PORTIONS OF REGISTRANT'S ANNUAL REPORT TO SHAREHOLDERS
              FOR THE YEAR ENDED DECEMBER 31, 1997 INCORPORATED BY
                          REFERENCE INTO THE FORM 10-K

BUSINESS OF THE CORPORATION

General

ComSouth  Bankshares,  Inc. (the  "Corporation") is a multi-bank holding company
incorporated  on May 15,  1987,  pursuant  to the  laws of the  State  of  South
Carolina.  Subsidiaries of the  Corporation  are Bank of Columbia,  NA ("BOCL"),
which opened for business on July 12, 1988, and Bank of Charleston,  NA ("BOC"),
which opened for  business on April 12,  1990.  Both Banks offer a full range of
deposit services,  including  checking accounts,  NOW accounts,  and savings and
other time deposits of various types,  ranging from daily money market  accounts
to  longer-term  certificates  of  deposit.  The  Banks  also  offer  individual
retirement  accounts.  The  Banks  each  offer a full  range of  short-term  and
intermediate-term   commercial   and  personal   loans.   The  Banks   originate
variable-rate,  residential  and other mortgage  loans and  fixed-rate  mortgage
loans primarily for resale.  Commercial  loans are made primarily to individuals
and small and mid-sized  businesses operating in the central and coastal regions
of South  Carolina,  principally  Richland and Lexington  Counties for BOCL, and
Charleston, Dorchester, and Berkeley Counties for BOC. BOCL serves its customers
from its main  office at 1350 Main  Street and  drive-in  facility  at 1427 Park
Street in  Columbia,  South  Carolina.  BOC serves its  customers  from its main
office and drive-in facility at 276 East Bay Street, Charleston, South Carolina.

The  principal  executive  offices  of  the  Corporation  are  located  at  1136
Washington Street, Suite 200, Columbia, South Carolina 29201.















                                       1
<PAGE>

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

                   SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

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

Management's  Discussion  and Analysis  should be read in  conjunction  with the
consolidated  financial statements and accompanying notes thereto as well as the
supplementary financial, tabular, and historical information presented elsewhere
in this Annual Report.

TABLE 1 - FINANCIAL SUMMARY
Summary of  Operations
<TABLE>
<CAPTION>
(thousands, except per share data)
                                                                1997           1996           1995          1994           1993
                                                             ---------      ---------      ---------      ---------      ---------
<S>                                                          <C>            <C>            <C>            <C>            <C>
Interest income .........................................    $  14,593      $  11,276      $   9,234      $   6,786      $   6,537
Interest expense ........................................        6,580          4,924          4,125          2,570          2,690
                                                             ---------      ---------      ---------      ---------      ---------
Net interest income .....................................        8,013          6,352          5,109          4,216          3,847
Provision for loan losses ...............................          334            110            195             75            135
                                                             ---------      ---------      ---------      ---------      ---------
Net interest income after provision
  for loan losses .......................................        7,679          6,242          4,914          4,141          3,712
Noninterest income ......................................        1,995          1,646          1,469            771            690
Noninterest expense .....................................        6,059          5,131          4,576          3,927          3,836
                                                             ---------      ---------      ---------      ---------      ---------
Income before income taxes ..............................        3,615          2,757          1,807            985            566
Applicable income (taxes) benefit .......................       (1,361)          (929)          (426)            62            (43)
                                                             ---------      ---------      ---------      ---------      ---------
Net income ..............................................    $   2,254      $   1,828      $   1,381      $   1,047      $     523
                                                             =========      =========      =========      =========      =========
Earnings per share - Basic (1) ..........................    $     .98      $     .80      $     .61      $     .47      $     .23
Earnings per share - Diluted (1) ........................    $     .91      $     .77      $     .60      $     .47      $     .23
Book  value at year-end per common share ................    $    6.91      $    5.93      $    5.19      $    4.46      $    4.08
Selected year-end assets and liabilities
Total assets ............................................    $ 205,572      $ 164,634      $ 133,423      $  96,920      $  95,008
Interest-earning assets .................................      192,517        151,635        119,429         89,179         87,105
Investment securities ...................................       43,026         34,106         22,135         21,878         23,323
Loans (net) .............................................      142,671        113,879         91,024         67,301         59,883
Deposits ................................................      182,673        145,408        117,763         82,908         82,898
Noninterest-bearing deposits ............................       41,284         35,678         24,654         13,392         11,430
Interest-bearing deposits ...............................      141,389        109,730         93,109         69,516         71,468
Interest-bearing liabilities ............................        5,615          4,659          2,193          3,422          2,513
Stockholders' equity ....................................       16,016         13,641         11,879         10,104          9,238
Ratios (average)
Loans to deposits .......................................        80.89%         82.55%         80.62%         71.87%         73.58%
Return on assets ........................................         1.24%          1.30%          1.22%          1.13%          0.58%
Return on interest-earning assets .......................         1.31%          1.37%          1.30%          1.20%          0.62%
Return on stockholders' equity ..........................        15.19%         14.54%         12.74%         11.12%          5.68%
Net interest income to interest-earning assets ..........         4.66%          4.78%          4.81%          4.84%          4.53%
Net charge-offs (recoveries) to loans ...................          .26%          0.09%          0.01%         (0.11%)         0.66%
Stockholders' equity to assets ..........................         8.17%          8.94%          9.55%         10.13%         10.21%
Stockholders' equity to deposits ........................         9.32%         10.16%         10.94%         11.69%         11.60%
Risk-based capital ratio ................................        12.10%         13.30%         13.43%         16.23%         15.27%
Tier 1 leverage ratio ...................................        10.90%         11.90%         12.17%         14.96%         14.00%
</TABLE>

(1) See Note 1 to consolidated financial statements regarding earnings per share
calculation.


                                       2
<PAGE>

RESULTS OF OPERATIONS

The  Corporation  recorded net income of $2,254,000 or $.91 per diluted share at
year end 1997, an increase of 23% over the  $1,828,000 or $.77 per diluted share
reported for 1996.  The economy in both  markets  serviced by each bank has been
favorable over the past several years and has generated a need for businesses to
borrow to fund expansion and growth. As a result,  loans outstanding grew by 25%
to  $144,500,000  during  1997,  which was the primary  reason for the  improved
earnings over the prior year.

The Corporation  had total revenues of $16,588,000,  $12,922,000 and $10,703,000
for the three years ending 1997, 1996 and 1995, respectively. Total expenses for
the same periods were $14,334,000, $11,094,000 and $9,322,000.

Summarized  in Table 2 is an analysis of the  composition  of the  Corporation's
revenues and expenses for 1997, 1996 and 1995.

TABLE 2 - REVENUE AND EXPENSES
<TABLE>
<CAPTION>

                                                                            Year ended December 31,
                                                                            -----------------------
                                                         1997                         1996                     1995
                                                         ----                         ----                     ----
                                                        Amount           %            Amount        %           Amount          %
                                                        ------           -            ------        -           ------          -
Revenues
<S>                                                   <C>              <C>       <C>              <C>       <C>              <C>
Interest on loans ................................    $11,945,201      72.0%     $ 9,454,242      73.2%     $ 7,723,855      72.2%
Interest and dividends on investment securities ..      2,520,380      15.2%       1,674,717      13.0%       1,361,008      12.7%
Interest on temporary investments ................        127,606        .8%         147,320       1.1%         148,778       1.4%
Noninterest income ...............................      1,995,115      12.0%       1,646,054      12.7%       1,469,342      13.7%
                                                      -----------     -----      -----------     -----      -----------     -----
Total revenues ...................................    $16,588,302     100.0%     $12,922,333     100.0%     $10,702,983     100.0%
                                                      ===========     =====      ===========     =====      ===========     =====

Expenses
Interest on deposits .............................    $ 6,263,216      43.7%     $ 4,756,452      42.9%     $ 4,008,427      43.0%
Interest on note payable and
  securities sold under agreements
  to repurchase ..................................        317,278       2.2%         167,104       1.5%         116,136       1.2%
Provision for loan losses ........................        334,000       2.3%         110,000       1.0%         195,000       2.1%
Salaries and employee benefits ...................      3,090,304      21.6%       2,661,977      24.0%       2,481,335      26.6%
Occupancy expenses ...............................        448,647       3.1%         433,592       3.9%         429,183       4.6%
Furniture and equipment ..........................        474,652       3.3%         406,767       3.6%         341,966       3.7%
Advertising and marketing ........................        161,966       1.1%          89,358       0.8%          78,643       0.8%
Other ............................................      1,883,592      13.2%       1,539,418      13.9%       1,244,695      13.4%
Taxes ............................................      1,360,424       9.5%         929,239       8.4%         426,127       4.6%
                                                      -----------     -----      -----------     -----      -----------     -----
Total expenses ...................................    $14,334,079     100.0%     $11,093,907     100.0%     $ 9,321,512     100.0%
                                                      ===========     =====      ===========     =====      ===========     =====
</TABLE>

                                       3
<PAGE>

Interest on loans was  responsible for most of the change in revenues in each of
the last three  years.  Increased  volume was the major factor for the growth in
loan interest  income as the yield realized on loans declined from 1995 to 1996,
but remained  relatively stable from 1996 to 1997.  Interest income generated by
investment securities also increased over the same three year period as a result
of  asset  growth  and  improved  yields  earned  on the  portfolio  each  year.
Noninterest  income also  increased over the three year period with the majority
of these  increases  being derived from the  "Business  Manager"  product.  This
product provides  immediate cash flows to small businesses  through the purchase
by the Banks of such businesses'  receivables.  The Banks are paid a fee for the
billing and collection of these receivables and retain full recourse against the
seller of the purchased  receivables in case of default.  Fees derived from this
product  increased by $200,000 from 1995 to 1996 and $195,000 from 1996 to 1997.
Management's emphasis on the attraction of core deposit relationships to provide
the funding source for its loans growth continued to provide  additional revenue
from deposit fees charged to service these  accounts.  Fees derived from deposit
service  charges  increased by $113,000 from 1995 to 1996 and $145,000 from 1996
to 1997.  The increase in deposit fee income over the three year period,  though
impacted  somewhat by a modest increase by BOCL in deposit fees during the third
quarter of 1996, was  principally  the result of growth in the number of deposit
accounts.

The  increase in interest  paid on deposits for the period from 1995 to 1996 was
entirely due to growth in deposit  accounts as rates paid on deposits  declined.
The increase in interest  paid for deposits in the 1996 to 1997 period  resulted
from both  growth and rate  changes as rates paid on  interest-bearing  deposits
increased by 13 basis points during the period.  The increase in interest in the
note  payable  category  each year is the result of a  borrowing  during 1996 of
$1,200,000 by the Corporation and an additional  advance of $250,000 on the same
note in 1997.  Proceeds from these borrowings were used to support funding needs
at the  Corporate  level for  legal  fees and  general  operating  expenses.  An
increase  in  charged-off  loans  during  1997,  coupled  with a  maturing  loan
portfolio  and  strong  loan  growth  over  the  past two  years  resulted  in a
management  decision to increase  the  contribution  to the  provision  for loan
losses during 1997.  Salaries and employee  benefits  increased a modest 7% from
1995  to  1996  principally  due to  annual  merit  increases,  however  in 1997
management  realized the need to increase  staffing to better serve its customer
base and to promote continued growth in the Corporation. As a result, salary and
employee benefits  increased by 16% in 1997 over 1996. The increase in furniture
and equipment  expense is the direct  result of the increased  staffing over the
three year period.  Advertising and marketing  expenses increased over the three
year period as a result of  increased  business  and  promotional  materials  to
develop  cross  selling  opportunities.  In addition,  charitable  contributions
increased by $25,000 during 1997 to support various local community  projects in
both service areas.

Other expenses increased by $295,000 from 1995 to 1996 and by $344,000 from 1996
to 1997.  Legal fees accounted for the major portion of these increases as legal
fees were  $170,000  higher in 1996 than 1995 and  $150,000  higher in 1997 than
1996.  During  1995,  1996 and 1997,  the  Corporation  advanced  legal  defense
expenses  for 8  present  and  former  directors  of the  Corporation  named  as
defendants  in  16  suits  brought  by  stockholders  including  several  former
directors of the  Corporation or the Banks and the wife of the former  President
of the  Corporation,  one of which was asserted to be a class action status.  In
1997, the trial judge granted  summary  judgment to all of the defendants in the
suit which had been brought as a class action and the plaintiff  indicated  that
he would appeal.  Because it appeared that the Corporation would be obligated to
indemnify the individual defendants for their legal expenses and the Corporation
was advised by counsel  that the  posture of the 16 cases was such that  further
legal  proceedings,   and  thus  legal  expenses,  could  be  substantial,   the
Corporation  agreed to  participate  in a settlement of the 16 cases pursuant to
which the  Corporation  paid $250,000 to the  plaintiffs and released its claims
for  reimbursement  and future  coverage  against its  directors'  and officers'
liability insurance carrier.  The $250,000 was accrued as a legal expense in the
fourth  quarter of 1997 although the settlement did not become final until court
approval of the  settlement  and  dismissal  of the suits  occurred in the first
quarter of 1998. In 1997, another  shareholder  represented by different counsel
brought  a suit  against  the  same 8  former  and  present  directors  based on
essentially the same facts.  The Corporation has advanced the legal expenses for
the defendants in that suit although the Corporation is not named as a defendant


                                       4
<PAGE>

in  that  suit.  Defense  of the  suit  is not  covered  by  insurance  and  the
Corporation expects to have to pay the expense of defending the suit. The amount
of such expense cannot be reasonably estimated. Accordingly, the Corporation has
not set up a reserve to cover the  expense  but will  accrue  the  expense as it
occurs.  Supplies and printing  expenses  increased by $25,000 from 1995 to 1996
and $22,000 from 1996 to 1997 and postage and freight  increased by $25,000 from
1995 to 1996 and $18,000 from 1996 to 1997.  These  increases were primarily due
to the growth in assets and deposits. Directors fees increased by $9,000 in 1996
over 1995 and  $43,000 in 1997 from 1996 as a result of changes  made to the fee
structure in 1996,  coupled  with the addition of several new  directors in BOCL
and increased  attendance in board and committee meetings.  Temporary employment
services increased by $18,000 from 1995 to 1996, but remained  relatively stable
from 1996 to 1997 as  additional  support  was needed to support the growth each
year until  permanent  staffing  could be hired.  Consulting  fees  declined  by
$24,000 from 1995 to 1996 due to a reduction in fees related to the  development
and implementation of a local area network (LAN) in BOCL during the last quarter
of 1995.  Consulting  fees for 1997 were up $14,000 over 1996 due to  additional
programming  needs to assess the  potential  problems  related to the year 2000.
Training  expenses  increased  by $22,000 in 1996 over 1995 and declined by only
$4,000 from 1996 to 1997 as each Bank continued to strengthen banking skills for
there staff through various banking schools and seminars.  An additional $21,000
in expense was incurred by the Corporation  during 1997 as a result of its 3 for
2 stock  split  in  October  1997.  Listing  fees  for the  newly  issued  stock
certificates  with the  American  Stock  Exchange  (AMEX)  were  $17,000,  while
processing fees by the transfer agent to issue the new certificates were $4,000.

The increase in tax  expenses for each year is primarily  due to the increase in
pretax income for each year.

Discussion of the Corporation's  financial  condition and expanded discussion of
its operating results are presented in the following narratives and tables.

NET INTEREST INCOME

Net interest income represents the differences between interest earned on assets
and the interest paid on liabilities.  It traditionally  constitutes the largest
source of a financial institution's earnings.

For the years 1997,  1996 and 1995,  net  interest  income  totaled  $8,013,000,
$6,353,000 and $5,109,000, respectively. The increase in net interest income for
all three years was principally due to the growth in loans  outstanding for each
year as loans  outstanding  increased by approximately 25% in 1997 and 1996 over
the preceding year.

The average yield on earning assets for 1997, 1996 and 1995 was 8.48%, 8.48% and
8.69%,  the average rate paid on interest bearing  liabilities was 4.85%,  4.72%
and 4.84%,  and the annualized net yield on average earning assets (net interest
income  divided  by  average  earning  assets)  was  4.66%,   4.78%  and  4.81%,
respectively.

