UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

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

For Quarterly Period Ended September 30, 2008      Commission File No. 000-29640


                         COMMUNITY FIRST BANCORPORATION
             -------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


         South Carolina                                  58-2322486
  -------------------------------             ----------------------------------
  (State or other jurisdiction of             (IRS Employer Identification No.)
  incorporation or organization)


                             449 HIGHWAY 123 BYPASS
                          SENECA, SOUTH CAROLINA 29678
--------------------------------------------------------------------------------
               (Address of principal executive offices, zip code)


                                 (864) 886-0206
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

         Yes [ X ]  No [   ]

         Indicate by check mark whether the  registrant  is a large  accelerated
filer, an accelerated  filer, a  non-accelerated  filer, or a smaller  reporting
company.  See the definitions of "large accelerated filer,"  "accelerated filer"
and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

         Large accelerated filer [ ]     Accelerated filer         [ ]
         Non-accelerated filer   [ ]     Smaller reporting company [X]
         (Do not check if a smaller reporting company)

         Indicate by check mark whether the  registrant  is a shell  company (as
defined in Rule 12b-2 of the Exchange Act).

         Yes [  ]  No [X]

         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest practicable date: Common Stock, no par
or stated value, 3,394,873 Shares Outstanding on November 1, 2008



<PAGE>


                         COMMUNITY FIRST BANCORPORATION

                                    FORM 10-Q

                                      Index
<TABLE>
<CAPTION>

                                                                                                                     Page
PART I -          FINANCIAL INFORMATION

Item 1.           Financial Statements

<S>               <C>                                                                                                  <C>
                  Consolidated Balance Sheets ....................................................................      3
                  Consolidated Statements of Income ..............................................................      4
                  Consolidated Statements of Changes in Shareholders' Equity .....................................      5
                  Consolidated Statements of Cash Flows ..........................................................      6
                  Notes to Unaudited Consolidated Financial Statements ...........................................      7

Item 2.           Management's Discussion and Analysis of Financial Condition and Results of Operations ..........     10
Item 3.           Quantitative and Qualitative Disclosures About Market Risk .....................................     20
Item 4T.          Controls and Procedures ........................................................................     21

PART II -         OTHER INFORMATION

Item 6.           Exhibits .......................................................................................     22

SIGNATURE         ................................................................................................     23
</TABLE>

                                       2
<PAGE>


                         PART I - FINANCIAL INFORMATION

Item 1. - Financial Statements

COMMUNITY FIRST BANCORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
                                                                                                       (Unaudited)
                                                                                                      September 30,     December 31,
                                                                                                          2008              2007
                                                                                                          -----             ----
                                                                                                          (Dollars in thousands)
Assets
<S>                                                                                                     <C>               <C>
     Cash and due from banks ...................................................................        $   8,675         $  10,272
     Interest bearing balances due from banks ..................................................              282               165
     Federal funds sold ........................................................................           20,087            24,236
                                                                                                        ---------         ---------
         Cash and cash equivalents .............................................................           29,044            34,673
     Securities available-for-sale .............................................................          110,524            99,026
     Securities held-to-maturity (fair value $12,382 for 2008 and $5,625 for 2007) .............           12,307             5,663
     Other investments .........................................................................            1,220               840
     Loans .....................................................................................          267,075           244,131
         Allowance for loan losses .............................................................           (3,503)           (2,574)
                                                                                                        ---------         ---------
            Loans - net ........................................................................          263,572           241,557
     Premises and equipment - net ..............................................................            8,691             8,621
     Accrued interest receivable ...............................................................            2,557             2,529
     Bank-owned life insurance .................................................................            8,388             7,108
     Other assets ..............................................................................            2,062             2,131
                                                                                                        ---------         ---------

            Total assets .......................................................................        $ 438,365         $ 402,148
                                                                                                        =========         =========

Liabilities
     Deposits
         Noninterest bearing ...................................................................        $  42,830         $  42,289
         Interest bearing ......................................................................          340,892           313,578
                                                                                                        ---------         ---------
            Total deposits .....................................................................          383,722           355,867
     Short-term borrowings .....................................................................            1,500                 -
     Long-term debt ............................................................................            9,500             4,500
     Accrued interest payable ..................................................................            1,911             3,480
     Other liabilities .........................................................................              942               391
                                                                                                        ---------         ---------
            Total liabilities ..................................................................          397,575           364,238
                                                                                                        ---------         ---------

Shareholders' equity
     Common stock - no par value; 10,000,000 shares authorized; issued and
         outstanding - 3,394,873 for 2008 and 3,324,105 for 2007 ...............................           35,374            35,009
     Additional paid-in capital ................................................................              681               681
     Retained earnings .........................................................................            4,654             2,140
     Accumulated other comprehensive income ....................................................               81                80
                                                                                                        ---------         ---------
            Total shareholders' equity .........................................................           40,790            37,910
                                                                                                        ---------         ---------

            Total liabilities and shareholders' equity .........................................        $ 438,365         $ 402,148
                                                                                                        =========         =========
</TABLE>

See accompanying notes to unaudited consolidated financial statements.


                                       3
<PAGE>

COMMUNITY FIRST BANCORPORATION
Consolidated Statements of Income
<TABLE>
<CAPTION>
                                                                                               (Unaudited)
                                                                                        Period Ended September 30,
                                                                                        --------------------------
                                                                             Three Months                         Nine Months
                                                                             ------------                         -----------
                                                                         2008              2007             2008              2007
                                                                         ----              ----             ----              ----
                                                                                   (Dollars in thousands, except per share)

Interest income
<S>                                                                    <C>               <C>              <C>               <C>
     Loans, including fees ...................................         $  4,647          $  4,632         $ 13,902          $ 12,885
     Interest bearing balances due from banks ................               10                 3               17                 4
     Securities
       Taxable ...............................................            1,275               975            3,464             2,907
       Tax-exempt ............................................              209               212              623               616
     Other investments .......................................               14                14               39                43
     Federal funds sold ......................................               81               145              584             1,007
                                                                       --------          --------         --------          --------
         Total interest income ...............................            6,236             5,981           18,629            17,462
                                                                       --------          --------         --------          --------
Interest expense
     Time deposits $100M and over ............................            1,021             1,038            3,231             2,901
     Other deposits ..........................................            1,885             2,283            6,323             6,718
     Short-term borrowings ...................................                8                 -                8                 3
     Long-term debt ..........................................               92                46              179               155
                                                                       --------          --------         --------          --------
         Total interest expense ..............................            3,006             3,367            9,741             9,777
                                                                       --------          --------         --------          --------
Net interest income ..........................................            3,230             2,614            8,888             7,685
Provision for loan losses ....................................              965               150            1,375               270
                                                                       --------          --------         --------          --------
Net interest income after provision ..........................            2,265             2,464            7,513             7,415
                                                                       --------          --------         --------          --------
Other income
     Service charges on deposit accounts .....................              374               394            1,109             1,071
     ATM interchange and other fees ..........................              142               115              412               336
     Net losses on sales of securities
         available-for-sale ..................................               (3)                -               (3)                -
     Credit life insurance commissions .......................                5                 8               12                24
     Increase in value of bank-owned
         life insurance ......................................               94                33              280                33
     Other income ............................................               22                33               58               107
                                                                       --------          --------         --------          --------
         Total other income ..................................              634               583            1,868             1,571
                                                                       --------          --------         --------          --------
Other expenses
     Salaries and employee benefits ..........................            1,073             1,130            3,218             2,844
     Net occupancy expense ...................................              135               116              384               318
     Furniture and equipment expense .........................              110               111              326               321
     Amortization of computer software .......................               85                62              241               179
     ATM interchange and related expenses ....................               96                66              301               215
     Directors' fees .........................................               20                20               81                67
     Other expense ...........................................              419               396            1,279             1,133
                                                                       --------          --------         --------          --------
         Total other expenses ................................            1,938             1,901            5,830             5,077
                                                                       --------          --------         --------          --------
Income before income taxes ...................................              961             1,146            3,551             3,909
Income tax expense ...........................................              252               375            1,037             1,242
                                                                       --------          --------         --------          --------
Net income ...................................................         $    709          $    771         $  2,514          $  2,667
                                                                       ========          ========         ========          ========

Per share*
     Net income ..............................................         $   0.21          $   0.24         $   0.74          $   0.82
     Net income, assuming dilution ...........................             0.20              0.21             0.71              0.77
</TABLE>
--------
* Per share information has been  retroactively  adjusted to reflect a 10% stock
dividend effective December 20, 2007.

See accompanying notes to unaudited consolidated financial statements.



