EXHIBIT 13

                           M & M FINANCIAL CORPORATION

                             Selected Financial Data

The following table sets forth certain selected  financial data concerning M & M
Financial  Corporation  ("the  Company").  The  financial  data  selected by the
Company has been derived  from the audited  consolidated  financial  statements.
This information should be read in conjunction with Management's  Discussion and
Analysis of Financial Condition and Results of Operations.

<TABLE>
<CAPTION>

(Dollars in thousands
except per share amounts)                           1997          1996           1995          1994         1993
                                                ----------    ----------    -----------   -----------   --------

Income Statement Data:
<S>                                             <C>           <C>           <C>           <C>           <C>
Interest income                                 $   11,555    $    9,420    $     8,233   $     7,121   $    7,585
Interest expense                                     5,418         4,357          3,839         2,919        3,088
Net interest income                                  6,137         5,063          4,394         4,202        4,497
Provision for loan losses                              800           180             39           274          885
Net interest income after
  provision for loan losses                          5,337         4,883          4,355         3,928        3,612
Noninterest income                                   1,921         1,330          1,276         1,270        1,511
Noninterest expense                                  5,628         5,091          4,851         5,462        4,672
Income tax expense (benefit)                           503           263            187          (203)          20
Net income (loss)                                    1,127           859            593           (61)         431
Basic and diluted earnings (loss) per share(1)        1.12          0.85           0.59         (0.06)        0.43
Cash dividends paid                                    369           335            302           314          280
Cash dividends per share(1)                           0.37          0.33           0.30          0.31         0.28

Balance Sheet Data:

Assets                                          $  156,271    $  133,914    $   117,815   $   113,616   $  115,213
Gross loans outstanding                            105,427        80,923         61,344        43,607       50,599
Allowance for loan losses                              927         1,027            819           726        1,467
Time deposits in other banks                           300           800            300           300        1,150
Investment securities                               32,875        38,342         40,625        55,544       47,802
Deposits:
  Interest-bearing                                 111,524        89,548         78,714        73,316       77,976
  Noninterest-bearing                               18,958        17,925         17,370        18,004       17,173
Stockholders' equity                                11,688        10,822         10,158         9,327       10,517

Other Data:

Nonperforming loans                             $      473    $      723    $       855   $     1,859   $    2,009
Loan loss reserve to
  nonperforming loans                               195.86%       142.15%         95.79%        39.05%       73.02%
</TABLE>

(1) - Share data have been restated to reflect the three-for-one  stock split on
July 1, 1997.

                                        1

<PAGE>


                           M & M FINANCIAL CORPORATION

                     Management's Discussion And Analysis of
                  Financial Condition And Results of Operation

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

                              Basis of Presentation

This  discussion and analysis is intended to assist the reader in  understanding
the  financial  condition  and  results of  operations  of the  Company  and its
subsidiaries,  First National South (the "Bank") and Marion National  Investment
Corporation. This commentary should be read in conjunction with the consolidated
financial statements and the related notes and the other statistical information
contained herein.

                                     General

M & M Financial  Corporation is a bank holding company  headquartered in Marion,
South Carolina The principal business activity of the Company and the Bank is to
provide  commercial  banking  services to domestic  markets,  principally in the
counties of Marion,  Horry and Florence,  South Carolina.  The Company pursues a
community  banking business which is  characterized by personalized  service and
local  decision-making and emphasizes the banking needs of individuals and small
to  medium-sized  businesses.  During  1997 the  Company  opened a new branch in
Florence, South Carolina (the "new branch").

                              Results Of Operations

Year Ended December 31, 1997 Compared With Year Ended December 31, 1996

For the year ended December 31, 1997,  net interest  income was  $6,137,243,  an
increase of  $1,073,704,  or 21.2%,  from the prior  year.  The  improvement  is
related to an increase in the volume of interest  earning assets and an increase
in the yields on interest earning assets due to an increase in the percentage of
loans to total  earning  assets.  For 1997,  average  loans  comprised  70.9% of
average  earning assets  compared to 61.6% for 1996. The improvement in interest
income was  partially  offset by the  increase  in  interest  expense due to the
increase  in both the  volume of and rates  paid on  interest-bearing  liability
accounts. Interest expense was $5,418,294, an increase of $1,061,366, or 24.36%,
from the prior year.  The increase was due mainly to a  $17,263,000  increase in
average interest-bearing deposits during 1997 and the Company's increased use of
borrowings from the Federal Home Loan Bank as a funding source.  The increase in
the volume of both  assets  and  liabilities  is  attributable  to  management's
ability  to  strengthen  its  influence  in the  Company's  market  area and the
Company's emphasis on growth.

The  influence of the factors  above had the effect of  increasing  the interest
rate spread 23 basis points to 3.97% and increasing  the net interest  margin 14
basis points to 4.57% for the year ended December 31, 1997.

The  provision  for  loan  losses  is the  charge  to  operating  earnings  that
management feels is necessary to maintain the allowance for possible loan losses
at an  adequate  level.  The 1997  provision  for loan losses was  $800,000,  or
$620,000  higher than in 1996.  The increase in the loan loss  provision was due
mainly  to one  asset-based  loan of  approximately  $827,000  which  eventually
defaulted and to the growth in the loan portfolio-particularly commercial loans.


                                        2

<PAGE>


                           M & M FINANCIAL CORPORATION

                              Results Of Operations

Noninterest  income increased  $591,995 to $1,921,413 in 1997 from $1,329,418 in
1996.  Most of the  increase  was  attributable  to a gain of $266,232  that the
Company  realized on the sale of  selected  available-for-sale  securities.  The
Company's  purchase of  additional  Federal  Home Loan Bank stock during 1997 in
order to meet the borrowing  requirements of the Federal Home Loan Bank resulted
in an increase of $72,931 in dividend income.  During the first quarter of 1997,
the Company began charging  customers of other banks for use of its ATM's. These
charges  generated  approximately  $52,260 of additional fee income.  Due to the
Company's   continued   emphasis  on  securities  sales  through  its  brokerage
department, fees from these sales were $154,756 in 1997 compared to $101,387 for
1996,  an  increase of $53,369.  Additionally,  noninterest  income for 1997 was
favorably  impacted  by the  $101,907  increase  in  service  charges on deposit
accounts.  The increase in these service charges was attributable to the opening
of the new branch in Florence,  the increase in demand deposit accounts,  and an
emphasis on charging customers for writing checks on insufficient funds.

For the year ended December 31, 1997,  noninterest  expense was  $5,628,380,  an
increase of  $537,529,  or 10.6%,  over the  $5,090,851  recorded  in 1996.  The
increase in noninterest expense was attributable mainly to the continuing growth
of the Company.  The largest  component of  noninterest  expense is salaries and
benefits  which  increased  $255,149  to  $3,039,928  for the year.  Most of the
increase  was due to the hiring of employees to staff the new branch and several
experienced loan officers from larger regional banks to increase loan business.

The  Company's  total income tax expense for 1997 was  $502,874,  an increase of
$239,531  from the 1996 income tax expense of $263,343.  The effective tax rates
for 1997 and 1996 were 30.8% and 23.5%, respectively. The increase was partially
attributable to a decrease in tax-exempt income as a percentage of income before
income taxes.

The  combination  of the factors above resulted in net income for the year ended
December 31, 1997 of $1,127,402,  or $1.12 per share, as compared to $858,763 or
$0.85 per share for the year ended December 31, 1996.

Year Ended December 31, 1996 Compared With Year Ended December 31, 1995

For the year ended December 31, 1996,  net interest  income was  $5,063,539,  an
increase of $669,379,  or 15.2%, from the prior year.  Management attributes the
increase  to a  continuing  favorable  mix of interest  earning  assets in 1996.
Investments  in  securities  were  reduced,  and more  emphasis  was  placed  on
increasing   loans  which   traditionally   have  higher   returns   than  other
interest-earning  assets.  During  1996,  the  Company  earned  8.25% on earning
assets, an increase of 46 basis points from 1995.

The  Company's  interest  rate spread for the year ended  December  31, 1996 was
3.74% and was 31 basis points higher than for the year ended  December 31, 1995.
The net  interest  margin  in 1996 was  4.43%  compared  to  4.16% in 1995.  The
improvements  in the  interest  rate  spread and the net  interest  margin  were
primarily attributable to an increase in loan volumes.

The 1996  provision  for loan losses was  $180,000,  or $141,110  higher than in
1995.  The increase in the loan loss  provision  was due mainly to the growth in
the loan portfolio.


                                        3

<PAGE>


                           M & M FINANCIAL CORPORATION

                              Results Of Operations

Noninterest  income  increased  $53,125 to $1,329,418 in 1996 from $1,276,293 in
1995. Brokerage  department  commissions on sales of securities during 1996 were
$101,387,  an  increase  of $72,582  over the  amount  recorded  in 1995.  These
increased  commissions  were the  primary  source  of the  overall  increase  in
noninterest  income.  The Company  also  realized a $25,369  gain on the sale of
foreclosed  property in 1996. Other  categories of noninterest  income increased
due to the growth of the  Company.  The  increases  were  offset by the  $45,595
decrease in service  charges on deposit  accounts due to a new fee  structure on
checks drawn on insufficient  funds and by the $139,544  decrease in the gain on
the sale of  securities  because  there  were no sales  of  securities  from the
investment portfolio during 1996.

For the year ended December 31, 1996,  noninterest  expense was  $5,090,851,  an
increase  of  $239,456,  or 4.9%,  over the  $4,851,395  recorded  in 1995.  The
increase in salaries  and employee  benefits was $135,182 and was the  principal
component of the increase in noninterest  expense in 1996.  Other  categories of
noninterest  expense  increased  due to the growth of the  Company.  The cost of
federal deposit insurance  decreased $104,729 to $2,054 in 1996 from $106,783 in
1995 due to an industry-wide reduction in the insurance assessment.

The  Company's  total income tax expense for 1996 was  $263,343,  an increase of
$75,993 from the 1995 income tax expense of  $187,350.  This  increase  resulted
primarily from increased  income before taxes.  The effective tax rates for 1996
and 1995 were 23.5% and 24.0%, respectively.

The  combination  of the factors above resulted in net income for the year ended
December  31,  1996 of  $858,763  or $0.85 per share as  compared to $592,818 or
$0.59 per share for the year ended December 31, 1995.

                               Net Interest Income

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.

The following tables set forth, for the periods indicated,  certain  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.
Average  balances  have been  derived  from the daily  balances  throughout  the
periods indicated.

                                        4

<PAGE>


                           M & M FINANCIAL CORPORATION

                               Net Interest Income

The  following  tables,  "Comparative  Average  Balances,  Yields and Rates" and
"Rate/Volume  Analysis,"  provide  information on specific factors affecting the
Company's net interest income.

Comparative Average Balances, Yields and Rates
<TABLE>
<CAPTION>

                                                               1997                                     1996
                                                ---------------------------------         ---------------------------------
                                                  Average                  Yield/            Average                Yield/
(Dollars in thousands)                            Balance     Interest      Rate             Balance    Interest     Rate
                                                ---------     --------    -------         ----------   ---------   ------

Assets:
<S>                                             <C>           <C>           <C>           <C>          <C>           <C>
Interest-earning deposits in other banks        $   1,251     $    100       7.99%        $    1,448   $     118      8.15%
Taxable securities (1)                             32,324        2,040       6.31             34,390       2,078      6.04
Tax-exempt securities (1)                           3,782          224       5.92              4,848         296      6.11
Federal funds sold                                  1,720           97       5.64              3,146         195      6.20
Loans (2)                                          95,162        9,094       9.56             70,406       6,733      9.56
                                                ---------     --------                    ----------   ---------
   Total interest-earning assets                  134,239       11,555       8.61            114,238       9,420      8.25
                                                ---------     --------                    ----------   ---------
Cash and due from banks                             5,527                                      5,037
Allowance for loan losses                          (1,170)                                      (928)
Premises and equipment                              4,270                                      3,823
Other real estate owned                                 -                                         49
Other assets                                        4,569                                      3,494
                                                ---------                                 ----------
   Total assets                                 $ 147,435                                 $  125,713
                                                =========                                 ==========

Liabilities and Stockholders' Equity:
Interest-bearing deposits                       $ 101,354        4,574       4.51%        $   84,091       3,717      4.42%
Advances from FHLB                                  9,397          550       5.85              3,060         181      5.92
Other borrowings                                    6,036          294       4.87              9,592         459      4.79
                                                ---------     --------                    ----------   ---------
   Total interest-bearing liabilities             116,787        5,418       4.64             96,743       4,357      4.50
                                                ---------     --------                    ----------   ---------
Noninterest-bearing deposits                       18,063                                     16,937
Accrued interest and other liabilities              1,244                                      1,430
Stockholders' equity                               11,341                                     10,603
                                                ---------                                 ----------
   Total liabilities and stockholders' equity    $147,435                                 $  125,713
                                                 ========                                 ==========
Net interest income/interest rate spread(3)                   $  6,137       3.97%                     $   5,063      3.74%
                                                              ========    =======                      =========   =======
Net interest margin(4)                                                       4.57%                                    4.43%
                                                                          =======                                  =======
</TABLE>

(1)  Yields on securities  are computed at their nominal rates and have not been
     adjusted for tax rate differences.
(2)  The  effects  of loans in  non-accrual  status and fees  collected  are not
     significant to the computations.
(3)  Interest  rate  spread  is the  difference  between  the  average  yield on
     interest-earning   assets   and  the   average   effective   rate  paid  on
     interest-bearing liabilities.
(4)  Net   interest   margin  is  net   interest   income   divided  by  average
     interest-earning assets.

