PORTIONS OF REGISTRANT'S 1996 ANNUAL REPORT TO SHAREHOLDERS
                     INCORPORATED BY REFERENCE IN FORM 10-K.

(Information set forth on page 3 of Registrant's Annual Report to Shareholders)

                          3-YEAR FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
                                                         1996                  1995                    1994
<S>                                                 <C>                     <C>                     <C>
Net income ....................................     $  1,828,426            $  1,381,471            $ 1,046,748
Book value (year-end) per common share ........             8.90                    7.79                   6.70
Total assets ..................................      164,634,464             133,422,628             96,919,653
Loans (net) ...................................      113,879,003              91,024,087             67,300,821
Deposits ......................................      145,407,818             117,762,790             82,908,409
Stockholders' equity ..........................       13,640,822              11,879,138             10,103,976
Return on assets ..............................             1.30%                   1.22%                  1.13%
Return on stockholders' equity ................            14.54%                  12.74%                 11.12%
</TABLE>

(Information  set forth on pages 5 through 17 of  Registrant's  Annual Report to
Shareholders)

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

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.

                                       17
<PAGE>

<TABLE>

                          TABLE 1 - FINANCIAL SUMMARY
                             Summary of Operations
<CAPTION>
                       (thousands, except per share data)
                                                                1996            1995           1994           1993           1992
                                                                ----            ----           ----           ----           ----
<S>                                                         <C>             <C>             <C>            <C>            <C>
Interest income .......................................     $  11,276       $   9,234       $  6,786       $  6,537       $  7,392
Interest expense ......................................         4,924           4,125          2,570          2,690          3,562
                                                            ---------       ---------       --------       --------       --------
Net interest income ...................................         6,352           5,109          4,216          3,847          3,830
Provision for loan losses .............................           110             195             75            135          1,548
                                                            ---------       ---------       --------       --------       --------
Net interest income after provision
  for loan losses .....................................         6,242           4,914          4,141          3,712          2,282
Noninterest income ....................................         1,646           1,469            771            690          1,083
Noninterest expense ...................................         5,131           4,576          3,927          3,836          3,991
                                                            ---------       ---------       --------       --------       --------
Income before income taxes ............................         2,757           1,807            985            566           (626)
Applicable income (taxes) benefit .....................          (929)           (426)            62            (43)           (33)
                                                            ---------       ---------       --------       --------       -------- 
Net income (loss) .....................................     $   1,828       $   1,381       $  1,047       $    523       $   (659)
                                                            =========       =========       ========       ========       ======== 
Earnings (loss) per share - primary (1) ...............     $    1.16       $     .91       $    .70       $    .35       $   (.44)
Earnings (loss) per share - fully diluted (1) .........     $    1.15       $     .91       $    .70       $    .35       $   (.44)
Book  value (year-end) per common share ...............     $    8.90       $    7.79       $   6.70       $   6.13       $   5.78
Selected year-end assets and liabilities
Total assets ..........................................     $ 164,634       $ 133,423       $ 96,920       $ 95,008       $ 94,162
Interest-earning assets ...............................       151,635         119,429         89,179         87,105         86,698
Investment securities .................................        34,106          22,135         21,878         23,323         21,769
Loans (net) ...........................................       113,879          91,024         67,301         59,883         61,614
Deposits ..............................................       145,408         117,763         82,908         82,898         83,087
Noninterest-bearing deposits ..........................        35,678          24,654         13,392         11,430         10,823
Interest-bearing deposits .............................       109,730          93,109         69,516         71,468         72,264
Interest-bearing liabilities ..........................         4,659           2,193          3,422          2,513          1,727
Stockholders' equity ..................................        13,641          11,879         10,104          9,238          8,715
Ratios (average)
Loans to deposits .....................................         82.55%          80.62%         71.87%         73.58%         79.28%
Return on assets ......................................          1.30%           1.22%          1.13%          0.58%         (0.69%)
Return on interest-earning assets .....................          1.37%           1.30%          1.20%          0.62%         (0.74%)
Return on stockholders' equity ........................         14.54%          12.74%         11.12%          5.68%         (7.03%)
Net interest income to interest-earning assets ........          4.78%           4.81%          4.84%          4.53%          4.27%
Net charge-offs (recoveries) to loans .................          0.09%           0.01%         (0.11%)         0.66%          0.74%
Stockholders' equity to assets ........................          8.94%           9.55%         10.13%         10.21%          9.84%
Stockholders' equity to deposits ......................         10.16%          10.94%         11.69%         11.60%         11.36%
Risk-based capital ratio ..............................         13.30%          13.43%         16.23%         15.27%         14.20%
Tier 1 leverage ratio .................................         11.90%          12.17%         14.96%         14.00%         13.00%
</TABLE>


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

RESULTS OF OPERATIONS

The  Corporation  realized record earnings for the year ended December 31, 1996.
Net income  increased by 32% to $1,828,000 or $1.15 per fully diluted share over
the  $1,381,000  or $.91 per share  earned in 1995.  The economy in both markets
served by the banks was  relatively  strong.  As a result,  the high loan demand
experienced by both banks during the fourth quarter of 1995 continued throughout
1996,  resulting in an increase in interest  income from loans.  The increase in
loans  outstanding  was the major  reason for the  improved  earnings as the net
interest  margin  remained  fairly stable during the two years.  The Corporation
showed  only a modest  increase  in  noninterest  income  over the prior year as
management  decided to consolidate  and downsize the mortgage  lending  function
during the year, resulting in a decrease of approximately  $140,000 in fees from
the program.  Management  believed that the time dedicated to the administration
of the  mortgage  lending  function  would be more  effectively  used if focused
toward  the  development  of  the  traditional  lending  and  deposit  gathering
activities.
                                       18

<PAGE>

The Corporation  had total revenues of  $12,922,000,  $10,703,000 and $7,557,000
for the three years ending 1996, 1995 and 1994, respectively. Total expenses for
the same periods were $11,094,000, $9,322,000 and $6,510,000.

The  increase  in revenue  provided  by  interest  on loans in 1996 over 1995 is
primarily  the result of the strong  loan growth  realized by both banks  during
1996. The growth in revenue related to investment  securities is due to a steady
growth of deposits  during the year.  Funds provided by this deposit growth were
used to support the loan growth and increase the investment portfolio.

Noninterest  income  increased over the prior year as both banks were successful
in the promotion of the "Business  Manager" product,  increasing fee income from
the product by $200,000 over 1995. This product provides  immediate cash flow 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.  Deposit fee income  increased by  approximately
$113,000  over 1995 as a result of the strong  growth in  deposit  relationships
during  the year,  coupled  with a change in  service  charges  during the third
quarter by BOCL.  As  previously  mentioned  noninterest  income  was  partially
impacted by approximately  $140,000 in reduced fees due to management's decision
to downsize the mortgage lending  function.  Based on the results noted from the
increase in loan production, increased deposit activity and the increase in fees
generated  by the Business  Manager  product,  the decision  appears to have had
merit.

The  increase in interest  paid on  deposits is almost  entirely  due to the 23%
growth in  deposits  over the prior  year,  as rates paid during the two periods
were relatively stable and the mix in the deposit structure  remained  basically
the same for both periods. The increase in interest on the note payable category
is the result of a borrowing of $1,200,000 during the year by the Corporation to
accommodate  funding  requirements  during the year.  The  decrease  in expenses
related to the  provision  for loan losses was the result of continued  focus on
strict credit  underwriting  standards and the  effectiveness  of a sound credit
review function. Salaries and employee benefits expense increased by a modest 7%
over the prior year and was  primarily  due to merit  increases.  However,  some
additional  staffing  was  required  during  the year to  support  the growth in
deposits and loans.  Furniture and equipment  expenses increased during the year
primarily  as a result of an  expansion  of BOCL,  which  increased  its  square
footage by a third more than its original  size.  Purchases of new furniture and
equipment  were  made  to  correspond  with  the  expansion  of the  facilities.
Additionally,  BOCL  installed a local area network  (LAN) during 1996 to better
serve and support its banking activities and customers.

Other expenses  increased by  approximately  $295,000 over 1995.  Legal expenses
related to  increased  activity  during  the year  concerning  pending  lawsuits
accounted for $170,000 of this increase.  See Note 2 - Stockholder  Legal Action
for  further  details of this  pending  suit.  Supplies  and  printing  expenses
increased by $25,000 and postage and freight increased by $25,000. The increased
expenses  in both of these  categories  were the  result  of the  strong  growth
realized in loans and deposits.  Training  expenses  increased by $22,000 as the
banks  continued to strengthen the skills of their staffs through  attendance in
various banking schools and seminars. In addition,  training was provided to the
staff of BOCL to  support  the  implementation  of the LAN which was  previously
discussed.  Directors' fees increased by $9,000 during the year due to fees paid
to corporate  directors  for their  services.  These fees were only paid for the
last quarter of 1995.

In  addition  to  the  other  normal  operating  expenses  discussed  above  the
Corporation recorded a loss of $25,000 on a counterfeit check and $23,000 on the
sale of other real estate owned (OREO) during the year.

Income tax expenses for 1996 increased by approximately  $503,000 over 1995. The
1995 tax expense was  reduced as a result of the  utilization  of $13,000 in tax
credits  related to an  alternative  minimum tax expense in the prior year and a
reduction  in the  deferred  tax asset  valuation  allowance  of  $200,000.  The
Corporation did continue to reduce its deferred tax asset valuation allowance in
1996 as a result of  continued  profits  and the belief  that the  deferred  tax
assets  would more likely  than not be realized  through  future  earnings.  The
reduction in the  valuation  allowance for 1996,  however,  was only $120,000 as
compared to the $200,000 for 1995. The remainder of the difference in income tax
expense  is due  to  the  improvement  in  pretax  income.  See  Note  15 to the
consolidated  financial  statements for further  details  concerning  income tax
expenses for 1996, 1995 and 1994.
                                       19
<PAGE>

Summarized  in Table 2 is an analysis of the  composition  of the  Corporation's
revenues and expenses for 1996, 1995 and 1994.