                                       4
<PAGE>

COMMUNITY FIRST BANCORPORATION
Consolidated Statements of Changes in Shareholders' Equity

<TABLE>
<CAPTION>
                                                                         (Unaudited)

                                                                   Common Stock                               Accumulated
                                                                   ------------      Additional                  Other
                                                            Number of                  Paid-in    Retained   Comprehensive
                                                              Shares        Amount     Capital    Earnings   Income (Loss)   Total
                                                              ------        ------     -------    --------   -------------   -----
                                                                                     (Dollars in thousands)

<S>                                                          <C>         <C>         <C>         <C>         <C>          <C>
Balance, January 1, 2007 .................................   2,958,558   $  30,061   $     593   $   3,285   $    (724)   $  33,215
                                                                                                                          ---------

Comprehensive income:
    Net income ...........................................           -           -           -       2,667           -        2,667
                                                                                                                          ---------
    Unrealized holding gains and losses
      on available-for-sale securities arising
      during the period, net of
      income taxes of $207 ...............................           -           -           -           -         369          369
                                                                                                                          ---------
        Total other comprehensive income .................           -           -           -           -           -          369
                                                                                                                          ---------
          Total comprehensive income .....................           -           -           -           -           -        3,036
                                                                                                                          ---------
Exercise of employee stock options .......................      14,636          83           -           -           -           83
                                                             ---------   ---------   ---------   ---------   ---------    ---------
Balance, September 30, 2007 ..............................   2,973,194   $  30,144   $     593   $   5,952   $    (355)   $  36,334
                                                             =========   =========   =========   =========   =========    =========



Balance, January 1, 2008 .................................   3,324,105   $  35,009   $     681   $   2,140   $      80    $  37,910
                                                                                                                          ---------

Comprehensive income:
    Net income ...........................................           -           -           -       2,514           -        2,514
                                                                                                                          ---------
    Unrealized holding gains and (losses)
      on available-for-sale securities arising
      during the period, net of
      income taxes of $1 .................................           -           -           -           -          (1)          (1)
    Reclassification adjustment for losses (gains)
    realized in income, net of income taxes
      of $1 ..............................................           -           -           -           -           2            2
                                                                                                                          ---------
        Total other comprehensive income (loss) ..........                                                                        1
                                                                                                                          ---------
          Total comprehensive income .....................           -           -           -           -           -        2,515
                                                                                                                          ---------
Exercise of employee stock options .......................      70,768         365           -           -           -          365
                                                             ---------   ---------   ---------   ---------   ---------    ---------
Balance, September 30, 2008 ..............................   3,394,873   $  35,374   $     681   $   4,654   $      81    $  40,790
                                                             =========   =========   =========   =========   =========    =========
</TABLE>










See accompanying notes to unaudited consolidated financial statements.


                                       5
<PAGE>

COMMUNITY FIRST BANCORPORATION
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                                                                (Unaudited)
                                                                                                             Nine Months Ended
                                                                                                               September 30,
                                                                                                               -------------
                                                                                                           2008              2007
                                                                                                           -----             ----
                                                                                                            (Dollars in thousands)
Operating activities
<S>                                                                                                      <C>               <C>
     Net income ................................................................................         $  2,514          $  2,667
     Adjustments to reconcile net income to net
         cash provided by operating activities
            Provision for loan losses ..........................................................            1,375               270
            Depreciation .......................................................................              316               298
            Amortization of net loan (fees) and costs ..........................................             (147)             (174)
            Securities accretion and premium amortization ......................................               45                65
            Net loss on sales of securities available-for-sale .................................                3                 -
            Loss on sale of foreclosed assets ..................................................                6                 -
            Increase in value of bank-owned life insurance .....................................             (280)              (33)
            Increase in interest receivable ....................................................              (28)             (326)
            (Decrease) increase in interest payable ............................................           (1,569)               68
            Decrease (increase) in prepaid expenses and other assets ...........................               29                (3)
            Increase in other accrued expenses .................................................              551               227
                                                                                                         --------          --------
                Net cash provided by operating activities ......................................            2,815             3,059
                                                                                                         --------          --------

Investing activities
     Purchases of available-for-sale securities ................................................          (55,484)          (17,448)
     Purchases of securities held-to-maturity ..................................................           (7,490)                -
     Maturities, calls and paydowns of securities available-for-sale ...........................           34,204            19,655
     Maturities, calls and paydowns of securities held-to-maturity .............................              848               736
     Proceeds of sales of securities available-for-sale ........................................            9,732                 -
     Purchases of other investments ............................................................             (380)                -
     Proceeds from sales of other investments ..................................................                -               140
     Net increase in loans made to customers ...................................................          (23,242)          (33,908)
     Purchases of premises and equipment .......................................................             (386)             (589)
     Proceeds of sale of foreclosed assets .....................................................               34                15
     Proceeds of sale of real estate held for sale .............................................                -                36
     Investment in bank-owned life insurance ...................................................           (1,000)           (7,000)
                                                                                                         --------          --------
                Net cash used by investing activities ..........................................          (43,164)          (38,363)
                                                                                                         --------          --------

Financing activities
     Net decrease in demand deposits, interest
         bearing transaction accounts and savings accounts .....................................           (8,289)           (8,925)
     Net increase in certificates of deposit and other
         time deposits .........................................................................           36,144            38,134
     Net increase (decrease) in short-term borrowings ..........................................            1,500            (4,500)
     Proceeds from issuing long-term debt ......................................................            6,000                 -
     Repayments of long-term debt ..............................................................           (1,000)           (1,000)
     Exercise of employee stock options ........................................................              365                83
                                                                                                         --------          --------
                Net cash provided by financing activities ......................................           34,720            23,792
                                                                                                         --------          --------
Decrease in cash and cash equivalents ..........................................................           (5,629)          (11,512)
Cash and cash equivalents, beginning ...........................................................           34,673            31,145
                                                                                                         --------          --------
Cash and cash equivalents, ending ..............................................................         $ 29,044          $ 19,633
                                                                                                         ========          ========

Supplemental Disclosure of Cash Flow Information Cash paid during the year for:
         Interest ..............................................................................         $ 11,310          $  9,709
         Income taxes ..........................................................................            1,240             1,278
     Noncash investing and financing activities:
         Other comprehensive income ............................................................                1               369
</TABLE>

See accompanying notes to unaudited consolidated financial statements.



                                       6
<PAGE>


COMMUNITY FIRST BANCORPORATION

Notes to Unaudited Consolidated Financial Statements

Accounting  Policies - A summary of significant  accounting policies is included
in Community First  Bancorporation's  (the "Company") Annual Report on Form 10-K
for the year ended  December  31, 2007 filed with the  Securities  and  Exchange
Commission.   Certain  amounts  in  the  2007  financial  statements  have  been
reclassified to conform to the current presentation.  Such reclassifications had
no effect on net income or retained earnings for any period.

Management  Opinion - In the opinion of management,  the accompanying  unaudited
consolidated  financial statements of Community First Bancorporation reflect all
adjustments  necessary  for a fair  presentation  of the  results of the periods
presented. Such adjustments were of a normal, recurring nature.

Nonperforming  Loans - As of  September  30,  2008,  there  were  $4,725,000  in
nonaccrual loans.

Earnings Per Share - Basic earnings per common share is computed by dividing net
income  applicable  to common  shares by the weighted  average  number of common
shares  outstanding.   Diluted  earnings  per  share  is  computed  by  dividing
applicable  net  income  by  the  weighted   average  number  of  common  shares
outstanding and any dilutive potential common shares and dilutive stock options.
It is assumed that all dilutive  stock options are exercised at the beginning of
each period and that the proceeds are used to purchase  shares of the  Company's
common stock at the average  market price during the period.  All 2007 per share
information  has been  retroactively  adjusted  to give  effect  to a 10%  stock
dividend  effective  December 20, 2007.  Net income per share and net income per
share, assuming dilution, were computed as follows:

<TABLE>
<CAPTION>
                                                                                              Unaudited
                                                                                      Period Ended September 30,
                                                                                      --------------------------
                                                                           Three Months                         Nine Months
                                                                           ------------                         -----------
                                                                      2008              2007              2008              2007
                                                                      ----              ----              ----              ----
                                                                           (Dollars in thousands, except per share amounts)

Net income per share, basic
<S>                                                              <C>                <C>                <C>                <C>
  Numerator - net income ...............................         $      709         $      771         $    2,514         $    2,667
                                                                 ==========         ==========         ==========         ==========
  Denominator
    Weighted average common shares
      issued and outstanding ...........................          3,394,873          3,269,841          3,366,596          3,268,635
                                                                 ==========         ==========         ==========         ==========

    Net income per share, basic ........................         $      .21         $      .24         $      .75         $      .82
                                                                 ==========         ==========         ==========         ==========

Net income per share, assuming dilution
  Numerator - net income ...............................         $      709         $      771         $    2,514         $    2,667
                                                                 ==========         ==========         ==========         ==========
  Denominator
    Weighted average common shares
      issued and outstanding ...........................          3,394,873          3,269,841          3,366,596          3,268,635
    Effect of dilutive stock options ...................            124,047            229,477            160,605            215,034
                                                                 ----------         ----------         ----------         ----------
               Total shares ............................          3,518,920          3,499,318          3,527,201          3,483,669
                                                                 ==========         ==========         ==========         ==========

    Net income per share, assuming dilution ............         $      .20         $      .22         $      .71         $      .77
                                                                 ==========         ==========         ==========         ==========
</TABLE>