                                        5

<PAGE>


                           M & M FINANCIAL CORPORATION

                               Net Interest Income

Rate/Volume Analysis

The following  table describes the extent to which changes in interest rates and
changes  in the  volume  of  earning  assets  and  interest-bearing  liabilities
affected the Company's  interest income and interest  expense during the periods
indicated.  Information is provided on impacts in each category  attributable to
(a) changes due to volume  (change in volume  multiplied  by prior period rate),
(b) changes due to rates (change in rates multiplied by prior period volume) and
(c)  changes in rate and  volume  (change  in rate  multiplied  by the change in
volume).
<TABLE>
<CAPTION>

                                               1997 Compared to 1996
                                           Due to increase (decrease) in
                                                                                               Volume/
(Dollars in thousands)                                                 Volume       Rate        Rate       Total
                                                                       ------       ----        ----       -----
Interest income:
<S>                                                                  <C>         <C>         <C>         <C>
  Time deposits in other banks                                       $    (16)   $      (2)  $       0   $     (18)
  Taxable securities                                                     (125)          92          (5)        (38)
  Tax-exempt securities                                                   (65)          (9)          2         (72)
  Federal funds sold                                                      (88)         (18)          8         (98)
  Loans                                                                 2,367           (5)         (1)      2,361
                                                                     --------    ---------   ---------   ---------
      Total interest income                                             2,073           58           4       2,135
                                                                     --------    ---------   ---------   ---------
Interest expense:
  Interest bearing deposits                                               763           78          16         857
  Advances from FHLB                                                      375           (2)         (4)        369
  Other borrowings                                                       (170)           8          (3)       (165)
                                                                     --------    ---------   ---------   ---------
      Total interest expense                                              968           84           9       1,061
                                                                     --------    ---------   ---------   ---------

Net interest income                                                  $  1,105    $     (26)  $      (5)  $   1,074
                                                                     ========    =========   =========   =========

<CAPTION>

                                               1996 Compared to 1995
                                           Due to increase (decrease) in
                                                                                               Volume/
(Dollars in thousands)                                                 Volume       Rate        Rate       Total
Interest income:
  Time deposits in other banks                                       $     17    $      34   $      11   $      62
  Taxable securities                                                     (521)          64         (13)       (470)
  Tax-exempt securities                                                   (57)          (2)          0         (59)
  Federal funds sold                                                       11           34           3          48
  Loans                                                                 1,727          (91)        (30)      1,606
                                                                     --------    ---------   ---------   ---------
      Total interest income                                             1,177           39         (29)      1,187
                                                                     --------    ---------   ---------   ---------
Interest expense:
  Interest bearing deposits                                               365          134          16         515
  Advances from FHLB                                                      121           (8)        (12)        101
  Other borrowings                                                        (89)         (11)          2         (98)
                                                                     --------    ---------   ---------   ---------
      Total interest expense                                              397          115           6         518
                                                                     --------    ---------   ---------   ---------

Net interest income                                                  $    780    $     (76)  $     (35)  $     669
                                                                     ========    =========   =========   =========
</TABLE>

                                        6

<PAGE>

                           M & M FINANCIAL CORPORATION

                               Net Interest Income

Interest Rate Risk And Sensitivity

Interest  rates paid on deposits and borrowed funds and interest rates earned on
loans and  investments  generally  followed the  fluctuations in market rates in
1997 and 1996. However, fluctuations in market interest rates do not necessarily
have a  significant  impact on net interest  income,  depending on the Company's
sensitivity  position.  A  rate-sensitive  asset or liability is one that can be
repriced  either up or down in  interest  rate within a certain  time  interval.
Within an  acceptable  range of the balance  between  rate-sensitive  assets and
rate-sensitive liabilities,  market interest rate fluctuations should not have a
significant  impact on liquidity and  earnings.  The larger the  imbalance,  the
greater  is the  interest  rate risk that is  assumed;  and the  greater  is the
positive or negative  impact of interest  rate  fluctuations  on  liquidity  and
earnings.

Interest rate  sensitivity  management is concerned with both the timing and the
magnitude  of  repricing   characteristics   of   interest-earning   assets  and
interest-bearing  liabilities  and  is  an  important  part  of  asset/liability
management. The objectives of interest rate sensitivity management are to insure
the adequacy of net  interest  income and to control the risks  associated  with
movements in interest rates.  The following  table,  "Interest Rate  Sensitivity
Analysis,"displays  the  Company's  static  gap, or the  difference  between the
amount of assets and liabilities which reprice or mature within a specified time
interval.  No  adjustments  have been made to allow for the  effects of probable
calls, prepayments on mortgage-backed  securities, or any other option or timing
related considerations.  The table indicates that, on a cumulative basis through
twelve  months,  unadjusted   rate-sensitive   liabilities  exceeded  unadjusted
rate-sensitive assets, resulting in a liability sensitive position at the end of
1997 of $77,615,000.  The table may not be indicative of the Company's  position
at other  points in time.  For a bank with a liability  sensitive  position,  or
negative static gap,  falling interest rates would generally be expected to have
a  positive  effect on net  interest  income  and rising  interest  rates  would
generally be expected to have the opposite effect.

Interest Rate Sensitivity Analysis
<TABLE>
<CAPTION>

                                             Interest Sensitive                    Non Interest Sensitive
                                   Less than       4-6           7-12           1-5           Over 5
(Dollars in thousands)              3 months      months        months         years         years        Total
                                  ----------    ----------    ----------    -----------   -----------   -------
Interest-earning assets:
<S>                               <C>           <C>           <C>           <C>           <C>           <C>
  Deposits in other banks         $    1,520    $      100    $      200    $         -   $         -   $    1,820
  Investment securities                2,390           496         1,749         13,282        14,958       32,875
  Loans, net of unearned
     income                           12,264         8,872        11,119         53,314        19,858      105,427
                                  ----------    ----------    ----------    -----------   -----------   ----------
    Total                             16,174         9,468        13,068    $    66,596   $    34,816   $  140,122
                                  ----------    ----------    ----------    ===========   ===========   ==========

Interest-bearing liabilities:
  Interest-bearing deposits           73,927        13,258        20,679    $     3,660   $         -   $  111,524
  Advances from FHLB                   5,000           500           500          4,000             -       10,000
  Short-term borrowings                2,461             -             -              -             -        2,461
                                  ----------    ----------    ----------    -----------   -----------   ----------
    Total                             81,388        13,758        21,179    $     7,660   $         -   $  123,985
                                  ----------    ----------    ----------    ===========   ===========   ==========

Interest sensitivity gap          $  (65,214)   $   (4,290)   $   (8,111)
                                  ==========    ==========    ==========

Cumulative interest
  sensitivity gap                 $  (65,214)   $  (69,504)   $  (77,615)
                                  ==========    ==========    ==========

Gap ratio                               0.20          0.69          0.62

Cumulative gap ratio                    0.20          0.27          0.33
</TABLE>

                                        7

<PAGE>


                           M & M FINANCIAL CORPORATION

                                    Liquidity

Liquidity  is the  ability to meet cash  obligations  through the  maturity,  or
sometimes sale, of assets or the acquisition of liabilities. The Company manages
liquidity at the banking  subsidiary level.  Adequate  liquidity is necessary to
meet the requirements of customers for loans and deposit withdrawals in the most
timely and economical  manner.  Some liquidity is ensured by maintaining  assets
which may be converted into cash at minimal cost.  These assets include  amounts
due from banks and federal funds sold.  Some liquidity is provided from maturing
loans; however, the most manageable source of liquidity is liabilities, with the
primary focus of liquidity  management  being on the ability to obtain  deposits
within the Company's  market area. Core deposits,  which are all deposits except
individual  certificates  of deposit  in excess of  $100,000,  are a  relatively
stable  source of liquidity.  Certificates  of deposit in excess of $100,000 are
considered a less stable  source of liquidity  because they are on occasion more
sensitive  to interest  rate  changes  than are other  deposit  accounts.  As of
December 31, 1997, the Bank also had unused lines of credit to purchase  federal
funds from unrelated banks totaling $9,500,000 and an unused commitment from the
Federal Home Loan Bank totaling $10,000,000 available to it as secondary sources
of liquidity.  Management  believes the Company's  liquidity sources  adequately
meet its operational needs.

The Bank is required by regulation  to maintain an average cash reserve  balance
computed as a  percentage  of  deposits.  This  requirement  is met by vault and
teller cash and amounts due from the  Federal  Reserve  Bank,  both of which are
reported as cash equivalents on the Company's consolidated balance sheet.

As a bank holding company,  the Company's  ability to pay dividends and meet its
cash  obligations is primarily  dependent upon the earnings of the Bank. Most of
the cash dividends have been paid in the past, and most future dividends will be
paid, from the earnings of the Bank. For a national bank,  prior approval of the
Comptroller  of the Currency is required if the total of all dividends  declared
in any year exceed the Bank's net profits (as  defined)  for that year  combined
with its retained net profits (as defined) for the two preceding years.

                                Capital Resources

The Company uses several  ratios as  indicators  of capital  strength.  The most
commonly used measure is average  common equity to average assets which was 7.7%
during 1997 and 8.4% during 1996.  The decrease in this ratio  reflects the fact
that average  asset growth has outpaced  equity  growth from  earnings.  Average
assets grew 17.3% in 1997 while equity  increased 6.9%. In 1998 management plans
to formally assess its capital levels to assure  continued  capital adequacy for
current and projected growth.

The Federal  Reserve  Board and bank  regulatory  agencies  require bank holding
companies  and financial  institutions  to maintain  capital at adequate  levels
based on a percentage of assets and off-balance  sheet  exposures,  adjusted for
risk weights ranging from 0% to 100%. Under the risk-based standard,  capital is
classified  into two tiers.  Tier 1 capital of the  Company  consists  of common
stockholders' equity,  excluding the unrealized gain(loss) on available-for-sale
securities,  minus intangible  assets.  The Company's Tier 2 capital consists of
the  general  reserve  for loan losses  subject to certain  limitations.  A bank
holding company's qualifying capital base for purposes of its risk-based capital
ratio  consists  of the sum of its Tier 1 and  Tier 2  capital.  The  regulatory
minimum requirements are 4% for Tier 1 and 8% for total risk-based capital.

The  holding  company and the Bank are also  required  to maintain  capital at a
minimum level based on average total assets (as defined),  which is known as the
leverage ratio.  Only the strongest bank holding companies and banks are allowed
to  maintain  capital at the  minimum  requirement.  All  others are  subject to
maintaining  ratios 100 to 200 basis points above the minimum.  The Bank is also
required to meet specific capital  guidelines to be  well-capitalized  under the
regulatory framework for prompt corrective action.


                                        8

<PAGE>


                           M & M FINANCIAL CORPORATION

                                Capital Resources

The  Federal   Reserve   guidelines   contain  an  exemption  from  the  capital
requirements  for  bank  holding  companies  with  less  than  $150  million  in
consolidated assets. Accordingly,  prior to 1997, the Company was not subject to
the Federal Reserve's minimum requirements.

Both the Company and the Bank exceeded the fully phased-in  regulatory ratios at
December 31, 1997 and 1996, as set forth in the following table.

Capital Ratios
<TABLE>
<CAPTION>
                                                                                                            To Be Well
                                                                                                        Capitalized Under
                                                                                  For Capital           Prompt Corrective
                                                           Actual              Adequacy Purposes        Action Provisions
(Dollars in thousands)                               Amount       Ratio        Amount      Ratio        Amount       Ratio
                                                   ----------    -------    -----------   -------     ----------    ------
December 31, 1997
  The Company
<S>                                                 <C>          <C>      <C>               <C>     <C>              <C>
    Total capital (to risk weighted assets)         $12,366      10.81%   $     9,154       8.0%    $      N/A          -%
    Tier 1 capital (to risk weighted assets)         11,440      10.00          4,577       4.0            N/A          -
    Tier 1 capital (to average assets)               11,440       7.32          6,254       4.0            N/A          -

  The Bank
    Total capital (to risk weighted assets)          12,136      10.60          9,156       8.0         11,445       10.0
    Tier 1 capital (to risk weighted assets)         11,209       9.79          4,578       4.0          6,867        6.0
    Tier 1 capital (to average assets)               11,209       7.19          6,235       4.0          7,794        5.0

December 31, 1996
  The Company
    Total capital (to risk weighted assets)         $11,708      13.29%   $     7,047       8.0%    $      N/A          -%
    Tier 1 capital (to risk weighted assets)         10,681      12.13          3,524       4.0            N/A          -
    Tier 1 capital (to average assets)               10,681       8.04          5,315       4.0            N/A          -

  The Bank
    Total capital (to risk weighted assets)          11,403      13.00          7,016       8.0          8,771       10.0
    Tier 1 capital (to risk weighted assets)         10,376      11.83          3,508       4.0          5,262        6.0
    Tier 1 capital (to average assets)               10,376       7.82          5,307       4.0          6,634        5.0
</TABLE>

At December 31, 1997, the Company's  stockholders'  equity was  $11,688,358,  an
increase of $866,646  from  December 31, 1996.  The increase  stems from the net
income for 1997,  less cash  dividends  paid to  stockholders,  and the positive
effects of the  valuation  allowance  on  securities  available-for-sale  in the
amount of $108,153.

At December 31, 1997,  the Company had no  significant  commitments  for capital
expenditures.


