SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                   FORM 10-KSB


                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2003                File Number 000-50257

                          CAROLINA NATIONAL CORPORATION
                 (Name of Small Business Issuer in its Charter)

             South Carolina                              57-1101005
    (State or Other Jurisdiction of         (IRS Employer Identification Number)
     Incorporation or Organization)

                1350 Main Street, Columbia, South Carolina 29201
                (Address of Principal Executive Office, Zip Code)

         Issuer's Telephone Number, Including Area Code: (803) 779-0411

        Securities Registered Pursuant to Section 12(b) of the Act: None

           Securities Registered Pursuant to Section 12(g) of the Act:
                           Common Stock (no par value)

         Check whether the issuer (1) has filed all reports required to be filed
by  Section  13 or 15(d) of the  Exchange  Act during the past 12 months (or for
such shorter period that the Registrant was required to file such reports),  and
(2) has been subject to such filing  requirements  for the past 90 days.
 Yes [X]  No [ ]

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of  Regulation  S-B contained in this form,  and no disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ] Not applicable.

         The issuer's revenues for its most recent fiscal year were $1,990,115.

         The aggregate  market value of the Common Stock held by  non-affiliates
on March 1, 2004, was approximately $11,383,030. As of March 1, 2004, there were
1,427,303  shares of the Registrant's  Common Stock, no par value,  outstanding.
For purposes of the  foregoing  calculation  only,  all  directors and executive
officers of the Registrant have been deemed affiliates.

                       DOCUMENTS INCORPORATED BY REFERENCE
None

Transitional Small Business Disclosure Format (check one): Yes [  ]  No [X]


<PAGE>



                          10-KSB CROSS REFERENCE INDEX

                                     Part I                                 Page
Item 1   Description of Business ........................................      3
Item 2   Description of Property ........................................      8
Item 3   Legal Proceedings ..............................................      8
Item 4   Submission of Matters to a Vote of Security Holders ............      8
                                     Part II
Item 5   Market for Common Equity, Related Stockholder Matters
            and Small Business Issuer Purchases of Securities ...........      9
Item 6   Management's Discussion and Analysis or Plan of Operation ......      9
Item 7   Financial Statements ...........................................     24
Item 8   Changes In and Disagreements with Accountants
           on Accounting and Financial Disclosure .......................     45
Item 8A  Controls and Procedures ........................................     45
                                    Part III
Item 9   Directors and Executive Officers, Promoters and Control
         Persons; Compliance With Section 16(a) of the Exchange Act .....      *
Item 10  Executive Compensation .........................................      *
Item 11  Security Ownership of Certain Beneficial Owners and Management
         and Related Stockholder Matters ................................     46
Item 12  Certain Relationships and Related Transactions .................      *
                                     Part IV
Item 13  Exhibits and Reports on  Form 8-K ..............................     47
Item 14  Principal Accountant Fees and Services..........................      *

     * Incorporated  by reference to the  Registrant's  Proxy  Statement for the
     2004 Annual Meeting of Shareholders


<PAGE>


                           FORWARD LOOKING STATEMENTS

         This report contains "forward-looking statements" within the meaning of
the  securities   laws.  All  statements  that  are  not  historical  facts  are
"forward-looking  statements." You can identify these forward-looking statements
through  our  use of  words  such  as  "may,"  "will,"  "expect,"  "anticipate,"
"believe," "intend," "estimate," "project, " "continue," or other similar words.
Forward-looking statements include, but are not limited to, statements regarding
our future business prospects,  revenues,  working capital,  liquidity,  capital
needs, interest costs, income, business operations and proposed services.

         These  forward-looking  statements  are based on current  expectations,
estimates  and  projections  about  our  industry,   management's  beliefs,  and
assumptions made by management.  Such information includes,  without limitation,
discussions  as to estimates,  expectations,  beliefs,  plans,  strategies,  and
objectives  concerning  our future  financial and operating  performance.  These
statements  are not guarantees of future  performance  and are subject to risks,
uncertainties  and  assumptions  that are difficult to predict,  particularly in
light  of the  fact  that  we  are a new  company  with  no  operating  history.
Therefore,  actual  results  may  differ  materially  from  those  expressed  or
forecasted  in such  forward-looking  statements.  The risks  and  uncertainties
include, but are not limited to:

     o    our growth and our ability to maintain growth;

     o    governmental  monetary and fiscal policies, as well as legislative and
          regulatory changes;

     o    the effect of interest  rate changes on our level and  composition  of
          deposits,  loan  demand  and the  value  of our  loan  collateral  and
          securities;

     o    the effects of competition from other financial institutions operating
          in our market area and  elsewhere,  including  institutions  operating
          locally,  regionally,  nationally and  internationally,  together with
          competitors   that  offer  banking  products  and  services  by  mail,
          telephone and computer and/or the Internet;

     o    failure of assumptions  underlying the  establishment of our allowance
          for loan losses, including the value of collateral securing loans; and

     o    loss of consumer  confidence and economic  disruptions  resulting from
          terrorist activities.

         We  undertake  no   obligation   to  publicly   update  or  revise  any
forward-looking  statements,  whether  as a result  of new  information,  future
events or otherwise.  In light of these risks,  uncertainties,  and assumptions,
the forward-looking events discussed in this report might not occur.




                                       2
<PAGE>


                                     PART I

Item 1.  Description of Business.

General

         Carolina  National  Corporation,  (the  "Company")  is a  bank  holding
company  with no  operations  other  than those  carried on by its  wholly-owned
subsidiary, Carolina National Bank & Trust Company (the "Bank"). The Company was
organized in 2000 under the laws of South Carolina for the purpose of becoming a
holding company for the Bank. The Bank conducts a general banking business under
a charter  granted by the Office of the  Comptroller  of the Currency.  The Bank
opened on July 15, 2002. The Bank conducts its  activities  from its main office
and one branch office in Columbia, South Carolina.

         The Bank's business primarily consists of accepting deposits and making
loans.  The Bank seeks deposit  accounts from  households  and businesses in its
primary  market areas by offering a full range of savings  accounts,  retirement
accounts (including Individual Retirement  Accounts),  checking accounts,  money
market  accounts,  and time  certificates  of deposit.  It also makes  primarily
commercial,  real estate and installment loans, primarily on a secured basis, to
borrowers  in and  around  Richland  County,  South  Carolina  and  makes  other
authorized  investments.  Mortgage  loans are  primarily  made for resale in the
secondary  market.  As of December 31, 2003,  the Bank  employed __ persons on a
full time equivalent basis.

Competition

         South Carolina law permits statewide branching by banks and savings and
loan  associations.  Consequently,  many  financial  institutions  have branches
located in several  communities.  The City of Columbia is currently served by 14
commercial banking  organizations  with  approximately 82 branches,  one savings
bank and  approximately  14 credit unions.  Since  interstate  banking was first
permitted,  an overwhelming  number of Columbia's locally based commercial banks
have been  acquired,  mostly by large  regional  out-of-state  banks.  Of the 14
commercial  banks left in Columbia,  six are owned and  controlled out of state,
and only three of the remaining eight (one of which is Carolina  National Bank &
Trust Company) are headquartered in Columbia.

         Carolina National Bank & Trust Company  encounters  strong  competition
from most of these  financial  institutions.  In the conduct of certain areas of
its business,  Carolina  National Bank & Trust Company also competes with credit
unions,  insurance  companies,  money market  mutual  funds and other  financial
institutions, some of which are not subject to the same degree of regulation and
restrictions as the Bank. Most of these competitors have  substantially  greater
resources and lending  abilities than Carolina National Bank & Trust Company has
and offer certain services,  such as international banking,  investment banking,
and trust services, that the Bank does not currently provide.

         The principal areas and methods of competition in the banking  industry
are the  services  offered,  pricing  of those  services,  the  convenience  and
availability  of the services,  and the degree of expertise and personal  manner
with which those  services  are offered.  The  directors  believe that  Carolina
National  Bank & Trust Company will be able to exploit  opportunities  available
for a locally-owned  community bank so that the Bank can compete  effectively in
those areas, but no assurance can be given that it will be able to do so.

                        EFFECT OF GOVERNMENT REGULATION

         Bank  holding  companies  and banks  are  extensively  regulated  under
federal and state law. To the extent that the  following  information  describes
statutory  and  regulatory  provisions,  it is  qualified  in  its  entirety  by
reference to such  statutes and  regulations.  Any change in  applicable  law or
regulation  may have a material  effect on the  business  of the Company and the
Bank.


                                       3
<PAGE>

General

         As a bank holding  company under the Bank Holding Company Act ("BHCA"),
the  Company  obtained  the  approval of the Board of  Governors  of the Federal
Reserve System (the "Federal Reserve") to acquire the Bank and is subject to the
regulations of the Federal Reserve. Under the BHCA, the Company's activities and
those of its subsidiaries are limited to banking, managing or controlling banks,
furnishing  services to or performing  services for its subsidiaries or engaging
in any other  activity  which the Federal  Reserve  determines  to be so closely
related to banking or managing or controlling  banks as to be a proper  incident
thereto. The Company may engage in a broader range of activities if it becomes a
"financial  holding company"  pursuant to the  Gramm-Leach-Bliley  Act, which is
described below under the caption  "Gramm-Leach-Bliley."  The BHCA prohibits the
Company  from  acquiring  direct  or  indirect  control  of more  than 5% of the
outstanding  voting stock or substantially all of the assets of any bank or from
merging or  consolidating  with  another  bank  holding  company  without  prior
approval of the Federal  Reserve.  Additionally,  the BHCA prohibits the Company
from engaging in or from  acquiring  ownership or control of more than 5% of the
outstanding voting stock of any company engaged in a non-banking business unless
such business is determined by the Federal  Reserve to be so closely  related to
banking as to be properly  incident  thereto.  The BHCA generally does not place
territorial   restrictions  on  the  activities  of  such  non-banking   related
activities.

         The Company is also subject to limited  regulation  and  supervision by
the South Carolina State Board of Financial  Institutions (the "State Board"). A
South  Carolina bank holding  company may be required to provide the State Board
with information with respect to the financial condition, operations, management
and inter-company relationships of the holding company and its subsidiaries. The
State Board also may require  such other  information  as is  necessary  to keep
itself  informed  about  whether the  provisions  of South  Carolina law and the
regulations  and orders issued  thereunder by the State Board have been complied
with,  and the  State  Board  may  examine  any  bank  holding  company  and its
subsidiaries.

Obligations of the Company to its Subsidiary Bank

         A number of obligations  and  restrictions  are imposed on bank holding
companies  and their  depository  institution  subsidiaries  by Federal  law and
regulatory  policy that are designed to reduce  potential  loss  exposure to the
depositors of such  depository  institutions  and to the FDIC insurance funds in
the event the depository  institution  is in danger of becoming  insolvent or is
insolvent.  For example, under the policy of the Federal Reserve, a bank holding
company is required to serve as a source of financial strength to its subsidiary
depository  institutions and to commit resources to support such institutions in
circumstances  where it might not do so absent such  policy.  In  addition,  the
"cross-guarantee"  provisions of the Federal  Deposit  Insurance Act, as amended
("FDIA"),  require  insured  depository  institutions  under  common  control to
reimburse the FDIC for any loss suffered or reasonably anticipated by either the
Savings  Association  Insurance Fund ("SAIF") or the Bank Insurance Fund ("BIF")
of the  FDIC  as a  result  of the  default  of a  commonly  controlled  insured
depository  institution or for any assistance provided by the FDIC to a commonly
controlled  insured  depository  institution in danger of default.  The FDIC may
decline to enforce the cross-guarantee provisions if it determines that a waiver
is in the best  interest  of the SAIF or the BIF or both.  The FDIC's  claim for
damages  is  superior  to  claims  of  shareholders  of the  insured  depository
institution  or its holding  company but is subordinate to claims of depositors,
secured  creditors and holders of subordinated  debt (other than  affiliates) of
the commonly controlled insured depository institutions.

         The FDIA also provides that amounts  received from the  liquidation  or
other resolution of any insured  depository  institution by any receiver must be
distributed (after payment of secured claims) to pay the deposit  liabilities of
the  institution  prior to payment  of any other  general  or  unsecured  senior
liability,   subordinated  liability,  general  creditor  or  shareholder.  This
provision gives depositors a preference over general and subordinated  creditors
and  shareholders  in the event a receiver is appointed to distribute the assets
of the Bank.

         Any capital  loans by a bank holding  company to any of its  subsidiary
banks are  subordinate  in right of payment  to  deposits  and to certain  other
indebtedness of such subsidiary  bank. In the event of a bank holding  company's
bankruptcy,  any  commitment  by the bank  holding  company  to a  federal  bank
regulatory  agency to maintain the capital of a subsidiary  bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.


                                       4
<PAGE>

         Under the National Bank Act, if the capital stock of a national bank is
impaired by losses or otherwise, the OCC is authorized to require payment of the
deficiency by assessment  upon the bank's  shareholders',  pro rata,  and to the
extent  necessary,  if any such assessment is not paid by any shareholder  after
three  months  notice,  to sell the stock of such  shareholder  to make good the
deficiency.

Capital Adequacy Guidelines for Bank Holding Companies and National Banks

         The various federal bank regulators,  including the Federal Reserve and
the FDIC have adopted  risk-based and leverage capital  adequacy  guidelines for
assessing bank holding company and bank capital adequacy. These standards define
what qualifies as capital and establish minimum capital standards in relation to
assets and off-balance sheet exposures, as adjusted for credit risks.

         Failure to meet capital  guidelines could subject the Bank to a variety
of enforcement  remedies,  including the termination of deposit insurance by the
FDIC and a prohibition on the taking of brokered deposits.

         The risk-based  capital standards of both the Federal Reserve Board and
the FDIC explicitly identify  concentrations of credit risk and the risk arising
from non-traditional  activities,  as well as an institution's ability to manage
these risks,  as  important  factors to be taken into account by the agencies in
assessing an institution's overall capital adequacy. The capital guidelines also
provide that an institution's exposure to a decline in the economic value of its
capital  due to changes in interest  rates be  considered  by the  agencies as a
factor in evaluating a bank's capital  adequacy.  The Federal Reserve Board also
has recently issued  additional  capital  guidelines for bank holding  companies
that engage in certain trading activities.

         The Company and the Bank exceeded all applicable  capital  requirements
at December 31, 2003.

Payment of Dividends

         The  Company is a legal  entity  separate  and  distinct  from its bank
subsidiary.  Most of the  revenues of the  Company  are  expected to result from
dividends  paid to the Company by the Bank.  There are statutory and  regulatory
requirements  applicable to the payment of dividends by subsidiary banks as well
as by the Company to its  shareholders.  It is not anticipated  that the Company
will pay cash dividends in the near future.

Certain Transactions by the Company with its Affiliates

         Federal  law   regulates   transactions   among  the  Company  and  its
affiliates,  including  the  amount of the  Bank's  loans to or  investments  in
non-bank  affiliates and the amount of advances to third parties  collateralized
by  securities  of an  affiliate.  Further,  a  bank  holding  company  and  its
affiliates  are  prohibited  from  engaging in certain  tie-in  arrangements  in
connection with any extension of credit, lease or sale of property or furnishing
of services.

FDIC Insurance Assessments

         Because the Bank's deposits are insured by the BIF, the Bank is subject
to insurance assessments imposed by the FDIC. Currently, the assessments imposed
on all FDIC deposits for deposit insurance have an effective rate ranging from 0
to 27 basis points per $100 of insured deposits,  depending on the institution's
capital position and other supervisory  factors.  However,  because  legislation
enacted in 1996 requires that both  SAIF-insured and BIF-insured  deposits pay a
pro rata portion of the interest due on the obligations  issued by the Financing
Corporation  ("FICO").  The FICO  assessment  is adjusted  quarterly  to reflect
changes in the assessment  bases of the respective funds based on quarterly Call
Report and Thrift Financial Report submissions.


                                       5
<PAGE>

Regulation of the Bank

         The Bank is  subject  to  regulation  and  examination  by the OCC.  In
addition,  the Bank is subject  to  various  other  state and  federal  laws and
regulations,  including state usury laws, laws relating to fiduciaries, consumer
credit laws and laws relating to branch banking.  The Bank's loan operations are
also subject to certain federal consumer credit laws and regulations promulgated
thereunder,  including,  but not limited to: the federal  Truth-In-Lending  Act,
governing  disclosures of credit terms to consumer borrowers;  the Home Mortgage
Disclosure Act, requiring financial  institutions to provide certain information
concerning their mortgage lending; the Equal Credit Opportunity Act and the Fair
Housing  Act,  prohibiting  discrimination  on the basis of  certain  prohibited
factors in extending  credit;  the Fair Credit Reporting Act,  governing the use
and provision of information to credit reporting agencies; the Bank Secrecy Act,
dealing   with,   among  other  things,   the  reporting  of  certain   currency
transactions;  and the Fair Debt Collection  Act,  governing the manner in which
consumer debts may be collected by collection  agencies.  The deposit operations
of the Bank are also  subject to the Truth in  Savings  Act,  requiring  certain
disclosures  about  rates  paid  on  savings   accounts;   the  Expedited  Funds
Availability  Act,  which deals with  disclosure  of the  availability  of funds
deposited  in accounts  and the  collection  and return of checks by banks;  the
Right to  Financial  Privacy  Act,  which  imposes  a duty to  maintain  certain
confidentiality  of consumer financial records and the Electronic Funds Transfer
Act and regulations promulgated  thereunder,  which govern automatic deposits to
and  withdrawals  from deposit  accounts and customers'  rights and  liabilities
arising from the use of automated teller machines and other  electronic  banking
services.