<TABLE>

                         TABLE 2 - REVENUE AND EXPENSES

<CAPTION>
                                                                   Year ended December 31,
                                                                   -----------------------
                                                        1996                         1995                         1994
                                                       Amount             %         Amount            %          Amount        %
                                                       ------           -----       ------         ------        ------     ------
Revenues
<S>                                                   <C>               <C>      <C>               <C>      <C>             <C>
Interest on loans ...............................     $ 9,454,242        73.2%   $ 7,723,855        72.2%   $ 5,503,179      72.8%
Interest on investment securities ...............       1,674,717        13.0%     1,361,008        12.7%     1,209,414      16.0%
Interest on temporary investments ...............         147,320         1.1%       148,778         1.4%        73,463       1.0%
Noninterest income ..............................       1,646,054        12.7%     1,469,342        13.7%       770,700      10.2%
                                                      -----------       -----    -----------       -----    -----------     ----- 
Total revenues ..................................     $12,922,333       100.0%   $10,702,983       100.0%   $ 7,556,756     100.0%
                                                      ===========       =====    ===========       =====    ===========     ===== 

Expenses
Interest on deposits ............................     $ 4,756,452        42.9%   $ 4,008,427        43.0%   $ 2,475,804      38.0%
Interest on note payable and
  securities sold under agreements
  to repurchase .................................         167,104         1.5%       116,136         1.2%        93,979       1.4%
Provision for loan losses .......................         110,000         1.0%       195,000         2.1%        75,000       1.2%
Salaries and employee benefits ..................       2,661,977        24.0%     2,481,335        26.6%     2,053,878      31.6%
Occupancy expenses ..............................         433,592         3.9%       429,183         4.6%       384,133       5.9%
Furniture and equipment .........................         406,767         3.6%       341,966         3.7%       281,216       4.3%
Advertising and marketing .......................          89,358         0.8%        78,643         0.8%        83,735       1.3%
Other ...........................................       1,539,418        13.9%     1,244,695        13.4%     1,124,005      17.3%
Taxes ...........................................         929,239         8.4%       426,127         4.6%       (61,742)     (1.0%)
                                                      -----------       -----    -----------       -----    -----------     -----  
Total expenses ..................................     $11,093,907       100.0%   $ 9,321,512       100.0%   $ 6,510,008     100.0%
                                                      ===========       =====    ===========       =====    ===========     ===== 

</TABLE>

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 1996,  1995 and 1994,  net  interest  income  totaled  $6,353,000,
$5,109,000 and $4,216,000,  respectively. The increase in net interest income in
1996 from 1995 as well as 1995 from 1994 was  principally  due to the  growth in
loans  outstanding  for  each  year as  loans  outstanding  increased  by 25% or
$22,900,000 in 1996 over 1995 and 35% or $23,900,000 in 1995 over 1994.

The average yield on earning assets for 1996, 1995 and 1994 was 8.48%, 8.69% and
7.79%,  the average rate paid on interest bearing  liabilities was 4.72%,  4.84%
and 3.65%,  and the annualized net yield on average earning assets (net interest
income  divided  by  average  earning  assets)  was  4.78%,   4.81%  and  4.84%,
respectively.

The  change in yields on  earning  assets  and rates  paid on  interest  bearing
liabilities  from 1995 to 1996 was the  result of  competitive  pricing  in both
markets served by the banks.  The change in yields and rates of the 1994 to 1995
period  was  primarily  due  to  several  prime  rate  changes,  which  occurred
periodically during 1994. 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 earnings impact as a
result of increased  competition,  or rate changes. These efforts appear to have
been  successful  due to the  relatively  stable net interest  margin during the
three year period. 20
<PAGE>

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

<TABLE>

         TABLE 3 - COMPARATIVE AVERAGE BALANCE SHEETS - YIELD AND COSTS

 <CAPTION>
          (Average balances for years ended December 31, in thousands)

                                                       1996                           1995                         1994
                                                       ----                           ----                         ----
                                         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>
Loans1 ..............................   $102,207    $ 9,454     9.25%   $ 79,881   $7,724     9.67%   $ 62,568   $  5,503   8.79%
Investment securities (taxable) .....     28,064      1,675     5.97%     23,902    1,361     5.69%     22,648      1,209   5.34%
Federal funds sold ..................      2,757        147     5.33%      2,532      149     5.88%      1,842         74   4.00%
                                        --------    -------     ----    --------   ------     ----    --------   --------   ---- 
Total interest-earning assets .......    133,028     11,276     8.48%    106,315    9,234     8.69%     87,058      6,786   7.79%
                                        --------    -------     ----    --------   ------     ----    --------   --------   ---- 
                                                                                                      
Noninterest  earning assets                                                                           
Cash and due from banks .............      6,263                           5,763                         4,543
Premises and equipment ..............      1,419                           1,321                         1,178
Other, less allowance for loan losses         46                              64                           197
                                        --------                        --------                      --------
Total noninterest earning assets ....      7,728                           7,148                         5,918
                                        --------                        --------                      --------
Total assets ........................   $140,756                        $113,463                      $ 92,976
                                        ========                        ========                      ========
                                                                                                      
Interest-bearing liabilities:                                                                         
Interest-bearing deposits                                                                             
  NOW, money market and savings .....   $ 54,257    $ 2,139     3.94%   $ 41,363   $1,653     4.00%   $ 33,699   $  1,078   3.20%
  Time deposits .....................     46,848      2,618     5.59%     41,329    2,356     5.70%     34,314      1,398   4.07%
                                        --------    -------     ----    --------   ------     ----    --------   --------   ---- 
Total interest-bearing deposits .....    101,105      4,757     4.71%     82,692    4,009     4.85%     68,013      2,476   3.64%
Short-term borrowings ...............      2,017         88     4.36%      1,915       83     4.33%      1,856         65   3.50%
Note payable and US Treasury tax                                                                      
   and loan accounts ................      1,183         79     6.68%        641       33     5.15%        622         29   4.66%
                                        --------    -------     ----    --------   ------     ----    --------   --------   ---- 
Total interest-bearing liabilities ..    104,305      4,924     4.72%     85,248    4,125     4.84%     70,491      2,570   3.65%
                                                                                                      
Noninterest-bearing liabilities                                                                       
Demand deposits .....................     22,706                          16,387                        12,535
Other liabilities ...................      1,167                             985                           536
                                        --------                        --------                      --------
                                         128,178                         102,620                        83,562
Stockholders' equity ................     12,578                          10,843                         9,414
                                        --------                        --------                      --------
Total liabilities and stockholders'                                                                  
  equity ............................   $140,756                        $113,463                      $ 92,976
                                        ========                        ========                      ========
Net interest income .................               $ 6,352                        $5,109                        $  4,216
                                                    =======                        ======                        ========
                                                                                                       
Margin analysis                                                                                        
Interest income/earning assets ......                            8.48%                        8.69%                         7.79%
Interest expense/earning assets .....                            3.70%                        3.88%                         2.95%
                                                                 ----                         ----                          ---- 
Net interest income/earning assets2..                            4.78%                        4.81%                         4.84%
                                                                 ====                         ====                          ==== 
                                                                                                    
</TABLE>

--------
1 Nonaccrual loan balances have been excluded.
2 Net interest income divided by total interest earning assets.

                                       21
<PAGE>


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

<TABLE>

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

                                                           1996 Compared to 1995                     1995 Compared to 1994
                                                           ---------------------                     ---------------------
                                                     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 ........................................    $2,066,082    ($335,695)    $ 1,730,387     $1,671,059    $ 549,617     $2,220,676
Investment securities(2) .....................       247,140       66,569         313,709         71,825       79,769        151,594
Federal funds sold and securities
  purchased under agreement to resell ........         8,925      (10,383)         (1,458)        40,640       34,675         75,315
                                                  ----------    ---------     -----------     ----------    ---------     ----------
Total interest-earning assets ................     2,322,147     (279,509)      2,042,638      1,783,524      664,061      2,447,585
                                                  ----------    ---------     -----------     ----------    ---------     ----------
Interest expense:
NOW, money market and savings ................       511,219      (24,992)        486,227        305,910      269,001        574,911
Time deposits ................................       307,037      (45,239)        261,798        399,270      558,442        957,712
Federal funds purchased  and securities
  sold under agreements to repurchase ........         4,380          568           4,948          2,568       15,353         17,921
Note payable and US Treasury tax
  and loan accounts ..........................        36,350        9,669          46,019          1,012        3,224          4,236
                                                  ----------    ---------     -----------     ----------    ---------     ----------
Total interest-bearing liabilities ...........       858,986      (59,994)        798,992        708,760      846,020      1,554,780
                                                  ----------    ---------     -----------     ----------    ---------     ----------
Net interest income ..........................    $1,463,161    ($219,515)    $ 1,243,646     $1,074,764    ($181,959)    $  892,805
                                                  ==========    =========     ===========     ==========    =========     ==========
</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.

                                       22
<PAGE>

Table  5 sets  forth  the  Corporation's  interest  sensitivity  position  as of
December  31,  1996  by  showing  the  amount  of  interest-earning  assets  and
interest-bearing liabilities that reprice in the periods shown.
<TABLE>

                  TABLE 5 - INTEREST SENSITIVITY GAP ANALYSIS
 <CAPTION>  
                   (December 31, 1996 balances in thousands)

                                                                  One      
                                                    One year    through      Over five
                                                      or less  five years       years     Total
                                                      -------  ----------       -----     -----
Interest-earning assets
<S>                                                <C>           <C>        <C>         <C>
  Investment securities ........................   $   3,806     $29,405    $    895    $ 34,106
  Loans receivable (1) .........................      76,715      34,986       3,754     115,455
                                                   ---------     -------    --------    --------
                                                      80,521      64,391       4,649     149,561
                                                   ---------     -------    --------    --------

Interest-bearing liabilities
  Deposits
     NOW, money market and savings .............      56,290                              56,290
     Time deposits .............................      49,412       4,028                  53,440
  Securities sold under agreements to repurchase       2,674                               2,674
  US Treasury tax and loan accounts ............         784                                 784
  Note payable .................................         240         960                   1,200
                                                   ---------     -------    --------    --------
                                                     109,400       4,988           0     114,388
                                                   ---------     -------    --------    --------
Interest-sensitive gap .........................   $ (28,879)    $59,403    $  4,649    $ 35,173
                                                   =========     =======    ========    ========

Cumulative interest-sensitivity gap ............   $ (28,879)    $30,524    $ 35,173
                                                   =========     =======    ========

Ratios of interest-earnings assets to
  interest-bearing liabilities .................        73.6%    1,290.9%
                                                       =====     ======= 
Cumulative gap to total interest-earning assets        (19.3%)      20.4%       23.5%
                                                       =====     =======    ======== 
</TABLE>

(1)    Excludes nonaccrual loans.

