SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

                      For the quarterly period ended June 30, 1998

                                       Or

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

                      For the transition period from _____ to _____

                        Commission file number 001-14417

                              BANKFIRST CORPORATION
             (Exact name of registrant as specified in its charter)

               Tennessee                                   58-1790903
    (State or other jurisdiction of                     (I.R.S. Employer
     incorporation or organization)                    Identification No.)

           625 Market Street
         Knoxville, Tennessee                                 37902
 (address of principal executive offices)                   (Zip Code)

      Registrant's telephone number, including area code    423.595.1100

      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 ___    No _X_

      The number of shares  outstanding of each of the  registrant's  classes of
common stock as of July 31, 1998:

       Title of Class                                    Shares Outstanding
Common Stock, $2.50 par value                                 9,998,295

<PAGE>

                              BANKFIRST CORPORATION

                                      INDEX

PART I - FINANCIAL INFORMATION

         Item 1. Financial Statements ...................................    3

         Item 2. Management's Discussion and Analysis of Financial
                 Condition and Results of Operations ....................   10

         Item 3. Quantitative and Qualitative Disclosures about
                 Market Risk ............................................   14

PART II - OTHER INFORMATION

         Item 1. Legal Proceedings ......................................   15

         Item 2. Changes in Securities ..................................   15

         Item 3. Defaults Upon Senior Securities ........................   15

         Item 4. Submission of Matters to a Vote of Security Holders ....   15

         Item 5. Other information ......................................   15

         Item 6. Exhibits and Reports on Form 8-K .......................   56

SIGNATURES

Note: The  accompanying  information has not been audited by independent  public
accountants; however, in the opinion of management such information reflects all
adjustments  necessary  for a fair  presentation  of the results for the interim
period. All such adjustments are of a normal and recurring nature.

      The accompanying financial statements are presented in accordance with the
requirements of Form 10-Q and consequently do not include all of the disclosures
normally required by generally accepted accounting principles.


                                       2
<PAGE>

Part I - Financial Information

Item 1. Fiancial Statements

                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)
         (Dollar amounts in thousands, except share and per share data)
--------------------------------------------------------------------------------

                                                            June 30,   Dec. 31, 
                                                              1998       1997
                                                            --------   --------
ASSETS
  Cash and due from banks                                   $ 28,453   $ 24,290
  Federal Funds Sold                                           9,450      7,000
  Securities available for sale, at fair value               126,664    127,736
  Mortgage loans held for sale                                18,999        395
  Loans, net                                                 478,222    458,474
  Premises and equipment, net                                 22,888     21,466
  Mortgage servicing rights                                    7,191          0
  Federal Home Loan Bank Stock, at cost                        3,078      3,046
  Intangible assets                                            2,147        289
  Accrued interest receivable and other asset                  9,507      8,021
                                                            --------   --------

     Total assets                                           $706,599   $650,717
                                                            ========   ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
  Noninterest-bearing deposits                              $103,031   $ 92,749
  Interest-bearing deposits                                  485,704    457,020
                                                            --------   --------
     Total deposits                                          588,735    549,769

  Securities sold under agreements to repurchase              22,888     16,302
  Federal funds purchased and other borrowings                 9,600      1,959
  Advances from the Federal Home Loan Bank                    12,314     12,121
  Accrued interest payable and other liabilities               8,379      9,134
                                                            --------   --------
     Total liabilities                                       641,916    589,285

Employee Stock Ownership Plan                                  1,745      1,539

Stockholders' equity
  Common stock:  $2.50 par value, 15,000,000 shares
    authorized, 9,998,045 and 9,995,519  shares
    outstanding                                               24,559     24,553
  Noncumulative convertible preferred stock:  $5 par
    value, 1,000,000 shares authorized, 215,805 and
    218,508 shares outstanding                                 1,079      1,093
  Additional paid-in capital                                  22,520     22,674
  Retained earnings                                           13,599     10,612
  Unrealized gain on securities available for sale             1,181        961
                                                            --------   --------
     Total stockholders' equity                               62,938     59,893
                                                            --------   --------

     Total liabilities and stockholders' equity             $706,599   $650,717
                                                            ========   ========

--------------------------------------------------------------------------------

        See accompanying notes to the consolidated financial statements.


                                       3
<PAGE>

                        CONSOLIDATED STATEMENTS OF INCOME
         (Dollar amounts in thousands, except share and per share data)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                     Three months ended June 30       Six months ended June 30
                                            (Unaudited)                   (Unaudited)
                                          1998       1997                1998       1997
                                        --------   --------            --------   --------
<S>                                     <C>        <C>                 <C>        <C>     
Interest income                                                        
    Interest and fees on loans          $ 11,822   $ 10,053            $ 24,390   $ 20,618
    Taxable securities                     1,440      1,786               2,969      3,701
    Nontaxable securities                    454        288                 917        589
    Other                                     80        118                 125        110
                                        --------   --------            --------   --------
                                          13,796     12,245              28,401     25,018
                                                                       
Interest expense                                                       
    Deposits                               5,321      5,152              11,106     10,418
    Short-term borrowings                    535        179                 872        330
    Long-term borrowings                     144        169                 478        364
                                        --------   --------            --------   --------
                                           6,000      5,500              12,456     11,112
                                        --------   --------            --------   --------
                                                                       
Net interest income                        7,796      6,745              15,945     13,906
                                                                       
Provision for loan losses                    534        360               1,067        720
                                        --------   --------            --------   --------
Net interest income after provision 
for loan losses                            7,262      6,385              14,878     13,186
                                                                       
Noninterest income                                                     
    Service charges and fees                 767        801               2,308      2,022
    Loan servicing income, net of            325          0                 625       --
    amortization                                                       
    Net gain on loan sales                   206         52                 463         95
    Trust department income                  185        161                 347        300
    Other                                    476        284                 222        100
                                        --------   --------            --------   --------
                                           1,959      1,298               3,965      2,517
                                                                       
Noninterest expenses                                                   
    Salaries and employee benefits         3,646      2,798               7,146      5,664
    Occupancy expense                        541        359               1,111        673
    Equipment expense                        663        644               1,290        938
    Office expense                           355        105                 904        583
    Data processing fee                      365        298                 752        613
    FDIC assessments                          11         29                  39         34
    Merger expense                            39          0                 276       --
    Other                                  1,018      1,107               2,400      2,250
                                        --------   --------            --------   --------
                                           6,638      5,340              13,918     10,755
                                        --------   --------            --------   --------
                                                                       
Income before income taxes                 2,583      2,343               4,925      4,948
Provision for income taxes                   880        776               1,746      1,562
                                        --------   --------            --------   --------
                                                                       
Net Income                              $  1,703   $  1,567            $  3,179   $  3,386
                                        ========   ========            ========   ========
                                                                       
Other comprehensive income (loss, net                                  
of tax                                                                 
    Change in unrealized gain                330     (1,302)                220        (37)
    (loss) on securities                                               
    Reclassification of realized 
    amount                                  --         --                  --           18
                                        --------   --------            --------   --------
                                                                       
Comprehensive income                    $  2,033   $    265            $  3,399   $  3,367
                                        ========   ========            ========   ========
Earnings per share:                                                    
    Basic                               $   0.17   $   0.16            $   0.31   $   0.34
    Diluted                             $   0.16   $   0.14            $   0.29   $   0.31
</TABLE>
                                                                       
--------------------------------------------------------------------------------
        See accompanying notes to the consolidated financial statements.


                                       4
<PAGE>

            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                         Six Months ended June 30, 1998
                                   (Unaudited)
         (Dollar amounts in thousands, except share and per share data)

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                         Net
                                                                                                      Unrealized        Total
                                                                      Additional                        Gains           Stock-
                                         Common       Preferred        Paid-in         Retained       (Losses)         holders'
                                          Stock         Stock          Capital         Earnings     on Securities       Equity
                                      ------------   ------------    ------------    ------------    ------------    ------------
<S>                                   <C>            <C>             <C>             <C>             <C>             <C>         
Balance, January 1, 1998              $     24,553   $      1,093    $     22,674    $     10,612    $        961    $     59,893

Sales of common stock, 428 shares                1           --                15            --              --                16

Stock options exercised, 857 shares              1           --                27            --              --                28

Conversion of 2,703 shares of
 preferred stock into 1,669 shares
 common stock                                    4            (14)             10            --              --              --

Cash dividend on preferred stock              --             --              --               (78)           --               (78)

Cash dividend on common stock                 --             --              --              (114)           --              (114)

Net income                                    --             --              --             3,179            --             3,179

Reclassification of ESOP shares
 subject to put options                       --             --              (206)           --              --              (206)

Change in unrealized gains                    --             --              --              --               220             220
 (losses)
                                      ------------   ------------    ------------    ------------    ------------    ------------
Balance, June 30, 1998                $     24,559   $      1,079    $     22,520    $     13,599    $      1,181    $     62,938
                                      ============   ============    ============    ============    ============    ============
</TABLE>

--------------------------------------------------------------------------------
        See accompanying notes to the consolidated financial statements.


                                       5
<PAGE>

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
         (Dollar amounts in thousands, except share and per share data)
                                   (Unaudited)
--------------------------------------------------------------------------------
                                                       Six months ended June 30,
                                                             (Unaudited)
                                                            1998        1997
                                                         --------    --------
Cash flows from operating activities
   Net income                                            $  3,179    $  3,386
   Adjustments to reconcile net income to net cash from
     operating activities
     Provision for loan losses                              1,067         720
     Depreciation                                           1,042         667
     Security amortization and accretion, net                  62         114
     Gain on sale of mortgage loans                          (463)        (95)
     Proceeds from sales of mortgage loans held for sale   56,767       3,000
     Purchases of mortgage loans held for sale            (20,482)       --
     Originations of mortgage loans held for sale         (69,778)    (16,159)
   Changes in assets and liabilities
     Accrued interest receivable and other assets          (3,018)      2,028
     Accrued interest payable and other liabilities          (738)        630
                                                         --------    --------
         Net cash used in operating activities            (32,362)     (5,709)

Cash flows from investing activities
   Net cash paid for mortgage company                      (7,449)       --
   Purchase of securities                                 (12,098)    (26,545)
   Proceeds from maturities of securities                  13,555      17,747
   Proceeds from sale of securities                          --         7,963
   Net increase in loans                                    2,110     (10,782)
   Purchase of FHLB stock                                     (86)     (2,255)
   Premises and equipment expenditures, net                (1,868)     (1,224)
                                                         --------    --------
     Net cash used in investing activities                 (5,836)    (15,096)

Cash flows from financing activities
   Net change in deposits                                  38,965      17,744
   Net change in securities sold
     under agreements to repurchase                        (6,252)      6,883
   Net change in federal funds purchased                    7,851       1,500
   Increase in other borrowed funds                           650         386
   Repayment of other borrowed funds                       (6,505)         (7)
   Advances from the FHLB                                  15,500       1,000
   Repayment of notes payable                              (5,250)       (251)
   Preferred stock dividends paid                             (78)        (81)
   Common stock dividends paid                               (114)       (344)
   Stock options exercised                                     28        --
   Repurchase of common stock                                  16        (156)
                                                         --------    --------
     Net cash provided by financing activities             44,811      26,674

Net change in cash and cash equivalents                     6,613       5,869

Cash and cash equivalents, beginning of period             31,290      25,132
                                                         --------    --------

Cash and cash equivalents, end of period                 $ 37,903    $ 31,001
                                                         ========    ========

Supplemental disclosures:
   Interest paid                                         $ 12,232    $ 11,230
   Income taxes paid                                        1,692         827
   Loans converted to other real estate                       178         107
   Preferred stock converted to common stock                   14        --
   Reclassification of ESOP shares                            209        --

--------------------------------------------------------------------------------
        See accompanying notes to the consolidated financial statements.


                                       6
<PAGE>

                              BANKFIRST CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (Dollar amounts in thousands, except share and per share data)
--------------------------------------------------------------------------------

Principles of Consolidation:  The consolidated  financial statements include the
accounts of BankFirst Corporation  (formerly Smoky Mountain Bancorp,  Inc.) (the
"Company") and its wholly-owned subsidiaries,  BankFirst and First National Bank
and Trust Company (the "Banks"), and BankFirst's wholly-owned subsidiary, Curtis
Mortgage  Company.  These  financial  statements  have  been  prepared  to  give
retroactive effect to the merger with First Franklin Bancshares, Inc. on July 2,
1998.  Generally  accepted  accounting  principles  proscribe giving effect to a
consummated  business  combination  accounted  for by the  pooling of  interests
method  in  financial  statements  that  do  not  extend  through  the  date  of
consummation.  These  financial  statements  do not extend  through  the date of
consummation;  however, they will become the historical  consolidated  financial
statements of BankFirst Corporation after financial statements covering the date
of consummation of the business combination are issued.

The accompanying  unaudited consolidated financial statements have been prepared
in  accordance  with  generally  accepted  accounting   principles  for  interim
financial  information,   and  accordingly  they  do  not  include  all  of  the
information and footnotes required by generally accepted  accounting  principles
for complete financial statements. In the opinion of management, all adjustments
(consisting  of  normal  recurring  accruals)  considered  necessary  for a fair
presentation  have been  included.  Operating  results for the six month periods
ended June 30, 1998 and 1997 are not necessarily  indicative of the results that
may be expected  for the year ended  December  31,  1998,  or for the year ended
December  31,  1997.  For  further   information,   refer  to  the  supplemental
consolidated  financial  statements and footnotes  thereto included  BankFirst's
supplemental  consolidated  financial statements for the year ended December 31,
1997.

Mortgage Banking Activities:  Mortgage loans originated and intended for sale in
the  secondary  market are carried at the lower of cost or  estimated  aggregate
market  value.  Mortgage  loans  are sold  into the  secondary  market at market
prices,  which includes  consideration for normal servicing fees. The total cost
of mortgage loans  purchased or originated  with the intent to sell is allocated
between the loan servicing right and the mortgage loan without servicing,  based
on their relative fair values.  The capitalized cost of loan servicing rights is
amortized  in  proportion  to,  and over the  period  of,  estimated  net future
servicing  revenue.  Mortgage  servicing rights are  periodically  evaluated for
impairment by stratifying them based on predominant risk  characteristics of the
underlying  serviced loans,  such as loan type,  term and note rate.  Impairment
represents the excess of cost of an individual mortgage servicing rights stratum
over its fair value, and is recognized through a valuation allowance.

Borrowings:  Repurchase  agreements  and Federal  Funds  purchased are generally
overnight borrowings.

Comprehensive  Income:  The Company  adopted  Statement of Financial  Accounting
Standard No. 130, "Reporting  Comprehensive  Income",  effective for the interim
period ended June 30, 1998. This Standard  requires  reporting of  comprehensive
income, defined as changes in equity other than those resulting from investments
by  or  distributions  to  stockholders.   Net  income,  plus  or  minus  "other
comprehensive  income" results in comprehensive  income.  The only item of other
comprehensive  income applicable to the Company is the change in unrealized gain
or loss on securities  available for sale.  Comprehensive  income is reported on
the statement of income. The period ended June 30, 1997 was restated to meet the
current reporting format.

Purchase  Transaction:  On January 16, 1998, the Bank acquired  Curtis  Mortgage
Company,  a mortgage loan  origination  and servicing  company,  for $7,500 in a
business combination  accounted for as a purchase.  The results of operations of
Curtis Mortgage  Company is included in the  accompanying  financial  statements
since the date of  acquisition.  The excess of the purchase  price over the fair
value of net assets  acquired  resulted  in $1,900 of  goodwill,  which is being
amortized on a straight-line  basis over 15 years. Upon the transaction,  $6,065
of the purchase  price was  allocated to mortgage  servicing  rights,  which are
being amortized on a level-yield basis over the life of the underlying loans.


                                       7
<PAGE>

                              BANKFIRST CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (Dollar amounts in thousands, except share and per share data)
--------------------------------------------------------------------------------

Assets and liabilities acquired were:
    Cash                                                      $    51
    Loans held for sale                                         6,267
    Mortgage servicing rights                                   7,000
    Furniture and equipment                                       165
    Accrued interest receivable and other assets                  375
    Notes payable                                              (5,798)
    Accrued and other liabilities                              (2,460)

Earnings Per Share: Basic earnings per share is based on weighted average common
shares  outstanding.  Diluted earnings per share further assumes issuance of any
dilutive  potential  common  shares.  Earnings  per share are  restated  for all
subsequent stock dividends and splits.