         The  Bank  is  also  subject  to  the  requirements  of  the  Community
Reinvestment  Act (the  "CRA").  The CRA imposes on  financial  institutions  an
affirmative  and  ongoing  obligation  to meet the credit  needs of their  local
communities,  including low- and moderate-income neighborhoods,  consistent with
the safe and sound operation of those institutions. Each financial institution's
actual performance in meeting community credit needs is evaluated as part of the
examination process, and also is considered in evaluating mergers,  acquisitions
and applications to open a branch or facility.

Other Safety and Soundness Regulations

         Prompt  Corrective  Action.  The federal  banking  agencies  have broad
powers under  current  federal law to take prompt  corrective  action to resolve
problems of insured depository institutions.  The extent of these powers depends
upon whether the  institutions in question are "well  capitalized,"  "adequately
capitalized,"    "undercapitalized,"    "significantly    undercapitalized"   or
"critically undercapitalized."

         A bank that is "undercapitalized"  becomes subject to provisions of the
FDIA:   restricting  payment  of  capital  distributions  and  management  fees;
requiring the FDIC to monitor the condition of the bank; requiring submission by
the bank of a capital  restoration  plan;  restricting  the growth of the bank's
assets and requiring prior approval of certain expansion proposals.  A bank that
is  "significantly   undercapitalized"   is  also  subject  to  restrictions  on
compensation  paid  to  senior  management  of  the  bank,  and a bank  that  is
"critically   undercapitalized"  is  further  subject  to  restrictions  on  the
activities of the bank and restrictions on payments of subordinated  debt of the
bank.  The  purpose  of these  provisions  is to  require  banks  with less than
adequate  capital to act quickly to restore  their  capital and to have the FDIC
move  promptly  to take over  banks  that are  unwilling  or unable to take such
steps.

         Brokered Deposits.  Under current FDIC regulations,  "well capitalized"
banks may accept brokered deposits without restriction, "adequately capitalized"
banks may accept  brokered  deposits  with a waiver  from the FDIC  (subject  to
certain  restrictions on payment of rates), while  "undercapitalized"  banks may
not accept brokered  deposits.  The regulations  provide that the definitions of
"well capitalized", "adequately capitalized" and "undercapitalized" are the same
as the  definitions  adopted by the agencies to implement the prompt  corrective
action  provisions  described in the  previous  paragraph.  Management  does not
believe  that  these  regulations  will have a  material  adverse  effect on the
operations of the Bank.

Interstate Banking

         Under the Riegle-Neal  Interstate Banking and Branching  Efficiency Act
of 1994 the Company and any other  adequately  capitalized  bank holding company


                                       6
<PAGE>

located in South  Carolina can acquire a bank located in any other state,  and a
bank  holding  company  located  outside  South  Carolina  can acquire any South
Carolina-based  bank, in either case subject to certain  deposit  percentage and
other restrictions.  Unless prohibited by state law, adequately  capitalized and
managed bank holding  companies are permitted to  consolidate  their  multistate
bank operations into a single bank subsidiary and to branch  interstate  through
acquisitions. De novo branching by an out-of-state bank is permitted only if the
laws of the host state expressly permit it. The authority of a bank to establish
and operate  branches within a state continue to be subject to applicable  state
branching  laws.  South  Carolina law was amended,  effective  July 1, 1996,  to
permit such  interstate  branching but not de novo branching by an  out-of-state
bank.

         The  Riegel-Neal  Act,  together  with  legislation  adopted  in  South
Carolina,  resulted in a number of South  Carolina banks being acquired by large
out-of-state  bank  holding  companies.  Size  gives the  larger  banks  certain
advantages  in competing for business from larger  customers.  These  advantages
include  higher  lending limits and the ability to offer services in other areas
of South  Carolina  and the  region.  As a result,  the Bank does not  generally
attempt to compete  for the banking  relationships  of large  corporations,  but
concentrates its efforts on small to medium-sized businesses and on individuals.

Gramm-Leach-Bliley Act

         The  Gramm-Leach-Bliley  Act,  which  makes it easier for  affiliations
between banks,  securities firms and insurance  companies to take place,  became
effective  in March  2000.  The Act  removes  Depression-era  barriers  that had
separated  banks and  securities  firms,  and seeks to  protect  the  privacy of
consumers' financial information.

         Under provisions of the new legislation and regulations  adopted by the
appropriate regulators, banks, securities firms and insurance companies are able
to structure new affiliations  through a holding company  structure or through a
financial subsidiary. The legislation creates a new type of bank holding company
called a "financial  holding  company" which has powers much more extensive than
those of standard holding companies.  These expanded powers include authority to
engage in "financial activities," which are activities that are (1) financial in
nature;  (2)  incidental  to  activities  that are  financial in nature;  or (3)
complimentary  to a  financial  activity  and that do not  impose  a safety  and
soundness risk. Significantly,  the permitted financial activities for financial
holding  companies include authority to engage in merchant banking and insurance
activities,  including insurance portfolio investing. A bank holding company can
qualify as a financial holding company and expand the services it offers only if
all of its subsidiary depository institutions are well-managed, well-capitalized
and  have  received  a  rating  of   "satisfactory"   on  their  last  Community
Reinvestment Act examination.

         The  legislation  also  creates  another  new type of  entity  called a
"financial subsidiary." A financial subsidiary may be used by a national bank or
a group of national banks to engage in many of the same activities permitted for
a financial holding company, though several of these activities,  including real
estate development or investment,  insurance or annuity underwriting,  insurance
portfolio  investing and merchant  banking,  are reserved for financial  holding
companies.  A bank's  investment  in a financial  subsidiary  affects the way in
which the bank calculates its regulatory capital, and the assets and liabilities
of financial  subsidiaries  may not be consolidated  with those of the bank. The
bank must also be certain that its risk  management  procedures  are adequate to
protect it from  financial and  operational  risks created both by itself and by
any financial subsidiary.  Further, the bank must establish policies to maintain
the separate corporate  identities of the bank and its financial  subsidiary and
to prevent each from becoming liable for the obligations of the other.

         The Act also  establishes  the  concept  of  "functional  supervision,"
meaning that  similar  activities  should be  regulated  by the same  regulator.
Accordingly,  the Act spells out the regulatory authority of the bank regulatory
agencies,  the Securities and Exchange Commission and state insurance regulators
so that each type of activity is  supervised by a regulator  with  corresponding
expertise.  The Federal  Reserve Board is intended to be an umbrella  supervisor
with the  authority  to  require a bank  holding  company or  financial  holding
company  or any  subsidiary  of  either  to  file  reports  as to its  financial
condition,  risk management  systems,  transactions with depository  institution
subsidiaries  and  affiliates,  and compliance  with any federal law that it has
authority to enforce.

         Although the Act reaffirms that states are the regulators for insurance
activities  of  all  persons,  including   federally-chartered  banks,  the  Act
prohibits  states from preventing  depository  institutions and their affiliates
from conducting insurance activities.



                                       7
<PAGE>

         The Act also  establishes  a minimum  federal  standard  of  privacy to
protect the confidentiality of a consumer's  personal financial  information and
gives the consumer the power to choose how personal financial information may be
used by  financial  institutions.  The privacy  provisions  of the Act have been
implemented by adoption of regulations by various federal agencies.

         The Act and the  regulations  adopted  pursuant  to the Act  create new
opportunities  for the Company to offer  expanded  services to  customers in the
future,  though  the  Company  has not yet  determined  what the  nature  of the
expanded  services  might be or when the Company might find it feasible to offer
them. The Act has increased competition from larger financial  institutions that
are  currently  more  capable  than  the  Company  of  taking  advantage  of the
opportunity  to  provide a  broader  range of  services.  However,  the  Company
continues to believe that its commitment to providing high quality, personalized
service to customers will permit it to remain competitive in its market area.

Sarbanes-Oxley Act of 2002

         The  Sarbanes-Oxley  Act was  signed  into  law on July 30,  2002,  and
mandated  extensive reforms and requirements for public  companies.  The SEC has
adopted   extensive  new  regulations   pursuant  to  the  requirements  of  the
Sarbanes-Oxley  Act. The  Sarbanes-Oxley  Act and the SEC's new regulations have
increased  the  Company's  cost of  doing  business,  particularly  its fees for
internal  and  external  audit  services  and  legal  services,  and the law and
regulations  are  expected to continue to do so.  However,  the Company does not
believe that it will be affected by  Sarbanes-Oxley  and the new SEC regulations
in ways that are materially different or more onerous than those of other public
companies of similar size and in similar businesses.

Legislative Proposals

         Proposed  legislation which could significantly  affect the business of
banking is  introduced  in Congress  from time to time.  Management  of the Bank
cannot predict the future course of such  legislative  proposals or their impact
on the Company and the Bank should they be adopted.

Fiscal and Monetary Policy

         Banking is a business  which depends to a large extent on interest rate
differentials. In general, the difference between the interest paid by a bank on
its deposits and its other  borrowings,  and the interest  received by a bank on
its loans and  securities  holdings,  constitutes  the major portion of a bank's
earnings.  Thus, the earnings and growth of the Company and the Bank are subject
to the influence of economic  conditions  generally,  both domestic and foreign,
and also to the  monetary  and  fiscal  policies  of the  United  States and its
agencies,  particularly the Federal Reserve.  The Federal Reserve  regulates the
supply of money through various means,  including open market dealings in United
States government  securities,  the discount rate at which banks may borrow from
the Federal Reserve,  and the reserve  requirements on deposits.  The nature and
timing of any changes in such  policies  and their impact on the Company and the
Bank cannot be predicted.

Further Information

         Further  information  about the business of the Company and the Bank is
set  forth in this  Form  10-KSB  under  Item 6  -"Management's  Discussion  and
Analysis or Plan of Operation."

Item 2.  Description of Property.

         The main offices of Carolina National Bank & Trust Company and Carolina
National  Corporation are located at 1350 Main Street, on the corner of Main and
Washington   Streets,   in  downtown   Columbia.   The  space,  which  comprises
approximately  9,718 square feet on three floors, was previously used as a bank,
and the directors,  therefore,  believe it is well-suited  for its purpose.  The
Bank has also opened a branch  office at 4840 Forest  Drive in a building  which
comprises  approximately  2,600 square feet, and which was previously  used as a
bank  branch.  This branch  facility  has ample  parking and four  drive-through
teller stations.  Both properties have been leased pursuant to long term leases.
The Company also leases a parcel of land one block from its main office on which
it intends to build a drive-up  facility.  This property is also leased pursuant
to a long term lease.

Item 3.  Legal Proceedings.

         The Bank may from time to time be a party to various legal  proceedings
arising in the ordinary  course of business,  but management is not aware of any
pending or threatened  litigation or unasserted  claims or assessments  that are
expected to result in losses,  if any,  that would be material to the  Company's
business and operations.

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

         No matters  were  submitted  to a vote of security  holders  during the
fourth quarter of 2003.

                                       8
<PAGE>

                                     PART II

Item 5. Market for Common Equity, Related Stockholder Matters and Small Business
        Issuer Purchases of Equity Securities.

         Although  the common  stock of the  Company  may be traded from time to
time on an individual  basis,  no  established  trading market has developed and
none is expected to develop in the foreseeable  future.  The common stock is not
traded on any exchange or on the NASDAQ  National  Market System,  nor are there
any market makers known to management. In two public offerings in 2001 and 2002,
the Company sold an aggregate of 1,341,303 shares of its common stock for $10.00
per share. During 2003, management was also aware of a few transactions in which
the Company's common stock traded at $11.00 per share.  However,  management has
not  ascertained  that  these  transactions  are  the  result  of  arm's  length
negotiations  between the parties,  and because of the limited  number of shares
involved,  these prices may not be  indicative of the market value of the common
stock.

         As of February  28, 2003,  there were  approximately  1,117  holders of
record of the  Company's  common stock,  excluding  individual  participants  in
security position listings.

         The  Company  has never paid any cash  dividends,  and to  support  its
continued  capital  growth,  does not expect to pay cash  dividends  in the near
future.  The dividend  policy of the Company is subject to the discretion of the
Board of  Directors  and depends upon a number of factors,  including  earnings,
financial  conditions,  cash needs and general business  conditions,  as well as
applicable regulatory  considerations.  At present, the Company's only source of
funds with which it could pay  dividends  is  dividend  payments  from the Bank.
Federal  banking  regulations  restrict the amount of cash dividends that can be
paid to shareholders.

Securities Authorized for Issuance Under Equity Compensation Plans

         See Item 11 of this Form  10-KSB for the  information  required by Item
201(d) of Regulation S-B.

Purchases of Equity Securities by the Company and Affiliated Purchasers

         Neither  the Company nor any  "affiliated  purchaser"  as defined in 17
C.F.R.  240.10b-18(a)(3)  purchased  any  shares  or units  of any  class of the
Company's  equity  securities  that is registered  pursuant to Section 12 of the
Exchange Act during the fourth  quarter of 2003.  Accordingly,  no disclosure is
required pursuant to 17 C.F.R. Section 228.703.

Item 6.  Management's Discussion and Analysis or Plan of Operation.

                              Basis of Presentation

The  following  discussion  should  be read in  conjunction  with the  Company's
Financial Statements and the Notes thereto and the other financial data included
elsewhere in this Annual Report.  The financial  information  provided below has
been  rounded in order to simplify  its  presentation.  However,  the ratios and
percentages   provided  below  are  calculated  using  the  detailed   financial
information  contained in the  Financial  Statements,  the Notes thereto and the
other financial data included elsewhere in this Annual Report.

                                     General

Carolina   National   Corporation  (the  Company)  is  a  bank  holding  company
headquartered in Columbia,  South Carolina.  Its subsidiary,  Carolina  National
Bank and Trust  Company (the Bank),  opened for  business on July 15, 2002.  The
principal  business  activity  of the Bank is to  provide  banking  services  to
domestic markets, principally in the Columbia, South Carolina metropolitan area.
The  deposits  of  the  Bank  are  insured  by  the  Federal  Deposit  Insurance
Corporation.



                                       9
<PAGE>


                          CAROLINA NATIONAL CORPORATION

                      Management's Discussion and Analysis
                              or Plan of Operation

                               General - continued

The Company completed an initial public offering of its common stock in which it
sold a total of 1,159,021  shares at $10.00 per share,  and a second offering of
its common  stock in which it sold an  additional  133,282  shares at $10.00 per
share in 2002. Prior to the initial public offering, the Company sold a total of
135,000  shares at $10.00 per share to its  directors  and an  organizer  of the
Bank. Proceeds of the three offerings were used to pay organizational  costs and
provide the initial capital for the Bank.

                              Results of Operations

Results  of  operations  for the  years  ended  December  31,  2003 and 2002 are
presented  separately  since the Bank  opened  for  business  on July 15,  2002,
resulting in only a partial year of operations.

For the year ended December 31, 2003

Net interest income for the year ended December 31, 2003 was  $1,174,389.  Total
interest income for the year was $1,685,588 and was partially offset by interest
expense of $511,199.  Interest  income is composed of interest and fees on loans
of $1,538,196, federal funds sold of $68,845, and investment income of $78,547.

The Company's net interest  spread and net interest margin were 2.17% and 2.84%,
respectively,  in 2003. The total yield on earning assets was 4.11%. The largest
component of earning assets was loans which had a yield of 5.06%. Total interest
bearing liabilities had a yield of 1.93%.

The provision for loan losses was $675,660 in 2003. The charges to the provision
were  primarily to maintain the allowance for loan losses at a level  sufficient
to cover  estimated  losses  inherent in the loan  portfolio.  The provision was
funded in an amount to establish  and  maintain the  allowance at 1.50% of total
loans.

Noninterest  income for the year ended December 31, 2003 totaled  $304,527.  The
largest  component  of  noninterest   income  was  fees  of  $231,499  from  the
origination of mortgage loans. Other operating expenses totaled $798,940 for the
year ended  December  31, 2003.  All  noninterest  expenses  include the cost of
personnel  and  operations  of two full  service  branches.  Service  charges on
deposit accounts totaled $50,173 for the year ended December 31, 2003.

Noninterest  expense for the year ended  December 31, 2003  totaled  $2,630,542.
Salaries and employee  benefits,  the largest component of noninterest  expense,
totaled  $1,487,052 for the year. Other operating  expenses totaled $798,940 for
the year.

