calendar year does not exceed 50% of the net
profits, after taxes but before dividends, for the previous
calendar year;
        
        The ratio of Tier 1 Capital to Adjusted Total Assets (the
Tier 1 Leverage Ratio) shall not be less than 6%.Any dividend to be declared by Gwinnett Community Bank at a time when each
of the foregoing conditions does not exist must be approved, in writing, by the
DBF prior to the payment thereof. Under FDICIA, Gwinnett Community Bank may
not pay a dividend if, after paying the dividend, Gwinnett Community Bank would
be undercapitalized. See Capital Adequacy below.Furthermore, among the conditions to the DBFs approval of Gwinnett
Community Banks Articles of Incorporation, the DBF required Gwinnett Community
Banks Board of Directors to adopt resolutions committing: (i) that Gwinnett
Community Bank will not pay dividends until Gwinnett Community Bank has
recovered Bank start-up losses and Gwinnett Community Bank is making a
cumulative profit, and (ii) that Gwinnett Community Bank will maintain a Tier 1
Leverage Ratio of not less than 8% during Gwinnett Community Banks first three
years of operation, i.e., through October 2002.Gwinnett Community Bank recovered its start-up losses and achieved a
cumulative profit at the end of April 2002. As of December 31, 2002, Gwinnett
Community Banks Tier 1 Leverage Ratio was 8.05%. To date, Gwinnett Community
Bank has paid no dividends. We may declare and pay cash dividends in 2003, but
there can be no assurance that we will do so.Capital AdequacyFederal bank regulatory authorities have adopted risk-based capital
guidelines for banks and bank holding companies that are designed to:
        
        make regulatory capital requirements more sensitive to
differences in risk profiles among banks and bank holding
companies;
        
        account for off-balance sheet exposure; and
        
        minimize disincentives for holding liquid assets.The resulting capital ratios represent qualifying capital as a percentage
of total risk-weighted assets and off-balance sheet items. The guidelines are
minimums, and the federal regulators have noted that banks and bank holding
companies contemplating significant expansion programs should not allow
expansion to diminish their capital ratios and should maintain ratios well in
excess of the minimums.11Table of ContentsThe current guidelines require all bank holding companies and federally
regulated banks to maintain a minimum risk-based total capital ratio equal to
8%, of which at least 4% must be Tier 1 capital. The degree of regulatory
scrutiny of a financial institution will increase, and the permissible
activities of the institution will decrease as it moves downward through the
capital categories. Bank holding companies controlling financial institutions
can be called upon to boost the institutions capital and to partially
guarantee the institutions performance under their capital restoration plans.
Tier 1 capital includes shareholders equity, qualifying perpetual preferred
stock and minority interests in equity accounts of consolidated subsidiaries,
but excludes goodwill and most other intangible assets and excludes the
allowance for loan and lease losses. Tier 2 capital includes the excess of any
preferred stock not included in Tier 1 capital, mandatory convertible
securities, hybrid capital instruments, subordinated debt and intermediate-term
preferred stock and general reserves for loan and lease losses up to 1.25% of
risk-weighted assets.Under the guidelines, banks and bank holding companies assets are given
risk-weights of 0%, 20%, 50% and 100%. In addition, certain off-balance sheet
items are given credit conversion factors to convert them to asset equivalent
amounts to which an appropriate risk-weight will apply. These computations
result in the total risk-weighted assets. Most loans are assigned to the 100%
risk category, except for first mortgage loans fully secured by residential
property and, under certain circumstances, residential construction loans, both
of which carry a 50% rating. Most investment securities are assigned to the
20% category, except for municipal or state revenue bonds, which have a 50%
rating, and direct obligations of or obligations guaranteed by the United
States Treasury or United States Government agencies, which have a 0% rating.Failure to meet federal capital guidelines could subject a bank to a
variety of enforcement remedies, including the termination of deposit insurance
by the FDIC, and to certain restrictions on its business.The Federal Reserve also has implemented a leverage ratio, which is Tier 1
capital as a percentage of average total assets less intangible assets, to be
used as a supplement to the risk-based guidelines. The principal objective of
the leverage ratio is to place a constraint on the maximum degree to which a
bank holding company may leverage its equity capital base. The Federal Reserve
has established a minimum 3% leverage ratio of Tier 1 capital to total assets
for the most highly rated bank holding companies and insured banks. All other
bank holding companies and insured banks will be required to maintain a
leverage ratio of 3% plus an additional cushion of at least 100 to 200 basis
points. The tangible Tier 1 Leverage Ratio is the ratio of a banking
organizations Tier 1 capital, less all intangibles, to total assets, less all
intangibles.FDICIA established a capital-based regulatory plan designed to promote
early intervention for troubled banks and requires the FDIC to choose the least
expensive resolution of bank failures. The capital-based regulatory framework
contains five categories of compliance with regulatory capital requirements,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized. To qualify as
a well capitalized institution, a bank must have a leverage ratio of no less
than 5%, a Tier 1 risk-based ratio of no less than 6%, and a total risk-based
capital ratio of no less than 10%. The bank must also not be under any order
or directive from the appropriate regulatory agency to meet and maintain a
specific capital level.Under FDICIA, regulators must take prompt corrective action against
depository institutions that do not meet minimum capital requirements. FDICIA
and the related regulations establish five capital categories as shown in the
following table:

|                                   |  |               |    |               |  |                |    |   |  |  |    |     
|---------------------------------- |  | ------------- | -- | ------------- |  | -------------- | -- | - |  |  | -- | ----
|                                   |  | Total Risk-   |    | Tier 1 Risk-  |  | Tier 1        
|Classification                     |  | Based Capital |    | Based Capital |  | Leverage Ratio
|                                   |  |               |    |               |  |               
|Well Capitalized (1)               |  |               | 10 | %             |  |                | 6  | % |  |  | 5  | %   
|Adequately Capitalized (1)         |  |               | 8  | %             |  |                | 4  | % |  |  | 4  | %(2)
|Undercapitalized (3)               |  |               | <8 | %             |  |                | <4 | % |  |  | 4  | %(2)
|Significantly Undercapitalized (3) |  |               | <6 | %             |  |                | <3 | % |  |  | <3 | %   
|Critically Undercapitalized (3)    |  |               |   |               |  |                |   |   |  |  | <2 | %   



---

|(1) |  | An institution must meet all three minimums.                                                                                      
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | 3% for composite 1-rated institutions, subject to appropriate federal banking agency
guidelines.                                  
|   
|(3) |  | An institution is classified as undercapitalized if it is below the specified capital
level for any of the three capital measures.

12



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##### Table of Contents



A depository institution may be deemed to be in a capitalization category
that is lower than is indicated by its actual capital position if it receives a
less than satisfactory examination rating in any one of four categories. As a
depository institution moves downward through the capitalization categories,
the degree of regulatory scrutiny will increase and the permitted activities of
the institution will decrease. Action may be taken by a depository
institutions primary federal regulator against an institution that falls into
one of the three undercapitalized categories, including the requirement of
filing a capital plan with the institutions primary federal regulator,
prohibition on the payment of dividends and management fees, restrictions on
executive compensation, and increased supervisory monitoring. Other
restrictions may be imposed on the institution either by its primary federal
regulator or by the FDIC, including requirements to raise additional capital,
sell assets, or sell the institution.

The following table presents the FDICIA capital requirements for
adequately capitalized and well capitalized institutions, and our capital
ratios and those of Gwinnett Community Bank as of December 31, 2002:

|                                                                 |                         |   |                  |        |                        |  |        |      |       |   |        |        |       |  |       |       |   |   |       |        |  |  |      |       |  
|---------------------------------------------------------------- | ----------------------- | - | ---------------- | ------ | ---------------------- |  | ------ | ---- | ----- | - | ------ | ------ | ----- |  | ----- | ----- | - | - | ----- | ------ |  |  | ---- | ----- | -
|                                                                 |                         |   | To Be Adequately |        |                        |  |        |      |       |   |        |        |       |  |       |       |   |   |      
|                                                                 |                         |   | Capitalized      |        | To Be Well Capitalized |  | Actual
|                                                                 |                         |   |                  |        |                        |  |       
|                                                                 |                         |   | Amount           |        | Ratio                  |  | Amount |      | Ratio |   | Amount |        | Ratio
|                                                                 |                         |   |                  |        |                        |  |        |      |       |   |        |        |      
|As of December 31, 2002:                                         |                         |   |                  |        |                        |  |        |      |       |   |        |        |       |  |       |       |   |   |       |        |  |  |      |      
|Total Capital to Risk Weighted Assets                            |                         |   |                  |        |                        |  |        |      |       |   |        |        |       |  |       |       |   |   |       |        |  |  |      |      
|                                                                 | Community Financial     |   | $                | 11,463 |                        |  |        | >8.0 | %     |   | $      | N/A    |       |  |       | N/A   |   |   | $     | 15,949 |  |  |      | 11.11 | %
|                                                                 | Gwinnett Community Bank |   |                  | 11,463 |                        |  |        | >8.0 | %     |   |        | 14,329 |       |  |       | >10.0 | % |   |       | 14,750 |  |  |      | 10.29 | %
|Tier I Capital to Risk Weighted Assets                           |                         |   |                  |        |                        |  |        |      |       |   |        |        |       |  |       |       |   |   |       |        |  |  |      |      
|                                                                 | Community Financial     |   | $                | 5,732  |                        |  |        | >4.0 | %     |   | $      | N/A    |       |  |       | N/A   |   |   | $     | 14,350 |  |  |      | 10.00 | %
|                                                                 | Gwinnett Community Bank |   |                  | 5,732  |                        |  |        | >4.0 | %     |   |        | 8,597  |       |  |       | >6.0  | % |   |       | 13,151 |  |  |      | 9.18  | %
|Tier I Capital to Average Assets                                 |                         |   |                  |        |                        |  |        |      |       |   |        |        |       |  |       |       |   |   |       |        |  |  |      |      
|                                                                 | Community Financial     |   | $                | 6,538  |                        |  |        | >4.0 | %     |   | $      | N/A    |       |  |       | N/A   |   |   | $     | 14,350 |  |  |      | 8.78  | %
|                                                                 | Gwinnett Community Bank |   |                  | 6,538  |                        |  |        | >4.0 | %     |   |        | 8,173  |       |  |       | >5.0  | % |   |       | 13,151 |  |  |      | 8.05  | %
|As of December 31, 2001:                                         |                         |   |                  |        |                        |  |        |      |       |   |        |        |       |  |       |       |   |   |       |        |  |  |      |      
|Total Capital to Risk Weighted
Assets (Gwinnett Community Bank)  |                         | $ | 8,853            |        |                        |  | >8.0   | %    |       | $ | 11,067 |        |       |  | >10.0 | %     |   | $ | 9,381 |        |  |  | 8.50 | %    
|Tier I Capital to Risk Weighted
Assets (Gwinnett Community Bank) |                         | $ | 4,427            |        |                        |  | >4.0   | %    |       | $ | 6,640  |        |       |  | >6.0  | %     |   | $ | 8,249 |        |  |  | 7.50 | %    
|Tier I Capital to Average Assets
(Gwinnett Community Bank)       |                         | $ | 4,800            |        |                        |  | >4.0   | %    |       | $ | 6,000  |        |       |  | >5.0  | %     |   | $ | 8,249 |        |  |  | 6.90 | %    

In addition to the federal regulatory capital requirements applicable to
Gwinnett Community Bank, and another condition to its approval of Gwinnett
Community Banks Articles of Incorporation, the DBF required Gwinnett Community
Banks Board of Directors to commit to maintain Gwinnett Community Banks Tier
1 Leverage Ratio at not less than 8% during Gwinnett Community Banks first
three years of operation commencing upon the effective date of the Permit to
begin Business (the Permit) issued by the DBF. The DBF issued Gwinnett
Community Banks Permit effective October 18, 1999. Gwinnett Community Bank
maintained its Tier 1 Leverage Ratio at or above 8% until September 30, 2001;
however, at December 31, 2001, its Tier 1 Leverage Ratio was 6.9% and at March
31, 2002, its Tier 1 Leverage Ratio was 6.53%.

On June 28, 2002, we borrowed $2.5 million in order to return the Tier 1
Leverage Ratio of Gwinnett Community Bank to the 8% level required by the DBF
until October 18, 2002. We contributed $2.2 million of the loan proceeds to
Gwinnett Community Bank to bring Gwinnett Community Banks Tier 1 Leverage
Ratio up to the 8% required by the DBF.

13



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##### Table of Contents



We retained $300,000 of the loan
proceeds for general corporate purposes, which may include additional
contributions to Gwinnett Community Banks capital, as needed, to maintain
compliance with the DBFs Tier 1 Leverage Ratio requirement. As of June 30,
2002, Gwinnett Community Banks Tier 1 Leverage Ratio was 8.09%, and therefore
complied with the DBFs 8% requirement.

United Community Bank, Blairsville,
Georgia, a third party not affiliated
with us or Gwinnett Community Bank, granted us the $2.5 million loan. The loan
was a revolving line of credit for which we pledged 100% of the outstanding
shares of Gwinnett Community Bank as collateral. The rate of interest for the
loan was prime minus 50 basis points, which was 4.25% as of May 20, 2002.
Repayment terms include interest-only payments for the first two years of the
loan, and level annual principal payments of $250,000 plus accrued interest for
10 years thereafter. The loan had no prepayment penalty.

In connection with the Federal Reserve Bank of Atlantas approval of our
request to incur the $2.5 million debt, we committed that: (i) our Board of
Directors would purchase at least $1.0 million of our planned public offering
for sale, at $15 per share, of up to 666,667 shares of our $5 par value common
stock; (ii) if sufficient funds were raised in the offering, we would repay the
$2.5 million debt within 30 days of the expiration of the offering; (iii) if
sufficient funds were not raised in the offering to repay the debt in full, and
if Gwinnett Community Bank was unable to pay dividends sufficient to support
our service of the debt, our Board of Directors would personally service the
debt; and (iv) until Gwinnett Community Bank has operated for five years, i.e.,
until October 2004, we will not pay dividends to our shareholders without the
prior approval of the Federal Reserve Bank of Atlanta.

On December 12, 2002, the stock offering was closed. We raised $5.0
million in our stock issue and repaid the debt totaling $2.5 million to United
Community Bank. We contributed an additional $1.0 million to the capital of
Gwinnett Community Bank to support additional future asset growth. The
remaining $1.5 million has been retained by us for future needs, including
future additional contributions to the capital of Gwinnett Community Bank. We
notified the Federal Reserve Bank of Atlanta of the retirement of the debt and
were released from all conditions that were imposed in connection with the
approval to incur debt.

Interstate Banking and Branching Restrictions

Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the Riegle-Neal Act), effective September 29, 1995, an
adequately capitalized and adequately managed bank holding company may acquire
a bank across state lines, without regard to whether such acquisition is
permissible under state law. A bank holding company is considered to be
adequately capitalized if it meets all applicable federal regulatory capital
standards.

While the Riegle-Neal Act precludes a state from entirely insulating its
banks from acquisition by an out-of-state holding company, a state may still
provide that a bank may not be acquired by an out-of-state company unless the
bank has been in existence for a specified number of years, not to exceed five
years. Additionally, the Federal Reserve may not approve an interstate
acquisition which would result in the acquirers controlling more than 10% of
the total amount of deposits of insured depository institutions in the United
States with 30% or more of the deposits in the home state of the target bank.
A state may waive the 30% limit based on criteria that does not discriminate
against out-of-state institutions. The limitations do not apply to the initial
entry into a state by a bank holding company unless the state has a deposit
concentration cap that applies on a nondiscriminatory basis to in-state or
out-of-state bank holding companies making an initial acquisition.

The Riegle-Neal Act also provides that, beginning on June 1, 1997, banks
with different home states may merge, unless a particular state opts out of the
statute. Consistent with the Riegle-Neal Act, Georgia adopted legislation in
1996 which has permitted interstate bank mergers since June 1, 1997.

In addition, beginning June 1, 1997, the Riegle-Neal Act has permitted
national and state banks to establish de novo branches in another state if
there is a law in that state which applies equally to all banks and expressly
permits all out-of-state banks to establish de novo branches. However, in
1996, Georgia adopted legislation which opts out of this provision. The
Georgia legislation provides that, with the prior approval of the DBF, after
July 1, 1996, a bank may establish three new or additional de novo branch banks
anywhere in Georgia and, beginning July 1, 1998, a bank may establish new or
additional branch banks anywhere in the state with prior regulatory approval.

14



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##### Table of Contents



Restrictions on Transactions with Affiliates

We are subject to the provisions of Section 23A of the Federal Reserve
Act. Section 23A places limits on the amount of:



| |  |  | loans or extensions of credit to affiliates;                                                                     
| | - |  | -----------------------------------------------------------------------------------------------------------------
|
| |  |  | investment in affiliates;                                                                                        
|
| |  |  | the purchase of assets from affiliates, except for real and
personal property exempted by the Federal Reserve;   
|
| |  |  | loans or extensions of credit to third parties collateralized by the securities or obligations of affiliates; and
|
| |  |  | any guarantee, acceptance or letter of credit issued on behalf of an affiliate.                                  

The total amount of the above transactions is limited in amount, as to any
one affiliate, to 10% of a banks capital and surplus and, as to all affiliates
combined, to 20% of a banks capital and surplus. In addition to the
limitation on the amount of these transactions, each of the above transactions
must also meet specified collateral requirements. We must also comply with
other provisions designed to avoid the taking of low-quality assets.

We are also subject to the provisions of Section 23B of the Federal
Reserve Act which, among other things, prohibit an institution from engaging in
the above transactions with affiliates unless the transactions are on terms
substantially the same, or at least as favorable to the institution or its
subsidiaries, as those prevailing at the time for comparable transactions with
nonaffiliated companies.

On October 21, 2002, the Federal Reserve Board approved a final Regulation
W that implements Sections 23A and 23B and that is effective on April 1, 2003.

The Section 23A and Section 23B restrictions may limit our ability to
obtain funds from Gwinnett Community Bank for our cash needs, including funds
for the payment of dividends, interest and operating expenses. Further,
federal law prohibits a bank holding company and its subsidiaries from engaging
in certain tie-in arrangements in connection with any extension of credit,
lease or sale of property, or the furnishing of services.

Gwinnett Community Bank is also subject to restrictions on extensions of
credit to its executive officers, directors, principal shareholders and their
related interests. These extensions of credit (1) must be made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with third parties, and (2)
must not involve more than the normal risk of repayment or present other
unfavorable features.

Privacy

Financial institutions are required by federal law to disclose their
policies for collecting and protecting certain customer information. Customers
generally may prevent financial institutions from sharing nonpublic personal
financial information with nonaffiliated third parties except under narrow
circumstances, such as the processing of transactions requested by the
consumer. Additionally, financial institutions generally may not disclose
consumer account numbers to any nonaffiliated third party for use in
telemarketing, direct mail marketing or other marketing to consumers.

Anti-Terrorism Legislation

In the wake of the tragic events of September 11th, on October 26, 2001,
the President signed the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT)
Act of 2001. Under the USA PATRIOT Act, financial institutions are subject to
prohibitions against specified financial transactions and account relationships
as well as enhanced due diligence and know your customer standards in their
dealings with foreign financial institutions and foreign customers. For
example, the enhanced due diligence policies, procedures, and controls
generally require financial institutions to take reasonable steps:



| |  |  | to conduct enhanced scrutiny of account relationships to
guard against money laundering and report any suspicious
transaction;                                                                             
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | to ascertain the identity of the nominal and beneficial
owners of, and the source of funds deposited into, each account as
needed to guard against money laundering and report any suspicious
transactions;
|
| |  |  | to ascertain for any foreign bank, the shares of which
are not publicly traded, the identity of the owners of the foreign
bank, and the nature and extent of the ownership interest of each
such owner; and

15



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##### Table of Contents





| |  |  | to ascertain whether any foreign bank provides
correspondent accounts to other foreign banks and, if so, the
identity of those foreign banks and related due diligence
information.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Under the USA PATRIOT Act, financial institutions have 180 days from
enactment (or until April 24, 2002) to establish anti-money laundering
programs. The USA PATRIOT Act sets forth minimum standards for these programs,
including:



| |  |  | the development of internal policies, procedures, and controls;
| | - |  | ---------------------------------------------------------------
|
| |  |  | the designation of a compliance officer;                       
|
| |  |  | an ongoing employee training program; and                      
|
| |  |  | an independent audit function to test the programs.            

Pursuant to the mandate of the USA PATRIOT Act, the Secretary of the
Treasury issued regulations effective April 24, 2002 applicable to financial
institutions. Because all federally insured depository institutions are
required to have anti-money laundering programs, the regulations provide that a
financial institution which is subject to regulation by a federal functional
regulator is in compliance with the regulations if it complies with the rules
of its primary federal regulator governing the establishment and maintenance of
anti-money laundering programs.

Under the authority of the USA PATRIOT Act, the Secretary of the Treasury
adopted rules on September 26, 2002 increasing the cooperation and information
sharing between financial institutions, regulators and law enforcement
authorities regarding individuals, entities and organizations engaged in, or
reasonably suspected based on credible evidence of engaging in, terrorist acts
or money laundering activities. Under the new rules, a financial institution
is required to:



| |  |  | expeditiously search its records to determine whether it
maintains or has maintained accounts, or engaged in transactions
with individuals or entities, listed in a request submitted by the
Financial Crimes Enforcement Network (FinCEN);          
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | notify FinCEN if an account or transaction is identified;                                                                                                                                                                                              
|
| |  |  | designate a contact person to receive information requests;                                                                                                                                                                                            
|
| |  |  | limit use of information provided by FinCEN to: (1)
reporting to FinCEN, (2) determining whether to establish or
maintain an account or engage in a transaction and (3) assisting
the financial institution in complying with the Bank Secrecy Act;
and
|
| |  |  | maintain adequate procedures to protect the security and
confidentiality of FinCEN requests.                                                                                                                                                           

Under the new rules, a financial institution may also share information
regarding individuals, entities, organizations and countries for purposes of
identifying and, where appropriate, reporting activities that it suspects may
involve possible terrorist activity or money laundering. Such
information-sharing is protected under a safe harbor if the financial
institution:



| |  |  | notifies FinCEN of its intention to share information,
even when sharing with an affiliated financial institution;                                                                                                                                             
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | takes reasonable steps to verify that, prior to sharing,
the financial institution or association of financial institutions
with which it intends to share information has submitted a notice
to FinCEN;                                                       
|
| |  |  | limits the use of shared information to identifying and
reporting on money laundering or terrorist activities, determining
whether to establish or maintain an account or engage in a
transaction, or assisting it in complying with the Bank Security
Act; and
|
| |  |  | maintains adequate procedures to protect the security and
confidentiality of the information.                                                                                                                                                                  

Any financial institution complying with these rules will not be deemed to
have violated the privacy requirements discussed above.