Fair  Value  Measurements  - The  Company  implemented  Statement  of  Financial
Accounting  Standards No. 157,  "Fair Value  Measurements,"  ("SFAS No. 157") as
required on January 1, 2008.  SFAS No. 157 defines  fair value as the price that
would be received to sell an asset or paid to transfer a liability in an orderly
fashion between market  participants at the measurement  date, and establishes a
framework for measuring fair value. It also establishes a three-level  hierarchy
for fair  value  measurements  based  upon the  transparency  of  inputs  to the
valuation of an asset or liability as of the  measurement  date,  eliminates the
consideration of large position  discounts for financial  instruments  quoted in


                                       7
<PAGE>

active markets,  requires  consideration of the Company's  creditworthiness when
valuing its liabilities,  and expands disclosures about instruments  measured at
fair value. The following is a summary of the measurement  attributes applicable
to  financial  assets  and  liabilities  that are  measured  at fair  value on a
recurring basis:

<TABLE>
<CAPTION>
                                                                                                      (Unaudited)
                                                                                   Fair Value Measurement at Reporting Date Using
                                                                                   ----------------------------------------------
                                                                              Quoted Prices
                                                                                 in Active           Significant
                                                                                Markets for             Other           Significant
                                                                                 Identical            Observable        Unobservable
                                                                                   Assets               Inputs             Inputs
Description                                  September 30, 2008                  (Level 1)             (Level 2)          (Level 3)
                                             ------------------                  ---------             ---------          ---------
                                                                                                 (Dollars in thousands)

<S>                                                                              <C>                  <C>                 <C>
Securities available-for-sale ...................................                $      -             $110,524            $       -
</TABLE>


Pricing for the  Company's  securities  available-for-sale  is obtained  from an
independent  third-party that uses a process that may incorporate current market
prices,  benchmark  yields,  broker/dealer  quotes,  issuer  spreads,  two-sided
markets,  benchmark securities,  bids, offers, other reference data and industry
and  economic  events  that a market  participant  would be  expected  to use in
valuing the  securities.  Not all of the inputs listed apply to each  individual
security at each measurement  date. The independent third party assigns specific
securities  into an "asset  class" for the purpose of assigning  the  applicable
level of the fair value hierarchy used to value the  securities.  The techniques
used  after  adoption  of SFAS No.  157 are  consistent  with the  methods  used
previously.

In February 2008,  the Financial  Accounting  Standards  Board Staff issued FASB
Staff  Position  No.  FAS 157-2  ("FSP  157-2")  which  delays  for one year the
effective date of the application of Statement of Financial Accounting Standards
No. 157 "Fair Value  Measurements"  ("SFAS No. 157") to nonfinancial  assets and
liabilities,  except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually). In accordance
with FSP 157-2,  the Company has only partially  applied SFAS No. 157. There are
currently no major  categories of assets or liabilities  disclosed at fair value
in the financial statements for which the Company has not applied the provisions
of SFAS No. 157.

No cumulative effect adjustments were required upon initial  application of SFAS
No.  157.  Available-for-sale  securities  continue to be measured at fair value
with  unrealized  gains and  losses,  net of  income  taxes,  recorded  in other
comprehensive income.

The Security and Exchange  Commission's  ("SEC") Office of the Chief  Accountant
and the staff of the Financial  Accounting Standards Board ("FASB") issued press
release   2008-234  on  September   30,  2008   ("Press   Release")  to  provide
clarifications on fair value accounting.  The Press Release includes guidance on
the use of management's internal assumptions and the use of "market" quotes. The
Press  Release  also  reiterates  the factors  included in SEC Staff  Accounting
Bulletin    Topic   5M   which   should   be   considered    when    determining
other-than-temporary  impairment;  i.e.,  the length of time and extent to which
the market  value has been less than cost,  financial  condition  and  near-term
prospects of the issuer,  and the intent and ability of the holder to retain its
investment for a period of time sufficient to allow for any anticipated recovery
in market value.

On October 10, 2008, the FASB issued FASB Staff Position SFAS 157-3 "Determining
the Fair  Value of a  Financial  Asset  When the  Market  for That  Asset Is Not
Active".  This FSP  clarifies  the  application  of SFAS  No.  157  "Fair  Value
Measurements"  in a  market  that is not  active  and  provides  an  example  to
illustrate  key  considerations  in  determining  the fair value of a  financial
instrument  when the market for that asset is not active.  The FSP is  effective
upon issuance,  including prior periods for which financial  statements have not
been  issued.  For the  Company,  this FSP is  effective  for the quarter  ended
September 30, 2008.

The Company  considered  the guidance in the Press Release and in FSP SFAS 157-3
when  conducting its review of  other-than-temporary  impairment as of September
30,  2008 and  determined  that it did not result in a change to its  impairment
estimation techniques.

New  Accounting  Pronouncements  - In February  2008, the FASB issued FASB Staff
Position No. 140-3, "Accounting for Transfers of Financial Assets and Repurchase
Financing  Transactions" ("FSP 140-3"). This FSP provides guidance on accounting
for a transfer of a financial asset and the transferor's repurchase financing of
the asset. This FSP presumes that an initial transfer of a financial asset and a


                                       8
<PAGE>

repurchase  financing  are  considered  part  of the  same  arrangement  (linked
transaction)  under SFAS No. 140.  However,  if certain  criteria  are met,  the
initial  transfer  and  repurchase  financing  are  not  evaluated  as a  linked
transaction and are evaluated  separately under Statement 140. FSP 140-3 will be
effective  for  financial  statements  issued for fiscal years  beginning  after
November 15,  2008,  and interim  periods  within those fiscal years and earlier
application is not permitted. Accordingly, this FSP is effective for the Company
on January 1, 2009. The Company is currently evaluating the impact, if any, that
the  adoption  of FSP 140-3  will have on its  financial  position,  results  of
operations and cash flows.

In May, 2008, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting  Standard ("SFAS") No. 162, "The Hierarchy of Generally
Accepted  Accounting  Principles," ("SFAS No. 162"). SFAS No. 162 identifies the
sources of accounting  principles and the framework for selecting the principles
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with generally accepted accounting principles (GAAP)
in the United States (the GAAP  hierarchy).  SFAS No. 162 is effective  November
15,  2008.  The FASB has stated that it does not expect SFAS No. 162 will result
in a change in current  practice.  The  application of SFAS No. 162 will have no
effect on the Company's financial position, results of operations or cash flows.

In June, 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, "Determining
Whether   Instruments   Granted  in   Share-Based   Payment   Transactions   are
Participating Securities," ("FSP EITF 03-6-1"). The Staff Position provides that
unvested  share-based  payment  awards  that  contain  nonforfeitable  rights to
dividends  or dividend  equivalents  are  participating  securities  and must be
included in the earnings per share computation. FSP EITF 03-6-1 is effective for
financial  statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those years. All prior-period earnings per share data
presented must be adjusted retrospectively.  Early application is not permitted.
The  adoption  of this  Staff  Position  will have no  effect  on the  Company's
financial position, results of operations or cash flows.

FSP SFAS 133-1 and FIN 45-4,  "Disclosures  about Credit Derivatives and Certain
Guarantees:  An Amendment of FASB Statement No. 133 and FASB  Interpretation No.
45; and  Clarification  of the Effective  Date of FASB Statement No. 161," ("FSP
SFAS 133-1 and FIN 45-4") was issued  September  2008,  effective  for reporting
periods  (annual or interim)  ending after November 15, 2008. FSP SFAS 133-1 and
FIN 45-4 amends SFAS 133 to require a seller of credit  derivatives  to disclose
the nature of the credit  derivative,  the  maximum  potential  amount of future
payments,  fair  value  of the  derivative,  and  the  nature  of  any  recourse
provisions.  Disclosures  must be made for entire hybrid  instruments  that have
embedded credit derivatives.

The staff  position  also  amends FIN 45 to require  disclosure  of the  current
status of the payment/performance risk of the credit derivative guarantee. If an
entity  utilizes  internal  groupings as a basis for the risk, how the groupings
are determined must be disclosed as well as how the risk is managed.

The staff position  encourages that the amendments be applied in periods earlier
than the effective  date to facilitate  comparisons at initial  adoption.  After
initial  adoption,  comparative  disclosures  are required  only for  subsequent
periods.

FSP SFAS 133-1 and FIN 45-4  clarifies the effective  date of SFAS 161 such that
required  disclosures  should be provided for any  reporting  period  (annual or
quarterly interim) beginning after November 15, 2008. The adoption of this Staff
Position  will have no  material  effect on the  Company's  financial  position,
results of operations or cash flows.

Other  accounting  standards  that have been  issued or  proposed by the FASB or
other standards-setting bodies are not expected to have a material impact on the
Company's financial position, results of operations or cash flows.


          CAUTIONARY NOTICE WITH RESPECT TO FORWARD-LOOKING STATEMENTS

         This report contains "forward-looking statements" within the meaning of
the  securities  laws.  The  Private  Securities  Litigation  Reform Act of 1995
provides a safe harbor for forward-looking  statements.  In order to comply with
the terms of the safe harbor,  the Company notes that a variety of factors could
cause the Company's actual results and experience to differ  materially from the
anticipated   results  or  other   expectations   expressed  in  the   Company's
forwarding-looking statements.