                                        9

<PAGE>


                           M & M FINANCIAL CORPORATION

                              Investment Securities

Note 4 to the  Company's  Consolidated  Financial  Statements  presents the book
value of investment securities by category as of December 31, 1997 and 1996. The
following table  summarizes the carrying value,  maturities and weighted average
yields of the Company's investment securities,  excluding equity securities,  at
December 31, 1997. Yields on tax-exempt securities have been adjusted to reflect
the pre-tax equivalent yields.
<TABLE>
<CAPTION>

                                                                     Available-for-Sale            Held-to-Maturity
                                                                     ------------------            ----------------
                                                                       Carrying                    Carrying
                                                                        Amount    Yield            Amount    Yield
                                                                        ------    -----            ------    -----
<S>                                                              <C>              <C>       <C>              <C>
U.S. Treasury Securities
Due in one year or less                                          $     1,002,500   7.28%
Due after one year but within five years                               6,093,281   5.98
Due after five years but within ten years                              1,000,625   6.01
                                                                 ---------------
  Total                                                          $     8,096,406   6.14
                                                                 ---------------

Securities of Other U.S. Government
  Agencies and Corporations
Due in one year or less                                          $     2,679,471   5.66
Due after one year but within five years                               4,948,052   6.28
Due after ten years                                                    3,793,531   5.92
                                                                 ---------------
  Total                                                          $    11,421,054   6.01
                                                                 ---------------

Obligations of States and Local Governments
Due in one year or less                                          $       297,767  10.66     $       655,006   9.84%
Due after one year but within five years                                 267,869  10.74           1,972,309   8.98
Due after five years but within ten years                                      -      -             234,924   4.01
Due after ten years                                                            -      -             111,597  12.55
                                                                 ---------------            ---------------
  Total                                                          $       565,636  10.70     $     2,973,837   8.87
                                                                 ---------------            ---------------

Total Securities
Due in one year or less                                          $     3,979,738   6.44     $       655,006   9.84
Due after one year but within five years                              11,309,202   6.22           1,972,309   8.98
Due after five years but within ten years                              1,000,625   6.01             234,924   4.01
Due after ten years                                                    3,793,531   5.92             111,597  12.55
Mortgage-backed securities                                             9,628,265   5.93                   -      -
                                                                 ---------------            ---------------
   Total securities                                              $    29,711,361   6.11     $     2,973,837   8.87
                                                                 ===============            ===============
</TABLE>

                                 Loan Portfolio

The Company extends credit  primarily to consumers and small businesses in three
contiguous  but distinctly  different  counties in eastern South  Carolina.  The
service  area is  mixed  in  nature.  The  economy  in  Marion  County  includes
agriculture,  timber,  light  manufacturing,  and local  government  activities.
Marion  County is  adjacent  to Horry  County,  a county  dominated  by tourist,
recreational  and  retirement  activities.  Florence  County is also adjacent to
Marion  County.  Florence  County is a regional  business  center whose  economy
contains elements of medium and light manufacturing,  higher education, regional
health care and distribution facilities. The Company is affected by the economic
influences of the components of its market area.  Except for recent increases in
commercial  and  residential  construction  activity in the Myrtle Beach area of
Horry County,  no particular  category or segment of these economies  previously
described are expected to grow or contract disproportionately in 1998.


                                       10

<PAGE>


                           M & M FINANCIAL CORPORATION

                                 Loan Portfolio

Management believes the loan portfolio is adequately  diversified.  There are no
foreign loans, and agricultural  lending is limited to seasonal  activity.  Real
estate loans are primarily  construction loans and loans secured by real estate.
Commercial  loans are spread across a variety of industries  with no significant
concentrations  existing  by  industry  or  customer  type  other  than  in  the
hotel/motel  industry.  Loans to borrowers in this industry are  $10,843,010  or
10.3%  of the  total  loan  portfolio.  There  have  been  no  adverse  economic
developments that have affected these customers' repayment capability.  Loans in
this  industry are  performing as agreed.  Note 5 to the Company's  Consolidated
Financial  Statements  presents separately the amount of loans by category as of
December 31, 1997 and 1996.

Loans,  the largest  component of earning assets,  represented  70.9% of average
earning assets and 64.5% of average total assets during 1997 compared with 61.6%
and 56.0%,  respectively,  during 1996. The Company has focused on growth in its
market area,  loan quality and  expansion  of existing  customer  relationships.
These efforts  enabled loans to increase to $105,427,377 at December 31, 1997, a
30.3% increase over the $80,922,947 amount reported for year-end 1996.

Maturities and Sensitivity of Loans to Changes in Interest Rates

The  following  table  summarizes  the loan maturity  distribution,  by type, at
December 31, 1997 and related interest rate characteristics:
<TABLE>
<CAPTION>

                                                 Less than          One to           After
                                                  one year         five years        five years          Total
                                                  --------         ----------        ----------          -----

<S>                                             <C>              <C>               <C>             <C>
Commercial loans                                $   28,010,355   $   44,369,469    $   15,739,668  $    88,119,492
Real estate - construction                           2,986,810           38,448           987,549        4,012,807
Consumer and other                                   1,256,842        8,907,169         3,131,067       13,295,078
                                                --------------   --------------    --------------  ---------------
                                                $   32,254,007   $   53,315,086    $   19,858,284  $   105,427,377
                                                ==============   ==============    ==============  ===============
Loans maturing after one year with:
  Fixed interest rates                                                                             $    52,494,854
  Variable interest rates                                                                               20,678,516
                                                                                                   ---------------

    Total                                                                                          $    73,173,370
                                                                                                   ===============
</TABLE>


                     Provision And Allowance for Loan Losses

Additions to the allowance for loan losses,  which are expensed as the provision
for loan losses on the Company's  statement of income,  are made periodically to
maintain the allowance at an appropriate level based on management's analysis of
the potential risk 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, and current and anticipated economic conditions.

                                       11

<PAGE>
                           M & M FINANCIAL CORPORATION

                     Provision And Allowance For Loan Losses

The  following is an analysis of activity in the  allowance  for loan losses for
the years ended December 31, 1997 and 1996:

Summary of Loan Loss Experience
<TABLE>
<CAPTION>
                                                                                       1997              1996
                                                                                  ---------------   --------------
<S>                                                                               <C>               <C>
Net loans outstanding at the end of the year                                      $   105,427,377   $   80,922,947
                                                                                  ===============   ==============

Average amount of loans outstanding during the year                               $    95,162,041      $70,406,181
                                                                                  ===============   ==============

Allowance for loan losses, beginning of year                                      $     1,027,355   $      818,637
                                                                                  ---------------   --------------
Loans charged off:
  Commercial                                                                              902,003           17,004
  Real estate, construction                                                                     -                -
  Consumer                                                                                 57,421           19,481
                                                                                  ---------------   --------------
     Total loans charged off                                                              959,424           36,485
                                                                                  ---------------   --------------
Recoveries of loans previously charged off                                                 58,704           65,203
                                                                                  ---------------   --------------
        Net charge-offs (recoveries)                                                      900,720          (28,718)
                                                                                  ---------------   --------------

Provision charged to operations                                                           800,000          180,000
                                                                                  ---------------   --------------

Allowance for loan losses, end of year                                            $       926,635   $    1,027,355
                                                                                  ===============   ==============
</TABLE>

The  following  is a summary of  nonperforming  assets at December  31, 1997 and
1996:
<TABLE>
<CAPTION>
                                                                                        1997             1996
                                                                                  ---------------   --------------
<S>                                                                               <C>               <C>
   Nonaccrual loans - (all loans are collateralized)                              $       473,103   $      710,834
   Accruing loans 90 days or more past due                                                      -           11,916
   Loans impaired                                                                               -                -
   Restructured loans                                                                           -                -
   Other real estate owned                                                                      -                -
                                                                                  ---------------   --------------

      Total nonperforming assets                                                  $       473,103   $      722,750
                                                                                  ===============   ==============
</TABLE>

Nonperforming  assets  have  decreased  significantly  in  recent  years.  These
decreases  were  primarily the result of the disposal of other real estate owned
and  improved  loan  quality.  As of December  31, 1997 and 1996,  nonperforming
assets to total  loans  and  other  real  estate  owned  was  0.45%  and  0.89%,
respectively.
<TABLE>
<CAPTION>

Ratios
<S>                                                                                        <C>              <C>
  Net charge-offs to average loans outstanding                                               0.95%           -0.04%
  Net charge-offs to loans at end of year                                                    0.85            -0.04
  Allowance for loan losses to average loans outstanding                                     0.97             1.46
  Allowance for loan losses to loans, end of year                                            0.88             1.27
  Net charge-offs to allowance for loan losses                                              97.20            -2.80
  Net charge-offs to provisions for loan losses                                            112.59           -15.95
  Allowance for loan losses to nonperforming loans                                         195.86           142.15
</TABLE>

                                       12

<PAGE>


                           M & M FINANCIAL CORPORATION

                     Provision And Allowance for Loan Losses

In 1997,  the Company  increased  the  allowance  for loan losses by a charge to
operations of $800,000. The Company has concluded that this provision,  combined
with the quality of its loan  underwriting  processes,  its loan  monitoring and
administration  mechanisms,  and its aggressive charge off policy, is sufficient
to maintain its  allowance for loan losses at an adequate  level.  Measured as a
percentage of loans outstanding, the allowance for loan losses at the end of the
year decreased from 1.27% at December 31, 1996 to 0.88% at December 31, 1997.

For 1997 the Company had net charge-offs of $900,720, compared to net recoveries
of $28,718 for 1996. The amount of charge-offs in 1997 was largely  attributable
to one Business  Manager loan that  originated  in the first quarter of 1997. In
December  1997,  management  determined  that the loan was not  collectible  and
charged  off the  balance of  $826,671.  Management  does not  believe  that the
increase  in loan  charge-offs  is  indicative  of any  future  trend.  Although
management  cannot  determine the exact amount of loans to be charged off in the
future,  it knows some loans will  continue  to be charged  off due to the risks
associated with extending credit.

At December 31, 1997 and 1996,  the  Company's  internal  review  mechanism  had
identified $4,904,483 and $4,066,439, respectively, of criticized and classified
loans.  These are loans as to which  known  information  about  possible  credit
problems of the  borrowers  cause  management  to have serious  doubts as to the
ability of such borrowers to comply with present loan repayment terms, which may
result in such loans becoming  non-performing loans. Included in this amount are
$3,425,674  and  $1,751,459,  respectively,  of loans  graded by the  Company as
"other loans especially  mentioned",  the least severe credit grading  category.
The  Company  is  not  aware  of any  common  condition  or  problem  among  the
potentially  problem  borrowers.  This  internal  review  process is the primary
determining  factor in management's  assessment of the adequacy of the allowance
for loan losses.  Except for the information  used by management in its internal
review  process,  management is not aware of any further  information  about any
material  credits  which  causes  management  to have  serious  doubts as to the
ability of borrowers to comply with the loan repayment  terms.  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 its risk grading
system.

The  Company's  provision  and allowance for loan losses is subjective in nature
and relies on judgments and  assumptions  about risk elements in the  portfolio,
the Company's  charge-off history,  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  economic  conditions in the service
area.  Management is not aware of any trends,  material  risks or  uncertainties
affecting the loan portfolio,  nor is management aware of any information  about
any  significant  borrowers which causes serious doubts as to the ability of the
borrowers to comply with the loan  repayment  terms.  It should be noted however
that no  assurances  can be made that future  charges to the  allowance for loan
losses or  provision  for loan  losses may not be  significant  to a  particular
accounting  period.  At December 31, 1997 and 1996,  management  considered  the
allowance for loan losses  adequate  based on its  judgements,  evaluations  and
analysis of the loan portfolio.



                                       13

<PAGE>


                           M & M FINANCIAL CORPORATION

                             Average Daily Deposits

The following  table  summarizes  the Company's  average daily  deposits for the
years ended December 31, 1997 and 1996. The 1997 totals include  certificates of
deposit  over  $100,000  which  at  December  31,  1997  totaled   approximately
$16,294,857.  Of this total,  $9,449,021 had scheduled  maturities  within three
months,  $1,746,865 within four to six months, $4,773,971 within seven to twelve
months and $325,000 thereafter.
<TABLE>
<CAPTION>

                                                                      1997                           1996
                                                        -----------------------------    ----------------------------
                                                          Average           Average         Average        Average
                                                            Amount          Rate Paid         Amount       Rate Paid
                                                            ------          ---------         ------       ---------

<S>                                                     <C>                    <C>       <C>                  <C>
Noninterest-bearing demand                              $    18,062,755           -%     $    16,937,418         -%
Interest-bearing transaction accounts                        28,583,650        3.37           21,623,547      3.13
Savings                                                      16,682,701        3.11           15,656,646      3.00
Certificates of deposit                                      56,087,786        5.50           46,810,808      5.49
                                                        ---------------                  ---------------

    Total                                               $   119,416,892                  $   101,028,419
                                                        ===============                  ===============
</TABLE>

                           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
equity),  dividend  payout ratio  (dividends  declared per share  divided by net
income per share) and equity to assets ratio (average  equity divided by average
total assets) for the period indicated.

                                                  1997             1996
                                                 ------           -----
Return on average assets                           0.76%            0.68%
Return on average equity                           9.94             8.10
Dividend payout ratio                             32.72            39.05
Equity to assets ratio                             7.69             8.43

                              Short-term Borrowings

At December  31, 1997 and 1996,  the Company  had  borrowings  characterized  as
securities  sold under  agreements  to  repurchase  aggregating  $1,072,526  and
$8,534,279,  respectively. The weighted average interest rate paid was 4.78% and
4.76%,   for  the  years  ended  December  31,  1997  and  1996,   respectively.
Additionally,  the Company had $6,000,000 and $5,000,000 in fixed-rate  advances
from the Federal  Home Loan Bank due to mature  within one year at December  31,
1997 and 1996, respectively.