A  reconciliation  of the numerators and denominators of the earnings per common
share and earnings per common share assuming dilution computations are presented
below

                                                         Six months ended
                                                              June 30,
                                                             (Unaudited)
                                                         1998           1997
                                                     -----------    -----------
Earnings Per Share

    Net income                                       $     3,179    $     3,386
    Less:  Dividends declared on preferred stock             (78)           (81)
                                                     -----------    -----------
       Net income available to common
         stockholders                                $     3,101    $     3,305
                                                     ===========    ===========

    Weighted average common shares outstanding         9,998,012      9,829,962
                                                     ===========    ===========

       Earnings per share                            $       .31    $       .34
                                                     ===========    ===========


                                       8
<PAGE>

                              BANKFIRST CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (Dollar amounts in thousands, except share and per share data)
--------------------------------------------------------------------------------

Earnings Per Share (Continued):

Earnings Per Share Assuming Dilution

    Net income available to common stockholders      $     3,101    $     3,305
                                                                   
    Add back dividends upon assumed conversion                     
      of preferred stock                                      78             81
                                                     -----------    -----------
       Net income available to common                              
         stockholders assuming conversion            $     3,179    $     3,386
                                                     ===========    ===========
                                                                   
    Weighted average common shares outstanding         9,998,012      9,829,962
                                                                   
    Add:  Dilutive effects of assumed conversions                  
      and exercises:                                               
       Convertible preferred stock                       666,298        696,413
       Stock options                                     380,898        286,066
                                                     -----------    -----------
    Weighted average common and dilutive                           
      potential common shares outstanding             11,045,208     10,812,441
                                                     -----------    -----------

Earnings per share assuming dilution                 $       .29    $       .31
                                                     ===========    ===========


                                       9
<PAGE>

Part I - Financial Information

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS

The  following   discussion   and  analysis  is  presented  to  facilitate   the
understanding of the consolidated  financial  position and results of operations
of BankFirst  Corporation  ("Company").  The consolidated  financial information
discussed herein primarily reflects the activities of the Company's wholly-owned
community  bank  subsidiaries,  BankFirst and The First  National Bank and Trust
Company ("FNB") or collectively the "Banks".  The discussion  identifies  trends
and material  changes that  occurred  during the reported  periods and should be
read in conjunction with the consolidated  financial statements and accompanying
notes appearing  elsewhere herein. The periods included within this document are
the six months ending June 30, 1998 and 1997.

All  statements  other than  statements  of  historical  facts  included in this
discussion  regarding capital  expenditures,  the Company's  financial position,
business  strategies and other plans and objectives for future  operations,  are
forward-looking    statements.   The   Company   cautions   readers   that   all
forward-looking  statements are  necessarily  speculative and not to place undue
reliance on any such forward-looking statements, which speak only as of the date
made,  and to advise  readers that various  risks and  uncertainties,  including
without limitation, regional and national economic conditions, changes in levels
of market interest rates, credit risks of lending activities and competitive and
regulatory  factors,  could affect financial  performance and could cause actual
results  for future  periods to differ  materially  from  those  anticipated  or
projected.

Overview

The Company is a community  banking  organization,  headquartered  in Knoxville,
Tennessee, which generates loans and deposits through its 29 branches throughout
East Tennessee.  The Company's  operations  principally  involve  commercial and
residential real estate lending,  commercial business lending, consumer lending,
construction  lending and other financial services,  including trust operations,
credit  card  services  and  brokerage   services.   The  Company  includes  two
wholly-owned bank subsidiaries: BankFirst, headquartered in Knoxville, and First
National  Bank and  Trust  Company  ("FNB"),  headquartered  in  Athens.  Curtis
Mortgage  Company,  Inc.  ("Curtis  Mortgage")  a  wholly-owned   subsidiary  of
BankFirst,  was  acquired  in  January  1998  and  accounted  for as a  purchase
transaction. FNB was a merger consummated on July 2, 1998 and accounted for as a
pooling of  interests,  and  accordingly,  this  document  presents the combined
financial information as if the entities were merged for all periods presented.

General

Total assets grew from $650.7 million at year-end 1997 to $706.6 million at June
30, 1998, a $55.9 million  increase.  The primary  changes in assets  included a
$18.6 million  increase in loans held for sale, a $19.7 million  increase in net
loans, $7.2 million of mortgage  servicing  assets,  and other intangible assets
which were each attributable to the purchase of the mortgage company in January,
1998.  For the period  from  January 16, 1998  purchase  date to June 30,  1998,
Curtis Mortgage  purchased and originated  $84.7 million of loans held for sale,
and had payoffs totaling $48.3 million. Total intangible assets at June 30, 1998
included  goodwill  from the  purchase  of  Curtis  Mortgage  and  approximately
$305,000 of intangibles from previous transactions.

Total liabilities grew from $589.3 million at year-end 1997 to $641.9 million at
June 30, 1998, an increase of $52.6 million. Of this growth,  deposits accounted
for $38.9 million,  federal funds  purchased  were $8.5 million,  and repurchase
agreements accounted for $3.7 million. Federal funds purchased were used to fund
mortgage loans in process and held for sale.


                                       10
<PAGE>

From year-end  1997 to June 30, 1998,  equity grew $3.0 million  primarily  from
retained net income.  The leverage capital ratio fell from 9.7% at year-end 1997
to 8.7% at June 30, 1998  resulting  from asset growth and goodwill  recorded in
the purchase of the mortgage  company  previously  referred to. This ratio still
maintains the Company in the "well  capitalized"  category.  The individual bank
subsidiaries' leverage ratios at year-end 1997 were 8.3% for BankFirst and 11.2%
for FNB.

Management  expects growth to continue  through  expansion of retail  locations,
through  expansion  of  products  and  services,  including  mortgage  servicing
opportunities  by Curtis  Mortgage and trust  services  through FNB, and through
possible future mergers or acquisitions. At the present time, the Company has no
present  agreements,  arrangements  or  commitments  with  respect  to any other
acquisition.

Results of Operations

Six Months Ended June 30, 1998 compared to Six Months Ended June 30, 1997

Net interest income  increased $2.0 million,  or 14.7%, to $15.9 million for the
six months ended June 30, 1998, from $13.9 million for the six months ended June
30, 1997.  The increase in net interest  income was due primarily to an increase
in average  earning assets and an increase in the percentage of average  earning
assets invested in loans, the Company's highest yielding assets. Average earning
assets  increased  $48.2  million,  or 8.4%,  primarily as a result of growth in
loans.

The Company's net interest  spread and net interest margin were 4.43% and 5.26%,
respectively,  for the six months ended June 30, 1998,  as compared to 4.22% and
4.93% for the six months ended June 30,  1997.  The increase in the net interest
spread and the net interest  margin were  primarily the result of an increase in
asset yields due to loan growth.

The provision for loan losses was $1.1 million for the six months ended June 30,
1998,  compared to $720,000 for the six months ended June 30, 1997. The increase
in  the  provision  was  attributable  to  general  loan  growth.   The  Company
experienced  net  charge-offs of $396,000 for the six months ended June 30, 1998
resulting in a ratio of net charge-offs to average loans of 0.16%.

Noninterest income increased $1.5 million, or 57.5%, to $4.0 million for the six
months  ended June 30, 1998 from $2.5  million for the six months ended June 30,
1997,  primarily  attributable to operations of the January 16, 1998 purchase of
Curtis Mortgage.

Noninterest  expense increased $3.2 million,  or 29.4%, to $13.9 million for the
six months ended June 30, 1998, from $10.8 million for the six months ended June
30, 1997. The primary component of noninterest expense is salaries and benefits,
which increased $1.5 million, or 26.2%, to $7.1 million for the six months ended
June 30,  1998,  from $5.6  million  for the six  months  ended  June 30,  1997.
Salaries and benefits as well as other noninterest expense categories  increased
primarily due to additional  employees  associated  with Curtis Mortgage and the
opening of three additional  branches.  Merger expenses were $276,000 as of June
30, 1998.  Other  increases in noninterest  expense were due to a major computer
system  conversion  in the second  quarter  and Year 2000 costs.  The  Company's
efficiency ratio for the six months ended June 30, 1998 was 68.29%,  compared to
64.30% for the six months ended June 30, 1997.

Net income decreased $207,000, or 6.1%, to $3.2 million for the six months ended
June 30, 1998 from $3.4  million  for the six months  ended June 30,  1997.  The
decrease in net income was  primarily  due to increases in  noninterest  expense
associated with increases in salaries and benefits  resulting from both internal
and external  growth,  merger costs,  costs  associated  with the integration of
Curtis  Mortgage,  the opening of three branches,  a computer system  conversion
cost,  and Year  2000  costs.  This was  partially  offset by  increases  in net
interest income and noninterest income.

Liquidity and Capital Adequacy


                                       11
<PAGE>

Liquidity management is both a daily and long-term responsibility of management.
The Company  adjusts its  investments  in liquid  assets and long and short term
borrowings,  based upon  management's  consideration  of expected  loan  demand,
expected deposit flows and securities sold under repurchase agreements.

The Company  believes it has the ability to raise  deposits  quickly  within its
market area by slightly  raising  interest rates, but has typically been able to
achieve deposit growth without paying above market  interest rates.  The current
strategy calls for the  subsidiary  banks to be no higher than second highest in
their  pricing as  compared to their  primary  competitors.  Deposit  growth has
funded most of the significant  asset growth in the past several years,  but has
decreased modestly as a percent of total funding.

The Company actively solicits customer cash management relationships which often
includes a securities  repurchase  agreement  feature.  Under these  agreements,
commercial  customers are able to generate  earnings on otherwise  idle funds on
deposits with the subsidiary banks. These accounts are considered volatile under
regulatory  requirements,  although  the  Company  has found them to be a steady
source of funding. The Company has been able to increase customer  relationships
because of its strong business lending  program.  While more costly than deposit
funding,  these deposit-related  accounts are typically the lowest cost borrowed
funds available to the Company.

The  Company  maintains   significant  lines  of  credit  with  other  financial
institutions,  totaling  approximately  $36 million  under  agreements  with six
commercial banks. The subsidiary banks also have the capacity to borrow from the
FHLB without purchasing additional FHLB stock.

The primary source of capital for the Company is retained earnings.  The Company
paid cash  dividends of $192,370  for the first six months of 1998.  The Company
retained $3.1 million of earnings for the first six months of 1998.

The  Company  and its  bank  subsidiaries  are  subject  to  regulatory  capital
requirements  administered  by  federal  and  state  banking  agencies.  Capital
adequacy   guidelines  and  prompt   corrective   action   regulations   involve
quantitative  measures of assets,  liabilities,  and certain  off-balance  sheet
items calculated under regulatory  accounting  practices.  The prompt corrective
action  regulations  provide five  classifications,  including well capitalized,
adequately capitalized, under capitalized,  significantly under capitalized, and
critically  under  capitalized,  although  these terms are not used to represent
overall financial  condition.  If under capitalized,  capital  distributions are
limited, as is asset growth and expansion, and plans for capital restoration are
required.

Under  guidelines  issued  by  banking  regulators,  the  Company  and its  bank
subsidiaries are required to maintain a minimum Tier 1 risk-based  capital ratio
of 4% and a minimum total  risk-based  ratio of 8%.  Risk-based  capital  ratios
weight the relative risk factors of all assets and consider the risk  associated
with  off-balance  sheet  items.  The  Company's  Tier 1  risk-based  and  total
risk-based ratios were 9.00% and 10.19% respectively,  as of June 30, 1998. Both
bank subsidiaries also individually met the definition of "well  capitalized" as
of June 30, 1998.

Market Risk

The Company uses an earnings simulation model to analyze the net interest income
sensitivity.  Potential  changes in market  interest rates and their  subsequent
effect on interest  income is then  evaluated.  The model projects the effect of
instantaneous  movements in interest rates of 100 and 200 bp.  Assumptions based
on the historical behavior of the Company'deposit rates and balances in relation
to interest rates are also  incorporated  in the model.  These  assumptions  are
inherently  uncertain and, as a result,  the model cannot precisely  measure net
interest  income or  precisely  predict  the  impact of  fluctuations  in market
interest  rates on net  interest  income.  Actual  results  will differ from the
model's  simulated  results due to timing,  magnitude  and frequency of interest
rate changes,  as well as changes in market  conditions  and the  application of
various management strategies.


                                       12
<PAGE>

Management  believes  that the Company's  market risk profile is not  materially
different than year-end 1997.

Even though the Company's  cumulative GAP at one year is negative,  the earnings
simulation  model indicates that an increase in interest rates of 100 bp and 200
bp would result in increased net interest income. This occurs because management
believes that if overall market  interest rates  increase  modestly,  the market
would not require an  immediate,  corresponding  repricing  of non-term  deposit
liabilities.

Year 2000

The Company has  implemented  plans to address Year 2000  compliance.  The issue
arises from the fact that many existing  computer  programs use only a two digit
field to identify the year. These programs were designed without considering the
impact once the calendar  year rolls over to "00".  If not  corrected,  computer
applications could fail or create inaccurate results by or at the Year 2000. The
Company  must not only  evaluate and test its own Year 2000  readiness,  it must
also  coordinate  with other entities with which it routinely  interacts such as
suppliers,   creditors,   borrowers,  customers,  and  other  financial  service
organizations.  Regulations require the Company and the affiliates to accomplish
specific Year 2000 actions by specific dates.

The  Company  has  initiated  an  implementation  plan  providing  for Year 2000
readiness by the end of 1998. Management believes the plan is on target with the
goals established by its regulators. The affiliates have completed the awareness
and assessment phases and have substantially  completed the remediation phase of
the plan.  BankFirst's data processing  service bureau implemented new software,
which has been Year 2000  certified,  and BankFirst  completed its conversion to
this new software in April 1998.  Conversion to the new host system necessitated
an upgrade of BankFirst's  personal computer and their operating systems,  which
have been tested for Year 2000 compliance.  Prior to the merger, FNB implemented
its own Year 2000  Preparedness  Plan. The Company is entering the testing phase
of its implementation plan, which is scheduled to be substantially  completed by
year-end  1998. A contingency  plan for Year 2000 has been  developed to address
mission  critical  systems.   Management  believes  that  the  Company  and  the
affiliates are currently in compliance with each applicable  directive issued by
the Bank Regulation Authorities.

The  Company  has  determined  that the Year 2000 issue may be  critical  to its
operations;  however,  management does not believe customer readiness is or will
be material to its overall performance. Management believes that the total costs
of becoming Year 2000 compliant will not be material. Through 1997, expenditures
for Year 2000 were immaterial,  and Year 2000 related  expenditures for 1998 are
projected to be $235,000.

New Accounting and Reporting Requirements

SFAS  No.  131,  "Disclosures  About  Segments  of  an  Enterprise  and  Related
Information".  SFAS No. 131 is  effective  for  public  companies'  interim  and
year-end financial  statements for reporting period following the first required
full fiscal year disclosure. This Statement established new guidance for the way
that public business  enterprises report information about operating segments in
annual financial  statements and requires that those enterprises report selected
information  about reportable  operating  segments in interim  financial reports
issued to shareholders. SFAS No. 131 supersedes the industry approach to segment
disclosures  previously  required  by SFAS  No.  14,  "Financial  Reporting  for
Segments  of a  Business  Enterprise",  replacing  it with a method  of  segment
reporting  which  is  based  on  the  structure  of  an  enterprise's   internal
organization  reporting.  The Statement  also  established  standard for related
disclosures  about products and services,  geographic areas and major customers.
The Company plans to include  segment  reporting in the year-end 1999  financial
statements.


                                       13
<PAGE>

SFAS No. 133,  "Accounting  for  Derivative  Financial  Instruments  and Hedging
Activities". SFAS No. 133 requires companies to record derivative on the balance
sheet as  assets  or  liabilities  at fair  value.  Depending  on the use of the
derivative and whether it qualifies for hedge  accounting,  gains or losses from
changes in the value of those derivative would either be recorded as a component
of net income or as a change in stockholders'  equity.  BankFirst is required to
adopt the new standard  January 1, 2000.  Management  has not yet determined the
impact of this standard.

FDIC   Improvement   Act   (FDICIA)  of  1991.   The  FDICIA   stipulates   many
responsibilities  of  financial  institutions,   its  boards  of  directors  and
accountants. Many of the provisions have already been effective for the Company;
however there are certain filing requirements which are only applicable to banks
with assets over $500 million.  This threshold is measured on an individual bank
basis, not on consolidated  assets.  BankFirst,  taken alone, has total year-end
1997 assets of $468.8  million,  and is expected to exceed $500  million  during
1998.  As a  result,  BankFirst  will be  required  to  comply  with the  FDICIA
reporting  requirements  during 1999. FNB had total year-end 1997 assets of $182
million,  and will not be subject of the FDICIA  reporting  requirements for the
foreseeable future.

Subsequent Events

As of August 1, 1998 which is thirty  days after  completion  of the merger with
FNB,  BankFirst  and FNB  had  combined  total  assets  of  $710.2  million  and
year-to-date  earnings  of $3.9  million.  Effective  July 2,  1998 the  Company
completed a 5-for-1 stock split on its common stock, $2.50 par value,  resulting
in the issuance of 7,998,436 new common  shares.  After  adjusting for the stock
split,  the Company's basic and diluted earnings per share for the period ending
August 1, 1998 were $0.39 and $0.35, respectively.

Part I - Fiancial Information

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The information is disclosed in Item 2. Management's  Discussion and Analysis of
Financial Condition and Results of Operations.