         All statements that are not historical  facts are statements that could
be  "forward-looking   statements."  You  can  identify  these   forward-looking
statements  through the use of words such as "may," "will,"  "should,"  "could,"
"would," "expect,"  "anticipate,"  "assume," "indicate,"  "contemplate," "seek,"
"plan,"  "predict,"  "target,"  "potential,"  "believe,"  "intend,"  "estimate,"
"project,"  "continue,"  or  other  similar  words.  Forward-looking  statements
include,  but are not limited to,  statements  regarding  the  Company's  future
business  prospects,   revenues,  working  capital,  liquidity,  capital  needs,
interest costs, income, business operations and proposed services.



                                       9
<PAGE>

         These  forward-looking  statements  are based on current  expectations,
estimates and projections about the banking industry,  management's beliefs, and
assumptions made by management.  Such information includes,  without limitation,
discussions  as to estimates,  expectations,  beliefs,  plans,  strategies,  and
objectives  concerning  future  financial  and  operating   performance.   These
statements  are not guarantees of future  performance  and are subject to risks,
uncertainties and assumptions that are difficult to predict.  Therefore,  actual
results  may  differ  materially  from those  expressed  or  forecasted  in such
forward-looking  statements.  The risks and uncertainties  include,  but are not
limited to:

          o    future economic and business conditions;
          o    lack of sustained growth in the economies of the Company's market
               areas;
          o    government monetary and fiscal policies;
          o    the  effects  of  changes  in  interest   rates  on  the  levels,
               composition and costs of deposits, loan demand, and the values of
               loan collateral,  securities,  and interest  sensitive assets and
               liabilities;
          o    the  effects  of  competition  from  a  wide  variety  of  local,
               regional, national and other providers of financial,  investment,
               and insurance services, as well as competitors that offer banking
               products and  services by mail,  telephone,  computer  and/or the
               Internet;
          o    credit risks;
          o    higher than anticipated levels of defaults on loans;
          o    perceptions by depositors about the safety of their deposits;
          o    capital adequacy;
          o    the failure of assumptions  underlying the  establishment  of the
               allowance  for loan  losses and other  estimates,  including  the
               value of collateral securing loans;
          o    ability to weather the current economic downturn;
          o    loss of consumer or investor confidence;
          o    availability of liquidity sources;
          o    the risks of opening new offices, including,  without limitation,
               the related costs and time of building customer relationships and
               integrating operations as part of these endeavors and the failure
               to achieve expected gains,  revenue growth and/or expense savings
               from such endeavors;
          o    changes  in laws and  regulations,  including  tax,  banking  and
               securities laws and regulations;
          o    changes in accounting policies, rules and practices;
          o    changes  in  technology  or  products  may be more  difficult  or
               costly, or less effective, than anticipated;
          o    the effects of war or other conflicts, acts of terrorism or other
               catastrophic  events that may affect general economic  conditions
               and economic confidence; and
          o    other factors and information described in this report and in any
               of the  other  reports  that  we file  with  the  Securities  and
               Exchange Commission under the Securities Exchange Act of 1934.

         All  forward-looking   statements  are  expressly  qualified  in  their
entirety by this cautionary notice. The Company has no obligation,  and does not
undertake,  to update,  revise or correct any of the forward-looking  statements
after the date of this  report.  The Company  has  expressed  its  expectations,
beliefs and projections in good faith and believes they have a reasonable basis.
However,  there is no assurance that these expectations,  beliefs or projections
will result or be achieved or accomplished.


Item 2. -  Management's  Discussion  and  Analysis of  Financial  Condition  and
           Results of Operations

Changes in Financial Condition

         The Company has been affected by the recent events in the financial and
credit markets  primarily in the following ways:  depositors who previously left
funds in excess of federal deposit  insurance  limits in a single bank have been
less  prone to do so;  and  pricing  anomalies  have  arisen  in the  securities
marketplace  and,  we  believe,  have  provided  opportunities  for  those  with
sufficient  financial  mettle to  realize  outsized  returns  stemming  from the
pessimism of others.  We  experienced  both deposit  inflows and outflows due to
customers  seeking to maximize  deposit  insurance  coverage for their accounts.
Because there are other larger banks in our market area, we were a net recipient
of funds from this source.  In early October 2008 the Federal Deposit  Insurance
Corporation  ("FDIC")  temporarily   increased  deposit  insurance  coverage  to
$250,000  per account.  The  temporary  increase is  currently  set to expire on
December 31, 2009. The Company  expects that its expenses for deposit  insurance
coverage  will  increase  significantly  during  the  period of  higher  deposit
insurance  limits.  The unwillingness or inability of others to lend to those we
believe to be  creditworthy  allowed us to increase  loans during the 2008 third
quarter while adhering to our normal,  conservative  underwriting  standards. We
repositioned  our  portfolio  of  available-for-sale  investment  securities  to
capture  higher  yields  that  were  available   primarily  on   mortgage-backed
securities issued by the Federal National  Mortgage  Association and the Federal
Home Loan Mortgage Corporation.


                                       10
<PAGE>

Furthermore,   we   eliminated   from  our   portfolio   any   adjustable   rate
mortgage-backed  securities.  At the end of the third quarter of 2008, the yield
of the Company's mortgage-backed securities investments was 4.71%, compared with
4.49%  as of June 30,  2008  and  4.07% as of  December  31,  2007.

         Nonaccrual  and past due loans  increased  by  $2,853,000,  or  151.8%,
during the third quarter of 2008.  Approximately  $3,093,000  of the  $3,493,000
newly added to the  nonaccrual  category  during the third  quarter of 2008 were
loans  secured  by  real  estate  with  approximately   $1,523,000  representing
construction and development  loans. Of the total $4,725,000 in nonaccrual loans
as of  September  30,  2008,  approximately  $2,083,000  were  construction  and
development  loans.  Real estate activity in the Company's  market area recently
has begun to exhibit the  weaknesses  that have plagued  other  markets for more
than a  year.  These  developments  have  resulted  in  the  higher  amounts  of
distressed assets reflected above.

         During the first nine months of 2008,  loans  increased by $22,944,000,
or 9.4%, securities  available-for-sale  increased by $11,498,000,  or 11.6% and
securities   held-to-maturity  increased  by  $6,644,000.   Federal  funds  sold
decreased  by  $4,149,000,  or 17.1%.  Interest  bearing  deposits  increased by
$27,314,000, or 8.7%. Approximately $22,646,000 of that increase was in the form
of  certificates  of  deposits  of  $100,000  or more.  Also  during the period,
short-term  borrowings  increased by $1,500,000  and long-term debt increased by
$5,000,000.

         The Company believes that its liquidity  position  continues to provide
it with  sufficient  flexibility  to fund loan requests or make  investments  in
securities  at  attractive  yields,  and to  meet  normal  demands  for  deposit
withdrawals by its customers.  Management also believes that the current balance
sheet position maintains the Company's exposures to changes in interest rates at
acceptable levels.


Results of Operations

Three Months Ended September 30, 2008 and 2007

         The Company  recorded  consolidated  net income of $709,000 or $.21 per
share for the third  quarter of 2008  compared  with net income of $771,000  and
earnings per share of $.24 for the third quarter of 2007.  Net income per share,
assuming  dilution  was $.20 for the 2008  quarter and $.21 for the 2007 period.
Net  income  per share  amounts  for 2007 have been  retroactively  adjusted  to
reflect a ten percent stock dividend effective December 20, 2007.

         Interest  income for the third  quarter of 2008  increased  by $255,000
over the same period of 2007 due to higher  rates  earned on taxable  investment
securities  and, to a lesser  degree,  an increase in the average amount of such
instruments held.  Interest expenses for the third quarter of 2008 were $361,000
lower than for the same prior year period due to lower  rates  paid.  During the
2008 three month period,  depositors were extremely  concerned about  maximizing
the deposit insurance coverage for their funds. As a result,  diversification of
those funds among  federally-insured  financial institutions to ensure safety of
principal  was more  important  than the interest  return that could be realized
from investing those funds.

         The Company increased the provision for loan losses to $965,000 for the
third  quarter of 2008 from  $150,000 for the same period of 2007.  Factors that
management considered when determining the amount to be provided for loan losses
included higher volumes of nonaccrual and past due loans,  increased charge-offs
taken  during  the  quarter,  signs  of  deterioration  in  the  local  economy,
especially conditions in the local real estate markets, and recent disruption of
the flow of and sharply  higher prices charged for  automotive  fuels  resulting
from the effects of Hurricanes  Gustav and Ike on the Gulf Coast refineries that
supply fuel to the Company's market area.