The change in rates paid on interest  bearing  liabilities from 1996 to 1997 was
the result of  competitive  pricing in both markets  served by the Banks and the
need for each Bank to attract  higher priced funds to support loan growth and an
increase in the federal  funds rate  during the first  quarter of the year.  The
change in yields  and rates of the 1995 to 1996  period  were  primarily  due to
several prime rate changes,  which  occurred at various times during the period.
Even though rates paid on interest bearing liabilities are not generally tied to
the prime  lending rate,  changes in the prime  lending rate have  traditionally
impacted the market rate for such liabilities. Management continues to focus its
efforts on  minimizing  any  negative  earnings  impact as a result of increased
competition,  or rate changes. However, the reduction in the net interest margin
in 1997 is the result of higher  rates paid on deposits due to  competition  for
deposits to support the strong loan growth.

Table 3  shows  the  yields  and  costs  on  average  balances  for the  periods
discussed.



                                       5
<PAGE>

TABLE 3 - COMPARATIVE AVERAGE BALANCE SHEETS - YIELD AND COSTS (Average balances
for years ended December 31, in thousands)
<TABLE>
<CAPTION>

                                                1997                             1996                            1995
                                                ----                             ----                            ----
                                   Average    Revenues/    Yield    Average   Revenues/    Yield    Average    Revenues/    Yield
                                   Balance     expense     Rate     Balance    expense      Rate    Balance     expense     Rate
                                   -------     -------     ----     -------    -------      ----    -------     -------     ----
Interest  earning assets:
<S>                                 <C>         <C>       <C>        <C>          <C>     <C>          <C>        <C>      <C>
Loans(1)                            $128,892    $11,945   9.27%      $102,207     $9,454  9.25%        $79,881    $7,724   9.67%
Investment securities (taxable)       40,747      2,520   6.18%        28,064      1,675  5.97%         23,902     1,361   5.69%
Federal funds sold                     2,443        128   5.24%         2,757        147  5.33%          2,532       149   5.88%
                                     -------     ------   ----        -------     ------  ----         -------     -----   ----
Total interest-earning assets        172,082     14,593   8.48%       133,028     11,276  8.48%        106,315     9,234   8.69%
                                     -------     ------   ----        -------     ------  ----         -------     -----   ----

Noninterest  earning assets
Cash and due from banks                7,639                            6,263                            5,763
Premises and equipment                 1,421                            1,419                            1,321
Other, less allowance for loan
losses                                   554                               46                               64
                                    --------                         --------                         --------
Total noninterest earning assets       9,614                            7,728                            7,148
                                    --------                         --------                         --------
Total assets                        $181,696                         $140,756                         $113,463
                                    ========                         ========                         ========

Interest-bearing liabilities:
Interest-bearing deposits
  NOW, money market and savings      $64,907     $2,649   4.08%       $54,257     $2,139  3.94%        $41,363    $1,653   4.00%
  Time deposits                       64,589      3,614   5.60%        46,848      2,618  5.59%         41,329     2,356   5.70%
                                     -------     ------   ----        -------     ------  ----         -------     -----   ----
Total interest-bearing deposits      129,496      6,263   4.84%       101,105      4,757  4.71%         82,692     4,009   4.85%
Short-term borrowings                  4,411        196   4.44%         2,017         88  4.36%          1,915        83   4.33%
Note payable and US Treasury
tax and loan accounts                  1,738        121   6.96%         1,183         79  6.68%            641        33   5.15%
                                     -------     ------   ----        -------     ------  ----         -------     -----   ----
Total interest-bearing liabilities   135,645      6,580   4.85%       104,305      4,924  4.72%         85,248     4,125   4.84%
                                     -------     ------   ----        -------     ------  ----         -------     -----   ----


Noninterest-bearing liabilities
Demand deposits                       29,848                           22,706                           16,387
Other liabilities                      1,358                            1,167                              985
                                    --------                         --------                         --------
                                     166,851                          128,178                          102,620
Stockholders' equity                  14,845                           12,578                           10,843
                                    --------                         --------                         --------
Total liabilities and
stockholders' equity                $181,696                         $140,756                         $113,463
                                    ========                         ========                         ========
Net interest income                              $8,013                           $6,352                          $5,109
                                                 ======                           ======                          ======

Margin analysis
Interest income/earning assets                            8.48%                           8.48%                            8.69%
Interest expense/earning assets                           3.82%                           3.70%                            3.88%
                                                          -----                           -----                            -----
Net interest income/earning assets(2)                     4.66%                           4.78%                            4.81%
                                                          =====                           =====                            =====
</TABLE>
(1)  Nonaccrual loan balances have been excluded.
(2)  Net interest income divided by total interest earning assets.

Table 4 analyzes changes in net interest income resulting from changes in volume
and rates in the periods discussed.


                                       6
<PAGE>

TABLE 4 - VOLUME AND RATE VARIANCE ANALYSIS
(Tax equivalent basis)
<TABLE>
<CAPTION>

                                                          1997 Compared to 1996                          1996 Compared to 1995
                                                          ---------------------                          ---------------------
                                                 Change in        Change in                    Change in     Change in
                                                 Volume(1)         Rate(1)        Total       Volume (1)      Rate(1)          Total
                                                 ---------         -------        -----       ----------      -------          -----
Interest income:
<S>                                              <C>           <C>           <C>             <C>           <C>           <C>
Loans ........................................   $2,470,533    $   20,426    $ 2,490,959     $2,066,082    $(335,695)    $1,730,387
Investment securities(2) .....................      786,551        59,112        845,663        247,140       66,569        313,709
Federal funds sold and securities
  purchased under agreement to resell ........      (17,133)       (2,581)       (19,714)         8,925      (10,383)        (1,458)
                                                 ----------    ----------    -----------     ----------    ---------     ----------
Total interest-earning assets ................    3,239,951        76,957      3,316,908      2,322,147     (279,509)     2,042,638
                                                 ----------    ----------    -----------     ----------    ---------     ----------
Interest expense:
NOW, money market and savings ................      434,053        75,878        509,931        511,219      (24,992)       486,227
Time deposits ................................      992,148         4,685        996,833        307,037      (45,239)       261,798
Federal funds purchased  and securities
  sold under agreements to repurchase ........      106,406         1,620        108,026          4,380          568          4,948
Note payable and US Treasury tax
  and loan accounts ..........................       38,815         3,334         42,149         36,350        9,669         46,019
                                                 ----------    ----------    -----------     ----------    ---------     ----------
Total interest-bearing liabilities ...........    1,571,422        85,517      1,656,939        858,986      (59,994)       798,992
                                                 ----------    ----------    -----------     ----------    ---------     ----------
Net interest income ..........................   $1,668,529    ($   8,560)   $ 1,659,969     $1,463,161    ($219,515)    $1,243,646
                                                 ==========    ==========    ===========     ==========    =========     ==========
</TABLE>

(1)  Volume-rate  changes  have been  allocated  to each  category  based on the
     percentage of each to the total change.
(2)  Interest income is presented on a fully taxable  equivalent basis using the
     federal income tax of 34% and state tax rate of 4.5%.

RATE SENSITIVITY

The management of the  composition  and maturities of rate sensitive  assets and
liabilities  is vital to the  optimization  of net  interest  income as interest
rates earned on assets and paid on liabilities fluctuate in periods in which the
rate environment is unstable.  Management  constantly reviews interest rate risk
exposure through its  Asset/Liability  Management function using such techniques
as GAP Analysis and simulation  modeling.  Additionally,  management gathers and
analyzes  information  concerning local and national market conditions which may
affect the rate environment. The results of the review of interest rate risk and
expected  changes  in the rate  environment  are then  used to make  timely  and
reasonable  changes to the balance  sheet  composition  to reduce the  potential
earnings impact.




















                                       7
<PAGE>

Table  5 sets  forth  the  Corporation's  interest  sensitivity  position  as of
December  31,  1997  by  showing  the  amount  of  interest-earning  assets  and
interest-bearing liabilities that reprice in the periods shown.

TABLE 5 - INTEREST SENSITIVITY GAP ANALYSIS
<TABLE>
<CAPTION>

(December 31, 1997 balances in thousands)
                                                                                       Total            One
                                             0 to 3       4 to 6      7 to 12      Within        through     Over five
                                             Months       Months      Months      One Year     Five Years        Years      Total
                                             ------       ------      ------      --------     ----------        -----      -----
<S>                                         <C>           <C>          <C>        <C>           <C>            <C>         <C>
Interest-earning assets
  Federal funds sold                        $  6,820                              $  6,820                                 $  6,820
  Investment securities                        9,490                   $ 5,152      14,642      $27,102        $ 1,282       43,026
  Loans receivable (1)                        69,937      $ 4,288       12,269      86,494       51,741          6,154      144,389
                                            --------      -------      -------    --------      -------        -------     --------
                                              86,247        4,288       17,421     107,956       78,843          7,436      194,235
                                            --------      -------      -------    --------      -------        -------     --------

Interest-bearing liabilities
  Deposits
     NOW, money market and savings            70,905                                70,905                                   70,905
     Time deposits                            34,988       10,984       16,451      62,423        8,062                      70,485
  Securities sold under agreements
     to repurchase                             3,096                                 3,096                                    3,096
  US Treasury tax and loan accounts            1,330                                 1,330                                    1,330
  Note payable                                    81           81          161         323          866                       1,189
                                            --------      -------      -------    --------      -------        -------     --------
                                             110,400       11,065       16,612     138,077        8,928              0      147,005
                                            --------      -------      -------    --------      -------        -------     --------
Interest-sensitive gap                      $(24,153)     $(6,777)     $  $809    $(30,121)     $69,915        $ 7,436     $ 47,230
                                            ========      =======      =======    ========      =======        =======     ========

Cumulative interest-sensitivity gap                                               $(30,121)     $39,794        $47,230
                                                                                  ========      =======        =======

Ratios of interest-earnings assets to
  interest-bearing liabilities                                                        78.2%       883.1%
                                                                                  ========      =======
Cumulative gap to total interest -earning assets                                     (15.5%)       20.5%          24.3%
                                                                                  ========      =======         ======
(1)  Excludes nonaccrual loans.
</TABLE>

At December 31, 1997  approximately  55% of the  Corporation's  interest earning
assets  will  reprice  within  one year,  compared  to 94% of  interest  bearing
liabilities. The 15.5% or $30,121,000 negative interest-sensitivity gap position
at December 31, 1997 is slightly higher than management prefers,  however not at
a level high enough that management  would expect to create a material impact on
earnings if rates were to change. This negative gap position is partially due to
management's  decision to classify  all NOW,  money  market and saving  deposits
within  the one  year  category  when in fact a  significant  portion  of  these
deposits are core  deposits  which may or may not be sensitive to rate  changes.
Management  believes  that paying the current  market rates  required to attract
longer term time deposits to reduce the negative gap position is not  warranted.
Management is aware of its gap position and has developed specific strategies to
maintain the gap position at a reasonable level.

INVESTMENT SECURITIES

Investment  securities represent the second largest component of earning assets,
comprising 22% and 23% of total earning  assets in 1997 and 1996,  respectively.
Note 4 to the accompanying  consolidated  financial statements presents the book
value of investment  securities by category as of December 31, 1997 and 1996. As
shown in Table 6, the Corporation  primarily invests in U.S. Treasury securities
and securities of other U.S.  Government  agencies with maturities of up to five
years.

                                       8
<PAGE>

Management reviews the investment securities portfolio and classifies securities
as  either   held-to-maturity  or   available-for-sale.   Securities  which  the
Corporation  has the  positive  intent  and  ability  to hold  to  maturity  are
classified  as  held-to-maturity,  and are carried at  amortized  cost while all
other securities were classified as available-for-sale and recorded at estimated
fair value with any unrealized gain or loss recorded in stockholders' equity net
of  taxes.  See Note 4 to the  consolidated  financial  statements  for  further
details.

TABLE 6 - ANALYSIS OF INVESTMENT SECURITIES
<TABLE>
<CAPTION>
December 31 (thousands)
                                                      1997                                 1996                         1995
                                                      ----                                 ----                         ----
                                                                    Weighted
                                                                     Average
                                                                      Taxable
                                       Amortized          Fair     Equivalent     Amortized          Fair     Amortized        Fair
                                         Value          Value        Yield (1)      Value           Value       Value        Value
                                         -----          -----        ---------      -----           -----       -----        -----
Held-to-Maturity
US Treasuries
<S>                                      <C>            <C>           <C>            <C>           <C>          <C>          <C>
  Within one year                        $ 4,434        $ 4,435       5.36%          $ 1,504       $ 1,500      $ 1,494      $ 1,493
  One to five years                        8,350          8,390       5.99%            6,778         6,753        2,545        2,532
                                         -------        -------       ----           -------       -------      -------      -------
    Total                                 12,784         12,825       5.77%            8,282         8,253        4,039        4,025
                                         -------        -------       ----           -------       -------      -------      -------
US Government Agencies
  Within one year                          1,700          1,706       6.28%               41            43        3,300        3,290
  One to five years                        3,933          3,940       6.46%            4,570         4,551        1,757        1,778
  Five to ten years                           25             27       7.94%              107           111           90           96
  After ten years                             56             60       8.93%               72            77          134          144
                                         -------        -------       ----           -------       -------      -------      -------
    Total                                  5,714          5,733       6.44%            4,790         4,782        5,281        5,308
                                         -------        -------       ----           -------       -------      -------      -------
Total Held-to-Maturity                   $18,498        $18,558       5.98%          $13,072       $13,035       $9,320       $9,333
                                         =======        =======       ----           =======       =======       ======       ======
Available-for-Sale
US Treasuries
  Within one year                         $5,704         $5,708       6.06%           $1,249        $1,257       $1,500       $1,508
  One to five years                        2,614          2,633       5.92%            7,131         7,150        3,290        3,339
                                         -------        -------       ----           -------       -------      -------      -------
    Total                                  8,318          8,341       6.02%            8,380         8,407        4,790        4,847
                                         -------        -------       ----           -------       -------      -------      -------
US Government Agencies
  Within one year                          2,800          2,799       5.72%            1,000         1,003
  One to five years                       12,185         12,187       6.32%           10,974        10,908        7,262        7,348
                                         -------        -------       ----           -------       -------      -------      -------
     Total                                14,985         14,986       6.20%           11,974        11,911        7,262        7,348
                                         -------        -------       ----           -------       -------      -------      -------
Other Securities
  After ten years (2)                      1,201          1,201       6.91%              716           716          620          620
                                         -------        -------       ----           -------       -------      -------      -------
    Total                                  1,201          1,201       6.91%              716           716          620          620
                                         -------        -------       ----           -------       -------      -------      -------
Total Available-for-Sale                 $24,504        $24,528       6.18%          $21,070       $21,034      $12,672      $12,815
                                         =======        =======       ====           =======       =======      =======      =======
Average Maturity in Years of Total
  Investment Securities (3)                 1.64
                                         =======
</TABLE>
(1)  Computed using a federal tax rate of 34%.
(2)  Includes  Federal  Reserve  Bank stock and  Federal  Home Loan Bank  (FHLB)
     stock.  These stocks are excluded from the calculation of average  maturity
     in years.  Dividends  are paid at  variable  rates.  The  weighted  average
     taxable equivalent yield for these securities is for the year 1997 only.
(3)  Federal Reserve Bank Stock and FHLB Stock are excluded from the calculation
     of average maturity in years.

                                       9
<PAGE>

LOANS AND ALLOWANCE FOR LOAN LOSSES

At December 31, 1997, total loans  outstanding  increased by 25% to $144 million
over the $116  million  reported  for year end  1996.  The  strong  loan  demand
experienced by both Banks in 1996 continued  throughout 1997 as the economies in
both markets serviced by the banks remained good. In addition, management of the
Banks continued their efforts to service the needs of their  respective  markets
and improve each Bank's market share within their communities.