16



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The Secretary of the Treasury also adopted a new rule on September 26,
2002 intended to prevent money laundering and terrorist financing through
correspondent accounts maintained by U.S. financial institutions on behalf of
foreign banks. Under the new rule, financial institutions:



| |  |  | are prohibited from providing correspondent accounts to
foreign shell banks;                                                                                                                                                                                 
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | are required to obtain a certification from foreign banks
for which they maintain a correspondent account stating the
foreign bank is not a shell bank and that it will not permit a
foreign shell bank to have access to the U.S. account;                  
|
| |  |  | must maintain records identifying the owner of the
foreign bank for which they may maintain a correspondent account
and its agent in the Unites States designated to accept services
of legal process;                                                       
|
| |  |  | must terminate correspondent accounts of foreign banks
that fail to comply with or fail to contest a lawful request of
the Secretary of the Treasury or the Attorney General of the
United States, after being notified by the Secretary or Attorney
General.

The new rule applies to correspondent accounts established after October
28, 2002.

Proposed Legislation and Regulatory Action

New regulations and statutes are regularly proposed that contain
wide-ranging proposals for altering the structures, regulations and competitive
relationships of the nations financial institutions operating in the United
States. We cannot predict whether or in what form any proposed regulation or
statute will be adopted or the extent to which our business may be affected by
any new regulation or statute.

Effect of Governmental Monetary Polices

Our earnings are affected by domestic economic conditions and the monetary
and fiscal policies of the United States government and its agencies. The
Federal Reserve Banks monetary policies have had, and are likely to continue
to have, an important impact on the operating results of commercial banks
through its power to implement national monetary policy in order, among other
things, to curb inflation or combat a recession. The monetary policies of the
Federal Reserve affect the levels of bank loans, investments and deposits
through its control over the issuance of United States government securities,
its regulation of the discount rate applicable to member banks and its
influence over reserve
requirements to which member banks are subject. We cannot predict the
nature or impact of future changes in monetary and fiscal policies.

Item 2. Description of Property.

(a)  Properties.

Our executive offices and our banking office are located in approximately
25,957 square feet of office space owned by Gwinnett Community Bank and located
at 2775 Buford Highway in Duluth, Georgia. Management believes the current
facility is adequate for our present requirements.

The net book values of the building and equipment as of December 31, 2002,
were $3.7 million and $650,000, respectively.

(b)  Investment Policies.

See Item 1. Description of Business above for a general description of
our and Gwinnett Community Banks investment policies and any percentage of
assets limitations regarding certain investments established by regulation or
our or Gwinnett Community Banks Board of Directors, including policies
relating to investments in real estate, real estate mortgages and securities.
All of Gwinnett Community Banks investment policies are reviewed and approved
by its Board of Director, and such policies, subject to regulatory restrictions
(if any), can be changed without a vote of stockholders. Gwinnett Community
Banks investments are primarily acquired to provide income, liquidity,
investment diversity and, to a lesser extent, possible capital gain.

17



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##### Table of Contents



(c)  Description of Real Estate and Operating Data.

Not Applicable.

Item 3. Legal Proceedings.

While we are from time to time party to various legal proceedings arising
from the ordinary course of business, management believes that there are no
proceedings pending, or to our knowledge threatened, in which an adverse
decision would have a material adverse effect on our financial condition or
results of operation.

Item 4. Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 2002.




PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

We had approximately 607 shareholders of record as of December 31, 2002.
At December 31, 2002, there were 1,200,894 shares outstanding. Our ability to
pay dividends to stockholders is primarily dependent upon the dividends we
receive from Gwinnett Community Bank and to a lesser extent the amount of cash
on hand. Gwinnett Community Bank may not declare or pay a cash dividend on
any of its stock if the effect thereof would cause its regulatory capital to
be reduced below the regulatory capital requirements. We may declare and pay
cash dividends in 2003, but there can be no assurance that we will do so.

18



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Item 6. Managements
Discussion and Analysis of Plan of Operation.




MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

The following discussion focuses on significant changes in the consolidated
financial condition and results of operations of Community Financial and its
subsidiary, Gwinnett Community Bank, collectively during the three years ended
December 31, 2002. The discussion and analysis is intended to supplement and
highlight, and should be read in conjunction with, information contained in the
accompanying consolidated financial statements and the summary financial
information presented elsewhere in this Prospectus.

Critical Accounting Policies

The accounting and financial reporting policies of Community Financial conform
to accounting principles generally accepted in the United States of America and
to general practices within the banking industry. Following is a description
of the accounting policies applied by Community Financial which are deemed
critical. In determining which accounting policies are critical in nature,
Community Financial has identified the policies that require significant
judgment or involve complex estimates. The application of these policies has a
significant impact on Community Financials financial statements. Financial
results could differ significantly if different judgments or estimates are
applied.

Allowance for Loan Losses

The allowance for loan losses is an estimate of the losses that may be
sustained in our loan portfolio. The allowance is based on two basic
principles of accounting: (1) Statement of Financial Accounting Standards
(SFAS) No. 5 Accounting for Contingencies, which requires that losses be
accrued when they are probable of occurring and estimable, and (2) SFAS No.
114, Accounting by Creditors for Impairment of a Loan, which requires that
losses be accrued based on the differences between the value of collateral,
present value of future cash flows or values that are observable in the
secondary market and the loan balance. The use of these values is inherently
subjective and our actual losses could be greater or less than the estimates.

Our allowance for loan losses has two basic components: (1) specific loss
estimates for individually classified and impaired loans, and (2) general loss
estimates on loans for which no impairment has been identified and large groups
of smaller balance homogeneous loans. Specific loss estimates on individual
loans include subjective evaluations related to secondary sources of repayment
for the loan which are principally collateral liquidation. The general loss
allocations use historical loss ratio experience which may not be indicative of
the actual losses present in the loan portfolio at a given point in time.

While the basic methodology of our loan loss allowance estimation process has
not changed, we continuously re-evaluate the use of historical loss factors,
national and local economic trends, credit concentrations and other relevant
factors in determining the adequacy of the allowance for loan loss.

This estimation process associated with the allowance for loan losses can have
significant effects in the estimated loan loss expense of a given period.
Generally, the allowance for loan losses increases as the outstanding balance
of loans increase or the level of classified or impaired loans increases.
Loans or portions of loans that are deemed uncollectible are charged against
and reduce the allowance.

Because Community Financial has a relatively short operating history,
historical trends specific to Community Financial do not provide sufficient
information to judge the adequacy of the allowance for loan losses. Therefore,
management considers industry trends, peer comparisons and regulatory position
in addition to historical experience in its evaluation.

19



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Deferred Income Tax Valuation Allowance

Accounting principles for income taxes require management to evaluate its
ability to realize the future benefits of deferred tax assets. When it is more
likely than not that some portion or all of the deferred tax asset will not be
realized, accounting principles require that a valuation allowance be imposed
against the deferred tax assets.

Future income tax benefits associated with operating loss carryforward amounts
are required to be recognized under the accounting principles. When management
assesses the likelihood of its ability to realize deferred tax assets,
projected future taxable income can be considered under the accounting
principles. Additionally, deferred tax liability reversals and tax planning
strategies can be considered.

Projecting future taxable income involves many assumptions about asset growth,
interest rate margins, and other expense and revenue estimations.
Correspondingly, utilization of projected future taxable income amounts in
determining the likelihood of managements ability to realize deferred tax
assets introduces significant subjectivity to the measurement of these assets.

Management maintained an allowance against all deferred tax assets including
those associated with operating loss carryforwards until consistent and
sustainable monthly taxable earnings were established over a period of
approximately a year. The valuation allowance for deferred income tax assets
was reversed in 2002 when it became more likely than not that future taxable
income would be sufficient to realize the deferred tax benefits.

Because the imposition or reversal of an allowance for deferred income taxes
directly impacts the recorded income tax expense for a given period, operating
results are subject to significant changes upon movement in the allowance for
deferred income tax assets.

Forward-Looking Statements

This discussion contains forward-looking statements that involve risks and
uncertainties. Although Community Financial believes that the assumptions
underlying the forward-looking statements contained in the discussion are
reasonable, any of the assumptions could be inaccurate, and therefore, no
assurance can be made that any of the forward-looking statements included in
this discussion will be accurate. Factors that could cause actual results to
differ from results discussed in forward-looking statements include, but are
not limited to: economic conditions (both generally and in the markets where
Community Financial operates); competition from other providers of financial
services offered by Community Financial; government regulation and legislation;
changes in interest rates; material unforeseen changes in the financial
stability and liquidity of Community Financials credit customers; all of which
are difficult to predict and which may be beyond the control of Community
Financial. Community Financial undertakes no obligation to revise
forward-looking statements to reflect events or changes after the date of this
discussion or to reflect the occurrence of unanticipated events.

General

Gwinnett Community Bank was organized in January of 1999 and opened for
business on October 18, 1999. Financial statements for 1999 include
organizational expenses incurred until Gwinnett Community Bank opened to the
public and normal start-up banking operations from October 18, 1999 until
December 31, 1999.

Beginning August 12, 2002, Community Financial offered for sale at $15 per
share up to 666,667 shares of its $5 par value common stock. The offering
expired on December 31, 2002, resulting in the sale of 333,334 shares and
$4,877,458 in proceeds, net of certain issuance costs of $122,552. The
proceeds of the offering were first used to repay borrowings under a line of
credit facility and $1,400,000 of the remaining proceeds were contributed to
Gwinnett Community Bank to provide necessary capital for future growth.

20



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Community Financial is located in Duluth, Gwinnett County, Georgia, which
according to the U.S. Census Bureau was the 17th fastest growing county by
population in the United States during the period from April 1, 2000 to July 1,
2001. Seasoned management with long-standing relationships in the area,
coupled with a strong constant economic growth pattern, has allowed Community
Financial rapid growth opportunities.

These growth opportunities have resulted in rapid historical asset growth by
Community Financial:

|                                     |  |                   |             |                   |  |                   |             |   |  |  |            |  
|------------------------------------ |  | ----------------- | ----------- | ----------------- |  | ----------------- | ----------- | - |  |  | ---------- | -
|                                     |  | December 31, 2002 |             | December 31, 2001 |  | December 31, 2000
|                                     |  |                   |             |                   |  |                  
|Assets                               |  | $                 | 169,055,418 |                   |  | $                 | 123,840,266 |   |  |  | 63,455,157 |  
|Annual Growth Rate (prior 12 months) |  |                   | 36.6        | %                 |  |                   | 95.2        | % |  |  | 274.3      | %

Prompted by the rapid growth and the prospects for continued growth, as well as
flexibilities afforded a bank holding company that are not available to a bank,
shareholders of Gwinnett Community Bank approved the formation of a one-bank
holding company and a plan to exchange all Gwinnett Community Bank stock shares
for shares of the holding company in March 2002. Subsequent to the transaction
all of the shares of Gwinnett Community Bank were owned by the holding company,
Community Financial.

Community Financials most recent safety and soundness examination was
performed by the DBF as of June 2002. All recommendations by the regulatory
authority that, in managements opinion, had material effects on Community
Financials liquidity, capital resources or operations were immediately
implemented.

The following discussion is intended to provide insight into the financial
condition and results of operations of Community Financial and should be read
in conjunction with the consolidated financial statements and accompanying
notes.

Statements of Earnings Review

Net earnings were $1,222,724 in 2002, compared to $621,733 in 2001. Diluted net
earnings per share were $1.25 for 2002, compared to $.72 per share reported in
2001. Return on average assets and return on average stockholders equity for
2002 was .84% and 12.17%, respectively, compared with .65% and 7.82%,
respectively, for 2001. Community Financial reported a net loss of $517,663
representing a net loss per share of $.60 in 2000.

Net interest income increased by $2.05 million or 58% in 2002 driven by a
combination of volume increases and rate decreases as Community Financial
completed its third full year of operations. Net interest income at December
31, 2002, was $5.57 million compared to $3.52 million in 2001. Net yield (tax
equivalent) on interest earning assets (4.10% in 2002 and 3.94% in 2001)
increased by 15 basis points in 2002 from 2001. Net interest income increased
by $1.96 million in 2001 over 2000, driven by volume increases. Net yield on
interest earning assets (3.94% in 2001 and 4.32% in 2000) decreased by 38 basis
points in 2001 over 2000, a direct result of interest rate cuts by the Federal
Reserve in 2001.

Community Financials earnings depend to a large degree on net interest income,
which is the difference between the interest income received from its
investments (such as loans, investment securities, federal funds sold, etc.)
and the interest expense which is paid on deposits and other liabilities.

21



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The banking industry uses two key ratios to measure relative profitability of
net interest income. The net interest rate spread measures the difference
between the average yield on interest earning assets and the
average rate paid on interest bearing liabilities. The interest rate spread
eliminates the impact of non-interest bearing deposits and gives a direct
perspective on the effect of market interest rate movements. The net interest
margin is defined as net interest income as a percent of average total interest
earning assets and takes into account the positive impact of investing
noninterest-bearing deposits.

The fully tax equivalent net interest spread was 3.69% in 2002 and 3.33% in
2001, while the net interest margin was 4.10% in 2002 and 3.94% in 2001.

The following table shows, for the past two years, the relationship between
interest income and interest expense and the average balances of interest
earning assets and interest bearing liabilities.

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Table 1
Average Balance Sheets and Net Interest Analysis(in thousands)

|                                                                        |                                            |   |                                     |                                            |   |                                  |         |          |  |            |       |         |   |          |        |            |  |        |        |       |  |       |       |      |   |      |      |  
|----------------------------------------------------------------------- | ------------------------------------------ | - | ----------------------------------- | ------------------------------------------ | - | -------------------------------- | ------- | -------- |  | ---------- | ----- | ------- | - | -------- | ------ | ---------- |  | ------ | ------ | ----- |  | ----- | ----- | ---- | - | ---- | ---- | -
|                                                                        |                                            |   |                                     |                                            |   | For the Years Ended December 31,
|                                                                        |                                            |   |                                     |                                            |   |                                 
|                                                                        |                                            |   |                                     |                                            |   | 2002                             |         | 2001    
|                                                                        |                                            |   |                                     |                                            |   |                                  |         |         
|                                                                        |                                            |   |                                     |                                            |   | Average                          |         |          |  |            |       |         |   |          |        | Average    |  |        |        |       |  |       |       |     
|                                                                        |                                            |   |                                     |                                            |   | Balance                          |         | Interest |  | Yield/Rate |       | Balance |   | Interest |        | Yield/Rate
|                                                                        |                                            |   |                                     |                                            |   |                                  |         |          |  |            |       |         |   |          |        |           
|Assets:                                                                 |                                            |   |                                     |                                            |   |                                  |         |          |  |            |       |         |   |          |        |            |  |        |        |       |  |       |       |     
|Interest earnings assets:                                               |                                            |   |                                     |                                            |   |                                  |         |          |  |            |       |         |   |          |        |            |  |        |        |       |  |       |       |     
|                                                                        | Loans (including loan fees)                |   | $                                   | 111,206                                    |   |                                  |         | 8,682    |  |            |       | 7.81    | % |          |        | 62,484     |  |        |        | 5,845 |  |       |       | 9.35 | %
|                                                                        | Investment securities:                     |   |                                     |                                            |   |                                  |         |          |  |            |       |         |   |          |        |            |  |        |        |       |  |       |       |      |  
|                                                                        |                                            |   |                                     | Taxable                                    |   |                                  | 16,238  |          |  |            | 975   |         |   |          | 6.00   | %          |  |        | 19,128 |       |  |       | 1,388 |      |   |      | 7.26 | %
|                                                                        |                                            |   |                                     | Tax-exempt                                 |   |                                  | 1,021   |          |  |            | 71    |         |   |          | 6.95   | %          |  |        |       |       |  |       |      |      |   |      |     |  
|                                                                        | Interest bearing deposits with other banks |   |                                     | 40                                         |   |                                  |         | 3        |  |            |       | 7.50    | % |          |        | 864        |  |        |        | 56    |  |       |       | 6.48 | %
|                                                                        | Federal funds sold                         |   |                                     | 7,697                                      |   |                                  |         | 120      |  |            |       | 1.56    | % |          |        | 6,906      |  |        |        | 271   |  |       |       | 3.92 | %
|                                                                        |                                            |   |                                     |                                            |   |                                  |         |          |  |            |       |         |   |          |        |            |  |        |        |       |  |       |       |     
|Total interest earning assets                                           |                                            |   | 136,202                             |                                            |   |                                  | 9,851   |          |  |            | 7.23  | %       |   |          | 89,382 |            |  |        | 7,560  |       |  |       | 8.46  | %   
|                                                                        |                                            |   |                                     |                                            |   |                                  |         |          |  |            |       |         |   |          |        |            |  |        |        |       |  |       |       |     
|Other non-interest earnings assets                                      |                                            |   | 8,589                               |                                            |   |                                  |         |          |  |            |       |         |   |          | 6,324  |            |  |        |        |       |  |       |       |     
|                                                                        |                                            |   |                                     |                                            |   |                                  |         |          |  |            |       |         |   |          |        |            |  |        |        |       |  |       |       |     
|                                                                        |                                            |   |                                     | Total assets                               |   | $                                | 144,791 |          |  |            |       |         |   |          |        |            |  |        | 95,706 |       |  |       |       |      |   |      |      |  
|                                                                        |                                            |   |                                     |                                            |   |                                  |         |          |  |            |       |         |   |          |        |            |  |        |        |       |  |       |       |     
|Liabilities and stockholders equity:                                   |                                            |   |                                     |                                            |   |                                  |         |          |  |            |       |         |   |          |        |            |  |        |        |       |  |       |       |     
|Interest-bearing liabilities:                                           |                                            |   |                                     |                                            |   |                                  |         |          |  |            |       |         |   |          |        |            |  |        |        |       |  |       |       |     
|                                                                        | Deposits:                                  |   |                                     |                                            |   |                                  |         |          |  |            |       |         |   |          |        |            |  |        |        |       |  |       |       |      |  
|                                                                        |                                            |   | Interest-bearing demand and savings |                                            | $ | 35,626                           |         |          |  | 715        |       |         |   | 2.01     | %      |            |  | 19,800 |        |       |  | 655   |       |      |   | 3.31 | %   
|                                                                        |                                            |   | Time                                |                                            |   | 84,447                           |         |          |  | 3,544      |       |         |   | 4.20     | %      |            |  | 58,762 |        |       |  | 3,381 |       |      |   | 5.75 | %   
|Federal funds purchased and securities
sold under repurchase agreements |                                            |   | 227                                 |                                            |   |                                  | 2       |          |  |            | .88   | %       |   |          | 190    |            |  |        | 5      |       |  |       | 2.63  | %   
|                                                                        |                                            |   |                                     |                                            |   |                                  |         |          |  |            |       |         |   |          |        |            |  |        |        |       |  |       |       |     
|                                                                        |                                            |   |                                     | Total interest-bearing liabilities         |   |                                  | 120,300 |          |  |            | 4,261 |         |   |          | 3.54   | %          |  |        | 78,752 |       |  |       | 4,041 |      |   |      | 5.13 | %
|                                                                        |                                            |   |                                     |                                            |   |                                  |         |          |  |            |       |         |   |          |        |            |  |        |        |       |  |       |       |     
|Non-interest bearing deposits                                           |                                            |   | 14,089                              |                                            |   |                                  |         |          |  |            |       |         |   |          | 8,776  |            |  |        |        |       |  |       |       |     
|Other liabilities                                                       |                                            |   | 358                                 |                                            |   |                                  |         |          |  |            |       |         |   |          | 232    |            |  |        |        |       |  |       |       |     
|Stockholders equity                                                    |                                            |   | 10,044                              |                                            |   |                                  |         |          |  |            |       |         |   |          | 7,946  |            |  |        |        |       |  |       |       |     
|                                                                        |                                            |   |                                     |                                            |   |                                  |         |          |  |            |       |         |   |          |        |            |  |        |        |       |  |       |       |     
|                                                                        |                                            |   |                                     | Total liabilities and
stockholders equity |   | $                                | 144,791 |          |  |            |       |         |   |          |        |            |  |        | 95,706 |       |  |       |       |      |   |      |      |  
|                                                                        |                                            |   |                                     |                                            |   |                                  |         |          |  |            |       |         |   |          |        |            |  |        |        |       |  |       |       |     
|Excess of interest-earning assets over
interest-bearing liabilities     |                                            | $ | 15,902                              |                                            |   |                                  |         |          |  |            |       |         |   |          | 10,630 |            |  |        |        |       |  |       |       |     
|                                                                        |                                            |   |                                     |                                            |   |                                  |         |          |  |            |       |         |   |          |        |            |  |        |        |       |  |       |       |     
|Ratio of interest-earning assets to
interest-bearing liabilities        |                                            |   | 113.22                              | %                                          |   |                                  |         |          |  |            |       |         |   |          | 113.50 | %          |  |        |        |       |  |       |       |     
|                                                                        |                                            |   |                                     |                                            |   |                                  |         |          |  |            |       |         |   |          |        |            |  |        |        |       |  |       |       |     
|Net interest income                                                     |                                            |   |                                     |                                            |   |                                  | 5,590   |          |  |            |       |         |   |          |        |            |  |        | 3,519  |       |  |       |       |     
|                                                                        |                                            |   |                                     |                                            |   |                                  |         |          |  |            |       |         |   |          |        |            |  |        |        |       |  |       |       |     
|Net interest spread                                                     |                                            |   |                                     |                                            |   |                                  |         |          |  |            | 3.69  | %       |   |          |        |            |  |        |        |       |  |       | 3.33  | %   
|                                                                        |                                            |   |                                     |                                            |   |                                  |         |          |  |            |       |         |   |          |        |            |  |        |        |       |  |       |       |     
|Net interest yield on interest earning
assets                           |                                            |   |                                     |                                            |   |                                  |         |          |  |            | 4.10  | %       |   |          |        |            |  |        |        |       |  |       | 3.94  | %   
|                                                                        |                                            |   |                                     |                                            |   |                                  |         |          |  |            |       |         |   |          |        |            |  |        |        |       |  |       |       |     

Non-accrual loans and the interest income that was recorded on these loans, if
any, are included in the yield calculation for loans in all periods reported.