                                       14
<PAGE>

PART II. - OTHER INFORMATION


Item 1.  Legal Proceedings                         None

Item 2.  Changes in Securities                     None

Item 3.  Defaults Upon Senior Securities           None

Item 4.  Submission of Matters to a vote
             of Security Holders


The Company's  Annual  Meeting of  Shareholders  was held on April 27, 1998. The
following items were approved:

      a.    Election  of  the  following  persons  to  the  Company's  Board  of
            Directors for the ensuing year:

                  James L. Clayton
                  Fred R. Lawson
                  C. Warren Neel
                  Charles Earl Ogle, Jr.
                  Geoffrey A. Wolpert
                  C. Scott Mayfield, Jr.
                  W. D. Sullins, Jr.
                  L.A. Walker, Jr.

      b.    Increase the total number of shares of capital  stock to  16,000,000
            of which 15,000,000 shares shall be voting common stock of $2.50 par
            value and  1,000,000  shares shall be  preferred  stock of $5.00 par
            value.

      c.    Change of the Corporation's name from "Smoky Mountain Bancorp, Inc."
            to  "BankFirst  Corporation",   effective  upon  approval  from  the
            Tennessee Secretary of State.

Item 5.  Other Information

The  following  presents  the  1997,  1996 and 1995  financial  information  and
discussion  of BankFirst  Corporation  ("Company"),  reflecting  the merger with
First Franklin Bancshares, Inc. as if the entities were combined for all periods
presented.


                                       15
<PAGE>

                       INDEX TO ITEM 5. OTHER INFORMATION

                                                                            Page
                                                                            ----
Supplemental Consolidated Financial Statements of BankFirst Corporation
      1997, 1996 and 1995 (audited)

      Report of Independent Accountants for 1997                             17

      Report of Independent Accountants for 1996 and 1995                    18

      Report of Independent Auditors for 1995                                19

      Independent Auditors' Report                                           20 

      Supplemental Consolidated Balance Sheets                               21 

      Supplemental Consolidated Statements of Income                         22 

      Supplemental Consolidated Statements of Changes in Stockholders' 
        Equity                                                               23 

      Supplemental Consolidated Statements of Cash Flows                     24 

      Notes to Supplemental Consolidated Financial Statements                25 

      Management's Discussion of Analysis of Financial Condition
        and Results of Operations for 1997, 1996 and 1995                    40


                                       16
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors and Stockholders
BankFirst Corporation
Knoxville, Tennessee

We have audited the  accompanying  supplemental  consolidated  balance  sheet of
BankFirst  Corporation  as of December  31, 1997,  and the related  supplemental
consolidated  statements of income,  changes in stockholders'  equity,  and cash
flows for the year then ended. These supplemental  financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these  supplemental  financial  statements based on our audit. We did
not audit the financial  statements of First  Franklin  Bancshares,  Inc.  which
statements  reflect total assets  constituting  approximately 28% of the related
1997 total and net income  constituting 39% of the related 1997 total. The First
Franklin  Bancshares,  Inc. financial statements were audited by other auditors,
whose  report dated  January 22, 1998  thereon has been  furnished to us and our
opinion  expressed  herein,  insofar as it relates to the amounts  included  for
First  Franklin  Bancshares,  Inc. in the  supplemental  consolidated  financial
statements, is based solely on the report of the other auditors.

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

The supplemental  financial  statements for 1997, 1996 and 1995 give retroactive
effect to a business combination with First Franklin Bancshares, Inc. on July 2,
1998,  which has been  accounted for using the pooling of interests  method,  as
described  in  Note 2 to the  supplemental  consolidated  financial  statements.
Generally  accepted  accounting  principles  do not  allow  giving  effect  to a
consummated  business  combination  accounted for using the pooling of interests
method in historical  financial  statements  that do not include the date of the
consummation.  These supplemental financial statements do not extend through the
date of the consummation;  however, they will become the historical consolidated
financial  statements  of  BankFirst   Corporation  after  financial  statements
covering the date of the consummation of the business combination are issued.

In our opinion,  based on our audit and the report of other  auditors,  the 1997
supplemental consolidated financial statements referred to above present fairly,
in all material respects,  the financial position of BankFirst Corporation as of
December 31,  1997,  and its results of  operations  and cash flows for the year
then ended in conformity with generally accepted accounting principles.

The 1996 and 1995 financial statements of BankFirst  Corporation were audited by
other auditors. The report of the other auditors, dated February 6, 1997, stated
that they expressed an unqualified opinion on those statements for 1996 and that
for 1995 they had expressed an unqualified  opinion on the financial  statements
of  BankFirst  Corporation  prior to its 1996  combination  with Smoky  Mountain
Bancorp,  Inc., which financial statements  represented 43% of the then-reported
1995 net income total and for which they relied on the report of other  auditors
dated  January  24,  1996,  and that they had  audited  the  combination  of the
financial  statements  for  1995 for that  merger.  The 1996 and 1995  financial
statements of First  Franklin  Bancshares,  Inc. were audited by other  auditors
whose report,  dated January 22, 1998, expressed an unqualified opinion on those
statements.  We also audited the  combination of the  accompanying  supplemental
consolidated  balance  sheets  as of  December  31,  1996  and the  supplemental
consolidated  statements of income,  changes in stockholders'  equity,  and cash
flows for the  years  ended  December  31,  1996 and 1995,  for the July 2, 1998
pooling  of  interests   between   BankFirst   Corporation  and  First  Franklin
Bancshares,   Inc.  as  discussed  above.  In  our  opinion,  such  supplemental
consolidated  statements  for 1996 and 1995 have been  properly  combined on the
basis  described  in  Note  2 of the  notes  to  the  supplemental  consolidated
financial statements.



                                       Crowe, Chizek and Company LLP

Louisville, Kentucky
July 2, 1998


                                       17
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
BankFirst Corporation (formerly known as Smoky Mountain Bancorp, Inc.)

We have  audited  the  accompanying  consolidated  balance  sheet  of  BankFirst
Corporation (formerly known as Smoky Mountain Bancorp, Inc.) and Subsidiaries as
of December 31, 1996, and the related consolidated statements of income, changes
in stockholders'  equity,  and cash flows for the year then ended,  prior to the
restatement  for the 1998  combination  with  First  Franklin  Bancshares,  Inc.
accounted for using the pooling of interests method.  These financial statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express  an  opinion  on these  financial  statements  based on our  audit.  The
consolidated   financial  statements  give  retroactive  effect  to  a  business
combination with BankFirst,  which has been accounted for in a manner similar to
a pooling of  interest,  as described  in Note 2 to the  consolidated  financial
statements.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
BankFirst  Corporation  (formerly  known as Smoky  Mountain  Bancorp,  Inc.) and
Subsidiaries  as of December 31,  1996,  and the  consolidated  results of their
operations  and their cash flows for the year then  ended,  in  conformity  with
generally accepted accounting principles.

We previously  audited and reported on the balance sheet,  statements of income,
changes in  stockholders'  equity and cash flows of  BankFirst as of and for the
year ended December 31, 1995,  prior to the restatement for the 1996 combination
accounted for in a manner similar to a pooling of interest.  The contribution of
BankFirst  to  interest  income  and net income  represented  46% and 57% of the
respective 1995 restated totals.  Separate consolidated  financial statements of
Smoky Mountain Bancorp,  Inc. included in the 1995 restated consolidated balance
sheet and statements of income,  changes in stockholders'  equity and cash flows
were audited and reported on separately by other  auditors.  We also audited the
combination  of the  accompanying  consolidated  balance sheet and statements of
income,  changes in  stockholders'  equity and cash flows as of and for the year
ended December 31, 1995, after restatement for the 1996 pooling of interest;  in
our opinion,  such  consolidated  statements have been properly  combined on the
basis described in Note 2 of the notes to the consolidated financial statements.


                                              COOPERS & LYBRAND L.L.P.

Knoxville, Tennessee
February 6, 1997


                                       18
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

To the Stockholders and Board of Directors BankFirst Corporation (formerly Smoky
Mountain Bancorp, Inc.)

We have audited the consolidated  statements of income, changes in stockholders'
equity,  and cash  flows  of  BankFirst  Corporation  (formerly  Smoky  Mountain
Bancorp, Inc.) and subsidiary for the year ended December 31, 1995, prior to the
restatement  for the 1998  combination  with  First  Franklin  Bancshares,  Inc.
accounted  for using the pooling of interest  method,  and the 1996  combination
with BankFirst  accounted for in a manner similar to a pooling  interest.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the results of operations and the cash flows
of BankFirst Corporation (formerly Smoky Mountain Bancorp,  Inc.) and subsidiary
for the year ended  December 31, 1995, in  conformity  with  generally  accepted
accounting  principles,  prior to the restatement for the 1998  combination with
First  Franklin  Bancshares,  Inc.  accounted  for using the pooling of interest
method,  and the  1996  combination  with  BankFirst  accounted  for in a manner
similar to a pooling of interest.

/s/ Hazlett, Lewis & Bieter
Chattanooga, Tennessee
January 24, 1996


                                       19
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
First Franklin Bancshares, Inc. and Subsidiary
Athens, Tennessee

We have audited the  consolidated  balance sheets of First Franklin  Bancshares,
Inc.  and  Subsidiary  as of  December  31,  1997  and  1996,  and  the  related
consolidated  statements of income,  changes in stockholders'  equity,  and cash
flows for each of the years in the  three-year  period ended  December 31, 1997.
These  consolidated  financial  statements are the  responsibility of the Bank's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

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


                                          G. R. RUSH & COMPANY, P.C.

Chattanooga, Tennessee
January 22, 1998
(except for Note 16, as to which the
date is March 19, 1998)


                                       20
<PAGE>

                              BANKFIRST CORPORATION

                    SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS

                           December 31, 1997 and 1996
         (Dollar amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>

                                                                       1997         1996
                                                                     --------     --------
<S>                                                                  <C>          <C>     
ASSETS
     Cash and due from banks ....................................    $ 24,290     $ 15,432
     Federal funds sold .........................................       7,000        9,700
                                                                     --------     --------
         Total cash and cash equivalents ........................      31,290       25,132
     Securities available for sale, at fair value ...............     127,736      134,781
     Loans, net .................................................     458,869      408,070
     Premises, furniture and equipment, net .....................      21,466       17,043
     Federal Home Loan Bank Stock, at cost ......................       3,046        2,552
     Accrued interest receivable and other assets ...............       8,310        7,706
                                                                     --------     --------
         Total assets ...........................................    $650,717     $595,284
                                                                     ========     ========
                                                                                
LIABILITIES AND STOCKHOLDERS' EQUITY                                            
Liabilities                                                                     
     Noninterest-bearing deposits ...............................    $ 92,749     $ 74,161
     Interest-bearing deposits ..................................     457,020      442,178
                                                                     --------     --------
         Total deposits .........................................     549,769      516,339
     Securities sold under agreements to repurchase .............      16,302        5,966
     Other borrowed funds .......................................       1,959        1,264
     Advances from the Federal Home Loan Bank ...................      12,121       12,154
     Accrued interest payable and other liabilities .............       9,134        4,346
                                                                     --------     --------
         Total liabilities ......................................     589,285      540,069

Employee Stock Ownership Plan ...................................       1,539        1,389

                                                                                
Stockholders' equity                                                            

     Common stock:  $2.50 par value, 15,000,000 shares authorized,              
      9,995,519 and 8,616,159 shares outstanding in 1997 and 1996      24,553        3,886

     Noncumulative convertible preferred stock:  $5 par value,                  
      1,000,000 shares authorized, 218,508 and 225,559 shares                       
      outstanding in 1997 and 1996 ..............................       1,093        1,128

     Additional paid-in capital .................................      22,674       22,484
     Retained earnings ..........................................      10,612       25,992
     Unrealized gain on securities available for sale ...........         961          336
                                                                     --------     --------
         Total stockholders' equity .............................      59,893       53,826

                                                                     --------     --------
         Total liabilities and stockholders' equity .............    $650,717     $595,284
                                                                     ========     ========
</TABLE>


   See accompanying notes to supplemental consolidated financial statements.


                                       21
<PAGE>

                              BANKFIRST CORPORATION

                 SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME

                  Years ended December 31, 1997, 1996 and 1995
               (Dollar amounts in thousands, except share and per share data)

                                                 1997        1996         1995
                                                -------    --------     --------
Interest income
     Interest and fees on loans .............  $ 42,880    $ 37,589     $ 33,799
     Taxable securities .....................     6,874       7,288        6,614
     Nontaxable securities ..................     1,173       1,188        1,074
     Other ..................................       360         633          632
                                               --------    --------     --------
                                                 51,287      46,698       42,119
Interest expense
     Deposits ...............................    21,104      20,097       18,216
     Short-term borrowings ..................       744         562          177
     Long-term borrowings ...................       804         579          689
                                               --------    --------     --------
                                                 22,652      21,238       19,082

Net interest income .........................    28,635      25,460       23,037
Provision for loan losses ...................     2,935         667          553
                                               --------    --------     --------
Net interest income after provision
  for loan losses ...........................    25,700      24,793       22,484

Noninterest income
     Service charges and fees ...............     3,811       3,796        3,305
     Net securities gains ...................       309         (20)           5
     Net gain on loan sales .................       226         234          181
     Trust department income ................       704         620          582
     Other ..................................       607         613          296
                                               --------    --------     --------
                                                  5,657       5,243        4,369
Noninterest expenses
     Salaries and employee benefits .........    11,110      10,539        9,749
     Occupancy expense ......................     1,716       2,129        1,543
     Equipment expense ......................     2,537       2,382        1,685
     Office expense .........................       775         371          736
     Data processing fees ...................     1,253         897          674
     FDIC assessments .......................        48         406          739

     Other ..................................     3,884       4,075        4,031
                                               --------    --------     --------

                                                 21,323      20,799       19,157

Income before income taxes ..................    10,034       9,237        7,696
Provision for income taxes ..................     3,406       3,188        2,517
                                               --------    --------     --------
Net income ..................................  $  6,628    $  6,049     $  5,179
                                               ========    ========     ========

Earnings per share:
     Basic ..................................  $    .66    $    .63     $    .63
     Diluted ................................  $    .61    $    .59     $    .59


   See accompanying notes to supplemental consolidated financial statements.


                                       22
<PAGE>

                              BANKFIRST CORPORATION

     SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                  Years ended December 31, 1997, 1996 and 1995
         (Dollar amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
                                                                                                          Net
                                                                                           Unrealized    Total
                                                                   Additional                 Gains     Stock-
                                               Common   Preferred    Paid-in   Retained     (Losses)   holders'
                                                Stock     Stock      Capital   Earnings   on Securities Equity
                                               -------   -------    ---------  --------   ------------ ---------
<S>                                           <C>       <C>          <C>       <C>          <C>       <C>     
Balance, January 1, 1995 ...................  $  3,286  $   641      $15,288   $17,599      $(2,740)  $ 34,074
Sales of common stock, 40,379 shares .......      101        --        1,207        --           --      1,308
Cash dividends on preferred stock ..........       --        --           --       (74)          --        (74)
Cash dividends on common stock .............       --        --           --    (1,152)          --     (1,152)
Repurchased common stock, 5,292 shares .....      (13)       --         (107)       --           --       (120)
Net income .................................       --        --           --     5,179           --      5,179
Reclassification of ESOP shares subject to
put options ................................       --        --         (385)       --           --       (385)
Change in unrealized gains (losses) ........       --        --           --        --        3,681      3,681
                                              -------    ------      -------   -------      -------    -------
Balance, January 1, 1996 ...................    3,374       641       16,003    21,552          941     42,511
Sales of preferred stock, 97,297 shares ....       --       487        1,314        --           --      1,801
Sales of common stock, 159,606 shares ......      399        --        4,073        --           --      4,472
Conversion of debenture into
common stock, 25,000 shares ................       63        --          437        --           --        500
Cash dividends on preferred stock ..........       --        --           --      (162)          --       (162)
Cash dividend on common stock ..............       --        --           --      (876)          --       (876)
Common stock dividend, 12,695 shares .......       31        --          540      (571)          --         --
Repurchased common stock, 5,402 shares .....      (14)       --         (171)       --           --       (185)
Net income .................................       --        --           --     6,049           --      6,049
Reclassification of ESOP shares subject to
put options ................................       33        --          288        --           --        321
Change in unrealized gains (losses) ........        -        --           --        --         (605)      (605)
                                              -------    ------      -------   -------      -------    -------
Balance, January 1, 1997 ...................    3,886     1,128       22,484    25,992          336     53,826
Sales of common stock,  1,177 shares .......        4        --           39        --           --         43
Stock options exercised, 23,659 shares .....       59        --          465        --           --        524
Conversion of 7,051 shares preferred
stock into 3,482 shares common stock .......        9       (35)          26        --           --         --
Cash dividends on preferred stock ..........       --        --           --      (161)          --       (161)
Cash dividends on common stock .............       --        --           --    (1,214)          --     (1,214)
Common stock split, 253,727 shares .........      634        --           --      (634)          --          -
Cash paid for fractional shares in stock 
split ......................................       --        --          --        (3)          --         (3)
Repurchased common stock, 6,173 shares, as
restated for pooling of interests ..........      (16)       --         (209)       --           --       (225)
Net income .................................       --        --           --     6,628           --      6,628
Reclassification of ESOP shares subject
to put options .............................        6        --         (156)       --           --       (150)
Change in unrealized gains (losses) ........       --        --           --        --          625        625

Common stock split, 7,988,436 shares .......   19,971        --           25   (19,996)          --         --
                                              -------    ------      -------   -------      -------    -------
Balance, December 31, 1997 .................  $24,553    $1,093      $22,674   $10,612      $   961    $59,893
                                              =======    ======      =======   =======      =======    =======


</TABLE>


   See accompanying notes to supplemental consolidated financial statements.