The Company's net loss for the year ended December 31, 2003 was $1,211,112.  The
net loss for the period is after the  recognition  of an income  tax  benefit of
$616,174. The income tax benefit was based on an effective tax rate of 34%.



                                       10
<PAGE>


                        Results of Operations - continued

For the year ended December 31, 2002

Net interest  income for the year ended  December 31, 2002 was  $152,155.  Total
interest income for the period was $316,350 and was partially offset by interest
expense of $164,195.  Interest  income is composed of interest and fees on loans
of $141,281,  federal funds sold of $124,340,  investment income of $34,363, and
interest earned on escrowed funds of $16,366.

The Company's net interest  spread and net interest margin were (.18%) and .54%,
respectively,  in  2002.  The  net  interest  spread  and  net  interest  margin
calculations  exclude  interest  income  earned on escrow  accounts  during  the
pre-opening  period from January 1, 2002 to July 14, 2002. The largest component
of average earning assets was federal funds.

The provision for loan losses was $152,000 in 2002. The charges to the provision
were  primarily to begin to establish  the  allowance for loan losses at a level
management believes will be sufficient to cover estimated losses inherent in the
loan portfolio.

Noninterest  income for the year ended December 31, 2002 totaled  $150,703.  The
largest  component  of  noninterest   income  was  fees  of  $139,363  from  the
origination  of mortgage  loans.  Service  charges on deposit  accounts  totaled
$4,921 for the year ended December 31, 2002.

Noninterest  expense for the year ended  December 31, 2002  totaled  $1,502,863.
Noninterest expenses included $1,212,496 in pre-opening  expenses.  Salaries and
employee benefits totaled $834,306 for the period. Salaries included the cost of
key  personnel  employed  during  the  organizational  period.  Other  operating
expenses  totaled  $463,327  for  the  period.  These  expenses  included  costs
associated with the first year of operations of the Bank.

The  Company's net loss for the year ended  December 31, 2002 was $632,504.  The
net loss for the period is after the  recognition  of an income  tax  benefit of
$719,501 for the period.  The income tax benefit was based on an  effective  tax
rate of  34%.  The  benefit  was  based  on all  expenses  since  the  Company's
inception.  As stated  earlier,  the net loss includes  pre-opening  expenses of
$1,212,496.

                               Net Interest Income

General.  The largest  component of the Company's net income is its net interest
income, which is the difference between the income earned on assets and interest
paid on deposits and borrowings used to support such assets. Net interest income
is determined by the yields earned on the Company's  interest-earning assets and
the rates paid on its  interest-bearing  liabilities,  the  relative  amounts of
interest-earning  assets  and  interest-bearing  liabilities,  and the degree of
mismatch and the maturity and repricing  characteristics of its interest-earning
assets and interest-bearing  liabilities. Net interest income divided by average
interest-earning assets represents the Company's net interest margin.



                                       11
<PAGE>


                         Net Interest Income - continued

Average Balances, Income and Expenses and Rates. The following tables set forth,
for the period indicated,  information  related to the Company's average balance
sheet and its average  yields on assets and average costs of  liabilities.  Such
yields are derived by dividing  income or expense by the average  balance of the
corresponding  assets or liabilities and are then  annualized.  Average balances
have been derived from the daily balances throughout the periods indicated. 2002
amounts  exclude  pre-opening  activities for the period January 1, 2002 to July
14, 2002.

<TABLE>
<CAPTION>
                                                                 For the year ended                    For the year ended
                                                                  December 31, 2003                     December 31, 2002
                                                        ---------------------------------   --------------------------------------
                                                          Average    Income/      Yield/       Average      Income/        Yield/
(Dollars in thousands)                                    Balance    Expense        Rate       Balance      Expense       Rate(1)
                                                        ----------  ---------  ----------   -----------  -----------    ----------
Assets:
   Earning Assets:
<S>                                                     <C>         <C>            <C>      <C>          <C>               <C>
     Loans (2) ......................................   $   30,412  $   1,538      5.06%    $     4,653  $       141       6.56%
     Securities, taxable ............................        4,294         78      1.82           3,184           35       7.33
     Federal funds sold and other ...................        6,281         69      1.10          17,356          124       1.55
                                                        ----------  ---------      ----     -----------  -----------       ----
       Total earning assets .........................       40,987      1,685      4.11          25,193          300       2.57
                                                        ----------  ---------      ----     -----------  -----------       ----
   Cash and due from banks ..........................          982                                  828
   Premises and equipment ...........................          533                                  439
   Other assets .....................................        1,131                                  129
   Allowance for loan losses ........................         (436)                                 (57)
                                                        ----------                          -----------
       Total assets .................................   $   43,197                          $    26,532
                                                        ==========                          ===========
Liabilities:
   Interest-Bearing Liabilities:
     Federal funds purchased ........................   $       54  $       1      1.85%    $        -   $        -           -%
     Interest-bearing
       transaction accounts .........................        3,887         10      0.26           1,054            3       0.59
     Savings deposits ...............................        9,589        133      1.39           3,046           25       1.78
     Time deposits ..................................       12,953        367      2.83           8,803          136       3.34
                                                        ----------  ---------      ----     -----------  -----------       ----
       Total interest-bearing liabilities ...........       26,483        511      1.93          12,903          164       2.75
                                                        ----------  ---------      ----     -----------  -----------       ----
   Demand deposits ..................................        4,719                                1,427
   Accrued interest and other liabilities ...........          113                                  382
   Shareholders' equity .............................       11,882                               11,820
                                                        ----------                          -----------
       Total liabilities and
          shareholders' equity ......................   $   43,197                          $    26,532
                                                        ==========                          ===========
Net interest spread .................................                               2.18%                                  (.18)%
                                                                                    ====                                   ====
Net interest income .................................               $   1,174                            $       136
                                                                    =========                            ===========
Net interest margin (3) .............................                               2.86%                                   .54%
                                                                                    ====                                   ====
</TABLE>
-----------------
(1)  Annualized.
(2)  There  were no loans in  nonaccrual  status in 2003 or 2002.  The effect of
     fees collected on loans in 2003 totaling  $51,052  increased the annualized
     yield on loans by 0.17% from 4.89%.  The effect on the annualized  yield on
     earning  assets in 2003 was an increase of 0.12% from 3.99%.  The effect on
     net  interest  spread and net  interest  margin in 2003 was an  increase of
     0.12% and 0.12% from 2.06% and 2.74%, respectively.
(3)  Net interest  income  divided by average  earning  assets.  Note:  The 2002
     calculation excludes interest income earned on escrow accounts and interest
     expense on borrowed funds during  pre-opening  period (February 14, 2000 to
     July 14, 2002). If such  information had been included,  the net margin for
     2002 would have been 0.60%



                                       12
<PAGE>


                         Net Interest Income - continued

Analysis of Changes in Net  Interest  Income.  Net  interest  income can also be
analyzed  in terms of the impact of  changing  rates and  changing  volume.  The
following  table  reflects  the extent to which  changes in  interest  rates and
changes in the volume of earning assets and  interest-bearing  liabilities  have
affected the Company's  interest income and interest  expense during the periods
indicated.  Information on changes in each category  attributable to (i) changes
due to volume (change in volume  multiplied by prior period rate),  (ii) changes
due to rates  (changes in rates  multiplied  by prior  period  volume) and (iii)
changes in  rate/volume  (change in rate  multiplied by the change in volume) is
provided as follows:

<TABLE>
<CAPTION>
                                                                  2003 compared to 2002
                                               -------------------------------------------------------------------
                                                                  Due to increase (decrease) in
(Dollars in thousands)                           Volume (1)        Rate (1)        Volume/Rate         Total
                                               -------------    -------------     -------------    -------------
Interest income:
<S>                                            <C>              <C>               <C>              <C>
   Loans ....................................  $       1,854    $         (32)    $        (425)   $       1,397
   Securities, taxable ......................            257              (26)             (188)              43
   Federal funds sold and other .............              8              (36)              (27)             (55)
                                               -------------    -------------     -------------    -------------
     Total interest income ..................          2,119              (94)             (640)           1,385
                                               -------------    -------------     -------------    -------------
Interest expense:
   Interest-bearing deposits ................            564              (49)             (169)             346
   Short-term borrowings ....................             -                -                  1                1
                                               -------------    -------------     -------------    -------------
     Total interest expense .................            564              (49)             (168)             347
                                               -------------    -------------     -------------    -------------
       Net interest income ..................  $       1,555    $         (45)    $        (472)   $       1,038
                                               =============    =============     =============    =============
</TABLE>

(1)  Volume-rate  changes  have  been  allocated  to each  category  based  on a
     consistent basis between rate and volume.

Interest Sensitivity.  The Company monitors and manages the pricing and maturity
of its assets and liabilities in order to diminish the potential  adverse impact
that  changes in  interest  rates  could have on its net  interest  income.  The
principal monitoring technique employed by the Company is the measurement of the
Company's  interest  sensitivity "gap", which is the positive or negative dollar
difference  between  assets and  liabilities  that are subject to interest  rate
repricing  within a given  period  of time.  Interest  rate  sensitivity  can be
managed by repricing  assets or liabilities,  selling  securities  available for
sale,  replacing an asset or liability  at maturity,  or adjusting  the interest
rate during the life of an asset or liability. Managing the amount of assets and
liabilities  repricing  in this same time  interval  helps to hedge the risk and
minimize the impact on net interest income of rising or falling interest rates.



                                       13
<PAGE>


                         Net Interest Income - continued

The  following  table sets forth the  Company's  interest  rate  sensitivity  at
December 31, 2003.
Interest Sensitivity Analysis

<TABLE>
<CAPTION>
                                                                  After Three                 Greater
                                                         Within       Through       One         Than
                                                          Three       Twelve      through       Five
  (Dollars in thousands)                                 Months       Months    five years     Years      Total
                                                       ---------  -----------   ----------   --------   --------
  Assets
  Earning Assets:
<S>                                                    <C>        <C>           <C>          <C>        <C>
     Loans ........................................    $  37,954  $       592   $   16,023   $    461   $ 55,030
     Investment securities ........................        3,618           -            -          -       3,618
                                                       ---------  -----------   ----------   --------   --------
       Total earning assets .......................       41,572          592       16,023        461     58,648
                                                       ---------  -----------   ----------   --------   --------
  Liabilities
  Interest-bearing liabilities:
     Federal funds purchased ......................          533           -            -          -         533
     Interest-bearing deposits:
       Demand deposits ............................        4,829           -            -          -       4,829
       Savings deposits ...........................       18,100           -            -          -      18,100
       Time deposits ..............................        2,222       15,790        2,207         -      20,219
                                                       ---------  -----------   ----------   --------   --------
         Total interest-bearing liabilities .......       25,684       15,790        2,207         -      43,681
                                                       ---------  -----------   ----------   --------   --------
  Period gap ......................................    $  15,888  $   (15,198)  $   13,816   $    461   $ 14,967
                                                       =========  ===========   ==========   ========   ========
  Cumulative gap ..................................    $  15,888  $       690   $   14,506   $ 14,967   $ 14,967
                                                       =========  ===========   ==========   ========   ========
  Ratio of cumulative gap
    to total earning assets .......................       27.09%        1.18%       24.73%     25.52%     25.52%
</TABLE>

The  above  table   reflects  the  balances  of   interest-earning   assets  and
interest-bearing  liabilities  at the  earlier of their  repricing  or  maturity
dates.  Overnight  federal funds are reflected at the earliest  pricing interval
due to the immediately available nature of the instruments.  Debt securities are
reflected at each instrument's ultimate maturity date. Scheduled payment amounts
of fixed rate  amortizing  loans are reflected at each  scheduled  payment date.
Scheduled  payment  amounts of variable rate  amortizing  loans are reflected at
each scheduled  payment date until the loan may be repriced  contractually;  the
unamortized  balance is  reflected at that point.  Interest-bearing  liabilities
with no  contractual  maturity,  such as savings  deposits and  interest-bearing
transaction  accounts,  are  reflected in the earliest  repricing  period due to
contractual  arrangements  which give the  Company the  opportunity  to vary the
rates paid on those deposits within a thirty-day or shorter  period.  Fixed rate
time  deposits,  principally  certificates  of deposit,  are  reflected at their
contractual maturity date.



                                       14
<PAGE>


                         Net Interest Income - continued

The Company  generally  would benefit from  increasing  market rates of interest
when it has an  asset-sensitive  gap position and  generally  would benefit from
decreasing market rates of interest when it is liability-sensitive.  The Company
is  cumulatively  asset sensitive over all periods.  However,  the Company's gap
analysis is not a precise indicator of its interest  sensitivity  position.  The
analysis  presents only a static view of the timing of maturities  and repricing
opportunities,  without taking into consideration that changes in interest rates
do not affect all assets and  liabilities  equally.  Net interest  income may be
impacted by other  significant  factors in a given  interest  rate  environment,
including  changes in the volume and mix of earning assets and  interest-bearing
liabilities.

                     Provision and Allowance for Loan Losses

General.  The Company has developed  policies and  procedures for evaluating the
overall  quality  of its  credit  portfolio  and the  timely  identification  of
potential  problem  credits.  On a  quarterly  basis,  the  Company's  Board  of
Directors reviews and approves the appropriate level for the Company's allowance
for loan  losses  based upon  management's  recommendations,  the results of the
internal monitoring and reporting system, and an analysis of economic conditions
in its market.  The objective of  management  has been to fund the allowance for
loan losses at approximately 1.50% of total loans outstanding until a history is
established.

Additions to the allowance for loan losses,  which are expensed as the provision
for loan losses on the Company's  income  statement,  are made  periodically  to
maintain the allowance at an appropriate level based on management's analysis of
the estimated losses inherent in the loan portfolio.  Loan losses and recoveries
are charged or credited  directly to the allowance.  The amount of the provision
is a  function  of the level of loans  outstanding,  the level of  nonperforming
loans,  historical  loan loss  experience,  the amount of loan  losses  actually
charged  against the reserve during a given period,  and current and anticipated
economic conditions.

The Company's  allowance for loan losses is based upon judgments and assumptions
about risk elements in the  portfolio,  future  economic  conditions,  and other
factors affecting borrowers. The process includes identification and analysis of
loss  potential in various  portfolio  segments  utilizing a credit risk grading
process and specific reviews and evaluations of significant  problem credits. In
addition,  management  monitors the overall portfolio quality through observable
trends in delinquencies, charge-offs, and general and economic conditions in the
service   area.   The  adequacy  of  the  allowance  for  loan  losses  and  the
effectiveness of the Company's  monitoring and analysis system are also reviewed
periodically by the banking regulators and the Company's independent auditors.

Based on present information and an ongoing evaluation, management considers the
allowance  for loan losses to be adequate to meet  presently  known and inherent
losses in the loan  portfolio.  Management's  judgment about the adequacy of the
allowance is based upon a number of  assumptions  about  future  events which it
believes to be reasonable but which may or may not be accurate.  Thus, there can
be no assurance that charge-offs in future periods will not exceed the allowance
for loan losses or that  additional  increases in the  allowance for loan losses
will not be  required.  The Company does not  allocate  the  allowance  for loan
losses to specific  categories of loans but evaluates the adequacy on an overall
portfolio basis utilizing a risk grading system.

The following table sets forth certain information with respect to the Company's
allowance for loan losses and the  composition of charge-offs and recoveries for
the years ended December 31, 2003 and 2002.

                            Allowance for Loan Losses
<TABLE>
<CAPTION>
  (Dollars in thousands)                                                                2003             2002
                                                                                -------------    -------------
<S>                                                                             <C>              <C>
  Total loans outstanding at end of period ..................................   $      55,030    $      10,145
                                                                                =============    =============
  Average loans outstanding .................................................   $      30,412    $       4,653
                                                                                =============    =============
  Balance of allowance for loan losses at beginning of year .................   $         152    $          -
  Net loan losses ...........................................................               1               -
  Provision for loan losses .................................................             676              152
                                                                                -------------    -------------
  Balance of allowance for loan losses at end of year .......................   $         827    $         152
                                                                                =============    =============
  Allowance for loan losses to period end loans .............................           1.50%             1.50%
</TABLE>



                                       15
<PAGE>


                              Nonperforming Assets

Nonperforming  Assets. There were no nonaccrual loans, loans past due 90 days or
more and still accruing interest,  or restructured loans at December 31, 2003 or
2002.

The Company's policy with respect to nonperforming assets is as follows. Accrual
of interest  will be  discontinued  on a loan when  management  believes,  after
considering  economic and business  conditions and  collection  efforts that the
borrower's  financial  condition  is such that the  collection  of  interest  is
doubtful.  A delinquent loan will generally be placed in nonaccrual  status when
it becomes 90 days or more past due unless the estimated net realizable value of
collateral  exceeds the principal balance and accrued  interest.  When a loan is
placed in nonaccrual status, all interest which has been accrued on the loan but
remains  unpaid  will be  reversed  and  deducted  from  current  earnings  as a
reduction of reported interest income. No additional interest will be accrued on
the loan balance  until the  collection of both  principal and interest  becomes
reasonably  certain.  When  a  problem  loan  is  finally  resolved,  there  may
ultimately be an actual writedown or charge-off of the principal  balance of the
loan which would necessitate additional charges to earnings.