In 2002, Community Financial obtained tax-exempt securities, which generated
tax-exempt income. As such, yields are presented on a tax equivalent basis.
In 2001 Community Financial had no tax-exempt income, therefore pre-tax yields
are the same as tax equivalent yields.

Interest income on loans for the years end December 31, 2002 and 2001 includes
loan fees in the amount of $677,660 and $529,800, respectively.

The following table shows the relative impact on net interest income of changes
in the average outstanding balances (volume) of interest earning assets and
interest bearing liabilities and the rates

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earned and paid by Community
Financial on such assets and liabilities on a tax equivalent basis. Variances
resulting from a combination of changes in rate and volume are allocated in
proportion to the absolute dollar amounts of the change in each category.

Table 2
Changes in Interest Income and Expense(in thousands)

|                                           |                                               |                                     |            |                                    |       |                                        |       |                |        |       |        |        |     |      |       |       |       |     |       |      |      |    |       |       |       |     |       | 
|------------------------------------------ | --------------------------------------------- | ----------------------------------- | ---------- | ---------------------------------- | ----- | -------------------------------------- | ----- | -------------- | ------ | ----- | ------ | ------ | --- | ---- | ----- | ----- | ----- | --- | ----- | ---- | ---- | -- | ----- | ----- | ----- | --- | ----- | 
|                                           |                                               |                                     |            |                                    |       | Increase (decrease) due to changes in:
|                                           |                                               |                                     |            |                                    |       |                                       
|                                           |                                               |                                     |            |                                    |       | 2002 over 2001                         |       | 2001 over 2000
|                                           |                                               |                                     |            |                                    |       |                                        |       |               
|                                           |                                               |                                     |            |                                    |       | Volume                                 |       | Rate           |        | Total |        | Volume |     | Rate |       | Total
|                                           |                                               |                                     |            |                                    |       |                                        |       |                |        |       |        |        |     |      |       |      
|Interest income on:                        |                                               |                                     |            |                                    |       |                                        |       |                |        |       |        |        |     |      |       |       |       |     |       |      |      |    |       |      
|                                           | Loans (including loan fees)                   |                                     | $          | 3,936                              |       |                                        |       | (1,099         | )      |       |        | 2,837  |     |      |       | 4,289 |       |     |       | (345 | )    |    |       | 3,944 |      
|                                           | Investment securities:                        |                                     |            |                                    |       |                                        |       |                |        |       |        |        |     |      |       |       |       |     |       |      |      |    |       |       |      
|                                           |                                               |                                     | Taxable    |                                    |       | (465                                   | )     |                |        | 52    |        |        |     | (413 | )     |       |       | 573 |       |      |      | 15 |       |       |       | 588 |      
|                                           |                                               |                                     | Tax-exempt |                                    |       | 71                                     |       |                |        |      |        |        |     | 71   |       |       |       |    |       |      |      |   |       |       |       |    |      
|                                           | Interest bearing deposits with other banks    |                                     |            | (61                                | )     |                                        |       | 8              |        |       |        | (53    | )   |      |       | 6     |       |     |       |     |      |    |       | 6     |      
|                                           | Federal funds sold                            |                                     |            | 35                                 |       |                                        |       | (186           | )      |       |        | (151   | )   |      |       | (3    | )     |     |       | (168 | )    |    |       | (171  | )    
|                                           |                                               |                                     |            |                                    |       |                                        |       |                |        |       |        |        |     |      |       |       |       |     |       |      |      |    |       |      
|                                           |                                               |                                     |            | Total interest earning assets      |       |                                        | 3,516 |                |        |       | (1,225 | )      |     |      | 2,291 |       |       |     | 4,865 |      |      |    | (498  | )     |       |     | 4,367 | 
|                                           |                                               |                                     |            |                                    |       |                                        |       |                |        |       |        |        |     |      |       |       |       |     |       |      |      |    |       |      
|Interest expense on:                       |                                               |                                     |            |                                    |       |                                        |       |                |        |       |        |        |     |      |       |       |       |     |       |      |      |    |       |      
|                                           | Deposits:                                     |                                     |            |                                    |       |                                        |       |                |        |       |        |        |     |      |       |       |       |     |       |      |      |    |       |       |      
|                                           |                                               | Interest-bearing demand and savings |            |                                    | 386   |                                        |       |                | (326   | )     |        |        | 60  |      |       |       | 409   |     |       |      | (157 | )  |       |       | 252   |    
|                                           |                                               | Time                                |            |                                    | 1,231 |                                        |       |                | (1,068 | )     |        |        | 163 |      |       |       | 2,348 |     |       |      | (198 | )  |       |       | 2,150 |    
|                                           | Federal funds purchased repurchase
agreements |                                     |            | 1                                  |       |                                        |       | (4             | )      |       |        | (3     | )   |      |       |      |       |     |       | 5    |      |    |       | 5     |      
|                                           |                                               |                                     |            |                                    |       |                                        |       |                |        |       |        |        |     |      |       |       |       |     |       |      |      |    |       |      
|                                           |                                               |                                     |            | Total interest-bearing liabilities |       |                                        | 1,618 |                |        |       | (1,398 | )      |     |      | 220   |       |       |     | 2,757 |      |      |    | (350  | )     |       |     | 2,407 | 
|                                           |                                               |                                     |            |                                    |       |                                        |       |                |        |       |        |        |     |      |       |       |       |     |       |      |      |    |       |      
|Increase (decrease) in net interest income |                                               | $                                   | 1,898      |                                    |       |                                        | 173   |                |        |       | 2,071  |        |     |      | 2,108 |       |       |     | (148  | )    |      |    | 1,960 |      
|                                           |                                               |                                     |            |                                    |       |                                        |       |                |        |       |        |        |     |      |       |       |       |     |       |      |      |    |       |      

Other operating income in 2002 of $537,435 increased from 2001 by $102,537 or
24%. The increase was due to the increase of $86,602 in service charges on
deposit accounts caused by an increased number of accounts and by a $26,985
increase in mortgage origination income as the decline in general interest
rates increased refinance and home purchase activity in Community Financials
markets.

Other expenses increased in 2002 to $3.6 million over the 2001 balance of $2.8
million. As Community Financial was in its third full year of operations in
2002, additional employees were hired and a new bank building was constructed
and occupied in July 2001 to accommodate the growth. All expense categories
experienced increases due to the growth.

For the year ended December 31, 2002, the effective tax rate was 36% as state
income tax more than offset the effects of tax-exempt income. Community
Financial had no income tax expense or benefit for the period ended December
31, 2001, as net operating losses were incurred and financial statement
deferred tax benefits remained unrecorded as their realization was heavily
dependent on future taxable income. In 2001, Community Financial reversed the
deferred tax valuation allowance of $407,800 because it became more likely than
not that future taxable income will be sufficient to realize the tax benefits
for deductible temporary differences including loss carry forwards. For more
information on the Community Financials income taxes, see note 6 to the
financial statements.

All other income and other expense categories increased from 2000 to 2001,
which reflect the constant growth pattern.

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Balance Sheet Review

During 2002, average total assets increased $49.1 million (51%) over 2001.
Average deposits increased $46.4 million (53%) in 2002 over 2001. Average loans
increased $48.7 million (78%) in 2002 over 2001. During 2001, average total
assets increased $56.9 million (147%) over 2000. Average deposits increased
$56.4 million (182%) in 2001 over 2000. Average loans increased $45.4 million
(265%) in 2001 over 2000.

Total assets at December 31, 2002, were $169 million, representing a $45.2
million (36.5%) increase from December 31, 2001. Total deposits increased
$39.3 million (34.4%) from 2001 to 2002 while total gross loans increased $31.5
million (32.5%) during 2002. Time deposits increased $23.2 million from 2001
to 2002 while all other deposit accounts increased $16.1 million in 2002. As
Community Financial continues to grow, loan demand has remained strong. Loan
increases were funded principally with increases in deposit accounts.

Total assets at December 31, 2001, were $123.8 million, representing a $60.3
million (95%) increase from December 31, 2000. Total deposits increased $58.6
million (106%) from 2000 to 2001 while total gross loans increased $64.3
million (197%) during 2001. Time deposits increased $37.9 million from 2000 to
2001 while all other deposit accounts increased $20.6 million in 2001.

Investments

The investment portfolio consists of debt securities and to a lesser extent
equity securities, which provide Community Financial with a source of liquidity
and a long-term, relatively stable source of income. Additionally, the
investment portfolio provides a balance to interest rate and credit risk in
other categories of the balance sheet while providing a vehicle for the
investment of available funds, furnishing liquidity, and supplying securities
to pledge as required collateral for certain deposits.

Table 3
Investment Portfolio
(in thousands)

The following table shows the carrying value of Community Financials
securities, by security type, as of December 31, 2002 and 2001:

|                                          |  |      |        |      |  |  |        | 
|----------------------------------------- |  | ---- | ------ | ---- |  |  | ------ | 
|                                          |  | 2002 |        | 2001
|                                          |  |      |        |     
|United States treasuries and agencies     |  | $    | 9,319  |      |  |  | 11,197 | 
|Mortgage-backed securities                |  |      | 6,603  |      |  |  | 5,256  | 
|Municipal securities                      |  |      | 3,036  |      |  |  |       | 
|Corporate securities                      |  |      | 1,543  |      |  |  | 505    | 
|Trust Preferred securities                |  |      | 500    |      |  |  | 500    | 
|                                          |  |      |        |      |  |  |        | 
|                                          |  | $    | 21,001 |      |  |  | 17,458 | 
|                                          |  |      |        |      |  |  |        | 
|Other investments The Bankers Bank stock |  | $    | 100    |      |  |  | 100    | 
|                                          |  |      |        |      |  |  |        | 

The following table presents the expected maturity of the total securities by
maturity date and average yields based on amortized cost at December 31, 2002.
The composition and maturity/repricing distribution of the securities portfolio
is subject to change depending on rate sensitivity, capital and liquidity
needs.

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At December 31, 2002, there were no investment securities of any issuer other
than the U.S. government or its agencies or corporations that were in excess of
10% of stockholders equity.

Table 4
Expected Maturity of Securities
(in thousands)

|                         |  |                |       |            |  |            |       |            |  |            |       |        |  |         |     |          |  |  |       |  |  |  |      |  
|------------------------ |  | -------------- | ----- | ---------- |  | ---------- | ----- | ---------- |  | ---------- | ----- | ------ |  | ------- | --- | -------- |  |  | ----- |  |  |  | ---- | -
|                         |  | United States  |       | Mortgage-  |  |            |       |            |  | Trust      |       |        |  |         |     | Weighted
|Maturities at            |  | Treasuries and |       | Backed     |  | Corporate  |       | Preferred  |  |            |       |        |  | Average
|December 31, 2002        |  | Agencies       |       | Securities |  | Securities |       | Securities |  | Municipals |       | Yields
|                         |  |                |       |            |  |            |       |            |  |            |       |       
|Within 1 year            |  | $              |      |            |  |            |      |            |  |            |      |        |  |         |    |          |  |  |      |  |  |  |     |  
|After 1 through 5 years  |  |                |      |            |  |            | 1,624 |            |  |            |      |        |  |         |    |          |  |  |      |  |  |  | 3.84 | %
|After 5 through 10 years |  |                | 8,068 |            |  |            |      |            |  |            | 1,507 |        |  |         |    |          |  |  | 626   |  |  |  | 5.39 | %
|After 10 years           |  |                | 1,114 |            |  |            | 4,871 |            |  |            |      |        |  |         | 500 |          |  |  | 2,405 |  |  |  | 5.90 | %
|                         |  |                |       |            |  |            |       |            |  |            |       |        |  |         |     |          |  |  |       |  |  |  |      |  
|                         |  | $              | 9,182 |            |  |            | 6,495 |            |  |            | 1,507 |        |  |         | 500 |          |  |  | 3,031 |  |  |  |      |  
|                         |  |                |       |            |  |            |       |            |  |            |       |        |  |         |     |          |  |  |       |  |  |  |      |  

Mortgage backed securities are included in the maturities categories in which
they are anticipated to be repaid based on scheduled maturities. Yields are
calculated on a tax equivalent yield basis.

Table 5
Loan Portfolio
(in thousands)

The following table presents loans by type at the end of each of the last two
years.

|            |            |                           |         |              |       |      |        |        |       | 
|----------- | ---------- | ------------------------- | ------- | ------------ | ----- | ---- | ------ | ------ | ----- | 
|            |            |                           |         | December 31,
|            |            |                           |         |             
|            |            |                           |         | 2002         |       | 2001
|            |            |                           |         |              |       |     
|Commercial  |            | $                         | 32,656  |              |       |      | 20,852 |       
|Real estate |            |                           | 84,001  |              |       |      | 68,244 |       
|Consumer    |            |                           | 11,796  |              |       |      | 7,852  |       
|            |            |                           |         |              |       |      |        |       
|            |            |                           | 128,453 |              |       |      | 96,948 |       
|Less:       |            |                           |         |              |       |      |        |       
|            |            | Unearned loan fees        |         |              | 251   |      |        |        | 185   | 
|            |            | Allowance for loan losses |         |              | 1,599 |      |        |        | 1,132 | 
|            |            |                           |         |              |       |      |        |       
|            | Loans, net |                           | $       | 126,603      |       |      |        | 95,631 |      
|            |            |                           |         |              |       |      |        |       

The following table sets forth the maturity distribution of all loans,
including the interest rate sensitivity as of December 31, 2002.

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Table 6
Loan Portfolio Maturity
(in thousands)

|              |  |            |        |             |  |          |        |       |  |  |        |  |  |  |         | 
|------------- |  | ---------- | ------ | ----------- |  | -------- | ------ | ----- |  |  | ------ |  |  |  | ------- | 
|Maturity      |  | Commercial |        | Real Estate |  | Consumer |        | Total
|              |  |            |        |             |  |          |        |      
|Within 1 year |  | $          | 10,849 |             |  |          | 31,467 |       |  |  | 3,686  |  |  |  | 46,002  | 
|1 to 5 years  |  |            | 16,481 |             |  |          | 14,445 |       |  |  | 4,535  |  |  |  | 35,461  | 
|After 5 years |  |            | 5,326  |             |  |          | 38,089 |       |  |  | 3,575  |  |  |  | 46,990  | 
|              |  |            |        |             |  |          |        |       |  |  |        |  |  |  |         | 
|Totals        |  | $          | 32,656 |             |  |          | 84,001 |       |  |  | 11,796 |  |  |  | 128,453 | 
|              |  |            |        |             |  |          |        |       |  |  |        |  |  |  |         | 

|             |               |   |          |        |          |  |        |        |  |  |         |        | 
|------------ | ------------- | - | -------- | ------ | -------- |  | ------ | ------ |  |  | ------- | ------ | 
|             |               |   | Fixed    |        | Variable |  |        |        | 
|             |               |   | Interest |        | Interest |  |        |        | 
|             |               |   | Rates    |        | Rates    |  | Total 
|             |               |   |          |        |          |  |       
|Commercial:  |               |   |          |        |          |  |        |        |  |  |         |       
|             | Within 1 year |   | $        | 5,270  |          |  |        | 5,579  |  |  |         | 10,849 | 
|             | 1 to 5 years  |   |          | 15,205 |          |  |        | 1,276  |  |  |         | 16,481 | 
|             | After 5 years |   |          | 3,550  |          |  |        | 1,776  |  |  |         | 5,326  | 
|             |               |   |          |        |          |  |        |        |  |  |         |       
|             |               |   | 24,025   |        |          |  | 8,631  |        |  |  | 32,656  |       
|             |               |   |          |        |          |  |        |        |  |  |         |       
|Real Estate: |               |   |          |        |          |  |        |        |  |  |         |       
|             | Within 1 year |   |          | 9,377  |          |  |        | 22,090 |  |  |         | 31,467 | 
|             | 1 to 5 years  |   |          | 13,876 |          |  |        | 569    |  |  |         | 14,445 | 
|             | After 5 years |   |          | 27,561 |          |  |        | 10,528 |  |  |         | 38,089 | 
|             |               |   |          |        |          |  |        |        |  |  |         |       
|             |               |   | 50,814   |        |          |  | 33,187 |        |  |  | 84,001  |       
|             |               |   |          |        |          |  |        |        |  |  |         |       
|Consumer:    |               |   |          |        |          |  |        |        |  |  |         |       
|             | Within 1 year |   |          | 3,686  |          |  |        |       |  |  |         | 3,686  | 
|             | 1 to 5 years  |   |          | 4,415  |          |  |        | 120    |  |  |         | 4,535  | 
|             | After 5 years |   |          | 181    |          |  |        | 3,394  |  |  |         | 3,575  | 
|             |               |   |          |        |          |  |        |        |  |  |         |       
|             |               |   | 8,282    |        |          |  | 3,514  |        |  |  | 11,796  |       
|             |               |   |          |        |          |  |        |        |  |  |         |       
|             |               | $ | 83,121   |        |          |  | 45,332 |        |  |  | 128,453 |       
|             |               |   |          |        |          |  |        |        |  |  |         |       

The provision for loan losses in 2002 was $613,000 compared to $792,000 in
2001. The provision for loan losses continues to reflect managements estimate
of potential loan losses inherent in the portfolio and the creation of an
allowance for loan losses adequate to absorb such losses. The allowance for
loan losses represented approximately 1.24% and 1.17% of total loans
outstanding at December 31, 2002 and 2001, respectively. Net charge-offs were
$146,000 and $149,000 in 2002 and 2001, respectively. There were no
charge-offs in 2000.

Because Community Financial does not have a long operating history, no
historical loan loss ratios have been established. In substitution for the
lack of historical loan loss ratios, Community Financial uses peer loss ratios
and peer allowance for loan losses to total loans ratios as a component in its
loan loss allowance adequacy test which is done monthly. Using these peer
statistics, provision for loan losses increases as the loan balances increase,
which is the primary reason for the increase in 2002, 2001 and 2000.
Additionally, the charge-off of one commercial loan for $143,000 in 2001 also
caused the provision for loans to increase. Additional considerations in the
adequacy test for the allowance for loan losses include industry and other
concentrations in the loan portfolio, current period delinquencies and specific
analysis for potential problem loans. As concentrations in the loan portfolio
and delinquencies rise, the provision for loan losses will also increase to
maintain a higher level of allowance for loan losses to reflect an increasing
inherent risk of loss in the loan portfolio. No future negative trends in

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non-performing loans are anticipated to affect the level of
the allowance. Management believes that the level of the allowance at December
31, 2002 and 2001 is appropriate based upon the loan portfolio and current
economic conditions. Since beginning business in 1999, Community Financial has
maintained a consistent methodology for assessing the adequacy of the allowance
for loan losses.

Community Financial has a dedicated internal loan review function that it
supplements with outsourced assistance. All loans of $100,000 or more and a
sample of other loans are reviewed. Additionally, past due, watch list, and
regulatory criticized loans are reviewed. Loans are reviewed annually and
placed in various loan grading categories which assist in developing lists of
potential problem loans. These loans are monitored to ensure early
identification of repayment problems so that adequate allowances can be made
through the provision for loan losses. The formal allowance for loss adequacy
test is performed at month end. Specific amounts of loss are estimated on
problem loans and historical loss percentages (using peer group loss ratios)
are applied to the balance of the portfolio using certain portfolio
stratifications. Additionally, the evaluation takes into consideration such
factors as changes in the nature and volume of the loan portfolio, current
economic conditions, regulatory examination results, and the existence of loan
concentrations.

Managements judgment in determining the adequacy of the allowance is based on
evaluations of the collectibility of loans. These evaluations take into
consideration such factors as changes in the nature and volume of the loan
portfolio, current economic conditions that may affect the borrowers ability
to pay, overall portfolio quality, and review of specific problem loans. The
results are compared to the recorded allowance for loan losses and material
differences are adjusted by increasing or decreasing the provision for loan
losses.

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, regulators, as an integral part of their examination
process, periodically review Community Financials allowance for loan losses.
Such regulators may require Community Financial to recognize additions to the
allowance based on their judgments of information available to them at the time
of their examination.

Because Community Financial does not have an established loan loss ratio that
can be related to the different types of loans in its portfolio, it does not
allocate the allowance for loan losses to various loan categories. The entire
allowance is available to absorb losses from any and all loans. Management
anticipates gross charge-offs for 2003 to approximate $150,000. Anticipated
charge-offs are an estimate based on historical experience and other judgmental
factors and may be more or less than those that ultimately occur.

The following table presents a summary of changes in the allowance for loan
losses for each of the past three years.

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Table 7
Allowance for Loan Losses(in thousands)

|                                                                                          |                                  |   |              |     |      |  |       |     |  |  |     |   | 
|----------------------------------------------------------------------------------------- | -------------------------------- | - | ------------ | --- | ---- |  | ----- | --- |  |  | --- | - | 
|                                                                                          |                                  |   | December 31, |     |      |  |      
|                                                                                          |                                  |   |              |     |      |  |      
|                                                                                          |                                  |   | 2002         |     | 2001 |  | 2000 
|                                                                                          |                                  |   |              |     |      |  |      
|Balance at beginning of year                                                              |                                  | $ | 1,132        |     |      |  | 489   |     |  |  | 57  |  
|Charge-offs:                                                                              |                                  |   |              |     |      |  |       |     |  |  |     |  
|                                                                                          | Commercial                       |   |              | 130 |      |  |       | 143 |  |  |     |  | 
|                                                                                          | Real estate                      |   |              |    |      |  |       |    |  |  |     |  | 
|                                                                                          | Installment loans to individuals |   |              | 19  |      |  |       | 8   |  |  |     |  | 
|                                                                                          |                                  |   |              |     |      |  |       |     |  |  |     |  
|                                                                                          |                                  |   | 149          |     |      |  | 151   |     |  |  |    |  
|                                                                                          |                                  |   |              |     |      |  |       |     |  |  |     |  
|Recoveries:                                                                               |                                  |   |              |     |      |  |       |     |  |  |     |  
|                                                                                          | Commercial                       |   |              |    |      |  |       |    |  |  |     |  | 
|                                                                                          | Real estate                      |   |              |    |      |  |       |    |  |  |     |  | 
|                                                                                          | Installment loans to individuals |   |              | 3   |      |  |       | 2   |  |  |     |  | 
|                                                                                          |                                  |   |              |     |      |  |       |     |  |  |     |  
|                                                                                          |                                  |   | 3            |     |      |  | 2     |     |  |  |    |  
|                                                                                          |                                  |   |              |     |      |  |       |     |  |  |     |  
|Net charge-offs                                                                           |                                  |   | (146         | )   |      |  | (149  | )   |  |  |    |  
|                                                                                          |                                  |   |              |     |      |  |       |     |  |  |     |  
|Additions charged to operations                                                           |                                  |   | 613          |     |      |  | 792   |     |  |  | 432 |  
|                                                                                          |                                  |   |              |     |      |  |       |     |  |  |     |  
|Balance at end of year                                                                    |                                  | $ | 1,599        |     |      |  | 1,132 |     |  |  | 489 |  
|                                                                                          |                                  |   |              |     |      |  |       |     |  |  |     |  
|Ratio of net charge-offs during the period
to average loans outstanding during the
period |                                  |   | .13          | %   |      |  | .24   | %   |  |  |    |  

As of December 31, 2002, non-performing assets were $102,000. There were no
non-performing assets at December 31, 2001.