                                 Long-term Debt

The Company had  $4,000,000  in  fixed-rate  advances from the Federal Home Loan
Bank as of December 31, 1997 scheduled to be repaid in more than one year.

                             Accounting Rule Changes

Earnings Per Share. In February 1997, the Financial  Accounting  Standards Board
("FASB")  issued  Statement  of Financial  Accounting  Standards  ("SFAS")  128,
"Earnings Per Share,"  effective for years ending after December 15, 1997.  SFAS
128  simplifies  the standards  for computing  earnings per share and makes them
comparable to international  earning per share  standards.  It also requires the
dual  presentation  of basic and diluted  earnings  per share on the face of the
income statement for all entities with complex capital structures and requires a
reconciliation  of the numerator and denominator of the basic earnings per share
computation to the numerator and  denominator of the diluted  earnings per share
computation.

                                       14

<PAGE>


                           M & M FINANCIAL CORPORATION

                             Accounting Rule Changes

Basic   earnings   per  share  is  computed  by  dividing   net  income  by  the
weighted-average  number of shares  outstanding  for the  period  excluding  the
effects of any dilutive  potential common shares.  Diluted earnings per share is
similar  to the  computation  of  basic  earnings  per  share  except  that  the
denominator is increased to include the number of additional  common shares that
would have been  outstanding  if the dilutive  potential  common shares had been
issued.  The dilutive  effect of options  outstanding  under the Company's stock
option plan is reflected in diluted earnings per share by the application of the
treasury stock method.

SFAS 128 became  effective for the Company as of December 31, 1997. SFAS 128 had
no effect  on  earnings  per share  data for prior  years  because  the  Company
previously had a simple capital structure.

Comprehensive  Income.  In June 1997,  the FASB  released  SFAS 130,  "Reporting
Comprehensive  Income." SFAS 130 requires that all items that are required to be
recognized under accounting  standards as components of comprehensive  income be
reported in a financial  statement that is displayed with the same prominence as
other financial  statements.  Comprehensive  income is the change in equity of a
business during a period from  transactions  and other events and  circumstances
from nonowner  sources and excludes  investments by owners and  distributions to
owners.  Comprehensive  income consists of two  components-net  income and other
comprehensive  income. Other comprehensive income includes,  among other things,
the change in the unrealized gain or loss on securities available for sale.

This statement is effective for fiscal years  beginning after December 15, 1997.
Reclassification  of  financial  statements  for earlier  periods  provided  for
comparative purposes is required.

                               Impact Of Inflation

Unlike  most  industrial  companies,  the assets and  liabilities  of  financial
institutions such as the Company and its subsidiaries are primarily  monetary in
nature.  Therefore,  interest  rates  have  a  more  significant  effect  on the
Company'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.

                                  The Year 2000

During  1997,  the  Company  commenced  a year 2000 date  conversion  project to
address all  necessary  code  changes,  testing and  implementation.  Failure to
address the issue could  result in  computer  applications  which fail or create
erroneous  results  by or at the year 2000.  Bank  regulators  have  established
minimum  guidelines for banks in addressing the year 2000 issue.  The regulators
are monitoring the progress of banks in complying with these guidelines and have
the  option  of  taking   regulatory  action  for  banks  which  have  not  made
satisfactory  progress  in  addressing  the year  2000  issue.  The  Company  is
utilizing both internal and external  resources to identify,  correct,  and test
the systems for the year 2000 compliance.  The Company has contacted its primary
processing  vendors,  and the vendors have developed plans to address processing
of  transactions  in the  year  2000.  Additionally,  in the  normal  course  of
business,  management  decided to replace its  outdated  core  banking  software
beginning in the fourth  quarter of 1998.  The vendor for the new core  software
has certified that it will be fully capable of correctly processing transactions
in the year 2000.  Management has assessed the anticipated  year 2000 compliance
expenses  and does not expect  them to have a material  effect on the  Company's
earnings.  Maintenance or modification costs will be expensed as incurred, while
the costs of new software will be capitalized over the software's useful life.

                                       16

<PAGE>


                        TOURVILLE, SIMPSON & HENDERSON
                          CERTIFIED PUBLIC ACCOUNTANTS
                              POST OFFICE BOX 8567
                               1615 PICKENS STREET
                         COLUMBIA, SOUTH CAROLINA 29202
                             TELEPHONE (803)252-3000
                                FAX (803)254-0211

WILLIAM E. TOURVILLE, CPA                                   MEMBER AICPA SEC AND
HARRIET S. SIMPSON, CPA, CISA, CFE, CCP                        PRIVATE COMPANIES
LEWIS M. HENDERSON, CPA                                        PRACTICE SECTIONS


CHRISTOPHER G. SPEAKS, CPA
R. JASON CASKEY, CPA
STARLENE W. WATSON, CPA
FRANK D. THOMAS, CPA




                        REPORT OF INDEPENDENT ACCOUNTANTS




The Board of Directors
M & M Financial Corporation
Marion, South Carolina


We have audited the accompanying  consolidated balance sheets of M & M Financial
Corporation  as of  December  31, 1997 and 1996,  and the  related  consolidated
statements of income,  changes in stockholders'  equity, and cash flows for each
of the three  years in the period  ended  December  31,  1997.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

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


                                             Tourville, Simpson & Henderson



Columbia, South Carolina
March 9, 1998

                                       17

<PAGE>

                           M & M FINANCIAL CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>

                                                      ASSETS
                                                                                                      1997                  1996
                                                                                                --------------       ---------------
Cash and cash equivalents:
<S>                                                                                             <C>                   <C>
  Cash and due from banks ..............................................................        $   7,822,361         $   7,022,370
  Interest-bearing demand accounts with other banks ....................................            1,519,920               241,458
  Federal funds sold ...................................................................                    -               700,000
                                                                                                -------------         -------------
           Total cash and cash equivalents .............................................            9,342,281             7,963,828

Time deposits with other banks .........................................................              300,000               800,000

Investment securities:
  Securities available-for-sale ........................................................           29,901,275            34,997,823
  Securities held-to-maturity (estimated market value of $3,031,496 and
    $3,463,852 at December 31, 1997 and 1996, respectively) ............................            2,973,837             3,344,422
                                                                                                -------------         -------------
           Total investment securities .................................................           32,875,112            38,342,245

Loans receivable .......................................................................          105,427,377            80,922,947
  Less allowance for loan losses .......................................................             (926,635)           (1,027,355)
                                                                                                -------------         -------------
    Loans, net .........................................................................          104,500,742            79,895,592

Premises and equipment, net ............................................................            4,355,338             3,708,575
Accrued interest receivable ............................................................            1,256,335             1,207,411
Other assets ...........................................................................            3,640,886             1,996,546
                                                                                                -------------         -------------

           Total assets ................................................................        $ 156,270,694         $ 133,914,197
                                                                                                =============         =============

                                      LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
Deposits:
  Noninterest-bearing demand deposits ..................................................        $  18,958,066         $  17,925,223
  Interest-bearing demand deposits .....................................................           32,004,240            23,412,310
  Savings deposits .....................................................................           18,281,077            15,164,905
  Time deposits ........................................................................           61,238,686            50,970,568
                                                                                                -------------         -------------
           Total deposits ..............................................................          130,482,069           107,473,006
Short-term borrowings ..................................................................            2,461,432             9,083,374
Advances from the Federal Home Loan Bank ...............................................           10,000,000             5,000,000
Accrued interest and other liabilities .................................................            1,638,835             1,536,105
                                                                                                -------------         -------------
           Total liabilities ...........................................................          144,582,336           123,092,485
                                                                                                -------------         -------------

Stockholders' equity:
Common stock, $5 par value; 3,000,000 shares authorized;
  1,006,116 and 335,372 shares issued and outstanding at
  December 31, 1997 and 1996, respectively .............................................            5,030,580             1,676,860
Capital surplus ........................................................................            2,483,783             2,483,783
Unrealized gain on securities available-for-sale, net ..................................              248,721               140,568
Retained earnings ......................................................................            3,925,274             6,520,501
                                                                                                -------------         -------------
           Total stockholders' equity ..................................................           11,688,358            10,821,712
                                                                                                -------------         -------------

           Total liabilities and stockholders' equity ..................................        $ 156,270,694         $ 133,914,197
                                                                                                =============         =============
</TABLE>

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

                                       18

<PAGE>

                           M & M FINANCIAL CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>

                                                                                   1997                 1996                 1995
                                                                               -----------          -----------          -----------

Interest income:
<S>                                                                            <C>                  <C>                  <C>
  Loans, including fees .............................................          $ 9,093,815          $ 6,732,695          $ 5,126,826
  Securities, nontaxable ............................................              224,493              295,842              355,059
  Securities, taxable ...............................................            2,039,786            2,078,500            2,548,207
  Federal funds sold ................................................               97,026              195,563              147,178
  Time deposits with other banks and other ..........................              100,417              117,867               56,108
                                                                               -----------          -----------          -----------
           Total interest income ....................................           11,555,537            9,420,467            8,233,378
                                                                               -----------          -----------          -----------

Interest expense:
  Deposits ..........................................................            4,574,507            3,717,409            3,202,304
  Advances from the Federal Home Loan Bank ..........................              550,138              181,066               80,306
  Federal funds purchased and securities sold
    under repurchase agreements and other borrowings ................              293,649              458,453              556,608
                                                                               -----------          -----------          -----------
           Total interest expense ...................................            5,418,294            4,356,928            3,839,218
                                                                               -----------          -----------          -----------

Net interest income .................................................            6,137,243            5,063,539            4,394,160
Provision for loan losses ...........................................              800,000              180,000               38,890
                                                                               -----------          -----------          -----------
Net interest income after provision for loan losses .................            5,337,243            4,883,539            4,355,270
                                                                               -----------          -----------          -----------

Other income:
  Service charges on deposit accounts ...............................              798,621              735,481              781,076
  Commercial analysis charges .......................................              192,732              153,965              151,536
  Gain on sales of securities available-for-sale ....................              266,232                    -              139,544
  Commissions on sales of mutual funds and annuities ................              154,756              101,387               28,805
  Other income ......................................................              509,072              338,585              175,332
                                                                               -----------          -----------          -----------
           Total other income .......................................            1,921,413            1,329,418            1,276,293
                                                                               -----------          -----------          -----------

Other expense:
  Salaries and employee benefits ....................................            3,039,928            2,784,779            2,649,597
  Occupancy expense of premises .....................................              278,794              279,833              270,831
  Furniture and equipment expense ...................................              554,863              564,280              516,303
  Other operating expense ...........................................            1,754,795            1,461,959            1,414,664
                                                                               -----------          -----------          -----------
           Total other expense ......................................            5,628,380            5,090,851            4,851,395
                                                                               -----------          -----------          -----------

Income before income taxes ..........................................            1,630,276            1,122,106              780,168

Income tax provision ................................................              502,874              263,343              187,350
                                                                               -----------          -----------          -----------

Net income ..........................................................          $ 1,127,402          $   858,763          $   592,818
                                                                               ===========          ===========          ===========


Basic earnings per share ............................................          $      1.12          $      0.85          $      0.59

Diluted earnings per share ..........................................                 1.12                 0.85                 0.59
</TABLE>


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

                                       19

<PAGE>



                           M & M FINANCIAL CORPORATION
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>

                                                                                        Unrealized
                                                                                         Gain on
                                                                                         Securities                    Total
                                                         Common Stock     Capita         Available-      Retained    Stockholders'
                                              Shares        Amount        Surplus      for-Sale, net     Earnings      Equity
                                              ------        ------        -------      -------------     --------      ------

<S>                                          <C>         <C>            <C>            <C>           <C>             <C>
Balance, December 31, 1994 .............       335,372   $  1,676,860   $  2,483,783   $   (539,617) $   5,706,127   $ 9,327,153

Cash dividends, $0.30 per share ........             -              -              -              -       (301,835)     (301,835)

Change in fair value for the period ....             -              -              -        540,223              -       540,223

Net income for 1995 ....................             -              -              -              -        592,818       592,818
                                             ---------   ------------   ------------   ------------  -------------   -----------

Balance, December 31, 1995 .............       335,372      1,676,860      2,483,783            606      5,997,110    10,158,359

Cash dividends, $0.33 per share ........             -              -              -              -       (335,372)     (335,372)

Change in fair value for the period ....             -              -              -        139,962              -       139,962

Net income for 1996 ....................             -              -              -              -        858,763       858,763
                                             ---------   ------------   ------------   ------------  -------------   -----------

Balance, December 31, 1996 .............       335,372      1,676,860      2,483,783        140,568      6,520,501    10,821,712

Three-for-one stock split ..............       670,744      3,353,720              -              -     (3,353,720)            -

Cash dividends, $0.37 per share ........             -              -              -              -       (368,909)     (368,909)

Change in fair value for the period ....             -              -              -        108,153              -       108,153

Net income for 1997 ....................             -              -              -              -      1,127,402     1,127,402
                                             ---------   ------------   ------------   ------------  -------------   -----------

Balance, December 31, 1997 .............     1,006,116   $  5,030,580   $  2,483,783   $    248,721  $   3,925,274   $11,688,358
                                             =========   ============   ============   ============  =============   ===========
</TABLE>



