                                       23
<PAGE>

                              BANKFIRST CORPORATION

               SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS

                  Years ended December 31, 1997, 1996 and 1995
         (Dollar amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>

                                                                             1997         1996           1995
                                                                            -------     --------       --------
<S>                                                                       <C>           <C>          <C>      
Cash flows from operating activities
     Net income ........................................................  $  6,628      $  6,049     $   5,179
     Adjustments to reconcile net income to net cash from
       operating activities
         Provision for loan losses .....................................     2,935           667           553
         Depreciation ..................................................     1,754         1,415         1,181
         Amortization and accretion, net ...............................      (120)         (293)          (72)
         Net (gains) losses on securities sales ........................      (309)           20            (5)
         Gain on sale of mortgage loans ................................      (226)         (234)         (181)
         Proceeds from sales of mortgage loans .........................    15,491        12,297        10,462
         Originations of mortgage loans held for sale ..................   (15,562)      (12,267)      (10,436)
         Proceeds from sale of trading securities ......................        --            --         8,169
         Purchase of trading securities ................................        --            --        (8,115)
         Net (gains) losses on sales of assets .........................        77           620            (1)
         Changes in assets and liabilities
              Accrued interest receivable and other assets .............      (571)         (115)         (139)
              Accrued interest payable and other liabilities ...........     4,340           174           843
                                                                           -------       -------      --------
                Net cash flows provided by operating activities ........    14,437         8,333         7,438
Cash flows from investing activities
     Time deposits in other banks ......................................        --            --         1,350
     Purchase of securities ............................................   (59,276)     (100,924)      (67,905)
     Proceeds from maturities of securities ............................    32,224        87,269        45,573
     Proceeds from sales of securities .................................    35,530        12,995        14,089
     Net increase in loans .............................................   (53,437)      (62,737)      (44,773)
     Purchase of FHLB stock ............................................      (494)           --            --
     Premises and equipment expenditures, net ..........................    (6,255)       (2,242)       (3,182)
                                                                           -------       -------      --------
         Net cash used in investing activities .........................   (51,708)      (65,639)      (54,848)
Cash flows from financing activities
     Net change in deposits ............................................    33,430        35,993        49,938
     Net change under repurchase agreements and other borrowed funds ...    11,068          (554)        4,917
     Advances from the Federal Home Loan Bank ..........................     2,000        10,000            --
     Repayments of advances from Federal Home Loan Bank ................    (2,033)       (3,009)          (8)
     Payments of notes payable .........................................        --        (3,244)           --
     Preferred stock dividends paid ....................................      (161)         (162)          (74)
     Common stock dividends paid .......................................    (1,214)         (876)       (1,152)
     Cash paid for fractional shares in stock split ....................        (3)           --            --
     Sales of stock and stock options exercised ........................       567         6,273         1,308
     Repurchase of common stock ........................................      (225)         (186)         (120)
                                                                           -------       -------      --------
     Net cash provided by financing activities .........................    43,429        44,235        54,809
                                                                           -------       -------      --------

Net change in cash and cash equivalents ................................     6,158       (13,071)        7,399
Cash and cash equivalents, beginning of year ...........................    25,132        38,203        30,804
                                                                           -------       -------      --------
Cash and cash equivalents, end of year .................................   $31,290       $25,132      $ 38,203
Supplemental disclosures:
     Interest paid .....................................................    22,619        21,312        18,089
     Income taxes paid .................................................     3,186         3,473         2,729
     Loans converted to other real estate ..............................     1,082           373           789
     Debenture converted to common stock ...............................        --           500            --
     Preferred stock converted to common stock .........................        35            --            --

     Reclassification of ESOP shares ...................................      (150)          321          (385)

</TABLE>

   See accompanying notes to supplemental consolidated financial statements.


                                       24
<PAGE>

                              BANKFIRST CORPORATION

             NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS

         (Dollar amounts in thousands, except share and per share data)

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


      Basis of Presentation:  The supplemental consolidated financial statements
of BankFirst Corporation (formerly Smoky Mountain Bancorp, Inc.) (the "Company")
have been prepared to give retroactive  effect to the merger with First Franklin
Bancshares,  Inc.  on July 2, 1998.  Generally  accepted  accounting  principles
proscribe giving effect to a consummated business  combination  accounted for by
the  pooling of  interests  method in  financial  statements  that do not extend
through  the date of  consummation.  These  financial  statements  do not extend
through  the date of  consummation,  however,  they will  become the  historical
consolidated  financial  statements  of BankFirst  Corporation  after  financial
statements  covering the date of  consummation  of the business  combination are
issued.

      Principles of Consolidation: The consolidated financial statements include
the  accounts  of  BankFirst  Corporation  and  its  wholly-owned  subsidiaries,
BankFirst and First National Bank and Trust Company (together referred to as the
"Banks"). In April, 1998, the Company changed its name to BankFirst Corporation.
All significant  inter-company balances and transactions have been eliminated in
consolidation.

      Nature  of  Operations:  The  Bank  generates  commercial,   mortgage  and
installment  loans, and receives deposits from customers located throughout East
Tennessee. The majority of the loans are secured by specific items of collateral
including  business assets,  real property and consumer assets.  Borrowers' cash
flow is  expected to be a primary  source of  repayment.  Real estate  loans are
secured by both residential and commercial real estate.
Substantially all operations are in the banking industry.


      Use of Estimates:  The  preparation of financial  statements in conformity
with  generally  accepted  accounting  principles  requires  management  to make
estimates and assumptions  based on available  information.  These estimates and
assumptions  affect the amounts  reported in the  financial  statements  and the
disclosures provided,  and future results could differ.  Estimates that are more
susceptible to change in the near term include the allowance for loan losses and
fair values of securities.

      Cash  Flow  Reporting:  Cash and cash  equivalents  include  cash on hand,
balances due from banks, and federal funds sold. Net cash flows are reported for
customer loan and deposit transactions and other borrowed funds.

      Securities:  Securities are classified as held to maturity and are carried
at amortized cost when management has the positive intent and ability to hold to
maturity.  Securities  are  classified  as available for sale when they might be
sold prior to  maturity  for  liquidity,  asset-liability  management,  or other
reasons.  Available  for  sale  securities  are  carried  at  fair  value,  with
unrealized  gains or losses included as a separate  component of equity,  net of
tax.  Trading  securities are carried at fair value,  with changes in unrealized
holding  gains and  losses  included  in  income.  Realized  gains or losses are
determined based on the amortized cost of the specific  security sold.  Interest
income includes  amortization of purchase  premium or discounts.  Securities are
written down to fair value when a decline in fair value is not temporary.

      Loans:  Loans are reported at the principal  balance  outstanding,  net of
deferred loan fees and costs.  Interest  income on real estate,  commercial  and
consumer  loans is  accrued  over the term of the loans  based on the  principal
outstanding.  Interest  income is not  reported  when full loan  repayment is in
doubt.

      Allowance  for Loan Losses:  The  allowance for loan losses is a valuation
allowance,  increased  by  the  provision  for  loan  losses  and  decreased  by
charge-offs less recoveries. Management estimates the allowance balance required
based on past loan loss  experience,  known and inherent risks in the portfolio,
information about specific borrower situations and estimated  collateral values,
economic conditions, and other factors. Allocations of the allowance may be made
for specific loans,  but the entire allowance is available for any loan that, in
management's judgment, should be charged-off.

      Loans are considered  impaired if full payment under the loan terms is not
expected.  Impairment is evaluated in total for smaller-balance loans of similar
nature such as  residential  mortgage and consumer  loans,  and on an individual
loan basis for other loans.  Impaired  loans are carried at the present value of
expected cash flows discounted at the loan's  effective  interest rate or at the
fair value of the collateral if the loan is collateral  dependent.  


                                       25
<PAGE>

                              BANKFIRST CORPORATION

             NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS

         (Dollar amounts in thousands, except share and per share data)

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

A portion of the allowance for loan losses is allocated to impaired loans. Loans
are evaluated  for  impairment  when payments are delayed,  or when the internal
grading system indicates a doubtful  classification.  Payments on such loans are
reported as principal reductions.

      Mortgage Loans Held for Sale:  Mortgage loans held for sale are carried at
the lower of aggregate cost or market.  The cost of mortgage loans held for sale
is the mortgage note amount plus certain net  origination  costs less  discounts
collected.  The aggregate  cost of mortgage loans held for sale at year-end 1997
and 1996, is less than their aggregate net realizable value.

      Premises,  Furniture and Equipment:  Premises, furniture and equipment are
stated at cost less accumulated  depreciation.  Depreciation expense is computed
using the straight line and declining-balance  methods over the estimated useful
lives of the assets. Maintenance and repairs are expensed and major improvements
are  capitalized.  These assets are reviewed for impairment when events indicate
the carrying amount may not be recoverable.

      Other Real Estate:  Real estate acquired through foreclosure or acceptance
of a deed in lieu of foreclosure is recorded at the lower of cost (fair value at
date of  foreclosure)  or fair  value less  estimated  selling  costs.  Expenses
incurred in carrying other real estate are charged to operations as incurred.

      Repurchase Agreements:  Substantially all repurchase agreement liabilities
represent  amounts advanced by various customers that are not covered by federal
deposit insurance and are secured by securities owned.

      Income Taxes: The Company files consolidated  federal and state income tax
returns.  Income tax  expense is the sum of the  current  year income tax due or
refundable and the change in deferred tax assets and  liabilities.  Deferred tax
assets and  liabilities  are the expected  future tax  consequences of temporary
differences   between  the  carrying   amounts  and  tax  bases  of  assets  and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.

      Loss  Contingencies:  The Company is involved in various legal actions. In
the opinion of management, the outcome of these matters will not have a material
effect on the  Company's  financial  position,  results of  operations,  or cash
flows.

      Fair Value of Financial Instruments:  Fair values of financial instruments
are estimated  using  relevant  market  information  and other  assumptions,  as
disclosed in Note 15. Fair value estimates involve  uncertainties and matters of
significant  judgment regarding interest rates,  credit risk,  prepayments,  and
other factors,  especially in the absence of broad markets for particular items.
Changes in assumptions or in market  conditions could  significantly  affect the
estimates.

      Preferred  Stock:  The preferred stock pays dividends at a rate of 5%, and
is noncumulative, nonvoting, and each share is convertible into 3.0875 shares of
common  stock at the option of the holder.  The  conversion  ratio of  preferred
stock into  common  stock is adjusted  for common  stock  dividends  and splits.
Preferred stock has equal liquidation rights to common stock.

      Earnings Per Common Share:  Basic  earnings per share is based on weighted
average common shares  outstanding.  Diluted  earnings per share further assumes
issuance of any dilutive potential common shares.
Earnings per share are restated for all subsequent stock dividends and splits.

      Reclassifications: Certain items in the 1996 and 1995 financial statements
have been reclassified to conform with the 1997 presentation.

      Current  Accounting  Issues:  Statement of Financial  Accounting  Standard
(SFAS) No. 130, "Reporting  Comprehensive  Income" was issued in June 1997. This
Statement  requires  that certain  items be reported in a separate  statement of
comprehensive  income,  be included as a separate,  additional  component of the
statement of income, or be added to the statement of stockholders'  equity. Such
items include foreign currency translations,


                                       26
<PAGE>

                              BANKFIRST CORPORATION

             NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS

         (Dollar amounts in thousands, except share and per share data)

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)

accounting for futures contracts,  accounting for defined benefit pension plans,
and  accounting  for  certain  investments  in debt and equity  securities.  The
periodic change in net appreciation or depreciation on securities  available for
sale  reported in the  Company's  balance  sheet is an element of  comprehensive
income under this standard. This Statement is effective for the Company in 1998.

      SFAS No. 131,  "Disclosures  about  Segments of an Enterprise  and Related
Information"  was issued in June 1997.  This  Statement  changes  the way public
companies  report  information  about  operating  segments  in annual  financial
statements and requires that those companies report selected  information  about
operating segments in interim financial reports.  It also establishes  standards
for related disclosures about products and services, geographic areas, and major
customers.  Operating  segments  are  parts  of a  company  for  which  separate
information  is available  which is evaluated  regularly by the chief  operating
decision  maker  in  deciding  how  to  allocate  resources  and  in  evaluating
performance.  Required  disclosures for operating segments include total segment
revenues,  total segment profit or loss, and total segment assets. The Statement
also requires disclosures  regarding revenues derived from products and services
(or  similar  groups of products or  services),  countries  in which the company
derives  revenue or holds  assets,  and about  major  customers,  regardless  of
whether this information is used in operating  decision  making.  The Company is
required to adopt the disclosure  requirements in its 1998 annual report, and in
interim  periods in 1999.  The 1999 interim period  disclosures  are required to
include comparable 1998 information.

      SFAS No. 133, "Accounting for Derivative Financial Instruments and Hedging
Activities."  SFAS No.  133  requires  companies  to record  derivatives  on the
balance sheet as assets or  liabilities  at fair value.  Depending on the use of
the  derivative and whether it qualifies for hedge  accounting,  gains or losses
resulting  from  changes  in the  values of those  derivatives  would  either be
recorded as a component  of net income or as a change in  stockholders'  equity.
BankFirst is required to adopt this new standard January 1, 2000. Management has
not yet determined the impact of this standard.

NOTE 2 -- BUSINESS COMBINATION

      At the close of business  on December  31,  1996,  BankFirst  stockholders
exchanged  1,154,652  shares of its common stock for 570,380 shares of BankFirst
Corporation  (formerly Smoky Mountain Bancorp,  Inc.) common stock. In addition,
outstanding  employee  stock options to purchase  1,107,330  shares of BankFirst
common  stock were  converted  into  options to purchase  approximately  547,020
shares of BankFirst  Corporation  common stock, as adjusted for subsequent stock
splits.  The combination has been accounted for in a manner similar to a pooling
of interests and, accordingly,  the Company's  consolidated financial statements
were  restated  in 1996 and 1995 to  include  the  accounts  and  operations  of
BankFirst  for the period  prior to the  combination.  Smoky  Mountain  Bancorp,
Inc.'s wholly owned  subsidiary,  First National Bank of Gatlinburg,  was merged
into BankFirst in March 1997.

      On July 2, 1998,  BankFirst  Corporation  acquired all of the  outstanding
common stock of First Franklin Bancshares, Inc. ("First Franklin") in a business
combination  accounted  for as a  pooling  of  interest.  Stockholders  of First
Franklin  exchanged  164,125 shares of stock for 723,693 shares of the Company's
common  stock.  In the  business  combination,  First  Franklin  was merged into
BankFirst Corporation,  and its wholly-owned subsidiary, First National Bank and
Trust Company, remains a subsidiary of BankFirst Corporation. These supplemental
consolidated  financial statements give retroactive effect to the merger, and as
a result, the financial  statements are presented as if the combining  companies
had been  consolidated  for all periods  presented.  As  required  by  generally
accepted  accounting   principles,   the  supplemental   consolidated  financial
statements will become the historical  financial statements upon issuance of the
financial statements for the period that includes the date of the merger.