A loan is placed on non-accrual status when, in managements judgment, the
collection of interest appears doubtful. As a result of managements ongoing
review of the loan portfolio, loans are classified as non-accrual generally
when they are past due in principal or interest payments for more than 90 days
or it is otherwise not reasonable to expect collection of principal and
interest under the original terms. Exceptions are allowed for 90-day past due
loans when such loans are well secured and in process of collection.
Generally, payments received on non-accrual loans are applied directly to
principal.

Deposits

Time deposits of $100,000 and greater totaled $44.3 million at December 31,
2002, compared with $34.3 million at year-end 2001. The following table sets
forth the scheduled maturities of time deposits of $100,000 and greater at
December 31, 2002.

Table 8
Time Deposits $100,000 and Greater
(in thousands)

|                          |       |   |        |        | 
|------------------------- | ----- | - | ------ | ------ | 
|Within 3 months           |       | $ | 9,713  |       
|After 3 through 6 months  |       |   | 6,371  |       
|After 6 through 12 months |       |   | 10,140 |       
|After 12 months           |       |   | 18,116 |       
|                          |       |   |        |       
|                          | Total |   | $      | 44,340 | 
|                          |       |   |        |       

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Included in these time deposits of $100,000 and greater are two brokered
deposits of $3,000,000 each that mature in 2004 and 2005. Management does not
intend to obtain additional brokered deposits in the future.

Liquidity

Community Financial must maintain, on a daily basis, sufficient funds to cover
the withdrawals from depositors accounts and to supply new borrowers with
funds. To meet these obligations, Community Financial keeps cash on hand,
maintains account balances with its correspondent banks, and purchases and
sells federal funds and other short-term investments. Asset and liability
maturities are monitored in an attempt to match these to meet liquidity needs.
It is the policy of Community Financial to monitor its liquidity to meet
regulatory requirements and their local funding requirements.

Community Financial maintains relationships with correspondent banks that can
provide funds to it on short notice, if needed. Presently, Community Financial
has arrangements with a commercial bank for short term unsecured advances up to
$4 million.

Cash and cash equivalents increased $10.6 million to a total of $14 million at
December 31, 2002, as cash flows provided by financing and operating activities
out-paced amounts used by investing activities. Cash inflows from operations
totaled $1.9 million in 2002, while inflows from financing activities totaled
$43.7 million, most of which were net deposit increases during 2002 of $39.2
million and $4.9 million related to the net proceeds from the issuance of
common stock.

Investing activities used $34.9 million of cash and cash equivalents,
principally composed of net advances of loans to customers of $31.6 million and
purchases of investment securities of $15.2 million during 2002, offset by
$11.9 million, net proceeds, from investment liquidations.

See the consolidated statements of cash flows in the financial statements for a
more complete analysis of cash flows.

Capital Resources

The following tables present Community Financials and Gwinnett Community
Banks regulatory capital position at December 31, 2002.

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Table 9
Capital Ratios

|                                                           |  |         |       |      |  |           |       |   |  |  |      |  
|---------------------------------------------------------- |  | ------- | ----- | ---- |  | --------- | ----- | - |  |  | ---- | -
|                                                           |  | 2002    |       | 2001
|                                                           |  |         |       |     
|                                                           |  | Consol. |       | Bank |  | Bank Only
|                                                           |  |         |       |      |  |          
|Tier 1 Capital                                             |  |         | 10.00 | %    |  |           | 9.18  | % |  |  | 7.50 | %
|Tier 1 Capital minimum requirement                         |  |         | 4.00  | %    |  |           | 4.00  | % |  |  | 4.00 | %
|                                                           |  |         |       |      |  |           |       |   |  |  |      |  
|Excess                                                     |  |         | 6.00  | %    |  |           | 5.18  | % |  |  | 3.50 | %
|                                                           |  |         |       |      |  |           |       |   |  |  |      |  
|Total Capital                                              |  |         | 11.11 | %    |  |           | 10.29 | % |  |  | 8.50 | %
|Total Capital minimum requirement                          |  |         | 8.00  | %    |  |           | 8.00  | % |  |  | 8.00 | %
|                                                           |  |         |       |      |  |           |       |   |  |  |      |  
|Excess                                                     |  |         | 3.11  | %    |  |           | 2.29  | % |  |  | .50  | %
|                                                           |  |         |       |      |  |           |       |   |  |  |      |  
|Tier 1 Capital to adjusted total assets
(Leverage Ratio) |  |         | 8.78  | %    |  |           | 8.05  | % |  |  | 6.90 | %
|Minimum leverage requirement                               |  |         | 4.00  | %    |  |           | 4.00  | % |  |  | 4.00 | %
|                                                           |  |         |       |      |  |           |       |   |  |  |      |  
|Excess                                                     |  |         | 4.78  | %    |  |           | 4.05  | % |  |  | 2.90 | %
|                                                           |  |         |       |      |  |           |       |   |  |  |      |  

As a condition of opening, Gwinnett Community Bank agreed with the DBF that it
would maintain a Tier 1 capital leverage ratio of 8% or higher until its third
anniversary, October 18, 2002. At December 31, 2001, Community Financials
Tier 1 capital leverage ratio was 6.9%. Community Financial notified the DBF
of managements plan to bring the ratio in line with this agreement. As noted
previously, the company contributed $1.4 million to Gwinnett Community Bank to
provide the necessary capital.

For a more complete discussion of the actual and required ratios of Community
Financial, see note 10 of the financial statements.

Average equity to average assets was 6.94% in 2002, 8.30% in 2001, and 20.00%
in 2000. No dividends have been declared or paid since inception. In 2003
management will evaluate the appropriateness of the payment of dividends.

Asset/Liability Management

It is our objective to manage assets and liabilities to provide a satisfactory,
consistent level of profitability within the framework of established cash,
loan, investment, borrowing and capital policies. Certain officers are charged
with the responsibility for monitoring policies and procedures that are
designed to ensure acceptable composition of the asset/liability mix. It is
the overall philosophy of management to support asset growth primarily through
growth of core deposits, which include deposits of all categories made by local
individuals, partnerships and corporations. The bank has a concentration of
certificates of deposit that contain a stated maturity date. Management
utilizes information reports to monitor the maturity, redemption and renewal of
its deposit accounts. In the event the bank is unable to raise new deposits or
retain maturing deposits other sources of funding may be utilized. The bank
can purchase deposits; known as brokered deposits or may borrow funds to cover
short-term liquidity needs on established lines of credit. The objective of
these policies is to control interest sensitive assets and liabilities so as to
minimize the impact of substantial movements in interest rates on earnings.

The asset/liability mix is monitored on a regular basis. A report reflecting
the interest sensitive assets and interest sensitive liabilities is prepared
and presented to the Board on a monthly basis. One method to measure a banks
interest rate exposure is through its repricing gap. The gap is calculated by
taking all
assets that reprice or mature within a given timeframe and subtracting all
liabilities that reprice or mature

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within that timeframe. The difference
between these two amounts is called the gap, the amount of either liabilities
or assets that will reprice without a corresponding asset or liability
repricing.

A negative gap (more liabilities repricing than assets) generally indicates
that the banks net interest income will decrease if interest rates rise and
will increase if interest rates fall. A positive gap generally indicates that
the banks net interest income will decrease if rates fall and will increase if
rates rise.

The following table summarizes the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 2002 that are expected
to mature, prepay or reprice in each of the future time periods shown. Except
as stated below, the amount of assets or liabilities that mature or reprice
during a particular period was determined in accordance with the contractual
terms of the asset or liability. Adjustable rate loans are included in the
period in which interest rates are next scheduled to adjust rather than in the
period in which they are due, and fixed rate loans and mortgage-backed
securities are included in the periods in which they are anticipated to be
repaid based on scheduled maturities. Community Financials savings accounts
and interest-bearing demand accounts (NOW and money market deposit accounts),
which are generally subject to immediate withdrawal, are included in the Three
Months or Less category, although historical experience has proven these
deposits to be more stable over the course of a year.

Table 10
Interest Rate Gap Sensitivity
(in thousands)

|                                           |                                            |                                                          |         |        |                          |  |           |        |        |  |         |        |        |  |        |        |       |  |         |         |        |  | 
|------------------------------------------ | ------------------------------------------ | -------------------------------------------------------- | ------- | ------ | ------------------------ |  | --------- | ------ | ------ |  | ------- | ------ | ------ |  | ------ | ------ | ----- |  | ------- | ------- | ------ |  | 
|                                           |                                            |                                                          |         |        | At December 31, 2002    
|                                           |                                            |                                                          |         |        | Maturing or Repricing in
|                                           |                                            |                                                          |         |        |                         
|                                           |                                            |                                                          |         |        | Three                    |  | Four      |        |        |  |         |        |        |  |        |        |       |  |        
|                                           |                                            |                                                          |         |        | Months or                |  | Months to |        | 1 to 5 |  | Over 5  |        |        |  |       
|                                           |                                            |                                                          |         |        | Less                     |  | 12 Months |        | Years  |  | Years   |        | Total 
|                                           |                                            |                                                          |         |        |                          |  |           |        |        |  |         |        |       
|Interest-earning assets:                   |                                            |                                                          |         |        |                          |  |           |        |        |  |         |        |        |  |        |        |       |  |         |        
|                                           | Interest-bearing deposits with other banks |                                                          | $       |       |                          |  |           |       |        |  |         |       |        |  |        |       |       |  |         |        |       
|                                           | Federal funds sold                         |                                                          |         | 10,748 |                          |  |           |       |        |  |         |       |        |  |        |       |       |  |         | 10,748  |       
|                                           | Investment securities                      |                                                          |         |       |                          |  |           |       |        |  |         | 1,636  |        |  |        | 19,365 |       |  |         | 21,001  |       
|                                           | Loans                                      |                                                          |         | 29,844 |                          |  |           | 21,161 |        |  |         | 42,110 |        |  |        | 35,338 |       |  |         | 128,453 |       
|                                           | Other investments                          |                                                          |         |       |                          |  |           |       |        |  |         |       |        |  |        | 100    |       |  |         | 100     |       
|                                           |                                            |                                                          |         |        |                          |  |           |        |        |  |         |        |        |  |        |        |       |  |         |        
|Total interest-bearing assets              |                                            |                                                          | 40,592  |        |                          |  | 21,161    |        |        |  | 43,746  |        |        |  | 54,803 |        |       |  | 160,302 |        
|                                           |                                            |                                                          |         |        |                          |  |           |        |        |  |         |        |        |  |        |        |       |  |         |        
|Interest-bearing liabilities:              |                                            |                                                          |         |        |                          |  |           |        |        |  |         |        |        |  |        |        |       |  |         |        
|                                           | Deposits:                                  |                                                          |         |        |                          |  |           |        |        |  |         |        |        |  |        |        |       |  |         |         |       
|                                           |                                            | Demand and savings                                       |         |        | 40,167                   |  |           |        |       |  |         |        |       |  |        |        |      |  |         |         | 40,167 | 
|                                           |                                            | Time deposits                                            |         |        | 23,298                   |  |           |        | 36,523 |  |         |        | 31,532 |  |        |        | 7,476 |  |         |         | 98,829 | 
|                                           |                                            | Federal funds purchased
and retail repurchase agreements |         |        | 660                      |  |           |        |       |  |         |        |       |  |        |        |      |  |         |         | 660    | 
|                                           |                                            |                                                          |         |        |                          |  |           |        |        |  |         |        |        |  |        |        |       |  |         |        
|Total interest-bearing
liabilities         |                                            | $                                                        | 64,125  |        |                          |  | 36,523    |        |        |  | 31,532  |        |        |  | 7,476  |        |       |  | 139,656 |        
|                                           |                                            |                                                          |         |        |                          |  |           |        |        |  |         |        |        |  |        |        |       |  |         |        
|Interest sensitive difference
per period   |                                            |                                                          | (23,533 | )      |                          |  | (15,362   | )      |        |  | 12,214  |        |        |  | 47,327 |        |       |  | 20,646  |        
|                                           |                                            |                                                          |         |        |                          |  |           |        |        |  |         |        |        |  |        |        |       |  |         |        
|Cumulative interest sensitivity
difference |                                            |                                                          | (23,533 | )      |                          |  | (38,895   | )      |        |  | (26,681 | )      |        |  | 20,646 |        |       |  |         |        
|Cumulative difference to total
assets      |                                            |                                                          | (13.92% | )      |                          |  | (23.01%   | )      |        |  | (15.78% | )      |        |  | 12.21% |        |       |  |         |        

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At December 31, 2002, the difference between Community Financials liabilities
and assets repricing or maturing within one year was $15.4 million. Due to an
excess of liabilities repricing or maturing within one year, a rise in interest
rates would cause Community Financials net interest income to decline.

Certain shortcomings are inherent in the method of analysis presented in the
foregoing table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
or at different points in time to changes in market interest rates.
Additionally, certain assets, such as adjustable-rate mortgages, have features
that restrict changes in interest rates, both on a short-term basis and over
the life of the asset. Changes in interest rates, prepayment rates, early
withdrawal levels and the ability of borrowers to service their debt, among
other factors, may change significantly from the assumptions made in the table.

Inflation

Inflation impacts the growth in total assets in the banking industry and causes
a need to increase equity capital at higher than normal rates to meet capital
adequacy requirements. Community Financial copes with the effects of inflation
through the management of its interest rate sensitivity gap position, by
periodically reviewing and adjusting its pricing of services to consider
current costs, and through managing its level of net income relative to its
dividend payout policy.

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Item 7. Financial Statements

COMMUNITY FINANCIAL HOLDING COMPANY, INC.
AND SUBSIDIARY




Consolidated Financial Statements

December 31, 2002, 2001 and 2000

|                                                                                                                        |  |  |    | 
|----------------------------------------------------------------------------------------------------------------------- |  |  | -- | 
|Report of Independent Certified Public Accountants                                                                      |  |  | 35 | 
|Consolidated Balance Sheets as of December 31,
    2002 and 2001                                                        |  |  | 36 | 
|Consolidated Statements of Operations for the
    years ended December 31, 2002, 2001 and 2000                          |  |  | 37 | 
|Consolidated Statements of Comprehensive Income
    for the years ended December 31, 2002, 2001 and 2000                |  |  | 38 | 
|Consolidated Statements of Changes in
    Stockholders Equity for the years ended December 31, 2002,
    2001 and 2000 |  |  | 39 | 
|Consolidated Statements of Cash Flows for the
    years ended December 31, 2002, 2001 and 2000                          |  |  | 40 | 
|Notes to Financial Statements                                                                                           |  |  | 41 | 

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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors and Stockholders
Community Financial Holding Company, Inc. and subsidiary

We have audited the accompanying consolidated balance sheets of Community
Financial Holding Company, Inc. and subsidiary as of December 31, 2002 and
2001, and the related consolidated statements of operations, comprehensive
income, changes in stockholders equity and cash flows for each of the three
years in the period ended December 31, 2002. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Community Financial
Holding Company, Inc. and subsidiary as of December 31, 2002 and 2001, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America.

|                                   |  |                            
|---------------------------------- |  | ---------------------------
|                                   |  | /s/Porter Keadle Moore, LLP
|                                  
|                                   |  |                            
|                                  
|Atlanta, Georgia
February 21, 2003 |  |                            

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COMMUNITY FINANCIAL HOLDING COMPANY, INC. AND SUBSIDIARY




Consolidated Balance Sheets

December 31, 2002 and 2001

Assets

|                                                                                                    |                                                                                                        |                                      |                            |            |      |             |             |            |   |             | 
|--------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------ | ------------------------------------ | -------------------------- | ---------- | ---- | ----------- | ----------- | ---------- | - | ----------- | 
|                                                                                                    |                                                                                                        |                                      |                            |            | 2002 |             | 2001       
|                                                                                                    |                                                                                                        |                                      |                            |            |      |             |            
|Cash and due from banks, including cash reserve
requirements of $588,000 and $367,000, respectively |                                                                                                        | $                                    | 3,233,411                  |            |      |             | 2,849,167   |           
|Federal funds sold                                                                                  |                                                                                                        |                                      | 10,747,622                 |            |      |             | 525,056     |           
|                                                                                                    |                                                                                                        |                                      |                            |            |      |             |             |           
|                                                                                                    |                                                                                                        |                                      | Cash and cash equivalents  |            |      | 13,981,033  |             |            |   | 3,374,223   | 
|                                                                                                    |                                                                                                        |                                      |                            |            |      |             |             |           
|Interest bearing deposits in other banks                                                            |                                                                                                        |                                      |                           |            |      |             | 199,000     |           
|Investment securities available for sale                                                            |                                                                                                        |                                      | 21,001,052                 |            |      |             | 17,458,225  |           
|Other investments                                                                                   |                                                                                                        |                                      | 100,034                    |            |      |             | 100,034     |           
|Loans, net                                                                                          |                                                                                                        |                                      | 126,603,048                |            |      |             | 95,631,171  |           
|Premises and equipment, net                                                                         |                                                                                                        |                                      | 5,808,134                  |            |      |             | 5,860,953   |           
|Accrued interest receivable and other assets                                                        |                                                                                                        |                                      | 1,562,117                  |            |      |             | 1,216,660   |           
|                                                                                                    |                                                                                                        |                                      |                            |            |      |             |             |           
|                                                                                                    |                                                                                                        | $                                    | 169,055,418                |            |      |             | 123,840,266 |           
|                                                                                                    |                                                                                                        |                                      |                            |            |      |             |             |           
|                                                                                                    |                                                                                                        | Liabilities and Stockholders Equity
|Deposits:                                                                                           |                                                                                                        |                                      |                            |            |      |             |             |           
|                                                                                                    | Demand                                                                                                 |                                      | $                          | 14,352,872 |      |             |             | 10,962,146 |  
|                                                                                                    | Interest-bearing demand                                                                                |                                      |                            | 36,139,726 |      |             |             | 26,608,266 |  
|                                                                                                    | Savings                                                                                                |                                      |                            | 4,027,314  |      |             |             | 822,848    |  
|                                                                                                    | Time                                                                                                   |                                      |                            | 98,828,822 |      |             |             | 75,677,889 |  
|                                                                                                    |                                                                                                        |                                      |                            |            |      |             |             |           
|                                                                                                    |                                                                                                        |                                      | Total deposits             |            |      | 153,348,734 |             |            |   | 114,071,149 | 
|                                                                                                    |                                                                                                        |                                      |                            |            |      |             |             |           
|Federal funds purchased and retail repurchase agreements                                            |                                                                                                        |                                      | 660,017                    |            |      |             | 1,149,000   |           
|Accrued interest payable and other liabilities                                                      |                                                                                                        |                                      | 509,126                    |            |      |             | 271,469     |           
|                                                                                                    |                                                                                                        |                                      |                            |            |      |             |             |           
|                                                                                                    |                                                                                                        |                                      | Total liabilities          |            |      | 154,517,877 |             |            |   | 115,491,618 | 
|                                                                                                    |                                                                                                        |                                      |                            |            |      |             |             |           
|Commitments                                                                                         |                                                                                                        |                                      |                            |            |      |             |             |           
|Stockholders equity:                                                                               |                                                                                                        |                                      |                            |            |      |             |             |           
|                                                                                                    | Common stock, $5 par value; authorized 10,000,000
shares; 1,200,894 and 867,560 issued and outstanding |                                      |                            | 6,004,470  |      |             |             | 4,337,800  |  
|                                                                                                    | Additional paid-in capital                                                                             |                                      |                            | 7,528,877  |      |             |             | 4,318,089  |  
|                                                                                                    | Retained earnings (accumulated deficit)                                                                |                                      |                            | 815,892    |      |             |             | (406,832   | )
|                                                                                                    | Accumulated other comprehensive income                                                                 |                                      |                            | 188,302    |      |             |             | 99,591     |  
|                                                                                                    |                                                                                                        |                                      |                            |            |      |             |             |           
|                                                                                                    |                                                                                                        |                                      | Total stockholders equity |            |      | 14,537,541  |             |            |   | 8,348,648   | 
|                                                                                                    |                                                                                                        |                                      |                            |            |      |             |             |           
|                                                                                                    |                                                                                                        | $                                    | 169,055,418                |            |      |             | 123,840,266 |           
|                                                                                                    |                                                                                                        |                                      |                            |            |      |             |             |           

See accompanying notes to consolidated financial statements.