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

                                       20

<PAGE>



                           M & M FINANCIAL CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>

                                                                                    1997               1996                1995
                                                                               ------------        ------------        ------------
Cash flows from operating activities:
<S>                                                                            <C>                 <C>                 <C>
  Net income ...........................................................       $  1,127,402        $    858,763        $    592,818
  Adjustments to reconcile net income to net
    cash provided by operating activities:
      Depreciation and amortization ....................................            440,501             429,692             409,519
      Gain on sale of securities .......................................           (266,232)                  -            (139,544)
      Provision for loan losses ........................................            800,000             180,000              38,890
      Amortization less accretion on securities ........................            (40,955)             26,993             (69,006)
      Deferred income taxes ............................................            168,584             (35,961)             17,483
      Foreclosed asset valuation expense ...............................                  -                   -              18,417
      Gain on disposition of foreclosed assets .........................                  -             (25,369)                  -
      (Increase) decrease in interest receivable .......................            (48,924)           (218,285)            179,951
      Increase in interest payable .....................................            174,501             293,749             267,081
      (Increase) decrease in other assets ..............................         (1,167,332)            139,524            (678,495)
      Decrease in other liabilities ....................................            (71,771)            (81,623)           (238,673)
                                                                               ------------        ------------        ------------
        Net cash provided by operating activities ......................          1,115,774           1,567,483             398,441
                                                                               ------------        ------------        ------------

Cash flows from investing activities:
  Proceeds from sales of securities available-for-sale .................          5,272,801                   -          21,702,952
  Proceeds from maturities of securities available-for-sale ............          9,403,561          10,798,945           7,389,026
  Purchases of securities available-for-sale ...........................         (9,114,188)         (8,954,269)        (16,154,008)
  Proceeds from maturities of securities held-to-maturity ..............            388,003             702,500           8,976,276
  Purchases of securities held-to-maturity .............................                  -                   -          (5,908,470)
  Net increase in loans made to customers ..............................        (25,405,150)        (19,550,025)        (17,770,768)
  Net decrease (increase) in deposits in other banks ...................            500,000            (500,000)                  -
  Purchases of premises and equipment ..................................         (1,065,260)           (200,564)           (240,523)
  Proceeds on disposition of foreclosed assets .........................                  -             108,588             218,353
  Purchase of Federal Home Loan Bank Stock .............................           (735,300)           (245,500)           (304,500)
                                                                               ------------        ------------        ------------
        Net cash used by investing activities ..........................        (20,755,533)        (17,840,325)         (2,091,662)
                                                                               ------------        ------------        ------------

Cash flows from financing activities:
  Net increase in deposit accounts .....................................         23,009,063          11,388,893           4,764,235
  Net decrease in short-term borrowings ................................         (6,621,942)         (1,165,095)         (1,073,534)
  Proceeds of advances from the Federal Home Loan Bank .................          5,000,000           5,000,000                   -
  Cash dividends paid ..................................................           (368,909)           (335,372)           (301,835)
                                                                               ------------        ------------        ------------
        Net cash provided by financing activities ......................         21,018,212          14,888,426           3,388,866
                                                                               ------------        ------------        ------------

Net increase (decrease) in cash and cash equivalents ...................          1,378,453          (1,384,416)          1,695,645

Cash and cash equivalents, beginning of year ...........................          7,963,828           9,348,244           7,652,599
                                                                               ------------        ------------        ------------

Cash and cash equivalents, end of year .................................       $  9,342,281        $  7,963,828        $  9,348,244
                                                                               ============        ============        ============
</TABLE>










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

                                       21

<PAGE>

                          M & M FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation - The accompanying  consolidated  financial statements include the
accounts of M&M Financial Corporation (the Company), a bank holding company, and
its  wholly-owned  subsidiaries;  First  National  South (the Bank),  and Marion
National Investment Corporation.  The principal business activity of the Company
and the Bank is to provide  commercial  banking  services to  domestic  markets,
principally in the counties of Marion,  Horry and Florence,  South Carolina.  In
consolidation,  all significant  intercompany  items and transactions  have been
eliminated.

Use of Estimates - In preparing the financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets and
liabilities  as of the balance  sheet date and  revenues  and  expenses  for the
period. Actual results could differ significantly from those estimates.

Material  estimates that are  particularly  susceptible  to  significant  change
relate  to the  determination  of  the  allowance  for  loan  losses,  including
valuation  allowances for impaired loans, and the carrying amount of real estate
acquired in connection with foreclosures or in satisfaction of loans. 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 allowance 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 Bank's
allowances  for losses on loans and  foreclosed  real estate.  Such agencies may
require  the  Bank to  recognize  additions  to the  allowances  based  on their
judgements 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.

Securities    Held-to-Maturity   -   Investment    securities    classified   as
held-to-maturity  are carried at cost adjusted for  amortization of premiums and
accretion of discounts,  both computed by the straight - line method. Management
has the intent and the  Company has the  ability to hold  designated  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.

Securities  Available-for-Sale - Securities  classified as available-for-sale by
the Company are carried at amortized  cost and adjusted to estimated  fair value
by  recording  the  aggregate  unrealized  gain or loss in a valuation  account.
Management   does   not   actively   trade   and   may   not   hold   securities
available-for-sale  until  maturity.  The  adjusted  cost  basis  of  securities
available-for-sale  is  determined  by  specific  identification  and is used in
computing the gain or loss from a sales transaction.

Loans - Loans are stated at their unpaid principal  balance.  Substantially  all
interest  income is computed using the simple interest method and is recorded in
the period earned.  When serious doubt exists as to the collectibility of a loan
or a loan is 90 days past due,  the  accrual  of  interest  income is  generally
discontinued  unless the estimated  net  realizable  value of the  collateral is
sufficient to assure  collection of the principal  balance and accrued interest.
When interest accruals are discontinued, income in the current year is reversed,
and interest accrued in prior years is charged to the allowance for loan losses.

Impairment of a loan is measured  based on the present value of expected  future
cash flows discounted at the loan's effective interest rate or fair value of the
collateral if the loan is collateral dependent.  When management determines that
a loan is impaired,  the  difference  between the  Company's  investment  in the
related  loan and the present  value of the expected  future cash flows,  or the
fair  value  of  the  collateral,   is  charged  to  bad  debt  expense  with  a
corresponding  entry  to  a  valuation  account.  The  accrual  of  interest  is
discontinued  on an impaired loan when  management  determines that the borrower
may be unable to meet payments as they become due.


                                       22

<PAGE>
                           M & M FINANCIAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- continued

Allowance  for Loan Losses -  Management  provides  for losses on loans  through
specific  and general  charges to  operations  and credits  such  charges to the
allowance  for loan losses.  Specific  provision  for losses is  determined  for
identified loans based upon estimates of the excess of the loan's carrying value
over the net realizable value of the underlying  collateral.  General  provision
for loan losses is estimated by management based upon factors including industry
loss  experience  for  similar  lending  categories,   actual  loss  experience,
delinquency trends, as well as prevailing and anticipated  economic  conditions.
While management uses the best information available to make evaluations, future
adjustment  to the  allowance  may be  necessary if economic  conditions  differ
substantially  from the assumptions  used in making the  evaluation.  Delinquent
loans are charged  against the  allowance at the time they are  determined to be
uncollectible. Recoveries are added to the allowance.

Premises  and  Equipment  -  Premises  and  equipment  are  stated  at cost less
accumulated  depreciation.  Gain or loss on retirement of premises and equipment
is  recognized  in the  statements  of income when  incurred.  Expenditures  for
maintenance and repairs are charged to expense; betterments and improvements are
capitalized.  Depreciation  charges are computed on both the  straight-line  and
accelerated methods over the estimated useful lives as follows:

    Building and improvements          -     15-40 years
    Furniture, fixtures and equipment  -      5-20 years

Investments  in  Equity  Securities  - Other  assets  include  the  costs of the
Company's  investments in the stock of the Federal  Reserve Bank and the Federal
Home Loan  Bank.  The stocks  have no quoted  market  value and no ready  market
exists. Investment in Federal Reserve Bank stock is required for national banks.
Investment in Federal Home Loan Bank stock is a condition of borrowing  from the
Federal Home Loan Bank,  and the stock is pledged to secure the  borrowings.  At
December 31, 1997 and 1996,  the  investment  in Federal  Reserve Bank stock was
$113,300.  At December 31, 1997 and 1996,  the  investment  in Federal Home Loan
Bank stock was  $1,470,600  and $735,300,  respectively.  Dividends  received on
Federal  Reserve  Bank stock and  Federal  Home Loan Bank stock are  included in
other income.

Stock-Based  Compensation - Statement of Financial Accounting Standards ("SFAS")
No. 123,  "Accounting  for  Stock-Based  Compensation",  issued in October 1995,
allows a company to either  adopt the fair value  method or  continue  using the
intrinsic  valuation method presented under Accounting  Principles Board ("APB")
Opinion 25 to  account  for  stock-based  compensation.  The fair  value  method
recommended in SFAS 123 requires  compensation  cost to be measured at the grant
date  based on the  value of the  award and to be  recognized  over the  service
period.  The  intrinsic  value method  measures  compensation  cost based on the
excess,  if any, of the quoted  market price of the stock at the grant date over
the amount an employee must pay to acquire the stock. The Company has elected to
use APB Opinion 25 to account for stock  options  granted under the stock option
plan adopted during 1997 and has disclosed in the footnotes pro forma net income
and earnings per share information as if the fair value method had been used.

Income taxes - The income tax provision is 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 the financial  accounting and
tax bases of certain assets and liabilities,  principally the allowance for loan
losses,  depreciable  premises and  equipment,  deferred  compensation,  and the
unrealized  gain or loss on securities  available-for-sale.  Deferred tax assets
are reduced by a valuation  allowance when, in the opinion of management,  it is
more likely than not that some  portion or all of the  deferred  tax assets will
not be realized.

Cash Flow Information - For purposes of reporting cash flows in the consolidated
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 cash and due from banks and federal funds
sold. Generally, federal funds are sold for one-day periods.

During  1997,  1996 and 1995,  the  Company  paid  $5,243,793,  $4,063,179,  and
$3,572,137 respectively,  for interest. In 1997, 1996 and 1995, the Company made
tax payments of $369,494, $119,000 and $3,952, respectively.

                                       23

<PAGE>
                           M & M FINANCIAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- continued

Supplemental noncash investing and financing activities are as follows:

During 1997, the Company transferred $3,353,720 from retained earnings to common
stock in order to record the stock split (see Note 15).

During 1996, the Company transferred  property with a carrying amount of $46,275
from other real estate owned to premises and equipment. During 1995, the Company
transferred loans totaling $68,219 to other real estate owned.

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

Concentrations of Credit Risk - Financial  instruments which potentially subject
the  Company  to  concentrations  of credit  risk  consist  principally  of time
deposits in other banks,  loans receivable,  securities,  federal funds sold and
amounts due from banks. Management is monitoring a concentration of loans in the
hotel/motel  industry  that would be  similarly  affected by changes in economic
conditions   (See  Note  5).  Even  though  the  Company's   loan  portfolio  is
diversified,  a substantial portion of its borrowers' ability to honor the terms
of their loans is dependent on business and economic conditions in Marion, Horry
and Florence Counties, South Carolina and surrounding areas. Management does not
believe credit risk is associated  with  obligations  of the United States,  its
agencies or its corporations.  The Company places its deposits and correspondent
accounts with and sells its federal funds to high credit  quality  institutions.
Management  believes credit risk associated with  correspondent  accounts is not
significant.

Per Share Amounts - Basic  earnings per share is computed by dividing net income
by the  weighted-average  number of shares  outstanding for the period excluding
the effects of any dilutive potential common shares.  Diluted earnings per share
is  similar to the  computation  of basic  earnings  per share  except  that the
denominator is increased to include the number of additional  common shares that
would have been  outstanding  if the dilutive  potential  common shares had been
issued.  The dilutive  effect of options  outstanding  under the Company's stock
option plan are reflected in diluted  earnings per share by the  application  of
the treasury stock method. See Notes 2 and 18.

Reclassifications   -  Certain  captions  and  amounts  in  the  1996  and  1995
consolidated  financial  statements  were  reclassified to conform with the 1997
presentation.

All references in the condensed  consolidated  financial statements referring to
shares,  share  prices,  per-share  amounts and stock  plans have been  adjusted
retroactively  for the  three-for-one  stock split.  Additional  information  is
presented in Note 15.

During 1996,  certain equity  securities owned by the Company began trading on a
national  exchange  creating  a ready  market  for  the  shares.  The  Company's
investment  was included in other  assets at cost as of December  31,  1995.  In
1996, the investment was  reclassified to securities  available-for-sale  and is
carried at its fair value as of December 31, 1996 and 1997.

NOTE 2 - CHANGE IN ACCOUNTING PRINCIPLE

In February 1997, the Financial  Accounting  Standards  Board (FASB) issued SFAS
No. 128,  "Earnings Per Share",  effective for financial  statements  issued for
periods  ending after  December 15, 1997.  SFAS 128 simplifies the standards for
computing  earnings per share (EPS) and makes them  comparable to  international
EPS standards.  It also requires the dual  presentation of basic and diluted EPS
on the face of the  income  statement  for all  entities  with  complex  capital
structures and requires a reconciliation of the numerator and denominator of the
basic EPS  computation  to the  numerator  and  denominator  of the  diluted EPS
computation. The reconciliation of basic and diluted EPS is included in Note 18.
SFAS 128 had no  effect  on  earnings  per share  computations  for prior  years
because the Company had a simple capital  structure  with no dilutive  potential
shares prior to 1997.