                                       11
<PAGE>

<TABLE>
<CAPTION>
                                                                               Summary Income Statement
                                                                                (Dollars in thousands)
For the Three Months Ended September 30,                       2008             2007         Dollar Change     Percentage Change
                                                               ----             ----         -------------     -----------------
<S>                                                           <C>              <C>              <C>                 <C>
Interest income ..........................................    $6,236           $5,981           $  255                4.3%
Interest expense .........................................     3,006            3,367             (361)             -10.7%
                                                              ------           ------           ------
Net interest income ......................................     3,230            2,614              616               23.6%
Provision for loan losses ................................       965              150              815              543.3%
Noninterest income .......................................       634              583               51                8.7%
Noninterest expenses .....................................     1,938            1,901               37                1.9%
Income tax expense .......................................       252              375             (123)             -32.8%
                                                              ------           ------           ------
Net income ...............................................    $  709           $  771           $  (62)             -8.0%
                                                              ======           ======           ======
</TABLE>

Nine Months Ended September 30, 2008 and 2007

         The Company recorded  consolidated net income of $2,514,000 or $.74 per
share for the first nine months of 2008  compared  with net income of $2,667,000
and  earnings  per share of $.82 for the same  period of 2007.  Net  income  per
share, assuming dilution was $.71 for the 2008 nine months and $.77 for the same
period of 2007.  Net income per share  amounts for 2007 have been  retroactively
adjusted to reflect a ten percent stock dividend effective December 20, 2007.

         Increases in interest  income and net interest income for the 2008 nine
month  period  reflect  primarily  the  effects of growth of earning  assets and
higher rates earned on taxable  securities.  Interest  expense for the 2008 nine
month  period is not much  changed  from the prior year amount as the effects of
increased  amounts of deposits and borrowed  funds were offset by  reductions in
the rates paid for deposits and borrowings due to the factors stated previously.

         Noninterest  income for the 2008 nine month  period was  $297,000  more
than for the same period of 2007  primarily due to the  recognition of increases
in the value of life insurance assets totaling $280,000.

         Salaries  and  employee  benefits  for the 2008 nine month  period were
$374,000  more  than for the same  prior  year  period  primarily  due to higher
amounts of deferred  compensation  expenses.  Increases in other  categories  of
other  expenses  reflect higher volumes of  transactions,  increased  numbers of
accounts,  and  higher  depreciation  and  other  expenses  associated  with the
Company's banking offices.

<TABLE>
<CAPTION>
                                                                            Summary Income Statement
                                                                            ------------------------
                                                                             (Dollars in thousands)
For the Nine Months Ended September 30,                  2008                2007           Dollar Change        Percentage Change
                                                         ----                ----           -------------        -----------------
<S>                                                    <C>                 <C>                 <C>                    <C>
Interest income ..................................     $18,629             $17,462             $ 1,167                  6.7%
Interest expense .................................       9,741               9,777                 (36)                -0.4%
                                                       -------             -------             -------
Net interest income ..............................       8,888               7,685               1,203                 15.7%
Provision for loan losses ........................       1,375                 270               1,105                409.3%
Noninterest income ...............................       1,868               1,571                 297                 18.9%
Noninterest expenses .............................       5,830               5,077                 753                 14.8%
Income tax expense ...............................       1,037               1,242                (205)               -16.5%
                                                       -------             -------             -------
Net income .......................................     $ 2,514             $ 2,667             $  (153)                -5.7%
                                                       =======             =======             =======
</TABLE>

Net Interest Income


         Net interest income,  the principal  source of the Company's  earnings,
was higher in both the 2008 three month and nine month  periods.  During much of
the third quarter of 2008,  financial and credit  markets  nationwide  have been
stressed.  The deterioration of real estate markets that began in other areas of
the country more than one year ago is now evident  within the Company's  market.


                                       12
<PAGE>

Primarily  because of  constrained  demand,  some  developers  and  builders are
finding it  difficult  or  impossible  to satisfy  their  obligations  except by
surrendering  the  properties  that were  pledged to secure  their loans  either
voluntarily or involuntarily  through  foreclosure.  As a consequence,  property
values have fallen due to conditions  such as oversupply of unsold housing units
and physical  deterioration  of those units during  prolonged sales periods,  or
because  some  homes  and,  indeed  entire  development  projects,  may be  only
partially completed when the builders and developers are overwhelmed by negative
events and simply walk away,  leaving  completion of the project in the hands of
lenders.

         Furthermore,  the recent reluctance of large financial  institutions to
lend either to long-standing  customers or even to other financial  institutions
is beginning to be exhibited at the community bank level.  This reluctance stems
from the recent failures of several banks and other financial  institutions  and
reflects an  aversion to the  liquidity  risk that a lending  institution  would
encounter if a counterparty, including another financial institution, was unable
to repay borrowed funds as agreed.

         As a  consequence  of these  events,  the level of  uncertainty  in any
financing  transaction  increased  dramatically  during the 2008 third  quarter.
Attempts by government  agencies to intervene initially were largely ineffective
to alleviate fears or provide needed  liquidity and order to the credit markets.
Interest  rates in this  environment  have been, and are expected to continue to
be, very volatile.  The structure of interest rates will probably continue to be
erratic and depart from  historic  relationships.  For the  foreseeable  future,
management  believes that short-term  market interest  rates,  especially  rates
related to most of its funding sources, will fluctuate  significantly.  However,
because  depositors  are currently  more concerned with safety of principal than
return on investment,  deposit costs are not expected to change significantly in
the near future.  If the Company  obtains  additional  funding from  non-deposit
sources,  the  costs of such  borrowing  would be  expected  to be more  closely
correlated to fluctuations in the broader credit markets.

         In a further effort to encourage  inter-bank  lending and to reduce the
effect that the failure of a financial  institution  might have on the viability
of other financial  institutions and other market  participants,  on October 14,
2008,  the  FDIC  initiated  coverage  of newly  issued  senior  unsecured  debt
(including federal funds purchased),  subject to certain limits, of FDIC-insured
depository  institutions,  U.S.  bank  holding  companies,  including  financial
holding companies, and certain U.S. savings and loan holding companies and began
to provide a temporary and unlimited guarantee of funds in non-interest  bearing
transaction  accounts  at  FDIC-insured   institutions  under  a  newly  created
Temporary Liquidity Guarantee Program.  Coverage under this program was provided
without cost for the first thirty days of coverage. Institutions have the option
to  continue  coverage  after the initial  period and be assessed  fees for such
coverage by the FDIC,  or may opt out of one or both  components of the program.
The FDIC will  maintain  on its  website a list of  eligible  institutions  that
choose to opt out of either  component  after the initial  coverage period ends.
Management expects that it will elect to continue coverage under both components
of this program.


Three Months Ended September 30, 2008 and 2007

         For the third quarter of 2008, net interest income totaled  $3,230,000,
an increase of $616,000  over the  $2,614,000  for the same period of 2007.  The
Company's  interest  rate  spread for the third  quarter  of 2008 was 2.68%,  an
increase of 53 basis  points over the 2.15%  interest  rate spread for the third
quarter of 2007.  Net yield on earning  assets  for the 2008 third  quarter  was
3.18%,  an increase of 27 basis points over the 2007 third  quarter net yield of
2.91%. The yield on taxable investment  securities for the third quarter of 2008
was  4.98%  compared  with  4.16%  for the same  period  of 2007.  As  discussed
previously,  the Company  acted  during the third  quarter of 2008 to revamp its
portfolio  of  mortgage-backed   securities.   The  average  amount  of  taxable
securities  in the 2008  period  was  $8,802,000  more than in the 2007  period.
Consequently,  income on such  securities  in the 2008 period was $300,000  more
than in the 2007 period.  The average  amount of the Company's loan category for
the third quarter of 2008 was 13.6% more than for the third quarter of 2007, but
the interest rates  associated with those loans in the 2008 period were 91 basis
points lower than in the 2007  period.  The Company  adjusted for  approximately
$90,000 of accrued  interest on loans included in nonaccrual loans for the first
time during the third quarter of 2008. As a result, interest income on loans was
only $15,000 higher in the 2008 three month period.

         Rates paid for interest bearing liabilities were significantly  reduced
from  the  prior  year  level.  Rates  paid  for  all  types  of  deposits  fell
dramatically  and rates paid for borrowings fell more modestly.  Average amounts
of time deposits  outstanding for the 2008 period  increased by $43,575,000,  or
20.2%, over the amount for the 2007 period.