Management  continuously monitors business and geographic  concentrations of its
loan portfolio and believes that the loan  portfolio is adequately  diversified.
There were no significant  concentrations in any industry or with any individual
borrower  at  years  ending  December  31,  1997  and  1996.

The mortgage loan division of each bank  originates  loans primarily for sale to
others  and does not  generally  service  such  loans;  however,  certain  older
mortgage loans are held and serviced.

Management  has policies and  procedures  in place to reduce any risk related to
environmental issues in its lending activity.  As of December 31, 1997 and 1996,
management  was not  aware of any  environmental  risk or  exposure  in its loan
portfolio or any other assets of the Corporation.


Table 7 shows the  distribution  of the loan portfolio  among loan categories at
December  31 and  the  maturity  or  repricing  distribution  of  selected  loan
categories at December 31, 1997.

TABLE 7 - LOAN  RECEIVABLES AND  SELECTED  LOAN  MATURITIES  AND  INTEREST  RATE
          SENSITIVITY

<TABLE>
<CAPTION>
Loans were composed of the following:

                                                                                    December 31,
                                                     1997             1996              1995              1994               1993
                                                ------------      ------------      ------------      ------------      ------------
<S>                                             <C>               <C>               <C>               <C>               <C>
Commercial ...............................      $134,160,877      $106,816,552      $ 84,216,406      $ 59,564,663      $ 50,226,133
Real estate-mortgage .....................         3,278,376         3,642,852         4,658,041         5,797,527         6,740,922
Mortgage loans held for resale ...........                                                                                   799,200
Consumer and other .......................         6,949,247         4,995,419         3,867,409         3,005,902         2,964,538
Nonaccrual ...............................            87,989           226,582            66,739           526,500           602,786
                                                ------------      ------------      ------------      ------------      ------------
Total ....................................      $144,476,489      $115,681,405      $ 92,808,595      $ 68,894,592      $ 61,333,579
                                                ============      ============      ============      ============      ============
<CAPTION>

Loan maturities and interest rate sensitivity
(December 31, 1997 balances in thousands)

                                                                              One           One to          Over
                                                                         Year or less     Five Years      Five Years        Total(1)
                                                                         ------------     ----------      ----------        --------
Types of loans:
<S>                                                                       <C>              <C>              <C>             <C>
  Commercial ...................................................          $82,778          $46,397          $4,986          $134,161
  Real Estate - Mortgage .......................................            2,487              153             639             3,279
  Consumer and other ...........................................            1,229            5,191             529             6,949
                                                                          -------          -------          ------          --------
    Total ......................................................          $86,494          $51,741          $6,154          $144,389
                                                                          =======          =======          ======          ========

Total of loans above with :
  Predetermined interest rates .................................           20,256           51,699           5,772            77,727
  Adjustable interest rates ....................................           66,238               42             382            66,662
                                                                          -------          -------          ------          --------
    Total ......................................................          $86,494          $51,741          $6,154          $144,389
                                                                          =======          =======          ======          ========
</TABLE>


(1) Excludes nonaccrual loans totaling $87,879.


                                       10
<PAGE>

Because  extending  credit involves a certain degree of risk-taking,  management
has established loan and credit policies  designed to control both the types and
amounts  of  risk  assumed  and  to  minimize  losses.   Such  policies  include
limitations  on  loan-to-collateral  values  for  various  types of  collateral,
requirements for appraisals of real estate  collateral,  problem loan management
practices,  collection procedures,  and nonaccrual and charge-off guidelines. In
addition,  both BOCL and BOC  maintain a loan  classification  system to monitor
exposure to potential  loan losses.  Management  believes that the December 1997
allowance  levels  at both  BOCL  and  BOC are  sufficient  to  absorb  expected
charge-offs  and provide  adequately  for the inherent  losses that exist in the
loan portfolio, assuming more or less normal conditions exist.

Management  continues  to  closely  monitor  the  levels  of  nonperforming  and
potential  problem loans to address any weaknesses in credits and to enhance the
amount of ultimate  collection or recovery of problem loans. Should increases in
the overall level of nonperforming  and potential  problem loans accelerate from
current  trends,  management  will adjust the  methodology  for  determining the
allowance  for loan losses to increase  the  provision  and  allowance  for loan
losses.

The  allowance  for loan losses is  increased by direct  charges to  operations.
Among other  factors,  management  considers the state of the economy,  industry
trends,  conditions  affecting  individual  borrowers and regulatory concerns in
determining  whether the amount of the allowance for loan losses is  sufficient.
Losses  on loans  are  charged  against  the  allowance  in the  period in which
management determines that such loans have become  uncollectible.  Recoveries of
previously charged-off loans are credited to the allowance.

At December 31, 1997, the consolidated  allowance for loan losses was $1,806,000
or 1.25% of total loans as compared to $1,802,000 or 1.56% at December 31, 1996.
The decline in the  percentage of the allowance to total loans is largely due to
the 25%  increase  in loans  outstanding  during  1997 and  several  charge-offs
recorded during the year.  Management's  evaluation of the allowance at year-end
1997 indicated that it provided an adequate level of protection against inherent
losses even with the strong growth  realized  during the year.  The  Corporation
recorded net  charge-offs of $331,000 for 1997,  $92,000 for 1996 and $4,000 for
1995.  The increase in  charge-offs  in 1997 is  primarily  due to the loss of a
specific loan.  Additional data covering net  charge-offs/recoveries  to average
loans, and other charges to operations is provided in Note 5 to the consolidated
financial statements as well as Table 1.

The provision  for loan losses was $334,000 for 1997 and $110,000 for 1996.  The
increase  is the  provision  in 1997  over  1996  was the  result  of  increased
contributions to support the strong loan growth as well as to compensate for the
impact  on the  reserve  due to the  increase  in  loan  losses  for  the  year.
Management's emphasis on sound credit underwriting  standards and its continuous
evaluation of its credit rating  system and credit  review  function,  indicated
that this provision was sufficient to provide an adequate allowance for the loan
portfolio at December 31, 1997.

Table 8 includes  the activity in the  allowance  for loan losses at December 31
and an allocation of the allowance for loan losses to loan categories.  Although
the allowance is primarily general in character and available to absorb expected
losses  regardless  of loan  category,  the  allocation  is provided to offer an
indication of the relative risk  characteristics of the indicated  categories of
the loan portfolio.

Effective  January 1, 1995,  the  Corporation  adopted  Statement  of  Financial
Accounting  Standards No. 114,  "Accounting by Creditors for the Impairment of a
Loan" ("SFAS 114") and  Statement of  Financial  Accounting  Standards  No. 118,
"Accounting  by Creditors  for  Impairment  of a Loan - Income  Recognition  and
Disclosure"  ("SFAS 118").  These  statements  require  creditors to account for
impaired loans,  except for those collateral  dependent loans that are accounted
for at fair value or at the lower of cost or fair value, at the present value of
the expected future cash flows discounted at the loan's effective interest rate.
Specific  reserves are maintained on impaired loans in accordance  with SFAS 114
and SFAS 118, when required.  The adoption of these accounting standards has not
had a material effect on the financial position and results of operations of the
Corporation.  See Notes 1 and 5 to the  consolidated  financial  statements  for
further details.




                                       11
<PAGE>

TABLE 8 -  ALLOWANCE  FOR LOAN LOSSES
<TABLE>
<CAPTION>
Activity in the allowance for loan losses was as follows:

                                                1997               1996                1995              1994               1993
                                            -----------        -----------        -----------        -----------        -----------
<S>                                         <C>                <C>                <C>                <C>                <C>
Balance at beginning of year ........       $ 1,802,402        $ 1,784,508        $ 1,593,771        $ 1,450,776        $ 1,698,327
Provision for loan losses ...........           334,000            110,000            195,000             75,000            135,000
Loans charged off:
   Commercial .......................          (321,642)           (96,977)           (46,704)           (43,565)          (488,282)
   Real estate-mortgage .............                 0                  0                  0               (142)          (103,513)
   Consumer and other ...............           (34,097)           (28,954)           (47,167)           (53,393)           (94,842)
                                            -----------        -----------        -----------        -----------        -----------
      Total .........................          (355,739)          (125,931)           (93,871)           (97,100)          (686,637)
                                            -----------        -----------        -----------        -----------        -----------
Recoveries:
   Commercial .......................            20,931             28,272             85,738            135,955            159,920
   Real estate-mortgage .............                 0                  0                  0                550             97,390
   Consumer and other ...............             4,266              5,553              3,870             28,590             46,776
                                            -----------        -----------        -----------        -----------        -----------
      Total .........................            25,197             33,825             89,608            165,095            304,086
                                            -----------        -----------        -----------        -----------        -----------
Balance at end of year ..............       $ 1,805,860        $ 1,802,402        $ 1,784,508        $ 1,593,771        $ 1,450,776
                                            ===========        ===========        ===========        ===========        ===========
<CAPTION>

Allocation of allowance for loan losses to loan categories:
(December 31, 1997 balances in thousands)

                             1997                    1996                  1995                  1994                   1993
                             ----                    ----                  ----                  ----                   ----
                      Amount     Percent*      Amount    Percent     Amount    Percent     Amount    Percent       Amount    Percent
                      ------     --------      ------    -------     ------    -------     ------    -------       ------    -------

<S>                   <C>             <C>      <C>           <C>     <C>           <C>     <C>           <C>         <C>         <C>
Commercial            $1,402          93%      $1,348        93%     $1,249        91%     $1,184        85%         $974        83%
Real Estate -
  Mortgage               150           2%         194         3%        273         5%        225         9%          193        12%
Consumer and
  other                  100           5%         101         4%         89         4%         66         6%           67         5%
Unallocated              154                      159                   174                   119                     217
                      ------         ---       ------       ---      ------       ---      ------       ---        ------       ---
Total                 $1,806         100%      $1,802       100%     $1,785       100%     $1,594       100%       $1,451       100%
                      ======         ====      ======       ====     ======       ====     ======       ====       ======       ====
</TABLE>
*Percent of Loans in each category to Total Loans.

PROBLEM ASSETS

When a loan  becomes 90 days past due as to  interest  or  principal  or serious
doubt exists as to collectibility,  the accrual of income is discontinued unless
the loan is well secured and in the process of  collection.  Previously  accrued
interest on loans  transferred to nonaccrual  status is reversed against current
earnings and any  subsequent  interest is recognized on the cash basis.  Problem
assets include nonaccrual loans,  restructured loans and foreclosed  properties.
At December 31, 1997,  $88,000 of loans were on nonaccrual status as compared to
$227,000 at December 31, 1996.  The decrease in  nonaccrual  loans was primarily
due to one of the loans  being paid out on an SBA  guarantee  and  another  loan
being charged off. Interest income of $11,530, $4,132 and $57,370 was recognized
during 1997, 1996 and 1995,  respectively,  for loans either returned to accrual
status from nonaccrual or paid in full from nonaccrual  status.  For those loans
classified as nonaccrual as of December 31, 1997, 1996 and 1995, interest income
of $6,722,  $7,779  and $9,798  would  have been  recognized  in the  respective
periods if those loans had performed under the original  terms.  The Corporation
realized a loss of approximately  $23,000 on the sale of Other Real Estate Owned
("OREO") property in 1996 and a gain of approximately $8,100 on the sale of OREO
property in 1995.

                                       12
<PAGE>

TABLE 9 - PROBLEM ASSETS
(Balance at December 31)
<TABLE>
<CAPTION>
                                                                  1997          1996           1995           1994           1993
                                                                  ----          ----           ----           ----           ----
<S>                                                          <C>            <C>            <C>            <C>            <C>
Nonaccrual loans ........................................    $   87,989     $  226,582     $   66,739     $  526,500     $  602,786
Loans past due ninety days or more ......................        77,673        125,512         15,853         28,703          8,000
Troubled debt restructuring .............................             0              0              0              0              0
Other real estate owned .................................             0              0        172,500        191,100        474,996
                                                             ----------     ----------     ----------     ----------     ----------
                                                             $  165,662     $  352,094     $  255,092     $  746,303     $1,085,782
                                                             ==========     ==========     ==========     ==========     ==========
Nonperforming assets to total loans
  and other real estate owned ...........................           .11%           .30%           .27%          1.08%          1.78%
                                                             ==========     ==========     ==========     ==========     ==========
</TABLE>

All accruing loans 90 days of more past due were in the process of collection at
each year end. At December 31,  1997,  total  classified  loans,  which  include
nonaccrual and accruing loans 90 days past due, were $3,736,000 or 2.6% of total
loans,  compared  to  $2,831,000  or 2.5% at  December  31,  1996.  While  it is
difficult to determine the impact of these potential  problem loans,  the future
impact is not expected to be material as an estimate of the potential impact has
been  considered in  determining  the amount of the allowance for loan losses at
December 31, 1997. Other than the loans previously discussed,  management is not
aware of any possible credit  problems of borrowers  which causes  management to
have  serious  doubts  about the ability of the  borrower to comply with present
loan repayment terms.


AVERAGE DEPOSITS

Average  deposits in 1997 were $159.3  million,  compared to $123.8  million the
prior year, an increase of $35.5 million or 28.7%.

The total average  deposits for the years ended  December 31, 1997 and 1996, are
summarized below.

TABLE 10 - AVERAGE DEPOSITS
(Average balances in thousands)
<TABLE>
<CAPTION>
                                                   1997                      1996                      1995
                                                   ----                      ----                      ----
                                             Average      Average     Average      Average      Average      Average
                                             Balance       Cost       Balance       Cost        Balance       Cost
                                             -------       ----       -------       ----        -------       ----

<S>                                         <C>            <C>        <C>           <C>        <C>             <C>
Noninterest bearing deposits                $ 29,848                  $ 22,706                  $16,387
Interest bearing transaction accounts         24,781       2.87%        23,717      2.78%        20,234        2.89%
Savings                                       40,126       4.83%        30,540      4.85%        21,128        5.05%
Time                                          64,590       5.60%        46,848      5.59%        41,329        5.70%
                                            --------                  --------                  -------
Total average deposits                      $159,345                  $123,811                  $99,078
                                            ========                  ========                  =======

</TABLE>

At December 31, 1997, the Corporation had $34,363,250 in certificates of deposit
of $100,000 or more. Of those accounts, maturities are as follows:

MATURITY
Less than three months                                  $22,313,212
Over 3 through 6 months                                   4,367,533
Over 6 through 12 months                                  6,192,505
Over 1 year through 5 years                               1,490,000
                                                        -----------
Total                                                   $34,363,250
                                                        ===========

                                       13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

Liquidity  is the  ability  to  meet  current  and  future  obligations  through
liquidation  or maturity of existing  assets or the  acquisition  of  additional
liabilities. The Corporation's primary source of liquidity is funds derived from
the deposit gathering operations of the Corporation's two subsidiary banks, BOCL
and BOC, with  additional  funds  provided from  maturing  loans and  investment
securities,  sales of temporary  investments,  or sales of investment securities
classified as available-for-sale. These funds are primarily used to pay interest
on deposits and to fund deposit  outflows.  Any remaining funds are utilized for
investments and to fund loan commitments and  disbursements,  to repay debt, and
to  fund  operating  expense.  Negative  funds  positions  are  dealt  with by a
combination of actions  including  borrowings from other banks or  rediscounting
qualifying  loans with the Federal  Reserve Bank. At December 31, 1997, BOCL had
approximately $11.0 million while BOC had approximately $10.1 million in standby
credit available to them from other financial institutions.  Management believes
that a sufficient  liquidity balance is maintained  through the operation of its
asset  and  liability  management  program.  Additionally,  the  standby  credit
facilities provide adequate protection in the event of negative cash flows.

At December 31, 1997 and 1996, liquid assets of approximately  $59.2 million and
$47.2  million,  respectively,  were  available  to  meet  demands  for  deposit
withdrawals,  undisbursed  amounts on lines of credit  ("loan  commitments")  of
$22,043,000  and  $21,396,000  and  letters of credit  totaling  $3,327,000  and
$1,689,000,  respectively. The amount of liquid assets available on December 31,
1997 includes cash and cash equivalents of $16,150,000, a increase of $3,050,000
over the December 31, 1996 amount of $13,100,000. This increase in cash and cash
equivalents is attributable to short-term  deposits made during the last week of
the year which were invested in federal funds sold.