                                       24
<PAGE>

                           M & M FINANCIAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - RESTRICTIONS ON CASH AND DUE FROM BANKS

The Bank is required  to  maintain  average  reserve  balances  with the Federal
Reserve  Bank  computed as a percentage  of  deposits.  At December 31, 1997 and
1996, the required cash reserve was $1,303,000 and $971,000,  respectively,  and
was  satisfied  by vault cash on hand and amounts  due from the Federal  Reserve
Bank,  both of which are reported in the  financial  statements as cash and cash
equivalents.

NOTE 4 - INVESTMENT SECURITIES

Securities  available-for-sale  at  December  31,  1997 and 1996  consist of the
following:
<TABLE>
<CAPTION>
                                                                        Gross           Gross         Estimated
                                                      Amortized        Unrealized      Unrealized       Fair
                                                       Cost             Gains           Losses          Value
                                                     ------------    -------------    ------------    ------------
December 31, 1997
<S>                                                  <C>             <C>              <C>             <C>
Equity securities .............................      $     27,879    $     162,035    $          -    $    189,914
U.S. Treasury securities ......................         8,024,831           71,575               -       8,096,406
Securities of other U.S. Government
  agencies and corporations ...................        11,346,175           74,879               -      11,421,054
Obligations of states and local government ....           550,500           15,136               -         565,636
Mortgage-backed securities ....................         9,547,467           80,798               -       9,628,265
                                                     ------------    -------------    ------------    ------------

       Total ..................................      $ 29,496,852    $     404,423    $          -    $ 29,901,275
                                                     ============    =============    ============    ============

December 31, 1996
Equity securities .............................      $     67,468    $     254,348    $          -    $    321,816
U.S. Treasury securities ......................         2,448,037           36,463               -       2,484,500
Securities of other U.S. Government
  agencies and corporations ...................        14,446,568                -          13,750      14,432,818
Obligations of states and local government ....         1,297,629           39,912               -       1,337,541
Mortgage-backed securities ....................        16,509,555                -          88,407      16,421,148
                                                     ------------    -------------    ------------    ------------

       Total ..................................      $ 34,769,257    $     330,723    $    102,157    $ 34,997,823
                                                     ============    =============    ============    ============
</TABLE>

For the years ended December 31, 1997, 1996, and 1995,  aggregate realized gains
on securities available-for-sale were $266,232, $0, and $179,804,  respectively.
There were no realized  losses in 1997 or 1996.  Realized losses were $40,260 in
1995. Proceeds from sales of securities  available-for-sale were $5,272,801, $0,
and $21,702,952 in 1997, 1996, and 1995, respectively.

Securities  held-to-maturity  at  December  31,  1997  and 1996  consist  of the
following:
<TABLE>
<CAPTION>
                                                                          Gross            Gross        Estimated
                                                      Amortized        Unrealized       Unrealized         Fair
                                                        Cost              Gains            Losses          Value
                                                     ------------    -------------    -----------     ------------
December 31, 1997
<S>                                                  <C>             <C>              <C>             <C>
Obligations of states and local government .....     $  2,973,837    $      57,659    $          -    $  3,031,496
                                                     ============    =============    ============    ============

December 31, 1996
Obligations of states and local government .....     $  3,344,422    $     119,430    $          -    $  3,463,852
                                                     ============    =============    ============    ============
</TABLE>

For the years ended  December  31, 1997,  1996 and 1995,  there were no sales of
securities held-to-maturity.

                                       25
<PAGE>
                           M & M FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - INVESTMENT SECURITIES - continued

The following table  summarizes the maturities of securities  available-for-sale
and  held-to-maturity  as  of  December  31,  1997,  based  on  the  contractual
maturities. Actual maturities may differ from the contractual maturities because
issuers or borrowers  may have the right to call or prepay  obligations  with or
without penalty.
<TABLE>
<CAPTION>
                                                               Securities                    Securities
                                                           Available-for-Sale             Held-to-Maturity
                                                           ------------------             ----------------
                                                                       Estimated                       Estimated
                                                       Amortized        Fair            Amortized         Fair
                                                        Cost            Value            Cost            Value
                                                     ------------    -------------    ------------    ------------
<S>                                                  <C>             <C>              <C>             <C>
Due in one year or less .........................    $  3,975,314    $   3,979,738    $    655,006    $    658,281
Due after one year but within five years ........      11,221,420       11,309,202       1,972,309       2,024,674
Due after five years but within ten years .......         987,193        1,000,625         234,924         236,944
Due after ten years .............................       3,737,579        3,793,531         111,598         111,597
Mortgage-backed securities ......................       9,547,467        9,628,265               -               -
Equity securities ...............................          27,879          189,914               -               -
                                                     ------------    -------------    ------------    ------------
           Total ................................    $ 29,496,852    $  29,901,275    $  2,973,837    $  3,031,496
                                                     ============    =============    ============    ============
</TABLE>

Effective November 15, 1995, the Financial  Accounting Standards Board permitted
a one-time  opportunity for financial  institutions to reassess their investment
portfolios  and  change  the   classification  of  their  debt  securities  from
held-to-maturity to available-for-sale without bringing into question the intent
to hold other  securities  to  maturity.  In  response,  management  transferred
securities having an amortized cost of $18,606,148 from the held- to-maturity to
available-for-sale  category.  The  redesignation of securities had no effect on
net income or earnings per share.

At December 31, 1997 and 1996, investment securities having an amortized cost of
approximately $31,466,463 and $23,350,545, respectively, and an estimated market
value of approximately $31,751,067 and $23,405,919,  respectively,  were pledged
as  collateral  for advances  from the Federal Home Loan Bank,  to secure public
deposits and for other purposes as required and permitted by law.

NOTE 5 - LOANS RECEIVABLE

Loans receivable at December 31, 1997 and 1996, are summarized as follows:
                                                      1997            1996
                                                --------------  --------------
Commercial .................................    $   88,119,492  $   55,300,370
Real estate - construction .................         4,012,807       3,296,039
Consumer ...................................        13,295,078      22,326,538
                                                --------------  --------------
           Total loans .....................    $  105,427,377  $   80,922,947
                                                ==============  ==============

Loans are defined as impaired when "based on current  information and events, it
is probable  that a creditor will be unable to collect all amounts due according
to the contractual  terms of the loan  agreement." All loans are subject to this
criteria except for  "smaller-balance  homogeneous  loans that are  collectively
evaluated for  impairment"  and loans "measured at fair value or at the lower of
cost or fair value." The Company considers its consumer  installment  portfolio,
credit  cards and home  equity  lines as such  exceptions.  Therefore,  the real
estate and commercial  loan portfolios are the categories  primarily  subject to
possible impairment.

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  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, 1997 and 1996, management reviewed its
problem loan watch list and determined  that no impairment on loans existed that
would have a material effect on the Company's consolidated financial statements.

                                       26
<PAGE>

                           M & M FINANCIAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - LOANS RECEIVABLE - continued

A concentration of loans exists when there are direct or indirect obligations in
a class of borrowers or  industries  that exceed 10% of total loans.  Under this
definition,  the Bank has a concentration of credit in the hotel/motel industry.
As of December 31, 1997,  loans to the  hotel/motel  industry are $10,843,010 or
10.3% of gross loans outstanding and approximately 97% of the Bank's capital.

The accrual of  interest  is  discontinued  on  impaired  loans when  management
anticipates  that a borrower may be unable to meet the  obligations of the note.
Accrued  interest  through the date the  interest is  discontinued  is reversed.
Subsequent  interest  earned is recognized  only to the point that cash payments
are  received.  All payments are applied to principal if the ultimate  amount of
principal is not expected to be collected.

As of December 31, 1997 and 1996,  management had placed loans totaling $473,103
and  $710,834,  respectively,  in nonaccrual  status  because the loans were not
performing as originally contracted.  However, no impairment has been recognized
because management has determined that the discounted value of expected proceeds
from the sale of collateral,  typically real estate, exceeds the carrying amount
of these  loans.  Loans  that were  past due 90 days or more and still  accruing
interest were $0 and $11,916 for December 31, 1997 and 1996, respectively.

An analysis of the  allowance  for loan losses for the years ended  December 31,
1997, 1996 and 1995, is as follows:
<TABLE>
<CAPTION>
                                                                          1997                    1996                    1995
                                                                    --------------          --------------          --------------

<S>                                                                 <C>                     <C>                     <C>
    Balance, beginning of year ...............................      $    1,027,355          $      818,637          $      726,097
    Provision for loan losses ................................             800,000                 180,000                  38,890
    Recoveries of charged-off loans ..........................              58,704                  65,203                 314,798
    Loans charged off ........................................            (959,424)                (36,485)               (261,148)
                                                                    --------------          --------------          --------------

    Balance, end of year .....................................      $      926,635          $    1,027,355          $      818,637
                                                                    ==============          ==============          ==============
</TABLE>

During 1996, the Company implemented a credit program in which it advances money
to small businesses based on the outstanding accounts receivable of the business
("Business Manager").  Payments on the receivables are collected directly by the
Bank.  Per the credit  agreements,  the  respective  businesses  are required to
reduce the  outstanding  balances based on the aging of the  receivables.  As of
December 31, 1997, total advances under this program totaled $1,558,519.

During  1997,  the Company  advanced  money under this  program to one  Business
Manager account that was not financially able to reduce its loan commitment. The
Company  restructured  the loan but the  customer  was not able to  support  the
payments as they became due. In December 1997,  management  determined  that the
loan was not collectible and charged off the remaining balance of $826,670.

In  the  normal  course  of  business,  the  Company  is a  party  to  financial
instruments  with  off-balance-sheet   risk.  These  financial  instruments  are
commitments  to extend credit and letters of credit and have elements of risk in
excess of the amount  recognized  in the balance  sheet.  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  sheets.  The Company's
exposure  to credit loss in the event of  non-performance  by the other party to
the instrument is represented by the contractual 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.
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.  The  Company  uses  the same  credit  policies  in  making
commitments to extend credit as it does for on-balance-sheet instruments.

                                       27
<PAGE>

                           M & M FINANCIAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - LOANS RECEIVABLE - continued

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

                                                          December 31
                                                     1997             1996
                                                  --------------  --------------

Commitments to extend credit .................    $   18,033,790  $   17,668,992
Standby letters of credit ....................           355,000          13,500

At December 31, 1997, the Company was not committed to lend additional  funds to
borrowers who have loans in nonaccrual status.

NOTE 6 - PREMISES AND EQUIPMENT

Premises and equipment at December 31, 1997 and 1996, consists of the following:

                                                     1997             1996
                                                  --------------  --------------

Land .........................................    $    1,186,115  $      720,764
Office and buildings .........................         3,717,196       3,515,952
Furniture and equipment ......................         3,524,918       3,183,260
Construction in process ......................            50,579           3,000
                                                  --------------  --------------
           Total .............................         8,478,808       7,422,976
Less, accumulated depreciation ...............         4,123,470       3,714,401
                                                  --------------  --------------

Premises and equipment, net ..................    $    4,355,338  $    3,708,575
                                                  ==============  ==============

Depreciation  expense for the years ended  December 31, 1997,  1996 and 1995 was
$418,497, $422,232 and $408,809, respectively.

NOTE 7 - DEPOSITS

At December  31,  1997 and 1996,  time  deposits  of  $100,000  or more  totaled
approximately  $16,294,857 and  $10,106,220,  respectively.  Interest expense on
these deposits was approximately  $750,102,  $464,938 and $361,900 in 1997, 1996
and 1995, respectively.

At December 31, 1997, the scheduled maturities of time deposits are as follows:

1998 ........................................    $   57,578,241
1999 ........................................         3,253,142
2000 ........................................           270,799
2001 ........................................            58,158
2002 and thereafter .........................            78,346
                                                 --------------

           Total ............................    $   61,238,686
                                                 ==============


                                       28

<PAGE>

                           M & M FINANCIAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - SHORT-TERM BORROWINGS

Short-term borrowings at December 31, 1997 and 1996 consists of the following:
<TABLE>
<CAPTION>
                                                                                       1997                    1996
                                                                                    --------------         --------------

<S>                                                                                 <C>                    <C>
Securities sold under agreements to repurchase ..............................       $    1,072,326         $    8,534,279
Interest-bearing demand notes issued to the U.S. Treasury ...................            1,389,106                549,095
                                                                                    --------------         --------------

           Total ............................................................       $    2,461,432         $    9,083,374
                                                                                    ==============         ==============
</TABLE>

Securities sold under  agreements to repurchase  generally  mature within one to
fourteen  days from the  transaction  date. A third party  provides  safekeeping
services  for the Company and  maintains  possession  of the  securities.  As of
December  31,  1997,  the  amortized  cost and  market  value of the  securities
underlying the agreements were $1,101,274 and $1,107,295, respectively.

At December  31, 1997,  the Bank had unused lines of credit to purchase  federal
funds  from  unrelated  banks  totaling  $9,500,000.  These  lines of credit are
available on a one to seven day basis for general corporate  purposes.  The Bank
also had  available to it an unused  commitment  from the Federal Home Loan Bank
totaling $10,000,000.