At December 31, 1996  approximately  54% of the  Corporation's  interest earning
assets  will  reprice  within  one year,  compared  to 95% of  interest  bearing
liabilities.  The  19%  or  $28,879,000  interest-sensitivity  gap  position  at
December 31, 1996 is higher than management prefers, however not at a level high
enough  to  create  a  material  impact  on  earnings  if rates  were to  change
unexpectedly.  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 23% and 19% of total earning  assets in 1996 and 1995,  respectively.
Note 4 to the accompanying  consolidated  financial statements presents the book
value of investment  securities by category as of December 31, 1996 and 1995. 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.
                                       23

<PAGE>

The Corporation adopted SFAS No. 115 "Accounting for Certain Investments in Debt
and Equity  Securities," on January 1, 1994.  Management reviewed the investment
securities  portfolio and classified  securities as either  held-to-maturity  or
available-for-sale. Securities which the Corporation has the positive intent and
ability to hold to maturity were 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>
                  TABLE 6 - ANALYSIS OF INVESTMENT SECURITIES
<CAPTION>
                                                                                Weighted
                                                                                 Average
                                                                                 Taxable
                                          Par       Amortized       Fair       Equivalent
                                        Value          Value        Value        Yield (1)
                                        -----          -----        -----        ---------
Held-to-Maturity
US Treasuries
<S>                                  <C>           <C>           <C>             <C>
  Within one year ................   $ 1,500,000   $ 1,504,189   $ 1,500,390      4.96%
  One to five years ..............     6,750,000     6,777,560     6,753,140      5.91%
                                     -----------   -----------   -----------      ---- 
    Total ........................     8,250,000     8,281,749     8,253,530      5.74%
                                     -----------   -----------   -----------      ---- 
US Government Agencies
  Within one year ................        41,449        41,374        42,614      8.83%
  One to five years ..............     4,575,000     4,570,256     4,551,071      6.32%
  Five to ten years ..............       108,880       106,701       111,486      8.45%
  After ten years ................        72,344        71,847        76,730      8.85%
                                     -----------   -----------   -----------      ---- 
    Total ........................     4,797,673     4,790,178     4,781,901      6.43%
                                     -----------   -----------   -----------      ---- 
Total Held-to-Maturity ...........   $13,047,673   $13,071,927   $13,035,431      5.99%
                                     ===========   ===========   ===========      ==== 

Available-for-Sale
US Treasuries
  Within one year ................   $ 1,250,000   $ 1,249,493   $ 1,257,425      6.56%
  One to five years ..............     7,100,000     7,130,572     7,149,754      6.09%
                                     -----------   -----------   -----------      ---- 
    Total ........................     8,350,000     8,380,065     8,407,179      6.16%
                                     -----------   -----------   -----------      ---- 
US Government Agencies
  Within one year ................     1,000,000     1,000,057     1,003,440      6.17%
  One to five years ..............    11,000,000    10,974,276    10,907,799      6.07%
                                     -----------   -----------   -----------      ---- 
    Total ........................    12,000,000    11,974,333    11,911,239      6.08%
                                     -----------   -----------   -----------      ---- 
Other Securities
  After ten years (2) ............       716,150       716,150       716,150      6.72%
                  --                 -----------   -----------   -----------      ---- 
    Total ........................       716,150       716,150       716,150      6.72%
                                     -----------   -----------   -----------      ---- 
Total Available-for-Sale .........   $21,066,150   $21,070,548   $21,034,568      6.13%
                                     ===========   ===========   ===========      ==== 

Average Maturity in Years of Total
  Investment Securities ..........          2.42
                                     ===========
</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 1996 only.

                                       24
<PAGE>


LOANS AND ALLOWANCE FOR LOAN LOSSES

At December 31, 1996, total loans outstanding increased by 25% to $115.7 million
over the $92.8  million  reported  for year end 1995.  The  strong  loan  demand
experienced by both banks in 1995 continued  throughout 1996 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,  1996  and  1995.  See  Note 5 to the
consolidated  financial  statements for a description of the distribution of the
loan portfolio among various types of loans.

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, 1996 and 1995,
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 maturity or repricing distribution of selected loan categories
at December 31, 1996.

<TABLE>

        TABLE 7 - SELECTED LOAN MATURITIES AND INTEREST RATE SENSITIVITY
<CAPTION>
                   (December 31, 1996 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 ..........................................            $72,422            $31,415            $ 2,980            $106,817
  Real Estate - Mortgage ..............................              2,642                742                259               3,643
  Consumer and other ..................................              1,651              2,829                515               4,995
                                                                   -------            -------            -------            --------
    Total .............................................            $76,715            $34,986            $ 3,754            $115,455
                                                                   =======            =======            =======            ========

Total of loans above with :
  Predetermined interest rates ........................             20,162             34,408              3,714              58,284
  Adjustable interest rates ...........................             56,553                578                 40              57,171
                                                                   -------            -------            -------            --------
    Total .............................................            $76,715            $34,986            $ 3,754            $115,455
                                                                   =======            =======            =======            ========
</TABLE>

(1) Excludes nonaccrual loans totaling $226,582.

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 1996
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.

                                       25
<PAGE>

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, 1996, the consolidated  allowance for loan losses was $1,802,000
or 1.56% of total loans as compared to $1,785,000 or 1.92% at December 31, 1995.
The decline in the  percentage  of the allowance to total loans is primarily due
to the 25% increase in loans outstanding during 1996. Management's evaluation of
the allowance at year-end 1996  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 $92,000 for 1996,  $4,000
for 1995 and net  recoveries of $68,000 for 1994.  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 $110,000 for 1996,  compared to $195,000 for
the year  ended  December  31,  1995.  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,  though reduced from
the prior year,  was  sufficient  to provide an adequate  allowance for the loan
portfolio at December 31, 1996.

Table 8  includes  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.

<TABLE>
               TABLE 8 - ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<CAPTION>
                             (December 31 balances)

                                                  1996                            1995                            1994
                                                  ----                            ----                            ----
                                                           Percent of                     Percent of                    Percent of
                                                          Loans in each                  Loans in each                 Loans in each
                                                          category to                    category to                   category to
                                         Amount           Total Loans     Amount         Total Loans         Amount    Total Loans
                                         ------           -----------     ------         -----------         ------    -----------
<S>                                     <C>                <C>          <C>              <C>            <C>              <C>
Commercial .........................    $1,347,794           92.5%      $1,248,740         90.8%        $1,184,343        85.3%
Real Estate - Mortgage .............       193,845            3.2%         272,919          5.0%           224,774         8.5%
Consumer and other .................       101,364            4.3%          89,366          4.2%            65,478         6.2%
                                                                                                      
Unallocated ........................       159,399                         173,483                         119,176             
                                        ----------          -----       ----------        -----         ----------       ----- 
Total ..............................    $1,802,402          100.0%      $1,784,508        100.0%        $1,593,771       100.0%
                                        ==========          =====       ==========        =====         ==========       ===== 
</TABLE>
                                       26
<PAGE>
                                 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, 1996, $227,000 of loans were on nonaccrual status as compared to
$67,000 at December 31, 1995. The increase in nonaccrual loans was primarily due
to two  borrowers  filing  bankruptcy  during the year.  One of the loans is SBA
guaranteed  and the bank expects to be paid during the first quarter of 1997 for
the $70,000 balance on the loan. Interest income of $4,132,  $57,370 and $50,332
was  recognized  during  1996,  1995 and 1994,  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, 1996, 1995
and  1994,  interest  income of  $7,779,  $9,798  and  $69,764  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 and $18,000 on the sale of OREO property in 1995 and 1994,
respectively.

<TABLE>

TABLE 9 - PROBLEM ASSETS
<CAPTION>
(Balance at December 31)
                                                        1996              1995             1994              1993             1992
                                                        ----              ----             ----              ----             ----
<S>                                                    <C>             <C>             <C>               <C>               <C>
Nonaccrual loans ...............................       $226,582        $ 66,739        $  526,500        $  602,786        $311,000
Loans past due ninety days or more .............        125,512          15,853            28,703             8,000         468,000
Troubled debt restructuring ....................              0               0                 0                 0               0
Other real estate owned ........................              0         172,500           191,100           474,996          40,000
                                                       --------        --------        ----------        ----------        --------
                                                       $352,094        $255,092        $  746,303        $1,085,782        $819,000
                                                       ========        ========        ==========        ==========        ========
Nonperforming assets to total loans
  and other real estate owned ..................            .30%            .27%             1.08%             1.78%           1.29%
                                                       ========        ========        ==========        ==========        ======== 
</TABLE>

All accruing loans 90 days of more past due were in the process of collection at
each year end. At December 31, 1996,  total  classified loans were $2,831,000 or
2.5% of total loans,  compared to $2,262,000 or 2.4% at December 31, 1995. 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,  1996.  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 1996 were  $123.8  million,  compared to $99.1  million the
prior year, an increase of $24.7 million or 24.9%.

The total average  deposits for the years ended  December 31, 1996 and 1995, are
summarized below.

<TABLE>
                          TABLE 10 - AVERAGE DEPOSITS
<CAPTION>

                                                      Average          Average          Average        Average
                                                      Balance            Cost           Balance          Cost
                                                      -------            ----           -------          ----
<S>                                                    <C>                <C>        <C>                 <C>
Noninterest bearing deposit ........................   $ 22,705,526                  $16,386,568          
Interest bearing transaction accounts ..............     23,717,307        2.78%      20,234,224         2.89%
Savings ............................................     30,540,009        4.85%      21,128,180         5.05%
Time ...............................................     46,847,931        5.59%      41,329,391         5.70%
                                                       ------------                  -----------              
Total average deposits .............................   $123,810,773                  $99,078,363
                                                       ============                  ===========
</TABLE>                                                                        
                                       27
<PAGE>


At December 31, 1996, the Corporation had $26,984,224 in certificates of deposit
of $100,000 or more. Of those accounts, maturities are as follows:

MATURITY
Less than three months .......................    $14,905,296
Over 3 through 6 months ......................      5,852,912
Over 6 through 12 months .....................      5,036,888
Over 1 year through 5 years ..................      1,189,128
                                                  -----------
Total ........................................    $26,984,224
                                                  ===========

                        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, 1996, BOCL had
approximately  $8.9 million while BOC had approximately  $9.5 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, 1996 and 1995, liquid assets of approximately  $47.2 million and
$39.4  million,  respectively,  were  available  to  meet  demands  for  deposit
withdrawals,  undisbursed  amounts on lines of credit  ("loan  commitments")  of
$21,396,000  and  $18,148,000  and  letters of credit  totaling  $1,689,000  and
$1,775,000,  respectively. The amount of liquid assets available on December 31,
1996 includes cash and cash equivalents of $13,100,000, a decrease of $4,150,000
over the December 31, 1995 amount of $17,250,000. This decrease in cash and cash
equivalents is  attributable  to  management's  decision to improve  earnings by
investing short-term federal funds in investment securities.

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  $145.4  million at December 31, 1996,  compared to
$117.8  million  at  December  31,  1995.  Of  the  total  deposit  base  of the
Corporation  at  December  31,  1996,  approximately  $26.9  million,  or 18.6%,
consisted of  Certificates of Deposits in amounts of $100,000 and higher ("Jumbo
Certificates").  These Jumbo Certificates are issued to local customers and none
are brokered deposits.

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, 1996, total
loans  outstanding  were  approximately  $115.7  million,  as  compared to $92.8
million at December 31, 1995.

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,  1996,  the Tier 1 capital  ratio  for BOCL was 10.0% and the total  capital
ratio was 11.2%, while BOC had a Tier 1 ratio of 13.8% and a total capital ratio
of 15.0%.
                                       28
<PAGE>

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 11.9% and its total capital ratio was
13.3% at December 31, 1996. These ratios are well within guidelines  established
by  the  Corporation's  primary  regulator.  See  Note  13 to  the  consolidated
financial statements for further discussion concerning capital ratios.