Potential Problem Loans. Potential problem loans are loans that are not included
in impaired loans  (nonaccrual loans or loans past due 90 days or more and still
accruing),  but about which  management  has become aware of  information  about
possible  credit problems of the borrowers that causes doubt about their ability
to comply with current  repayment  terms.  At December 31, 2003, the Company had
not identified any  criticized or classified  loans through its internal  review
mechanisms.  The  results of this  internal  review  process are  considered  in
determining  management's  assessment  of the adequacy of the allowance for loan
losses.  However,  based on the prior  experience  of  management  and other new
banks,  the  Company  has  established  the overall  objective  to maintain  the
allowance  for loan  losses at 1.50% of total  loans to provide  for the risk of
loss inherent in the loan portfolio.

                         Noninterest Income and Expense

Noninterest  Income.  The largest  component of noninterest  income was mortgage
origination fees which totaled $231,499 for the year ended December 31, 2003 and
$139,363 for the year ended December 31, 2002.

The following  table sets forth the principal  components of noninterest  income
for the year ended December 31, 2003 and 2002.

  (Dollars in thousands)                              2003             2002
                                                 -------------    -------------

  Mortgage origination fees ..................   $         232    $         139
  Service charges on deposit accounts .........             50                5
  Other income ................................             23                7
                                                 -------------    -------------

     Total noninterest income .................  $         305    $         151
                                                 =============    =============

Noninterest  Expense.  Salaries  and  employee  benefits  comprised  the largest
component of noninterest  expense which totaled  $1,487,052 and $834,306 for the
years ended December 31, 2003 and 2002,  respectively.  Other operating expenses
totaled  $798,940 and  $463,327 for the years ended  December 31, 2003 and 2002,
respectively.



                                       16
<PAGE>


                   Noninterest Income and Expense - continued

The following table sets forth the primary components of noninterest expense for
the years ended December 31, 2003, 2002 and 2001.

  (Dollars in thousands)                                     2003         2002
                                                         ---------    ---------
  Salaries and employee benefits ...................     $   1,487    $     834
  Net occupancy expense ............................           224          151
  Advertising and marketing expense ................           105          138
  Office supplies, forms, and stationery ...........            43           51
  Data processing ..................................           162           24
  Professional fees ................................           140          100
  Furniture and equipment expense ..................           121           54
  Telephone ........................................            29           20
  Legal expense for loan closings ..................            64           24
  Postage ..........................................            14           11
  Other ............................................           242           96
                                                         ---------    ---------
Total noninterest expense ..........................     $   2,631    $   1,503
                                                         =========    =========

                                 Earning Assets

Loans.  Loans are the largest  category of earning assets and typically  provide
higher yields than the other types of earning assets.  Loans also entail greater
credit and liquidity risks than most of the Company's investment  securities and
short-term investments, which management attempts to control and counterbalance.
Loans averaged  $30,411,722 in 2003 and $4,653,000 in 2002. At December 31, 2003
and 2002, total loans were $55,030,473 and $10,144,579, respectively.

The following table sets forth the composition of the loan portfolio by category
at December 31, 2003 and 2002 and highlights the Company's  general  emphasis on
mortgage lending.

Composition of Loan Portfolio

<TABLE>
<CAPTION>
  December 31,                                                    2003                          2002
                                                     -----------------------------   ---------------------------
                                                                       Percent of                     Percent of
  (Dollars in thousands)                                 Amount          Total           Amount         Total
                                                     -----------   --------------     ------------  ------------
<S>                                                  <C>                 <C>        <C>                  <C>
  Commercial and industrial ......................   $     9,680          17.59%    $       2,418          23.83%
  Real estate:
    Mortgage-residential .........................        28,368          51.55             4,792          47.24
    Mortgage-nonresidential ......................        15,252          27.72             2,734          26.95
  Consumer .......................................         1,730           3.14               201           1.98
                                                     -----------        -------      ------------       --------
      Total loans ................................        55,030         100.00%           10,145         100.00%
                                                                        =======                         ========
  Allowance for loan losses ......................           827                              152
                                                     -----------                     ------------
      Net loans ..................................   $    54,203                     $      9,993
                                                     ===========                     ============
</TABLE>

The largest  component of loans in the Company's  loan  portfolio is real estate
mortgage  loans.  At December 31, 2003 real estate  mortgage loans totaled $43.6
million and  represented  79.27% of the total loan  portfolio.  At December  31,
2002, real estate mortgage loans totaled $7.5 million and represented  74.19% of
the total loan portfolio.



                                       17
<PAGE>


                           Earning Assets - continued

In the context of this  discussion,  a "real estate mortgage loan" is defined as
any loan, other than a loan for construction  purposes,  secured by real estate,
regardless  of the  purpose of the loan.  It is common  practice  for  financial
institutions in the Company's market area to obtain a security  interest in real
estate whenever possible,  in addition to any other available  collateral.  This
collateral is taken to reinforce the likelihood of the ultimate repayment of the
loan and tends to increase  the  magnitude  of the real  estate  loan  portfolio
component.

Residential  mortgage  loans  totaled $28.4 million and $4.8 million at December
31, 2003 and 2002, respectively.  Residential real estate loans consist of first
and  second   mortgages  on  single  or  multi-family   residential   dwellings.
Nonresidential  mortgage loans,  which include  commercial loans and other loans
secured by multi-family properties and farmland,  totaled $15.3 million and $2.7
million at December 31, 2003 and 2002, respectively.  The demand for residential
and commercial real estate loans in the Columbia market has increased due to the
low interest rate environment.

Commercial  and  industrial  loans  totaled  $9.7  million  and $2.4  million at
December  31,  2003 and 2002,  respectively,  and  comprised  17.59% and 23.83%,
respectively, of the total portfolio.

The Company's loan portfolio also includes consumer loans. At December 31, 2003,
consumer  loans  totaled  $1.7 million and  represented  3.14% of the total loan
portfolio. Consumer loans totaled $201,000 at December 31, 2002.

The Company's loan portfolio reflects the diversity of its market. The Company's
offices are located in the Columbia,  South  Carolina  area.  The economy of the
Columbia metropolitan area is significantly  influenced by officers of state and
federal government, a major state university,  and a United States Army fort and
training center as well as numerous small and mid-sized  businesses.  Management
expects the area to remain stable with continued growth in the near future.  The
diversity of the economy  creates  opportunities  for all types of lending.  The
Company does not engage in foreign lending.

The repayment of loans in the loan  portfolio as they mature is also a source of
liquidity for the Company.  The following  table sets forth the Company's  loans
maturing within specified intervals at December 31, 2003.

Loan Maturity Schedule and Sensitivity to Changes in Interest Rates

<TABLE>
<CAPTION>
                                                                         Over One
                                                                           Year
  December 31, 2003                                       One Year        Through           Over
  (Dollars in thousands)                                  or Less       Five Years     Five Years         Total
                                                       -----------     -----------    -----------    -----------
<S>                                                    <C>             <C>            <C>            <C>
  Commercial and industrial .......................    $     2,212     $     4,994    $     2,474    $     9,680
  Real estate .....................................          6,954          23,916         12,750         43,620
  Consumer and other ..............................            500           1,042            188          1,730
                                                       -----------     -----------    -----------    -----------
                                                       $     9,666     $    29,952    $    15,412    $    55,030
                                                       ===========     ===========    ===========    ===========

  Loans maturing after one year with:
     Fixed interest rates .........................                                                  $    16,427
     Floating interest rates ......................                                                       28,937
                                                                                                     -----------
                                                                                                     $    45,364
                                                                                                     ===========
</TABLE>

The  information  presented  in the  above  table is  based  on the  contractual
maturities  of the  individual  loans,  including  loans which may be subject to
renewal  at their  contractual  maturity.  Renewal  of such  loans is subject to
review and credit approval as well as modification of terms upon their maturity.
Consequently,  management  believes this treatment  presents fairly the maturity
and repricing structure of the loan portfolio shown in the above table.



                                       18
<PAGE>


                           Earning Assets - continued

Investment  Securities.  The investment securities portfolio is also a component
of the Company's total earning assets.  Total securities  averaged $3,988,338 in
2003 and $4,521,018 in 2002. At December 31, 2003 and 2002, the total securities
portfolio was  $3,617,631 and  $5,643,601,  respectively.  All  securities  were
designated as held to maturity and were recorded at their cost.

The  following  table sets forth the fair  value of the  securities  held by the
Company at December 31, 2003 and 2002.

Fair Value of Securities
  December 31,                                              2003           2002
                                                      -----------    -----------
  (Dollars in thousands)
  U.S. government agencies .......................    $     3,306    $     5,378
  Nonmarketable equity securities ................            316            271
                                                      -----------    -----------
     Total investment securities .................    $     3,622    $     5,649
                                                      ===========    ===========

The following  table sets forth the scheduled  maturities  and average yields of
securities held to maturity at December 31, 2003.

Investment Securities Maturity Distribution and Yields

  December 31, 2003                                    One Year or Less
                                              ------------------------------
  (Dollars in thousands)                          Amount            Yield
                                              -------------    -------------
  U.S. government agencies .................  $       3,302            1.58%
                                              =============    ============

Nonmarketable equity securities totaled $315,500 and $270,550 and had a yield of
5.59% and 6.00% at December 31, 2003 and 2002, respectively.

Other attributes of the securities  portfolio,  including yields and maturities,
are discussed above in "---Net Interest Income--- Interest Sensitivity."

Short-Term  Investments.  Short-term  investments,  which  consist  primarily of
federal  funds sold,  averaged  $6,281,072 in 2003 and  $17,356,355  in 2002. At
December 31, 2003, there were no short-term  investments.  At December 31, 2002,
short-term investments totaled $14,798,000.  These funds are an important source
of the Company's  liquidity.  Federal funds are generally invested in an earning
capacity  on  an  overnight  basis.   The  significant   balance  in  short-term
investments  in 2002 was  partially  attributable  to the  investment in federal
funds sold as a result of excess  funds from the  Company's  recently  completed
stock offerings.

                                    Deposits

Average interest-bearing liabilities totaled $26,482,836 in 2003 and $12,903,115
in 2002.

Deposits. Average total deposits totaled $31,148,323 during 2003 and $14,330,142
in 2002.  At December 31, 2003 and 2002,  total  deposits were  $50,645,656  and
$20,151,627, respectively.



                                       19
<PAGE>


                              Deposits - continued

The  following  table sets forth the  deposits  of the Company by category as of
December 31, 2003 and 2002.

Deposits

<TABLE>
<CAPTION>
  December 31,                                                2003                             2002
                                                     ------------------------     ----------------------------
                                                                   Percent of                      Percent of
  (Dollars in thousands)                                 Amount     Deposits           Amount        Deposits
                                                     -----------  -----------     ------------   -------------
<S>                                                  <C>              <C>         <C>                  <C>
  Demand deposit accounts .......................    $     7,498       15%        $      2,246          11%
  NOW accounts ..................................          4,829       10                1,947          10
  Savings accounts ..............................         18,100       36                4,825          24
  Time deposits less than $100 ..................         13,428       26                7,204          36
  Time deposits of $100 or over .................          6,791       13                3,930          19
                                                     -----------      ---         ------------         ---
     Total deposits .............................    $    50,646      100%        $     20,152         100%
                                                     ===========      ===         ============         ===
</TABLE>

Core  deposits,  which  exclude  certificates  of deposit of  $100,000  or more,
provide a relatively  stable funding source for the Company's loan portfolio and
other earning assets.  The Company's core deposits were  $43,855,091 at December
31, 2003 and $16,221,647 at December 31, 2002.

Deposits, and particularly core deposits,  have been a primary source of funding
and have  enabled  the  Company to meet  successfully  both its  short-term  and
long-term  liquidity  needs.  Management  anticipates  that such  deposits  will
continue  to be the  Company's  primary  source of  funding in the  future.  The
Company's  loan-to-deposit  ratio was 109% at  December  31,  2003 and 50.34% at
December 31, 2002. The maturity distribution of the Company's time deposits over
$100,000 at December 31, 2003, is set forth in the following table:

Maturities of Certificates of Deposit of $100,000 or More
<TABLE>
<CAPTION>
                                                                                                 After Six
                                                                                  After Three     Through      After
                                                                   Within Three   Through Six      Twelve      Twelve
  (Dollars in thousands)                                              Months         Months        Months      Months        Total
                                                                   -----------    -----------  ------------   ---------  -----------
<S>                                                                <C>            <C>          <C>            <C>        <C>
  Certificates of deposit of $100 or more ......................   $       504    $       207  $      5,578   $     502  $     6,791
</TABLE>

Approximately  7% of the  Company's  time  deposits  over $100,000 had scheduled
maturities  within three months,  and 93% had  maturities  within twelve months.
Large  certificate  of  deposit  customers  tend to be  extremely  sensitive  to
interest rate levels, making these deposits less reliable sources of funding for
liquidity planning purposes than core deposits.

                                     Capital

The Bank is subject to various regulatory capital  requirements  administered by
the federal banking agencies.  Failure to meet minimum capital  requirements can
initiate  certain  mandatory and possibly  additional  discretionary  actions by
regulators  that,  if  undertaken,  could have a  material  effect on the Bank's
financial  statements.  Under capital  adequacy  guidelines  and the  regulatory
framework for prompt  corrective  action,  the Bank 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 Bank's capital amounts and  classifications  are also subject to
qualitative judgments by the regulators about components,  risk weightings,  and
other factors.



                                       20
<PAGE>


                               Capital - continued

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Bank to  maintain  minimum  ratios of Tier 1 and total  capital as a
percentage of assets and off-balance-sheet exposures,  adjusted for risk weights
ranging  from  0% to  100%.  Tier 1  capital  of the  Bank  consists  of  common
shareholders'  equity,  excluding  the  unrealized  gain or  loss on  securities
available-for-sale,  minus certain  intangible assets. The Bank's Tier 2 capital
consists of the allowance for loan losses subject to certain limitations.  Total
capital for purposes of computing the capital ratios consists of the sum of Tier
1 and Tier 2 capital.  The  regulatory  minimum  requirements  are 4% for Tier 1
capital and 8% for total risk-based capital.

The Bank is also  required  to  maintain  capital  at a minimum  level  based on
quarterly  average  assets,  which  is  known as the  leverage  ratio.  Only the
strongest  banks are allowed to maintain  capital at the minimum  requirement of
3%. All others are subject to maintaining ratios 1% to 2% above the minimum.

The Bank exceeded the regulatory  capital  requirements at December 31, 2003 and
2002 as set forth in the following table.

Analysis of Capital and Capital Ratios

<TABLE>
<CAPTION>
  December 31,                                                                          2003             2002
                                                                                -------------    -------------
  (Dollars in thousands)
<S>                                                                             <C>              <C>
  Tier 1 capital ..........................................................     $       7,314    $       7,163
  Tier 2 capital ..........................................................               705              152
                                                                                -------------    -------------
     Total qualifying capital .............................................     $       8,019    $       7,315
                                                                                =============    =============

  Risk-adjusted total assets (including off-balance-sheet exposures) ......     $      56,310    $      17,082
                                                                                =============    =============

  Tier 1 risk-based capital ratio .........................................             12.99%           41.93%
  Total risk-based capital ratio ..........................................             14.24%           42.82%
  Tier 1 leverage ratio ...................................................             14.33%           23.18%
</TABLE>

  Because  the Bank is growing  rapidly and has not yet become  profitable,  the
  Bank expects that it will need additional  capital or it will need to restrict
  its growth in 2004.  The  Company  expects  to be able to  provide  additional
  capital to the Bank by borrowing funds and/or selling equity.



                                       21
<PAGE>


                             Off-Balance Sheet Risk

Through its  operations,  the Bank has made  contractual  commitments  to extend
credit in the ordinary course of its business activities.  These commitments are
legally   binding   agreements  to  lend  money  to  the  Bank's   customers  at
predetermined  interest  rates for a specified  period of time.  At December 31,
2003, the Bank had issued  commitments  to extend credit of $16,768,802  through
various types of commercial lending arrangements.  Approximately  $15,946,731 of
these commitments to extend credit had variable rates.

The  following  table sets forth the  length of time until  maturity  for unused
commitments to extend credit at December 31, 2003.
<TABLE>
<CAPTION>
                                                                      After One  After Three
                                                                       Through      Through                   Greater
                                                        Within One       Three       Twelve      Within One      Than
(Dollars in thousands)                                      Month       Months       Months        Year       One Year        Total
                                                     -------------  -----------  -----------  -------------   ---------  -----------
<S>                                                  <C>            <C>          <C>          <C>             <C>        <C>
Unused commitments to extend credit ..............   $         276  $       366  $     2,096  $       2,738   $ 14,031   $    16,769
Standby letters of credit ........................              -            10           -              -          -             10
                                                     -------------  -----------  -----------  -------------   --------   -----------
 .................................................   $         276  $       376  $     2,096  $       2,738   $ 14,031   $    16,779
                                                     =============  ===========  ===========  =============   ========   ===========
</TABLE>

The Bank evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on its credit evaluation of the borrower. Collateral varies but
may include  accounts  receivable,  inventory,  property,  plant and  equipment,
commercial and residential real estate.