                                       27
<PAGE>

                             BANKFIRST CORPORATION


            NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
         (Dollar amounts in thousands, except share and per share data)


NOTE 2 -- BUSINESS COMBINATION (Continued)

      Separate  interest  income and net income of the  merged  entities  are as
follows:

                                               1997         1996           1995
                                             -------       -------       -------
Interest income
   BankFirst Corporation ................    $37,625       $17,081       $15,934
   BankFirst ............................       --          16,503        13,315
   First Franklin .......................     13,662        13,114        12,870
                                             -------       -------       -------
                                             $51,287       $46,698       $42,119
                                             =======       =======       =======
Net income
   BankFirst Corporation ................    $ 4,066       $ 1,450       $ 1,224
   BankFirst ............................       --           2,214         1,601
   First Franklin .......................      2,562         2,385         2,354
                                             -------       -------       -------
                                             $ 6,628       $ 6,049       $ 5,179
                                             =======       =======       =======

<TABLE>
<CAPTION>

                                    January 1,                              January 1,
                                      1995       Effect of     Effect of      1995
                                  As Previously  BankFirst  First Franklin     As
                                    Reported    Combination   Combination    Restated
                                  ------------- ----------- --------------  ----------
<S>                                 <C>         <C>          <C>             <C>     
Stockholders' equity               
  Common stock .................    $    464    $  1,303     $  1,519        $  3,286
  Noncumulative convertible                                                  
     preferred stock ...........        --           641         --               641
  Additional paid-in capital ...       2,167      10,177        2,944          15,288
  Retained earnings ............       3,818       1,550       12,231          17,599
  Unrealized loss on                                                         
     securities available                                                    
     for sale ..................        (668)       (618)      (1,454)         (2,740)
                                    --------    --------     --------        --------
     Total                          $  5,781    $ 13,053     $ 15,240        $ 34,074
                                    ========    ========     ========        ========
                        
</TABLE>                                                                   

NOTE 3 -- SECURITIES

      Securities available for sale are summarized as follows:

<TABLE>
<CAPTION>
                                                                           Gross        Gross
                                                           Amortized     Unrealized   Unrealized      Fair
                                                             Cost          Gains        Losses        Value
                                                          ----------     ----------   ----------    --------
<S>                                                        <C>           <C>          <C>          <C>      
1997
   U.S. Treasury securities .............................  $  31,250     $     360    $     (41)   $  31,569
   Obligations of U.S.government agencies ...............     45,948           492          (40)      46,400
   Obligations of states and  political subdivisions ....     38,292           715           (8)      38,999
   Mortgage-backed securities ...........................     10,696           134          (62)      10,768
                                                           ---------     ---------    ---------    ---------
                                                           $ 126,186     $   1,701    $    (151)   $ 127,736
                                                           =========     =========    =========    =========
1996                                                                     
   U.S. Treasury securities .............................  $  25,997     $     133    $    (156)   $  25,974
   Obligations of U.S.government agencies ...............     65,571           284         (309)      65,546
   Obligations of states and political subdivisions .....     22,328           667          (24)      22,971
   Mortgage-backed securities ...........................     20,342            80         (132)      20,290
                                                           ---------     ---------    ---------    ---------
                                                           $ 134,238     $   1,164    $    (621)   $ 134,781
                                                           =========     =========    =========    =========
</TABLE>
                                                                      
      The amortized cost and estimated market value of debt securities available
for sale at year-end 1997, by contractual maturity,  is shown below.  Securities
not due at a single maturity date,  primarily  mortgage-backed  securities,  are
shown separately.


                                       28
<PAGE>

                             BANKFIRST CORPORATION


            NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
         (Dollar amounts in thousands, except share and per share data)


NOTE 3 -- SECURITIES (Continued)

                                                      Amortized     Fair
                                                        Cost        Value
                                                      ---------   --------
      Due in one year or less ....................    $ 12,744    $ 12,733
      Due after one year through five years ......      45,906      46,411
      Due after five years through ten years .....      39,677      40,324
      Due after ten years ........................      17,163      17,500
                                                      --------    --------
      Mortgage-backed securities .................      10,696      10,768
      Total maturities ...........................    $126,186    $127,736
                                                      ========    ========

                                                        1997      1996      1995
                                                        ----      ----      ----
Sales of securities available for sale
   Realized gains ................................      $343      $ 33      $ 20
   Realized losses ...............................        34        53        88

Sales of trading securities
   Realized gains ................................      $--        $--      $ 75
   Realized losses ...............................       --        --          2

      Securities with a carrying value of 79,650 and 79,415 at year-end 1997 and
1996, were pledged for public  deposits and securities sold under  agreements to
repurchase.

NOTE 4 -- LOANS AND ALLOWANCE FOR LOANS LOSSES

      At year-end 1997 and 1996, loans consisted of the following:

                                                        1997        1996
                                                      --------    --------
      Commercial, industrial and agricultural ....    $ 95,143    $ 69,614
      Commercial real estate .....................     164,102     155,389
      Real estate construction ...................      24,977      26,379
      Residential real estate ....................     120,143     110,636
      Loans to individuals .......................      59,947      50,277
      Lease financing ............................       1,845       1,055
      Mortgage loans held for sale ...............         395         324
      Other ......................................         383         656
                                                      --------    --------
          Total loans ............................     466,935     414,330
      Less: Unearned interest income and fees           (1,968)     (1,537)
            Allowance for loan losses ............      (6,098)     (4,723)
                                                      --------    --------
                                                      $458,869    $408,070
                                                      ========    ========

      Activity in the allowance for loan losses is as follows:

                                                 1997        1996        1995
                                                -------     -------     -------
      Beginning balance ....................    $ 4,723     $ 4,690     $ 4,526
      Provision ............................      2,935         667         553
      Loans charged off ....................     (1,833)       (904)       (701)
      Recoveries of loans charged off ......        273         270         312
                                                -------     -------     -------
      Balance, end of year .................    $ 6,098     $ 4,723     $ 4,690
                                                =======     =======     =======


                                       29
<PAGE>

                             BANKFIRST CORPORATION

            NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
         (Dollar amounts in thousands, except share and per share data)


NOTE 4 -- LOANS AND ALLOWANCE FOR LOANS LOSSES (Continued)

      Impaired loans consisted of the following at year-end:

                                                                 1997       1996
                                                                 ----       ----
      Impaired loans
      Loans with allowance allocated .......................     $552       $616
      Amount of allowance for loan losses allocated ........       61        216
      Loans with no allowance allocated ....................      615        275

<TABLE>
<CAPTION>
                                                                 1997       1996       1995
                                                                 ----       ----       ----
<S>                                                            <C>          <C>        <C> 
      Impaired loans                                                      
      Average balance during the year .............            $1,312       $941       $189
      Interest income recognized thereon ..........                30         50          7
      Cash-basis interest income recognized .......                30         50          7
</TABLE>
                                                                          
      The aggregate  amount of loans to executive  officers and directors of the
Company and their  related  interests was  approximately  $18,443 and $10,821 at
year-end  1997  and  1996.   During  1997  and  1996,   new  loans   aggregating
approximately  $9,761 and $1,782 and amounts  collected of approximately  $2,139
and $1,794 were transacted with such parties.

NOTE 5 -- PREMISES, FURNITURE, AND EQUIPMENT

      A summary of premises  and  equipment  as of year-end  1997 and 1996 is as
follows:


                                                           1997          1996
                                                           ----          ----
      Land ...........................................   $  5,246     $   4,565
      Premises .......................................     14,255        11,289
      Furniture, fixtures and equipment ..............     10,390         8,810
      Construction in progress .......................        963           360
                                                         --------      --------
      Total cost .....................................     30,854        25,024
      Accumulated depreciation .......................     (9,388)       (7,981)
                                                         --------      --------
                                                         $ 21,466      $ 17,043
                                                         ========      ========


NOTE 6 -- DEPOSITS

      Certificates  of deposit of $100 thousand or more were $78,260 and $69,468
at year-end 1997 and 1996.

      At year-end 1997, maturities of time deposits with a term of over one year
were as follows, for the next five years.

                  1998 ................................  $195,578
                  1999 ................................    48,341
                  2000 ................................    15,759
                  2001 ................................     7,045
                  2002 ................................     1,941
                  Thereafter ..........................       325

      The  aggregate  amount of deposits to executive  officers and directors of
the Company and their related interests was  approximately  $2,477 and $1,376 at
year end 1997 and 1996.


                                       30
<PAGE>

                             BANKFIRST CORPORATION


            NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
         (Dollar amounts in thousands, except share and per share data)


NOTE 7 -- BORROWINGS

      Securities  sold under  agreements to repurchase and treasury tax and loan
deposits are financing arrangements. Securities involved with the agreements are
recorded as assets and are held by a safekeeping  agent and the  obligations  to
repurchase the securities are reflected as  liabilities.  Securities  sold under
agreements  to  repurchase  consist of short term excess  funds from  repurchase
agreements and overnight  liabilities to deposit  customers  arising from a cash
management program. While effectively deposit equivalents, such arrangements are
in the form of repurchase  agreements.  Other  borrowed  funds were comprised of
treasury tax and loan  deposits  which bear  interest at the federal  funds rate
less .25%.

      Information  concerning  securities sold under agreements to repurchase at
year-end 1997 and 1996 is summarized as follows:

                                                             1997         1996
                                                             ----         ----
      Average month-end balance during the year ..........  $ 9,137     $ 7,365
      Average interest rate during the year ..............     4.76%       4.84%
      Maximum month-end balance during the year ..........  $16,302     $ 9,715

      The  aggregate  amount of securities  sold under  agreements to repurchase
from executive officers and directors of the Company and their related interests
were $4,014 and $-0- at year-end 1997 and 1996.

      Federal Home Loan Bank advances  consist of the following at year-end 1997
and 1996:

                                                        1997            1996
                                                        ----            ----
      6.40% fixed rate advance, interest only 
        monthly, principal due at maturity on
        April 25, 1997 .............................    $ --            $1,000
      6.60% fixed rate advance, interest only
        monthly, principal due at maturity on 
        October 24, 1997 ...........................      --             1,000
      Variable rate, interest only monthly, 
        principal due at maturity on
        September 30, 1998 .........................     5,000           5,000
      Variable rate, interest only monthly, 
        principal due at maturity on
        April 30, 1998 .............................     5,000           5,000
      6.75% fixed rate advance, principal and 
        interest monthly, maturing on
        September 1, 2012 ..........................       743              --
      6.51% fixed rate advance, principal and 
        interest monthly, maturing on
        January 1, 2013 ............................       500              --
      7.20% fixed rate advance, principal and 
        interest monthly, maturing on
        June 1, 2012 ...............................       490              --
      6.80% fixed rate advance, principal and 
        interest monthly, maturing on
        March 1, 2012 ..............................       243              --
      5.95% fixed rate advance, principal and 
        interest monthly, maturing on
        August 1, 2008 .............................        80              85
      5.70% fixed rate advance, principal and 
        interest monthly, maturing on
        September 1, 2008 ..........................        65              69
                                                       -------         -------
                                                       $12,121         $12,154
                                                       =======         =======

      These  advances  are  collateralized  by a blanket  pledge  of  qualifying
mortgage loans totaling $18,182 and $18,231 at year-end 1997 and 1996.

      At year-end 1997, the Company had  approximately  $33,350 of federal funds
lines of credit available from correspondent  institutions,  $8,680 unused lines
of credit with the Federal Home Loan Bank, and $2,000 unused line of credit with
the Federal Reserve Bank of Atlanta.


                                       31
<PAGE>

                             BANKFIRST CORPORATION


            NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
         (Dollar amounts in thousands, except share and per share data)


NOTE 8 -- RETIREMENT PLANS

      A  401(k)  profit   sharing  plan  covers   substantially   all  BankFirst
Corporation and BankFirst  employees.  Employee  contributions are voluntary and
employer  contributions  are  discretionary.  Employee  contributions  are fully
vested and employer contributions are fully vested after five years.

      Another 401(k) profit sharing plan covers substantially all First National
Bank and Trust Company  employees.  Employee  contributions are voluntary.  If a
participant  elects to make a contribution to the Plan, the employer must make a
matching  contribution  of 50%  of  the  first  3% of  the  participants  annual
contributions.  In addition,  the  employer  may award a bonus  match.  Employee
contributions are immediately vesting and employer  contributions are vested 20%
immediately,  40% after four years,  60% after five years,  80% after six years,
and 100% after seven years.

      Expense for both Plans was $218, $187 and $162 for 1997, 1996 and 1995.

      The Company has an Employee  Stock  Ownership  Plan (ESOP)  which  enables
employees who have met minimum service and age requirements to acquire shares of
the  Company's  common stock.  Cost of the Plan is borne by the Company  through
discretionary  contributions  to an employee stock ownership  trust.  All shares
under the plan were allocated at year end 1997, 1996 and 1995.  Shares of common
stock are allocated to each  participating  employee and are held in trust until
the employee's  termination,  retirement or death. The Company's contribution to
the ESOP was $30 in 1996. There was no contribution in 1997 or 1995.

      Upon  withdrawal from the plan,  participants  are entitled to require the
Company to repurchase the stock (referred to as a put option). At year-end 1997,
1996,  and 1995, the fair value of ESOP shares subject to repurchase was $1,539,
$1,389,  and $1,710,  the fair value per share was $8.80,  $7.68, and $6.96, and
shares held by the ESOP were 174,845,  180,845, and 245,725. The value of shares
subject to the put option have been presented  outside of  stockholders'  equity
since no active market existed for the Company's common stock.

      The First  National Bank and Trust Company has a defined  benefit  pension
plan covering  substantially all employees.  The following sets forth the plan's
funded  status at December 31,  1997,  1996 and 1995 and the  components  of net
pension expense:

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

Accumulated benefit obligation
   (including vested benefits of
   $ 3,924, $ 2,708,and $ 2,396 .........     $(3,976)     $(2,735)     $(2,421)
                                              =======      =======      =======
Plan assets at fair value ...............     $ 4,927      $ 4,177      $ 3,733
Projected benefit obligation for
   service rendered to date .............      (5,239)      (3,786)      (3,431)
Unrecognized loss .......................         959          150          152
Unrecognized transition asset ...........        (150)        (171)        (193)
                                              -------      -------      -------
Prepaid accrued pension expense .........     $   497      $   370      $   261
                                              =======      =======      =======

      Net pension expense for the year included the following:

                                                        1997          1996
                                                        ----          ----
       Service cost for the period .................    $ 173        $ 159
       Interest cost on projected benefit 
         obligation ................................      318          287
       Actual return on plan assets ................     (629)        (305)
       Other .......................................      249          (21)
                                                        -----        -----
                                                        $ 111        $ 120
                                                        =====        =====

      Contribution  expense was $238,  $229, and $243 for the years ending 1997,
1996, and 1995.

      Significant  assumptions made in computing  pension  liability and expense
for each year ended 1997,  1996,  and 1995 include a weighted  average  discount
rate of 8.5%,  increase in compensation of 6.5%, and long-term rate of return of
8.5%.


                                       32
<PAGE>

                             BANKFIRST CORPORATION


            NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
         (Dollar amounts in thousands, except share and per share data)


NOTE 9 --  INCOME TAXES

      Income tax expense is summarized as follows:

                                             1997        1996         1995
                                             ----        ----         ----
       Current .........................    $3,612      $3,134       $2,434
       Deferred ........................      (206)         54           83
                                            ------      ------       ------
                                            $3,406      $3,188       $2,517
                                            ======      ======       ======
       Federal .........................    $2,817      $2,643       $2,174
       State ...........................       589         545          343
                                            ------      ------       ------
                                            $3,406      $3,188       $2,517
                                            ======      ======       ======

      Deferred  income  taxes  reflect  the  effect of  "temporary  differences"
between  values  recorded for assets and  liabilities  for  financial  reporting
purposes and values  utilized for  measurement in accordance  with tax laws. The
tax effects of the primary  temporary  differences  giving rise to the Company's
net deferred tax assets and liability are as follows:

<TABLE>
<CAPTION>
                                                         1997                         1996
                                                 -----------------------       --------------------
                                                 Assets      Liabilities       Assets   Liabilities
                                                 ------      -----------       ------   -----------
<S>                                              <C>          <C>               <C>      <C>   
Allowance for loan losses ....................   $1,154       $  --             $619     $   --
Unearned loan income .........................       57          --               68         --
Unrealized gain on securities ................     --            (589)            --         (207)
Depreciation .................................     --            (832)            --         (732)
Other real estate ............................       19          --               19         --
FHLB dividends ...............................     --            (201)            --         (124)
Defined benefit plan .........................     --            (189)            --         --
Other ........................................       86          (261)            89         (169)
                                                 ------       -------           ----      ------- 
   Total deferred income taxes ...............   $1,316       $(2,072)          $795      $(1,232)
                                                 ======       =======           ====      ======= 
</TABLE>

      A reconciliation  of expected income tax expense at the statutory  federal
income  tax  rate of 34% with the  actual  effective  income  tax  rates,  is as
follows:


                                               1997          1996        1995
                                               ----          ----        ----
     Statutory federal tax rate ...........    34.0%         34.0%       34.0%
     State income tax, net of 
       federal benefit ....................     4.0           4.0         4.0
     Tax exempt income ....................    (3.7)         (4.6)       (5.7)
     Other ................................    (0.4)          1.1         0.4
                                               ----          ----        ---- 
                                               33.9%         34.5%       32.7%
                                               ====          ====        ==== 


NOTE 10 -- COMMITMENTS AND FINANCIAL INSTRUMENTS
  WITH OFF-BALANCE-SHEET RISK

      The Banks are party to financial instruments with  off-balance-sheet  risk
in the normal course of business to meet the financing needs of their customers.
These  financial  instruments  include loan  commitments  and standby letters of
credit.  The substantial  majority of these  instruments are with parties in the
Knoxville and  surrounding  East Tennessee  area. The  instruments  involve,  to
varying degrees,  elements of credit risk in excess of the amount  recognized in
the financial statements.

      The  exposure to credit loss in the event of  nonperformance  by the other
party to the financial  instrument for loan  commitments  and standby letters of
credit is represented by the contractual amount of those  instruments.  The same
credit policies are used in making  commitments  and conditional  obligations as
are  used  for   on-balance-sheet   instruments.   There   are  no   significant
concentrations  of credit risk with any  individual  counterparty  to  originate
loans.