Reliance is being placed upon continued  deposit growth as the principal  source
of funds.  Management is committed to pay competitive market rates for deposits.
Deposits were  approximately  $182.7  million at December 31, 1997,  compared to
$145.4  million  at  December  31,  1996.  Of  the  total  deposit  base  of the
Corporation  at  December  31,  1997,  approximately  $34.4  million,  or 18.8%,
consisted of  Certificates of Deposits in amounts of $100,000 and higher ("Jumbo
Certificates").

While most of the large time deposits are acquired from  customers with standing
relationships  with the Banks, it is a common industry  practice not to consider
these types of deposits as core deposits because their retention can be expected
to be  heavily  influenced  by  rates  offered,  and  they  therefore  have  the
characteristics  of  shorter-term  purchased  funds.  Certificates of deposit of
$100,000 and over involve the maintenance of an appropriate matching of maturity
distribution and a diversification of sources to achieve an appropriate level of
liquidity.  Management  believes that the  Corporation's  liquidity  position is
relatively  strong and is adequate to meet the withdrawal  demand of these Jumbo
Certificates.

One of the  principal  uses of funds is to meet loan  demand at BOCL and BOC. As
mentioned in the loan sections of this  discussion,  at December 31, 1997, total
loans outstanding were approximately  $144 million,  as compared to $116 million
at December 31, 1996.

The Comptroller of the Currency ("OCC"),  the Bank's primary regulator  requires
national banks to maintain a Tier 1 (primarily  stockholders' equity) risk-based
capital ratio of 4.0% and a total risk-based  capital ratio of 8.0%. At December
31, 1997, the Tier 1 capital ratio for BOCL was 9.4% and the total capital ratio
was 10.6%,  while BOC had a Tier 1 ratio of 13.0% and a total  capital  ratio of
14.2%.

The  Corporation's  primary  regulator,  the Board of  Governors  of the Federal
Reserve Board (the "Board") has issued guidelines requiring a minimum risk based
capital  ratio of 8.0%,  of which at least 4.0% must  consist of Tier 1 capital.
The Corporation's Tier 1 capital ratio was 10.9% and its total capital ratio was
12.1% at December 31, 1997. These ratios are well within guidelines  established
by  the  Corporation's  primary  regulator.  See  Note  14 to  the  consolidated
financial statements for further discussion concerning capital ratios.

                                       14
<PAGE>

IMPACT OF INFLATION AND CHANGING PRICES

The  financial  statements  and related  data  presented  have been  prepared in
accordance  with generally  accepted  accounting  principles,  which require the
measurement of financial  position and operating  results in terms of historical
dollars without  considering  changes in the relative  purchasing power of money
over time due to inflation.

The impact of inflation is reflected in the increased cost of the  Corporation's
operations.  Since the primary  assets and  liabilities of the  Corporation  are
monetary in nature, to the extent that inflation impacts interest rates, it will
impact the net income of the Corporation.

STOCK DATA AND DIVIDENDS

The  Boards of  Directors  of the  Corporation,  BOCL and BOC intend to follow a
policy of retaining earnings to provide funds to operate and expand the business
of  the  corporation.   Consequently,   the  Corporation  has  not  declared  or
distributed any cash dividends to its shareholders.  However,  the Corporation's
Board of  Directors  did declare and pay a ten percent  (10%) stock  dividend on
December  2, 1996 for  stockholders  of  record as of  November  15,  1996,  and
recorded  a 3 for 2 stock  split  in the  form of a fifty  percent  (50%)  stock
dividend on October 30, 1997 for shareholders of record as of October 15, 1997.

Prior  to  March  21,  1996,   there  had  been  only  limited  trading  in  the
Corporation's  stock since there was no  established  market for the stock.  The
Corporation's  stock was listed on the American Stock  Exchange  (AMEX) on March
21, 1996 under the ticker  symbol of CSB.  The  initial  sale price of the stock
adjusted for the 10% dividend and the 3 for 2 split was $6.25 per share. Closing
price at December  31, 1997 was $23.00 per share.  The  average  monthly  market
trading volume for 1997 was 20,400 shares.  There were approximately 600 holders
of record of the  Corporation's  Common  Stock (no par value) as of December 31,
1997.

The future  dividend  policy of the  Corporation is subject to the discretion of
the Board of Directors and will depend upon a number of factors including future
earnings,  financial condition, cash needs, and general business conditions. The
Corporation's  ability to  distribute  cash  dividends  depends  entirely on the
Banks' ability to distribute  dividends to the  Corporation.  All national banks
must  comply  with the  requirements  of the  National  Bank Act and may have to
obtain the  approval of the OCC before  paying any  dividend.  The Banks may not
declare or pay a dividend if the effect of the  payment  would cause the minimum
capital  of the Banks to be  reduced  below  the  minimum  capital  requirements
imposed by the OCC.  Additionally,  the Corporation is subject to loan covenants
that prohibit payments of dividends without prior approval of the lender.

YEAR 2000 COMPLIANCE

Because the  Corporation  is heavily  dependent upon  computers,  failure of the
computer  systems,  or the  computer  systems  of other  entities  to which  the
Corporation's  computers are linked or on which they are  dependent,  to operate
properly  after December 31, 1999,  could have a material  adverse effect on the
Corporation.  Although  management has prepared a plan for addressing  year 2000
issues  and  believes  that  its  computer   systems  will  not  experience  any
significant problems with the changeover to the year 2000, it has not yet tested
its systems  for year 2000  compliance.  Furthermore,  the  Corporation  has not
received  confirmation from all of the other entities with which its systems are
linked or upon which its systems are dependent  that such entities do not expect
to  encounter  problems.  In  addition,  computer  problems  experienced  by the
customers of the Banks and others could cause  economic  disruptions  that would
affect business.  Therefore, there can be no assurance that the Corporation will
not experience year 2000 problems, or that such problems,  if experienced,  will
not have a material adverse effect on the Corporation.

FOURTH QUARTER EARNINGS

Net income  for the fourth  quarter  of 1997 was  $610,000  or $.25 per  diluted
share, compared to $574,000 or $.24 per diluted share earned in the same quarter
of 1996.  Strong loan demand  during 1997 was the major factor  contributing  to
this  increase in income as interest  income was $900,000  higher for the fourth
quarter of 1997 over 1996.  Noninterest  income  improved by $49,000 between the
two periods as fees  provided by the  "Business  Manager"  product  increased by
$20,000 and fees  derived from  deposit  services,  due to the growth of deposit
accounts,  increased by $20,000.  The  remainder of the increase in  noninterest
income is due to fees from  origination of mortgage loans which were sold during


                                       15
<PAGE>

the year.  Mortgage loan  origination  activity  increased  during 1997 as rates
remained relatively low, generating new home purchases and refinancing activity.
Noninterest expense increased by $376,000 in the fourth quarter of 1997 over the
same quarter of 1996. Salary and employee benefit expenses increased by $170,000
between the two periods as  additional  staffing  was needed  during the year to
support growth and future  production.  Legal fees increased by $75,000 over the
same  period of 1996.  The  additional  staffing  needed to  support  the growth
resulted in increased expenses for occupancy,  furniture, fixtures and equipment
in the amount of  $25,000.  Advertising  and  marketing  expenses  increased  by
$25,000 due to  production  of  materials to support  emphasis on cross  selling
opportunities. Supplies and postage increased by $20,000 over the two periods as
a result of the increased  growth in loans and deposits  during the year.  Other
expenses also increased between the two periods by approximately  $15,000.  This
increase was  primarily  due to expenses  related to the 3-for-2  stock split in
October as  additional  listing  fees paid to the AMEX for listing of the shares
issued in connection  with the split were  approximately  $17,000 and processing
expenses paid to the Corporation's transfer agent in connection with issuance of
the additional stock certificates were approximately $4,000.

Income tax  expenses  increased  by $59,000 as a result of pretax  income  being
$95,000  higher in the fourth  quarter of 1997 over the same  period of 1996 and
income tax expenses  being reduced by $38,000 in the fourth quarter of 1996 as a
result of an adjustment to the deferred tax asset valuation allowance.

Table 11  summarizes  the  financial  results and selected  average  balances by
quarter for 1997 and 1996.

TABLE 11 - QUARTERLY FINANCIAL RESULTS (dollar amounts in thousands,  except per
share amounts)
<TABLE>
<CAPTION>
                                                    1997 Quarter Ended                             1996 Quarter Ended
                                        Dec. 31    Sept. 30    June 30     March 31    Dec. 31     Sept. 30    June 30     March 31
                                       --------    --------    --------    --------    --------    --------    --------    --------
Consolidated Income
  Statement
<S>                                    <C>         <C>         <C>         <C>         <C>         <C>          <C>        <C>
Interest income .....................  $  3,958    $  3,803    $  3,590    $  3,242    $  3,052    $  2,866      $2,747    $  2,611
Interest expense ....................     1,781       1,716       1,578       1,505       1,351       1,233       1,169       1,171
                                       --------    --------    --------    --------    --------    --------    --------    --------
Net interest income .................     2,177       2,087       2,012       1,737       1,701       1,633       1,578       1,440
Provision for loan losses ...........       114         115          90          15          60           0          40          10
                                       --------    --------    --------    --------    --------    --------    --------    --------
Net interest income after
provision
  for loan losses ...................     2,063       1,972       1,922       1,722       1,641       1,633       1,538       1,430
Noninterest income ..................       491         496         526         482         442         401         411         392
Noninterest expense .................     1,583       1,507       1,601       1,368       1,207       1,370       1,284       1,270
                                       --------    --------    --------    --------    --------    --------    --------    --------
Net income before income taxes ......       971         961         847         836         876         664         665         552
Current income taxes ................      (361)       (362)       (322)       (316)       (302)       (218)       (251)       (158)
                                       --------    --------    --------    --------    --------    --------    --------    --------
Net income ..........................  $    610    $    599    $    525    $    520    $    574    $    446    $    414    $    394
                                       ========    ========    ========    ========    ========    ========    ========    ========
Net income per share-basic ..........  $    .26    $    .26    $    .23    $    .23    $    .25    $    .20    $    .18    $    .17
                                       ========    ========    ========    ========    ========    ========    ========    ========
Net income per share-diluted ........  $    .25    $    .24    $    .21    $    .21    $    .24    $    .19    $    .17    $    .17
                                       ========    ========    ========    ========    ========    ========    ========    ========
Quarterly average balances
Assets ..............................  $181,696    $177,159    $172,317    $166,211    $152,750    $141,559    $137,284    $131,227
Earning assets ......................   172,082     167,605     162,776     157,037     144,696     133,904     129,404     124,435
Investment securities ...............    43,190      41,964      41,207      39,052      33,298      29,357      31,042      29,567
Loans ...............................   128,893     125,641     121,569     117,985     111,398     104,547      98,362      94,868
Deposits ............................   159,345     154,899     150,362     145,185     134,534     124,018     121,738     114,838
Stockholders' equity ................    14,845      14,539      14,250      14,002      13,267      12,624      12,195      12,117
Common stock data (dollar per share)
Market price range:
  High ..............................  $  23.50    $  24.88    $  20.63    $  15.88    $  15.25    $  13.12    $  14.50    $  12.37
  Low ...............................  $  16.75    $  19.63    $  15.13    $  14.50    $  12.50    $  11.62    $  12.37    $  10.00
  Average ...........................  $  22.84    $  22.83    $  17.64    $  15.30    $  13.80    $  12.30    $  13.51    $  11.54
  Close .............................  $  23.00    $  23.75    $  19.63    $  15.50    $  14.62    $  13.12    $  12.39    $  12.25
</TABLE>

                                       16
<PAGE>
<TABLE>

                                              J. W. HUNT AND COMPANY, LLP
                                             Certified Public Accountants
<S>                                <C>                                                        <C>
William R. Hunt, CPA                                                                           Middleburg Office Park
John C. Creech, Jr., CPA                                 Members                               1607 St. Julian Place
Anne H. Ross, CPA                                 American Institute of                        Post Office Box 265
William F. Quattlebaum, CPA                    Certified Public Accountants                    Columbia, SC 29202-0265
Susan R. Bernard, CPA                  Private Companies and SEC Practice Sections             803-254-8196
                                                                                               Fax 803-256-1254
      ____________                 Members of CPA Associates with Associated Offices in
J. W. Hunt, CPA (1907-1987)               Principal US and International Cities
</TABLE>



To the Board of Directors and Stockholders
  of ComSouth Bankshares, Inc.

We have audited the  consolidated  balance sheets of ComSouth  Bankshares,  Inc.
(the  "Corporation")  and its subsidiaries as of December 31, 1997 and 1996, and
the related  consolidated  statements of  operations,  changes in  stockholders'
equity,  and cash  flows for each of the years in the  three-year  period  ended
December  31,   1997.   These   consolidated   financial   statements   are  the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of the Corporation and
its  subsidiaries  as of December  31,  1997 and 1996,  and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 1997,  in  conformity  with  generally  accepted  accounting
principles.

                         J. W. Hunt and Company, LLP

Columbia, South Carolina
January 31, 1998




<PAGE>

COMSOUTH BANKSHARES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                                               December 31,
                                                                                                               ------------
                                                                                                          1997              1996
                                                                                                          ----              ----
ASSETS
<S>                                                                                             <C>                   <C>
Cash and due from banks ...............................................................         $   9,332,658         $   9,441,553
Federal  funds sold ...................................................................             6,820,000             3,650,000
                                                                                                -------------         -------------
  Total cash and cash equivalents .....................................................            16,152,658            13,091,553
Investment securities:
  Held-to-maturity, at amortized cost  (fair value of $18,558,395
   in 1997 and $13,035,431 in 1996) ...................................................            18,498,356            13,071,927
  Available-for-sale, at fair value (amortized cost of $24,504,127 in
    1997 and $21,070,548 in 1996) .....................................................            24,527,758            21,034,568
Loans receivable:
  (less allowance for loan losses 1997 - $1,805,860;
   1996 - $1,802,402) .................................................................           142,670,629           113,879,003
Accrued interest receivable ...........................................................             1,643,676             1,343,298
Premises and equipment, net ...........................................................             1,311,260             1,489,159
Other assets ..........................................................................               767,201               724,956
                                                                                                -------------         -------------
Total Assets ..........................................................................         $ 205,571,538         $ 164,634,464
                                                                                                =============         =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits
  Noninterest bearing demand ..........................................................            41,283,341            35,677,721
  NOW, money market and savings .......................................................            70,904,709            56,290,307
  Time deposits of $100,000 or more ...................................................            34,363,250            26,984,224
  Time deposits less than $100,000 ....................................................            33,235,474            23,442,953
  Other time deposits .................................................................             2,885,885             3,012,613
                                                                                                -------------         -------------
Total deposits ........................................................................           182,672,659           145,407,818
Federal funds purchased and securities sold under
  agreements to repurchase ............................................................             3,096,166             2,674,394
Note payable ..........................................................................             1,189,167             1,200,000
U.S. Treasury tax and loan accounts ...................................................             1,330,114               784,106
Accrued interest ......................................................................               625,948               446,225
Other liabilities .....................................................................               641,912               481,099
                                                                                                -------------         -------------
Total Liabilities .....................................................................           189,555,966           150,993,642
                                                                                                -------------         -------------

Stockholders' Equity
Preferred stock
  (no par value, 50,000,000 shares authorized;
  no shares issued or outstanding)
Special stock
  (no par value, 50,000,000 shares authorized;
  no shares issued or outstanding)
Common stock
  (no par value, 50,000,000 shares authorized; shares issued and
  outstanding - 2,317,600 in 1997 and 2,299,138 in 1996) ..............................            13,699,539            13,616,273
Retained earnings .....................................................................             2,300,437                48,296
Unrealized gain (loss) on investment securities available-for-
  sale, net of applicable deferred income taxes .......................................                15,596               (23,747)
                                                                                                -------------         -------------
Total Stockholders' Equity ............................................................            16,015,572            13,640,822
                                                                                                -------------         -------------
Commitments and contingencies
  (Notes 2, 12, and 20) ...............................................................         -------------         -------------
Total Liabilities and Stockholders' Equity ............................................         $ 205,571,538         $ 164,634,464
                                                                                                =============         =============
</TABLE>