                                       13
<PAGE>

<TABLE>
<CAPTION>
                                                                            Average Balances, Yields and Rates
                                                                             Three Months Ended September 30,
                                                                             --------------------------------
                                                                      2008                                         2007
                                                                      ----                                         ----
                                                                    Interest                                     Interest
                                                     Average        Income/        Yields/          Average      Income/    Yields/
                                                     Balances       Expense       Rates (1)         Balances     Expense   Rates (1)
                                                     --------       -------       ---------         --------     -------   ---------
                                                                                   (Dollars in thousands)
Assets
<S>                                                   <C>            <C>           <C>             <C>           <C>           <C>
Interest-bearing balances due from banks ..........   $    1,533     $    10       2.60%           $     227     $     3       5.24%
Securities
      Taxable .....................................      101,802       1,275       4.98%              93,000         975       4.16%
      Tax exempt (2) ..............................       20,998         209       3.96%              19,574         212       4.30%
                                                      ----------     -------                       ---------     -------
           Total investment securities ............      122,800       1,484       4.81%             112,574       1,187       4.18%
Other investments .................................        1,216          14       4.58%                 845          14       6.57%
Federal funds sold ................................       15,844          81       2.03%              11,770         145       4.89%
Loans (2) (3) (4) .................................      262,977       4,647       7.03%             231,452       4,632       7.94%
                                                      ----------     -------                       ---------     -------
           Total interest earning assets ..........      404,370       6,236       6.14%             356,868       5,981       6.65%
Cash and due from banks ...........................        8,122                                       8,698
Allowance for loan losses .........................       (2,956)                                     (2,302)
Valuation allowance - Available-for-
      sale securities .............................         (596)                                     (1,602)
Premises and equipment ............................        8,768                                       8,227
Other assets ......................................       12,572                                       6,560
                                                      ----------                                   ---------
           Total assets ...........................   $  430,280                                   $ 376,449
                                                      ==========                                   =========

Liabilities and shareholders' equity
Interest bearing deposits
      Interest bearing transaction accounts .......      $56,370     $   250       1.76%             $57,297     $   457       3.16%
      Savings .....................................       18,700          46       0.98%              19,068          92       1.91%
      Time deposits $100M and over ................      113,755       1,021       3.57%              85,990       1,038       4.79%
      Other time deposits .........................      145,886       1,589       4.33%             130,076       1,734       5.29%
                                                      ----------     -------                       ---------     -------
           Total interest bearing
             deposits .............................      334,711       2,906       3.45%             292,431       3,321       4.51%
Short-term borrowings .............................        1,500           8       2.12%                   -           -       0.00%
Long-term debt ....................................        9,500          92       3.85%               4,500          46       4.06%
                                                      ----------     -------                       ---------     -------
           Total interest bearing
             liabilities ..........................      345,711       3,006       3.46%             296,931       3,367       4.50%
Noninterest bearing demand deposits ...............       41,637                                      41,084
Other liabilities .................................        2,907                                       3,061
Shareholders' equity ..............................       40,025                                      35,373
                                                      ---------                                    ---------
           Total liabilities and shareholders'
             equity ...............................   $  430,280                                   $ 376,449
                                                      ==========                                   =========
Interest rate spread ..............................                                2.68%                                       2.15%
Net interest income and net yield
      on earning assets ...........................                  $ 3,230       3.18%                         $ 2,614       2.91%
Interest free funds supporting earning  assets ....      $58,659                                   $  59,937
</TABLE>
-----------------------------------------
(1)  Yields and rates are annualized
(2)  Yields on tax exempt instruments have not been adjusted to a tax-equivalent
     basis.
(3)  Nonaccrual  loans are included in the average  loan  balances and income on
     such loans is recognized on a cash basis.
(4)  Includes immaterial amounts of loan fees.


                                       14
<PAGE>


Nine Months Ended September 30, 2007 and 2006

         For the  first  nine  months  of  2008,  net  interest  income  totaled
$8,888,000,  an increase of $1,203,000, or 15.7%, over the $7,685,000 amount for
the same period of 2007.  The  Company's  interest rate spread for the 2008 nine
month period was 2.41%, an increase of 28 basis points over the 2.13% spread for
the 2007 period. The yield on interest earning assets decreased to 6.17% for the
2008 period,  compared with 6.54% for the 2007 period, due to lower rates earned
on loans and federal  funds sold. A significant  portion of the Company's  loans
are variable  rate  instruments  that are repriced in response to changes in the
"prime rate." Actions taken by the Federal  Reserve in the third quarter of 2008
generally  were intended to reduce market rates of interest.  Those efforts were
only partially  successful  due to the increased  influence on interest rates of
other uncertainties that were evident.

         Rates paid for interest bearing  liabilities during the 2008 nine month
period were 65 basis points lower than for the 2007 period.  Rates paid for time
deposits  $100,000  and over were 73 basis  points  lower during the 2008 period
than in the 2007 period and rates paid for other time  deposits  decreased by 33
basis points  compared  with the same 2007 period.  The average  amounts of time
deposits  outstanding  during the 2008 period were  $46,525,000,  or 22.6%, more
than in the 2007 period.  Rates paid for interest bearing  transaction  accounts
for the 2008 nine  month  period  were 126 basis  points  less than for the same
period of 2007 and the  average  amount of such  accounts in the 2008 period was
only $729,000, or 1.3%, more than for the 2007 period.

         The Company continues to pursue a strategy to increase its market share
in its local  market areas in Anderson  and Oconee  Counties of South  Carolina.
Oconee County is served from four offices, which are located in Seneca, Walhalla
and  Westminster.  The Anderson  County  market is served from three  offices in
Anderson and  Williamston,  including an office on Highway 81 in Anderson County
opened early in the fourth quarter of 2007.




                                       15
<PAGE>

<TABLE>
<CAPTION>
                                                                                 Average Balances, Yields and Rates
                                                                                  Nine Months Ended September 30,
                                                                                  -------------------------------
                                                                           2008                                   2007
                                                                           ----                                   ----
                                                                         Interest                               Interest
                                                           Average       Income/    Yields/       Average       Income/     Yields/
                                                          Balances       Expense   Rates (1)      Balances      Expense    Rates (1)
                                                          --------       -------   ---------      --------      -------    ---------
                                                                                    (Dollars in thousands)
Assets
<S>                                                     <C>             <C>          <C>          <C>            <C>           <C>
Interest-bearing balances due from banks ...........    $    1,251      $    17      1.82%        $     141      $     4       3.79%
Securities
      Taxable ......................................        95,782        3,464      4.83%           91,100        2,907       4.27%
      Tax exempt (2) ...............................        20,683          623      4.02%           19,588          616       4.20%
                                                        ----------      -------                   ---------      -------
           Total investment securities .............       116,465        4,087      4.69%          110,688        3,523       4.26%
Other investments ..................................           997           39      5.23%              904           43       6.36%
Federal funds sold .................................        28,624          584      2.73%           25,733        1,007       5.23%
Loans (2) (3) (4) ..................................       255,866       13,902      7.26%          219,261       12,885       7.86%
                                                        ----------      -------                   ---------      -------
           Total interest earning assets ...........       403,203       18,629      6.17%          356,727       17,462       6.54%
Cash and due from banks ............................         7,916                                    8,256
Allowance for loan losses ..........................        (2,725)                                  (2,253)
Valuation allowance - Available-for-
      sale securities ..............................           347                                   (1,282)
Premises and equipment .............................         8,812                                    8,048
Other assets .......................................        12,355                                    4,673
                                                        ----------                                ---------
           Total assets ............................    $  429,908                                $ 374,169
                                                        ==========                                =========

Liabilities and shareholders' equity
Interest bearing deposits
      Interest bearing transaction accounts ........       $58,022      $   843      1.94%          $57,293      $ 1,373       3.20%
      Savings ......................................        28,523          323      1.51%           28,282          616       2.91%
      Time deposits $100M and over .................       108,347        3,231      3.98%           82,312        2,901       4.71%
      Other time deposits ..........................       143,881        5,157      4.79%          123,391        4,729       5.12%
                                                        ----------      -------                   ---------      -------
           Total interest bearing
             deposits ..............................       338,773        9,554      3.77%          291,278        9,619       4.42%
Short-term borrowings ..............................           504            8      2.12%               17            3      23.59%
Long-term debt .....................................         6,321          179      3.78%            5,119          155       4.05%
                                                        ----------      -------                   ---------      -------
           Total interest bearing
             liabilities ...........................       345,598        9,741      3.76%          296,414        9,777       4.41%
Noninterest bearing demand deposits ................        40,910                                   40,028
Other liabilities ..................................         3,787                                    3,139
Shareholders' equity ...............................        39,613                                   34,588
                                                        ----------                                ---------
           Total liabilities and shareholders'
             equity ................................    $  429,908                                $ 374,169
                                                        ==========                                =========
Interest rate spread ...............................                                 2.41%                                     2.13%
Net interest income and net yield
      on earning assets ............................                    $ 8,888      2.94%                       $ 7,685       2.88%
Interest free funds supporting earning assets ......       $57,605                                $  60,313
</TABLE>
-----------------------------------------
(1)  Yields and rates are annualized
(2)  Yields on tax exempt instruments have not been adjusted to a tax-equivalent
     basis.
(3)  Nonaccrual  loans are included in the average  loan  balances and income on
     such loans is recognized on a cash basis.
(4)  Includes immaterial amounts of loan fees.


                                       16
<PAGE>

Provision and Allowance for Loan Losses

         The  provision  for loan losses was $965,000  for the third  quarter of
2008 compared  with  $150,000 for the third quarter of 2007.  For the first nine
months of 2008,  the  provision  for loan losses was  $1,375,000,  compared with
$270,000 for the first nine months of 2007. At September 30, 2008, the allowance
for loan losses was 1.31% of loans,  compared  with 1.05% at December  31, 2007.
The increase in the provision and allowance was made as a result of  significant
increases in the amounts of nonaccrual and potential  problem  loans,  increased
net  charge-offs,  higher  volumes of loans and  heightened  concerns  about the
ability of customers to perform in accordance  with the terms of their loans due
to weaknesses in the broader economic situation.