                                       33
<PAGE>

                             BANKFIRST CORPORATION


            NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
         (Dollar amounts in thousands, except share and per share data)


NOTE 10 -- COMMITMENTS AND FINANCIAL INSTRUMENTS
  WITH OFF-BALANCE-SHEET RISK (Continued)

      Financial  instruments  whose contract  amounts  represent  credit risk at
year-end 1997 and 1996 were as follows:

                                                          1997          1996
                                                          ----          ----
         Loan commitments ............................   $ 9,016      $ 1,574
         Standby letters of credit ...................     6,760        9,256
         Unused lines of credit ......................    64,667       60,104

      Since many of the loan  commitments  may expire  without being drawn upon,
the  total  commitment  amount  does  not  necessarily   represent  future  cash
requirements.  Each customer's  credit worthiness is evaluated on a case-by-case
basis. The amount of collateral obtained,  if deemed necessary upon extension of
credit,  is  based  on  management's  credit  evaluation  of  the  counterparty.
Collateral held varies but may include accounts receivable, inventory, property,
plant, and equipment, and/or income-producing commercial properties.

      The credit risk involved in issuing  letters of credit is essentially  the
same as that involved in extending loan  facilities to customers.  The aggregate
amount of loan  commitments and standby letters of credit to executive  officers
and  directors  of the Company was  approximately  $3,165 and $1,752 at year-end
1997 and 1996.

NOTE 11 -- RELATED PARTY TRANSACTIONS

      BankFirst was a 50% partner with a related party, the purpose of which was
to own and operate a building in downtown Knoxville, Tennessee. BankFirst's main
offices occupy a portion of this building.  During 1997, BankFirst purchased the
other partner's interest in the building at a fair market value of $924 based on
an  independent   appraisal.   The  partnership  was  dissolved   following  the
consummation  of the  transaction.  Total payments  received from tenants of the
buildings other than BankFirst totaled $105 in 1997.  BankFirst's  contributions
to the partnership expenses were approximately $169, $313 and $192 in 1997, 1996
and 1995.

NOTE 12 -- REGULATORY MATTERS

      The  Company  and Banks are  subject to  regulatory  capital  requirements
administered by federal and state banking agencies.  Capital adequacy guidelines
and prompt  corrective  action  regulations  involve  quantitative  measures  of
assets,  liabilities,  and  certain  off-balance-sheet  items  calculated  under
regulatory  accounting  practices.  The  prompt  corrective  action  regulations
provide   five   classifications,   including   well   capitalized,   adequately
capitalized, under capitalized,  significantly under capitalized, and critically
under  capitalized,  although  these  terms  are not used to  represent  overall
financial condition. If under capitalized, capital distributions are limited, as
is asset growth and expansion, and plans for capital restoration are required.

      At year-end,  the capital requirements were met. Actual capital levels (in
millions) and minimum required levels were:

<TABLE>
<CAPTION>
                                                                                         Minimum Amounts to
                                                                                         be Well Capitalized
                                                                     Minimum Required       Under Prompt
                                                  Actual                for Capital       Corrective Action
                                            ------------------       Adequacy Purposes       Provisions
                                             Actual     Ratio        Actual    Ratio       Actual    Ratio
                                            --------   -------      --------  -------     --------  -------
<S>                                          <C>         <C>         <C>        <C>        <C>        <C>  
1997
Total Capital (to Risk Weighted Assets)
   Consolidated ...........................  $61.4       12.8%       $38.4      8.0%       $48.0      10.0%
   BankFirst ..............................   42.5       11.6         29.2      8.0         36.5      10.0
   First National Bank and Trust Co. ......   21.3       18.8          9.1      8.0         11.3      10.0

Tier 1 Capital (to Risk Weighted Assets)
   Consolidated ...........................  $60.1       12.5%       $19.2      4.0%       $28.8       6.0%
   BankFirst ..............................   37.9       10.4         14.6      4.0         21.9       6.0
   First National Bank and Trust Co. ......   20.2       17.8          4.5      4.0          6.8       6.0
</TABLE>


                                       34
<PAGE>

                             BANKFIRST CORPORATION


            NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
         (Dollar amounts in thousands, except share and per share data)


NOTE 12 -- REGULATORY MATTERS (Continued)

<TABLE>
<CAPTION>
                                                                                         Minimum Amounts to
                                                                                         be Well Capitalized
                                                                     Minimum Required       Under Prompt
                                                  Actual                for Capital       Corrective Action
                                            ------------------       Adequacy Purposes       Provisions
                                             Actual     Ratio        Actual    Ratio       Actual    Ratio
                                            --------   -------      --------  -------     --------  -------
<S>                                          <C>         <C>         <C>        <C>        <C>        <C>  

1997 (continued)
Tier 1 Capital  (to Average Assets)
   Consolidated ...........................  $60.1        9.7%       $24.9      4.0%       $31.1       5.0%
   BankFirst ..............................   37.9        8.3         18.3      4.0         22.9       5.0
   First National Bank and Trust Co. ......   20.2       11.2          7.2      4.0          9.0       5.0


1996
Total Capital (to Risk Weighted Assets)
   Consolidated ...........................  $55.2       13.1%       $33.8      8.0%       $42.3      10.0%
   BankFirst ..............................   22.2       13.1         13.6      8.0         17.0      10.0
   FNB of Gatlinburg ......................   15.3        9.9         12.3      8.0         15.4      10.0
   First National Bank and Trust Co. ......   20.2       20.0          8.1      8.0         10.1      10.0

Tier 1 Capital (to Risk Weighted Assets)
   Consolidated ...........................  $54.5       12.9%       $16.9      4.0%       $25.4       6.0%
   BankFirst ..............................   20.3       12.0          6.8      4.0         10.2       6.0
   FNB of Gatlinburg ......................   13.7        8.9          6.2      4.0          9.2       6.0
   First National Bank and Trust Co. ......   19.1       18.9          4.0      4.0          6.1       6.0

Tier 1 Capital (to Average Assets)
   Consolidated ...........................  $54.5        9.6%       $22.7      4.0%       $28.3       5.0%
   BankFirst ..............................   20.3        9.4          8.6      4.0         10.8       5.0
   FNB of Gatlinburg ......................   13.7        6.5          8.4      4.0         10.6       5.0
   First National Bank and Trust Co. ......   19.1       11.3          6.8      4.0          8.5       5.0
</TABLE>

      The Company and subsidiary banks were well capitalized at year-end 1997.

      The Company's  primary source of funds to pay dividends to stockholders is
the  dividends  it  receives  from the Banks.  The Banks are  subject to certain
regulations on the amount of dividends it may declare  without prior  regulatory
approval.  Under these regulations,  the amount of dividends that may be paid in
any year is limited to that year's net profits,  as defined,  combined  with the
retained net profits of the preceding two years, less dividends  declared during
those periods.  At year-end 1997,  $9,057 of retained earnings was available for
dividends in future periods.

      The Banks were required to have approximately $4,659 and $3,542 of cash on
hand to meet regulatory reserve requirements at year-end 1997 and 1996.

NOTE 13 -- STOCK OPTIONS


      The Company  maintains a stock option plan,  which is  administered by the
Executive  Committee of the Board of  Directors.  A maximum of  3,125,000  stock
options may be issued to selected directors,  officers, and other key employees.
The  exercise  price of each  option is the fair market  value of the  Company's
common stock on the date of grant. The maximum term of the options is ten years.
Certain  options may be exercised  immediately  upon grant,  and certain options
vest at an annual rate of 20%,  allowing  20% of the options to be  exercised at
each grant anniversary  date. At year-end 1997,  2,067,005 shares are authorized
for future grant.


                                       35
<PAGE>

                             BANKFIRST CORPORATION


            NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
         (Dollar amounts in thousands, except share and per share data)


NOTE 13 -- STOCK OPTIONS (Continued)

      A summary of the Company's  option activity,  and related  information for
the year-ended 1997, 1996, and 1995 is presented below:

<TABLE>
<CAPTION>
                                                    1997                 1996                    1995
                                             -------------------   ------------------     ------------------
                                                        Weighted             Weighted               Weighted
                                                         Average              Average                Average
                                                        Exercise             Exercise               Exercise
                                             Options      Price    Options     Price      Options     Price
                                             -------      -----    -------     -----      -------     -----


<S>                                          <C>          <C>      <C>         <C>        <C>         <C>  
Outstanding at beginning of year ........    887,645      $5.21    547,020     $4.25      469,830     $3.72
Granted .................................    164,380       7.68    340,625      6.96       77,190      6.48
Exercised ...............................   (140,765)      3.72       --        --           --
Forfeited ...............................    (49,260)      7.12       --        --           --         --
                                            --------       ----    -------      ----      -------      ----
Outstanding at end of year ..............    862,000       6.19    887,645      5.21      547,020      4.11
Options exercisable at year-end .........    461,030       4.55    541,590      4.09      540,230      4.08
                                            --------       ----    -------      ----      -------      ----
Weighted-average fair value of
 options granted during the year ........      $3.09                 $2.46                  $2.92
                                            ========               =======                =======

</TABLE>


      Options  outstanding at year-end 1997 had a range of exercise  prices from
$3.72 to $7.68 and had a weighted  average  remaining  life of seven years.  The
fair value of each  option  grant is  estimated  on the date of grant  using the
Black-Scholes   option   pricing  model  with  the  following   weighted-average
assumptions used for grants in 1997, 1996, and 1995:  risk-free interest rate of
6.75%,  7.03% and 7.04%,  and expected lives of seven,  eight and nine years. No
assumption  was made  for  estimated  volatility  since  it is not  feasible  to
determine this  assumption  for a non-public  entity whose stock is not actively
traded. With estimated  volatility  excluded,  the option pricing model produces
the option's minimum value.


      No expense for stock  options is  recorded,  as the grant price equals the
market  price of the stock at grant date.  The  following  disclosures  show the
effect on  income  and  earnings  per share had the  options'  fair  value  been
recorded using an option pricing model. If additional  options are granted,  the
proforma effect will increase in the future.

<TABLE>
<CAPTION>
                                                     1997                  1996                 1995
                                              -------------------   -------------------   -------------------
                                                 As                    As                    As
                                              Reported   Proforma   Reported   Proforma   Reported   Proforma
                                              --------   --------   --------   --------   --------   --------
<S>                                            <C>        <C>        <C>        <C>        <C>        <C>   
Net income ................................    $6,628     $6,400     $6,049     $6,046     $5,179     $4,971
Basic earnings per share ..................      $.66       $.63       $.63       $.63       $.63       $.60
Diluted earnings per share ................       .61        .58        .59        .58        .59        .51
</TABLE>


                                       36
<PAGE>

                             BANKFIRST CORPORATION


            NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
         (Dollar amounts in thousands, except share and per share data)

 
NOTE 14 -- EARNINGS PER SHARE

      A  reconciliation  of the numerators and  denominators of the earnings per
common share and earnings per common share assuming  dilution  computations  are
presented below.

<TABLE>
<CAPTION>

                                                  1997           1996            1995
                                              -----------     -----------      ----------
<S>                                           <C>             <C>              <C>        
Earnings Per Share
   Net income ............................    $     6,628     $     6,049      $     5,179
   Less:  Dividends declared
             on preferred stock ..........           (161)           (162)            (74)
                                              -----------     -----------      ----------
      Net income available to
        common stockholders ..............    $      6,467    $      5,887     $    5,105
                                              ===========     ===========      ==========
   Weighted average common
      shares outstanding .................      9,876,735       9,347,725       8,098,170
                                              ===========     ===========      ==========
      Earnings per share .................    $        .66    $        .63     $      .63
                                              ===========     ===========      ==========
Earnings Per Share Assuming Dilution
   Net income available to
      common stockholders ................    $     6,467     $     5,887      $    5,105
   Add back dividends upon assumed
      conversion of preferred stock ......            161             162              74
                                              -----------     -----------      ----------
      Net income available to
        common stockholders
        assuming conversion ..............     $     6,628     $     6,049      $    5,179
                                               ===========     ===========      ==========
   Weighted average common
      shares outstanding .................      9,876,735       9,347,725       8,098,170
   Add: Dilutive effects of assumed
      conversions and exercises:
      Convertible preferred stock ........        685,830         696,415         397,610
      Convertible debenture ..............           --            39,065          39,065
   Stock options .........................        313,025         158,165         199,240
                                              -----------     -----------      ----------
   Weighted average common and
      dilutive potential common
      shares outstanding .................     10,875,590      10,241,370       8,734,085
                                              -----------     -----------      ----------
       Earnings per share assuming dilution    $      .61     $       .59      $      .59
                                              ===========     ===========      ==========
</TABLE>

NOTE 15 -- FAIR VALUE OF FINANCIAL INSTRUMENTS

      The carrying  value and estimated  fair value of the  Company's  financial
instruments are as follows at year-end 1997 and 1996.

                                            1997                       1996
                                ------------------------------------------------
                                 Carrying        Fair       Carrying    Fair
                                   Value         Value        Value     Value
                                ------------- ----------------------------------
Financial assets:
   Cash and cash 
     equivalents ..............   $31,290       $31,290       $25,132   $25,132
   Securities available 
     for sale .................   127,736       127,736       134,781   134,781
   Loans, net .................   458,869       462,168       408,070   407,499

Financial liabilities:
   Demand, savings, and money 
     market accounts ..........   280,781       280,781       249,890   249,890
   Certificate of deposits ....   268,988       268,347       266,449   267,045
   Advances from FHLB .........    12,121        12,005        12,154    11,265
   Repurchase agreement 
     and other ................    18,261        18,261         7,230     7,230


                                       37
<PAGE>

                             BANKFIRST CORPORATION


            NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
         (Dollar amounts in thousands, except share and per share data)


NOTE 15 -- FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

      The  following  methods and  assumptions  were used to  estimate  the fair
values for financial instruments.  The carrying amount is considered to estimate
fair value for cash and short-term instruments, demand deposits, liabilities for
borrowed money, and variable rate loans or deposits that reprice  frequently and
fully.  Securities  available  for sale fair  values are based on quoted  market
prices or, if no quotes are available,  on the rate and term of the security and
on  information  about the  issuer.  For fixed  rate loans or  deposits  and for
variable rate loans or deposits with infrequent  repricing or repricing  limits,
the fair value is estimated  by  discounted  cash flow  analysis  using  current
market rates for the  estimated  life and credit risk.  Fair values for impaired
loans are estimated using discounted cash flow analyses or underlying collateral
values,  where  applicable.  Liabilities  for borrowed money are estimated using
rates of debt with similar terms and remaining maturities.

NOTE 16 -- PARENT COMPANY CONDENSED FINANCIAL STATEMENTS

                                 BALANCE SHEETS
                     Years ended December 31, 1997 and 1996

                                                               1997       1996
                                                             -------     -------
Assets
   Cash and cash equivalents ...........................     $ 2,019     $   121
   Interest bearing deposit ............................        --         1,200
   Investment in subsidiary banks ......................      59,329      53,674
   Other ...............................................         516         356
                                                             -------     -------
         Total assets ..................................     $61,864     $55,351
                                                             =======     =======

   Total liabilities ...................................         432         136
Employee stock ownership plan ..........................       1,539       1,389
Stockholders' equity
   Common stock ........................................      24,553       3,886
   Preferred stock .....................................       1,093       1,128
   Additional paid-in capital ..........................      22,674      22,484
   Retained earnings ...................................      10,612      25,992
   Unrealized gain on securities .......................         961         336
                                                             -------     -------
         Total stockholders' equity ....................      59,893      53,826
                                                             -------     -------

         Total liabilities and
            stockholders' equity .......................     $61,864     $55,351
                                                             =======     =======
                              STATEMENTS OF INCOME
                  Years ended December 31, 1997, 1996, and 1995

                                                     1997      1996      1995
                                                   -------   -------    -------
Dividends from subsidiary banks ................   $ 1,593   $ 1,470    $ 1,725
Other income ...................................       220       178        134
                                                   -------   -------    -------
      Total income .............................     1,813     1,648      1,859
Interest expense ...............................      --         120        296
Other expense ..................................       213       350        867
                                                   -------   -------    -------
      Total expenses ...........................       213       470      1,163
                                                   -------   -------    -------
Income before income taxes .....................     1,600     1,178        696
Income tax expense (benefit) ...................         2      (105)      (379)
                                                   -------   -------    -------
Income before equity in
  undistributed income
  of subsidiaries ..............................     1,598     1,283      1,075
Equity in undistributed net
  income of subsidiaries .......................     5,030     4,766      4,104
                                                   -------   -------    -------
Net income .....................................   $ 6,628   $ 6,049    $ 5,179
                                                   =======   =======    =======


                                       38
<PAGE>

                             BANKFIRST CORPORATION


            NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
         (Dollar amounts in thousands, except share and per share data)


NOTE 16 -- PARENT COMPANY CONDENSED FINANCIAL STATEMENTS (Continued)

                            STATEMENTS OF CASH FLOWS
                  Years ended December 31, 1997, 1996, and 1995

<TABLE>
<CAPTION>

                                                          1997       1996        1995
                                                         -------    -------    -------
<S>                                                      <C>        <C>        <C>    
Operating activities
   Net income ........................................   $ 6,628    $ 6,049    $ 5,179
   Adjustments to reconcile net income to
      net cash provided by operating
      activities:
      Undistributed net income of subsidiaries .......    (5,030)    (4,766)    (4,104)
      Change in assets ...............................      (160)         7         38
      Change in liabilities ..........................       296         (9)       (24)
                                                         -------    -------    -------
         Net cash provided by operating activities ...     1,734      1,281      1,089
Net cash used in investment activities
   Change in time deposit with other banks ...........     1,200     (1,200)      --
                                                         -------    -------    -------
Financing activities
   Payments of notes payable .........................      --       (3,244)      --
   Preferred stock dividends paid ....................      (161)      (162)       (74)
   Common stock dividends paid .......................    (1,214)      (876)    (1,152)
   Cash paid for fractional shares in stock split ....        (3)      --         --
   Effect of internal reorganization .................      --       (1,846)    (1,235)
   Sales of common stock and stock options exercised .       567      6,273      1,308
   Repurchase of common stock ........................      (225)      (186)      (120)
                                                         -------    -------    -------
   Net cash provided by (used in) financing activities    (1,036)       (41)    (1,273)
                                                         -------    -------    -------
Net change in cash and cash equivalents ..............     1,898         40       (184)
Cash and cash equivalents, beginning of year .........       121         81        265
                                                         -------    -------    -------
Cash and cash equivalents, end of year ...............   $ 2,019    $   121    $    81
                                                         =======    =======    =======
</TABLE>

NOTE 17 -- SUBSEQUENT EVENTS


      On January 16, 1998,  the Bank  acquired a mortgage loan  origination  and
servicing company for $7.5 million cash in a business combination  accounted for
as a purchase. The mortgage company's primary asset was loan servicing rights of
approximately $7.0 million. The excess of the purchase price over the fair value
of net asset acquired,  $1.9 million, will be amortized on a straight-line basis
over 15 years. In July, 1998, the Company effected a 5 for 1 common stock split,
which  has  been  reflected  in  the  Consolidated   Statements  of  Changes  in
Stockholders' Equity. All per share information has been retroactively  restated
for this stock split.