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

                                       17
<PAGE>

COMSOUTH BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                                                            Year ended December 31,
                                                                               1997                   1996                 1995
                                                                           ------------          ------------          ------------
Interest income:
<S>                                                                        <C>                   <C>                   <C>
Interest and fees on loans .......................................         $ 11,945,201          $  9,454,242          $  7,723,855
Investment securities ............................................            2,429,235             1,633,488             1,326,097
Federal funds sold ...............................................              127,606               147,320               148,778
Dividends ........................................................               91,145                41,229                34,911
                                                                           ------------          ------------          ------------
  Total interest income ..........................................           14,593,187            11,276,279             9,233,641
                                                                           ------------          ------------          ------------
Interest expense:
Deposits .........................................................            6,263,216             4,756,452             4,008,427
Federal funds purchased and securities sold
  under agreements to repurchase .................................              195,757                87,731                82,783
U.S. Treasury tax and loan accounts ..............................               31,425                33,459                33,120
Note payable .....................................................               90,096                45,913                   233
                                                                           ------------          ------------          ------------
  Total interest expense .........................................            6,580,494             4,923,555             4,124,563
                                                                           ------------          ------------          ------------
Net interest income ..............................................            8,012,693             6,352,724             5,109,078
Provision for loan losses ........................................              334,000               110,000               195,000
                                                                           ------------          ------------          ------------
Net interest income after provision for loan losses ..............            7,678,693             6,242,724             4,914,078
                                                                           ------------          ------------          ------------
Noninterest income:
Lending operations and services ..................................            1,223,621             1,013,470               957,418
Service charges on deposit accounts ..............................              689,840               555,723               442,397
Other ............................................................               81,654                76,861                69,527
                                                                           ------------          ------------          ------------
                                                                              1,995,115             1,646,054             1,469,342
                                                                           ------------          ------------          ------------
Noninterest expenses:
Salaries and employee benefits ...................................            3,090,304             2,661,977             2,481,335
Occupancy expenses ...............................................              448,647               433,593               429,183
Furniture and equipment ..........................................              474,652               406,767               341,966
Advertising and marketing ........................................              161,966                89,358                78,643
Other ............................................................            1,883,592             1,539,418             1,244,695
                                                                           ------------          ------------          ------------
                                                                              6,059,161             5,131,113             4,575,822
                                                                           ------------          ------------          ------------
Income before provision for income taxes .........................            3,614,647             2,757,665             1,807,598
Provision for income taxes .......................................           (1,360,424)             (929,239)             (426,127)
                                                                           ------------          ------------          ------------
Net income .......................................................         $  2,254,223          $  1,828,426          $  1,381,471
                                                                           ============          ============          ============

Basic earnings per common share:
  Weighted average shares outstanding ............................            2,311,098             2,287,562             2,260,369
  Net income per weighted average number
     of shares outstanding .......................................         $       0.98          $        .80          $        .61
                                                                           ============          ============          ============

Diluted earnings per common share:
  Weighted average shares outstanding ............................            2,464,833             2,387,573             2,299,470
  Net income per weighted average number
     of shares outstanding .......................................         $       0.91          $        .77          $        .60
                                                                           ============          ============          ============
</TABLE>










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

                                       18
<PAGE>

COMSOUTH BANKSHARES, INC.
CONSOLIDATED  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>


                                                                                Retained           Unrealized
                                                                                Earnings         Gain (loss) on          Total
                                                 Common         Stock         (Accumulated         Investment        Stockholders'
                                               Shares (1)      Amount           Deficit)           Securities            Equity
                                               ----------      ------           --------           ----------            ------

<S>                 <C> <C>                     <C>           <C>               <C>                  <C>                <C>
Balance at December 31, 1994 ...............    2,052,582     $11,711,421       ($1,426,885)         ($180,560)         $10,103,976
Change in unrealized gain on investment
  securities available-for-sale, net of
  applicable deferred income taxes .........                                                           275,305              275,305
Issuance of common stock ...................       25,868         118,386                                                   118,386
Net income                                                                        1,381,471                               1,381,471
                                                ---------     -----------        ----------            -------          -----------

Balance at December 31, 1995 ...............    2,078,450      11,829,807           (45,414)            94,745           11,879,138
Change in unrealized loss on investment
  securities available-for-sale, net of
  applicable deferred income taxes .........                                                          (118,492)            (118,492)
6.4% stock dividend                               207,900       1,732,500        (1,732,500)
Cash in lieu of fractional shares ..........                                         (2,216)                                 (2,216)
Issuance of common shares ..................       12,788          53,966                                                    53,966
Net income .................................                                      1,828,426                               1,828,426
                                                ---------     -----------        ----------            -------          -----------

Balance at December 31, 1996 ...............    2,299,138      13,616,273            48,296            (23,747)          13,640,822

Change in unrealized gain on investment
  securities available-for-sale, net of
  applicable deferred income taxes .........                                                            39,343               39,343
Cash in lieu of fractional shares ..........                                         (2,082)                                 (2,082)
Issuance of common shares ..................       18,462          83,266                                                    83,266
Net income .................................                                      2,254,223                               2,254,223
                                                ---------     -----------        ----------            -------          -----------

Balance at December 31, 1997 ...............    2,317,600     $13,699,539        $2,300,437            $15,596          $16,015,572
                                                =========     ===========        ==========            =======          ===========
</TABLE>


(1) Adjusted for a three-for-two stock split in 1997.













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

                                       19
<PAGE>

COMSOUTH BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                                              Year ended December 31,
                                                                                   1997                1996               1995
                                                                               ------------        ------------        ------------
Cash flows from operating activities:
<S>                                                                            <C>                 <C>                 <C>
Net income .............................................................       $  2,254,223        $  1,828,426        $  1,381,471
Adjustments to reconcile net income to cash
  provided by operating activities:
Depreciation and amortization ..........................................            381,752             330,309             288,565
Provision for loan losses ..............................................            334,000             110,000             195,000
Deferred tax expense (benefit) .........................................             49,622            (113,137)           (200,000)
Amortization of premium and accretion of
  discount on investment securities ....................................            (36,657)              9,932              17,726
Gross amount of loans originated for resale ............................         (1,800,900)
Proceeds from loans sold ...............................................          1,800,900
Increase in accrued interest receivable ................................           (300,378)           (238,393)           (304,492)
(Increase) decrease in other assets ....................................            (54,478)             21,381              43,489
Increase (decrease) in interest payable ................................            179,723            (130,949)            340,014
Increase (decrease) in other liabilities ...............................            103,155            (480,222)            713,520
                                                                               ------------        ------------        ------------
Cash provided by operating activities ..................................          2,910,962           1,337,347           2,475,293
                                                                               ------------        ------------        ------------

Cash flows from investing activities:
Purchases of investment securities held-to-maturity ....................         (6,963,543)         (8,623,337)           (493,906)
Purchases of investment securities available-for-sale ..................         (7,686,525)        (11,174,538)        (11,556,551)
Maturities of investment securities held-to-maturity ...................          1,576,718           4,862,449           7,273,578
Maturities of investment securities available-for-sale .................          4,250,000           2,774,700           4,919,100
Net increase of loans ..................................................        (30,734,022)        (21,891,265)        (22,740,893)
Gross amount of loans serviced for others ..............................          4,299,242           4,233,697           4,464,426
Remittances on loans serviced for others ...............................         (2,690,846)         (5,307,348)         (5,641,798)
Purchases of premises and equipment ....................................           (203,853)           (531,910)           (308,190)
Proceeds from sale of other real estate owned ..........................                                                      8,063
                                                                               ------------        ------------        ------------

Cash used for investing activities .....................................        (38,152,829)        (35,657,552)        (24,076,171)
                                                                               ------------        ------------        ------------

Cash flows from financing activities:
Net increase in deposits ...............................................         37,264,841          27,645,028          34,854,381
Increase (maturities of) in federal funds purchased
 and securities sold under agreements to repurchase ....................            421,772             919,482          (1,190,837)
(Repayment) proceeds of note payable ...................................            (10,833)          1,200,000            (125,000)
Increase in U.S. treasury tax and loan accounts ........................            546,008             345,620              86,928
Proceeds from issuance of common stock .................................             83,266              53,966             118,386
Cash in lieu of fractional shares ......................................             (2,082)             (2,216)
                                                                               ------------        ------------        ------------
Cash provided by financing activities ..................................         38,302,972          30,161,880          33,743,858
                                                                               ------------        ------------        ------------
Increase (decrease) in cash and cash equivalents .......................          3,061,105          (4,158,325)         12,142,980
                                                                               ------------        ------------        ------------
Cash and cash equivalents at beginning of year .........................         13,091,553          17,249,878           5,106,898
                                                                               ------------        ------------        ------------
Cash and cash equivalents at end of year ...............................       $ 16,152,658        $ 13,091,553        $ 17,249,878
                                                                               ============        ============        ============

Supplemental disclosure of cash flow information:
Cash paid for interest .................................................       $  6,400,771        $  5,054,504        $  3,784,548
Cash paid for taxes ....................................................       $  1,398,336        $  1,575,933        $    107,995
Noncash adjustments to report investment securities
 available-for-sale at fair value:
Investment securities available-for-sale ...............................       $     23,631        $    (35,980)       $    143,553
Other (liabilities) assets .............................................             (8,035)             12,233             (48,808)
                                                                               ------------        ------------        ------------
Unrealized gain (loss) on investment securities available-
  for-sale, net of applicable deferred income taxes ....................       $     15,596        $    (23,747)       $     94,745
</TABLE>

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

                                       20
<PAGE>

COMSOUTH BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1997, 1996 and 1995

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization:   ComSouth   Bankshares,   Inc.  (the   "Corporation")   commenced
organizational activities on January 1, 1987, and was chartered on May 15, 1987,
as a South Carolina  corporation.  The  Corporation  was formed to become a bank
holding company and its wholly-owned subsidiaries, Bank of Columbia, NA ("BOCL")
and Bank of  Charleston,  NA ("BOC")  opened for  business  in  Columbia,  South
Carolina,  on July 12, 1988, and in  Charleston,  South  Carolina,  on April 12,
1990,  respectively.  BOCL and BOC provide general banking services in the State
of South  Carolina.  The Banks' primary source of revenue is providing  loans to
customers,   who  are  predominately  small  and  middle-market  businesses  and
individuals.

Principles of Consolidation:  The accompanying consolidated financial statements
include the accounts of the Corporation and its wholly-owned  subsidiaries.  All
significant  intercompany  accounts and  transactions  have been  eliminated  in
consolidation.

Use of Estimates:  The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and  assumptions  that affect the reported  amounts of assets and liabilities at
the date of the  financial  statements  and the reported  amounts of revenue and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.

Consolidated  Statements  of Cash Flows:  For purposes of reporting  cash flows,
cash and cash  equivalents  include  cash and  federal  funds  sold.  Generally,
federal funds are sold for one-day periods.

Investment Securities Held-to-Maturity: Investment securities which the Bank has
the  positive  intent and  ability to hold to  maturity  are  reported  at cost,
adjusted for premiums and discounts that are recognized in interest income using
methods approximating the interest method over the period to maturity.

Investment     Securities     Available-for-Sale:      Investment     securities
available-for-sale   consist  of   securities   not   classified  as  securities
held-to-maturity.

Unrealized   holding   gains   and   losses,   net   of   tax,   on   securities
available-for-sale  are  reported  as a net  amount in a separate  component  of
stockholders' equity until realized.

Gains and losses on the sale of  securities  available-for-sale  are  determined
using the specific-identification method.

Declines  in the  fair  value  of  individual  securities  held-to-maturity  and
available-for-sale  below their cost that are other than temporary  would result
in  write-downs of the  individual  securities to their fair value.  The related
write-downs  would be included in earnings as realized  losses.  The Corporation
has not had any such write-downs.

Premiums  and  discounts  are  recognized  in  interest   income  using  methods
approximating the interest method over the period to maturity.

Loans Receivable: Loans receivable that management has the intent and ability to
hold for the  foreseeable  future or until  maturity or pay-off are  reported at
their outstanding unpaid principal balances adjusted for any charge-offs and the
allowance for loan losses.

Nonaccrual Loans: Commercial loans are placed on nonaccrual at the time the loan
is 90 days  delinquent  unless  the  credit is well  secured  and in  process of
collection.  Residential real estate loans are typically placed on nonaccrual at
the time the loan is 120 days  delinquent.  Credit card loans,  other  unsecured
personal  credit  lines  and  certain   consumer  finance  loans  are  typically
charged-off  at 120 days  delinquent.  In all  cases,  loans  must be  placed on
nonaccrual  or  charged-off  at an earlier  date if  collection  of principal or
interest is considered doubtful.

                                       21
<PAGE>

All interest  accrued but not  collected for loans that are placed on nonaccrual
or charged off is reversed against interest income.  The interest on these loans
is accounted for on the cash basis or cost recovery method, until qualifying for
return to accrual.  Loans are returned to accrual  status when all the principal
and  interest  amounts  contractually  due are  reasonably  assured of repayment
within a reasonable  time frame and when the borrower has  demonstrated  payment
performance of cash or cash  equivalents for a minimum of six months.  Allowance
for Loan Losses: The allowance for loan losses is established through provisions
for  loan  losses  charged  against  income.  Portions  of  loans  deemed  to be
uncollectible  are charged  against the  allowance  for losses,  and  subsequent
recoveries, if any, are credited to the allowance.

The allowance for loan losses  related to impaired loans that are identified for
evaluation is based on discounted cash flows using the loan's initial  effective
interest  rate or the fair value,  less selling  costs,  of the  collateral  for
collateral  dependent  loans. By the time a loan becomes probable of foreclosure
it has been charged down to fair value, less estimated cost to sell.

The  allowance for loan losses is  maintained  at a level  believed  adequate by
management  to absorb  estimated  probable  inherent  loan losses.  Management's
periodic evaluation of the adequacy of the allowance is based on the Banks' past
loan  loss  experience,  known  and  inherent  risks in the  portfolio,  adverse
situations that may affect the borrower's ability to repay (including the timing
of  future  payments),   the  estimated  value  of  any  underlying  collateral,
composition  of the loan  portfolio,  current  economic  conditions,  and  other
relevant  factors.  This  evaluation  is  inherently  subjective  as it requires
material  estimates that are  susceptible to  significant  change  including the
amounts  and timing of future  cash flows  expected  to be  received on impaired
loans.

Foreclosed  Assets:  Foreclosed  assets,  which are  recorded  in other  assets,
include  properties,   acquired  through  foreclosure  or  in  full  or  partial
satisfaction of the related loan.  Foreclosed  assets  initially are recorded at
the lower of fair value,  net of estimated  selling costs, or costs, at the date
of foreclosure.  After  foreclosure,  valuations are  periodically  performed by
management  and the assets are carried at the lower of cost or fair value,  less
estimated costs to sell. Revenue and expenses from operations and changes in the
valuation allowance are included in other expenses.

Accounting for Transfers and Servicing of Financial  Assets and  Extinguishments
of Liabilities:  In June 1996, the Financial  Accounting  Standards Board issued
Statement of Financial  Accounting  Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and  Extinguishments of Liabilities" (FASB No.
125),  which  provides  new  accounting  and  reporting   standards  for  sales,
securitizations,  and servicing of receivables  and other  financial  assets and
extinguishments of liabilities.

FASB No. 125 is effective for  transactions  occurring  after December 31, 1996,
except those provisions  relating to repurchase  agreements,  securities lending
and other similar transactions and pledged collateral,  which were delayed until
after  December  31, 1997 by FASB No. 127,  "Deferral of the  Effective  Date of
Certain Provisions of FASB No. 125, an amendment of FASB Statement No. 125." The
adoption  of  FASB  No.  125 in 1997  did  not  have a  material  impact  on the
Corporation's  financial position or results of operation.  The adoption of FASB
No. 127 in 1998 is not expected to have a material  impact on the  Corporation's
financial position or results of operations.