         For the first nine months of 2008, net  charge-offs  totaled  $446,000,
compared  with $141,000 in net charge offs during the same period of 2007. As of
September 30, 2008,  nonaccrual  loans totaled  $4,725,000.  As of September 30,
2007,  there were $481,000 in nonaccrual loans and no loans 90 days or more past
due and still accruing  interest.  The activity in the allowance for loan losses
is summarized in the table below:

<TABLE>
<CAPTION>
                                                                             Nine Months                               Nine Months
                                                                                Ended            Year Ended               Ended
                                                                             September 30,        December 31,         September 30,
                                                                                2008                 2007                  2007
                                                                                ----                 ----                  ----
                                                                                            (Dollars in thousands)
<S>                                                                          <C>                   <C>                   <C>
Allowance at beginning of period .................................           $   2,574             $   2,242             $   2,242
Provision for loan losses ........................................               1,375                   594                   270
Net charge-offs ..................................................                (446)                 (262)                 (141)
                                                                             ---------             ---------             ---------
Allowance at end of period .......................................           $   3,503             $   2,574             $   2,371
                                                                             =========             =========             =========
Allowance as a percentage of loans outstanding
   at period end .................................................                1.31%                 1.05%                 1.00%
Loans at end of period ...........................................           $ 267,075             $ 244,131             $ 236,907
                                                                             =========             =========             =========
</TABLE>



                                       17
<PAGE>


Non-Performing and Potential Problem Loans

<TABLE>
<CAPTION>
                                                          90 Days or
                                                         More Past Due  Total Non-        Percentage                     Percentage
                                         Nonaccrual        and Still    performing         of Total      Potential         of Total
                                            Loans          Accruing        Loans             Loans      Problem Loans        Loans
                                            -----          --------        -----             -----      -------------        -----
                                                                           (Dollars in thousands)
<S>                                        <C>             <C>            <C>                 <C>        <C>                 <C>
January 1, 2007 ...................        $    50         $     -        $    50             0.02%      $ 3,176             1.56%
Net change ........................            143               -            143                           (151)
                                           -------         -------        -------                        -------
March 31, 2007 ....................            193               -            193             0.09%        3,025             1.43%
Net change ........................            219               -            219                             97
                                           -------         -------        -------                        -------
June 30, 2007 .....................            412               -            412             0.18%        3,122             1.38%
Net change ........................             14               -             14                            106
                                           -------         -------        -------                        -------
September 30, 2007 ................            426               -            426             0.18%        3,228             1.36%
Net change ........................            199               -            199                           (140)
                                           -------         -------        -------                        -------
December 31, 2007 .................            625               -            625             0.26%        3,088             1.26%
Net change ........................           (181)              -           (181)                           962
                                           -------         -------        -------                        -------
March 31, 2008 ....................            444               -            444             0.18%        4,050             1.61%
Net change ........................          1,436               -          1,436                          1,338
                                           -------         -------        -------                        -------
June 30, 2008 .....................          1,880               -          1,880             0.73%        5,388             2.10%
Net change ........................          2,845               -          2,853                          1,194
                                           -------         -------        -------                        -------
September 30, 2008 ................        $ 4,725         $     -        $ 4,733             1.77%      $ 6,582             2.46%
                                           =======         =======        =======                        =======
</TABLE>

         Potential problem loans include loans, other than non-performing loans,
that management has identified as having possible credit problems  sufficient to
cast  doubt upon the  abilities  of the  borrowers  to comply  with the  current
repayment terms.  Such loans are assigned to one of several  risk-rating  grades
depending  on factors  such as past due  status,  collateral  values,  and other
factors  affecting the  customers'  ability to repay.  As of September 30, 2008,
approximately 75% of the Company's  potential problem loans were included in the
Company's least severe risk-rating grade. Approximately 90% of potential problem
loans were secured by real estate. Management expects that further deterioration
of  economic  conditions  within  the  Company's  market  areas is likely in the
short-term,  especially with respect to real estate related  activities and real
property values. Consequently, it is expected that increased provisions for loan
losses will be needed in the future.

Noninterest Income

         Noninterest  income  totaled  $634,000  for the third  quarter of 2008,
compared with $583,000 for the 2007 quarter. Service charges on deposit accounts
in the 2008 quarter were  $374,000  representing  a decrease of $20,000 from the
prior year period.  Increases in the value of bank-owned  life insurance  during
the third quarter of 2008 totaled $94,000  compared with $33,000 during the same
period of 2007. Sales of securities in the 2008 third quarter were undertaken to
take advantage of attractive  yields for fixed rate mortgage  backed  securities
and to eliminate  adjustable rate mortgage backed  securities from the Company's
portfolio.  Those sales resulted in net losses of $3,000. There were no sales of
securities in the 2007 period.

         For the nine  months  ended  September  30,  2008,  noninterest  income
totaled  $1,868,000,  compared  with  $1,571,000  for the same  period  of 2007.
Service  charges  on  deposit  accounts  in  the  2008  period  were  $1,109,000
representing  an increase of $38,000  from the prior year  period's  $1,071,000.
During  the 2008 and 2007 nine  month  periods,  increases  in the value of life
insurance assets totaling $280,000 and $33,000 were recognized, respectively.

Noninterest Expenses

         Noninterest  expenses totaled  $1,938,000 for the third quarter of 2008
compared with  $1,901,000 for the same period of 2007,  representing an increase
of $37,000 or 1.9%.  Salaries and  employee  benefits  decreased by $57,000,  or
5.0%,  to  1,073,000  due to lower rates paid for employee  life and  disability
insurance coverage.

         Occupancy and furniture and equipment expenses for the third quarter of
2008   increased  by  $18,000   compared  with  2007  primarily  due  to  higher
depreciation and operating costs of the Company's offices.  Higher expenses were
incurred in 2008 for  stationery,  postage,  supplies and  promotional  expenses
resulting from the opening of the new corporate  offices and additional  banking
offices and increased numbers of deposit accounts. The cost of deposit insurance


                                       18
<PAGE>

was $58,000 for the third  quarter of 2008,  compared with $10,000 for the third
quarter of 2007.  Further  increases in these expenses are expected to occur due
to costs  expected  to be incurred  to  continue  coverage  of certain  debt and
non-interest   bearing  transaction   accounts  under  the  Temporary  Liquidity
Guarantee Program.

         For the nine months ended  September  30,  2008,  salaries and employee
benefits increased by $374,000, or 13.2%, over the amount for 2007. The increase
in salaries and benefits for 2008 is  attributable  to an increase in the number
of  employees  for the new  Seneca  and  Anderson  offices,  and  normal  salary
increases.  Net occupancy and furniture and equipment  expenses  increased by an
aggregate of $101,000,  or 15.8%,  due to expansion of the Company's  network of
banking offices and higher costs of utilities,  maintenance, and other recurring
expenses.

Liquidity

         Liquidity is the ability to meet current and future obligations through
the  liquidation or maturity of existing assets or the acquisition of additional
liabilities.  The  Company  manages  both  assets  and  liabilities  to  achieve
appropriate  levels  of  liquidity.  Cash  and  short-term  investments  are the
Company's  primary  sources of asset  liquidity.  These funds  provide a cushion
against  short-term  fluctuations  in cash flow from both  deposits  and  loans.
Securities  available-for-sale  are the Company's  principal source of secondary
asset  liquidity.  However,  the  availability  of this source is  influenced by
market conditions.  Individual and commercial deposits are the Company's primary
source of funds for credit activities. The Company has approximately $20,000,000
of credit availability under its FHLB lines of credit and additional amounts are
available  under  federal  funds  purchased  facilities.  Provided  the  Company
continues to participate in the Temporary Liquidity Guarantee Program, any newly
issued  senior  unsecured  debt  issued  before  July 1,  2009  would  be  fully
guaranteed  by the FDIC  until  its  maturity  not  later  than  June 30,  2012.
Management  believes  that  continuing  to  participate  in that  program  would
significantly increase the Company's ability to secure financing as needed up to
the limits imposed by the program.

         As of  September  30,  2008,  the ratio of loans to total  deposits was
69.6%, compared with 68.6% as of December 31, 2007. Deposits as of September 30,
2008 were $383,722,000, an increase of $27,855,000 or 7.8% over the amount as of
December 31, 2007.  Management believes that the Company's liquidity sources are
adequate to meet its operating needs.

Capital Resources

         The Company's  capital base increased by $2,880,000  since December 31,
2007 as the result of net  income of  $2,514,000  for the first  nine  months of
2008, $365,000 from the exercise of employee stock options, plus a $1,000 change
in unrealized gains and losses on available-for-sale securities, net of deferred
income tax effects.

         The  Company  and its banking  subsidiary  (the  "Bank") are subject to
regulatory  risk-based capital adequacy standards.  Under these standards,  bank
holding  companies and banks are required to maintain  certain minimum ratios of
capital to risk-weighted  assets and average total assets.  Under the provisions
of the Federal Deposit Insurance  Corporation  Improvement Act of 1991 (FDICIA),
federal bank regulatory authorities are required to implement prescribed "prompt
corrective actions" upon the deterioration of the capital position of a bank. If
the  capital  position  of an affected  institution  were to fall below  certain
levels, increasingly stringent regulatory corrective actions are mandated.