                                       39
<PAGE>

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

      The  following  discussion  and analysis is presented  to  facilitate  the
understanding of the consolidated  financial  position and results of operations
of BankFirst  Corporation,  formerly Smoky Mountain Bancorp,  Inc., and of First
Franklin Bancshares,  Inc. ("First Franklin").  Unless otherwise indicated,  the
discussion  herein refers to BankFirst  Corporation  and its  subsidiaries  on a
consolidated basis (the "Company").

      The consolidated financial information discussed herein primarily reflects
the  activities  of the  Company's  wholly-owned  community  bank  subsidiaries,
BankFirst  and  The  First  National  Bank  and  Trust  Company   ("Athens,"  or
collectively,  the  "Banks").  The  discussion  identifies  trends and  material
changes  that  occurred  during  the  reported  periods  and  should  be read in
conjunction  with  the  supplemental   consolidated   financial  statements  and
accompanying  notes.  The periods  included within this discussion are the years
1997, 1996 and 1995.

General

      The  Company  is  a  community  banking  organization,   headquartered  in
Knoxville, Tennessee, which generates loans and deposits through its 29 branches
throughout East  Tennessee.  BankFirst has 23 offices in Knox,  Sevier,  Blount,
Loudon, and Jefferson counties, and Athens has six offices in McMinn County. The
Company's operations  principally involve commercial and residential real estate
lending, commercial business lending, consumer lending, construction lending and
other financial services,  including trust operations,  credit card services and
brokerage services.

      In the fall of 1992,  James L.  Clayton  acquired  control  of  BankFirst,
formerly known as First Heritage  National Bank of Loudon County,  N.A.  ("First
Heritage"),  and installed an  experienced  bank  management  team the following
year.  Drawing upon management's  existing  relationships  with loan and deposit
customers who followed management from their previous bank,  BankFirst increased
its assets from  approximately $60 million in 1993 to approximately $230 million
in 1996.  During 1996, Mr. Clayton acquired  control of Smoky Mountain  Bancorp,
Inc. ("Smoky Mountain") and its wholly-owned subsidiary,  First National Bank of
Gatlinburg. At year-end 1996, these entities were combined with the Company in a
share  exchange  accounted  for in a manner  similar to a pooling of  interests.
Following the  combination,  the Company had total assets of $423  million.  The
combined entity  continued  growth in 1997,  primarily  through  commercial real
estate lending financed through deposit growth.

      In January 1998,  BankFirst  purchased Curtis Mortgage Co., Inc.  ("Curtis
Mortgage") for $7.5 million as an opportunity to increase mortgage originations,
which had not been a  significant  line of business,  and as an  opportunity  to
diversify  revenues  through loan  servicing.  Curtis  Mortgage is a 54 year old
mortgage  company which  originates  and purchases  mortgage  loans for sale and
servicing.  Curtis Mortgage  generally has not retained loans for its portfolio,
although its servicing  portfolio was approximately  $451 million at the date of
acquisition.  This transaction was accounted for as a purchase, and accordingly,
is not  reflected  in the  historical  financial  statements  of the Company for
periods prior to that time.

      The  Company  changed  its name  from  Smoky  Mountain  Bancorp,  Inc.  to
BankFirst  Corporation following the April 27, 1998 shareholder meeting. On July
2, 1998, the Company acquired First Franklin in a statutory merger accounted for
as a pooling of interests.  At year-end 1997, First Franklin had total assets of
$182  million,  total  equity of $21  million,  and net income of $2.6  million.
Shareholders of First Franklin received 22.05 shares of Company common stock for
each share of First Franklin common stock,  giving effect to the subsequent five
for one stock split.  As a consequence  of the merger,  Athens became a separate
subsidiary of the Company,  adding risk  diversification  and trust expertise to
the combined entity. Athens also has a small consumer finance subsidiary.


                                       40
<PAGE>

Results of Operations

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

      Net interest income increased $3.1 million,  or 12.2%, to $28.6 million in
1997 from $25.5  million in 1996.  The increase in net  interest  income was due
primarily  to an  increase  in average  earning  assets and an  increase  in the
percentage of average earning assets  invested in loans.  Average earning assets
increased  $49.0  million,  or  9.3%,  primarily  as a  result  of loan  growth,
particularly growth of commercial business loans.

      The Company's net interest  spread and net interest  margin were 4.24% and
5.05%,  respectively,  in 1997 as  compared  to 4.13%  and  4.92%  in 1996.  The
increase in the net interest  spread and the net interest  margin was  primarily
the result of the growth in the volume of loans, which are traditionally  higher
yielding assets than investment  securities,  as a percentage of average earning
assets.

      The  provision  for loan  losses  was $2.9  million  in 1997  compared  to
$667,000 in 1996. The increase in the provision was  attributable  to additional
reserves  established  for the risks  associated with the commercial real estate
loan  portfolio  acquired in the merger with Smoky Mountain in December 31, 1996
and the increase in 1997 charge-offs. The Company experienced net charge-offs of
$1.6 million in 1997,  resulting in a ratio of net  charge-offs to average loans
of 0.35%.  Management  considers  these recent losses to be isolated  events and
does not  believe  that  they  signal  the  increase  of a trend  toward  larger
percentage loan losses in the future.

      Noninterest income increased  $414,000,  or 7.95%, to $5.7 million in 1997
from $5.2 million in 1996, primarily as a result of security gains of $309,000.

      Noninterest expense increased $524,000,  or 2.5%, to $21.3 million in 1997
from $20.8  million in 1996.  The primary  component of  noninterest  expense is
salaries and benefits,  which increased  $571,000,  or 5.4%, to $11.1 million in
1997 from $10.5  million in 1996.  The  increase  in  salaries  and  benefits is
primarily  attributable  to  overall  growth  of the  Company.  Data  processing
expenses  also  increased  $356,000,  or  39.7%,  to $1.3  million  in 1997 from
$897,000  in 1996  primarily  as a  result  of  volume  growth  and  adjustments
necessitated by the merger with Smoky Mountain.  The Company's  efficiency ratio
in 1997 was 61.1%, compared to 66.4% in 1996.

      Net income  increased  $579,000 or 9.6%, to $6.6 million in 1997 from $6.0
million in 1996.  The increase in net income was due primarily to an increase in
net  interest  income,  and was  reduced  by the impact of  increased  loan loss
provisions.  Return on average assets during 1997 and 1996 was 1.07%, and return
on average equity was 11.75% for 1997 compared to 12.66% for 1996.

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

      Net interest income increased $2.4 million,  or 10.5%, to $25.5 million in
1996 from $23.0  million in 1995.  The increase in net  interest  income was due
primarily  to an  increase  in average  earning  assets and an  increase  in the
percentage of average  earning  assets  invested in loans,  particularly  higher
yielding commercial  business and commercial real estate loans.  Average earning
assets increased $39.5 million,  or 8.0%,  primarily as a result of loan growth,
particularly growth of commercial business and commercial real estate loans.

      The Company's net interest  spread and net interest  margin were 4.13% and
4.92%,  respectively,  in 1996 as  compared  to 4.12%  and  4.82%  in 1995.  The
increase in the net interest  spread and the net interest  margin was  primarily
the result of the growth in the volume of loans,  traditionally  higher yielding
assets than investment securities, as a percentage of average earning assets.

      The provision for loan losses was $667,000 in 1996 compared to $553,000 in
1995.  The increase in the provision was primarily the result of general  growth
in the Company's loan  portfolio.  The Company  experienced  net  charge-offs of
$634,000 in 1996,  resulting in a ratio of net  charge-offs  to average loans of
0.17%.

      Noninterest income increased  $874,000,  or 20.0%, to $5.2 million in 1996
from $4.4  million  in 1995,  primarily  attributable  to  increases  in service
charges on customer accounts.

      Noninterest  expense increased $1.6 million,  or 8.6%, to $20.8 million in
1996 from $19.2 million in 1995. The primary component of noninterest expense is
salaries and benefits,  which increased  $790,000,  or 8.1%, to $10.5 million in
1996 from $9.7 million in 1995. Equipment expenses increased $697,000, or 41.4%,
to $2.4 million in 1996 from $1.7 million in 1995.  Occupancy expenses increased
$586,000,  or 38.0%,  to $2.1  million in 1996 from $1.5  million in 1995.  Data
processing  expenses  increased  $223,000,  or 33.09%,  to $897,000 in 1996 from
$674,000 in 1995. These increases are primarily  attributable to the combination
of the  operations of Smoky  Mountain and  BankFirst.  The Company's  efficiency
ratio in 1996 was 66.4%, compared to 68.5% in 1995.


                                       41
<PAGE>

      Net income increased $870,000, or 16.8%, to $6.0 million in 1996 from $5.2
million in 1995.  The  increase in net income was due  primarily to increases in
net interest  income and  noninterest  income,  and was reduced by the impact of
increased  noninterest  expense.  Return on  average  assets  for 1996 was 1.07%
compared to 0.98% during 1995,  and return on average equity was 12.66% for 1996
compared to 13.53% during 1995.

Lending

      Total loans were $465.0  million at year-end  1997,  and $412.8 million at
year-end 1996. Loan growth was $52.2 million,  or 12.6%,  during 1997, and $62.1
million, or 17.7%, during 1996.  Management was able to achieve growth from 1993
through 1996 because of long term relationships  developed by current management
while at other financial institutions. Loans in all categories continued to grow
during 1997  primarily as a result of strong  economic  conditions in the Banks'
primary  markets,  with  commercial  lending  experiencing  the largest  growth.
Management expects loan growth in 1998 to continue at a rate comparable to 1997.
Commercial  lending will continue to be the primary focus,  although  management
will  work  to  generate  additional  consumer  loans,  as  well  as  additional
residential mortgage loans through Curtis Mortgage.

      A banking  company's  credit risk  profile is  generally  reflected in the
level and types of loans held,  since loans are usually the highest  risk assets
owned. Even though the majority of the Company's loans are commercial,  which is
typically  the  highest  risk loan type,  management  believes  that two factors
mitigate the credit risk in this portfolio. First, 63.3% of commercial loans are
secured primarily by income producing real estate, and second, BankFirst's early
growth  was  generated  through  seasoned  loan  relationships.   The  Company's
relatively low levels of charge-offs and non-performing loans reflect the effect
of these mitigating factors.

      Lending  activities  are under the  direct  supervision  of the  Boards of
Directors  and senior  management  of the Banks.  The Banks  operate  under loan
policies which state,  among other things,  guidelines for underwriting,  credit
criteria,   loan   composition,    concentrations   and   administration.    See
"Business--Lending Activities" for a discussion of such policies.


                                Loans Outstanding
<TABLE>
<CAPTION>
                                                                  At December 31,
                                     ------------------------------------------------------------------------
                                        1997            1996           1995          1994              1993
                                        ----            ----           ----          ----              ----
                                                                   (Dollars in thousands)
<S>                                  <C>             <C>            <C>           <C>               <C>      
 Commercial business .............   $  95,143       $  69,614      $  53,430     $  57,680         $  43,448
 Commercial real estate ..........     164,102         155,389        116,372       103,312            91,052
 Construction loans ..............      24,977          26,379        22,021         19,431            12,153
 Residential real estate .........     120,143         110,636        108,276        81,472            73,488
 Installment .....................      59,947          50,277         50,569        45,093            33,981
 Other ...........................       2,623           2,035          1,754         1,918               953
                                      --------        --------       --------      --------          --------
       Total loans ...............     466,935         414,330        352,422       308,906           255,075
 Unearned income .................      (1,968)         (1,537)        (1,770)       (2,001)           (1,383)
                                      --------        --------       --------      --------          --------
          Total loans, net .......    $464,967        $412,793       $350,652      $306,905          $253,692
                                      ========        ========       ========      ========          ========

                                                                  At December 31,
                                      ------------------------------------------------------------------------
                                        1997            1996           1995          1994              1993
                                        ----            ----           ----          ----              ----
 Commercial business .............      20.38%          16.80%        15.16%         18.67%            17.03%
 Commercial real estate ..........      35.14           37.50         33.02          33.44             35.70
 Construction loans ..............       5.35            6.37          6.25           6.29              4.76
 Residential real estate .........      25.73           26.70         30.72          26.37             28.81
 Installment .....................      12.84           12.13         14.35          14.60             13.32
 Other ...........................       0.56            0.50          0.50           0.63              0.38
                                        -----           -----         -----          -----             -----
       Total loans ...............      100.0%          100.0%        100.0%         100.0%            100.0%
                                        =====           =====         =====          =====             =====
</TABLE>


                                       42
<PAGE>

Securities

      The  Banks  use  their  securities  portfolios  primarily  as a source  of
liquidity and a base from which to pledge assets for  repurchase  agreements and
public deposits.  Generation of income from securities is not a primary focus of
the Banks.  Total  securities  were $127.7  million at year-end  1997,  which is
slightly  lower  than the $134.8  million  balance  in 1996.  The Banks'  policy
guidelines  are designed to minimize  credit,  market,  and liquidity  risk, and
securities  generally must be "investment grade" or higher to be purchased.  All
securities  are classified as "available  for sale" to provide  flexibility  for
asset liability management. Approximately 62.4% of year-end 1997 securities were
pledged for public deposits and repurchase agreements. Other than commitments to
originate or sell mortgage loans,  the Banks do not invest in off-balance  sheet
derivative financial instruments, such as interest rate swaps.

                                   Securities
                                                        At December 31,
                                               ---------------------------------
                                                1997         1996        1995
                                                ----         ----        ----
                                                     (Dollars in thousands)
Available for sale:
U.S. Government and agencies ............     $ 77,969     $ 91,520     $ 95,129
States and political subdivisions .......       38,999       22,971       21,940
Mortgage-backed and asset-backed ........       10,768       20,290       18,558
                                              --------     --------     --------
       Total available for sale .........     $127,736     $134,781     $135,627
                                              ========     ========     ========

                          Securities Maturity Schedule
<TABLE>
<CAPTION>
                          1 Year and Less    1 to 5 Years     5 to 10 Years     Over 10 Years       Total
                          --------------    --------------   --------------    --------------  --------------
                           Balance  Rate     Balance  Rate     Balance Rate     Balance Rate     Balance Rate
                          --------------    --------------   --------------    --------------  --------------
                                                         (Dollars in thousands)
<S>                      <C>        <C>     <C>       <C>    <C>       <C>        <C>   <C>     <C>      <C>  
Available for sale:
U.S. Government
   & agencies .......... $ 11,978   5.87%   $40,554   6.42%  $24,936   6.57%      $501  7.06%   $77,969  6.33%
State and municipal ....      755   6.70%     5,857   6.92%   15,388   4.92%    16,999  4.97%    38,999  5.27%
Mortgage-backed
   and asset-backed (1)        --                --               --                --           10,768  6.43%
                          -------           -------          -------           -------         --------  
       Total available
          for sale .....  $12,733           $46,411          $40,324           $17,500         $127,736  6.01%
                          =======          ========          =======           =======        =========
</TABLE>
--------------
(1)   These securities are not identified with a specific  maturity because they
      do not have a defined maturity.