Premises  and  Equipment:  Premises  and  equipment  are  stated  at cost,  less
accumulated  depreciation.  Additions and major  replacements  or betterments of
premises  and  equipment  are  capitalized.   Maintenance,   repairs  and  minor
improvements are expensed as incurred.

Depreciation   of  premises  and   equipment  and   amortization   of  leasehold
improvements  are computed  using the  straight-line  method over the  estimated
useful lives  (generally  three to fifteen  years) of the assets or, if shorter,
the lease term for leasehold improvements.

Advertising  and  Marketing  Expenses:  The  Corporation  expenses  the costs of
advertising and marketing as incurred.


                                       22
<PAGE>

Stock-Based  Compensation:  The Corporation applies Accounting  Principles Board
Opinion  No.  25,  "Accounting  for Stock  Issued  to  Employees,"  and  related
interpretations. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the quoted market price of the Corporation's stock at the
date of grant  over the  amount  an  employee  must pay to  acquire  the  stock.
Compensation cost for stock awards and appreciation  rights is recorded based on
the market price at the end of the period.  The  compensation  cost  relating to
performance-based  awards was $28,296  during 1997.  There were no  compensation
costs  related to  performance-based  awards for 1996 or 1995.  At December  31,
1997,  deferred  compensation  related to  director  and  management  awards was
$28,296.  There  were no  deferred  compensation  for  1996.  In  October  1995,
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation"  (FASB No. 123), was issued and encourages,  but does not require,
adoption  of  a  fair  value  method  of  accounting  for  employee  stock-based
compensation plans. As permitted by FASB No. 123, the Corporation has elected to
disclose  the pro forma net income and net income per share as if the fair value
method had been applied in measuring compensation cost.

Retirement Plan: The Corporation  established a 401(K) plan during 1995 covering
substantially all employees. Plan participants may contribute annually up to 12%
of their  compensation.  Additionally,  the  Corporation may make profit sharing
contributions to the Plan annually. The Corporation's  contributions to the Plan
are determined annually by the Board of Directors.  The Corporation  contributed
approximately  $47,200,  $42,800 and $25,300 to the Plan in 1997,1996  and 1995,
respectively. Income Taxes: Deferred tax assets and liabilities are reflected at
currently  enacted  income  tax  rates  applicable  to the  period  in which the
deferred tax assets or  liabilities  are expected to be realized or settled.  As
changes in tax laws or rates are enacted,  deferred  tax assets and  liabilities
are adjusted  through the provision  for income taxes.  The provision for income
taxes of each  subsidiary  is  recorded as if each  subsidiary  filed a separate
return.  Financial  Instruments:   In  the  ordinary  course  of  business,  the
Corporation has entered into off-balance-sheet  financial instruments consisting
of commitments to extend credit,  commitments  under  credit-card  arrangements,
commercial  letters of credit,  and standby  letters of credit.  Such  financial
instruments are recorded in the consolidated  financial statements when they are
funded or related fees are incurred or received.

Fair Values of Financial Instruments:

          Cash and  Cash  Equivalents:  The  carrying  amounts  of cash and cash
          equivalents approximate their fair value.

          Investment Securities  Available-for-Sale  and Held-to-Maturity:  Fair
          values for securities are based on quoted market prices.

          Loans receivable:  For variable-rate loans that reprice frequently and
          have no  significant  change in credit risk,  fair values are based on
          carrying values.  Fair values for certain mortgage loans (for example,
          one-to-four family  residential) and other consumer loans are based on
          quoted market prices of similar loans sold,  adjusted for  differences
          in loan  characteristics.  Fair value for  commercial  real estate and
          commercial  loans are estimated  using  discounted cash flow analyses,
          using  interest rates  currently  being offered for loans with similar
          terms to borrowers of similar credit quality. Fair values for impaired
          loans are estimated using  discounted cash flow analyses or underlying
          collateral values, where applicable.

          Deposit  Liabilities:  The fair values  disclosed for demand  deposits
          are,  by  definition,  equal to the  amount  payable  on demand at the
          reporting date (that is, their carrying amounts). The carrying amounts
          of variable-rate, fixed-term money-market accounts and certificates of
          deposit (CDs)  approximate  their fair values at the  reporting  date.
          Fair values for fixed-rate CDs are estimated  using a discounted  cash
          flow  calculation  that applies interest rates currently being offered
          on  certificates  to  a  schedule  of  aggregated   expected   monthly
          maturities on time deposits.

          Short-term Borrowings: The carrying amounts of federal funds purchased
          and securities sold under agreements to repurchase  approximate  their
          fair values. Fair values of other short-term  borrowings are estimated
          using  discounted cash flow analyses based on the current  incremental
          borrowing rates for similar types of borrowing arrangements.

                                       23
<PAGE>

          Accrued interest: The carrying amounts of accrued interest approximate
          their fair values.

          Off-Balance-Sheet   instruments:  Fair  values  for  off-balance-sheet
          lending  commitments are based on fees currently charged to enter into
          similar  agreements,  taking into account the  remaining  terms of the
          agreements and the counterparties' credit standings.

Reclassification:  Certain  amounts  in the prior  year  consolidated  financial
statements have been  reclassified to conform with the manner of presentation in
1997.

Earnings Per Share:  Basic earnings per common share are calculated on the basis
of the weighted average number of shares  outstanding  during the year.  Diluted
earnings per share includes stock options granted but not exercised.  On October
30,  1997,  a  three-for-two  stock  split in the form of a stock  dividend  was
authorized,  payable to  stockholders  of record on October 15, 1997. A total of
770,816  shares were issued in connection  with the split.  All common share and
per share amounts in these  financial  statements  have been restated to reflect
the split where appropriate.


NOTE 2 - STOCKHOLDER LEGAL ACTION

In the last quarter of 1997, the Corporation agreed in principle to a settlement
of 16 lawsuits brought by stockholders  against the Corporation and 8 former and
present directors of the Corporation.  The Corporation agreed to pay $250,000 in
the settlement.  Although the settlement was subject to judicial  approval which
was not obtained  until the first quarter of 1998, the  Corporation  accrued the
$250,000 in the fourth quarter of 1997.

Another  stockholder  suit  involving the same facts but which does not name the
Corporation  as a  defendant  is still  pending  against  the same 8 former  and
present  directors of the Corporation.  Based on rulings in the suits which were
settled,  it appears that the  Corporation  will be  obligated to indemnify  the
defendants  for their  legal  expenses  and it is  accruing  those  expenses  as
incurred.   The  Corporation  and  the  Banks  are  defendants  in  other  legal
proceedings in the ordinary course of business. Based on consultation with legal
counsel, management is of the opinion that the outcome of pending and threatened
litigation  will not have a material  effect on the  Corporation's  consolidated
financial statements.


NOTE 3 - RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS

BOCL and BOC are required to maintain  average reserve balances with the Federal
Reserve,  or in vault cash. The average daily reserve  balance  requirement  for
December 31, 1997 and 1996 was met by vault cash held in the two banks.

At  December  31,  1997,  the two banks had due from bank  balances in excess of
federally insured limits of approximately $1,347,000.




                                       24
<PAGE>

NOTE 4 - INVESTMENT SECURITIES

The  amortized   cost  and  estimated   fair  value  of  investment   securities
held-to-maturity at December 31, 1997 and 1996, are presented below:

<TABLE>
<CAPTION>

                                                  1997                                                 1996
                                                  ----                                                 ----
                                            Gross      Gross      Estimated                      Gross        Gross       Estimated
                            Amortized   Unrealized  Unrealized   Unrelaized      Amortized   Unrealized    Unrealized    Unrelaized
                              Cost         Gains      Losses        Value          Cost         Gains        Losses         Value
                           -----------   ---------   ---------   -----------   -----------   ----------   -----------   ------------

<S>                        <C>           <C>         <C>          <C>          <C>            <C>           <C>          <C>
U.S. Treasury Securities . $12,784,336   $  52,951   $   12,547   $12,824,740  $ 8,281,749    $   13,405    $   41,624   $ 8,253,530
U.S. Government Agencies .   5,569,883      11,831                  5,581,714    4,570,256         4,350        23,535     4,551,071
Mortgage-Backed Securities     144,137       7,804                    151,941      219,922        10,908                     230,830
                           -----------   ---------   ----------   -----------  -----------   -----------    ----------   -----------
  Total .................. $18,498,356   $  72,586   $   12,547   $18,558,395  $13,071,927   $    28,663    $   65,159   $13,035,431
                           ===========   =========   ==========   ===========  ===========   ===========    ==========   ===========
</TABLE>


The  amortized   cost  and  estimated   fair  value  of  investment   securities
available-for-sale at December 31, 1997 and 1996, are presented below:

<TABLE>
<CAPTION>
                                                  1997                                                 1996
                                                  ----                                                 ----
                                            Gross      Gross     Estimated                      Gross        Gross       Estimated
                            Amortized   Unrealized  Unrealized  Unrelaized      Amortized   Unrealized    Unrealized    Unrelaized
                              Cost         Gains      Losses       Value          Cost         Gains        Losses         Value
                           -----------   ---------   ---------   -----------   -----------   ----------   -----------   -----------

<S>                        <C>           <C>         <C>         <C>           <C>           <C>          <C>           <C>
U.S. Treasury Securities   $ 8,318,299   $  35,379   $  12,804   $ 8,340,874   $ 8,380,065   $   51,442   $    24,328   $ 8,407,179
U.S. Government Agencies    14,985,028      25,167      24,111    14,986,084    11,974,333        5,323        68,417    11,911,239
Other ..................     1,200,800                             1,200,800       716,150                                  716,150
                           -----------   ---------   ---------   -----------   -----------   ----------   -----------   -----------
  Total ................   $24,504,127   $  60,546   $  36,915   $24,527,758   $21,070,548   $   56,765   $    92,745   $21,034,568
                           ===========   =========   =========   ===========   ===========   ==========   ===========   ============
</TABLE>

The  amortized   cost  and  estimated   fair  value  of  investment   securities
held-to-maturity  at December 31, 1997, based on their  contractual  maturities,
are shown below:
<TABLE>
<CAPTION>

                                                                                             Estimated
                                                                           Amortized            Fair
                                                                              Cost             Value
                                                                          -----------       -----------
<S>                                                                        <C>               <C>
Due in one year or less .............................................      $6,134,509        $6,140,826
Due after one year through five years ...............................      12,282,389        12,330,319
Due after five years through ten years ..............................          25,550            26,850
Due after ten years .................................................          55,908            60,400
                                                                          -----------       -----------
                                                                          $18,498,356       $18,558,395
                                                                          ===========       ===========
</TABLE>


The  mortgage-backed  securities  held at December  31,  1997  mature  generally
between  one and eleven  years.  The  actual  lives of these  securities  may be
shorter as a result of prepayments.

                                       25
<PAGE>

The  amortized   cost  and  estimated   fair  value  of  investment   securities
available-for-sale at December 31, 1997, based on their contractual  maturities,
are shown below:

                                                                   Estimated
                                                  Amortized           Fair
                                                    Cost              Value
                                                    ----              -----
Due in one year or less .....................    $8,504,327        $8,506,925
Due after one year through five years .......    14,799,000        14,820,033
Due after ten years .........................     1,200,800         1,200,800
                                                  ---------         ---------
                                                $24,504,127       $24,527,758
                                                ===========       ===========

Securities  with book values of $28,592,077 and $21,009,597 at December 31, 1997
and 1996,  respectively,  were pledged to secure  public  deposits and for other
purposes as required by law.

There were no sales of securities during 1997, 1996 or 1995.


NOTE 5 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

Loans were composed of the following:
<TABLE>
<CAPTION>

                                                 December 31,
                                            1997              1996
                                        ------------      ------------
<S>                                     <C>               <C>
Commercial ..........................   $134,160,877      $106,816,552
Real estate-mortgage ................      3,278,376         3,642,852
Mortgage loans held for resale ......
Consumer and other ..................      6,949,247         4,995,419
Nonaccrual ..........................         87,989           226,582
                                        ------------      ------------
  Total .............................   $144,476,489      $115,681,405
                                        ============      ============
</TABLE>

At December 31, 1997, the total loan portfolio  included  adjustable  rate loans
totaling  approximately $66 million and fixed rate loans totaling  approximately
$78 million.  Overdrawn  demand  deposits  totaling  approximately  $449,000 and
$294,000 have been  reclassified as loan balances at December 31, 1997 and 1996,
respectively.

Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>

                                                    1997              1996              1995
                                                -----------       -----------       -----------
<S>                                             <C>               <C>               <C>
Balance at beginning of year .............      $ 1,802,402       $ 1,784,508       $ 1,593,771
Provision for loan losses ................          334,000           110,000           195,000
Loans charged off:
  Commercial .............................         (321,642)          (96,977)          (46,704)
  Real estate-mortgage ...................                0                 0                 0
  Consumer and other .....................          (34,097)          (28,954)          (47,167)
                                                -----------       -----------       -----------
   Total .................................         (355,739)         (125,931)          (93,871)
                                                -----------       -----------       -----------

Recoveries:
  Commercial .............................           20,931            28,272            85,738
  Real estate-mortgage ...................                0                 0                 0
  Consumer and other .....................            4,266             5,553             3,870
                                                -----------       -----------       -----------
  Total ..................................           25,197            33,825            89,608
                                                -----------       -----------       -----------
Balance at end of year ...................      $ 1,805,860       $ 1,802,402       $ 1,784,508
                                                ===========       ===========       ===========
</TABLE>

                                       26
<PAGE>


Impairment  of loans  having  recorded  investments  of $520,479 at December 31,
1997, and $396,481 at December 31, 1996, has been  recognized in conformity with
FASB  Statement  114, as amended by FASB  Statement  118.  The average  recorded
investment  in impaired  loans during 1997 and 1996 was  $458,480 and  $231,610,
respectively.  The total  allowance  for loan losses  related to these loans was
$77,522 and $82,172 on December 31, 1997 and 1996, respectively. Interest income
on  impaired  loans of  $13,554,  $25,871  and  $8,208 was  recognized  for cash
payments  received  in 1997,  1996 and 1995,  respectively.  Interest  income of
$11,530,  $4,132  and  $57,370  was  recognized  during  1997,  1996  and  1995,
respectively,  for loans either  returned to accrual  status from  nonaccrual or
paid in full from nonaccrual status. For those loans classified as nonaccrual as
of December  31,  1997,  1996 and 1995,  interest  income of $6,722,  $7,779 and
$9,798 would have been  recognized in the respective  periods if those loans had
performed under the original terms.

Commercial   loans  include   investments   of  $1,056,888   and  $3,247,629  in
participating  interests of loans originated by other financial  institutions as
of December 31, 1997 and 1996, respectively.

Commercial loans exclude loans serviced for others of $8,537,258 and $10,132,951
as of December  31, 1997 and 1996,  respectively.  Real  estate  mortgage  loans
exclude  loans  serviced  for others of $838,596 and $851,299 as of December 31,
1997 and 1996,  respectively.  Servicing loans for others generally  consists of
collecting  payments,  maintaining  escrow  accounts and disbursing  payments to
investors.  Loan servicing  income is recorded on the accrual basis and includes
servicing fees from investors and certain charges collected from borrowers, such
as late payment fees.


NOTE 6 - TRANSACTIONS WITH RELATED PARTIES

Directors and officers of the Corporation and its  subsidiaries are customers of
and borrow from the Banks in the ordinary course of business. All of these loans
were  made on  substantially  the  same  terms,  including  interest  rates  and
collateral,  as those  prevailing  at the time in comparable  transactions  with
unrelated  third  parties,  and did  not  involve  more  than a  normal  risk of
collectibility.

Directors  and  principal  officers'  direct and  indirect  indebtedness  to the
subsidiaries aggregated $4,552,869 and $4,150,181 at December 31, 1997 and 1996,
respectively.  During 1997, $3,802,060 of new loans were made to related parties
and repayments totaled $3,399,371.  Additionally, unfunded commitments to extend
credit to directors and officers totaled  $1,329,472 for 1997 and $1,022,962 for
1996, and standby letters of credit totaled $208,000 and $35,000 at December 31,
1997 and 1996.