                    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

Prior  to  March  21,  1996,  there  had  been  only a  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 was
$10.00 per share with a closing  price of $14.62 per share at December 31, 1996.
The average monthly trading volume for the period March through December of 1996
was  31,800  shares.  There  were  approximately  600  holders  of record of the
Corporation's Common Stock (no par value) as of December 31, 1996.

The  Board 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.

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 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.

                            FOURTH QUARTER EARNINGS

Net income for the fourth quarter of 1996 was $574,000 or $.36 per fully diluted
share,  an  increase of 35% over the  $426,000 or $.31 per share  earned for the
same quarter of 1995. This increase in earnings is almost entirely the result of
an increase of 25% in average  loans  outstanding  between the two periods.  The
modest increase in noninterest  income was due to an increase in service charges
on deposit accounts of $46,000,  principally due to a rate increase  implemented
by BOCL during the third  quarter of 1996,  and an increase in fees derived from
the Business  Manager product of $60,000 due to increased  efforts by both banks
to gain  additional  market  share.  The  increase in fees  derived from service
charges on deposits and the Business  Manager product were partially offset by a
reduction  of  $82,000  in fees  from  mortgage  loan  fees as BOCL  decided  to
consolidate  and  downsize  the  function  during  the  second  quarter of 1996.
Noninterest expenses declined between the two quarters by approximately $20,000.

                                       29
<PAGE>

This  reduction  in expenses  from 1995 to 1996 was  principally  due to reduced
legal fees of $40,000  related to the pending  lawsuit by a former  director and
current  stockholder  as the  activity in the  lawsuit  was much  greater in the
fourth  quarter  of 1995 and the first  three  quarters  of 1996.  The  activity
lessened during the fourth quarter of 1996. In addition,  dues and subscriptions
declined  by $24,000  from the prior year due to a special  assessment  for club
membership  during the fourth quarter of 1995.  These  reductions were partially
offset by increased expenses in the furniture,  fixtures and equipment category,
due to the  expansion  of  facilities  in BOCL and the  installation  of the LAN
system at BOCL, which has previously been discussed.

Income tax  expense  increased  by  approximately  $210,000  as the  Corporation
reduced its net deferred tax valuation  allowance by $200,000  during the fourth
quarter of 1995,  compared  to  $38,137  for the  fourth  quarter  of 1996.  The
increase  in pretax  income  during  the  fourth  quarter  of 1996 over 1995 was
responsible for the remainder of the increase in tax expense.

Table 11  summarizes  the  financial  results and selected  average  balances by
quarter for 1996 and 1995.

<TABLE>
                     TABLE 11 - QUARTERLY FINANCIAL RESULTS
<CAPTION>
            (dollar amounts in thousands, except per share amounts)
                                                                                                    
                                                    1996 Quarter Ended                             1995 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 ....................   $  3,052    $  2,866    $  2,747    $  2,611    $  2,571    $  2,445    $  2,212    $  2,006
Interest expense ...................      1,351       1,233       1,169       1,171       1,159       1,122       1,021         823
                                       --------    --------    --------    --------    --------    --------    --------    --------
Net interest income ................      1,701       1,633       1,578       1,440       1,412       1,323       1,191       1,183
Provision for loan losses ..........         60           0          40          10          90          65          30          10
                                       --------    --------    --------    --------    --------    --------    --------    --------
Net interest income after
  provision for loan losses ........      1,641       1,633       1,538       1,430       1,322       1,258       1,161       1,173
Noninterest income .................        442         401         411         392         424         434         341         271
Noninterest expense ................      1,207       1,370       1,284       1,270       1,227       1,105       1,165       1,079
                                       --------    --------    --------    --------    --------    --------    --------    --------
Net income before income taxes .....        876         664         665         552         519         587         337         365
Current income taxes ...............       (302)       (218)       (251)       (158)        (93)       (272)        (21)        (40)
                                       --------    --------    --------    --------    --------    --------    --------    -------- 
Net income .........................   $    574    $    446    $    414    $    394    $    426    $    315    $    316    $    325
                                       ========    ========    ========    ========    ========    ========    ========    ========
Net income per share-primary .......   $    .37    $    .28    $    .26    $    .25    $    .28    $    .21    $    .21    $    .21
                                       ========    ========    ========    ========    ========    ========    ========    ========
Net income per share-fully diluted     $    .36    $    .28    $    .26    $    .25    $    .28    $    .21    $    .21    $    .21
                                       ========    ========    ========    ========    ========    ========    ========    ========
Quarterly average balances          
Assets .............................   $152,750    $141,559    $137,284    $131,227    $128,810    $118,030    $109,564    $100,181
Earning assets .....................    144,696     133,904     129,404     124,435     118,659     111,241     102,630      93,377
Investment securities ..............     33,298      29,357      31,042      29,567      27,329      24,501      21,801      21,918
Loans ..............................    111,398     104,547      98,362      94,868      88,952      83,816      76,813      70,668
Deposits ...........................    134,534     124,018     121,738     114,838     110,804     103,829      95,916      85,462
Stockholders' equity ...............     13,267      12,624      12,195      12,117      11,409      11,028      10,595      10,143
Common stock data (dollar per
share)
Market price range:
  High .............................   $  15.25    $  13.12    $  14.50    $  12.37
  Low ..............................   $  12.50    $  11.62    $  12.37    $  10.00
  Average ..........................   $  13.80    $  12.30    $  13.51    $  11.54
  Close ............................   $  14.62    $  13.12    $  12.39    $  12.25

</TABLE>

During 1995,  management is aware of only a limited  number of trades.  With the
majority  of such  trades  occurring  at $8.50 per share.  These  trades may not
represent arms-length transactions.
                                       30

<PAGE>

                         CHANGE IN INDEPENDENT AUDITORS

On February 21, 1995, the  management of the  Corporation,  after  receiving the
approval of members of the Corporation's Audit Committee and Board of Directors,
informed  its  independent  accountants,   Price  Waterhouse,  LLP  (the  "Prior
Accountants"),  that such  accounting  firm would not be retained for the fiscal
year ending  December 31, 1995.  On January 26,  1995,  the Board of  Directors,
after  receiving  proposals from other  accounting  firms,  formally  elected to
engage J.W. Hunt and Company,  LLP to serve as independent  accountants  for the
year ending December 31, 1995.  Prior to their  engagement on February 21, 1995,
the firm of J.W. Hunt and Company,  LLP was not consulted by the Corporation for
any financial or accounting matters. J.W. Hunt and Company, LLP was also engaged
by the  Board of  Directors  to serve an  independent  accountants  for the year
ending December 31, 1996. The engagement was ratified by the stockholders at its
annual meeting on April 30, 1996.

In  connection  with  the  audit  of the  Corporation's  consolidated  financial
statements  for the year ended  December 31, 1994,  and any  subsequent  interim
period  preceding the dismissal of the Prior  Accountants  and the engagement of
the new accountants,  there were no disagreements  with the Prior Accountants on
any  matter  of  accounting   principles  or  practices,   financial   statement
disclosure, or auditing scope or procedure,  which disagreements if not resolved
to the  satisfaction  of the Prior  Accountants  would have  caused them to make
reference  in  connection  with  their  report  to  the  subject  matter  of the
disagreements.  The audit report of the Prior  Accountants on the  Corporation's
consolidated  financial  statements  for the year ended  December  31,  1994 was
unqualified.

The Board of Directors,  upon the  recommendation  of the Audit  Committee,  has
appointed J.W. Hunt and Company,  LLP, independent certified public accountants,
as independent auditors for the Corporation and its subsidiaries for the current
fiscal  year  ending   December  31,  1997,   subject  to  ratification  by  the
stockholders.  J.W.  Hunt and  Company,  LLP has  advised the  Corporation  that
neither the firm nor any of its  partners  has any direct or  indirect  material
interest  in the  Corporation  and  its  subsidiaries  except  as  auditors  and
independent   certified   public   accountants  of  the   Corporation   and  its
subsidiaries.


                                       31
<PAGE>

(Information set forth on pages 18 through 35 of the Registrant's  Annual Report
to Shareholders)

<TABLE>
<CAPTION>
                                              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, 1996 and 1995, and
the related  consolidated  statements of  operations,  changes in  stockholders'
equity,  and cash  flows  for each of the  years in the  two-year  period  ended
December  31,   1996.   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.  The consolidated
financial  statements of the Corporation and its subsidiaries as of December 31,
1994, were audited by other auditors whose report dated March 3, 1995, expressed
an unqualified opinion on those statements and included an explanatory paragraph
that referred to Note 1 to the consolidated  financial statements describing the
Corporation's change in the method of accounting for certain investments in debt
and equity securities in 1994.

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 1996 and 1995 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,  1996 and 1995,  and the
results  of their  operations  and their cash flows for each of the years in the
two-year period ended December 31, 1996, in conformity  with generally  accepted
accounting principles.

                         J. W. Hunt and Company, LLP

Columbia, South Carolina
January 31, 1997

                                       32
<PAGE>

                                 March 3, 1995




                        REPORT OF INDEPENDENT ACCOUNTANTS

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

     In our opinion, the consolidated balance sheet and the related consolidated
statements of inome, of cash flows and of changes in stockholders'  equity as of
and for each of the two years in the period ended  December 31, 1994  (appearing
on pages 28 through 31 of the ComSouth Bankshares Inc. and its subsidiaries 1995
Annual  Report to  Shareholders  and in this Form 10-K  Annual  Report)  present
fairly, in all material respects, the financial position,  results of operations
and cash flows of ComSouth  Bankshares,  Inc. and its subsidiaries as of and for
each of the two years in the period ended December 31, 1994, in conformity  with
generally accepted  accounting  principles.  These financial  statements are the
responsibility of the Company's management;  our responsibility is to express an
opinion on these  financial  statements  based on our audits.  We conducted  our
audits of these  statements  in  accordance  with  generally  accepted  auditing
standards which 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,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable  basis for the opinion  expressed above. We have not
audited the consolidated  financial statements of ComSouth Bankshares,  Inc. for
any period subsequent to December 31, 1994.

         As  discussed  in  Notes  1  and  13  to  the  consolidated   financial
statements,  the Corporation  changed its methods of accounting for income taxes
during 1993 and certain investments in debt and equity securities in 1994.