                           Return on Equity and Assets

The following  table shows the return on average  assets (net income  divided by
average total  assets),  return on average equity (net income divided by average
daily  equity),  and equity to assets ratio  (average  daily  equity  divided by
average total assets) for the period indicated. Since its inception, the Company
has not paid cash dividends.

                                                          2003            2002
                                                     -----------     -----------
     Return on average assets ...................       (2.81%)         (2.38%)
     Return on average equity ...................      (10.19%)         (5.35%)
     Equity to assets ratio .....................       27.51%          44.55%

                          Critical Accounting Policies

The Company has adopted various accounting policies which govern the application
of  accounting  principles  generally  accepted  in  the  United  States  in the
preparation of our financial statements. Its significant accounting policies are
described in the footnotes to the consolidated  financial statements at December
31, 2003, included in this Annual Report to Shareholders,  and as filed with the
Company's  annual report on Form 10-KSB.  Certain  accounting  policies  involve
significant  judgments  and  assumptions  which  have a  material  impact on the
carrying value of certain assets and liabilities.  These accounting policies are
considered to be critical  accounting  policies.  The judgments and  assumptions
used are based on historical experience and other factors, which are believed to
be reasonable  under the  circumstances.  Because of the nature of the judgments
and assumptions,  actual results could differ from these judgments and estimates
which  could  have a  material  impact on the  carrying  values  of  assets  and
liabilities and results of operations.

Management  believes  the  allowance  for loan  losses is a critical  accounting
policy that  requires  the most  significant  judgments  and  estimates  used in
preparation of the consolidated  financial  statements.  Refer to the portion of
this  discussion  that addresses the allowance for loan losses for a description
of our processes and methodology for determining our allowance for loan losses.



                                       22
<PAGE>


                              Liquidity Management

Liquidity management involves monitoring the Company's sources and uses of funds
in order to meet its day-to-day cash flow requirements while maximizing profits.
Liquidity  represents  the  ability of a Company to convert  assets into cash or
cash  equivalents  without  significant  loss and to raise  additional  funds by
increasing liabilities.  Without proper liquidity management,  the Company would
not be able to perform the primary  function  of a  financial  intermediary  and
would, therefore, not be able to meet the needs of the communities it serves.

Liquidity  management  is made more  complex  because  different  balance  sheet
components are subject to varying  degrees of management  control.  For example,
the timing of maturities of the  investment  portfolio is very  predictable  and
subject to a high degree of control at the time  investment  decisions are made.
However,  net deposit inflows and outflows are far less  predictable and are not
subject to nearly the same degree of control.  The Company  also has the ability
to obtain funds from various financial institutions should the need arise.

                               Impact of Inflation

Unlike  most  industrial  companies,  the assets and  liabilities  of  financial
institutions  such as the Bank are  primarily  monetary  in  nature.  Therefore,
interest rates have a more significant  effect on the Bank's performance than do
the effects of changes in the general rate of inflation and change in prices. In
addition, interest rates do not necessarily move in the same direction or in the
same  magnitude as the prices of goods and  services.  As discussed  previously,
management seeks to manage the relationships  between interest  sensitive assets
and  liabilities  in order to protect  against wide interest rate  fluctuations,
including those resulting from inflation.



                                       23
<PAGE>

Item 7.  Financial Statements.











                          INDEPENDENT AUDITORS' REPORT



The Board of Directors
Carolina National Corporation
Columbia, South Carolina


We have  audited  the  accompanying  consolidated  balance  sheets  of  Carolina
National  Corporation  as  of  December  31,  2003  and  2002  and  the  related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for each of the years in the three year period  ended  December  31, 2003.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Carolina National Corporation,
as of  December  31, 2003 and 2002 and the  results of its  operations  and cash
flows for each of the years in the three year period ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States of
America.



Elliott Davis, LLC
Columbia, South Carolina
January 15, 2004





                                       24
<PAGE>


                          CAROLINA NATIONAL CORPORATION

                           Consolidated Balance Sheets


<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                                         ------------
                                                                                     2003             2002
                                                                                -------------    -------------
Assets:
  Cash and cash equivalents:
<S>                                                                             <C>              <C>
     Cash and due from banks ...............................................    $   2,459,441    $     970,326
     Federal funds sold ....................................................               -        14,798,000
                                                                                -------------    -------------
        Total cash and cash equivalents ....................................        2,459,441       15,768,326
                                                                                -------------    -------------
  Investment securities:
     Securities held to maturity
       (fair value of $3,306,188 and $5,377,718
         at December 31, 2003 and 2002, respectively) ......................        3,302,131        5,373,101
     Nonmarketable equity securities .......................................          315,500          270,500
                                                                                -------------    -------------
        Total investment securities ........................................        3,617,631        5,643,601
                                                                                -------------    -------------
  Loans receivable .........................................................       55,030,473       10,144,579
     Less allowance for loan losses ........................................          826,593          152,000
                                                                                -------------    -------------
        Loans, net .........................................................       54,203,880        9,992,579
                                                                                -------------    -------------
  Premises, furniture and equipment, net ...................................          497,442          514,384
  Accrued interest receivable ..............................................          217,064          103,023
  Deferred tax asset .......................................................        1,341,864          719,501
  Other assets .............................................................          571,863           68,892
                                                                                -------------    -------------
        Total assets .......................................................    $  62,909,185    $  32,810,306
                                                                                =============    =============

Liabilities:
  Deposits:
     Noninterest-bearing transaction accounts ..............................    $   7,498,008    $   2,245,732
     Interest-bearing transaction accounts .................................        4,829,484        1,947,377
     Savings and money market ..............................................       18,099,415        4,824,965
     Time deposits $100,000 and over .......................................        6,790,565        3,929,980
     Other time deposits ...................................................       13,428,184        7,203,573
                                                                                -------------    -------------
        Total deposits .....................................................       50,645,656       20,151,627
                                                                                -------------    -------------
  Federal funds purchased ..................................................          533,000               -
  Accrued interest payable .................................................           97,181           19,892
  Other liabilities ........................................................          250,583           44,910
                                                                                -------------    -------------
        Total liabilities ..................................................       51,526,420       20,216,429
                                                                                -------------    -------------
Commitments and contingencies (Notes 9 and 11)
Shareholders' equity:
  Preferred stock, 10,000,000 shares authorized, none issued ...............               -                -
  Common stock, no par value, 20,000,000 shares authorized;
     1,427,303 shares issued at December 31, 2003 and 2002 .................       13,994,796       13,994,796
  Retained deficit .........................................................       (2,612,031)      (1,400,919)
                                                                                -------------    -------------
        Total shareholders' equity .........................................       11,382,765       12,593,877
                                                                                -------------    -------------
        Total liabilities and shareholders' equity .........................    $  62,909,185    $  32,810,306
                                                                                =============    =============
</TABLE>

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



                                       25
<PAGE>


                      Consolidated Statements of Operations
                 For the years ended December 31, 2003 and 2002


<TABLE>
<CAPTION>
                                                                                        2003             2002
                                                                                -------------    -------------
Interest income:
<S>                                                                             <C>              <C>
     Loans, including fees .................................................    $   1,538,196    $     141,281
     Investment securities:
         Escrow interest ...................................................               -            16,366
         Taxable ...........................................................           61,469           26,938
         Nonmarketable equity securities ...................................           17,078            7,425
     Federal funds sold ....................................................           68,845          124,340
                                                                                -------------    -------------
              Total ........................................................        1,685,588          316,350
                                                                                -------------    -------------
Interest expense:
     Time deposits $100,000 and over .......................................          131,289           48,537
     Other deposits ........................................................          379,118          115,658
     Federal funds purchased ...............................................              792               -
                                                                                -------------    -------------
              Total ........................................................          511,199          164,195
                                                                                -------------    -------------
Net interest income ........................................................        1,174,389          152,155
Provision for loan losses ..................................................          675,660          152,000
                                                                                -------------    -------------
Net interest income after provision for loan losses ........................          498,729              155
                                                                                -------------    -------------
Noninterest income:
     Service charges on deposit accounts ...................................           50,173            4,921
     Residential mortgage origination fees .................................          231,499          139,363
     Other .................................................................           22,855            6,419
                                                                                -------------    -------------
         Total noninterest income ..........................................          304,527          150,703
                                                                                -------------    -------------
Noninterest expenses:
     Salaries and employee benefits ........................................        1,487,052          834,306
     Net occupancy .........................................................          223,734          151,405
     Furniture and equipment ...............................................          120,816           53,825
     Other operating .......................................................          798,940          463,327
                                                                                -------------    -------------
         Total noninterest expense .........................................        2,630,542        1,502,863
                                                                                -------------    -------------
Loss before income taxes ...................................................       (1,827,286)      (1,352,005)
Income tax benefit .........................................................         (616,174)        (719,501)
                                                                                -------------    -------------
Net loss ...................................................................    $  (1,211,112)   $    (632,504)
                                                                                =============    =============
Earnings per share
Basic loss per share .......................................................    $      (0.85)    $       (0.91)
                                                                                ============     =============
Diluted loss per share .....................................................    $      (0.85)    $       (0.91)
                                                                                ============     =============
Average shares outstanding .................................................       1,427,303           693,427
                                                                                ============     =============
</TABLE>

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



                                       26
<PAGE>


           Consolidated Statements of Changes in Shareholders' Equity
                 For the years ended December 31, 2003 and 2002


<TABLE>
<CAPTION>

                                                                                Unearned
                                                    Common Stock                  stock
                                                    ------------                 compen-         Retained
                                              Shares            Amount           sation           deficit           Total
                                          -----------     -------------      -----------     -------------     --------------

<S>                                         <C>           <C>                <C>             <C>               <C>
Balance, December 31, 2001 ...........         85,330     $     860,000      $    (6,700)    $    (768,415)    $       84,885

Proceeds from sale of stock ..........      1,341,303        13,413,030                                            13,413,030

Stock issuance costs .................                         (278,234)                                             (278,234)

Net loss .............................                                                            (632,504)          (632,504)

Earned stock compensation ............            670                              6,700                                6,700
                                            ---------     -------------      -----------     -------------     --------------

Balance, December 31, 2002 ...........      1,427,303        13,994,796               -         (1,400,919)        12,593,877

Net loss .............................                                                          (1,211,112)        (1,211,112)
                                            ---------     -------------      -----------     -------------     --------------

Balance, December 31, 2003 ...........      1,427,303     $  13,994,796      $        -      $  (2,612,031)    $   11,382,765
                                            =========     =============      ===========     =============     ==============

</TABLE>

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



                                       27
<PAGE>

                      Consolidated Statements of Cash Flows
                 For the years ended December 31, 2003 and 2002


<TABLE>
<CAPTION>
                                                                                        2003             2002
                                                                                -------------    -------------
Cash flows from operating activities:
<S>                                                                             <C>              <C>
Net loss ....................................................................   $  (1,211,112)   $    (632,504)
Adjustments to reconcile net loss to net cash used by
  operating activities:
     Provision for loan losses ..............................................         675,660          152,000
     Depreciation and amortization expense ..................................         109,751           40,705
     Discount accretion and premium amortization ............................          70,790            7,711
     Deferred income tax benefit ............................................        (616,174)        (719,501)
     Increase in accrued interest receivable ................................        (114,041)        (103,023)
     Increase in accrued interest payable ...................................          77,289           19,892
     Increase in other assets ...............................................        (502,971)         (19,495)
     Increase (decrease) in other liabilities ...............................         199,664          (27,589)
                                                                                -------------    -------------

         Net cash used by operating activities ..............................      (1,311,144)      (1,281,804)
                                                                                -------------    -------------

Cash flows from investing activities:
     Purchases of securities held to maturity ...............................              -        (8,680,812)
     Purchases of nonmarketable equity securities ...........................         (45,000)        (270,500)
     Calls of securities held to maturity ...................................       2,000,000        3,300,000
     Net increase in loans ..................................................     (44,886,963)     (10,144,579)
     Purchase of premises, furniture and equipment ..........................         (92,807)        (550,529)
                                                                                -------------    -------------

         Net cash used by investing activities ..............................     (43,024,770)     (16,346,420)
                                                                                -------------    -------------

Cash flows from financing activities:
     Net increase in demand deposits, interest-bearing
       transaction accounts and savings accounts ............................      21,408,833       11,133,553
     Net increase in certificates of deposit and
       other time deposits ..................................................       9,085,196        9,018,074
     Increase in federal funds purchased ....................................         533,000               -
     Issuance of common stock, net of direct costs ..........................              -        13,134,796
     Earned deferred stock compensation .....................................              -             6,700
                                                                                -------------    -------------

         Net cash provided by financing activities ..........................      31,027,029       33,293,123
                                                                                -------------    -------------

Net increase (decrease) in cash and cash equivalents ........................     (13,308,885)      15,664,899

Cash and cash equivalents, beginning of year ................................      15,768,326          103,427
                                                                                -------------    -------------

Cash and cash equivalents, end of year ......................................   $   2,459,441    $  15,768,326
                                                                                =============    =============
</TABLE>


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




                                       28
<PAGE>


                          CAROLINA NATIONAL CORPORATION

                   Notes to Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization - Carolina  National  Corporation (the Company) was incorporated on
February 14, 2000,  to be a bank holding  company for Carolina  National  Bank &
Trust  Company (the Bank).  Carolina  National  Bank & Trust  Company  commenced
business on July 15, 2002.  The  principal  business  activity of the Bank is to
provide banking  services to domestic  markets,  principally in Richland County,
South  Carolina.  The Bank is  chartered  under the  National  Bank Act, and its
deposits  are  insured  by  the  Federal  Deposit  Insurance  Corporation.   The
consolidated financial statements include the accounts of the parent company and
its wholly-owned  subsidiary after  elimination of all significant  intercompany
balances and transactions.

Management's Estimates - The preparation of consolidated 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  and disclosure of contingent  assets and liabilities at the date of
the financial  statements and the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.

Material  estimates that are  particularly  susceptible  to  significant  change
relate to the  determination  of the  allowance  for losses on loans,  including
valuation  allowances  for  impaired  loans,  and the  valuation  of real estate
acquired  in  connection  with  foreclosures  or in  satisfaction  of loans.  In
connection  with the  determination  of the  allowances  for losses on loans and
foreclosed  real  estate,   management   obtains   independent   appraisals  for
significant  properties.  Management must also make estimates in determining the
estimated useful lives and methods for depreciating premises and equipment.

While  management  uses available  information to recognize  losses on loans and
foreclosed  real estate,  future  additions to the  allowances  may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an  integral  part of their  examination  process,  periodically  review  the
Company's  allowances  for  losses on loans and  foreclosed  real  estate.  Such
agencies may require the Company to recognize  additions to the allowances based
on their  judgments  about  information  available  to them at the time of their
examination.  Because  of these  factors,  it is  reasonably  possible  that the
allowances for losses on loans and foreclosed real estate may change  materially
in the near term.

Significant  Group  Concentrations  of  Credit  Risk  - Most  of  the  Company's
activities  are with  customers  located  within the  Columbia,  South  Carolina
metropolitan  area.  The types of  securities  in which the Company  invests are
discussed  in Note 3. The types of  lending  in which the  Company  engages  are
discussed in Note 4. The Company does not have any significant concentrations to
any one industry or customer.

Securities Held to Maturity - Investment securities are stated at cost, adjusted
for  amortization  of  premium  and  accretion  of  discount   computed  by  the
straight-line  method. The Company has the ability and management has the intent
to hold investment securities to maturity. Reductions in market value considered
by management  to be other than  temporary are reported as a realized loss and a
reduction in the cost basis of the security. The Company does not actively trade
securities  and has no  securities  classified as available for sale at December
31, 2003.

Nonmarketable  Equity Securities - Nonmarketable  equity securities  include the
cost of the  Company's  investment  in the stock of the Federal  Reserve Bank of
Richmond  and the Federal  Home Loan Bank of Atlanta.  The stocks have no quoted
market value and no ready  market  exists.  Investment  in the Federal Home Loan
Bank is a condition of borrowing  from the Federal Home Loan Bank, and the stock
is pledged to collateralize such borrowings.  At December 31, 2003 and 2002, the
Company's  investment  in  Federal  Home Loan Bank stock was  $45,500  and $500,
respectively.  The investment in Federal Reserve Bank stock totaled  $270,000 at
December 31, 2003 and 2002. Dividends received on these stocks are included as a
separate component of interest income.




                                       29
<PAGE>


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Loans receivable - Loans are stated at their unpaid principal balance.  Interest
income is  computed  using the simple  interest  method and is  recorded  in the
period earned. Fees earned on loans are amortized over the life of the loan.