NOTE 7 - PREMISES AND EQUIPMENT

Premises and equipment included the following:
<TABLE>
<CAPTION>
                                                                                                         December 31,
                                                                                                 1997                      1996
                                                                                             -----------                -----------
<S>                                                                                          <C>                        <C>
Leasehold improvements .......................................................               $ 1,290,738                $ 1,233,911
Equipment and furnishings ....................................................                 1,825,508                  1,678,482
                                                                                             -----------                -----------
                                                                                               3,116,246                  2,912,393
Less accumulated depreciation and amortization ...............................                (1,804,986)                (1,423,234)
                                                                                             -----------                -----------
  Total premises and equipment, net ..........................................               $ 1,311,260                $ 1,489,159
                                                                                             ===========                ===========
</TABLE>

Depreciation and amortization expenses for 1997, 1996 and 1995 totaled $381,752,
$329,901, and $281,034, respectively.


                                       27
<PAGE>

NOTE 8 - DEPOSITS

The aggregate amount of short-term jumbo CDs, each with minimum  denomination of
$100,000, was approximately $34,363,000 and $26,984,000 at December 31, 1997 and
1996, respectively.

At December 31, 1997, the scheduled maturities of CDs were as follows:

                            1998 ..................     $62,422,521
                            1999 ..................       5,931,188
                            2000 ..................       1,427,525
                            2001 ..................         703,375
                                                        -----------
                                                        $70,484,609
                                                        ===========





NOTE 9 - NOTE PAYABLE

During 1996, the Corporation  established a $1,200,000 revolving  line-of-credit
with  another  financial   institution.   The  line-of-credit  was  subsequently
converted to a term loan and matures  December 2001 with  interest  payments due
quarterly.  BOC's common stock serves as collateral.  Borrowings during 1997 and
1996 are summarized as follows:

<TABLE>
<CAPTION>

                                                              1997              1996
                                                          ------------       -----------
<S>                                                        <C>               <C>
Interest rate at year-end ..............................         8.00%             7.75%
Maximum amount outstanding at any month-end ............   $1,200,000        $1,200,000
Average amount outstanding during the year .............   $1,108,767          $777,778
Weighted average interest rate during the year .........         8.10%             7.75%
</TABLE>

During 1997, the Corporation established a $250,000 term loan with the financial
institution  noted in the preceding  paragraph.  This loan matures September 30,
2000.  Interest is variable at the lender's  prime rate minus  one-half  percent
(8.0% average rate for 1997 and at December 31, 1997) with  repayment of $20,833
plus accrued  interest due quarterly  beginning  December 31, 1997.  The loan is
cross-collateralized with the line-of-credit noted above.

The  line-of-credit  agreement  and the  term  loan  agreement  contain  certain
covenants. The principal financial covenants require the Corporation to maintain
the  allowance  for loan losses in an amount of at least 100% of  non-performing
assets;  tangible  equity to total  assets  at least  equal to 8% for BOC and at
least equal to 6% for BOCL;  nonperforming loans plus foreclosed assets to loans
receivable plus foreclosed assets at a ratio no greater than 1.80%; and maintain
a return on average  assets of at least 1%. The  Corporation  was in  compliance
with these  covenants at December 31, 1997. The  Corporation is also  restricted
from  paying any  dividends  unless  approved  by the  lender.  The  Corporation
received a waiver from the lender on this restriction for the 1997 three-for-two
stock split and the 10% stock dividend paid in December 1996.

At  December  31,  1997,  BOCL  had  approximately  $11.0  million  and  BOC had
approximately  $10.1 million in standby  credit  available  from other banks for
short-term borrowings.


NOTE 10 - FEDERAL HOME LOAN BANK ADVANCES

The Banks are members of the Federal Home Loan Bank and as such,  have access to
borrowings.  The Banks use the borrowings to meet short-term liquidity needs and
generally repay the advances and variable  interest  within one day.  Collateral
for  the  borrowings  are  blanket  liens  on  the  Banks'  one to  four  family
residential  loans. All borrowings were repaid at December 31, 1997. The average
interest rate on such borrowings was 6.50% for 1997.


                                       28
<PAGE>

NOTE 11 - OTHER BORROWED FUNDS

Federal  funds  purchased  and  securities  sold under  agreements to repurchase
generally  mature  within  one to four days  from the  transaction  date.  Other
borrowed funds consist of term federal funds purchased and treasury tax and loan
deposits and generally  are repaid  within one to 120 days from the  transaction
date.

Information  concerning  securities  sold  under  agreements  to  repurchase  is
summarized as follows:

                                                        1997             1996
                                                     ----------       ----------
Average balance during the year                      $3,346,634       $1,342,644
Average interest rate during the year                     4.00%            3.73%
Maximum month-end balance during the year            $3,806,376       $2,674,394


NOTE 12 - COMMITMENTS

The Corporation leases its office facilities and certain equipment under various
operating leases. Original lease terms typically range from one to ten years and
normally have options that permit renewals for additional periods.




The aggregate future minimum lease payments under all  noncancellable  leases at
December 31, 1997 were as follows:

                                   1998 ..............    $382,592
                                   1999 ..............     378,590
                                   2000 ..............      99,116
                                   2001 ..............      99,116
                                   2002 ..............      85,979
                                Thereafter ...........     114,000
                                                        ----------
                                                        $1,159,393
                                                        ==========

Total  rental  expenses  under the  above  leases  for 1997,  1996 and 1995 were
approximately $355,000, $262,000 and $274,000, respectively.


NOTE 13 - STOCK OPTIONS

The  Corporation  has reserved 75,900 shares of common stock for issuance to key
employees under an Incentive Stock Option Plan (the "Qualified Option Plan") and
75,900  shares of common  stock for  issuance to key  employees,  officers,  and
directors under a non-qualified  stock option plan (the  "Non-Qualified  Plan").
During 1995,  the  Corporation  reserved an additional  165,000 shares of common
stock for issuance to  employees  under a  non-qualified  stock option plan (the
"1995  Non-Qualified  Plan").  Additionally,  as part of the 1995  Non-Qualified
Plan,  each  non-employee  director of the  Corporation  will receive options to
purchase 40 shares of common stock for each board of directors meeting attended.
The options are  exercisable  after six months from date of the grant and expire
at the earlier of termination of director  status or ten years after the date of
grant. The option price will be at fair market value at the date of grant.



                                       29
<PAGE>

The following tables summarize activity of each plan:
<TABLE>
<CAPTION>
                                                                                    Options
                                                                                   Price Per           Expiration
                                                                   Options           Share               Dates
                                                                    -------       ------------          --------
Qualified Plan
<S>                                                                 <C>          <C>                    <C>
January 1, 1991 ...............................................      43,325
Exercised during 1992 .........................................      (2,000)
Exercised during 1995 .........................................     (16,500)
Expired during 1995 ...........................................      (4,300)
Adjusted for 10% stock dividend during 1996 ...................       2,053
Adjusted for 3 for 2 split in 1997 ............................      11,289
                                                                     ------
December 31, 1997 .............................................      33,867       $3.56-$5.27           01/24/00
                                                                     ======       ===========           ========

Non-Qualified Plan
January 1, 1991 ...............................................      18,875
Granted during 1991 ...........................................      23,525
Exercised during 1992 .........................................      (2,100)
Expired during 1994 ...........................................        (500)
Exercised during 1995 .........................................        (700)
Adjusted for 10% stock dividend during 1996 ...................       3,923
Exercised during 1996 .........................................      (8,580)
Adjusted for 3 for 2 split in 1997 ............................      17,628
Exercised during 1997 .........................................     (17,662)
                                                                    --------
December 31, 1997 .............................................      34,409       $3.56-$5.27           12/31/00
                                                                     ======       ===========           ========

1995 Non-Qualified Plan
Granted during 1995 ...........................................      40,000
Adjusted for 10% stock dividend during 1996 ...................       4,000
Granted during 1996 ...........................................       6,746
Adjusted for 3 for 2 split in 1997 ............................      25,397
Granted during 1997 ...........................................      56,888
                                                                     ------
December 31, 1997 .............................................     133,031       $5.15-$15.91          04/28/07
                                                                    =======       ============          ========
</TABLE>

Since all options granted during 1997,  1996 and 1995,  other than those granted
to Messrs.  Barnwell and Swanson discussed below, in management's  opinion, were
issued at  exercise  prices  equal to or greater  than the  market  value of the
common stock at the time of grant,  compensation expense related to the grant of
these options was not recognized.

As an inducement to the President of BOCL to enter into an employment  agreement
in January 1992, the  Corporation  granted total stock options for 36,668 shares
of stock at a purchase price of $2.42 per share.  The President of BOCL's rights
in these options fully vested in January 1995.

In recognition of their outstanding  performance since the inception of the Bank
of  Charleston  and as an inducement  for their  continued  employment,  Messrs.
Arthur P.  Swanson,  CEO and  President  and John P.  Barnwell,  Executive  Vice
President,  Bank of Charleston,  NA were each granted options to purchase 18,000
shares of common stock at a price of $.67 per share.  These  options are to vest
on a pro rata basis over a five year period with one fifth of the total  vesting
each year,  beginning  October 10, 1998.  Expiration of these options will be in
five year increments  beginning with each vesting date. Since these options were
granted  at a price  less than  fair  market  value,  the  Corporation  expensed
approximately $28,000 in additional  compensation expenses during 1997 and plans
to expense  approximately  $9,200 per month for the remaining vesting period. In
the event of a change of control of the  Corporation,  any unvested options will
vest immediately.

                                       30
<PAGE>

The fair value of stock-based  compensation was estimated at date of grant using
a  Black-Scholes  option  pricing  model  with  the  following  weighted-average
assumptions for 1997: risk-free interest rate of 6.43%; dividend yield of 0.00%;
volatility factor of the expected market price of the Corporation's common stock
of .17;  a  weighted-average  expected  life of the  option  of 5.7 years and an
assumed annual forfeiture rate of 0%. The Corporation's pro forma information is
presented below:

                                                              1997
                                                              ----
                                                 As Reported        Pro Forma
                                                 -----------        ---------
Net income ................................       $2,254,223        $2,229,079
Basic net income per common share .........             0.98              0.97
Diluted net income per common share .......             0.91              0.90

All options above have been adjusted to reflect the 10% stock dividend  declared
in 1996 and the 3 for 2 split in October of 1997.


NOTE 14 - REGULATORY REQUIREMENTS

National banks are subject to certain  restrictions  regarding  their ability to
transfer  funds  to the  Corporation  in the  form of cash  dividends,  loans or
advances. The approval of the Office of the Comptroller of the Currency (OCC) is
required to pay  dividends  in excess of each Bank's net profits for the current
year plus  retained  net  profits  (net  profits  less  dividends  paid) for the
preceding two years, less any required transfers to surplus.  As of December 31,
1997,  approximately  $2,902,000  and  $3,613,000  of BOCL's and BOC's  retained
earnings,  respectively,  were available for  distribution to the Corporation as
dividends without prior regulatory approval.

Under Federal  Reserve  regulation,  the Banks are also limited as to the amount
they may  lend to the  Corporation  unless  such  loans  are  collateralized  by
specified  obligations.  Since the assets of the  Corporation  do not qualify as
assets  which  may be  pledged  as  collateral  to  its  subsidiary  banks,  the
Corporation is not eligible to obtain loans from its bank subsidiaries.

BOCL and BOC are subject to various  capital  requirements  administered  by the
federal  banking  agencies.  Failure to meet minimum  capital  requirements  can
result in initiation of certain mandatory and possible additional  discretionary
actions by regulators  that, if undertaken,  could have a direct material effect
on the Banks' financial  statements.  Under capital adequacy  guidelines and the
regulatory  framework for prompt corrective action, the Banks must meet specific
capital  guidelines  that involve  quantitative  measures of the Banks'  assets,
liabilities,  and certain off-balance sheet items as calculated under regulatory
accounting  practices.  The Banks' capital amounts and  classification  are also
subject to  qualitative  judgments  by the  regulators  about  components,  risk
weightings, and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Banks to maintain minimum amounts and ratios (set forth in the table
below)  of  total  and  Tier  1  capital  (as  defined  in the  regulations)  to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1997, that BOCL and
BOC meet all capital adequacy requirements to which they are subject.

As of September 30, 1997, the most recent  notifications  from the Office of the
Comptroller of the Currency  categorized the Banks as well capitalized under the
regulatory  framework for prompt  corrective  action.  To be categorized as well
capitalized the Banks must maintain minimum total risk-based, Tier 1 risk-based,
and Tier 1  leverage  ratios  as set  forth in the  table.  There  have  been no
conditions  or events since that  notification  that  management  believes  have
changed the Banks' categories.



                                       31
<PAGE>

<TABLE>
<CAPTION>

                                                                                                              Minimum Required
                                                                                     Minimum Required      To Be Well Capitalized
                                                                                       For Capital         Under Prompt Corrective
(Dollars in thousands)                                           Actual              Adequacy Purposes        Actual Provisions
                                                          ------------------         -----------------        -----------------
                                                          Amount       Ratio       Amount        Ratio       Amount       Ratio
                                                          ------       -----       ------        -----       ------       -----
As of December 31, 1997
  Tier 1 Capital (to Average Assets)
<S>                                                        <C>         <C>           <C>        <C>            <C>        <C>
     Consolidated ...................................      $16,000      8.3%         $7,857      4.0%          $9,822      5.0%
     BOC ............................................       10,243     10.6%          3,865      4.0%           4,832      5.0%
     BOCL ...........................................        6,363      6.4%          3,965      4.0%           4,956      5.0%
  Tier 1 Capital (to Risk Weighted Assets):
     Consolidated ...................................      $16,000     10.9%         $5,869      4.0%          $8,803      6.0%
     BOC ............................................       10,243     13.0%          3,145      4.0%           4,718      6.0%
     BOCL ...........................................        6,363      9.4%          2,718      4.0%           4,076      6.0%
  Total Capital (to Risk Weighted Assets):
     Consolidated ...................................      $17,806     12.1%        $11,737      8.0%         $14,671     10.0%
     BOC ............................................       11,194     14.2%          6,290      8.0%           7,863     10.0%
     BOCL ...........................................        7,212     10.6%          5,436      8.0%           6,794     10.0%
As of December 31, 1996
  Tier 1 Capital (to Average Assets):
     Consolidated ...................................      $13,605     10.1%         $5,377      4.0%          $6,721      5.0%
     BOC ............................................        8,808     11.0%          3,219      4.0%           4,020      5.0%
     BOCL ...........................................        5,248      7.4%          2,848      4.0%           3,551      5.0%
  Tier 1 Capital (to Risk Weighted Assets):
     Consolidated ...................................      $13,605     11.9%         $4,567      4.0%          $6,851      6.0%
     BOC ............................................        8,808     13.8%          2,556      4.0%           3,834      6.0%
     BOCL ...........................................        5,248     10.0%          2,102      4.0%           3,154      6.0%
  Total Capital (to Risk Weighted Assets):
     Consolidated ...................................      $15,137     13.3%         $9,134      8.0%         $11,418     10.0%
     BOC ............................................        9,607     15.0%          5,112      8.0%           6,390     10.0%
     BOCL ...........................................        5,909     11.2%          4,205      8.0%           5,256     10.0%
</TABLE>


NOTE 15 - OTHER NONINTEREST EXPENSES

Components of other noninterest expenses were as follows:
<TABLE>
<CAPTION>
                                                                                               Year ended December 31,
                                                                                               -----------------------
                                                                                   1997                 1996                 1995
                                                                              ----------            ----------            ----------
<S>                                                                           <C>                   <C>                   <C>
Legal, accounting, regulatory and insurance ......................            $  796,481            $  649,977            $  481,428
Supplies and printing ............................................               172,526               150,749               125,914
Postage and freight ..............................................               138,387               120,621                95,385
Loan servicing ...................................................                90,555                85,630                78,154
Outside services .................................................                81,236                61,503                52,364
Directors' Fees ..................................................                80,199                36,720                28,140
Dues and subscriptions ...........................................                68,061                70,683                78,538
Training and other employee expenses .............................                65,759                69,685                47,214
Consulting .......................................................                65,646                51,274                75,377
Telephone ........................................................                60,614                56,843                58,217
Losses other than bad debt .......................................                55,549                34,393                15,112
Temporary employment services ....................................                42,784                44,593                27,035
Data communications ..............................................                40,567                33,481                23,700
Travel-nonofficers ...............................................                26,509                21,610                17,538
Losses-OREO ......................................................                                      23,309
Amortization - organization expense ..............................                                                             7,530
Other ............................................................                98,719                28,347                33,049
                                                                              ----------            ----------            ----------
                                                                              $1,883,592            $1,539,418            $1,244,695
                                                                              ==========            ==========            ==========
</TABLE>

                                       32
<PAGE>

NOTE 16 - INCOME TAXES

The Corporation files consolidated federal income tax returns on a calendar-year
basis.