Price Waterhouse LLP



                                      32A
<PAGE>

                           COMSOUTH BANKSHARES, INC.
<TABLE>
                           CONSOLIDATED BALANCE SHEET
<CAPTION>
                                                                                                              December 31,
                                                                                                      1996                   1995
                                                                                                     ----                   ----
ASSETS
<S>                                                                                            <C>                    <C>
Cash and due from banks ..............................................................         $   9,441,553          $  10,979,878
Federal  funds sold ..................................................................             3,650,000              6,270,000
                                                                                               -------------          -------------
  Total cash and cash equivalents ....................................................            13,091,553             17,249,878
Investment securities:
  Held-to-maturity, at amortized cost  (fair value of $13,035,431
   in 1996 and $9,333,599 in 1995) ...................................................            13,071,927              9,319,839
  Available-for-sale, at fair value (amortized cost of $21,070,548 in
    1996 and $12,671,841 in 1995) ....................................................            21,034,568             12,815,394
Loans receivable:
  (less allowance for loan losses 1996 - $1,802,402;
   1995 - $1,784,508) ................................................................           113,879,003             91,024,087
Premises and equipment, net ..........................................................             1,489,159              1,287,558
Accrued interest receivable ..........................................................             1,343,298              1,104,905
Other assets .........................................................................               724,956                620,967
                                                                                               -------------          -------------
Total Assets .........................................................................         $ 164,634,464          $ 133,422,628
                                                                                               =============          =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits
  Noninterest bearing demand .........................................................            35,677,721             24,653,831
  NOW, money market and savings ......................................................            56,290,307             49,321,293
  Time deposits of $100,000 or more ..................................................            26,984,224             18,377,511
  Time deposits less than $100,000 ...................................................            23,442,953             23,255,643
  Other time deposits ................................................................             3,012,613              2,154,512
                                                                                               -------------          -------------
Total deposits .......................................................................           145,407,818            117,762,790
Federal funds purchased and securities sold under
  agreement to repurchase ............................................................             2,674,394              1,754,912
Note payable .........................................................................             1,200,000
                                                                                                                                  0
U.S. Treasury tax and loan accounts ..................................................               784,106                438,486
Accrued interest .....................................................................               446,225                577,174
Other liabilities ....................................................................               481,099              1,010,128
                                                                                               -------------          -------------
Total Liabilities ....................................................................           150,993,642            121,543,490
                                                                                               -------------          -------------

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 - 1,532,826 in 1996 and 1,385,701 in 1995) .............................            13,616,611             11,830,145
Retained earnings (accumulated deficit) ..............................................                47,958                (45,752)
Unrealized gain (loss) on investment securities available-for-
  sale, net of applicable deferred income taxes ......................................               (23,747)                94,745
                                                                                               -------------          -------------
Total Stockholders' Equity ...........................................................            13,640,822             11,879,138
                                                                                               -------------          -------------
Commitments and contingencies
  (Notes 2, 11, and 19) ..............................................................         -------------          -------------
Total Liabilities and Stockholders' Equity ...........................................         $ 164,634,464          $ 133,422,628
                                                                                               =============          =============
</TABLE>

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

                                       33
<PAGE>

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

                                                                                                 Year ended December 31,
                                                                                                 -----------------------

                                                                                    1996                  1995                1994
                                                                                    ----                  ----                ----
Interest income:
<S>                                                                            <C>                   <C>                  <C>
Interest and fees on loans ...........................................         $  9,454,242          $ 7,723,855          $5,503,179
Investment securities ................................................            1,674,717            1,361,008           1,209,414
Federal funds sold ...................................................              147,320              148,778              73,463
                                                                               ------------          -----------          ----------
  Total interest income ..............................................           11,276,279            9,233,641           6,786,056
                                                                               ------------          -----------          ----------
Interest expense:
Deposits .............................................................            4,756,452            4,008,427           2,475,804
Federal funds purchased and securities sold
  under agreements to repurchase .....................................               87,731               82,783              64,862
U.S. Treasury tax and loan accounts ..................................               33,459               33,120              20,124
Note payable .........................................................               45,913                  233               8,993
                                                                               ------------          -----------          ----------
  Total interest expense .............................................            4,923,555            4,124,563           2,569,783
                                                                               ------------          -----------          ----------
Net interest income ..................................................            6,352,724            5,109,078           4,216,273
Provision for loan loss ..............................................              110,000              195,000              75,000
                                                                               ------------          -----------          ----------
Net interest income after provision for loan losses ..................            6,242,724            4,914,078           4,141,273
                                                                               ------------          -----------          ----------
Noninterest income:
Lending operations and services ......................................            1,013,470              957,418             320,921
Service charges on deposit accounts ..................................              555,723              442,397             360,436
Gain on sale of mortgage loans .......................................                                                        24,309
Other ................................................................               76,861               69,527              65,034
                                                                               ------------          -----------          ----------
                                                                                  1,646,054            1,469,342             770,700
                                                                               ------------          -----------          ----------
Noninterest expenses:
Salaries and employee benefits .......................................            2,661,977            2,481,335           2,053,878
Occupancy expenses ...................................................              433,593              429,183             384,133
Furniture and equipment ..............................................              406,767              341,966             281,216
Advertising and marketing ............................................               89,358               78,643              83,735
Other ................................................................            1,539,418            1,244,695           1,124,005
                                                                               ------------          -----------          ----------
                                                                                  5,131,113            4,575,822           3,926,967
                                                                               ------------          -----------          ----------
Income before provision for income taxes .............................            2,757,665            1,807,598             985,006
Income tax (expense) benefit .........................................             (929,239)            (426,127)             61,742
                                                                               ------------          -----------          ----------
Net income ...........................................................         $  1,828,426          $ 1,381,471          $1,046,748
                                                                               ============          ===========          ==========

Earnings per share:
  On common and common equivalents ...................................         $       1.16          $      0.91          $     0.70
                                                                               ============          ===========          ==========
  On a fully diluted basis ...........................................         $       1.15          $      0.91          $     0.70
                                                                               ============          ===========          ==========

</TABLE>

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

                                       34
<PAGE>


                           COMSOUTH BANKSHARES, INC.
<TABLE>
           CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
                  Years Ended December 31, 1996, 1995 and 1994


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

<S>                                                   <C>            <C>              <C>              <C>             <C>         
Balance at December 31, 1993 ....................      1,368,456     $ 11,711,421     ($2,473,633)                     $  9,237,788
Unrealized loss on investment securities
  available-for-sale, net of applicable
  deferred income taxes at January 1, 1994 ......                                                      ($   17,371)         (17,371)
Net income ......................................                                       1,046,748                         1,046,748
Change in unrealized loss on investment
  securities available-for-sale, net of
  applicable deferred income taxes                                                                        (163,189)        (163,189)
                                                       ---------     ------------     -----------      -----------      ----------- 
Balance at December 31, 1994 ....................      1,368,456       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 ........................         17,245          118,724                                           118,386
Net income ......................................                                       1,381,133                         1,381,471
                                                       ---------     ------------     -----------     ------------     ------------
Balance at December 31, 1995 ....................      1,385,701       11,830,145         (45,752)          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)
10% stock dividend ..............................        138,600        1,732,500      (1,732,500)
Cash in lieu of fractional shares                                                          (2,216)                           (2,216)
Issuance of common shares .......................          8,525           53,966                                            53,966
Net income ......................................                                       1,828,426                         1,828,426
                                                       ---------     ------------     -----------     ------------     ------------
Balance at December 31, 1996 ....................      1,532,826     $ 13,616,611     $    47,958     $    (23,747)    $ 13,640,822
                                                       =========     ============     ===========     ============     ============
                                                                                                                            
</TABLE>














The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
                                       35
<PAGE>

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

                                                                                               Year ended December 31,
                                                                                               -----------------------
                                                                                     1996               1995              1994
                                                                                     ----               ----              ----
Cash flows from operating activities:
<S>                                                                             <C>                 <C>                 <C>
Net income ..............................................................       $  1,828,426        $  1,381,471        $ 1,046,748

Adjustments to reconcile net income to cash
  provided by (used for) operating activities:
Depreciation and amortization ...........................................            330,309             288,565            240,620
Provision for loan losses ...............................................            110,000             195,000             75,000
Deferred tax benefit ....................................................           (113,137)           (200,000)          (113,000)
Amortization of premium and accretion of
  discount on investment securities .....................................              9,932              17,726             30,467
Gain on sales of mortgage loans .........................................                                                   (24,309)
Gross amount of loans originated for resale .............................                                                (1,749,050)
Proceeds from loans sold ................................................                                                 1,773,359
Increase in accrued interest receivable .................................           (238,393)           (304,492)           (49,771)
Decrease in other assets ................................................             21,381              43,489            263,450
(Decrease) increase in interest payable .................................           (130,949)            340,014             31,534
(Decrease) increase in other liabilities                                            (480,222)            713,520             94,319
                                                                                ------------        ------------        -----------
Cash provided by operating activities ...................................          1,337,347           2,475,293          1,619,367
                                                                                ------------        ------------        -----------

Cash flows from investing activities:
Purchases of investment securities, held-to-maturity ....................         (8,623,337)           (493,906)        (1,504,219)
Purchases of investment securities, available-for-sale ..................        (11,174,538)        (11,556,551)        (2,780,729)
Maturities of investment securities, held-to-maturity ...................          4,862,449           7,273,578          1,921,698
Maturities of investment securities, available-for-sale .................          2,774,700           4,919,100          3,503,800
Net increase of loans ...................................................        (21,891,265)        (22,740,893)        (5,624,009)
Net collections and remittances on loans serviced for others ............         (1,073,651)         (1,177,372)        (1,869,009)
Purchases of premises and equipment .....................................           (531,910)           (308,190)          (299,524)
Proceeds from sale of other real estate owned ...........................                                  8,063             17,551
                                                                                ------------        ------------        -----------
Cash used for investing activities ......................................        (35,657,552)        (24,076,171)        (6,634,441)
                                                                                ------------        ------------        ----------- 

Cash flows from financing activities:
Net increase in deposits ................................................         27,645,028          34,854,381             10,063
(Maturities of) increase in federal funds purchased
 and securities sold under agreement to repurchase ......................            919,482          (1,190,837)         1,500,288
Proceeds (repayment) of note payable ....................................          1,200,000            (125,000)
Increase (decrease) in U.S. treasury, tax  and loan  accounts ...........            345,620              86,928           (590,523)
Proceeds from issuance of common stock ..................................             53,966             118,386
Cash in lieu of fractional shares .......................................             (2,216)                                      
                                                                                ------------        ------------        ----------- 
Cash provided by financing activities ...................................         30,161,880          33,743,858            919,828
                                                                                ------------        ------------        -----------
Increase (decrease) in cash and cash equivalents ........................         (4,158,325)         12,142,980         (4,095,246)
                                                                                ------------        ------------        ----------- 
Cash and cash equivalents at beginning of year ..........................         17,249,878           5,106,898          9,202,144
                                                                                ------------        ------------        -----------
Cash and cash equivalents at end of year ................................       $ 13,091,553        $ 17,249,878        $ 5,106,898
                                                                                ============        ============        ===========

Supplemental disclosure of cash flow information:
Cash paid for interest ..................................................       $  5,054,504        $  3,784,548        $ 2,538,249
Cash paid for taxes .....................................................       $  1,575,933        $    107,995        $    33,000

Noncash adjustments to report investment securities,
  available-for-sale at fair value:
Investment securities, available-for-sale ...............................       $    (35,980)       $    143,553        $  (273,576)
Other (liabilities) assets ..............................................             12,233             (48,808)            93,016
Unrealized gain (loss) on investment securities, available-
  for-sale, net of applicable deferred income taxes .....................       $    (23,747)       $     94,745        $  (180,560)
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
                                       36

<PAGE>



                           COMSOUTH BANKSHARES, INC.