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COMMUNITY FINANCIAL HOLDING COMPANY, INC. AND SUBSIDIARY




Consolidated Statements of Operations

For the Years Ended December 31, 2002, 2001 and 2000

|                                      |                                          |                                                         |              |                                                     |           |           |           |           |           |           |           |         |           |           |           |  
|------------------------------------- | ---------------------------------------- | ------------------------------------------------------- | ------------ | --------------------------------------------------- | --------- | --------- | --------- | --------- | --------- | --------- | --------- | ------- | --------- | --------- | --------- | -
|                                      |                                          |                                                         |              |                                                     |           | 2002      |           | 2001      |           | 2000     
|                                      |                                          |                                                         |              |                                                     |           |           |           |           |           |          
|Interest income:                      |                                          |                                                         |              |                                                     |           |           |           |           |           |           |           |        
|                                      |                                          | Interest on loans, including fees of $677,659, $529,807 |              |                                                     |           |           |           |           |           |           |           |         |           |          
|                                      |                                          |                                                         | and $229,072 |                                                     | $         | 8,682,127 |           |           |           | 5,845,200 |           |         |           | 1,901,363 |          
|                                      |                                          | Interest on federal funds sold                          |              |                                                     | 120,099   |           |           |           | 270,855   |           |           |         | 442,032   |          
|                                      |                                          | Interest on Government agencies securities              |              |                                                     | 912,413   |           |           |           | 1,358,309 |           |           |         | 795,936   |          
|                                      |                                          | Interest on state, county and municipal securities      |              |                                                     | 46,937    |           |           |           |          |           |           |         |          |          
|                                      |                                          | Interest on deposits with other banks                   |              |                                                     | 3,099     |           |           |           | 55,517    |           |           |         | 49,561    |          
|                                      |                                          | Interest and dividends on other investments             |              |                                                     | 62,672    |           |           |           | 30,254    |           |           |         | 4,139     |          
|                                      |                                          |                                                         |              |                                                     |           |           |           |           |           |           |           |        
|                                      |                                          |                                                         |              | Total interest and dividend income                  |           |           | 9,827,347 |           |           |           | 7,560,135 |         |           |           | 3,193,031 |  
|                                      |                                          |                                                         |              |                                                     |           |           |           |           |           |           |           |        
|Interest expense:                     |                                          |                                                         |              |                                                     |           |           |           |           |           |           |           |        
|                                      |                                          | Interest-bearing demand                                 |              |                                                     | 677,816   |           |           |           | 642,071   |           |           |         | 397,961   |          
|                                      |                                          | Savings                                                 |              |                                                     | 36,854    |           |           |           | 13,214    |           |           |         | 5,596     |          
|                                      |                                          | Time                                                    |              |                                                     | 3,544,560 |           |           |           | 3,385,398 |           |           |         | 1,230,897 |          
|                                      |                                          | Other                                                   |              |                                                     | 2,214     |           |           |           | 403       |           |           |         |          |          
|                                      |                                          |                                                         |              |                                                     |           |           |           |           |           |           |           |        
|                                      |                                          |                                                         |              | Total interest expense                              |           |           | 4,261,444 |           |           |           | 4,041,086 |         |           |           | 1,634,454 |  
|                                      |                                          |                                                         |              |                                                     |           |           |           |           |           |           |           |        
|                                      |                                          |                                                         |              | Net interest income                                 |           |           | 5,565,903 |           |           |           | 3,519,049 |         |           |           | 1,558,577 |  
|Provision for loan losses             |                                          |                                                         | 613,072      |                                                     |           |           | 791,862   |           |           |           | 432,804   |        
|                                      |                                          |                                                         |              |                                                     |           |           |           |           |           |           |           |        
|                                      |                                          |                                                         |              | Net interest income after provision for loan losses |           |           | 4,952,831 |           |           |           | 2,727,187 |         |           |           | 1,125,773 |  
|                                      |                                          |                                                         |              |                                                     |           |           |           |           |           |           |           |        
|Other income:                         |                                          |                                                         |              |                                                     |           |           |           |           |           |           |           |        
|                                      |                                          | Service charges on deposit accounts                     |              |                                                     | 337,924   |           |           |           | 251,322   |           |           |         | 73,853    |          
|                                      |                                          | Mortgage origination fees                               |              |                                                     | 177,507   |           |           |           | 150,522   |           |           |         | 44,435    |          
|                                      |                                          | Gains on sales of securities                            |              |                                                     | 3,601     |           |           |           |          |           |           |         |          |          
|                                      |                                          | Other                                                   |              |                                                     | 18,403    |           |           |           | 33,024    |           |           |         | 12,999    |          
|                                      |                                          |                                                         |              |                                                     |           |           |           |           |           |           |           |        
|                                      |                                          |                                                         |              | Total other income                                  |           |           | 537,435   |           |           |           | 434,868   |         |           |           | 131,287   |  
|                                      |                                          |                                                         |              |                                                     |           |           |           |           |           |           |           |        
|Other expenses:                       |                                          |                                                         |              |                                                     |           |           |           |           |           |           |           |        
|                                      | Salaries and employee benefits           |                                                         |              | 2,039,086                                           |           |           |           | 1,737,747 |           |           |           | 997,327 |          
|                                      | Occupancy and equipment                  |                                                         |              | 401,341                                             |           |           |           | 275,154   |           |           |           | 227,495 |          
|                                      | Other                                    |                                                         |              | 1,139,751                                           |           |           |           | 818,817   |           |           |           | 549,901 |          
|                                      |                                          |                                                         |              |                                                     |           |           |           |           |           |           |           |        
|                                      |                                          |                                                         |              | Total other expenses                                |           |           | 3,580,178 |           |           |           | 2,831,718 |         |           |           | 1,774,723 |  
|                                      |                                          |                                                         |              |                                                     |           |           |           |           |           |           |           |        
|                                      |                                          |                                                         |              | Net earnings (loss) before income taxes             |           |           | 1,910,088 |           |           |           | 330,337   |         |           |           | (517,663  | )
|Income tax (expense) benefit          |                                          |                                                         | (687,364     | )                                                   |           |           | 291,396   |           |           |           |          |        
|                                      |                                          |                                                         |              |                                                     |           |           |           |           |           |           |           |        
|                                      |                                          |                                                         |              | Net earnings (loss)                                 |           | $         | 1,222,724 |           |           |           | 621,733   |         |           |           | (517,663  | )
|                                      |                                          |                                                         |              |                                                     |           |           |           |           |           |           |           |        
|Net earnings (loss) per common share: |                                          |                                                         |              |                                                     |           |           |           |           |           |           |           |        
|                                      | Basic earnings (loss) per common share   |                                                         | $            | 1.30                                                |           |           |           | 0.72      |           |           |           | (0.60   | )        
|                                      |                                          |                                                         |              |                                                     |           |           |           |           |           |           |           |        
|                                      | Diluted earnings (loss) per common share |                                                         | $            | 1.25                                                |           |           |           | 0.72      |           |           |           | (0.60   | )        
|                                      |                                          |                                                         |              |                                                     |           |           |           |           |           |           |           |        

See accompanying notes to consolidated financial statements.

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COMMUNITY FINANCIAL HOLDING COMPANY, INC. AND SUBSIDIARY




Consolidated Statements of Comprehensive Income

For the Years Ended December 31, 2002, 2001 and 2000

|                                                    |                                                                                                     |                                                                 |           |         |           |      |         |        |         |   |          |         |          |  
|--------------------------------------------------- | --------------------------------------------------------------------------------------------------- | --------------------------------------------------------------- | --------- | ------- | --------- | ---- | ------- | ------ | ------- | - | -------- | ------- | -------- | -
|                                                    |                                                                                                     |                                                                 |           | 2002    |           | 2001 |         | 2000  
|                                                    |                                                                                                     |                                                                 |           |         |           |      |         |       
|Net earnings (loss)                                 |                                                                                                     | $                                                               | 1,222,724 |         |           |      | 621,733 |        |         |   | (517,663 | )      
|Other comprehensive income (loss):                  |                                                                                                     |                                                                 |           |         |           |      |         |        |         |   |          |        
|                                                    | Unrealized holding gains (losses) on investment securities
available for sale arising during period |                                                                 |           | 138,012 |           |      |         | 14,103 |         |   |          | 135,348 |         
|                                                    | Reclassification adjustment for (gains) losses on investment
securities available for sale          |                                                                 |           | (3,601  | )         |      |         |       |         |   |          |        |         
|                                                    |                                                                                                     |                                                                 |           |         |           |      |         |        |         |   |          |        
|                                                    |                                                                                                     | Total other comprehensive income (loss) before tax              |           |         | 134,411   |      |         |        | 14,103  |   |          |         | 135,348  |  
|                                                    |                                                                                                     |                                                                 |           |         |           |      |         |        |         |   |          |        
|Income taxes related to other comprehensive income: |                                                                                                     |                                                                 |           |         |           |      |         |        |         |   |          |        
|                                                    | Unrealized holding gains (losses) on investment securities
available for sale arising during period |                                                                 |           | (46,924 | )         |      |         | (4,795 | )       |   |          | (46,018 | )       
|                                                    | Reclassification adjustment for gains (losses) on investment
securities available for sale          |                                                                 |           | 1,224   |           |      |         |       |         |   |          |        |         
|                                                    |                                                                                                     |                                                                 |           |         |           |      |         |        |         |   |          |        
|                                                    |                                                                                                     | Total income taxes related to other comprehensive
income (loss) |           |         | (45,700   | )    |         |        | (4,795  | ) |          |         | (46,018  | )
|                                                    |                                                                                                     |                                                                 |           |         |           |      |         |        |         |   |          |        
|                                                    |                                                                                                     | Total other comprehensive income (loss), net of tax             |           |         | 88,711    |      |         |        | 9,308   |   |          |         | 89,330   |  
|                                                    |                                                                                                     |                                                                 |           |         |           |      |         |        |         |   |          |        
|                                                    |                                                                                                     | Total comprehensive income                                      |           | $       | 1,311,435 |      |         |        | 631,041 |   |          |         | (428,333 | )
|                                                    |                                                                                                     |                                                                 |           |         |           |      |         |        |         |   |          |        

See accompanying notes to consolidated financial statements.

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COMMUNITY FINANCIAL HOLDING COMPANY, INC. AND SUBSIDIARY




Consolidated Statements of Changes in Stockholders Equity

For the Years Ended December 31, 2002, 2001 and 2000

|                                                                           |  |        |           |         |  |              |           |               |  |          |            |             |  |  |         |  |  |  |            |  
|-------------------------------------------------------------------------- |  | ------ | --------- | ------- |  | ------------ | --------- | ------------- |  | -------- | ---------- | ----------- |  |  | ------- |  |  |  | ---------- | -
|                                                                           |  |        |           |         |  |              |           |               |  | Retained |            | Accumulated |  |  |         | 
|                                                                           |  |        |           |         |  | Additional   |           | Earnings      |  | Other    |            |             |  | 
|                                                                           |  | Common |           | Paid-in |  | (Accumulated |           | Comprehensive |  |          |            |            
|                                                                           |  | Stock  |           | Capital |  | Deficit)     |           | Income        |  | Total   
|                                                                           |  |        |           |         |  |              |           |               |  |         
|Balance, December 31, 1999                                                 |  | $      | 4,337,800 |         |  |              | 4,318,089 |               |  |          | (510,902   | )           |  |  | 953     |  |  |  | 8,145,940  |  
|Unrealized gains on securities
available for sale, net of tax              |  |        |          |         |  |              |          |               |  |          |           |             |  |  | 89,330  |  |  |  | 89,330     |  
|Net loss                                                                   |  |        |          |         |  |              |          |               |  |          | (517,663   | )           |  |  |        |  |  |  | (517,663   | )
|                                                                           |  |        |           |         |  |              |           |               |  |          |            |             |  |  |         |  |  |  |            |  
|Balance, December 31, 2000                                                 |  |        | 4,337,800 |         |  |              | 4,318,089 |               |  |          | (1,028,565 | )           |  |  | 90,283  |  |  |  | 7,717,607  |  
|Unrealized gains on securities
available for sale, net of tax              |  |        |          |         |  |              |          |               |  |          |           |             |  |  | 9,308   |  |  |  | 9,308      |  
|Net earnings                                                               |  |        |          |         |  |              |          |               |  |          | 621,733    |             |  |  |        |  |  |  | 621,733    |  
|                                                                           |  |        |           |         |  |              |           |               |  |          |            |             |  |  |         |  |  |  |            |  
|Balance, December 31, 2001                                                 |  |        | 4,337,800 |         |  |              | 4,318,089 |               |  |          | (406,832   | )           |  |  | 99,591  |  |  |  | 8,348,648  |  
|Proceeds from the sales of
common stock, net of issuance
costs of $122,552 |  |        | 1,666,670 |         |  |              | 3,210,788 |               |  |          |           |             |  |  |        |  |  |  | 4,877,458  |  
|Unrealized gains on securities
available for sale, net of tax              |  |        |          |         |  |              |          |               |  |          |           |             |  |  | 88,711  |  |  |  | 88,711     |  
|Net earnings                                                               |  |        |          |         |  |              |          |               |  |          | 1,222,724  |             |  |  |        |  |  |  | 1,222,724  |  
|                                                                           |  |        |           |         |  |              |           |               |  |          |            |             |  |  |         |  |  |  |            |  
|Balance, December 31, 2002                                                 |  | $      | 6,004,470 |         |  |              | 7,528,877 |               |  |          | 815,892    |             |  |  | 188,302 |  |  |  | 14,537,541 |  
|                                                                           |  |        |           |         |  |              |           |               |  |          |            |             |  |  |         |  |  |  |            |  

See accompanying notes to consolidated financial statements.

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COMMUNITY FINANCIAL HOLDING COMPANY, INC. AND SUBSIDIARY




Consolidated Statements of Cash Flows
For the Years Ended December 31, 2002, 2001 and 2000

|                                                                                    |                                                                              |                                          |                                                |                                                  |          |          |             |             |          |          |             |             |         |          |             |  
|----------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ---------------------------------------- | ---------------------------------------------- | ------------------------------------------------ | -------- | -------- | ----------- | ----------- | -------- | -------- | ----------- | ----------- | ------- | -------- | ----------- | -
|                                                                                    |                                                                              |                                          |                                                |                                                  |          | 2002     |             | 2001        |          | 2000    
|                                                                                    |                                                                              |                                          |                                                |                                                  |          |          |             |             |          |         
|Cash flows from operating activities:                                               |                                                                              |                                          |                                                |                                                  |          |          |             |             |          |          |             |            
|                                                                                    | Net earnings (loss)                                                          |                                          | $                                              | 1,222,724                                        |          |          |             | 621,733     |          |          |             | (517,663    | )      
|                                                                                    | Adjustments to reconcile net loss to net cash used by operating
activities:  |                                          |                                                |                                                  |          |          |             |             |          |          |             |             |        
|                                                                                    |                                                                              | Depreciation, amortization and accretion |                                                |                                                  | 192,251  |          |             |             | 138,649  |          |             |             | 80,004  |         
|                                                                                    |                                                                              | Deferred income tax benefit              |                                                |                                                  | (119,600 | )        |             |             | (433,200 | )        |             |             |        |         
|                                                                                    |                                                                              | Provision for loan losses                |                                                |                                                  | 613,072  |          |             |             | 791,862  |          |             |             | 432,804 |         
|                                                                                    |                                                                              | Gain on sales of securities              |                                                |                                                  | (3,601   | )        |             |             |          |          |             |             |         |         
|                                                                                    |                                                                              | Change in:                               |                                                |                                                  |          |          |             |             |          |          |             |             |         |         
|                                                                                    |                                                                              |                                          | Accrued interest receivable and other assets   |                                                  |          | (226,057 | )           |             |          | (165,070 | )           |             |         | (448,280 | )          
|                                                                                    |                                                                              |                                          | Accrued interest payable and other liabilities |                                                  |          | 199,278  |             |             |          | 16,674   |             |             |         | 200,183  |            
|                                                                                    |                                                                              |                                          |                                                |                                                  |          |          |             |             |          |          |             |            
|                                                                                    |                                                                              |                                          |                                                | Net cash provided (used) by operating activities |          |          | 1,878,067   |             |          |          | 970,648     |             |         |          | (252,952    | )
|                                                                                    |                                                                              |                                          |                                                |                                                  |          |          |             |             |          |          |             |            
|Cash flows from investing activities:                                               |                                                                              |                                          |                                                |                                                  |          |          |             |             |          |          |             |            
|                                                                                    | Net change in deposits with other banks                                      |                                          |                                                | 199,000                                          |          |          |             | 1,900,000   |          |          |             | (2,099,000  | )      
|                                                                                    | Purchases of investment securities                                           |                                          |                                                | (15,221,829                                      | )        |          |             | (18,459,565 | )        |          |             | (18,075,675 | )      
|                                                                                    | Proceeds from sales, calls, paydowns and maturities of investment
securities |                                          |                                                | 11,888,776                                       |          |          |             | 19,590,614  |          |          |             | 3,623,967   |        
|                                                                                    | Net change in loans                                                          |                                          |                                                | (31,584,949                                      | )        |          |             | (64,338,395 | )        |          |             | (28,770,389 | )      
|                                                                                    | Purchases of premises and equipment                                          |                                          |                                                | (218,315                                         | )        |          |             | (3,875,046  | )        |          |             | (1,885,438  | )      
|                                                                                    |                                                                              |                                          |                                                |                                                  |          |          |             |             |          |          |             |            
|                                                                                    |                                                                              |                                          |                                                | Net cash used by investing activities            |          |          | (34,937,317 | )           |          |          | (65,182,392 | )           |         |          | (47,206,535 | )
|                                                                                    |                                                                              |                                          |                                                |                                                  |          |          |             |             |          |          |             |            
|Cash flows from financing activities:                                               |                                                                              |                                          |                                                |                                                  |          |          |             |             |          |          |             |            
|                                                                                    | Proceeds from note payable                                                   |                                          |                                                | 2,500,000                                        |          |          |             |            |          |          |             |            |        
|                                                                                    | Repayment of note payable                                                    |                                          |                                                | (2,500,000                                       | )        |          |             |            |          |          |             |            |        
|                                                                                    | Net change in federal funds purchased                                        |                                          |                                                | (1,149,000                                       | )        |          |             | 1,149,000   |          |          |             |            |        
|                                                                                    | Net change in retail repurchase agreements                                   |                                          |                                                | 660,017                                          |          |          |             |            |          |          |             |            |        
|                                                                                    | Net change in deposits                                                       |                                          |                                                | 39,277,585                                       |          |          |             | 58,550,748  |          |          |             | 46,731,915  |        
|                                                                                    | Proceeds from issuance of common stock, net of offering costs                |                                          |                                                | 4,877,458                                        |          |          |             |            |          |          |             |            |        
|                                                                                    |                                                                              |                                          |                                                |                                                  |          |          |             |             |          |          |             |            
|                                                                                    |                                                                              |                                          |                                                | Net cash provided by financing activities        |          |          | 43,666,060  |             |          |          | 59,699,748  |             |         |          | 46,731,915  |  
|                                                                                    |                                                                              |                                          |                                                |                                                  |          |          |             |             |          |          |             |            
|Net change in cash and cash equivalents                                             |                                                                              |                                          | 10,606,810                                     |                                                  |          |          | (4,511,996  | )           |          |          | (727,572    | )          
|Cash and cash equivalents at beginning of period                                    |                                                                              |                                          | 3,374,223                                      |                                                  |          |          | 7,886,219   |             |          |          | 8,613,791   |            
|                                                                                    |                                                                              |                                          |                                                |                                                  |          |          |             |             |          |          |             |            
|Cash and cash equivalents at end of period                                          |                                                                              | $                                        | 13,981,033                                     |                                                  |          |          | 3,374,223   |             |          |          | 7,886,219   |            
|                                                                                    |                                                                              |                                          |                                                |                                                  |          |          |             |             |          |          |             |            
|Supplemental disclosures of cash flow information and noncash investing
activities: |                                                                              |                                          |                                                |                                                  |          |          |             |             |          |          |             |            
|Cash paid for interest                                                              |                                                                              | $                                        | 4,146,284                                      |                                                  |          |          | 3,999,164   |             |          |          | 1,529,759   |            
|Cash paid for taxes                                                                 |                                                                              | $                                        | 743,000                                        |                                                  |          |          | 133,000     |             |          |          |            |            
|Change in unrealized loss on securities available for sale, net of tax              |                                                                              | $                                        | 88,711                                         |                                                  |          |          | 9,308       |             |          |          | (89,330     | )          

See accompanying notes to consolidated financial statements.

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COMMUNITY FINANCIAL HOLDING COMPANY, INC. AND SUBSIDIARY




Consolidated Notes to Financial Statements



|(1) |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Nature of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | On January 14, 1999, a joint application to organize a bank and obtain
deposit insurance was filed with the Georgia Department of Banking and
Finance (DBF) and the Federal Deposit Insurance Corporation (FDIC).
Approvals were received from the DBF and the FDIC by October 18, 1999.
Transactions of the organizational entity from inception (January 14, 1999)
to the date the Bank opened to the public (October 18, 1999) are reflected
in the accompanying financial statements and relate primarily to
expenditures for incorporating and organizing the Bank, including raising
capital and securing banking facilities. Operations during the
organizational stage were funded by a combination of organizer advances, as
well as a note and line of credit borrowings from a bank. All bank
borrowings during the organizational stage and organizers advances were
repaid with proceeds from the sale of the Banks common stock.
|   
|    |  | On March 29, 2002, the Bank completed the formation of a one-bank holding
company and a plan to exchange all bank stock shares for shares of the
holding company. Subsequent to the reorganization, all of the shares of
the Bank were owned by the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | The Bank is a community oriented commercial bank with emphasis on retail
banking and offers such customary banking services as consumer and
commercial checking accounts, savings accounts, certificates of deposit,
commercial and consumer loans, money transfers and a variety of other
banking services. The Bank has one banking office in Duluth (Gwinnett
County), Georgia, and conducts its banking activities primarily in Gwinnett
and surrounding counties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Gwinnett Community Bank (the Bank). All
significant intercompany accounts and transactions have been eliminated in
consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    |  | The accounting principles followed by the Company and the methods of
applying these principles conform with generally accepted accounting
principles (GAAP) and with general practices within the banking industry.
In preparing financial statements in conformity with GAAP, management is
required to make estimates and assumptions that affect the reported amounts
in the financial statements. Actual results could differ significantly from
those estimates. Material estimates common to the banking industry that are
particularly susceptible to significant change in the near term include,
but are not limited to, the determination of the allowance for loan losses,
the valuation of real estate acquired in connection with or in lieu of
foreclosure on loans, and valuation allowances associated with deferred tax
assets, the recognition of which are based on future taxable income.                                    
|   
|    |  | Investment Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | The Company classifies its securities in one of three categories: trading,
available for sale, or held to maturity. Trading securities are bought and
held principally for the purpose of selling them in the near term. Held to
maturity securities are those securities for which the Bank has the ability
and intent to hold the security until maturity. All other securities not
included in trading or held to maturity are classified as available for
sale. At December 31, 2002 and 2001, all securities were classified as
available for sale.                                                                                                                                                                                                                                                                                                                                                                                           

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COMMUNITY FINANCIAL HOLDING COMPANY, INC. AND SUBSIDIARY

Consolidated Notes to Financial Statements, continued



|(1) |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Investment Securities, continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | Available for sale securities are recorded at fair value. Held to maturity
securities are recorded at cost, adjusted for the amortization or accretion
of premiums or discounts. Unrealized holding gains and losses, net of the
related tax effect, on securities available for sale are excluded from
earnings and are reported as a separate component of stockholders equity
until realized. Transfers of securities between categories are recorded at
fair value at the date of transfer. Unrealized holding gains or losses
associated with transfers of securities from held to maturity to available
for sale are recorded as a separate component of stockholders equity. The
unrealized holding gains or losses included in the separate component of
stockholders equity for securities transferred from available for sale to
held to maturity are maintained and amortized into earnings over the
remaining life of the security as an adjustment to yield in a manner
consistent with the amortization or accretion of premium or discount on the
associated security.                                                                         
|   
|    |  | A decline in the market value of any available for sale or held to maturity
investment below cost that is deemed other than temporary is charged to
earnings and establishes a new cost basis for the security.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |  | Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to the yield. Realized gains and losses
for securities classified as available for sale and held to maturity are
included in earnings and are derived using the specific identification
method for determining the cost of securities sold.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | Other Investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | Other investments include equity securities of Community Financial
Services, Inc. (The Bankers Bank), which has no readily determined fair
value. These investments are carried at cost.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    |  | Loans, Loan Fees and Interest Income on Loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    |  | Loans are stated at the principal amount outstanding, net of the allowance
for loan losses. Interest on loans is calculated by using the simple
interest method on daily balances of the principal amount outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection efforts,
the borrowers financial condition is such that collection of interest is
doubtful. When a loan is placed on nonaccrual status, previously accrued
and uncollected interest is charged to interest income on loans. Generally,
payments on nonaccrual loans are applied to principal.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    |  | Loan fees, net of certain origination costs, are deferred and amortized
over the lives of the respective loans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |  | Allowance for Loan Losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that the collection of the principal is
unlikely. The allowance represents an amount, which in managements
judgment, will be adequate to absorb probable losses on existing loans that
may become uncollectible.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | Managements judgment in determining the adequacy of the allowance is based
on evaluations of the collectibility of loans. These evaluations take into
consideration such factors as changes in the nature and volume of the loan
portfolio, current economic conditions that may affect the borrowers
ability to pay, overall portfolio quality, and review of specific problem
loans. In determining the adequacy of the allowance for loan losses,
management uses a loan grading system that rates loans in nine different
categories. Grades five through nine are assigned allocations of loss
based on managements estimate of potential loss, which is generally based
on discounted, collateral deficiencies or loss percentages by grade used by
the federal bank regulators. Loans graded one through four are stratified
by type and allocated loss ranges based on peer group loss experience,
regulatory guidelines and the Banks loss history. The combination of
these results are compared monthly to the recorded allowance for loan
losses and material differences are adjusted by increasing or decreasing
the provision for loan losses.