When  serious  doubt  exists as to the  collectibility  of a loan or when a loan
becomes  90 days  past due as to  principal  or  interest,  interest  income  is
generally  discontinued  unless the estimated net realizable value of collateral
exceeds the principal balance and accrued  interest.  When interest accruals are
discontinued, income earned but not collected is reversed.

The Company  identifies  impaired loans through its normal  internal loan review
process.  Loans  on  the  Company's  problem  loan  watch  list  are  considered
potentially impaired loans. These loans are evaluated in determining whether all
outstanding  principal and interest are expected to be collected.  Loans are not
considered  impaired if a minimal  payment  delay  occurs and all  amounts  due,
including  accrued  interest at the contractual  interest rate for the period of
delay,  are  expected to be  collected.  At December 31,  2003,  management  has
determined that the Company had no impaired loans.

Allowance  for Loan Losses - An  allowance  for loan losses is  maintained  at a
level deemed  appropriate  by  management  to provide  adequately  for known and
inherent losses in the loan portfolio. While the allowance is based upon current
and future economic  conditions  which may affect the borrowers'  ability to pay
and the underlying collateral value of the loans, it is primarily based on 1.50%
of outstanding  loans until a history is established.  Loans which are deemed to
be uncollectible are charged off and deducted from the allowance.  The provision
for loan losses and recoveries of loans previously  charged off are added to the
allowance.

Premises, Furniture and Equipment - Premises, furniture and equipment are stated
at cost,  less  accumulated  depreciation.  The  provision for  depreciation  is
computed by the  straight-line  method,  based on the estimated useful lives for
furniture and equipment of 5 to 10 years.  Leasehold  improvements are amortized
over the life of the lease. The cost of assets sold or otherwise disposed of and
the related  allowance for depreciation are eliminated from the accounts and the
resulting  gains or losses are reflected in the income  statement when incurred.
Maintenance  and  repairs  are  charged to current  expense.  The costs of major
renewals and improvements are capitalized.

Residential  Loan  Origination  Fees  -  The  Company  offers  residential  loan
origination service to its customers in its immediate market area. The loans are
offered on terms and  prices  offered by the  Company's  correspondents  and are
closed in the name of the correspondents. The Company receives fees for services
it provides in conjunction with the origination  services it provides.  The fees
are recognized at the time the loans are closed by the Company's correspondent.

Income Taxes - Income taxes are the sum of amounts  currently  payable to taxing
authorities  and the net changes in income taxes payable or refundable in future
years.  Income  taxes  deferred  to future  years  are  determined  utilizing  a
liability   approach.   This  method  gives  consideration  to  the  future  tax
consequences  associated with differences  between financial  accounting and tax
bases of certain assets and liabilities  which are principally the allowance for
loan  losses,  depreciable  premises  and  equipment,  and  net  operating  loss
carryforwards.

Advertising  Expense -  Advertising  and public  relations  costs are  generally
expensed as incurred. External costs incurred in producing media advertising are
expensed the first time the advertising takes place.  External costs relating to
direct mailing costs are expended in the period in which the direct mailings are
sent.  Advertising  and public  relations  costs of $104,548 and  $137,834  were
included in the Company's results of operations for 2003 and 2002.



                                       30
<PAGE>


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Stock-Based  Compensation - The Company has a stock-based employee  compensation
plan which is further  described  in Note 13. The Company  accounts for the plan
under the recognition and measurement  principles of Accounting Principles Board
("APB")  Opinion No. 25,  Accounting for Stock Issued to Employees,  and related
Interpretations.  No stock-based employee  compensation cost is reflected in net
income,  as all stock options  granted had an exercise price equal to the market
value of the  underlying  common stock on the date of grant.  In  addition,  the
Company has  outstanding  stock  warrants which were issued to organizers of the
Bank in  connection  with the  organization  of the Bank.  The  following  table
illustrates  the effect on net income (loss) and earnings  (losses) per share if
the  Company  had applied the fair value  recognition  provisions  of  Financial
Accounting  Standards Board ("FASB") Statement of Financial Accounting Standards
("SFAS")  No. 123,  Accounting  for  Stock-Based  Compensation,  to  stock-based
employee compensation for both the stock options and stock warrants.

<TABLE>
<CAPTION>
                                                                                    Year Ended December 31,
                                                                                    -----------------------
                                                                                      2003             2002
                                                                               --------------    -------------

<S>                                                                            <C>               <C>
Net loss, as reported .....................................................    $   (1,211,112)   $    (632,504)
Deduct: Total stock-based employee
  compensation expense determined
  under fair value based method
  for all awards, net of related tax effects ..............................          (296,988)         (48,164)
                                                                               --------------    -------------

Pro forma net loss ........................................................    $   (1,508,100)   $    (680,668)
                                                                               ==============    =============

Loss per share:
  Basic - as reported .....................................................    $        (0.85)   $       (0.91)
                                                                               ==============    =============
  Basic - pro forma .......................................................    $        (1.06)   $       (0.98)
                                                                               ==============    =============
</TABLE>

In calculating the pro forma disclosures, the fair value of options and warrants
granted is  estimated  as of the date  granted  using the  Black-Scholes  option
pricing model with the following weighted-average assumptions used for grants in
2003 and 2002: dividend yield of 0 percent for each year; expected volatility of
0 percent  for each  year;  risk-free  interest  rate of 4.71  percent  and 3.84
present for 2003 and 2002, respectively;  and expected life of 10 years for each
year.

Loss  Per  Share  -  Basic  loss  per  share  represents   income  available  to
shareholders divided by the weighted-average number of common shares outstanding
during the period.  Dilutive loss per share  reflects  additional  common shares
that would have been  outstanding if dilutive  potential  common shares had been
issued. Potential common shares that may be issued by the Company relate to both
outstanding  warrants and stock options,  and are determined  using the treasury
stock method.  Due to the net loss, the  outstanding  warrants and stock options
are not considered  common stock  equivalents  and therefore,  dilutive loss per
share is not presented.

Statement of Cash Flows - For purposes of reporting  cash flows in the financial
statements,  the  Company  considers  certain  highly  liquid  debt  instruments
purchased with a maturity of three months or less to be cash  equivalents.  Cash
equivalents  include  amounts due from banks and federal funds sold.  Generally,
federal funds are sold for one-day periods.

Interest paid on deposits and other borrowings totaled $433,910 and $164,195 for
the years ended December 31, 2003 and 2002, respectively.

Income taxes paid for the years ended  December 31, 2003 totaled  $5,558.  There
were no income tax payments during the year ended December 31, 2002.



                                       31
<PAGE>


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Off-Balance-Sheet  Financial  Instruments - In the ordinary  course of business,
the Company enters into  off-balance-sheet  financial instruments  consisting of
commitments to extend credit and letters of credit. These financial  instruments
are  recorded  in the  financial  statements  when they  become  payable  by the
customer.

Recent  Accounting  Pronouncements  - In December 2002, the FASB issued SFAS No.
148,  "Accounting for Stock-based  Compensation - Transition and Disclosure," an
amendment of FASB Statement No. 123, "Accounting for Stock-Based  Compensation",
to provide  alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. SFAS No.
148  also  amends  the  disclosure  provisions  of SFAS No.  123 and  Accounting
Pronouncement  Board ("APB") Opinion No. 28, "Interim Financial  Reporting",  to
require  disclosure  in the summary of  significant  accounting  policies of the
effects of an entity's  accounting  policy with respect to stock-based  employee
compensation on reported net income and earnings per share in annual and interim
financial statements.  While SFAS No. 148 does not amend SFAS No. 123 to require
companies to account for employee stock options using the fair value method, the
disclosure  provisions  of SFAS No. 148 are  applicable  to all  companies  with
stock-based employee  compensation,  regardless of whether they account for that
compensation  using the fair value method of SFAS No. 123 or the intrinsic value
method of APB Opinion No. 25. The  provisions of SFAS No. 148 were effective for
annual financial statements for fiscal years ending after December 15, 2002, and
for financial  reports  containing  condensed  financial  statements for interim
periods beginning after December 15, 2002.

In April 2003,  the FASB issued SFAS No. 149,  "Amendment  of  Statement  133 on
Derivative  Instruments  and  Hedging  Activities."  SFAS  No.  149  amends  and
clarifies  accounting for derivative  instruments,  including certain derivative
instruments  embedded in other contracts and loan commitments that relate to the
origination of mortgage loans held for sale,  and for hedging  activities  under
SFAS No. 133. SFAS No. 149 was generally effective for contracts entered into or
modified  after  June 30,  2003.  The  adoption  of SFAS No.  149 did not have a
material impact on the financial condition or operating results of the Company.

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments with  Characteristics  of both Liabilities and Equity." SFAS No. 150
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments with  characteristics  of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some  circumstances).  Many of those  instruments
were previously  classified as equity.  SFAS No. 150 was generally effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
was effective at the beginning of the first interim period  beginning after June
15,  2003.  The  adoption of SFAS No. 150 did not have a material  impact on the
financial condition or operating results of the Company.

In November 2002, the FASB issued  Interpretation  ("FIN") No. 45,  "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees of  Indebtedness  of Others".  FIN No. 45 requires a company,  at the
time it issues a guarantee, to recognize an initial liability for the fair value
of obligations assumed under the guarantee and elaborates on existing disclosure
requirements  related to  guarantees  and  warranties.  The initial  recognition
requirements  of FIN No. 45 were  effective  for  guarantees  issued or modified
after  December  31,  2002.  The  disclosure  requirements  were  effective  for
financial  statements of periods ending after December 15, 2002. The adoption of
FIN No. 45 did not have a material effect on the Company's financial position or
results of operations.

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities." FIN No. 46 requires a variable  interest entity to be consolidated by
a company if that  company is subject to a majority of the risk of loss from the
variable interest  entity's  activities or entitled to receive a majority of the
entity's residual returns,  or both. FIN No. 46 also requires  disclosures about
variable interest entities that a company is not required to consolidate, but in
which it has a significant  variable interest.  FIN No. 46 provides guidance for
determining  whether  an  entity  qualifies  as a  variable  interest  entity by
considering,  among other  considerations,  whether the entity lacks  sufficient
equity  or  its  equity  holders  lack  adequate  decision-making  ability.  The
consolidation  requirements  of FIN  No.  46  applied  immediately  to  variable
interest entities created after January 31, 2003. The consolidation requirements
applied  to  existing  entities  in the  first  fiscal  year or  interim  period
beginning after June 15, 2003. Certain of the disclosure requirements applied in
all financial  statements issued after January 31, 2003,  regardless of when the
variable  interest  entity was  established.  The adoption of FIN No. 46 did not
have a  material  effect on the  Company's  financial  position  or  results  of
operations.


                                       32
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Risks and  Uncertainties  - In the normal  course of its  business,  the Company
encounters two significant  types of risks:  economic and regulatory.  There are
three main  components of economic  risk:  interest  rate risk,  credit risk and
market risk. The Company is subject to interest rate risk to the degree that its
interest-bearing  liabilities  mature or  reprice  at  different  speeds,  or on
different basis, than its  interest-earning  assets.  Credit risk is the risk of
default on the Company's loan portfolio that results from  borrower's  inability
or unwillingness to make contractually  required payments.  Market risk reflects
changes in the value of collateral underlying loans receivable and the valuation
of real estate held by the Company.

The  Company is subject to the  regulations  of various  governmental  agencies.
These  regulations can and do change  significantly  from period to period.  The
Company also undergoes periodic  examinations by the regulatory agencies,  which
may subject it to further changes with respect to asset  valuations,  amounts of
required  loss  allowances  and  operating  restrictions  from  the  regulators'
judgments  based  on  information  available  to  them  at  the  time  of  their
examination.

Reclassifications   -  Certain  captions  and  amounts  in  the  2002  financial
statements were reclassified to conform with the 2003 presentation.


NOTE 2 - CASH AND DUE FROM BANKS

The Company is required to maintain cash balances with The Bankers Bank to cover
all cash letter  transactions.  At December 31, 2003, the requirement was met by
the cash balance in the account.


NOTE 3 - INVESTMENT SECURITIES

The  amortized  cost and estimated  fair values of  securities  held to maturity
were:

<TABLE>
<CAPTION>
                                                                                             Gross Unrealized
                                                                        Amortized            ----------------           Estimated
                                                                          Costs            Gains          Losses        Fair Value
                                                                          -----            -----          ------        ----------
December 31, 2003
<S>                                                                  <C>              <C>               <C>            <C>
U.S. government agencies and corporations ........................   $   3,302,131    $       4,057     $        -     $   3,306,188
                                                                     =============    =============     ===========    =============

December 31, 2002
U.S. government agencies and corporations ........................   $   5,373,101    $       4,617     $        -     $   5,377,718
                                                                     =============    =============     ===========    =============
</TABLE>

There were no sales of  securities  in 2003 and 2002.  There were no  securities
pledged at December 31, 2003 or 2002.


                                       33
<PAGE>

NOTE 3 - INVESTMENT SECURITIES - continued

The following is a summary of  maturities  of securities  held to maturity as of
December 31, 2003. The amortized cost and estimated fair values are based on the
contractual  maturity  dates.  Actual  maturities  may differ  from  contractual
maturities  because  borrowers may have the right to call or prepay  obligations
with or without penalty.

                                                  Amortized        Estimated
                                                     Cost         Fair Value
                                                     ----         ----------

Due within one year ........................   $   3,302,131    $   3,306,188
                                               =============    =============

There  were no  unrealized  losses  in the  Company's  investment  portfolio  at
December 31, 2003.


NOTE 4 - LOANS RECEIVABLE

Major  classifications  of loans  receivable  at December 31 are  summarized  as
follows:

                                                            December 31,
                                                            ------------
                                                       2003             2002
                                                  -------------    -------------
   Real estate - construction ................    $   6,444,887    $          -
   Real estate - mortgage ....................       37,175,462        7,525,657
   Commercial and industrial .................        9,680,099        2,417,829
   Consumer and other ........................        1,730,025          201,093
                                                  -------------    -------------

      Total gross loans ......................    $  55,030,473    $  10,144,579
                                                  =============    =============

Transactions  in the  allowance  for  loan  losses  during  2003  and  2002  are
summarized below:

                                                         2003             2002
                                                 -------------    -------------
Balance, beginning of year ..................    $     152,000    $          -
Provision charged to operations .............          675,660          152,000
Chargeoffs ..................................           (1,067)              -
                                                 -------------    -------------
     Balance, end of year ...................    $     826,593    $     152,000
                                                 =============    =============

At December 31, 2003 and 2002,  the Bank had no loans in nonaccrual  status,  no
loans  past  due  ninety  days or  more  and  still  accruing  interest,  and no
restructured loans.

Management is not aware of any significant concentrations of loans to classes of
borrowers or industries that would be affected similarly by economic conditions.
Although the Company's loan portfolio is diversified,  a substantial  portion of
its  borrowers'  ability to honor the terms of their loans is  dependent  on the
economic conditions in the Columbia, South Carolina metropolitan area.


                                       34
<PAGE>

NOTE 5 - PREMISES, FURNITURE AND EQUIPMENT

Premises, furniture and equipment consisted of the following:

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                          ------------
                                                                                     2003             2002
                                                                                -------------    -------------
<S>                                                                             <C>              <C>
    Leasehold improvements .................................................    $      82,870    $      75,415
    Furniture and equipment ................................................          565,027          479,674
                                                                                -------------    -------------
      Total ................................................................          647,897          555,089
    Less, accumulated depreciation .........................................          150,455           40,705
                                                                                -------------    -------------

      Premises, furniture and equipment, net ...............................    $     497,442    $     514,384
                                                                                =============    =============
</TABLE>

Depreciation  and  amortization  expense was  $109,751 and $40,705 for the years
ended December 31, 2003 and 2002, respectively.