NOTES TO CONSOLIDATED  FINANCIAL  STATEMENTS Years ended December 31, 1996, 1995
and 1994


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.

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.

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  principal  balances  adjusted  for any  charge-offs  and the
allowance for loan losses.
                                       37
<PAGE>

The accrual of interest on impaired loans is discontinued  when, in management's
opinion,  the borrower may be unable to meet  payments as they become due.  When
interest accrual is discontinued, all unpaid accrued interest is reversed.

The allowance for loan losses is increased by charges to income and decreased by
charge-offs  (net  of  recoveries).  Management's  periodic  evaluation  of  the
adequacy  of the  allowance  is based on past  loan loss  experience,  known and
inherent  risks  in the  portfolio,  adverse  situations  that  may  affect  the
borrower's  ability to repay, the estimated value of any underlying  collateral,
and current economic conditions.

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.

Other Real Estate Owned ("OREO"): Real estate properties acquired through, or in
lieu of, loan  foreclosures are initially  recorded at estimated fair value less
estimated  disposal  costs and are included in other assets.  As of December 31,
1996 and 1995, the  Corporation had $0 and $172,500,  respectively,  recorded as
OREO property.  Gains or losses on sales of other real estate owned,  writedowns
resulting  from  periodic  evaluation  of the fair  market  values of other real
estate owned and costs of maintaining  and operating other real estate owned are
charged to other  noninterest  income  (expense).  The Corporation  realized net
gains  (loss) of  $(23,309),  $8,063 and $17,551  recorded as other  noninterest
income  (expense)  from the sale of OREO  property for the years 1996,  1995 and
1994, respectively. No expenses were recognized for the years presented.

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

Stock-Based  Compensation:  Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), encourages, but does not
require  companies  to  record  compensation  cost  for  stock-based   employees
compensation  plans at fair  value.  The  Corporation  has chosen to continue to
account for stock-based compensation using the intrinsic value method prescribed
in 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 the grant over the  amount an  employee
must pay to acquire the stock.

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 $42,800 and $25,300 to the Plan in 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.

                                       38
<PAGE>

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  Bank's  current
          incremental   borrowing   rates  for   similar   types  of   borrowing
          arrangements.

          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.

                                       39
<PAGE>

Reclassification:  Certain  amounts  in the prior  year  consolidated  financial
statements have been  reclassified to conform with the manner of presentation in
1996.

Earnings  Per Share:  As of December  31,  1996,  earnings  per common share and
common  equivalent  share were  computed by dividing  net income by the weighted
average  number  of  shares  of  common  stock  and  common  stock   equivalents
outstanding  during the year.  The number of common  shares was increased by the
number of shares issuable on the exercise of stock options when the market price
of the common stock exceeded the exercise price of the options. This increase in
the number of common  shares was reduced by the number of common shares that are
assumed  to have been  purchased  with the  proceeds  from the  exercise  of the
options;  those purchases were assumed to have been made at the average price of
common stock  during the year.  Earnings per share  assuming  full  dilution was
determined in the same manner as earnings per common share and common equivalent
share except that the year-end stock price was used.  Earnings per share amounts
for all periods presented reflect the 10% stock dividend granted in 1996.

As of December 31, 1995 and 1994, the computation of the weighted average number
of shares  outstanding for both common and common  equivalent  shares,  assuming
full  dilution,  exclude the effect of  outstanding  stock  options  because the
options were either  antidilutive or did not result in material  dilution of net
income per share in 1995 and 1994.

NOTE 2 - STOCKHOLDER LEGAL ACTION

On October 8, 1996, the judge handling the stockholder  litigation by the former
director of the  Corporation  and Bank of Columbia  against the  Corporation and
eight of its present and former  directors  ruled that the  plaintiff  could not
maintain the suit as a class action or as a derivative suit. Only the individual
claims of the named  plaintiff  will be covered by the suit.  Those  claims will
continue to be vigorously defended. Plaintiff has appealed this ruling.

On  or  about  November  5,  1996,  through  February  24,  1997,  twelve  other
stockholders  or  former  stockholders  of  the  Corporation  instituted  nearly
identical  suits  against  the  Corporation  and the same  directors  and former
directors of the Corporation  who are defendants in the suit  referenced  above.
The suits were  instituted  in the Court of Common  Pleas for  Richland  County,
South Carolina and make  essentially  the same  allegations as the above lawsuit
and  seek  damages  on  account  of the  alleged  activities  of  the  defendant
directors.  The  plaintiffs  do  not  seek  to  recover  any  damages  from  the
Corporation but the Corporation may, nevertheless, incur significant expenses to
indemnify the defendant directors pursuant to applicable law.

In addition to incurring legal expenses for  representation  of the Corporation,
the  Corporation  has advanced legal  expenses for the individual  defendants in
such  lawsuits  in the  amounts  of  $191,047  and  $118,108  for 1996 and 1995,
respectively. Such advances have been expensed as other expenses.

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, 1996 and 1995 was met by vault cash held in the two banks.

At  December  31,  1996,  the two banks had due from bank  balances in excess of
federally insured limits of approximately $1,249,000.


                                       40



<PAGE>

NOTE 4 - INVESTMENT SECURITIES

The  amortized   cost  and  estimated   fair  value  of  investment   securities
held-to-maturity at December 31, 1996 and 1995, are presented below:

<TABLE>
<CAPTION>
                                                            1996                                             1995
                                                            ----                                             ----
                                                       Gross       Gross    Estimated                 Gross       Gross    Estimated
                                           Amortized Unrealized Unrealized    Fair      Amortized   Unrealized Unrealized   Fair
                                             Cost       Gains     Losses      Value        Cost        Gains     Losses     Value  
                                             ----       -----     ------      -----        ----        -----     ------     -----  
<S>                                      <C>           <C>       <C>       <C>           <C>          <C>       <C>       <C>
U.S. Treasury Securities .............   $ 8,281,749   $13,405   $41,624   $ 8,253,530   $4,038,970   $ 4,001   $17,651   $4,025,320
U.S. Government Agencies .............     4,570,256     4,350    23,535     4,551,071    4,999,809    20,196     9,649    5,010,356
Mortgage-Backed Securities ...........       219,922    10,908                 230,830      281,060    16,863                297,923
                                         -----------   -------   -------   -----------   ----------   -------   -------   ----------
  Total ..............................   $13,071,927   $28,663   $65,159   $13,035,431   $9,319,839   $41,060   $27,300   $9,333,599
                                         ===========   =======   =======   ===========   ==========   =======   =======   ==========
</TABLE>

The  amortized   cost  and  estimated   fair  value  of  investment   securities
available-for-sale at December 31, 1996 and 1995, are presented below:

<TABLE>
<CAPTION>
                                                       1996                                             1995
                                                       ----                                             ----
                                                 Gross       Gross     Estimated                  Gross          Gross    Estimated 
                                    Amortized  Unrealized Unrealized     Fair       Amortized   Unrealized    Unrealized    Fair
                                      Cost        Gains     Losses       Value         Cost        Gains        Losses      Value  
                                      ----        -----     ------       -----         ----        -----        ------      -----  
<S>                                <C>           <C>       <C>       <C>           <C>           <C>        <C>          <C>
U.S. Treasury Securities .......   $ 8,380,065   $51,442   $24,328   $ 8,407,179   $ 4,789,945   $ 66,013   $    8,258   $ 4,847,700
U.S. Government Agencies .......    11,974,333     5,323    68,417    11,911,239     7,262,046     85,798                  7,347,844
Other ..........................       716,150                           716,150       619,850                               619,850
                                   -----------   -------   -------   -----------   -----------   --------   ----------   -----------
  Total ........................   $21,070,548   $56,765   $92,745   $21,034,568   $12,671,841   $151,811   $    8,258   $12,815,394
                                   ===========   =======   =======   ===========   ===========   ========   ==========   ===========
</TABLE>

The  amortized   cost  and  estimated   fair  value  of  investment   securities
held-to-maturity  at December 31, 1996, based on their  contractual  maturities,
are shown below:
<TABLE>
<CAPTION>
                                                                                                         Estimated
                                                                                     Amortized              Fair
                                                                                       Cost                Value
                                                                                       ----                -----
<S>                                                                                <C>                  <C>
Due in one year or less .................................................          $ 1,545,562          $ 1,543,004
Due after one year through five years ...................................           11,347,816           11,304,211
Due after five years through ten years ..................................              106,702              111,486
Due after ten years .....................................................               71,847               76,730
                                                                                   -----------          -----------
                                                                                   $13,071,927          $13,035,431
                                                                                   ===========          ===========
</TABLE>

The  mortgage-backed  securities  held at December  31,  1996  mature  generally
between  one and twelve  years.  The  actual  lives of these  securities  may be
shorter as a result of prepayments.

The  amortized   cost  and  estimated   fair  value  of  investment   securities
available-for-sale at December 31, 1996, based on their contractual  maturities,
are shown below:
                                       41
<PAGE>

<TABLE>
<CAPTION>
                                                                                                          Estimated
                                                                                      Amortized              Fair
                                                                                        Cost                Value
                                                                                        ----                -----
<S>                                                                                <C>                  <C>
Due in one year or less .................................................          $  2,249,550         $  2,260,865
Due after one year through five years ...................................            18,104,848           18,057,553
Due after ten years .....................................................               716,150              716,150
                                                                                    -----------          -----------
                                                                                    $21,070,548          $21,034,568
                                                                                    ===========          ===========
</TABLE>

Securities  with book values of $21,009,587 and $15,784,928 at December 31, 1996
and 1995,  respectively,  were pledged to secure  public  deposits and for other
purposes as required by law.

There were no sales of securities during 1996, 1995 or 1994.

NOTE 5 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

Loans were composed of the following:

<TABLE>
<CAPTION>
                                                                                                         December 31,
                                                                                                   1996                1995
                                                                                                   ----                ----
<S>                                                                                           <C>                 <C>
Commercial .....................................................................              $106,816,552        $84,216,406
Real estate-mortgage ...........................................................                 3,642,852          4,658,041
Consumer and other .............................................................                 4,995,419          3,867,409
Nonaccrual .....................................................................                   226,582             66,739
                                                                                              ------------        -----------
  Total                                                                                       $115,681,405        $92,808,595
                                                                                              ============        ===========
</TABLE>

At December 31, 1996, the total loan portfolio  included  adjustable  rate loans
totaling  approximately $58 million and fixed rate loans totaling  approximately
$58 million.