The components of consolidated provision for income taxes were as follows:
<TABLE>
<CAPTION>

                                                                                     Year ended December 31,
                                                                                     -----------------------
                                                                       1997                       1996                       1995
                                                                  -----------               -----------                -----------
Taxes currently payable:
<S>                                                                <C>                       <C>                      <C>
  Federal ..........................................               $ 1,095,262               $   903,042              $   552,598
  State ............................................                   215,540                   139,334                   73,529
                                                                   -----------               -----------              -----------
                                                                     1,310,802                 1,042,376                  626,127
                                                                   -----------               -----------              -----------
Deferred income taxes:
  Federal ..........................................                    49,622                  (113,137)                (200,000)
                                                                   -----------               -----------              -----------
                                                                   $ 1,360,424               $   929,239              $   426,127
                                                                   ===========               ===========              ===========
</TABLE>

The Corporation  reported its fifth  consecutive  profitable year as of December
31, 1997,  and prior federal tax net  operating  loss  carryforwards  were fully
utilized  in 1996.  As a result of these  changes in  circumstances,  management
reconsidered  its prior  policy  of fully  reserving  net  deferred  tax  assets
concluding  that it was "more likely than not" that  approximately  $140,000 and
$200,000 of deferred tax assets would be realized in 1996 and 1995. The decrease
in the valuation  allowance was due to the realization of loss  carryforwards as
reflected in the provision for income taxes.

At December 31, 1997, the Corporation had net operating loss (NOL) carryforwards
for state income tax purposes of approximately  $3.5 million available to offset
future state  taxable  income.  The NOL  carryforwards  expire in the years 2003
through  2012.  The  valuation   allowance  at  December  31,  1997   represents
management's  estimate  of the  allowance  for  the  state  net  operating  loss
carryforward deferred tax asset.

Deferred  tax  assets and  (liabilities)  and  related  valuation  allowance  at
December 31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>

                                                                                                           December 31,
                                                                                                           ------------
                                                                                                    1997                     1996
                                                                                                 ---------                ---------
<S>                                                                                              <C>                      <C>
Allowance for loan losses ........................................................               $ 439,789                $ 497,145
State tax net operating loss carryforward ........................................                 177,257                  127,194
Excess tax over book depreciation ................................................                  67,917                   82,522
Accrued liabilities ..............................................................                  29,068
Unrealized loss on securities available-for-sale .................................                                           12,233
                                                                                                 ---------                ---------
Gross deferred tax asset .........................................................                 714,031                  719,094
                                                                                                 ---------                ---------

Accretion of discounts on bonds ..................................................                 (20,953)                  (1,381)
Unrealized gain on securities available-for-sale .................................                  (8,035)
                                                                                                 ---------                ---------
Gross deferred tax liability .....................................................                 (28,988)                  (1,381)
                                                                                                 ---------                ---------
Net deferred tax asset before valuation allowance ................................                 685,043                  717,713
Less valuation allowance .........................................................                (157,220)                (120,000)
                                                                                                 ---------                ---------
Net deferred tax asset ...........................................................               $ 527,823                $ 597,713
                                                                                                 =========                =========
</TABLE>

                                       33
<PAGE>

Total  provision  for income  taxes is  different  than if it were  computed  by
applying the federal tax rate due to the following:
<TABLE>
<CAPTION>


                                                             For the Year ended December 31,         Percentage of Pre-tax income
                                                          1997             1996            1995          1997     1996     1995
                                                       -----------     -----------     -----------       ----     ----     ----
<S>                                                    <C>             <C>             <C>               <C>      <C>     <C>
Tax expense at statutory rate ......................   $ 1,228,980     $   937,606     $   614,583       34.0     34.0     34.0
Change in deferred tax asset valuation allowance ...        37,220        (140,624)       (200,000)       1.0     (5.1)   (11.1)
State tax, net of federal benefit ..................       107,355          74,036          48,529        3.0      2.7      2.7
Alternative minimum tax expenses ...................                                       (13,000)                        (1.0)
Nondeductible expenses .............................       (26,856)         46,471          12,622        (.7)     1.7      1.0
Other, net .........................................        13,725          11,750         (36,607)        .4       .4     (2.0)
                                                       -----------     -----------     -----------      -----    -----    -----
                                                       $ 1,360,424     $   929,239     $   426,127       37.7     33.7     23.6
                                                       ===========     ===========     ===========      =====    =====    =====
</TABLE>


NOTE 17 - CONDENSED PARENT COMPANY FINANCIAL INFORMATION

Condensed  financial  data for ComSouth  Bankshares,  Inc.  (parent only) was as
follows:
<TABLE>
<CAPTION>

                                                                                                           December 31,
                                                                                                           ------------
                                                                                                  1997                       1996
                                                                                              -----------                -----------
Balance Sheet Data
<S>                                                                                           <C>                        <C>
Cash and short-term investments ..............................................                $    61,415                $   235,042
Investments in subsidiaries, at equity .......................................                 16,621,175                 14,032,798
Other assets .................................................................                    713,276                    721,916
                                                                                              -----------                -----------
  Total assets ...............................................................                $17,395,866                $14,989,756
                                                                                              ===========                ===========

Note payable .................................................................                $ 1,189,167                $ 1,200,000
Other liabilities ............................................................                    191,127                    148,934
Stockholders' equity .........................................................                 16,015,572                 13,640,822
                                                                                              -----------                -----------
  Total liabilities and stockholders' equity .................................                $17,395,866                $14,989,756
                                                                                              ===========                ===========
</TABLE>

                                       34
<PAGE>

<TABLE>
<CAPTION>

                                                                                                Year ended December 31,
                                                                                                -----------------------
                                                                                        1997             1996               1995
                                                                                    -----------       -----------       -----------

Results of Operations Data
Revenues:
<S>                                                                                 <C>               <C>               <C>
  Management fees ............................................................      $ 1,019,265       $   971,336       $   878,193
  Other ......................................................................               40             3,743             1,184
                                                                                    -----------       -----------       -----------
                                                                                      1,019,305           975,079           879,377
                                                                                    -----------       -----------       -----------

Expenses:
  Salaries and employee benefits .............................................          752,165           640,763           579,079
  Interest expense ...........................................................           90,096            45,912               233
  Other expense ..............................................................          771,054           854,900           489,155
                                                                                    -----------       -----------       -----------
                                                                                      1,613,315         1,541,575         1,068,467
                                                                                    -----------       -----------       -----------
Income (loss) before equity in undistributed income of subsidiaries ..........         (594,010)         (566,496)         (189,090)
Equity in undistributed income of subsidiaries ...............................        2,848,233         2,394,922         1,570,561
                                                                                    -----------       -----------       -----------
Net income ...................................................................      $ 2,254,223       $ 1,828,426       $ 1,381,471
                                                                                    ===========       ===========       ===========
</TABLE>

<TABLE>
<CAPTION>

                                                                                  1997               1996                  1995
                                                                            -----------           -----------           -----------
Cash Flow Data
Cash flows from operating activities:
<S>                                                                         <C>                   <C>                   <C>
  Net income .....................................................          $ 2,254,223           $ 1,828,426           $ 1,381,471
Adjustments to reconcile net income to net cash
  used for operating activities:
Equity in income of subsidiaries .................................           (2,848,233)           (2,394,922)           (1,570,561)
Depreciation and amortization ....................................               47,064                38,794                34,110
Increase in other assets .........................................               (7,854)             (216,916)             (174,641)
Increase (decrease) in other liabilities .........................               42,193              (279,740)              292,822
                                                                            -----------           -----------           -----------
Cash used for operating activities: ..............................             (512,607)           (1,024,358)              (36,799)
                                                                            -----------           -----------           -----------

Cash flow from investing activities:
Purchases of premises and equipment ..............................              (30,570)              (41,321)              (71,263)
                                                                            -----------           -----------           -----------
Cash used for investing activities ...............................              (30,570)              (41,321)              (71,263)
                                                                            -----------           -----------           -----------
</TABLE>




                                       35
<PAGE>

<TABLE>
<CAPTION>

                                                                                   1997                1996                 1995
                                                                              -----------          -----------          -----------
Cash from financing activities:
<S>                                                                           <C>                  <C>                  <C>
(Repayments)  net proceeds of note payable ..........................             (10,833)           1,200,000             (125,000)
Proceeds from issuance of common stock ..............................              83,266               53,966              118,386
Cash in lieu of fractional shares ...................................              (2,083)              (2,216)
Dividends received from subsidiaries ................................             299,200
                                                                              -----------          -----------          -----------
Cash provided by (used for) financing activities ....................             369,550            1,251,750               (6,614)
                                                                              -----------          -----------          -----------

(Decrease) increase in cash and cash equivalents ....................            (173,627)             186,071             (114,676)
Cash and cash equivalents at beginning of year ......................             235,042               48,971              163,647
                                                                              -----------          -----------          -----------
Cash and cash equivalents at end of year ............................         $    61,415          $   235,042          $    48,971
                                                                              ===========          ===========          ===========

Supplemental disclosures of cash flow information:
Cash paid for interest ..............................................         $    90,096          $    45,912          $       223
</TABLE>


NOTE 18 - FINANCIAL INSTRUMENTS

BOCL and BOC are parties to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of their customers and
to reduce their own exposure to fluctuations in interest rates.  These financial
instruments  include commitments to extend credit and standby letters of credit.
Those instruments  involve, to varying degrees,  elements of credit and interest
rate risk in excess of the amount  recognized in the consolidated  statements of
financial  position.  The  contract  or  notional  amounts of those  instruments
reflect the extent of involvement the subsidiaries have in particular classes of
financial instruments.

BOCL's and BOC's exposure to credit loss in the event of  nonperformance  by the
other party to the financial  instruments  for  commitments to extend credit and
standby  letters of credit is  represented by the  contractual  amounts of those
instruments. The subsidiaries use the same credit policies in making commitments
and conditional obligations as they do for on-balance sheet instruments.

Unless noted otherwise, BOCL and BOC do not require collateral or other security
to support financial instruments with credit risk.  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  are expected to expire without being drawn upon,
the total commitment amounts do not represent future cash requirements. BOCL and
BOC evaluate each  customer's  creditworthiness  on a  case-by-case  basis.  The
amount  of  collateral  obtained,  if  deemed  necessary  by BOCL  and BOC  upon
extension of credit,  is based on management's  credit evaluation of the counter
party.  Collateral held varies but may include accounts  receivable,  inventory,
property, plant and equipment, and income-producing commercial properties.

Standby letters of credit are conditional  commitments issued by BOCL and BOC to
guarantee the performance of a customer to a third party.  Those  guarantees are
primarily  issued to support  private  borrowing  arrangements.  Most guarantees
expire by December 1998.  The credit risk involved in issuing  letters of credit
is  essentially  the same as that  involved  in  extending  loan  facilities  to
customers.   Collateral  held  varies  but  may  include  accounts   receivable,
inventory,  equipment,  marketable  securities  and property.  Since most of the
letters of credit are expected to expire  without being drawn upon,  they do not
necessarily represent future cash requirements.




                                       36
<PAGE>

The  estimated  fair  values  of  the   Corporation's   consolidated   financial
instruments were as follows at:

(balances in thousands)
<TABLE>
<CAPTION>

                                                                             December 31, 1997                December 31, 1996
                                                                             -----------------                -----------------
                                                                         Carrying          Fair           Carrying           Fair
                                                                          Amount           Value            Amount           Value
                                                                         --------         --------         --------         --------
Financial Assets:
<S>                                                                      <C>              <C>              <C>              <C>
  Cash and cash equivalents ....................................         $ 16,153         $ 16,153         $ 13,092         $ 13,092
  Investment securities ........................................           43,026           43,086           34,106           34,070
  Loans receivable .............................................          142,671          147,563          113,879          117,308
                                                                         --------         --------         --------         --------
      Total Financial Assets: ..................................         $201,850         $206,802         $161,077         $164,470
                                                                         ========         ========         ========         ========

Financial Liabilities:
  Deposits .....................................................          182,673          182,878          145,408          145,509
  Federal  funds purchased and securities sold
    under agreements to repurchase .............................            3,096            3,096            2,674            2,674
  Note payable .................................................            1,189            1,189            1,200            1,200
 U.S. Treasury tax and loan accounts ..........................             1,330            1,330              784              784
                                                                         --------         --------         --------         --------
      Total Financial Liabilities: ..............................        $188,288         $188,493         $150,066         $150,167
                                                                         ========         ========         ========         ========

Off-balance-sheet financial instruments:
  Commitments to extend credit .................................           22,044           22,044           21,396           21,396
  Standby letters of credit ....................................            3,327            3,327            1,689            1,689
</TABLE>


NOTE 19 - SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK

Most of BOCL's and BOC's business  activity is with customers located within the
Columbia, SC and Charleston, SC metropolitan areas, respectively.  Although BOCL
and BOC  have  diversified  loan  portfolios,  a  substantial  portion  of their
debtor's  ability to honor their  contracts  is dependent upon the  economies of
Columbia and Charleston and the surrounding areas.

The  contractual  amounts  of  credit-related   financial  instruments  such  as
commitments  to extend  credit and  letters of credit  represent  the amounts of
potential  accounting loss should the contract be fully drawn upon, the customer
default, and the value of any existing collateral become worthless.


NOTE 20 - CONTINGENCIES

Litigation

In  addition  to the  matter  discussed  in  Note  2,  the  Corporation  and its
subsidiaries  are parties to and  defendants in  litigation  arising from normal
banking  activities.  In the opinion of management,  the ultimate  resolution of
these  matters will not have a material  effect on the  Corporation's  financial
position or results of operations.

Year 2000 Considerations

Many  existing  computer  programs use only two digits to identify a year in the
date datum field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If uncorrected,  many computer
applications  could fail or create erroneous results by or at the Year 2000. The
Year 2000 issue affects virtually all companies and organizations.



                                       37
<PAGE>

Because the  Corporation  is heavily  dependent upon  computers,  failure of the
computer  systems,  or the  computer  systems  of other  entities  to which  the
Corporation's  computers are linked or on which they are  dependent,  to operate
properly  after December 31, 1999,  could have a material  adverse effect on the
Corporation.  Although  management has prepared a plan for addressing  year 2000
issues  and  believes  that  its  computer   systems  will  not  experience  any
significant problems with the changeover to the year 2000, it has not yet tested
its systems  for year 2000  compliance.  Furthermore,  the  Corporation  has not
received  confirmation from all of the other entities with which its systems are
linked or upon which its systems are dependent  that such entities do not expect
to  encounter  problems.  In  addition,  computer  problems  experienced  by the
customers of the Banks and others could cause  economic  disruptions  that would
affect business.  Therefore, there can be no assurance that the Corporation will
not experience year 2000 problems, or that such problems,  if experienced,  will
not have a material adverse effect on the Corporation.  No special provision has
been made by the  Corporation  for  expenses  related to the year 2000  problem,
however,  management has  incorporated  into it's 1998 budget  certain  expenses
which will potentially be incurred as a result of the year 2000 problem.






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