NOTE 6 - DEPOSITS

At December 31, 2003, the scheduled  maturities of  certificates of deposit were
as follows:

     Maturing In:                                             Amount
     -----------                                          -------------
         2004 .......................................     $  18,011,942
         2005 .......................................         1,843,145
         2006 .......................................           252,253
         2007 .......................................           103,909
         2008 .......................................             7,500
                                                          -------------

            Total ...................................     $  20,218,749
                                                          =============


NOTE 7 - OTHER OPERATING EXPENSES

Other  operating  expenses  for the years ended  December  31, 2003 and 2002 are
summarized below:

<TABLE>
<CAPTION>
                                                                                        2003             2002
                                                                                -------------    -------------
<S>                                                                             <C>              <C>
    Professional fees .....................................................     $     140,058    $     100,018
    Telephone expenses ....................................................            28,995           20,015
    Office supplies, stationery, and printing .............................            43,307           50,573
    Service bureau and related expenses ...................................           161,533           23,928
    Advertising and public relations ......................................           104,548          137,834
    Postage ...............................................................            14,004           11,247
    Other (including pre-opening expenses) ................................           306,495          119,712
                                                                                -------------    -------------

     Total ................................................................     $     798,940    $     463,327
                                                                                =============    =============
</TABLE>


                                       35
<PAGE>

NOTE 8 - INCOME TAXES

Income tax expense for 2003 and 2002 is summarized as follows:

                                                     2003              2002
                                               --------------     -------------
  Current portion
    Federal ...............................    $           -      $          -
    State .................................               922                -
                                               --------------     -------------
       Total current ......................               922                -
                                               --------------     -------------
  Deferred ................................          (617,096)         (719,501)
                                               --------------     -------------
  Income tax benefit ......................    $     (616,174)    $    (719,501)
                                               ==============     =============

The gross  amounts of deferred tax assets and deferred  tax  liabilities  are as
follows:

<TABLE>
<CAPTION>
                                                           December 31,
                                                           ------------
                                                      2003             2002
                                                 --------------    -------------
Deferred tax assets:
<S>                                               <C>              <C>
    Allowance for loan losses ................    $     275,627    $      50,290
    Net operating loss carryforward ..........          797,824          343,930
    Organization and start-up costs ..........          288,575          371,024
    Loan origination costs ...................           33,867               -
                                                  -------------    -------------
     Total deferred tax assets ...............        1,395,893          765,244
                                                  -------------    -------------
Deferred tax liabilities:
    Accumulated depreciation .................           59,296           45,743
                                                  -------------    -------------
     Total deferred tax liabilities ..........           59,296           45,743
                                                  -------------    -------------
     Net deferred tax asset ..................    $   1,336,597    $     719,501
                                                  =============    =============
</TABLE>

Deferred tax assets  represent the future tax benefit of deductible  differences
and,  if it is more  likely  than not that a tax asset will not be  realized,  a
valuation  allowance is required to reduce the  recorded  deferred tax assets to
net realizable value. As of December 31, 2003, management believes it will fully
realize 100% of the Company's deferred tax asset.

The Company has a net operating loss for income tax purposes of $1,011,558 as of
December 31, 2003. This net operating loss expires in the year 2022.

A  reconciliation  between  the income tax  expense  and the amount  computed by
applying the Federal  statutory  rate of 34% for 2003 and 2002 to income  before
income taxes follows:

<TABLE>
<CAPTION>
                                                                                        2003             2002
                                                                               --------------    -------------
<S>                                                                            <C>               <C>
 Tax expense (benefit) at statutory rate ..................................    $     (616,177)   $    (651,688)
 State income tax, net of federal income tax effect .......................           (35,936)         (67,813)
 Other ....................................................................            35,939               -
                                                                               --------------    -------------
     Income tax benefit ...................................................    $     (616,174)   $    (719,501)
                                                                               ==============    =============
</TABLE>


                                       36
<PAGE>

NOTE 9 - LEASES

The Company leases part of a building as its main branch location and its center
of operations.  The operating lease has an initial five-year term, which expires
January 31, 2007, and is renewable,  at the Company's option, for five five-year
terms at a 10% increased monthly rental.  The lease requires monthly payments of
$7,289 for years 1 and 2 of the initial lease period, and $8,098 a month for the
three years  thereafter.  The monthly  payments  upon the first  renewal will be
$8,908.

Additionally,  the Company leases  another  building as a branch  location.  The
operating lease has an initial  ten-year,  two-month term, which expires January
31, 2012. The lease requires monthly payments of $4,000 for the first five years
of the initial lease period, and $4,400 a month for the remainder of the lease.

The Company also leases a plot of land one block from its main branch  location.
The  Company  intends to build a  structure  on this plot to serve as a drive up
teller  facility.  The operating  lease has an initial  seven-year  term,  which
expires January 31, 2010, and is renewable,  at the Company's option,  for three
additional five-year terms at a 15% increased monthly rental for each successive
lease term.  The lease  requires  monthly  payments of $2,500 for the first five
years of the initial term,  followed by monthly  payments of $2,875 for the last
two years of the term.

Rental expense under these operating lease  agreements was $165,468 and $123,673
for the years ended December 31, 2003 and 2002, respectively.

Minimal future rental  payments  under  non-cancelable  operating  leases having
remaining  terms in excess of one year,  for each of the next five  years in the
aggregate are:

     2004 ................................................    $     174,370
     2005 ................................................          175,180
     2006 ................................................          175,580
     2007 ................................................           90,898
     2008 ................................................           87,300
     Thereafter ..........................................          200,175
                                                              -------------
     Total minimum future rental payments ................    $     903,503
                                                              =============


NOTE 10 - RELATED PARTY TRANSACTIONS

Certain parties  (principally  certain  directors and executive  officers of the
Company, their immediate families and business interests) were loan customers of
and had other  transactions  in the normal  course of business with the Company.
Related party loans are made on substantially the same terms, including interest
rates  and  collateral,   as  those   prevailing  at  the  time  for  comparable
transactions with unrelated persons and do not involve more than the normal risk
of  collectibility.  As of December  31, 2003 and 2002,  the Company had related
party  loans  totaling  $2,386,436  and  $710,718,  respectively.  During  2003,
advances  on  related  party  loans  totaled  $2,019,408,  and  repayments  were
$343,690.


NOTE 11 - COMMITMENTS AND CONTINGENCIES

The  Company is subject to claims and  lawsuits  which  arise  primarily  in the
ordinary  course of business.  Management is not aware of any legal  proceedings
which  would  have a  material  adverse  effect  on the  financial  position  or
operating results of the Company.

As  discussed in Note 9, the Bank is in the process of  constructing  a drive-up
teller facility.  The total cost of construction is estimated to be $191,000 and
is expected to be completed in the second quarter of 2004.


                                       37
<PAGE>

NOTE 12 - STOCK WARRANTS

The directors of the Company  received stock  warrants  giving them the right to
purchase  two  shares for every  three  shares  they  purchased  in the  initial
offering of the Company's common stock at a price of $10 per share. The warrants
vest one-third on July 15 of each of 2003,  2004 and 2005 and expire on July 15,
2012.  Warrants  held by  directors of the Company will expire 90 days after the
director  ceases to be a director or officer of the Company  (365 days if due to
death or disability).

A summary of the status of the Company's  stock warrants as of December 31, 2003
and 2002, and changes during each year is presented below:

                                                      2003             2002
                                                    Warrants         Warrants
                                                    --------         --------
     Outstanding at beginning of year ........    $     200,555    $          -
     Granted .................................               -           200,555
     Exercised ...............................               -                -
     Cancelled ...............................               -                -
                                                  -------------    -------------

     Outstanding at end of year ..............    $     200,555    $     200,555
                                                  =============    =============

At December 31, 2003, 66,845 of the warrants were exercisable.


NOTE 13 - STOCK COMPENSATION PLAN

Under the terms of an employment  agreement with the Company's  Chief  Executive
Officer (CEO), stock options were granted to him as part of his compensation and
benefits package. Under the agreement,  the CEO was granted 64,701 stock options
on July 15,  2002.  These  options  will vest at a rate of 20% per year for five
years,  beginning  with the grant date.  The options  have an exercise  price of
$10.00 per share and terminate ten years after the date of grant.

The Company has also granted a total of 40,500 stock  options to its  employees.
Of these,  40,200 were  granted on July 15,  2002,  100 were granted on July 17,
2002, and 200 were granted on September 6, 2002.  These options will vest 30% at
the end of three years, 30% at the end of four years, and 40% at the end of five
years. Years will be measured from the grant dates. The options have an exercise
price of $10.00 per share and terminate ten years after the date of grant.

A summary of the status of the  Company's  stock options as of December 31, 2003
and 2002, and changes during each year is presented below:

<TABLE>
<CAPTION>
                                                                            2003                     2002
                                                                     -------------------     --------------------
                                                                                Weighted                 Weighted
                                                                                 Average                 Average
                                                                                 Exercise                Exercise
                                                                       Shares     Price       Shares       Price
                                                                       ------     -----       ------       -----
<S>                                                                    <C>       <C>         <C>          <C>
     Outstanding at beginning of year .........................        105,201   $                  -     $      -
     Granted ..................................................              -                 105,201       10.00
     Exercised ................................................              -                      -            -
     Forfeited ................................................              -                      -            -
                                                                     ---------               --------

     Outstanding at end of year ...............................        105,201                105,201
                                                                     =========               ========
</TABLE>

There were 25,880 options exercisable at December 31, 2003.


                                       38
<PAGE>

NOTE 14 - LOSS PER SHARE

Basic  loss  per  share  is  computed  by  dividing  net  income  (loss)  by the
weighted-average number of common shares outstanding.  Diluted loss per share is
computed by dividing net income (loss) by the weighted-average  number of common
shares  outstanding  and dilutive  common share  equivalents  using the treasury
stock method.  Dilutive common share equivalents  include common shares issuable
upon exercise of outstanding  stock  warrants and stock  options.  There were no
dilutive common share  equivalents  outstanding  during 2003 and 2002 due to the
net loss;  therefore,  basic loss per share and diluted  earnings per share were
the same.

<TABLE>
<CAPTION>
                                                                                        2003             2002
                                                                               --------------    -------------
Net loss per share - basic computation:

<S>                                                                             <C>              <C>
Net loss to common shareholders ..........................................      $  (1,211,112)   $    (632,504)
                                                                                =============    =============

Average common shares outstanding - basic ................................          1,427,303          693,427
                                                                                =============    =============

Basic loss per share .....................................................      $      (0.85)    $       (0.91)
                                                                                ============     =============
</TABLE>


NOTE 15 - REGULATORY MATTERS

The Bank is subject to various regulatory capital  requirements  administered by
the federal banking agencies.  Failure to meet minimum capital  requirements can
initiate certain mandatory,  and possibly  additional  discretionary  actions by
regulators  that, if undertaken,  could have a direct adverse material effect on
the Bank's  financial  condition.  Under  capital  adequacy  guidelines  and the
regulatory  framework for prompt corrective  action, the Bank 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 Bank's capital amounts and  classification  are also
subject to  qualitative  judgments  by the  regulators  about  components,  risk
weightings, and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Bank to  maintain  minimum  ratios of Tier 1 and total  capital as a
percentage of assets and off-balance-sheet exposures,  adjusted for risk weights
ranging from 0% to 100%. Tier 1 capital consists of common shareholders' equity,
excluding the unrealized  gain or loss on securities  available-for-sale,  minus
certain  intangible  assets.  Tier 2 capital  consists of the allowance for loan
losses subject to certain  limitations.  Total capital for purposes of computing
the  capital  ratios  consists  of the sum of  Tier 1 and  Tier 2  capital.  The
regulatory  minimum  requirements  are 4% for Tier 1 and 8% for total risk-based
capital.

The Bank is also required to maintain  capital at a minimum level based on total
assets,  which is known as the  leverage  ratio.  Only the  strongest  banks are
allowed to  maintain  capital at the minimum  requirement  of 3%. All others are
subject to maintaining ratios 1% to 2% above the minimum.

As of December 31, 2003,  the most recent  notification  from the Bank's primary
regulator categorized it as well-capitalized  under the regulatory framework for
prompt  corrective  action.  There are no conditions  or events that  management
believes have changed the Bank's category.


                                       39
<PAGE>

NOTE 15 - REGULATORY MATTERS - continued

The following  table  summarizes the capital  amounts and ratios of the Bank and
the regulatory minimum requirements at December 31, 2003 and 2002.

<TABLE>
<CAPTION>
                                                                                                                      To Be Well-
                                                                                                                  Capitalized Under
                                                                                           For Capital            Prompt Corrective
                                                                      Actual            Adequacy Purposes         Action Provisions
                                                                      ------            -----------------         -----------------
                                                              Amount        Ratio       Amount        Ratio      Amount       Ratio
                                                              ------        -----       ------        -----      ------       -----

December 31, 2003
<S>                                                         <C>             <C>       <C>             <C>      <C>             <C>
  Total capital (to risk-weighted assets) .............     $8,019,000      14.24%    $4,504,800      8.00%    $5,631,000      10.0%
  Tier 1 capital (to risk-weighted assets) ............      7,314,000      12.99      2,252,400      4.00      3,378,600      6.00
  Tier 1 capital (to average assets) ..................      7,314,000      14.33      2,041,000      4.00      2,551,300      5.00

December 31, 2002
  Total capital (to risk-weighted assets) .............     $7,315,000      42.82%    $1,337,040      8.00%    $1,671,300     10.00%
  Tier 1 capital (to risk-weighted assets) ............      7,163,000      41.93        668,520      4.00      1,002,780      6.00
  Tier 1 capital (to average assets) ..................      7,163,000      23.18      1,236,200      4.00      1,545,250      5.00
</TABLE>

The Federal Reserve has similar  requirements  for bank holding  companies.  The
Company is not  currently  subject to these  requirements  because  the  Federal
Reserve applies its guidelines on a bank-only  basis for bank holding  companies
with less than $150,000,000 in consolidated assets.


NOTE 16 - UNUSED LINES OF CREDIT

As of December  31,  2003,  the  Company had unused  lines of credit to purchase
federal funds from unrelated  banks totaling  $2,250,000.  These lines of credit
are available on a one to fourteen day basis for general corporate purposes.  As
of December 31, 2003, we had drawn $533,000 on this line of credit.  The Company
also has a line of credit to borrow  funds from the Federal Home Loan Bank up to
10% of the Bank's total  assets,  which  totaled  $6,118,000  as of December 31,
2003. As of December 31, 2003, the Bank had not drawn any advances on this line.


NOTE 17 - RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS, OR ADVANCES

The ability of Carolina National  Corporation to pay cash dividends is dependent
upon receiving cash in the form of dividends from the Bank.  However,  there are
restrictions  on the ability of the Bank to transfer funds to Carolina  National
Corporation in the form of cash dividends,  loans, or advances.  The approval of
the Office of the  Comptroller  of the Currency is required to pay  dividends in
excess of the Bank's net profits (as defined) for the current year plus retained
net  profits  (as  defined)  for the  preceding  two  years,  less any  required
transfers to surplus. As of December 31, 2003 and 2002, the Bank had no retained
earnings available for dividends.


                                       40
<PAGE>


NOTE 18 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The Company is a party to financial instruments with  off-balance-sheet  risk in
the normal  course of business  to meet the  financing  needs of its  customers.
These financial  instruments consist of commitments to extend credit and standby
letters of credit.  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. A  commitment  involves,  to varying
degrees,  elements  of credit  and  interest  rate risk in excess of the  amount
recognized in the balance  sheet.  The Company's  exposure to credit loss in the
event of  nonperformance  by the other party to the instrument is represented by
the contractual notional amount of the instrument. Since certain commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company uses the same credit
policies in making commitments to extend credit as it does for  on-balance-sheet
instruments. Letters of credit are conditional commitments issued to guarantee a
customer's  performance  to a third party and have  essentially  the same credit
risk as other lending facilities.

Collateral  held for  commitments  to extend credit and letters of credit varies
but may include accounts receivable,  inventory,  property, plant, equipment and
income-producing commercial properties.

The  following  table  summarizes  the  Company's   off-balance-sheet  financial
instruments whose contract amounts represent credit risk:

                                                       December 31,
                                                       ------------
                                                   2003             2002
                                               -------------    -------------

Commitments to extend credit ..............    $  16,768,802    $   5,526,127
                                               =============    =============

Standby letters of credit .................    $      10,000    $          -
                                               =============    =============


NOTE 19 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair  value of a  financial  instrument  is the amount at which the asset or
obligation could be exchanged in a current  transaction between willing parties,
other than in a forced or liquidation  sale.  Fair value estimates are made at a
specific  point in time based on relevant  market  information  and  information
about  the  financial  instruments.   Because  no  market  value  exists  for  a
significant portion of the financial instruments, fair value estimates are based
on  judgments  regarding  future  expected  loss  experience,  current  economic
conditions,  risk  characteristics of various financial  instruments,  and other
factors.

The following  methods and  assumptions  were used to estimate the fair value of
significant financial instruments:

Cash and Due from Banks - The carrying  amount is a reasonable  estimate of fair
value.

Federal  Funds  Sold -  Federal  funds  sold are for a term of one day,  and the
carrying amount approximates the fair value.

Investment Securities - The fair values of securities held to maturity equal the
carrying  amounts,  which are the quoted market prices.  If quoted market prices
are not  available,  fair values are based on quoted market prices of comparable
securities.  The carrying value of nonmarketable equity securities  approximates
the fair value since no ready market exists for the stocks.

Loans receivable - For certain  categories of loans, such as variable rate loans
which are repriced  frequently  and have no  significant  change in credit risk,
fair values are based on the carrying amounts.  The fair value of other types of
loans is estimated by discounting  the future cash flows using the current rates
at which similar loans would be made to borrowers  with similar  credit  ratings
and for the same remaining maturities.



                                       41
<PAGE>

NOTE 19 - FAIR VALUE OF FINANCIAL INSTRUMENTS - continued

Deposits - The fair value of demand deposits, savings, and money market accounts
is the  amount  payable  on demand at the  reporting  date.  The fair  values of
certificates of deposit are estimated  using a discounted cash flow  calculation
that  applies  current  interest  rates to a  schedule  of  aggregated  expected
maturities.