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


                                                                           1996                     1995                     1994
                                                                           ----                     ----                     ----
<S>                                                                   <C>                      <C>                      <C>        
Balance at beginning of year ............................             $ 1,784,508              $ 1,593,771              $ 1,450,776
Provision for loan losses ...............................                 110,000                  195,000                   75,000
Loans charged off:
  Commercial ............................................                 (96,977)                 (46,704)                 (43,565)
  Real estate-mortgage ..................................                       0                        0                     (142)
  Consumer and other ....................................                 (28,954)                 (47,167)                 (53,393)
                                                                      -----------              -----------              ----------- 
   Total ................................................                (125,931)                 (93,871)                 (97,100)
                                                                      -----------              -----------              ----------- 

Recoveries:
  Commercial ............................................                  28,272                   85,738                  135,955
  Real estate-mortgage ..................................                       0                        0                      550
  Consumer and other ....................................                   5,553                    3,870                   28,590
                                                                      -----------              -----------              -----------
  Total .................................................                  33,825                   89,608                  165,095
                                                                      -----------              -----------              -----------
Balance at end of year ..................................             $ 1,802,402              $ 1,784,508              $ 1,593,771
                                                                      ===========              ===========              ===========
</TABLE>
                                       42

<PAGE>

Impairment of loans having recorded investments of $396,481 at December 31, 1996
and $66,739 at December 31, 1995 has been  recognized  in  conformity  with FASB
Statement 114, as amended by FASB Statement 118. The average recorded investment
in impaired loans during 1996 and 1995 was $231,610 and $296,620,  respectively.
The total  allowance  for loan  losses  related to these  loans was  $82,172 and
$12,148 on December 31, 1996 and 1995, respectively. Interest income on impaired
loans of $25,871 and $8,208 was  recognized  for cash payments  received in 1996
and 1995, respectively.

Interest income of $4,132, $57,370 and $50,932 was  recognized during 1996, 1995
and 1994,  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, 1996,  1995 and 1994,  interest  income of $7,779,
$9,798 and $69,784 would have been recognized in the respective periods if those
loans had performed under the original terms.

Commercial   loans  include   investments   of  $3,247,629   and  $3,213,386  in
participating  interests of loans originated by other financial  institutions as
of December 31, 1996 and 1995, respectively.

Commercial loans exclude loans serviced for others of $10,132,951 and $9,048,406
as of December  31, 1996 and 1995,  respectively.  Real  estate  mortgage  loans
exclude  loans  serviced  for others of $851,299 and $862,193 as of December 31,
1996 and 1995,  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 $4,150,181 and $5,024,908 at December 31, 1996 and 1995,
respectively.  During 1996, $2,769,989 of new loans were made to related parties
and repayments totaled $3,644,716.  Additionally, unfunded commitments to extend
credit to directors and officers totaled  $1,022,962 for 1996 and $1,027,789 for
1995,  and standby  letters of credit  totaled  $35,000 at December 31, 1996 and
1995.

NOTE 7 - PREMISES AND EQUIPMENT

Premises and equipment included the following:
<TABLE>
<CAPTION>
                                                                                                         December 31,
                                                                                                  1996                    1995
                                                                                                  ----                    ----
<S>                                                                                          <C>                        <C>
Leasehold improvements .......................................................               $ 1,233,911                $ 1,084,820
Equipment and furnishings ....................................................                 1,678,482                  1,324,175
                                                                                             -----------                -----------
                                                                                               2,912,393                  2,408,995
Less accumulated depreciation and amortization ...............................                (1,423,234)                (1,121,437)
                                                                                             -----------                ----------- 
  Total premises and equipment, net ..........................................               $ 1,489,159                $ 1,287,558
                                                                                             ===========                ===========
</TABLE>
                                       43
<PAGE>

Depreciation and amortization expenses for 1996, 1995 and 1994 totaled $329,901,
$281,034, and $210,503, respectively.

NOTE 8 - DEPOSITS

The aggregate amount of short-term jumbo CDs, each with minimum  denomination of
$100,000, was approximately $26,984,000 and $18,378,000 at December 31, 1996 and
1995, respectively.

At December 31, 1996, the scheduled maturities of CDs were as follows:

          1997 ................................... $49,411,864
          1998 ...................................   1,978,272
          1999 ...................................     527,016
          2000 ...................................   1,522,638
          2001 and thereafter ....................           0
                                                   -----------
                                                   $53,439,790
                                                   ===========

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  expires  December 31,
2001.  Interest is variable at the lender's  prime rate minus  one-half  percent
(7.75%  average rate for 1996 and at December 31, 1996) with  interest  payments
due quarterly  beginning  March 1997.  The line of credit is  collateralized  by
550,000 shares of BOC's common stock.  At December 31, 1996, the Corporation had
an  outstanding  balance  of  $1,200,000  on this line of  credit.  The  average
borrowing on this line of credit during 1996 was $777,778.

The line of credit agreement contains certain covenants. The principal financial
covenants  require the  Corporation to maintain the allowance for loan losses 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
OREO to  loans  receivable  plus  OREO 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, 1996. 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 10%
stock dividend paid December 2, 1996.

At  December  31,  1996,  BOCL  had  approximately  $8.9  million  and  BOC  had
approximately  $9.5  million in standby  credit  available  from other banks for
short-term borrowings.


NOTE 10 - 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:

                                                       1996              1995
                                                       ----              ----
Average balance during the year ................     $1,342,644      $1,250,671
Average interest rate during the year ..........           3.73%           3.42%
Maximum month-end balance during the year ......     $2,674,394      $2,169,497

                                       44
<PAGE>

NOTE 11 - COMMITMENTS

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

The aggregate future minimum lease payments under all  noncancellable  leases at
December 31, 1996 were as follows:

       1997 .................  $253,064
       1998 .................   182,364
       1999 .................   178,362
                               --------
                               $613,790
                               ========

Total  rental  expenses  under the  above  leases  for 1996,  1995 and 1994 were
approximately $262,000, $274,000 and $257,000, respectively.

NOTE 12 - STOCK OPTIONS

The  Corporation  has reserved 50,600 shares of common stock for issuance to key
employees under an Incentive Stock Option Plan (the "Qualified Option Plan") and
50,600  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  110,000 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 25 options to
purchase 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.

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             $5.88-$8.70            07/23/00
Exercised during 1992 ........................       (2,000)                  $6.50
Exercised during 1995 ........................      (16,500)            $5.88-$8.70
Expired during 1995 ..........................       (4,300)            $5.88-$8.70
Adjusted for 10% stock dividend during 1996 ..        2,053             $5.35-$7.91
                                                     ------             -----------
December 31, 1996 ............................       22,578             $5.35-$7.91
                                                     ======             ===========
</TABLE>
                                       45
<PAGE>
<TABLE>
<CAPTION>

                                                                            Options
                                                                           Price Per           Expiration
                                                      Options                Share                 Dates
                                                      -------                -----                 -----
Non-Qualified Plan
<S>                                                   <C>                 <C>                     <C>
January 1, 1991 ....................................   18,875             $ 5.88-$8.70            01/24/00
Granted during 1991 ................................   23,525             $       6.95            12/31/00
Exercised during 1992 ..............................     (800)            $       5.88         
Exercised during 1992 ..............................   (1,300)            $       6.95         
Expired during 1994 ................................     (500)            $       6.95         
Exercised during 1995 ..............................     (700)            $       5.88         
Adjusted for 10% stock dividend during 1996 ........    3,923             $ 5.35-$7.91    
Exercised during 1996 ..............................   (8,580)            $ 5.35-$7.91
                                                       ------             ------------
December 31, 1996 ..................................   34,443             $ 5.35-$7.91
                                                       ======             ============
1995 Non-Qualified Plan                                                     
Granted during 1995 ................................   40,000             $       8,50             12/01/00
Adjusted for 10% stock dividend during 1996 ........    4,000             $       7.73          
Granted during 1996 ................................    6,746             $      12.27             04/30/06
                                                       ------             ------------                     
December 31, 1996 ..................................   50,746             $7.73-$12.27          
                                                       ======             ============          
</TABLE>

No options were granted  during 1992,  1993 or 1994.  Since all options  granted
during 1996,  1995 and 1991, 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.  Options  granted in 1996 were to  non-employee  directors only. The
estimated  fair value of those options  would not have a material  impact on the
financial statements.

As an inducement to the President of BOCL to enter into an employment  agreement
in January 1992, the  Corporation  granted total stock options for 24,445 shares
of stock at a purchase price of $3.636 per share. The President of BOCL's rights
in these options fully vested in 1995. The  Corporation  expensed  $8,800 during
1994,  since the options were granted at a price  estimated by  management to be
below fair market  value.  No expenses  were  recorded in 1996 or 1995 for these
options.

The options above reflect the 10% stock dividend declared in 1996.

NOTE 13 - 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,
1996,  approximately  $1,880,000  and  $3,519,000  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 Bank's  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.

                                       46
<PAGE>

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, 1996, that BOCL and
BOC meet all capital adequacy requirements to which they are subject.

As of December 31,  1996,  the most recent  notification  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.


<TABLE>
<CAPTION>
                                                                                                        Minimum Required
                                                                              Minimum Required        To Be Well Capitalized
                                                                                 For Capital          Under Prompt Corrective
                                                          Actual             Adequacy Purposes         Action Provisions
(Dollars in thousands)                              Amount       Ratio      Amount        Ratio      Amount         Ratio
                                                    ------       -----      ------        -----      ------         -----
As of December 31, 1996
  Tier 1 Capital (to  Average Assets)
<S>                                                <C>             <C>       <C>            <C>      <C>              <C>
   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>

At December 31, 1995,  the Tier 1 capital  ratio for BOCL was 9.9% and the total
capital  ratio was 11.2 %,  while BOC had a Tier 1 capital  ratio of 13.9% and a
total capital ratio of 15.1%.