NOTE 9 - ADVANCES FROM THE FEDERAL HOME LOAN BANK

Advances from the Federal Home Loan Bank  consisted of the following at December
31, 1997:
                                                  Interest
Description                                         Rate              Balance
-----------                                       ---------       --------------

Fixed rate advances maturing:
  February 14, 1998 ......................          5.70%         $    5,000,000
  November 24, 2002 ......................          6.19               5,000,000
                                                                  --------------
           Total .........................                        $   10,000,000
                                                                  ==============

Scheduled  principal  reductions  of  Federal  Home  Loan Bank  advances  are as
follows:

1998 ...........................    $    6,000,000
1999 ...........................         1,000,000
2000 ...........................         1,000,000
2001 ...........................         1,000,000
2002 ...........................         1,000,000
                                    --------------
                                    $   10,000,000
                                    ==============

As  collateral,  the Bank has pledged its portfolio of first  mortgage  loans on
one-to-four family residential properties aggregating  approximately $16,197,000
and $1,600,000 of debt securities.  In addition, the Company's Federal Home Loan
Bank  stock,  which is  included  in other  assets,  is  pledged  to secure  the
borrowings.

NOTE 10 - RELATED PARTY TRANSACTIONS

Certain parties (primarily directors, executive officers, principal stockholders
and their  associates)  were loan  customers and had other  transactions  in the
normal  course  of  business  with the  Bank.  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
generally  do not involve more than normal risk of  collectibility.  Total loans
and  commitments  outstanding to related  parties at December 31, 1997 and 1996,
were $878,851 and $1,166,826,  respectively.  During 1997,  $91,896 of new loans
were made to related parties and repayments totaled $379,871.

                                       29
<PAGE>

                           M & M FINANCIAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - CONTINGENCIES

In the ordinary course of business, the Company may, from time to time, become a
party to legal claims and  disputes.  At December 31,  1997,  management  is not
aware of any unaccrued  pending or threatened  litigation,  or unasserted claims
that could result in losses,  if any, that would be material to the consolidated
financial statements.

NOTE 12 - RESTRICTION ON SUBSIDIARY DIVIDENDS

Banking  regulations  restrict the amount of  dividends  the Bank may pay to the
Company.  Dividends  paid by the Bank to the Company are payable from  undivided
profits.  Prior  approval of the  Comptroller of the Currency is required if the
total of all  dividends  declared  by a national  bank in any year  exceeds  the
bank's net profits (as  defined)  for that year  combined  with its retained net
profits (as defined) for the two preceding  years.  Under Federal  Reserve Board
regulations,  the amount of loans or  advances  from the Bank to the Company are
restricted.

NOTE 13 - INCOME TAXES

Income  tax  expense  included  in the  income  statements  for the years  ended
December 31, 1997, 1996 and 1995 is summarized as follows:
<TABLE>
<CAPTION>

                                                                 1997                 1996                 1995
                                                               --------             --------             --------

Currently payable:
<S>                                                            <C>                  <C>                  <C>
  Federal ............................................         $294,269             $255,457             $141,052
  State ..............................................           40,021               43,847               28,815
                                                               --------             --------             --------
                                                                334,290              299,304              169,867
                                                               --------             --------             --------
Deferred:
  Federal ............................................          205,603               38,141              317,595
  State ..............................................           30,685               13,518               38,076
                                                               --------             --------             --------
                                                                236,288               51,659              355,671
                                                               --------             --------             --------

           Income tax expense ........................         $570,578             $350,963             $525,538
                                                               ========             ========             ========

Income tax expense is allocated as follows:
   To continuing operations ..........................         $502,874             $263,343             $187,350
   To stockholders' equity ...........................           67,704               87,620              338,188
                                                               --------             --------             --------

           Income tax expense ........................         $570,578             $350,963             $525,538
                                                               ========             ========             ========
</TABLE>

A summary of the  Company's  deferred  tax  accounts as of December 31, 1997 and
1996 follows:

                                                      1997            1996
                                                    ---------       ---------

   Deferred tax assets                              $ 360,196       $ 546,549
   Deferred tax liabilities                           250,323         200,388
   Valuation allowance                                193,764         193,764


                                       30

<PAGE>
                           M & M FINANCIAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - INCOME TAXES - continued

The principal sources of temporary  differences in 1997, 1996, and 1995, and the
related deferred tax effects are as follows:
<TABLE>
<CAPTION>
                                                                                  1997            1996            1995
                                                                                 ----------    ----------    ----------

<S>                                                                              <C>           <C>           <C>
Provision for bad debts .....................................................    $ 133,294     $ (29,904)    $   9,805
Tax depreciation in excess of book depreciation .............................       (4,172)       32,206          (697)
Valuation allowance on foreclosed property ..................................            -        22,083       (13,774)
Alternative minimum tax .....................................................            -        36,940        18,602
Retirement plans ............................................................       50,010        37,093        10,922
Other net ...................................................................      (10,548)     (134,379)       (7,375)
                                                                                 ---------     ---------     ---------

    Temporary differences attributable to continuing operations .............      168,584       (35,961)       17,483

    Change in valuation allowance ...........................................            -             -             -
                                                                                 ---------     ---------     ---------

Deferred tax expense (benefit) attributable to continuing operations ........      168,584       (35,961)       17,483

Deferred tax expense attributable to stockholders' equity ...................       67,704        87,620       338,188
                                                                                 ---------     ---------     ---------

    Change in deferred income taxes .........................................    $ 236,288     $  51,659     $ 355,671
                                                                                 =========     =========     =========
</TABLE>

A reconciliation of the income tax provision and the amount computed by applying
the Federal statutory rate of 34% to income before income taxes follows:
<TABLE>
<CAPTION>
                                                                                  1997             1996              1995
                                                                              ---------          ---------        ---------
<S>                                                                           <C>                <C>              <C>
Income tax at the statutory rate .................................            $ 554,294          $ 381,516        $ 265,257
State income tax, net of federal benefit .........................               49,185             32,859           44,148
Tax exempt interest income .......................................              (99,920)          (106,594)        (124,745)
Disallowed interest expense ......................................               35,144             22,038           17,787
Other, net .......................................................              (35,829)           (66,476)         (15,097)
                                                                              ---------          ---------        ---------
           Total .................................................            $ 502,874          $ 263,343        $ 187,350
                                                                              =========          =========        =========
</TABLE>

NOTE 14 - OTHER OPERATING EXPENSES

Other  operating  expenses for the years ended December 31, 1997,  1996 and 1995
are summarized below:
<TABLE>
<CAPTION>
                                                                                1997                1996              1995
                                                                            ----------          ----------        ----------
<S>                                                                         <C>                 <C>               <C>
Stationary and banking supplies ...............................             $  216,747          $  199,714        $  185,669
Federal deposit insurance assessment ..........................                 13,361               2,054           106,783
Directors' fees ...............................................                 91,985              97,718            96,450
Professional fees .............................................                201,201             167,446           111,703
Marketing and advertising .....................................                178,792             182,774           106,599
Insurance and bonds ...........................................                 54,527              68,330            81,484
Other real estate expense .....................................                      -                   -            67,751
Telephone .....................................................                129,442             103,131            95,141
Other .........................................................                868,740             640,792           563,084
                                                                            ----------          ----------        ----------
           Total ..............................................             $1,754,795          $1,461,959        $1,414,664
                                                                            ==========          ==========        ==========
</TABLE>

                                       31
<PAGE>
                           M & M FINANCIAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 - STOCKHOLDERS' EQUITY

On April 17,  1997,  the  stockholders  approved an amendment to the Articles of
Incorporation  increasing  the  number of  authorized  shares  outstanding  from
800,000  shares to  3,000,000  shares.  On May 5, 1997,  the Company  declared a
three-for-one  stock split  effected in the form of a 200 percent stock dividend
to  stockholders  of  record  on June 2,  1997.  On July 1,  1997,  the  Company
transferred $3,353,720 from retained earnings to common stock,  representing the
670,744 additional shares of the Company's $5 par value stock which were issued.

In 1997, the Company approved a dividend  reinvestment  plan for stockholders of
the Company.  The plan offers  stockholders  the  opportunity  to reinvest  cash
dividends  paid on common stock by the purchase of  additional  shares of common
stock.  Dividends are reinvested on a semi-annual basis as paid. The Bank is the
plan administrator.
There were no shares purchased under this plan in 1997.

NOTE 16 - EMPLOYEE BENEFIT PLANS

The  Company  has a  retirement  savings  and profit  sharing  plan with  401(k)
provisions  covering  substantially  all  full-time  employees.  Annual  expense
provisions are based primarily upon employee  participation  and earnings of the
Company.  The expense recognized under this plan in 1997, 1996, and 1995 totaled
approximately $68,834, $66,704 and $52,521, respectively.

During 1997, the Company terminated its noncontributory  defined benefit pension
plan and replaced it with a money  purchase  pension  plan and trust.  A gain of
$53,005 was recognized on the termination of the defined benefit plan. Under the
money  purchase  pension  plan and  trust,  the  Company  contributes  7% of the
compensation of employees who have completed 1,000 hours of service for the year
and are employed on the last day of the year into a trust account for the future
benefit of the  employees.  An employee  becomes fully vested in this plan after
seven years of service. For 1997, the Company accrued $140,000 in plan expense.
Contributions to the plan in 1997 were $130,000.

The Company approved a Salary  Continuation Plan in December 1997 which provides
certain officers with salary  continuation  benefits after retirement.  The plan
also provides for benefits in the event of early termination, disability, death,
or substantial change of control of the Company. For the year ended December 31,
1997, salary continuation expense included in salaries and employee benefits was
$28,260.  In connection with the Salary  Continuation  Plan, single premium life
insurance  contracts with total death  benefits of $2,900,000  were purchased on
the  officers.  The  Company  paid  premiums of  $1,290,000  which were based on
estimates of the future performance of the policies. The cash surrender value of
$1,312,388 was included in other assets at December 31, 1997.

During 1997,  the Company also approved a performance  award plan which provides
certain officers with deferred benefits based upon the Company's  performance in
relation to performance goals and objectives  established  annually by the Board
of Directors.  Under the plan,  the Company may  distribute in cash, at the sole
discretion of the Board of Directors,  up to 25% of the performance  award.  The
Company  will  accrue an  interest  portion  on the  deferred  benefit  for each
participant equal to the participants' cumulative deferred benefit multiplied by
the sum of the  percentage  change in the Company's  stock price during the year
plus the percentage of dividends paid during the year to stockholders' equity at
the  beginning  of  the  year.  Upon  normal   retirement,   early  termination,
disability, or death, the Company will pay the accumulated deferred benefit over
180 months crediting  interest on the unpaid balance of the benefit at an annual
rate of 8%.  Upon  substantial  change  of  control,  the  Company  will pay the
accumulated benefit in a lump-sum payment. No awards were earned under this plan
for the year ended December 31, 1997.


                                       32

<PAGE>
                           M & M FINANCIAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17 - STOCK COMPENSATION PLAN

On April 17, 1997, the  stockholders  approved an Incentive Stock Option Plan of
1997 (Stock  Plan) which  provides for the granting of options to purchase up to
78,000  shares of the  Company's  common stock to officers and  employees of the
Company.  The per-share  exercise price of incentive stock options granted under
the Stock Plan may not be less than the fair market value of a share on the date
of  grant.   Participants  become  vested  in  options  granted  based  on  each
participant's years of service to the Company. The expiration date of any option
may not be greater  than ten years from the date of grant.  Options  that expire
unexercised or are canceled become available for issuance.

As  discussed  in Note 1, the Company  will apply APB Opinion No. 25 and related
interpretations in accounting for the Stock Plan.  Accordingly,  no compensation
cost has been  recognized.  Had  compensation  cost for the Company's Stock Plan
been determined  based on the fair value at the grant dates for awards under the
plan  consistent  with the  method of SFAS 123,  the  Company's  net  income and
earnings per share for the year ended  December 31, 1997 would have been reduced
to the pro forma amounts indicated below:

                                                              1997
                                                              ----
Net income:
  As reported ......................................      $1,127,402
  Pro forma ........................................       1,093,688

Basic earnings per share:
  As reported ......................................      $     1.12
  Pro forma ........................................            1.09

Diluted earnings per share:
  As reported ......................................      $     1.12
  Pro forma ........................................            1.09

In calculating the pro forma  disclosures,  the fair value of options granted is
estimated as of the date granted using the  Black-Scholes  option  pricing model
with the following weighted-average assumptions: dividend yield of 2.78 percent;
expected volatility of 0 percent;  risk-free interest rate of 6.84 percent;  and
an expected life of 10 years.

On May 5, 1997, the Company  granted  options to purchase up to 54,000 shares of
the Company's  common stock for $13.33 per share.  As of December 31, 1997, none
of  the  options  had  been  exercised  or  canceled,  and  6,390  options  were
exercisable.  At December 31, 1997, the weighted-average  remaining  contractual
life  was  9.3  years.   The  fair  value  of  options,   calculated  using  the
Black-Scholes  option  pricing  model,  granted during 1997 was $3.37 per share.
Subsequent  to  year  end,  the  Company  issued  an  additional  7,000  options
exercisable at $15 per share.

NOTE 18 - EARNINGS PER SHARE

As  discussed  in Note 2, the FASB issued  SFAS 128,  "Earnings  Per Share",  in
February 1997. SFAS 128 replaces the  presentation of primary earnings per share
(EPS) with a presentation  of basic EPS. It requires the  presentation  of basic
and  diluted EPS on the face of the income  statement  for all  entities  with a
complex  capital  structure.  Basic EPS  excludes  dilution  and is  computed by
dividing income available to common stockholders by the weighted-average  number
of shares  outstanding  for the  period.  Diluted  EPS  reflects  the  potential
dilution that could occur if securities or other contracts to issue common stock
were  exercised  or  converted  into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity.