Federal Funds Purchased - Federal funds purchased are for a term of one day, and
the carrying amount approximates the fair value.

Accrued  Interest   Receivable  and  Payable  -  The  carrying  value  of  these
instruments is a reasonable estimate of fair value.

Off-Balance-Sheet   Financial   Instruments  -  The  carrying  amount  for  loan
commitments and standby letters of credit which are off-balance-sheet  financial
instruments  approximates  the fair value since the  obligations  are  typically
based on current market rates.

The  carrying  values  and  estimated  fair  values of the  Company's  financial
instruments are as follows:

<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                             ------------
                                                                             2003                                  2002
                                                                             ----                                  ----
                                                                   Carrying         Estimated           Carrying          Estimated
Financial Assets:                                                   Amount          Fair Value           Amount           Fair Value
                                                                    ------          ----------           ------           ----------
<S>                                                             <C>                <C>                <C>                <C>
  Cash and due from banks ..............................        $ 2,459,441        $ 2,459,441        $   970,326        $   970,326
  Federal funds sold ...................................                  -                  -         14,798,000         14,798,000
  Securities held to maturity ..........................          3,302,131          3,306,188          5,373,101          5,377,718
  Nonmarketable equity securities ......................            315,500            315,500            270,500            270,500
  Loans receivable .....................................         55,030,473         55,098,669         10,144,579         10,150,508
  Accrued interest receivable ..........................            217,064            217,064            103,023            103,023

Financial Liabilities:
  Demand deposit, interest-bearing
    transaction, and savings accounts ..................        $30,426,907        $30,426,907        $ 9,018,074        $ 9,018,074
  Certificates of deposit and other
    time deposits ......................................         20,218,749         20,273,043         11,133,553         11,337,959
  Federal funds purchased ..............................            533,000            533,000                  -                  -
  Accrued interest payable .............................             97,181             97,181             19,892             19,892
</TABLE>

<TABLE>
<CAPTION>
                                                                 Notional         Estimated            Notional         Estimated
                                                                  Amount          Fair Value            Amount          Fair Value
                                                                  ------          ----------            ------          ----------
Off-Balance Sheet Financial Instruments:
<S>                                                          <C>                 <C>                <C>                <C>
  Commitments to extend credit .........................     $   16,768,802      $  16,768,802      $   5,526,127      $   5,526,127
  Standby letters of credit ............................     $       10,000      $      10,000      $          -       $           -
</TABLE>


                                       42
<PAGE>

NOTE 20 - CAROLINA NATIONAL CORPORATION (PARENT COMPANY ONLY)

Presented  below are the condensed  financial  statements for Carolina  National
Corporation (Parent Company Only).

                            Condensed Balance Sheets
<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                          ------------
                                                                                     2003             2002
                                                                               --------------    -------------
Assets
<S>                                                                            <C>               <C>
   Cash ...................................................................    $    1,003,256    $   4,745,836
   Investment in banking subsidiary .......................................         8,657,062        7,882,041
   Loans receivable .......................................................         1,747,109               -
      Less allowance for loan losses ......................................            27,718               -
                                                                               --------------    -------------
      Loans, net ..........................................................         1,719,391               -
                                                                               --------------    -------------
   Other assets ...........................................................             4,011               -
                                                                               --------------    -------------
      Total assets ........................................................    $   11,383,720    $  12,627,877
                                                                               ==============    =============

Liabilities and shareholders' equity
   Other liabilities ......................................................    $          955    $      34,000
   Shareholders' equity ...................................................        11,382,765       12,593,877
                                                                               --------------    -------------
      Total liabilities and shareholders' equity ..........................    $   11,383,720    $  12,627,877
                                                                               ==============    =============
</TABLE>



                       Condensed Statements of Operations
                 For the years ended December 31, 2003 and 2002

<TABLE>
<CAPTION>

                                                                                     2003             2002
                                                                                -------------    -------------
<S>                                                                            <C>               <C>
Income ....................................................................    $       48,736    $      16,368

Expenses
   Other expenses .........................................................            34,869               -
                                                                               --------------    -------------

Income (loss) before income taxes and equity in
   undistributed losses of banking subsidiary .............................            13,867           16,368

   Income tax benefit .....................................................                -                -

   Equity in undistributed losses of banking subsidiary ...................        (1,224,979)        (648,872)
                                                                               --------------    -------------

   Net loss ...............................................................    $   (1,211,112)   $    (632,504)
                                                                               ==============    =============
</TABLE>


                                       43
<PAGE>


NOTE 20 - CAROLINA NATIONAL CORPORATION (PARENT COMPANY ONLY) - continued

                       Condensed Statements of Cash Flows
                 For the years ended December 31, 2003 and 2002


<TABLE>
<CAPTION>
                                                                                     2003             2002
                                                                                -------------    -------------
Cash flows from operating activities:
<S>                                                                            <C>               <C>
  Net loss ...............................................................     $   (1,211,112)   $    (632,504)
  Adjustments to reconcile net loss to net cash
    provided (used) by operating activities:
     Provision for loan losses ...........................................             27,718               -
     Increase (decrease) in other assets .................................             (4,011)          53,957
     Equity in undistributed losses of banking subsidiary ................          1,224,979          648,872
     Pre-opening expenses transferred to the Bank ........................                 -           769,087
     (Decrease) increase in other liabilities ............................            (33,045)         (38,499)
                                                                               --------------    -------------
       Net cash provided (used) by operating activities ..................              4,529          800,913
                                                                               --------------    -------------

Cash flows from investing activities:
  Purchase of Bank stock .................................................     $   (2,000,000)   $  (9,300,000)
  Net increase in loans ..................................................         (1,747,109)              -
                                                                               --------------    -------------
       Net cash used by operating activities .............................         (3,747,109)      (9,300,000)
                                                                               --------------    -------------

Cash flows from financing activities:
  Earned deferred stock ..................................................                 -             6,700
  Issuance of common stock, net of direct costs ..........................                 -        13,134,796
  Redemption of stock ....................................................                 -                -
                                                                               --------------    -------------
       Net cash provided by financing activities .........................                 -        13,141,496
                                                                               --------------    -------------

Net (decrease) increase in cash and cash equivalents .....................         (3,742,580)       4,642,409

Cash and cash equivalents, beginning of year .............................          4,745,836          103,427
                                                                               --------------    -------------

Cash and cash equivalents, end of year ...................................     $    1,003,256    $   4,745,836
                                                                               ==============    =============
</TABLE>


                                       44
<PAGE>

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

         Not Applicable.

Item 8A. Controls and Procedures.

         Based on the evaluation required by 17 C.F.R. Section  240.13a-15(b) or
240.15d-15(b) of the Company's disclosure controls and procedures (as defined in
17  C.F.R.  Sections  240.13a-15(e)  or  240.15d-15(e)),   the  Company's  chief
executive  officer and chief financial  officer concluded that the effectiveness
of such  controls and  procedures,  as of the end of the period  covered by this
annual report, was adequate.

         No disclosure is required under 17 C.F.R. Section 228.308.

                                    PART III

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

         The information set forth under the captions  "Management -- Directors"
and "-- Executive  Officers" and "Section 16(a) Beneficial  Ownership  Reporting
Compliance"  in  registrant's  definitive  proxy  statement  for the 2004 Annual
Meeting of Shareholders (the "2004 Proxy  Statement") is incorporated  herein by
reference.

         Audit Committee Financial Expert

         The Company's board of directors has determined that the Company has at
least one "audit  committee  financial  expert," as that term is defined by Item
401(e) of Regulation S-B promulgated by the Securities and Exchange  Commission,
serving  on its audit  committee.  Joel A.  Smith,  III,  meets the terms of the
definition.  Pursuant to the terms of Item 401(e) of Regulation S-B a person who
is determined to be an "audit committee  financial expert" will not be deemed an
expert  for any  purpose as a result of being  designated  or  identified  as an
"audit committee financial expert" pursuant to Item 401, and such designation or
identification  does not  impose  on such  person  any  duties,  obligations  or
liability that are greater than the duties, obligations and liability imposed on
such person as a member of the audit  committee  and board of  directors  in the
absence of such  designation  or  identification.  Further,  the  designation or
identification of a person as an "audit committee  financial expert" pursuant to
Item 401 does not affect  the  duties,  obligations  or  liability  of any other
member of the audit committee or board of directors.


         Code of Ethics

         The  Company  has  adopted a code of ethics  (as  defined  by 17 C.F.R.
228.406) that applies to its principal executive officer and principal financial
officer.  The Company will provide a copy of the code of ethics, free of charge,
to any person upon written  request to John W. Hobbs,  Executive Vice President,
Carolina National Corporation, 1350 Main Street, Columbia, South Carolina 29201.


                                       45
<PAGE>

Item 10. Executive Compensation.

         The information set forth under the captions "Management  Compensation"
and "2003 Stock Option Plan" in the 2004 Proxy Statement is incorporated  herein
by reference.

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

         The  information  set forth under the caption  "Security  Ownership  of
Management" in the 2004 Proxy Statement is incorporated herein by reference.

Equity Compensation Plan Information

         The following  table sets forth  aggregated  information as of December
31, 2003 about all of the Company's  compensation  plans  (including  individual
compensation  arrangements)  under which  equity  securities  of the Company are
authorized for issuance.

<TABLE>
<CAPTION>
Plan category                   Number of securities         Weighted-average             Number of securities
                                to be issued upon            exercise price of            remaining available
                                exercise of                  outstanding options,         for future issuance
                                outstanding options,         warrants and rights          under equity
                                warrants and rights                                       compensation plans
                                                                                          (excluding securities
                                                                                          reflected in column(a))
                                (a)                          (b)                          (c)
------------------------------- ---------------------------- ---------------------------- ----------------------------
<S>                             <C>                          <C>                          <C>
Equity compensation
plans approved by
security holders                 40,500                      $10.00                       88,902

Equity compensation
plans not approved
by security holders(1)          265,256                      $10.00                            0
                                -------                      ------                       ------

Total                           305,756                      $10.00                       88,902
                                =======                      ======                       ======
</TABLE>

         (1) Represents  warrants issued to directors of the holding company and
organizers of the Bank.  The Company  granted stock warrants to the directors to
compensate them for: (a) their time and efforts as organizers and directors; (b)
their  purchase of and  subscription  to purchase the Company's  common stock to
fund the operating expenses during the organizational  period of the Bank and to
provide  capital for the Bank;  and (c) their  continued  service as  directors.
Directors  received two stock  warrants  for every three  shares they  purchased
prior to the  opening of the Bank.  One-third  of the  warrants  vest and become
exercisable on each of the first three  anniversaries of the opening of the Bank
(July  15,  2002).  Vested  warrants  expire  on the  earlier  of 90 days  after
termination  of the  director's  status as a director  (one year after  death or
disability) or ten years after opening of the Bank and have an exercise price of
$10.00 per share.

Item 12. Certain Relationships and Related Transactions.

         The information set forth under the capiton "Certain  Relationships and
Related Transactions" in the 2004 Proxy Statement is incorporated by reference.

                                       46
<PAGE>

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

(a)      Description of Exhibits.

         Exhibit No. in
         Item 601 of
         Regulation S-B)                    Description

          3.1                 Articles of  Incorporation  of  Carolina  National
                              Corporation(1)

          3.2                 Bylaws of Carolina National Corporation(1)

          4                   Form of stock certificate(1)

          10.1                Form of Stock Warrant Agreement (revised)(2)

          10.2                Employment  Agreement  between  Carolina  National
                              Corporation and Roger B. Whaley(1)

          10.3                Memorandum  of   Understanding   between  Carolina
                              National Corporation and Joe Pinner(1)

          10.4                Severance   Agreement  between  Carolina  National
                              Corporation and James A. Gunter(1)

          10.5                Lease  between  Carolina  National  Bank  &  Trust
                              Company and HHB Associates, LLC(1)

          10.6                Lease  between  Carolina  National  Bank  &  Trust
                              Company and Carolina First Bank(1)

          10.7                Carolina National Corporation 2003 Stock Option
                              Plan

          21                  Subsidiaries of Carolina National Corporation

          31.1                13a-14(a)/15d-14(a)    Certifications   of   Chief
                              Executive Officer

          31.2                13a-14(a)/15d-14(a)    Certifications   of   Chief
                              Financial Officer

          32                  18 U.S.C. Section 1350 Certifications

(1)  Incorporated  by  reference  to  Exhibits  to   Registrant's   Registration
     Statement on Form SB-2 (File No. 333-76512)

(2)  Incorporated  by  reference  to  Exhibits  to   Registrant's   Registration
     statement on Form SB-2 (File No. 333-97397).

(b)      Reports on Form 8.K.

         No  reports  on Form 8-K were  filed by the  registrant  in the  fourth
quarter of 2003.

                                       47
<PAGE>


Item 14.  Principal Accountant Fees and Services

         The  information  set  forth  under  the  caption  "Independent  Public
Accountants  -  Fees  Paid  to  Independent  Auditors"  and  "--Audit  Committee
Pre-Approval  of  Audit  and  Permissible   Non-Audit  Services  of  Independent
Auditors" in the 2004 Proxy Statement is incorporated herein by reference.





                                       48
<PAGE>

                                   SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.

                                 Carolina National Corporation


March 29, 2004                   By: s/Roger B. Whaley
                                    --------------------------------------------
                                     Roger B. Whaley
                                     President and Chief Executive Officer


                                  By: s/John W. Hobbs
                                     -------------------------------------------
                                      John W. Hobbs
                                      Executive Vice President
                                      (Principal Financial and Principal
                                      Accounting Officer)

         In accordance  with the Exchange Act, this Report has been signed below
by the following  persons on behalf of the  registrant and in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>

Signature                                Title                                              Date

<S>                                      <C>                                                <C>

s/Charlotte J. Berry
--------------------------               Director                                           March 29, 2004
Charlotte J. Berry


--------------------------               Director                                           March __, 2004
William P. Cate


--------------------------               Director                                           March __, 2004
Kirkman Finlay, III

s/I. S. Leevy Johnson
--------------------------               Director                                           March 29, 2004
I. S. Leevy Johnson

s/Angus B. Lafaye
--------------------------               Director                                           March 29, 2004
Angus B. Lafaye

s/R. C. McEntire, Jr.
--------------------------               Director                                           March 26, 2004
R. C. McEntire, Jr.

s/C. Whitaker Moore
--------------------------               Director                                           March 29, 2004
C. Whitaker Moore

s/Leon Joseph Pinner, Jr.
--------------------------               Director                                           March 26, 2004
Leon Joseph Pinner, Jr.

s/Joel A. Smith, III
--------------------------               Director                                           March 29, 2004
Joel A. Smith, III

s/Robert E. Staton, Sr.
--------------------------               Director                                           March 29, 2004
Robert E. Staton, Sr.


--------------------------               Director                                           March __, 2004
William H. Stern

s/Joe E. Taylor, Jr.
--------------------------               Director                                           March 29, 2004
Joe E. Taylor, Jr.

s/Roger B. Whaley
--------------------------               President, Chief Executive Officer, Director       March 26, 2004
Roger B. Whaley
</TABLE>

                                       49
<PAGE>

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

         The Registrant  will furnish an annual report and proxy material to its
security  holders  after the  filing of this  report and  furnish  copies to the
Commission when they are sent to security holders.



                                  EXHIBIT INDEX

         Exhibit No. in
         Item 601 of
         Regulation S-B)                    Description

          3.1                 Articles of  Incorporation  of  Carolina  National
                              Corporation(1)

          3.2                 Bylaws of Carolina National Corporation(1)

          4                   Form of stock certificate(1)

          10.1                Form of Stock Warrant Agreement (revised)(2)

          10.2                Employment  Agreement  between  Carolina  National
                              Corporation and Roger B. Whaley(1)

          10.3                Memorandum  of   Understanding   between  Carolina
                              National Corporation and Joe Pinner(1)

          10.4                Severance   Agreement  between  Carolina  National
                              Corporation and James A. Gunter(1)

          10.5                Lease  between  Carolina  National  Bank  &  Trust
                              Company and HHB Associates, LLC(1)

          10.6                Lease  between  Carolina  National  Bank  &  Trust
                              Company and Carolina First Bank(1)

          10.7                Carolina National Corporation 2003 Stock Option
                              Plan

          21                  Subsidiaries of Carolina National Corporation

          31.1                13a-14(a)/15d-14(a)    Certifications   of   Chief
                              Executive Officer

          31.2                13a-14(a)/15d-14(a)    Certifications   of   Chief
                              Financial Officer

          32                  18 U.S.C. Section 1350 Certifications

(1)  Incorporated  by  reference  to  Exhibits  to   Registrant's   Registration
     Statement on Form SB-2 (File No. 333-76512)

(2)  Incorporated  by  reference  to  Exhibits  to   Registrant's   Registration
     statement on Form SB-2 (File No. 333-97397).


                                       50