                                       47

<PAGE>

NOTE 14 - OTHER NONINTEREST EXPENSES

Components of other noninterest expenses were as follows:
<TABLE>
<CAPTION>

                                                                                                Year ended December 31,
                                                                                   1996                  1995                 1994
                                                                                   ----                  ----                 ----
<S>                                                                           <C>                   <C>                   <C>
Legal, accounting, regulatory and insurance ......................            $  649,977            $  481,428            $  523,156
Supplies and printing ............................................               150,749               125,914               125,660
Postage and freight ..............................................               120,621                95,385                69,230
Loan servicing ...................................................                85,630                78,154                55,327
Dues and subscriptions ...........................................                70,683                78,538                45,028
Training and other employee expense ..............................                69,685                47,214                42,354
Outside services .................................................                61,503                52,364                45,863
Telephone ........................................................                56,843                58,217                51,136
Consulting .......................................................                51,274                75,377                33,670
Temporary employment service .....................................                44,593                27,035                 2,103
Directors' fees ..................................................                36,720                28,140                15,510
Losses-other than bad debt .......................................                34,393                15,112                 3,270
Data communications ..............................................                33,481                23,700                20,639
Losses - OREO ....................................................                23,309                     0                     0
Travel ...........................................................                21,610                17,538                19,295
Amortization - organization expense ..............................                     0                 7,530                30,118
Other ............................................................                28,347                33,049                41,646
                                                                              ----------            ----------            ----------
                                                                              $1,539,418            $1,244,695            $1,124,005
                                                                              ==========            ==========            ==========
</TABLE>

NOTE 15 - INCOME TAXES

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

The components of consolidated income tax expense (benefit) were as follows:
<TABLE>
<CAPTION>

                                                                Year ended December 31,
                                                1996                     1995                      1994
                                                ----                     ----                      ----
Taxes currently payable:
<S>                                        <C>                        <C>                      <C>
  Federal ............................     $   903,042                $ 552,598                $  13,000
  State ..............................         139,334                   73,529                   38,258
                                           -----------                ---------                ---------
                                             1,042,376                  626,127                   51,258
                                           -----------                ---------                ---------

Deferred income taxes:
  Federal ............................        (113,137)                (200,000)                (113,000)
                                           -----------                ---------                --------- 
                                           $   929,239                $ 426,127                ($ 61,742)
                                           ===========                =========                ========= 
</TABLE>

The Corporation  reported its fourth consecutive  profitable year as of December
31, 1996,  and prior federal tax net  operating  loss  carryforwards  were fully
utilized. As a result of these changes in circumstances, management reconsidered
its prior policy of fully  reserving net deferred tax assets  concluding that as
of  December  31,  1996,  1995 and  1994,  it was  "more  likely  than not" that
approximately  $140,000,  $200,000 and $113,000,  respectively,  of deferred tax
assets will be realized.  The decrease in the valuation allowance was due to the
realization of loss  carryforwards as reflected in income tax expense  (benefit)
for the years presented.

At December 31, 1996, the Corporation had net operating loss (NOL) carryforwards
for state income tax purposes of approximately  $2.5 million available to offset
future state  taxable  income.  The NOL  carryforwards  expire in the years 2003
through  2007.  The  valuation   allowance  at  December  31,  1996   represents
management's  estimate  of the  allowance  for  the  state  net  operating  loss
carryforward deferred tax asset.

                                       48
<PAGE>

Deferred  tax  assets and  (liabilities)  and  related  valuation  allowance  at
December 31, 1996 and 1995, were as follows:

<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                             1996                  1995
                                                                             ----                  ----
<S>                                                                     <C>                     <C>
Allowance for loan losses .....................................         $ 454,424               $ 467,986
State tax net operating loss carryforward .....................           127,194                  95,302
Excess tax over book depreciation .............................            85,522                  88,727
Unrealized loss on securities available-for-sale ..............            12,233                        
                                                                        ---------               ---------
Gross deferred tax asset ......................................           679,373                 652,015
                                                                        ---------               ---------
Accretion of discounts on bonds ...............................            (1,381)                (17,864)
Adjustment from accrual to cash basis for tax reporting .......                                   (34,737)
Unrealized gain on securities available-for-sale ..............                                   (48,808)
                                                                        ---------               --------- 
Gross deferred tax liability ..................................            (1,381)               (101,409)
                                                                        ---------               --------- 
Net deferred tax asset before valuation allowance .............           677,992                 550,606
Less valuation allowance ......................................          (120,000)               (260,624)
                                                                        ---------               --------- 
Net deferred tax asset ........................................         $ 557,992               $ 289,982
                                                                        =========               =========
</TABLE>

Total  income tax expense  (benefit) is  different  than if it were  computed by
applying the federal tax rate due to the following:

<TABLE>
<CAPTION>
                                                                                                              Percentage of
                                                                   For the Year Ended December 31,            Pre-tax income
                                                                  1996            1995        1994        1996     1995      1994
                                                                  ----            ----        ----        ----     ----      ----
<S>                                                           <C>           <C>           <C>             <C>     <C>      <C>
Tax expense at statutory rate .............................   $ 937,606     $ 614,583     $ 334,902       34.0     34.0     34.0
Net operating loss carryforwards ..........................                                (324,746)                       (33.0)
Release of deferred tax asset valuation allowance .........    (140,624)     (200,000)     (113,000)      (5.1)   (11.1)   (11.5)
State tax, net of federal benefit .........................      74,036        48,529        25,250        2.7      2.7      2.6
Alternative minimum tax expenses ..........................                   (13,000)       13,000                (1.0)     1.3
Nondeductible expenses ....................................      46,471        12,622                      1.7      1.0
Other, net ................................................      11,750       (36,607)        2,852         .4     (2.0)     0.3
                                                              ---------     ---------     ---------        ---     ----      ---
                                                              $ 929,239     $ 426,127     ($ 61,742)      33.7     23.6     (6.3)
                                                              =========     =========     =========       ====     ====     ==== 
</TABLE>

NOTE 16 - CONDENSED PARENT COMPANY FINANCIAL INFORMATION

Condensed  financial  data for ComSouth  Bankshares,  Inc.  (parent only) was as
follows:
<TABLE>
<CAPTION>
                                                                                       December 31,
                                                                                 1996                1995
                                                                                 ----                ----
Balance Sheet Data
<S>                                                                           <C>               <C>
Cash and short-term investments .........................................    $   235,042        $    48,971
Investments in subsidiaries, at equity ..................................     14,032,798         11,756,369
Other assets ............................................................        721,916            502,472
                                                                             -----------        -----------
  Total assets ..........................................................    $14,989,756        $12,307,812
                                                                             ===========        ===========
Note payable ............................................................    $ 1,200,000
Other liabilities .......................................................        148,934        $   428,674
Stockholders' equity ....................................................     13,640,822         11,879,138
                                                                             -----------        -----------
  Total liabilities and stockholders' equity ............................    $14,989,756        $12,307,812
                                                                             ===========        ===========
</TABLE>
                                       49
<PAGE>

<TABLE>
<CAPTION>
                                                                                                  Year ended December 31,
                                                                                         1996               1995              1994
                                                                                         ----               ----              ----

Results of Operations Data
Revenues:
<S>                                                                                <C>                <C>               <C>
  Management fees ............................................................      $   971,336       $   878,193       $   844,770
  Research fees ..............................................................            3,743             1,184             2,309
                                                                                    -----------       -----------       -----------
                                                                                        975,079           879,377           847,079
                                                                                    -----------       -----------       -----------

Expenses:
  Interest expense ...........................................................           45,912               233             8,993
  Other expense ..............................................................        1,495,663         1,068,234           615,130
                                                                                    -----------       -----------       -----------
                                                                                      1,541,575         1,068,467           624,123
                                                                                    -----------       -----------       -----------
Income(loss) before equity in undistributed income of subsidiaries ...........         (566,496)         (189,090)          222,956
Equity in undistributed income of subsidiaries ...............................        2,394,922         1,570,561           823,792
                                                                                    -----------       -----------       -----------
Net income ...................................................................      $ 1,828,426       $ 1,381,471       $ 1,046,748
                                                                                    ===========       ===========       ===========


                                                                                           1996              1995              1994
                                                                                           ----              ----              ----
Cash Flow Data
Cash flows from operating activities:
  Net income .................................................................      $ 1,828,426       $ 1,381,471       $ 1,046,748
Adjustments to reconcile net income to net cash
  (used for) provided by operating activities:
Equity in income of subsidiaries .............................................       (2,394,922)       (1,570,561)         (823,792)
Depreciation and amortization ................................................           38,794            34,110            18,592
Increase in other assets .....................................................         (216,916)         (174,641)         (120,654)
(Decrease) increase in other liabilities .....................................         (279,740)          292,822            64,791
                                                                                    -----------       -----------       -----------
Cash (used for) provided by operating activities  ............................       (1,024,358)          (36,799)          185,685
                                                                                    -----------       -----------       -----------

Cash flow from investing activities:
Purchases of premises and equipment ..........................................          (41,321)          (71,263)          (42,070)
                                                                                    -----------       -----------       ----------- 
Cash used for investing activities ...........................................          (41,321)          (71,263)          (42,070)
                                                                                    -----------       -----------       ----------- 

Cash from financing activities:
Net proceeds (repayments) of note payable ....................................        1,200,000          (125,000)
Proceeds from issuance of common stock .......................................           53,966           118,386
Cash in lieu of fractional shares ............................................           (2,216)                                   
                                                                                    -----------       -----------       -----------
Cash provided by (used for) financing activities .............................        1,251,750            (6,614)                0
                                                                                    -----------       -----------       -----------

Increase (decrease) in cash and cash equivalents .............................          186,071          (114,676)          143,615
Cash and cash equivalents at beginning of year ...............................           48,971           163,647            20,032
                                                                                    -----------       -----------       -----------
Cash and cash equivalents at end of year .....................................      $   235,042       $    48,971       $   163,647
                                                                                    ===========       ===========       ===========

Supplemental disclosures of cash flow information:
Cash paid for interest .......................................................      $    45,912       $       233       $     8,993

</TABLE>
                                       50
<PAGE>

NOTE 17 - 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  guaranties are
primarily  issued to support  private  borrowing  arrangements.  Most guaranties
expire by December 1997.  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.

The  estimated  fair  values  of  the   Corporation's   consolidated   financial
instruments were as follows at: (balances in thousands)

<TABLE>
<CAPTION>

                                                                   December 31, 1996          December 31, 1995
                                                                   -----------------          -----------------
                                                                 Carrying        Fair        Carrying         Fair
                                                                  Amount        Value         Amount         Value
                                                                  ------        -----         ------         -----
Financial assets:
<S>                                                            <C>           <C>           <C>            <C>
  Cash and cash equivalents ...................................$ 13,092      $ 13,092      $ 17,250       $ 17,250
  Investment securities .......................................  34,106        34,070        22,135         22,148
  Loans receivable ............................................ 113,879       117,308        91,024         93,968

Financial liabilities:
  Deposits .................................................... 145,408       145,509       117,763        118,016
  Federal  funds purchased and securities sold
    under agreements to repurchase ............................   2,674         2,674         1,755          1,755

Off-balance-sheet financial instruments:
  Commitments to extend credit ................................  21,396        21,396        18,148         18,148
  Standby letters of credit ...................................   1,689         1,689         1,775          1,775

</TABLE>






                                       51

<PAGE>



NOTE 18 - SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK


Most of BOCL's and BOC's business  activity is with customers located within the
Columbia and Charleston metropolitan areas, respectively.  Although BOCL and BOC
have  diversified  loan  portfolios,  a  substantial  portion of their  debtor's
ability to honor their  contracts is depended 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 19 - CONTINGENCIES

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.





                                       52