         The September  30, 2008 risk based  capital  ratios for the Company and
the  Bank  are  presented  in the  following  table,  compared  with  the  "well
capitalized" and minimum ratios under the regulatory definitions and guidelines:

                                                             Total
                                               Tier 1       Capital     Leverage
                                               ------       -------     --------
Community First Bancorporation                  13.8%        15.0%        9.5%
Community First Bank                            13.1%        14.3%        9.0%
Minimum "well-capitalized" requirement           6.0%        10.0%        6.0%
Minimum requirement                              4.0%         8.0%        5.0%



                                       19
<PAGE>

Off-Balance-Sheet Arrangements

         In the  normal  course  of  business,  the Bank is  party to  financial
instruments with  off-balance-sheet  risk including commitments to extend credit
and standby letters of credit.  Such instruments have elements of credit risk in
excess of the amount  recognized  in the balance  sheet.  The exposure to credit
loss in the  event of  nonperformance  by the  other  parties  to the  financial
instruments  for  commitments to extend credit and standby  letters of credit is
represented by the contractual notional amount of those instruments.  Generally,
the same credit policies used for on-balance-sheet  instruments,  such as loans,
are used in extending loan commitments and standby letters of credit.

         Following  are  the   off-balance-sheet   financial  instruments  whose
contract amounts represent credit risk:

                                            September 30, 2008
                                          (Dollars in thousands)
Loan commitments .....................                $ 43,081
Standby letters of credit ............                     889


         Loan  commitments  involve  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 some
involve payment of a fee. Many of the commitments are expected to expire without
being fully  drawn;  therefore,  the total amount of loan  commitments  does not
necessarily represent future cash requirements. Each customer's creditworthiness
is evaluated on a case-by-case basis. The amount of collateral obtained, if any,
upon  extension  of credit is based on  management's  credit  evaluation  of the
borrower. Collateral held varies but may include commercial and residential real
properties, accounts receivable, inventory and equipment.

         Standby letters of credit are conditional  commitments to guarantee the
performance of a customer to a third party.  The credit risk involved in issuing
standby  letters  of  credit  is the  same  as  that  involved  in  making  loan
commitments to customers. Many letters of credit will expire without being drawn
upon  and do not  necessarily  represent  future  cash  requirements.  The  Bank
receives fees for loan commitments and standby letters of credit.  The amount of
such fees was not  material  for either the nine  months or three  months  ended
September 30, 2008.

         As described under  "Liquidity,"  management  believes that its various
sources of liquidity  provide the  resources  necessary for the Bank to fund the
loan  commitments  and to perform under standby  letters of credit,  if the need
arises. Neither the Company nor the Bank are involved in other off-balance sheet
contractual  relationships or transactions  that could result in liquidity needs
or other commitments or significantly impact earnings.

Item 3.  - Quantitative and Qualitative Disclosures About Market Risk

         The Company's  exposure to market risk is primarily related to the risk
of loss from  adverse  changes  in market  prices and  rates.  This risk  arises
principally from interest rate risk inherent in the Company's  lending,  deposit
gathering and borrowing activities. Management actively monitors and manages its
interest rate risk exposure.  Although the Company manages other risks,  such as
credit quality and liquidity  risk in the normal course of business,  management
considers  interest  rate risk to be its most  significant  market risk and this
risk  could  potentially  have the  largest  material  effect  on the  Company's
financial condition and results of operations.  Other types of market risk, such
as commodity price risk and foreign currency  exchange risk, do not arise in the
normal course of the Company's community banking operations.

         The Company uses a simulation  model to assist in achieving  consistent
growth in net interest income while managing interest rate risk. As of September
30 2008, the model  indicates that net interest  income would increase  $103,000
and net income  would  increase  $64,000 in the next  twelve  months if interest
rates rose by 100 basis points.  Conversely,  net interest income would decrease
$52,000  and net income  would  decrease  $32,000 in the next  twelve  months if
interest  rates  declined  by 100 basis  points.  In the current  interest  rate
environment,  it  appears  unlikely  that  there  will be any large  changes  in
interest rates in the immediate future. The prospective  effects of hypothetical
interest  rate  changes  are based on a number  of  assumptions,  including  the
relative  levels of market interest rates and prepayment  assumptions  affecting
loans,  and should not be relied on as indicative of actual future results.  The
prospective effects also do not contemplate  potential actions that the Company,
its customers and the issuers of its investment  securities  could  undertake in
response to changes in interest rates.

         As of September  30,  2008,  there was no  significant  change from the
interest rate  sensitivity  analysis for the various  changes in interest  rates


                                       20
<PAGE>

calculated  as of December 31, 2007.  The foregoing  disclosures  related to the
Company's market risk should be read in conjunction with Management's Discussion
and Analysis of Financial  Condition and Results of  Operations  included in the
2007  Annual  Report  on Form  10-K  filed  with  the  Securities  and  Exchange
Commission.


Item 4T. - Controls and Procedures

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

There  has been no change  in the  Company's  internal  control  over  financial
reporting during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially  affect,  the Company's internal control over
financial reporting.


                           PART II - OTHER INFORMATION

Item 1A.  Risk Factors

The  following  are  additional  risk  factors  for the  Company,  to be read in
conjunction  with Item 1A, "Risk Factors - Risks Related to Our Industry" in the
Company's Form 10-K for the year ended December 31, 2007.

1.   There  can  be no  assurance  that  recent  government  actions  will  help
     stabilize the U.S. financial system.

In response to the financial  crises  affecting the banking system and financial
markets  and going  concern  threats  to  investment  banks and other  financial
institutions,  various branches and agencies of the U.S.  government have put in
place laws,  regulations and programs to address capital and liquidity issues in
the banking system. There can be no assurance,  however, as to the actual impact
that such laws,  regulations  and programs will have on the  financial  markets,
including the extreme levels of volatility,  liquidity and confidence issues and
limited credit  availability  currently being  experienced.  The failure of such
laws,  regulations  and programs to help  stabilize the financial  markets and a
continuation  or  worsening  of  current   financial  market   conditions  could
materially and adversely affect our business,  financial  condition,  results of
operations, access to credit or the trading price of our common stock.

2.   Current levels of market volatility are unprecedented.

Although  many markets have been  experiencing  volatility  and  disruption  for
months,  in the past few weeks,  the  volatility and disruption of financial and
credit markets has reached unprecedented levels for recent times. In some cases,
the  markets  have  produced  downward  pressure  on  stock  prices  and  credit
availability  for certain  issuers  without regard to those issuers'  underlying
financial  strength.  If  current  levels of market  disruption  and  volatility
continue or worsen,  there can be no assurance  that we will not  experience  an
adverse effect,  which may be material,  on our ability to access capital and on
our business, financial condition and results of operations.

3.   The soundness of other financial institutions could adversely affect us.

Financial  services  institutions  are  interrelated  as a  result  of  trading,
clearing,  counterparty,  or  other  relationships.  We  have  exposure  to many
different  industries and counterparties,  and we routinely execute transactions
with  counterparties  in the financial  services  industry,  including  brokers,
dealers,   commercial  banks,   investment   banks,  and  government   sponsored
enterprises. Many of these transactions expose us to credit risk in the event of
default of our  counterparty.  In addition,  our credit risk may be  exacerbated
when the collateral held by us cannot be realized or is liquidated at prices not
sufficient  to recover the full amount of the loan or other  obligation  due us.
There is no assurance  that any such losses would not  materially  and adversely
affect our results of operations or earnings.

4.   Current market developments may adversely affect our industry, business and
     results of operations.

Dramatic declines in the housing market during the prior year, with falling home
prices  and  increasing   foreclosures  and   unemployment,   have  resulted  in
significant  write-downs  of asset values by financial  institutions,  including
government-sponsored  entities and major commercial and investment banks.  These
write-downs,  initially of  mortgage-backed  securities  but spreading to credit
default  swaps  and other  derivative  securities  have  caused  many  financial
institutions  to seek  additional  capital,  to merge with  larger and  stronger
institutions and, in some cases, to fail. Reflecting concern about the stability
of the  financial  markets  generally and the strength of  counterparties,  many
lenders and institutional  investors have reduced,  and in some cases, ceased to
provide  funding to  borrowers,  including  other  financial  institutions.  The
resulting lack of available credit,  lack of confidence in the financial sector,
increased  volatility in the  financial  markets and reduced  business  activity


                                       21
<PAGE>

could  materially  and adversely,  directly or indirectly,  affect our business,
financial condition and results of operations.


Item 6. - Exhibits

Exhibits
                  31. Rule 13a-14(a)/15d-14(a) Certifications

                  32.  Certifications  Pursuant  to 18  U.S.C. Section 1350





                                       22
<PAGE>


SIGNATURE

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


                                  COMMUNITY FIRST BANCORPORATION

November 14, 2008                  /s/ Frederick D. Shepherd, Jr.
-----------------                 ----------------------------------------------
     Date                          Frederick D. Shepherd, Jr., Chief Executive
                                   Officer and Chief Financial Officer



                                       23
<PAGE>

                                  EXHIBIT INDEX


            31. Rule 13a-14(a)/15d-14(a) Certifications

            32.  Certifications  Pursuant  to 18  U.S.C. Section 1350







                                       24