42



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COMMUNITY FINANCIAL HOLDING COMPANY, INC. AND SUBSIDIARY

Consolidated Notes to Financial Statements, continued



|(1) |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Allowance for Loan Losses, continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | 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 allowance for loan losses.
Such regulators may require additions to the allowance based on their
judgments of information available to them at the time of their
examination.                                                                                                                                         
|   
|    |  | Premises and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | Premises and equipment are carried at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related asset. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from
the accounts, and any resulting gain or loss is reflected in income for the
period. The cost of maintenance and repairs which do not improve or extend
the useful life of the respective asset is charged to income as incurred,
whereas significant renewals and improvements are capitalized. The range of
estimated useful lives for premises and equipment are:

|                        |  |              |  | 
|----------------------- |  | ------------ |  | 
|Buildings               |  | 40 years    
|Equipment and furniture |  | 3 - 10 years



| |  | Organizational Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Start up costs and expenses associated with organizing the Company and the
Bank such as regulatory application fees, legal and professional fees, and
pre-opening salaries have been expensed in accordance with Statement of
Position (SOP) 98-5 issued by the American Institute of Certified Public
Accountants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Securities Sold Under Retail Repurchase Agreements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Securities sold under retail repurchase agreements are secured borrowings
from customers and are treated as financing activities and are carried at
the amounts at which the securities will be subsequently reacquired as
specified in the respective agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | The Company uses the liability method of accounting for income taxes, which
requires the recognition of deferred tax assets and liabilities for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. Additionally, this method requires the recognition of
future tax benefits, such as net operating loss carryforwards, to the
extent that realization of such benefits is more likely than not. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which the assets and liabilities
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income tax
expense in the period that includes the enactment date.
|
| |  | In the event the future tax consequences of differences between the
financial reporting bases and the tax bases of the Companys assets and
liabilities results in deferred tax assets, an evaluation of the
probability of being able to realize the future benefits indicated by such
asset is required. A valuation allowance is provided for the portion of the
deferred tax asset when it is more likely than not that some portion or all
of the deferred tax asset will not be realized. In assessing the
realization of the deferred tax assets, management considers the scheduled
reversals of deferred tax liabilities, projected future taxable income, and
tax planning strategies.                                                                                                                                                                                               
|
| |  | Statement of Cash Flows                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | For purposes of reporting cash flows, the Company includes cash and due
from banks and federal funds sold.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

43



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##### Table of Contents

44

COMMUNITY FINANCIAL HOLDING COMPANY, INC. AND SUBSIDIARY

Consolidated Notes to Financial Statements, continued



|(1) |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Net Earnings (Loss) Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    |  | Basic net earnings (loss) per share is based on the weighted average number
of common shares outstanding during the period. Diluted net earnings
(loss) per share includes the effects of potential common shares
outstanding during the period. The average market price during the year is
used to compute equivalent shares. The reconciliation of the amounts used
in the computation of both basic earnings (loss) per share and diluted
earnings per share for the years ended December 31, 2002, 2001 and 2000 as
follows:

|                                      |                                   |  |          |           |             |  |           |         |  |  |   |       |  
|------------------------------------- | --------------------------------- |  | -------- | --------- | ----------- |  | --------- | ------- |  |  | - | ----- | -
|                                      |                                   |  |          |           |             |  | Average   |         |  |  |  
|                                      |                                   |  | Net      |           | Shares      |  | Per Share
|                                      |                                   |  | Earnings |           | Outstanding |  | Amount   
|                                      |                                   |  |          |           |             |  |          
|For the year ended December 31, 2002: |                                   |  |          |           |             |  |           |         |  |  |   |      
|                                      | Net earnings  basic              |  | $        | 1,222,724 |             |  |           | 938,947 |  |  | $ | 1.30  |  
|                                      |                                   |  |          |           |             |  |           |         |  |  |   |      
|                                      | Effect of dilutive stock warrants |  |          |          |             |  |           | 42,500  |  |  |   |       |  
|                                      |                                   |  |          |           |             |  |           |         |  |  |   |      
|                                      | Net earnings  diluted            |  | $        | 1,222,724 |             |  |           | 981,447 |  |  | $ | 1.25  |  
|                                      |                                   |  |          |           |             |  |           |         |  |  |   |      
|For the year ended December 31, 2001: |                                   |  |          |           |             |  |           |         |  |  |   |      
|                                      | Net earnings  basic              |  | $        | 621,733   |             |  |           | 867,560 |  |  | $ | 0.72  |  
|                                      |                                   |  |          |           |             |  |           |         |  |  |   |      
|                                      | Effect of dilutive stock warrants |  |          |          |             |  |           |        |  |  |   |       |  
|                                      |                                   |  |          |           |             |  |           |         |  |  |   |      
|                                      | Net earnings  diluted            |  | $        | 621,733   |             |  |           | 867,560 |  |  | $ | 0.72  |  
|                                      |                                   |  |          |           |             |  |           |         |  |  |   |      
|For the year ended December 31, 2000: |                                   |  |          |           |             |  |           |         |  |  |   |      
|                                      | Net earnings (loss)  basic       |  | $        | (517,663  | )           |  |           | 867,560 |  |  | $ | (0.60 | )
|                                      |                                   |  |          |           |             |  |           |         |  |  |   |      
|                                      | Effect of dilutive stock warrants |  |          |          |             |  |           |        |  |  |   |       |  
|                                      |                                   |  |          |           |             |  |           |         |  |  |   |      
|                                      | Net earnings (loss)  diluted     |  | $        | (517,663  | )           |  |           | 867,560 |  |  | $ | (0.60 | )
|                                      |                                   |  |          |           |             |  |           |         |  |  |   |      



|(2) |  | INVESTMENT SECURITIES                                                                 
|--- |  | --------------------------------------------------------------------------------------
|   
|    |  | Investment securities available for sale at December 31, 2002 and 2001
are as follows:

|                           |  |                   |            |            |  |            |         |       |  |           |        |  |  |  |            | 
|-------------------------- |  | ----------------- | ---------- | ---------- |  | ---------- | ------- | ----- |  | --------- | ------ |  |  |  | ---------- | 
|                           |  | December 31, 2002
|                           |  |                  
|                           |  |                   |            |            |  | Gross      |         | Gross |  | Estimated
|                           |  | Amortized         |            | Unrealized |  | Unrealized |         | Fair 
|                           |  | Cost              |            | Gains      |  | Losses     |         | Value
|                           |  |                   |            |            |  |            |         |      
|U.S. Government agencies   |  | $                 | 9,182,063  |            |  |            | 141,147 |       |  |           | 3,799  |  |  |  | 9,319,411  | 
|Mortgage backed securities |  |                   | 6,495,138  |            |  |            | 108,000 |       |  |           | 331    |  |  |  | 6,602,807  | 
|Municipal securities       |  |                   | 3,030,742  |            |  |            | 13,947  |       |  |           | 8,641  |  |  |  | 3,036,048  | 
|Corporate securities       |  |                   | 1,507,500  |            |  |            | 35,286  |       |  |           |       |  |  |  | 1,542,786  | 
|Trust preferred securities |  |                   | 500,000    |            |  |            |        |       |  |           |       |  |  |  | 500,000    | 
|                           |  |                   |            |            |  |            |         |       |  |           |        |  |  |  |            | 
|                           |  | $                 | 20,715,443 |            |  |            | 298,380 |       |  |           | 12,771 |  |  |  | 21,001,052 | 
|                           |  |                   |            |            |  |            |         |       |  |           |        |  |  |  |            | 

|                           |  |                   |            |            |  |            |         |       |  |           |        |  |  |  |            | 
|-------------------------- |  | ----------------- | ---------- | ---------- |  | ---------- | ------- | ----- |  | --------- | ------ |  |  |  | ---------- | 
|                           |  | December 31, 2001
|                           |  |                  
|                           |  |                   |            |            |  | Gross      |         | Gross |  | Estimated
|                           |  | Amortized         |            | Unrealized |  | Unrealized |         | Fair 
|                           |  | Cost              |            | Gains      |  | Losses     |         | Value
|                           |  |                   |            |            |  |            |         |      
|U.S. Government agencies   |  | $                 | 11,049,115 |            |  |            | 182,558 |       |  |           | 34,196 |  |  |  | 11,197,477 | 
|Mortgage backed securities |  |                   | 5,241,863  |            |  |            | 32,484  |       |  |           | 18,599 |  |  |  | 5,255,748  | 
|Corporate securities       |  |                   | 508,928    |            |  |            |        |       |  |           | 3,928  |  |  |  | 505,000    | 
|Trust preferred securities |  |                   | 500,000    |            |  |            |        |       |  |           |       |  |  |  | 500,000    | 
|                           |  |                   |            |            |  |            |         |       |  |           |        |  |  |  |            | 
|                           |  | $                 | 17,299,906 |            |  |            | 215,042 |       |  |           | 56,723 |  |  |  | 17,458,225 | 
|                           |  |                   |            |            |  |            |         |       |  |           |        |  |  |  |            | 

44



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COMMUNITY FINANCIAL HOLDING COMPANY, INC. AND SUBSIDIARY

Consolidated Notes to Financial Statements, continued



|(2) |  | INVESTMENT SECURITIES, continued                                                                                                                                                                                                                                                                                     
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The amortized cost and estimated fair value of securities available for
sale at December 31, 2002, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because
borrowers have the right to call or prepay obligations with or without call
or prepayment penalties.

|                           |  |           |            |            |  |  |            | 
|-------------------------- |  | --------- | ---------- | ---------- |  |  | ---------- | 
|                           |  | Amortized |            | Estimated 
|                           |  | Cost      |            | Fair Value
|                           |  |           |            |           
|Within 1 year              |  | $         |           |            |  |  |           | 
|1 to 5 years               |  |           |           |            |  |  |           | 
|5 to 10 years              |  |           | 10,200,762 |            |  |  | 10,360,945 | 
|More than 10 years         |  |           | 4,019,543  |            |  |  | 4,037,300  | 
|Mortgage backed securities |  |           | 6,495,138  |            |  |  | 6,602,807  | 
|                           |  |           |            |            |  |  |            | 
|                           |  | $         | 20,715,443 |            |  |  | 21,001,052 | 
|                           |  |           |            |            |  |  |            | 



|    |  | Proceeds from sales of investment securities in 2002 totaled $995,000 and
resulted in gross gains of $2,593. Gains from securities called totaled
$1,008. There were no sales of securities available for sale during 2001
or 2000.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Securities with a carrying value of approximately $6,028,000 and $3,280,000
at December 31, 2002 and 2001, respectively were pledged to secure public
deposits and for other purposes.                                             
|   
|    |  | At December 31, 2002 and 2001, the Bank had no outstanding derivative
financial instruments such as swaps, options, futures, or forward
contracts.                                                                                 
|   
|(3) |  | LOANS                                                                                                                                                                                                                              
|   
|    |  | Major classifications of loans at December 31, 2002 and 2001, are
summarized as follows:                                                                                                                                           

|            |                                 |                    |             |           |             |      |            |           |            | 
|----------- | ------------------------------- | ------------------ | ----------- | --------- | ----------- | ---- | ---------- | --------- | ---------- | 
|            |                                 |                    |             | 2002      |             | 2001
|            |                                 |                    |             |           |             |     
|Commercial  |                                 | $                  | 32,656,514  |           |             |      | 20,851,464 |          
|Real estate |                                 |                    | 84,000,838  |           |             |      | 68,244,030 |          
|Consumer    |                                 |                    | 11,796,037  |           |             |      | 7,852,384  |          
|            |                                 |                    |             |           |             |      |            |          
|            |                                 |                    | 128,453,389 |           |             |      | 96,947,878 |          
|            | Less: Allowance for loan losses |                    |             | 1,598,956 |             |      |            | 1,132,130 |           
|            |                                 | Unearned loan fees |             |           | 251,385     |      |            |           | 184,577    | 
|            |                                 |                    |             |           |             |      |            |          
|            |                                 | Net loans          |             | $         | 126,603,048 |      |            |           | 95,631,171 | 
|            |                                 |                    |             |           |             |      |            |          



| |  | The Bank grants loans and extensions of credit to individuals and a variety
of firms and corporations located primarily in Gwinnett County and other
surrounding Georgia counties. A substantial portion of the loan portfolio
is collateralized by improved and unimproved real estate and is dependent
upon the real estate market.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | An analysis of the activity in the allowance for loan losses is presented
below:                                                                                                                                                                                                                                                     

|                                |  |      |           |      |  |      |           |   |  |  |         | 
|------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- | - |  |  | ------- | 
|                                |  | 2002 |           | 2001 |  | 2000
|                                |  |      |           |      |  |     
|Balance at beginning of year    |  | $    | 1,132,130 |      |  |      | 489,444   |   |  |  | 56,640  | 
|Provision for loan losses       |  |      | 613,072   |      |  |      | 791,862   |   |  |  | 432,804 | 
|Loans charged off               |  |      | (149,131  | )    |  |      | (150,686  | ) |  |  |        | 
|Recoveries on loans charged off |  |      | 2,885     |      |  |      | 1,510     |   |  |  |        | 
|                                |  |      |           |      |  |      |           |   |  |  |         | 
|                                |  | $    | 1,598,956 |      |  |      | 1,132,130 |   |  |  | 489,444 | 
|                                |  |      |           |      |  |      |           |   |  |  |         | 

45



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COMMUNITY FINANCIAL HOLDING COMPANY, INC. AND SUBSIDIARY

Consolidated Notes to Financial Statements, continued



|(4) |  | PREMISES AND EQUIPMENT                                                          
|--- |  | --------------------------------------------------------------------------------
|   
|    |  | Premises and equipment at December 31, 2002 and 2001, are summarized as
follows:

|                        |                                                 |   |           |         |      |  |           |         | 
|----------------------- | ----------------------------------------------- | - | --------- | ------- | ---- |  | --------- | ------- | 
|                        |                                                 |   | 2002      |         | 2001
|                        |                                                 |   |           |         |     
|Land                    |                                                 | $ | 1,369,959 |         |      |  | 1,369,959 |        
|Building                |                                                 |   | 3,874,150 |         |      |  | 3,777,703 |        
|Equipment and furniture |                                                 |   | 1,126,498 |         |      |  | 1,004,385 |        
|                        |                                                 |   |           |         |      |  |           |        
|                        |                                                 |   | 6,370,607 |         |      |  | 6,152,047 |        
|                        | Less: Accumulated depreciation and amortization |   |           | 562,473 |      |  |           | 291,094 | 
|                        |                                                 |   |           |         |      |  |           |        
|                        |                                                 | $ | 5,808,134 |         |      |  | 5,860,953 |        
|                        |                                                 |   |           |         |      |  |           |        



|    |  | Depreciation expense and leasehold amortization was approximately $278,500,
$141,600 and $125,000 for the years ended December 31, 2002, 2001 and 2000,
respectively.   
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(5) |  | DEPOSITS                                                                                                                                                                
|   
|    |  | The aggregate amount of time deposits with a minimum denomination of
$100,000 was approximately $44,339,500 and $34,340,000 at December 31, 2002
and 2001, respectively.
|   
|    |  | At December 31, 2002, the scheduled maturities of time deposits are as
follows:                                                                                         

|                    |  |   |            | 
|------------------- |  | - | ---------- | 
|2003                |  | $ | 59,821,014 | 
|2004                |  |   | 16,551,625 | 
|2005                |  |   | 14,980,361 | 
|2006                |  |   | 952,856    | 
|2007 and thereafter |  |   | 6,522,966  | 
|                    |  |   |            | 
|                    |  | $ | 98,828,822 | 
|                    |  |   |            | 



|    |  | The Bank had brokered time deposits at December 31, 2002, of $6,000,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(6) |  | INCOME TAXES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | The Bank had no income tax expense or benefit for the period ended December
31, 2000, as net operating losses were incurred and financial statement
deferred tax benefits remained unrecorded as their realization was heavily
dependent on future taxable income. In 2001, the Bank reversed the
deferred tax valuation allowance of $407,800 because it became more likely
than not that future taxable income will be sufficient to realize the tax
benefits for deductible temporary differences including loss carry
forwards.
|   
|    |  | The components of income tax expense (benefit) for the years ended December
31, 2002 and 2001 are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                      

|                                  |  |      |          |      |  |  |          |  
|--------------------------------- |  | ---- | -------- | ---- |  |  | -------- | -
|                                  |  | 2002 |          | 2001
|                                  |  |      |          |     
|Current                           |  | $    | 806,964  |      |  |  | 270,004  |  
|Deferred                          |  |      | (108,800 | )    |  |  | (25,400  | )
|Utilization of net operating loss |  |      | (10,800  | )    |  |  | (128,200 | )
|Change in valuation allowance     |  |      |         |      |  |  | (407,800 | )
|                                  |  |      |          |      |  |  |          |  
|                                  |  | $    | 687,364  |      |  |  | (291,396 | )
|                                  |  |      |          |      |  |  |          |  

46



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COMMUNITY FINANCIAL HOLDING COMPANY, INC. AND SUBSIDIARY

Consolidated Notes to Financial Statements, continued



|(6) |  | INCOME TAXES, continued                                                                                                                                                                                             
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The difference between income tax expense (benefit) and the amount computed
by applying the statutory federal income tax rate to income before taxes
for the years ended December 31, 2002 and 2001, are as follows:

|                                |                                     |   |         |         |      |  |          |          |  
|------------------------------- | ----------------------------------- | - | ------- | ------- | ---- |  | -------- | -------- | -
|                                |                                     |   | 2002    |         | 2001
|                                |                                     |   |         |         |     
|Pretax income at statutory rate |                                     | $ | 649,400 |         |      |  | 112,300  |         
|Add:                            |                                     |   |         |         |      |  |          |         
|                                | Tax exempt income                   |   |         | (15,800 | )    |  |          |         |  
|                                | Change in valuation allowance       |   |         |        |      |  |          | (407,800 | )
|                                | Other, primarily state income taxes |   |         | 53,764  |      |  |          | 4,104    |  
|                                |                                     |   |         |         |      |  |          |         
|                                |                                     | $ | 687,364 |         |      |  | (291,396 | )       
|                                |                                     |   |         |         |      |  |          |         



| |  | The following summarizes the sources and expected tax consequences of
future taxable deductions (income), which comprise the net deferred taxes
at December 31, 2002 and 2001.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                 |                                              |                                             |   |         |          |      |  |         |         |  
|-------------------------------- | -------------------------------------------- | ------------------------------------------- | - | ------- | -------- | ---- |  | ------- | ------- | -
|                                 |                                              |                                             |   | 2002    |          | 2001
|                                 |                                              |                                             |   |         |          |     
|Deferred income tax assets:      |                                              |                                             |   |         |          |      |  |        
|                                 | Allowance for loan losses                    |                                             | $ | 546,700 |          |      |  | 383,300 |        
|                                 | Organizational and preopening costs          |                                             |   | 46,800  |          |      |  | 51,600  |        
|                                 | Operating loss carryforwards                 |                                             |   |        |          |      |  | 10,800  |        
|                                 | Premises and equipment                       |                                             |   |        |          |      |  |        |        
|                                 | Other                                        |                                             |   | 2,100   |          |      |  | 5,300   |        
|                                 |                                              |                                             |   |         |          |      |  |        
|                                 |                                              | Total gross deferred income tax assets      |   |         | 595,600  |      |  |         | 451,000 |  
|                                 | Less valuation allowance                     |                                             |   |        |          |      |  |        |        
|                                 |                                              |                                             |   |         |          |      |  |        
|                                 |                                              | Net deferred income tax asset               |   |         | 595,600  |      |  |         | 451,000 |  
|                                 |                                              |                                             |   |         |          |      |  |        
|Deferred income tax liabilities: |                                              |                                             |   |         |          |      |  |        
|                                 | Net unrealized gain on investment securities |                                             |   | (97,100 | )        |      |  | (58,700 | )      
|                                 | Premises and equipment                       |                                             |   | (42,800 | )        |      |  | (17,800 | )      
|                                 |                                              |                                             |   |         |          |      |  |        
|                                 |                                              | Total gross deferred income tax liabilities |   |         | (139,900 | )    |  |         | (76,500 | )
|                                 |                                              |                                             |   |         |          |      |  |        
|                                 |                                              | Net deferred income tax benefit (liability) |   | $       | 455,700  |      |  |         | 374,500 |  
|                                 |                                              |                                             |   |         |          |      |  |        



|(7) |  | EMPLOYEE BENEFIT PLAN                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Beginning in 2000, the Bank adopted a defined contribution plan, intended
to comply with the requirements of section 401(k) of the Internal Revenue
Code, covering substantially all employees subject to certain minimum age
and service requirements. Contributions to the plan are made each payroll
period and are approved annually by the Board of Directors. The Bank
matched each participants contributions up to 3% of the participants
eligible compensation, which amounted to $45,900, $37,500 and $22,000 in
2002, 2001 and 2000, respectively.                
|   
|(8) |  | STOCKHOLDERS EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | Beginning August 12, 2002, the Company offered for sale at $15 per share up
to 666,667 shares of its $5 par value common stock. The offering expired
on December 31, 2002, resulting in the sale of 333,334 shares and
$4,877,458 in proceeds, net of certain issuance costs of $122,552. The
proceeds of the offering were first used to repay borrowings under a line
of credit facility and $1,400,000 of the remaining proceeds were
contributed to the Bank to provide necessary capital for future growth.                                                               
|   
|    |  | In consideration of their efforts in organizing the Bank and their
commitment to serve as its initial directors, the organizers received
warrants entitling each of them, for each share purchased by the organizer
(or his/her affiliates or immediate family) in the offering, to purchase at
any time before October 18, 2009, an additional share of common stock at
the offering price of $10. Rights to purchase 212,500 shares were granted
to the organizers. Organizers may not sell or otherwise transfer the
warrants without the prior written consent of the Bank.