                                       33

<PAGE>
                           M & M FINANCIAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18 - EARNINGS PER SHARE - continued

A reconciliation  of the numerators and denominators used to calculate basic and
diluted earnings per share is as follows:
<TABLE>
<CAPTION>
                                                                                      For the Year Ended December 31, 1997
                                                                                   ------------------------------------------
                                                                                     Income          Shares           Per-Share
                                                                                  (Numerator)     (Denominator)         Amount
                                                                                  -----------     -------------       ---------
Basic EPS
<S>                                                                               <C>               <C>               <C>
Income available to common stockholders .............................             $1,127,402        1,006,116         $    1.12
                                                                                                                      =========
Effect of Dilutive Securities
Stock options .......................................................                      -              647
                                                                                  ----------        ---------
Diluted EPS
Income available to common stockholders plus assumed conversions ....             $ 1,127,402       1,006,763         $    1.12
                                                                                  ===========       =========         =========
<CAPTION>
                                                                                      For the Year Ended December 31, 1996
                                                                                   ------------------------------------------
                                                                                     Income          Shares           Per-Share
                                                                                  (Numerator)     (Denominator)         Amount
                                                                                  -----------     -------------       ---------
Basic EPS
<S>                                                                               <C>               <C>               <C>
Income available to common stockholders ..............................            $  858,763        1,006,116         $    0.85
                                                                                                                      =========
Effect of Dilutive Securities
Stock options ........................................................                     -                 -
                                                                                   ---------         ---------
Diluted EPS
Income available to common stockholders plus assumed conversions .....            $  858,763        1,006,116         $    0.85
                                                                                  ==========        =========         =========
<CAPTION>
                                                                                      For the Year Ended December 31, 1995
                                                                                   ------------------------------------------
                                                                                     Income          Shares           Per-Share
                                                                                  (Numerator)     (Denominator)         Amount
                                                                                  -----------     -------------       ---------
Basic EPS
<S>                                                                               <C>               <C>               <C>
Income available to common stockholders ..............................            $  592,818        1,006,116         $    0.59
                                                                                                                      =========
Effect of Dilutive Securities
Stock options ........................................................                     -                -
                                                                                  ----------        ---------
Diluted EPS
Income available to common stockholders plus assumed conversions .....            $  592,818        1,006,116         $    0.59
                                                                                  ==========        =========         =========
</TABLE>

NOTE 19 - CAPITAL REQUIREMENTS

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

                                       34
<PAGE>

                           M & M FINANCIAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19 - CAPITAL REQUIREMENTS - continued

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Company and 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 Company  consists of
common stockholders' equity, excluding the unrealized gain or loss on securities
available-for-sale,  minus  certain  intangible  assets.  The  Company'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 and 8% for total risk-based capital.

The  Company and the Bank are 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, 1997,  the most recent  notification  from the Bank's primary
regulator  categorized  the  Bank  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.

The following  table  summarizes  the capital ratios of the Company and the Bank
and the regulatory minimum requirements at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
                                                                                                              To Be Well
                                                                                                          Capitalized Under
                                                                                    For Capital           Prompt Corrective
                                                             Actual              Adequacy Purpose         Action Provisions
                                                     ---------------------     --------------------       -----------------
(Dollars in thousands)                                 Amount       Ratio        Amount      Ratio        Amount       Ratio
                                                     ----------    -------     ----------   -------     ----------    ------
December 31, 1997
  The Company
<S>                                               <C>                <C>       <C>             <C>      <C>              <C>
    Total capital (to risk weighted assets)       $    12,366        10.81%    $   9,154       8.0%     $      N/A          -%
    Tier 1 capital (to risk weighted assets)           11,440        10.00         4,577       4.0             N/A          -
    Tier 1 capital (to average assets)                 11,440         7.32         6,254       4.0             N/A          -

  The Bank
    Total capital (to risk weighted assets)            12,136        10.60         9,156       8.0          11,445       10.0
    Tier 1 capital (to risk weighted assets)           11,209         9.79         4,578       4.0           6,867        6.0
    Tier 1 capital (to average assets)                 11,209         7.19         6,235       4.0           7,794        5.0

December 31, 1996
  The Company
    Total capital (to risk weighted assets)       $    11,708        13.29%    $   7,047       8.0%     $      N/A          -%
    Tier 1 capital (to risk weighted assets)           10,681        12.13         3,524       4.0             N/A          -
    Tier 1 capital (to average assets)                 10,681         8.04         5,315       4.0             N/A          -

  The Bank
    Total capital (to risk weighted assets)            11,403        13.00         7,016       8.0            8,771      10.0
    Tier 1 capital (to risk weighted assets)           10,376        11.82         3,508       4.0            5,262       6.0
    Tier 1 capital (to average assets)                 10,376         7.76         5,307       4.0            6,634       5.0
</TABLE>

NOTE 20 - ANNUAL FINANCIAL DISCLOSURE STATEMENT BY THE OCC

This  statement  has not been reviewed or confirmed for accuracy or relevance by
the Office of the  Comptroller  of the  Currency.  This  disclosure is furnished
pursuant to 12 CFR, part 18 of the OCC's rules and regulations.

                                       35

<PAGE>


M & M FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 21- M & M Financial Corporation (PARENT COMPANY ONLY)

Condensed financial  statements for M & M Financial  Corporation (Parent Company
Only) as of  December  31, 1997 and 1996 and for the years  ended  December  31,
1997, 1996, and 1995 follow:

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                    1997                     1996
                                                                                                -----------              -----------
Assets

<S>                                                                                             <C>                      <C>
  Cash and cash equivalents ......................................................              $   164,128              $   145,015
  Investment in subsidiaries .....................................................               11,422,519               10,419,431
  Securities available-for-sale ..................................................                  189,914                  321,816
  Other assets ...................................................................                   67,967                   33,374
                                                                                                -----------              -----------

           Total assets ..........................................................              $11,844,528              $10,919,636
                                                                                                ===========              ===========

Liabilities and Stockholders' Equity

  Liabilities ....................................................................              $   156,170              $    97,924
                                                                                                -----------              -----------

  Total stockholders' equity .....................................................               11,688,358               10,821,712
                                                                                                -----------              -----------

           Total liabilities and stockholders' equity ............................              $11,844,528              $10,919,636
                                                                                                ===========              ===========
</TABLE>

                              STATEMENTS OF INCOME
<TABLE>
<CAPTION>

                                                                                         1997              1996              1995
                                                                                      ----------        ----------        ----------
Income:
<S>                                                                                   <C>               <C>               <C>
  Dividends from subsidiaries ................................................        $  117,380        $  360,372        $  359,991
  Gain on sale of securities .................................................           258,343                 -                 -
  Other income ...............................................................             4,716            14,835            20,642
                                                                                      ----------        ----------        ----------
                                                                                         380,439           375,207           380,633

Expenses .....................................................................             1,201               995             4,225
                                                                                      ----------        ----------        ----------

Income before income taxes and equity in undistributed
  earnings of subsidiaries ...................................................           379,238           374,212           376,408

Income tax provision .........................................................            90,000                 -             5,581
                                                                                      ----------        ----------        ----------

Income before equity in undistributed earnings of subsidiaries ...............           289,238           374,212           370,827

Equity in undistributed earnings of subsidiaries .............................           838,164           484,551           221,991
                                                                                      ----------        ----------        ----------

Net income ...................................................................        $1,127,402        $  858,763        $  592,818
                                                                                      ==========        ==========        ==========
</TABLE>


                                       36

<PAGE>
                           M & M FINANCIAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 21 - M & M Financial Corporation (PARENT COMPANY ONLY) -  continued

                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                   1997                 1996               1995
                                                                                -----------         -----------         -----------
Operating activities:
<S>                                                                             <C>                 <C>                 <C>
  Net income ...........................................................        $ 1,127,402         $   858,763         $   592,818
  Adjustments to reconcile net income to net cash
    provided by operating activities
      Equity in undistributed earnings of subsidiaries .................           (838,164)           (484,551)           (221,991)
      Gain from sale of securities .....................................           (258,343)                  -                   -
      (Increase) decrease  in other assets .............................            (34,593)                  -              18,546
      Increase in liabilities ..........................................             93,788                   -                   -
                                                                                -----------         -----------         -----------
           Net cash provided by operating activities ...................             90,090             374,212             389,373
                                                                                -----------         -----------         -----------
Investing activities:
  Proceeds from sale of premises .......................................                  -                   -              29,346
  Purchase of securities available-for-sale ............................             (4,716)             (4,113)             (8,074)
  Proceeds from sale of securities available-for-sale ..................            302,648                   -                   -
                                                                                -----------         -----------         -----------
           Net cash provided (used) by investing activities ............            297,932              (4,113)             21,272
                                                                                -----------         -----------         -----------
Financing activities:
  Cash dividends paid ..................................................           (368,909)           (335,372)           (301,835)
                                                                                -----------         -----------         -----------
           Net cash used by financing activities .......................           (368,909)           (335,372)           (301,835)
                                                                                -----------         -----------         -----------
Net increase in cash and cash equivalents ..............................             19,113              34,727             108,810
Cash and cash equivalents, beginning of year ...........................            145,015             110,288               1,478
                                                                                -----------         -----------         -----------
Cash and cash equivalents, end of year .................................        $   164,128         $   145,015         $   110,288
                                                                                ===========         ===========         ===========
</TABLE>

NOTE 22 - 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 Cash Equivalents - The carrying amount is a reasonable estimate of fair
value.

Time Deposits with Other Banks - The carrying value is a reasonable  estimate of
fair value.

Investment Securities - The fair values of securities held-to-maturity are based
on quoted market prices or dealer  quotes.  For  securities  available-for-sale,
fair value  equals the  carrying  amount which is the quoted  market  price.  If
quoted market prices are not  available,  fair values are based on quoted market
prices of comparable securities.

Loans - For certain  categories of loans,  such as variable rate loans which are
repriced  frequently and have no  significant  change in credit risk and certain
credit card receivables, 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 the borrowers
with similar credit ratings and for the same remaining maturities.

                                       37
<PAGE>
                           M & M FINANCIAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 22 - 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 and other time deposits are estimated using a discounted
cash flow  calculation  that  applies  current  interest  rates to a schedule of
aggregated expected maturities.

Short-term  Borrowings  - The carrying  value is a  reasonable  estimate of fair
value.

Advances from the Federal Home Loan Bank - The fair values are estimated using a
discounting cash flow calculation that applies the Company's  current  borrowing
rate from the Federal Home Loan Bank.

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

Off-Balance  Sheet  Financial  Instruments  - The fair value of  commitments  to
extend  credit is  estimated  using the fees  currently  charged  to enter  into
similar agreements taking into account the remaining terms of the agreements and
the present creditworthiness of the counter parties. The contractual amount is a
reasonable  estimate of fair value for the  instruments  because  commitments to
extend credit are issued on a short-term or floating rate basis.

The  carrying  values  and  estimated  fair  values of the  Company's  financial
instruments as of December 31, 1997 and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
                                                                       December 31, 1997                    December 31, 1996
                                                               ------------------------------      --------------------------------
                                                                Carrying         Estimated            Carrying          Estimated
                                                                 Amount          Fair Value            Amount          Fair Value
                                                             -------------      -------------      -------------      -------------
Financial Assets:
<S>                                                          <C>                <C>                <C>                <C>
   Cash and cash equivalents ...........................     $   9,342,281      $   9,342,281      $   7,963,828      $   7,963,828
   Time deposits with other banks ......................           300,000            300,000            800,000            800,000
   Securities available-for-sale .......................        29,901,275         29,901,275         34,997,823         34,997,823
   Securities held-to-maturity .........................         2,973,837          3,031,496          3,344,422          3,463,852
   Loans ...............................................       105,427,377        105,335,377         80,922,947         80,596,947
   Allowance for loan losses ...........................          (926,635)          (926,635)        (1,027,355)        (1,027,355)
   Accrued interest receivable .........................         1,256,335          1,256,335          1,207,411          1,207,411
Financial Liabilities:
   Demand deposit, interest-bearing transaction,
     and savings accounts ..............................     $  69,243,383      $  69,243,383      $  56,502,438      $  56,502,438
   Time deposits .......................................        61,238,686         61,583,686         50,970,568         51,013,568
   Short-term borrowings ...............................         2,461,432          2,461,432          9,083,374          9,083,374
   Advance from the Federal Home Loan Bank .............        10,000,000         10,000,000          5,000,000          5,000,000
   Accrued interest payable ............................         1,834,397          1,834,397            933,401            933,401
Off-Balance Sheet Financial Instruments
   Commitments to extend credit ........................     $  18,033,790      $  18,033,790      $  17,682,492      $  17,682,492
</TABLE>

NOTE 23 - RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1997, the FASB released SFAS 130, "Reporting Comprehensive Income." SFAS
130 requires that all items that are required to be recognized  under accounting
standards  as  components  of  comprehensive  income be  reported in a financial
statement  that is  displayed  with  the  same  prominence  as  other  financial
statements.  Comprehensive income is the change in equity of a business during a
period  from  transactions  and other  events and  circumstances  from  nonowner
sources  and  excludes  investments  by  owners  and  distributions  to  owners.
Comprehensive   income  consists  of  two  components,   net  income  and  other
comprehensive  income. Other comprehensive income includes,  among other things,
the change in the unrealized gain or loss on securities available-for-sale.

This statement is effective for fiscal years  beginning after December 15, 1997.
Reclassification  of  financial  statements  for earlier  periods  provided  for
comparative purposes is required.

                                       38