47



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COMMUNITY FINANCIAL HOLDING COMPANY, INC. AND SUBSIDIARY

Consolidated Notes to Financial Statements, continued



|(8)  |  | STOCKHOLDERS EQUITY, continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     |  | The warrants were not immediately exercisable. The right to exercise the
warrants vested with respect to one-third (1/3) of the warrant shares on
October 18, 2000, October 18, 2001 and October 18, 2002. All warrants were
fully vested at December 31, 2002. The Bank has the right, upon notice from
its regulators that the Bank is capital deficient, to require each
organizer to exercise or forfeit all of his/her warrants within twenty-one
days of the Banks call for the exercise of the warrants.                                                                                                                                                                                                                                                                                                                              
|    
|(9)  |  | DIVIDEND RESTRICTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    
|     |  | Dividends paid by the Bank are the primary source of funds available to the
Company. Banking regulations limit the amount of dividends that may be
paid without prior approval of the regulatory authorities. The amount of
dividends the Bank may pay in 2003 without prior approval is approximately
$651,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    
|(10) |  | REGULATORY MATTERS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    
|     |  | The Company and the Bank 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 financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and the Bank must meet specific capital
guidelines that involve quantitative measures of 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 regulations to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier I capital (as defined in
the regulations) to risk-weighted assets (as defined), and of Tier I
capital (as defined) to average assets (as defined).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    
|     |  | As of December 31, 2002, the most recent regulatory notification
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized the Bank
must maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the table.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    
|     |  | Actual capital amounts and ratios are also presented in the table (amounts
presented in thousands).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

|                                                      |                                                       |           |   |        |        |          |  |                   |       |       |   |             |        |                         |  |      |      |   |   |        |        |  |  |       |       |  
|----------------------------------------------------- | ----------------------------------------------------- | --------- | - | ------ | ------ | -------- |  | ----------------- | ----- | ----- | - | ----------- | ------ | ----------------------- |  | ---- | ---- | - | - | ------ | ------ |  |  | ----- | ----- | -
|                                                      |                                                       |           |   |        |        |          |  |                   |       |       |   | For Capital |        | To Be Well Capitalized 
|                                                      |                                                       |           |   |        |        |          |  |                   |       |       |   | Adequacy    |        | Under Prompt Corrective
|                                                      |                                                       |           |   | Actual |        | Purposes |  | Action Provisions
|                                                      |                                                       |           |   |        |        |          |  |                  
|                                                      |                                                       |           |   | Amount |        | Ratio    |  | Amount            |       | Ratio |   | Amount      |        | Ratio                  
|                                                      |                                                       |           |   |        |        |          |  |                   |       |       |   |             |        |                        
|As of December 31, 2002 (Consolidated and Bank only): |                                                       |           |   |        |        |          |  |                   |       |       |   |             |        |                         |  |      |      |   |   |        |        |  |  |      
|                                                      | Total Capital (to Risk Weighted Assets)
Consolidated  |           | $ | 15,949 |        |          |  | 11.11             | %     |       | $ | 11,463      |        |                         |  | >8.0 | %    |   | $ | N/A    |        |  |  | N/A   |      
|                                                      |                                                       | Bank only |   | $      | 14,750 |          |  |                   | 10.29 | %     |   | $           | 11,463 |                         |  |      | >8.0 | % |   | $      | 14,329 |  |  |       | >10.0 | %
|                                                      |                                                       |           |   |        |        |          |  |                   |       |       |   |             |        |                         |  |      |      |   |   |        |        |  |  |      
|                                                      | Tier I Capital (to Risk Weighted Assets)
Consolidated |           | $ | 14,350 |        |          |  | 10.00             | %     |       | $ | 5,732       |        |                         |  | >4.0 | %    |   | $ | N/A    |        |  |  | N/A   |      
|                                                      |                                                       | Bank only |   | $      | 13,151 |          |  |                   | 9.18  | %     |   | $           | 5,732  |                         |  |      | >4.0 | % |   | $      | 8,597  |  |  |       | >6.0  | %
|                                                      | Tier I Capital (to Average Assets)
Consolidated       |           | $ | 14,350 |        |          |  | 8.78              | %     |       | $ | 6,538       |        |                         |  | >4.0 | %    |   | $ | N/A    |        |  |  | N/A   |      
|                                                      |                                                       | Bank only |   | $      | 13,151 |          |  |                   | 8.05  | %     |   | $           | 6,538  |                         |  |      | >4.0 | % |   | $      | 8,713  |  |  |       | >5.0  | %
|                                                      |                                                       |           |   |        |        |          |  |                   |       |       |   |             |        |                         |  |      |      |   |   |        |        |  |  |      
|As of December 31, 2001 (Bank only):                  |                                                       |           |   |        |        |          |  |                   |       |       |   |             |        |                         |  |      |      |   |   |        |        |  |  |      
|                                                      | Total Capital (to Risk Weighted Assets)               |           | $ | 9,381  |        |          |  | 8.5               | %     |       | $ | 8,853       |        |                         |  | >8.0 | %    |   | $ | 11,067 |        |  |  | >10.0 | %    
|                                                      |                                                       |           |   |        |        |          |  |                   |       |       |   |             |        |                         |  |      |      |   |   |        |        |  |  |      
|                                                      | Tier I Capital (to Risk Weighted Assets)              |           | $ | 8,249  |        |          |  | 7.5               | %     |       | $ | 4,427       |        |                         |  | >4.0 | %    |   | $ | 6,640  |        |  |  | >6.0  | %    
|                                                      |                                                       |           |   |        |        |          |  |                   |       |       |   |             |        |                         |  |      |      |   |   |        |        |  |  |      
|                                                      | Tier I Capital (to Average Assets)                    |           | $ | 8,249  |        |          |  | 6.9               | %     |       | $ | 4,800       |        |                         |  | >4.0 | %    |   | $ | 6,000  |        |  |  | >5.0  | %    
|                                                      |                                                       |           |   |        |        |          |  |                   |       |       |   |             |        |                         |  |      |      |   |   |        |        |  |  |      

48



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##### Table of Contents



COMMUNITY FINANCIAL HOLDING COMPANY, INC. AND SUBSIDIARY

Consolidated Notes to Financial Statements, continued



|(11) |  | MISCELLANEOUS OPERATING EXPENSES                                                                                              
|---- |  | ------------------------------------------------------------------------------------------------------------------------------
|    
|     |  | Components of other operating expenses which are greater than 1% of
interest income and other operating income are as follows:

|                                 |  |      |         |      |  |      |         |  |  |  |         | 
|-------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  |  | ------- | 
|                                 |  | 2002 |         | 2001 |  | 2000
|                                 |  |      |         |      |  |     
|Stationary and supplies          |  | $    | 61,755  |      |  |      | 65,938  |  |  |  | 51,375  | 
|Legal and professional fees      |  | $    | 171,580 |      |  |      | 66,378  |  |  |  | 67,361  | 
|Data processing fees             |  | $    | 251,065 |      |  |      | 169,324 |  |  |  | 131,559 | 
|Advertising and public relations |  | $    | 106,796 |      |  |      | 57,979  |  |  |  | 54,101  | 



|(12) |  | RELATED PARTY TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                                                                           
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     |  | The Bank conducts transactions with directors and executive officers,
including companies in which they have beneficial interest, in the normal
course of business. It is the policy of the Bank that loan transactions
with directors and executive officers be made on substantially the same
terms as those prevailing at the time for comparable loans to other
persons. The following is a summary of activity for related party loans for
2002:

|                  |  |   |            |  
|----------------- |  | - | ---------- | -
|Beginning balance |  | $ | 1,736,721  |  
|Loans advanced    |  |   | 3,187,331  |  
|Repayments        |  |   | (1,846,237 | )
|                  |  |   |            |  
|Ending balance    |  | $ | 3,077,815  |  
|                  |  |   |            |  



|     |  | The aggregate amount of deposits of directors and executive officers and
their affiliates amounted to approximately $3,245,000 and $3,406,000 at
December 31, 2002 and 2001, respectively.                                                                                                                                                                                                                                                                                                                                                                  
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(13) |  | COMMITMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    
|     |  | The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments could include commitments to extend credit,
standby letters of credit and financial guarantees. Those instruments
involve, to varying degrees, elements of credit risk in excess of the
amount recognized in the balance sheet. The contract amounts of those
instruments reflect the extent of involvement the Bank has in particular
classes of financial instruments.
|    
|     |  | The exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and
standby letters of credit and financial guarantees written is represented
by the contractual amount of those instruments. The Bank uses the same
credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments.                                                                                                                                              
|    
|     |  | In most cases, the Bank requires collateral or other security to support
financial instruments with credit risk.                                                                                                                                                                                                                                                                                                                                                                                                                                            

|                                                                    |                              |  |                 |            |      |  |  |            | 
|------------------------------------------------------------------- | ---------------------------- |  | --------------- | ---------- | ---- |  |  | ---------- | 
|                                                                    |                              |  | Approximate    
|                                                                    |                              |  | Contract Amount
|                                                                    |                              |  |                
|                                                                    |                              |  | 2002            |            | 2001
|                                                                    |                              |  |                 |            |     
|Financial instruments whose contract amounts represent credit risk: |                              |  |                 |            |      |  |  |           
|                                                                    | Commitments to extend credit |  | $               | 23,450,000 |      |  |  | 20,572,000 | 
|                                                                    | Standby letters of credit    |  | $               | 292,900    |      |  |  | 466,000    | 

49



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##### Table of Contents



COMMUNITY FINANCIAL HOLDING COMPANY, INC. AND SUBSIDIARY

Consolidated Notes to Financial Statements, continued



|(13) |  | COMMITMENTS, continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     |  | Commitments to extend credit are 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 may require payment of a fee. Since many of the commitments may
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customers creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank, upon extension of
credit is based on managements credit evaluation. Collateral held varies
but may include unimproved and improved real estate, certificates of
deposit, or personal property.
|    
|     |  | Standby letters of credit and financial guarantees written are conditional
commitments issued by the Bank to guarantee the performance of a customer
to a third party. Those guarantees are primarily issued to local
businesses. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers.                                                                                                                                                                                                                                                                                                                                                                                               
|    
|     |  | The Bank has obtained lines of credit available with correspondent banks to
purchase federal funds. At December 31, 2002, unused lines of credit
totaled $4,000,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    
|(14) |  | FAIR VALUE OF FINANCIAL INSTRUMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    
|     |  | The assumptions used in the estimation of the fair value of the Banks
financial instruments are detailed below. Where quoted prices are not
available, fair values are based on estimates using discounted cash flows
and other valuation techniques. The use of discounted cash flows can be
significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. The following disclosures should not be
considered a surrogate of the liquidation value of the Bank, but rather a
good-faith estimate of the increase or decrease in value of financial
instruments held by the Bank since purchase, origination or issuance.                                                                                              
|    
|     |  | Cash and Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    
|     |  | For cash, due from banks and federal funds sold, the carrying
amount is a reasonable estimate of fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    
|     |  | Interest-bearing Deposits with Other Banks                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    
|     |  | The carrying value of interest-bearing deposits with other banks is a
reasonable estimate of fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    
|     |  | Investment Securities Available for Sale                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    
|     |  | Fair values for investment securities are based on quoted market
prices.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    
|     |  | Other Investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    
|     |  | The carrying value of other
investments approximates fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    
|     |  | Loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    
|     |  | The fair value of fixed rate loans is estimated by discounting the
future cash flows using the current rates at which similar loans would
be made to borrowers with similar credit ratings. For variable rate
loans, the carrying amount is a reasonable estimate of fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    
|     |  | Deposits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    
|     |  | The fair value of demand deposits, savings accounts, NOW accounts and
money market deposits is the amount payable on demand at the reporting
date. The fair value of fixed maturity certificates of deposit is
estimated by discounting the future cash flows using current rates at
which comparable certificates would be issued.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    
|     |  | Commitments to Extend Credit and Standby Letters of Credit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    
|     |  | Because commitments to extend credit and standby letters of credit are
made using variable rates, and have short maturities, the carrying
value and the fair value are immaterial.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

50



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COMMUNITY FINANCIAL HOLDING COMPANY, INC. AND SUBSIDIARY

Consolidated Notes to Financial Statements, continued



|(14) |  | FAIR VALUE OF FINANCIAL INSTRUMENTS, continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     |  | Limitations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    
|     |  | Fair value estimates are made at a specific point in time, based on
relevant market information and 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 Banks entire
holdings of a particular financial instrument. Because no market
exists for a significant portion of the Banks financial instruments,
fair value estimates are based on many judgments. 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 instruments include,
deferred income taxes and premises and equipment. In addition, the tax
ramifications related to the realization of the unrealized gains and
losses can have a significant effect on fair value estimates and have
not been considered in the estimates.                                                                                      
|    
|     |  | The carrying amount and estimated fair values of the Banks financial
instruments at December 31, 2002 and 2001 are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

|             |                                                          |       |   |             |   |            |  |             |   |            |  |             |         |  |  |             |         | 
|------------ | -------------------------------------------------------- | ----- | - | ----------- | - | ---------- |  | ----------- | - | ---------- |  | ----------- | ------- |  |  | ----------- | ------- | 
|             |                                                          |       |   | 2002        |   | 2001      
|             |                                                          |       |   |             |   |           
|             |                                                          |       |   | Carrying    |   | Estimated  |  | Carrying    |   | Estimated 
|             |                                                          |       |   | Amount      |   | Fair Value |  | Amount      |   | Fair Value
|             |                                                          |       |   |             |   |            |  |             |   |           
|Assets:      |                                                          |       |   |             |   |            |  |             |   |            |  |             |         |  |  |            
|             | Cash and cash equivalents                                |       | $ | 13,981,033  |   |            |  | 13,981,033  |   |            |  | 3,374,223   |         |  |  | 3,374,223   |        
|             | Interest-bearing deposits with other                     |       |   |             |   |            |  |             |   |            |  |             |         |  |  |             |        
|             |                                                          | banks |   |             |  |            |  |             |  |            |  |             | 199,000 |  |  |             | 199,000 | 
|             | Investment securities                                    |       | $ | 21,001,052  |   |            |  | 21,001,052  |   |            |  | 17,458,225  |         |  |  | 17,458,225  |        
|             | Other investments                                        |       | $ | 100,034     |   |            |  | 100,034     |   |            |  | 100,034     |         |  |  | 100,034     |        
|             | Loans                                                    |       | $ | 126,603,048 |   |            |  | 131,110,356 |   |            |  | 95,631,171  |         |  |  | 96,603,000  |        
|Liabilities: |                                                          |       |   |             |   |            |  |             |   |            |  |             |         |  |  |            
|             | Federal Funds purchased and retail
repurchase agreements |       | $ | 660,017     |   |            |  | 660,017     |   |            |  | 1,149,000   |         |  |  | 1,149,000   |        
|             | Deposits                                                 |       | $ | 153,348,734 |   |            |  | 155,486,034 |   |            |  | 114,071,149 |         |  |  | 115,763,091 |        

51



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COMMUNITY FINANCIAL HOLDING COMPANY, INC. AND SUBSIDIARY

Consolidated Notes to Financial Statements, continued



|(15) |  | CONDENSED FINANCIAL INFORMATION OF COMMUNITY FINANCIAL HOLDING COMPANY,
INC.
|---- |  | ----------------------------------------------------------------------------

|                                                                               |  |                                                                                            |                                                  |                                                     |            |          |            |  
|------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------ | ------------------------------------------------ | --------------------------------------------------- | ---------- | -------- | ---------- | -
|                                                                               |  |                                                                                            |                                                  | Balance Sheet                                       |            |          |            |  
|                                                                               |  |                                                                                            |                                                  | December 31, 2002                                   |            |          |            |  
|                                                                               |  |                                                                                            |                                                  | Assets                                              |            |          |            |  
|Cash                                                                           |  | $                                                                                          | 1,155,359                                        |                                                    
|Investment in subsidiary                                                       |  |                                                                                            | 13,338,572                                       |                                                    
|Income taxes receivable                                                        |  |                                                                                            | 43,610                                           |                                                    
|                                                                               |  |                                                                                            |                                                  |                                                    
|                                                                               |  | $                                                                                          | 14,537,541                                       |                                                    
|                                                                               |  |                                                                                            |                                                  |                                                    
|                                                                               |  |                                                                                            |                                                  | Liabilities and Stockholders Equity                |            |          |            |  
|Stockholders equity                                                           |  | $                                                                                          | 14,537,541                                       |                                                    
|                                                                               |  |                                                                                            |                                                  |                                                    
|                                                                               |  |                                                                                            |                                                  | Statement of Earnings                               |            |          |            |  
|                                                                               |  |                                                                                            |                                                  | For the Year Ended December 31, 2002                |            |          |            |  
|Equity in undistributed earnings of bank subsidiary                            |  | $                                                                                          | 1,301,213                                        |                                                    
|Other operating expenses                                                       |  |                                                                                            | (124,586                                         | )                                                  
|                                                                               |  |                                                                                            |                                                  |                                                    
|                                                                               |  | Earnings before income taxes                                                               |                                                  |                                                     | 1,176,627  |         
|Income tax benefit                                                             |  |                                                                                            | 46,097                                           |                                                    
|                                                                               |  |                                                                                            |                                                  |                                                    
|                                                                               |  | Net earnings                                                                               |                                                  | $                                                   | 1,222,724  |         
|                                                                               |  |                                                                                            |                                                  |                                                    
|                                                                               |  |                                                                                            |                                                  | Statement of Cash Flows                             |            |          |            |  
|                                                                               |  |                                                                                            |                                                  | For the Year Ended December 31, 2002                |            |          |            |  
|Cash flows from operating activities:                                          |  |                                                                                            |                                                  |                                                    
|                                                                               |  | Net earnings                                                                               |                                                  | $                                                   | 1,222,724  |         
|                                                                               |  | Adjustments to reconcile net earnings to net cash provided (used)
by operating activities: |                                                  |                                                     |            |         
|                                                                               |  |                                                                                            |                                                  | Equity in undistributed earnings of bank subsidiary |            |          | (1,301,213 | )
|                                                                               |  |                                                                                            |                                                  | Change in other assets and liabilities, net         |            |          | (43,610    | )
|                                                                               |  |                                                                                            |                                                  |                                                    
|                                                                               |  |                                                                                            | Net cash provided (used) by operating activities |                                                     |            | (122,099 | )         
|                                                                               |  |                                                                                            |                                                  |                                                    
|Cash flows from investing activities consisting of contributions
to subsidiary |  |                                                                                            | (3,600,000                                       | )                                                  
|                                                                               |  |                                                                                            |                                                  |                                                    
|Cash flows from financing activities:                                          |  |                                                                                            |                                                  |                                                    
|                                                                               |  | Proceeds from note payable                                                                 |                                                  |                                                     | 2,500,000  |         
|                                                                               |  | Repayment of note payable                                                                  |                                                  |                                                     | (2,500,000 | )       
|                                                                               |  | Proceeds from issuance of common stock, net of offering costs                              |                                                  |                                                     | 4,877,458  |         
|                                                                               |  |                                                                                            |                                                  |                                                    
|                                                                               |  |                                                                                            | 4,877,458                                        |                                                    
|                                                                               |  |                                                                                            |                                                  |                                                    
|Net change in cash                                                             |  |                                                                                            | 1,155,359                                        |                                                    
|Cash and cash equivalents at beginning of the period                           |  |                                                                                            |                                                 |                                                    
|                                                                               |  |                                                                                            |                                                  |                                                    
|Cash and cash equivalents at end of the period                                 |  | $                                                                                          | 1,155,359                                        |                                                    
|                                                                               |  |                                                                                            |                                                  |                                                    

52



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##### Table of Contents



Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.




PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act.

The following table provides biographical information for each of our
directors and executive officers. All of our executive officers are chosen by
our Board and serve at the Boards discretion. Except as otherwise indicated,
each individual has been or was engaged in his or her present or last principal
occupation, in the same or a similar position, for more than five years. There
are no family relationships among any of our directors or executive officers.

|                               |  |                     |  |                     |  |                                                                                                                                                            
|------------------------------ |  | ------------------- |  | ------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|                               |  | Director/ Executive |  | Director/ Executive |  |                                                                                                                                                            
|                               |  | Officer of          |  | Officer of Gwinnett |  | Position with Community Financial Holding                                                                                                                  
|                               |  | Community Financial |  | Community Bank      |  | Company, Inc. and/or Gwinnett Community Bank and                                                                                                           
|Name (Age)                     |  | Since               |  | Since               |  | Principal Occupation                                                                                                                                       
|                               |  |                     |  |                     |  |                                                                                                                                                            
|Directors:                     |  |                     |  |                     |  |                                                                                                                                                            
|                               |  |                     |  |                     |  |                                                                                                                                                            
|Frank W. Bell, Jr. (55)        |  | 3/28/02             |  | 10/18/99            |  | Director of Community Financial and Gwinnett
Community Bank; Business Owner, Nurseryman, and
Horticulturist.                                               
|                               |  |                     |  |                     |  |                                                                                                                                                            
|James B. Braden (42)           |  | 3/28/02             |  | 10/18/99            |  | Director of Community Financial and Gwinnett
Community Bank; Real Estate Developer.                                                                        
|                               |  |                     |  |                     |  |                                                                                                                                                            
|J. Terry Gordon (59)           |  | 3/28/02             |  | 10/18/99            |  | Director of Community Financial and Gwinnett
Community Bank; Certified Public Accountant.                                                                  
|                               |  |                     |  |                     |  |                                                                                                                                                            
|Thomas J. Martin (58)          |  | 3/28/02             |  | 10/18/99            |  | Chairman of the Board, Chief Executive Officer
and President of Community Financial and Gwinnett
Community Bank.                                           
|                               |  |                     |  |                     |  |                                                                                                                                                            
|Miles H. Mason, III,
M.D. (55) |  | 3/28/02             |  | 10/18/99            |  | Director of Community Financial and Gwinnett
Community Bank; Physician.                                                                                    
|                               |  |                     |  |                     |  |                                                                                                                                                            
|Don F. Phillips, Jr. (43)      |  | 3/28/02             |  | 10/18/99            |  | Director of Community Financial and Gwinnett
Community Bank; Business Owner.                                                                               
|                               |  |                     |  |                     |  |                                                                                                                                                            
|Dan Reeves (58)                |  | 3/28/02             |  | 10/18/99            |  | Director of Community Financial and Gwinnett
Community Bank; Head Coach of the Atlanta Falcons
Professional Football Team.                                 
|                               |  |                     |  |                     |  |                                                                                                                                                            
|Franklin M. Rinker (57)        |  | 3/28/02             |  | 10/18/99            |  | Director of Community Financial and Gwinnett
Community Bank; Hospital Administrator.                                                                       
|                               |  |                     |  |                     |  |                                                                                                                                                            
|Executive Officers:            |  |                     |  |                     |  |                                                                                                                                                            
|                               |  |                     |  |                     |  |                                                                                                                                                            
|Thomas J. Martin (58)          |  | 3/28/02             |  | 10/18/99            |  | Chairman of the Board, Chief Executive Officer
and President of Community Financial and Gwinnett
Community Bank.                                           
|                               |  |                     |  |                     |  |                                                                                                                                                            
|Ann K. Marshall (44)           |  | 3/28/02             |  | 10/18/99            |  | Chief Financial Officer and Secretary of
Community Financial and Chief Financial Officer,
Chief Operating Officer and Secretary of Gwinnett
Community Bank.
|                               |  |                     |  |                     |  |                                                                                                                                                            
|Donald W. Tew (52)             |  |                     |  | 12/30/02            |  | Senior Lending Officer of Gwinnett Community Bank.                                                                                                         

None of our directors holds any directorships in
companies with a class of securities registered pursuant to
Section 12 of the Securities Exchange Act or subject to the
requirements of Section 15(d) of such Act or any company
registered as an investment company under the Investment
Company Act of 1940, as amended.

Biographical Information

Frank W. Bell, Jr.is the owner of Woodys Nursery and is a nurseryman and
horticulturist. He is a graduate of The University of Georgia in Athens,
Georgia.

James B. Bradenis the owner and President of Burnett Holding Company,
Inc., a real estate development company. He is a graduate of The University of
Georgia in Athens, Georgia.

J. Terry Gordonis a Certified Public Accountant and the owner and
President of J. Terry Gordon & Co., CPA. He is a graduate of Georgia Southern
University in Statesboro, Georgia.

Thomas J. Martinis the Chairman of the Board, Chief Executive Officer and
President of Community Financial and Gwinnett Community Bank. Prior to joining
Gwinnett Community Bank, he was Chairman of the Board and Chief Executive
Officer of Citizens Gwinnett Bankshares, Inc. and Citizens Bank of Gwinnett,
later known as Premier Bank. He

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attended Georgia State University and DeKalb
College and is a graduate of the Graduate School of Banking at Louisiana State
University in Baton Rouge, Louisiana.

Miles H. Mason, III, M.D.is sole practitioner in General Surgery and is
also President of the Medical Staff of Gwinnett Health System. He is a
graduate of Emory University in Atlanta, Georgia and the Medical College of
Georgia in Augusta, Georgia.

Don F.
Phillips, Jr. is the owner and President of Atlanta Flooring Design
Center. He is a graduate of Troy State University in Troy, Alabama.

Dan Reevesis the head coach for the Atlanta Falcons, a professional
football team. He attended the University of South Carolina in Columbia, South
Carolina.

Franklin M. Rinkeris a hospital administrator and serves as President and
Chief Executive Officer of Gwinnett Health System. He is a graduate of Emory
University in Atlanta, Georgia and Queens College in Charlotte, North Carolina.

Ann K. Marshallis Secretary of Community Financial and Chief Financial
Officer, Chief Operating Officer and Secretary of Gwinnett Community Bank.
Prior to joining Gwinnett Community Bank, she was a Vice President at Citizens
Bank of Gwinnett, later known as Premier Bank. She is a graduate of Troy State
University in Troy, Alabama.

Donald W. Tewis the Senior Lending Officer of Gwinnett Community Bank.
Prior to joining Gwinnett Community Bank, he held the position of Vice
President with SunTrust Bank. He is a graduate of Georgia College,
Milledgeville, Georgia.

Meetings and Committees of the Board of Directors

Our Board of Directors conducts its business through meetings of the Board
and through activities of its committees. During the fiscal year ended
December 31, 2002, the Board of Directors held 10 regular meetings. No
director attended fewer than 75% of the total meetings of the Board of
Directors either in person or via teleconference during 2002.

The Board of Directors of Gwinnett Community Bank
conducts its business through meetings and through the
activities of its committees. During the fiscal year ended
December 31, 2002, the Board of Directors of Gwinnett Community
Bank held 12 regular meetings. No director attended fewer than
75% of the total meetings of the Board of Directors of Gwinnett
Community Bank either in person or via teleconference during
2002.

The Executive Compensation Committee consists of
Messrs. Franklin M. Rinker (Chairman), Don F. Phillips, Jr.,
and Miles H. Mason, III, M.D. and determines executive
compensation. The Executive Compensation Committee met once
during 2002.

The Board of Directors has established an Audit Committee and adopted a
written charter setting out the duties and functions of the audit committee.

Item 10. Executive Compensation.

Executive Officer Compensation

The table below sets forth the total compensation paid to our Chief Executive
Officer and the other executive officer receiving total compensation in excess
of $100,000 during any year (the Named Executive Officers) for each of our
last three completed fiscal years:




SUMMARY COMPENSATION TABLE

|                     |                                       |      |      |        |  |       |                        |         |  |   |        |   |  |   |        |        | 
|-------------------- | ------------------------------------- | ---- | ---- | ------ |  | ----- | ---------------------- | ------- |  | - | ------ | - |  | - | ------ | ------ | 
|Name of Individual   |                                       |      |      |        |  |       |                        |         |  |   |        |   |  |   |        |       
|& Principal Position |                                       | Year |      | Salary |  | Bonus | Other Compensation (a)
|                     |                                       |      |      |        |  |       |                       
|Thomas J. Martin     |                                       |      | 2002 |        |  | $     | 150,000                |         |  | $ | 20,000 |   |  | $ | 31,853 |       
|                     | Chief Executive Officer and President |      |      | 2001   |  |       | $                      | 150,000 |  |   |        |  |  |   | $      | 17,233 | 
|                     |                                       |      | 2000 |        |  | $     | 150,000                |         |  |   |       |   |  | $ | 11,742 |       

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|                     |                                       |      |      |        |  |       |                        |        |  |   |       |       |  |   |       |       | 
|-------------------- | ------------------------------------- | ---- | ---- | ------ |  | ----- | ---------------------- | ------ |  | - | ----- | ----- |  | - | ----- | ----- | 
|Name of Individual   |                                       |      |      |        |  |       |                        |        |  |   |       |       |  |   |       |      
|& Principal Position |                                       | Year |      | Salary |  | Bonus | Other Compensation (a)
|                     |                                       |      |      |        |  |       |                       
|Ann K. Marshall      |                                       |      | 2002 |        |  | $     | 110,000                |        |  | $ | 5,000 |       |  | $ | 7,913 |      
|                     | Chief Financial Officer and Secretary |      |      | 2001   |  |       | $                      | 90,000 |  |   | $     | 5,000 |  |   | $     | 6,518 | 
|                     |                                       |      | 2000 |        |  | $     | 80,000                 |        |  |   |      |       |  | $ | 6,039 |      



---

|(a) |  | Includes contributions made to a 401(k) plan, insurance premiums paid
on behalf of such officer, and the use of a company automobile, where
applicable.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

Compensation Committee Interlocks and Insider Participation in Compensation
Decisions

All compensation decisions made during fiscal 2002 were made exclusively
by the Compensation Committee. The Compensation Committee considered the
recommendations made by the various supervisors of the officers and executive
officers whose compensation was being considered.

The members of the Compensation Committee during fiscal 2002 were Messrs.
Franklin M. Rinker, Miles H. Mason, III, M.D., Don F. Phillips, Jr., and Thomas
J. Martin, none of whom were officers or employees of Gwinnett Community Bank
during fiscal 2002 or any prior year, with the exception of Mr. Martin, who was
Gwinnett Community Banks Chief Executive Officer and President. Mr. Martin
was not present for discussion and voting on matters affecting his
compensation.

Benefits Plans

In 2000, Gwinnett Community Bank adopted a defined contribution plan
pursuant to Section 401(k) of the Internal Revenue Code, covering substantially
all employees subject to certain minimum age and service requirements.
Contributions to the plan are made each payroll period and are approved
annually by the Board of Directors of Gwinnett
Community Bank. Gwinnett Community Bank matched each participants
contributions up to three percent (3%) of the participants eligible
compensation, which amounted to $45,900, $37,500 and $22,000 in 2002, 2001 and
2000, respectively.

Director Compensation

The directors currently receive compensation in the
form of $500 for each meeting of the board attended, with two
absences permitted annually. The directors received the first
directors fee in December 2002.

Employment Agreements

We have no employment agreements with any of our
executive officers or employees.

Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table lists, as of December 31, 2002, the number of shares
of common stock beneficially owned by (a) each of our directors, (b) each of
our executive officers, (c) each person or entity known to us to be the
beneficial owner of more than 5% of our outstanding common stock, and (d) all
current executive officers and directors as a group. Information relating to
beneficial ownership of common stock by our principal shareholders and
management is based upon information furnished by each person using beneficial
ownership concepts under the rules of the Securities and Exchange Commission.
Under these rules, a person is deemed to be a beneficial owner of a security if
that person has or shares voting power, which includes the power to vote or
direct the voting of the security, or investment power, which includes the
power to vote or direct the voting of the security. The person is also deemed
to be a beneficial owner of any security of which that person has a right to
acquire beneficial ownership within 60 days. Under the Securities and Exchange
Commission rules, more than one person may be deemed to be a beneficial owner
of the same securities, and a person may be deemed to be a beneficial owner of
securities as to which he or she may not have any pecuniary beneficial
interest.

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The percentages prior to the offering are calculated
based on 1,200,894 shares issued and outstanding on December
31, 2002, plus, in the case of a person who has the right to
acquire additional shares within 60 days, any new shares which
would be issued to effect such acquisition.

|                                                                |  |                           |         |                     |  |  |      |  
|--------------------------------------------------------------- |  | ------------------------- | ------- | ------------------- |  |  | ---- | -
|Name of Beneficial Owner                                        |  | Shares Beneficially Owned
|                                                                |  |                          
|                                                                |  | Number of Shares          |         | Percentage of Class
|                                                                |  |                           |         |                    
|Executive Officers and Directors:                               |  |                           |         |                     |  |  |      |  
|Frank W. Bell, Jr. (1)                                          |  |                           | 27,667  |                     |  |  | 2.3  | %
|James B. Braden (2)                                             |  |                           | 73,334  |                     |  |  | 6.1  | %
|J. Terry Gordon (3)                                             |  |                           | 26,667  |                     |  |  | 2.2  | %
|Thomas J. Martin (4)                                            |  |                           | 130,000 |                     |  |  | 10.3 | %
|Miles H. Mason, III, M.D. (5)                                   |  |                           | 66,667  |                     |  |  | 5.4  | %
|Don F. Phillips, Jr. (6)                                        |  |                           | 32,307  |                     |  |  | 2.7  | %
|Dan Reeves (7)                                                  |  |                           | 76,000  |                     |  |  | 6.2  | %
|Franklin M. Rinker (8)                                          |  |                           | 66,667  |                     |  |  | 5.4  | %
|Ann K. Marshall                                                 |  |                           | 10,167  |                     |  |  | *    |  
|All Executive Officers and
Directors as Group (10 persons) (9): |  |                           | 509,476 |                     |  |  | 36.0 | %

     Represents less than one percent.



---

|(1) |  | Includes 10,000 shares of common stock subject to acquisition within 60
days under warrants that were granted in connection with the organization
of Gwinnett Community Bank and are currently exercisable. 
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes 30,000 shares of common stock subject to acquisition within 60
days under warrants that were granted in connection with the organization
of Gwinnett Community Bank and are currently exercisable. 
|   
|(3) |  | Includes 10,000 shares of common stock subject to acquisition within 60
days under warrants that were granted in connection with the organization
of Gwinnett Community Bank and are currently exercisable. 
|   
|(4) |  | Includes 60,000 shares of common stock subject to acquisition within 60
days under warrants that were granted in connection with the organization
of Gwinnett Community Bank and are currently exercisable. 
|   
|(5) |  | Includes 30,000 shares of common stock subject to acquisition within 60
days under warrants that were granted in connection with the organization
of Gwinnett Community Bank and are currently exercisable. 
|   
|(6) |  | Includes 12,500 shares of common stock subject to acquisition within 60
days under warrants that were granted in connection with the organization
of Gwinnett Community Bank and are currently exercisable. 
|   
|(7) |  | Includes 30,000 shares of common stock subject to acquisition within 60
days under warrants that were granted in connection with the organization
of Gwinnett Community Bank and are currently exercisable. 
|   
|(8) |  | Includes 30,000 shares of common stock subject to acquisition within 60
days under warrants that were granted in connection with the organization
of Gwinnett Community Bank and are currently exercisable. 
|   
|(9) |  | Includes 212,500 shares of common stock subject to acquisition within 60
days under warrants that were granted in connection with the organization
of Gwinnett Community Bank and are currently exercisable.

We know of no arrangements, including any pledge by any person of
securities issued by us, the operation of which may at a subsequent date result
in a change of control.

Item 12. Certain Relationships and Related Transactions.

Gwinnett Community Bank, our subsidiary, has had banking
transactions in the ordinary course of its business with its
and our directors and officers, including companies in which
they have a beneficial interest. Banking transactions that

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are
extensions of credit are made on substantially the same terms
as those prevailing at the time for comparable loans in
comparable transactions with other customers. Such extensions
of credit have not, and do not currently, involve more than the
normal risk of collectibility or present other unfavorable
features and comply with Gwinnett Community Banks lending
policies and statutory lending limits.

We do not intend to enter into any transactions in the future with or
involving any of our officers or directors or any members of their immediate
family on terms that would be less favorable than those that would be available
from unaffiliated their parties in arms-length transactions.

In 1999, Gwinnett Community Bank entered into a lease
agreement with a partnership controlled by our Chairman of the
Board for a temporary banking facility. The lease agreement
extended to December 31, 2000, and reverted to a month-to-month
lease in 2001, with monthly payments of $4,400. This lease
terminated on July 31, 2001.

Item 13. Exhibits and Reports on Form 8-K.

(a)  Exhibits.

|     |  |                                                                                                                                                                                                                                              
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Articles of Incorporation of Community Financial (incorporated
by reference to Exhibit 3.1 of the Community Financials Registration
Statement on Form S-1, filed June 6, 2002 (File No. 333-89972)).                                        
|3.2  |  | Bylaws of Community Financial (incorporated by reference to
Exhibit 3.2 of the Community Financials Registration Statement on
Form S-1, filed June 6, 2002 (File No. 333-89972)).                                                           
|4.1  |  | See exhibits 3.1 and 3.2 for provisions of Community
Financials Articles of Incorporation and Bylaws defining the rights
of shareholders.                                                                                                   
|4.2  |  | Specimen certificate representing shares of Community
Financials common stock (incorporated by reference to Exhibit 4.2 of
the Community Financials Registration Statement on Form S-1, filed
June 6, 2002 (File No. 333-89972)).          
|10.1 |  | Agreement between Fiserv Solutions, Inc. and Gwinnett Community
Bank dated June 8, 1999 (incorporated by reference to Exhibit 10.1 of
the Community Financials Registration Statement on Form S-1, filed
June 6, 2002 (File No. 333-89972)).
|10.2 |  | Form of Organizer Warrant (incorporated by reference to Exhibit
10.1 of the Community Financials Registration Statement on Form S-1,
filed June 6, 2002 (File No. 333-89972)).                                                              
|21   |  | Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21 of the Community Financials Registration Statement on
Form S-1, filed June 6, 2002 (File No. 333-89972)).                                                           
|99.1 |  | Safe Harbor Compliance Statement for Forward-Looking Statements.                                                                                                                                                                             
|99.2 |  | Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                       

(b) Reports on Form 8-K.

None.

Item 14. Controls and Procedures.

As of a date (the Evaluation Date) within the 90-day
period prior to the filing of this report, we carried out an
evaluation of the effectiveness of our disclosure controls and
procedures (as defined by Rule 15d-14(c) of the Securities
Exchange Act of 1934) under the supervision and with the
participation of our chief executive officer and chief
financial officer. Based on and as of the date of such
evaluation, the aforementioned officers have concluded that our
disclosure controls and procedures were effective.

We also maintain a system of internal accounting
controls that is designed to provide assurance that our assets
are safeguarded and that transactions are executed in
accordance with managements authorization and properly
recorded. This system is continually reviewed and is augmented
by written policies and procedures, the careful selection and
training of qualified personnel and an internal audit program
to monitor its effectiveness. Since the Evaluation Date, there
have been no significant changes to this system of internal
controls or in other factors that could significantly affect
those controls.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.

|                      |  |                                                                                                               
|--------------------- |  | --------------------------------------------------------------------------------------------------------------
|                      |  | COMMUNITY FINANCIAL HOLDING COMPANY, INC.                                                                     
|                     
|                      |  |                                                                                                               
|                     
|Dated: March 24, 2003 |  | By: /s/Thomas J. MartinThomas J. Martin
President and Chief Executive Officer (Duly
Authorized Representative)

Pursuant to the requirement of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

|                                                 |  |                                                                                                |  |               
|------------------------------------------------ |  | ---------------------------------------------------------------------------------------------- |  | --------------
|/s/ Thomas J. MartinThomas J. Martin             |  | Chairman of the Board, President and
Chief Executive Officer (Principal
Executive Officer)     |  | March 24, 2003
|                                                
|                                                 |  |                                                                                                |  |               
|                                                
|/s/ Ann K. MarshallAnn K. Marshall               |  | Senior Vice
President and Chief
Financial Officer
(Principal
Accounting and
Financial Officer) |  | March 24, 2003
|                                                
|                                                 |  |                                                                                                |  |               
|                                                
|/s/ Frank W. Bell, Jr.Frank W. Bell, Jr.         |  | Director                                                                                       |  | March 24, 2003
|                                                
|                                                 |  |                                                                                                |  |               
|                                                
|/s/ James B BradenJames B. Braden                |  | Director                                                                                       |  | March 24, 2003
|                                                
|                                                 |  |                                                                                                |  |               
|                                                
|/s/ J. Terry GordonJ. Terry Gordon               |  | Director                                                                                       |  | March 24, 2003
|                                                
|                                                 |  |                                                                                                |  |               
|                                                
|/s/ Miles H. Mason, IIIMiles H. Mason, III, M.D. |  | Director                                                                                       |  | March 24, 2003
|                                                
|                                                 |  |                                                                                                |  |               
|                                                
|/s/ Don F. Phillips, Jr.Don F. Phillips, Jr.     |  | Director                                                                                       |  | March 24, 2003
|                                                
|                                                 |  |                                                                                                |  |               
|                                                
|/s/ Dan ReevesDan Reeves                         |  | Director                                                                                       |  | March 24, 2003
|                                                
|                                                 |  |                                                                                                |  |               
|                                                
|/s/ Franklin M. RinkerFranklin M. Rinker         |  | Director                                                                                       |  | March 24, 2003

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SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH
REPORTS FILED PURSUANT TO SECTION 15(d) OF THE
EXCHANGE ACT BY NON-REPORTING ISSUERS

The Registrant has not sent an annual report or proxy material to it
security holders. The Registrant intends to furnish an annual report and proxy
material to it security holders after the date of this report, and will furnish
copies of such material to the Commission when it is sent to security holders.

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CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, the Chief Executive Officer of Community Financial Holding Company,
Inc. (the registrant), certify that:

1.     I have reviewed this annual report on Form 10-KSB of the registrant;

2.     Based on my knowledge, this annual report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this annual report;

3.     Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;

4.     The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:



| | (a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which the periodic
reports are being prepared;
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants internal
disclosures controls and procedures as of a date within 90 days prior
to this annual report (the Evaluation Date);                                                                                                                  
|
| | (c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                           

5.     The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrants auditors
and the audit committee of the registrants board of directors (or persons
performing the equivalent function):



| | (a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses
in internal controls;
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                    

6.     The registrants other certifying officers and I have
indicated in this annual report whether or not there were significant changes
in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

|                                                                                           
|-------------------------------------------------------------------------------------------
|Dated this 24th day of March, 2003.                                                        
|                                                                                           
|                                                                                           
|                                                                                           
|/s/ Thomas J. MartinThomas J. Martin, Chief Executive Officer
(Principal Executive Officer)

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CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, the Chief Financial Officer of Community Financial Holding Company,
Inc. (the registrant), certify that:



| |                                                                        
| | -----------------------------------------------------------------------
| | 1. I have reviewed this annual report on Form 10-KSB of the registrant;

2.     Based on my knowledge, this annual report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this annual report;

3.     Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;

4.     The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:



| | (a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which the periodic
reports are being prepared;
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants internal
disclosures controls and procedures as of a date within 90 days prior
to this annual report (the Evaluation Date);                                                                                                                  
|
| | (c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                           

5.     The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrants auditors
and the audit committee of the registrants board of directors (or persons
performing the equivalent function):



| | (a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses
in internal controls;
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                    

6.     The registrants other certifying officers and I have
indicated in this annual report whether or not there were significant changes
in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.



Dated this 24th day of March, 2003.




|                                                                        | 
|----------------------------------------------------------------------- | 
|                                                                        | 
|/s/ Ann K. Marshall                                                     | 
|                                                                        | 
|Ann K. Marshall, Chief Financial Officer
(Principal Accounting Officer) | 

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