Deposits and Borrowings

      Although  deposits have been the Company's  primary  source of funding for
loans,  although the Company also utilizes  borrowed funds,  including  customer
repurchase agreements.  See "--Liquidity" and "--Interest Rate Sensitivity." The
Company  believes it has the ability to raise deposits quickly within its market
areas by slightly  raising  interest  rates.  The  Company's  deposit  strategy,
however,  has been to remain  competitive  in its  markets,  without  paying the
highest yield,  because of the availability and  attractiveness of other sources
of funding.  Customer repurchase agreements and FHLB advances, while more costly
than deposit funding,  are typically the lowest cost borrowed funds available in
the marketplace,  and are utilized by management to raise identified  amounts of
funds  with more  precision  than  deposit  solicitations.  Although  management
expects to continue using repurchase agreements,  short-term borrowings and FHLB
advances, deposits will continue to be the Company's primary funding source.

      Total  deposits  grew at a rate of 6.5% during 1997 and 7.5% during  1996,
resulting  from an increase in deposit  taking  branch  locations  and effective
marketing  strategies.  Despite  the  increase  in deposit  growth,  loan growth
outpaced the growth of deposit sources,  resulting in an increase in the loan to
deposit ratio to 83.5% at year-end 1997,  from 77.2% at year-end 1996. To supply
the needed liquidity,  BankFirst  increased its repurchase  agreements from $6.0
million in 1996 to $16.3  million in 1997.  While  BankFirst  actively  solicits
customer  repurchase   agreement  accounts,   Athens  has  not  used  repurchase
agreements  as a source of liquidity.  These  accounts are  considered  volatile
under regulatory requirements,  although BankFirst has found them to be a steady
source of funding. BankFirst and Athens have both utilized the Federal Home Loan
Bank of Cincinnati  ("FHLB") as a borrowing  source.  FHLB borrowings were $12.1
million at year-end 1997 and 1996,  $10.0 million of which matures  during 1998.
The FHLB will continue to be a source for funding loan growth in the future,  as
BankFirst  intends to draw  additional  borrowings  to fund the Curtis  Mortgage
warehouse line of credit and for other loan growth.


                                       43
<PAGE>

                               Deposit Information
                                                        December 31,
                                             -----------------------------------
                                              1997          1996          1995
                                              ----          ----          ----
                                                    (Dollars in thousands)
Noninterest bearing ..................      $ 92,749      $ 74,161      $ 74,325
Interest bearing demand ..............       150,761       139,152       125,558
Savings deposits .....................        37,270        36,576        41,507
Time .................................       268,989       266,450       238,956
                                            --------      --------      --------
          Total deposits .............      $549,769      $516,339      $480,346
                                            ========      ========      ========


                                              Maturity Ranges of Time Deposits
                                                 with Balances of $100,000 
                                                  or more at December 31,
                                            -----------------------------------
                                             1997           1996          1995
                                             ----           ----          ----
                                                   (Dollars in thousands)
3 months or less ..................        $25,686        $28,578        $25,508
3 through 6 months ................         14,324         11,182         14,188
6 through 12 months ...............         21,167         19,619         11,867
Over 12 months ....................         17,083         10,089         11,352
                                           -------        -------        -------
                                           $78,260        $69,468        $62,915
                                           =======        =======        =======

      In general,  large  certificate of deposit  customers tend to be extremely
sensitive to interest rate levels,  making these deposits less reliable  sources
of funding from liquidity  planning  purposes than core deposits.  However,  the
Company  does not believe  that its  deposits of this type are  materially  more
sensitive  to interest  rate  changes  than its other  certificates  of deposits
because such certificates are principally held by long-term customers located in
the Banks' market areas.


Equity and Capital Resources

      The Company and each of the Banks were "well  capitalized"  for regulatory
purposes during 1997,  1996 and 1995. The leverage  capital ratio of the Company
was 9.7% in 1997, 9.6% in 1996 and 8.4% in 1995, with total stockholders' equity
of $59.9 million at year-end 1997. For a discussion of capital  requirements see
"Regulation--Capital  Requirements."  The  Company  has  issued  stock  upon the
exercise of stock options, conversion of preferred stock to common stock, and in
connection  with a five for  four  common  stock  split in 1997 and five for one
split in 1998.  During 1996,  $4.5 million was raised from sales of common stock
and $1.8 million from sales of preferred stock. These stock sales were primarily
motivated  by the  desire to  increase  operating  capital  and to  achieve  and
maintain "well capitalized" levels and comply with regulatory requirements while
supporting asset growth. The cash dividends  reflected in the Company's 1997 and
1996 Financial  Statements were paid by First Franklin prior to the merger.  The
Company does not intend to pay cash dividends on common stock in the foreseeable
future.  The Company's current strategy is to support equity growth by retaining
net profits rather than paying cash dividends on common stock.

      Items that represent common stock equivalents include 218,508 shares of 5%
preferred stock, $5.00 par value per share (the "Preferred Stock"),  and 862,000
common stock options  outstanding at year-end 1997.  Each share of the Preferred
Stock is  convertible  into 3.0875 shares of common stock,  adjustable for stock
splits and future  recapitalizations.  There are 1,000,000  authorized shares of
Preferred Stock; however,  management currently has no plans to issue additional
shares.  There are 2,067,005  additional common shares available for grant under
the stock option plan.  The Company plans to continue  granting stock options to
selected officers, directors and other key employees.


Net Interest Income

      Net interest income is the difference  between interest and fees earned on
earning  assets,  principally  loans and  investments,  and the interest paid on
deposits and other interest bearing funds. It is the major component of earnings
for the Company.  For  analytical  purposes,  the  interest  earned on loans and
investments  is measured and  

                                       44
<PAGE>

expressed on a fully tax equivalent (FTE) basis.  Tax-exempt  interest income is
increased to an amount comparable to interest subject to federal income taxes in
order to properly  evaluate the effective  yields earned on earning assets.  The
tax equivalent  adjustment is based on a combined  federal and state tax rate of
34%.

      Net interest  income is  influenced  primarily by market  interest  rates,
changes  in  the  balance  and  mix  of  earning  assets  and   interest-bearing
liabilities, the proportion of earning assets that are funded by demand deposits
and equity  capital and the relative  repricing  periods for earning  assets and
interest-bearing  liabilities. Some of these factors are controlled to a certain
extent  by  management.  Conditions  beyond  management's  control  may  have  a
significant impact on changes in net interest income from one period to another.
Examples of such external  factors are Federal  Reserve Board  monetary  policy,
introduction  of new loan or deposit  products  by bank and  non-bank  financial
competitors  and  the  fiscal  and  debt  management  policies  of  the  federal
government.


                                       45
<PAGE>

                    Average Balance Sheets and Interest Rates
<TABLE>
<CAPTION>
                                                                    Years ended December 31,
                             --------------------------------------------------------------------------------------------

                                           1997                              1996                          1995
                              ------------------------------    ----------------------------   --------------------------
                               Average               Average     Average              Average   Average            Average
                               Balance   Interest     Rate       Balance   Interest    Rate     Balance  Interest   Rate
                              --------    -------    -------     -------    -------   -------   -------   -------  ------
                                                                    (Dollars in thousands)
<S>                           <C>        <C>           <C>       <C>         <C>       <C>      <C>                 <C>  
 ASSETS
 Interest earning assets
   Securities
     Taxable ................ $105,180   $  6,783      6.45%     $113,420    $7,213    6.36%    $115,842   $6,562   5.66%
       Tax-exempt (1) .......   23,328      1,795      7.69        23,336     1,813    7.77       19,705    1,641   8.33
 Unrealized gain on A.F.S. ..      288                               (156)                           (38)
                              --------    -------                --------    ------             --------   ------
 Total securities ...........  128,796      8,578      6.66       136,600     9,026    6.61      135,509    8,203   6.05
   Loans (2) ................  442,296     42,880      9.70       379,930    37,589    9.89      339,989   33,791   9.94
   Interest bearing deposits
     with other banks .......      236         15      6.36         1,180        61    5.17        1,154       75   6.50
   Federal funds sold and
     other ..................    5,850        346      5.90        10,469       572    5.46       12,182      557   4.57
                              --------    -------                --------    ------             --------   ------
       Total earning assets .  577,178     51,819      8.98       528,179    47,248    8.95      488,834   42,626   8.72

Noninterest earning assets
   Allowance for loan losses    (4,796)                            (4,802)                        (4,541)
   Premises and equipment ...   19,769                             16,961                         17,395
   Cash and due from banks ..   20,876                             17,942                         17,991
   Accrued interest and
     other assets ...........    8,692                              8,336                          7,816
                              --------                           --------                       --------
       Total assets ......... $621,719                          $ 566,616                      $ 527,495
                              ========                           ========                       ========
 LIABILITIES AND STOCKHOLDERS' EQUITY
 Interest-bearing liabilities
   Deposits
     Interest-bearing demand
      deposits ..............$ 141,941   $  5,007      3.53%    $ 128,048    $5,185    4.05%    $125,466  $ 4,866   3.88%
   Savings deposits .........   36,803      1,034      2.81        37,855     1,107    2.92       41,667    1,236   2.97
   Time deposits ............  270,782     15,063      5.56       254,448    13,805    5.43      232,640   12,115   5.21
                              --------    -------                --------    ------             --------   ------
 Total interest-bearing \
   deposits .................  449,526     21,104      4.69       420,351    20,097    4.78      399,773   18,217   4.56
   Borrowed funds
    Securities sold under
      agreements to repurchase   9,110        438      4.81         7,346       347    4.72        4,839      276   5.70
     Other borrowings .......    7,173        414      5.77         4,710       254    5.39        4,674      205   4.39
     Long-term borrowings ...   12,214        696      5.70         8,544       540    6.32        5,553      384   6.92
                              --------    -------                --------    ------             --------   ------
 Total borrowed funds .......   28,497      1,548      5.43        20,600     1,141    5.54       15,066      865   5.74
                              --------    -------                --------    ------             --------   ------
     Total interest-bearing
        liabilities .........  478,023     22,652      4.74       440,951    21,238    4.82      414,839   19,082   4.60
 Noninterest-bearing liabilities
   Employee stock ownership
      plan ..................    1,536                              1,389                          1,710
   Noninterest-bearing demand
      deposits ..............   80,294                             72,084                         68,295
   Other liabilities ........    6,320                              4,405                          4,369
   Stockholders' equity. ....   55,546                             47,787                         38,282
                              --------                           --------                       --------
   Total liabilities and
      stockholders' equity .. $621,719                           $566,616                       $527,495
                              ========                           ========                       ========
  Interest margin recap
   Net interest income and
      interest rate spread ..            $ 29,167      4.24%                $26,010    4.13%             $ 23,544   4.12%
                                         ========                           =======                      ========
   Net interest income margin                          5.05%                           4.92%                        4.82%

</TABLE>

---------------

(1)   Interest  income  on  tax-exempt  securities  has been  adjusted  to a tax
      equivalent  basis using a marginal  federal income tax rate of 34% for all
      years.  Tax equivalent  adjustments  were $532 for 1997, $550 for 1996 and
      $507 for 1995.
(2)   Nonaccrual  loans are included in average loan  balances and loan fees are
      included in interest  income.  Loan fees were $1,113 for 1997,  $1,327 for
      1996 and $1,072 for 1995.


                                       46
<PAGE>

      An analysis of the changes in net interest income from period to period is
presented in the following table.  Information is provided in each category with
respect to (i)  changes  attributable  to changes in volume  (changes  in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes
in rate  multiplied  by prior  volume),  and (iii) the net  change.  The changes
attributable  to the  combined  impact  of volume  and rate have been  allocated
proportionately to the changes due to volume and the changes due to rate.

                              Volume/Rate Analysis
<TABLE>
<CAPTION>
                                    1997 change from 1996 due to     1996 change from 1995 due to
                                    ----------------------------     ---------------------------
                                    Volume      Rate       Total     Volume      Rat       Total
                                    ------      -----      -----     ------      ----       ----
                                                            (Dollars in thousands)
<S>                                <C>        <C>        <C>        <C>        <C>        <C>    
Interest income
  Loans ........................   $ 6,281    $  (989)   $ 5,292    $ 3,987    $  (189)   $ 3,798
  Securities
    Taxable ....................      (515)        85       (430)      (141)       792        651
    Tax-exempt .................        (1)       (17)       (18)       317       (145)       172
      Total securities interest       (516)        68       (448)       177        646        823
  Interest-bearing deposits with
    other banks ................       (33)       (13)       (46)         2        (16)       (14)

  Federal funds sold ...........      (228)         1       (227)      (118)       133         15
                                   -------    -------    -------    -------    -------    -------

      Total interest income ....     5,504       (933)     4,571      4,048        574      4,622
                                   -------    -------    -------    -------    -------    -------
Interest expense
  Interest-bearing demand
    deposits ...................       596       (774)      (178)       102        217        319
  Savings deposits .............       (34)       (39)       (73)      (111)       (18)      (129)
  Time deposits ................       902        356      1,258      1,169        521      1,690
  Repurchase agreements ........        85          6         91        161        (90)        71
  Other borrowings .............       141         19        160          2         47         49
  Long-term borrowings .........       251        (95)       156        222        (66)       156
                                   -------    -------    -------    -------    -------    -------
      Total interest expense ...     1,941       (527)     1,414      1,544        612      2,156
                                   -------    -------    -------    -------    -------    -------
      Net interest income ......   $ 3,563    $  (406)   $ 3,157    $ 2,504    $   (38)   $ 2,466
                                   =======    =======    =======    =======    =======    =======
</TABLE>

      Net interest income (FTE) increased $3.2 million,  or 12.1%,  from 1996 to
1997, and $2.5 million,  or 10.4%,  from 1995 to 1996. Net interest  margin also
improved each period,  growing from 4.8% in 1995, to 4.9% in 1996 and to 5.1% in
1997.  The  increase in net interest  income,  and  improvement  in net interest
margin, is primarily  attributable to an increase in the level of earning assets
and a change the makeup of those assets.

      Average earning assets increased from $528.2 million to $577.1 million, or
9.3%,  from 1996 to 1997,  and from $488.8 million to $528.2  million,  or 8.0%,
from 1995 to 1996.  Loan growth,  which was 16.4% in 1997 and 11.7% in 1996, was
the primary cause of the overall growth in earning  assets.  Management has been
able to  achieve  this  growth  in  loans  because  of long  term  relationships
developed by current  management while at other financial  institutions and most
recently,  as a result of  strong  economic  conditions  in the  Banks'  primary
markets. Management expects loan growth in 1998 to continue at a rate equivalent
to 1997.

      The growth in loans has  improved  the net  interest  rate  spread and net
interest margin.  Loans are the highest  yielding  earning assets.  During 1995,
loans represented  69.5% of earning assets.  During 1996 this ratio increased to
71.9%,  and in 1997 it  increased  further to 76.7%.  Although  the average rate
earned on loans has decreased in each of the last two years from 9.89% to 9.70%,
the yield on total  interest  earning  assets has increased in each period.  The
increased  yield on securities  has also supported the increase in average yield
on  earning  assets.  The  increase  in yield  from  1995 to 1996 of  0.56%  was
consistent  with  general  market  rate  increases.  The  increase  in 1997  was
primarily  attributable  to the Bank's  reinvesting  of  securities  proceeds in
longer-term  securities  with  higher  yields.  Average  yields  on  investments
increased in 1997,  from 6.61% to 6.66%,  while general market rates declined to
some extent.

      Net  interest  income and net  interest  margin  have also been  helped by
several  factors  related to funding.  Most of the  Company's  asset  growth has
continued  to be funded  with  deposits,  the least  costly  source of  funding.
Average  interest-bearing  deposits grew 6.9% from 1996 to 1997,  almost keeping
pace with the growth in  earning  


                                       47
<PAGE>

assets.  Even with this deposit  growth,  the average rate paid on deposits fell
from 4.78% in 1996 to 4.69% in 1997.  The  Company is  generally  asset  driven,
managing funding to support assets gathered. See " -- Deposits and Borrowings."

      The portion of earning  assets funded by  non-interest  bearing  deposits,
other liabilities and equity has increased from 22.7% in 1995, to 23.5% in 1996,
and to 24.6% in 1997.  These  sources of funding do not carry an interest  cost,
and thus the amount of interest earning assets supported by non interest-bearing
liabilities has increased.  This factor does not impact net interest spread, but
has a positive impact on net interest margin.

      The increase in deposits plus non-interest  bearing sources of funding has
been lower than the growth in earning assets.  As a result,  borrowed funds have
increased  from 3.1% of average  earning assets in 1995 to 3.9% in 1996 and 4.9%
in 1997.  These funds are more costly than deposits and their increase  relative
to total  funding  has put some  downward  pressure on net  interest  margin and
spread.  In 1995,  the average  cost of  borrowing  exceeded the average cost of
deposits by 118 basis points ("bp"). In 1996, this difference fell to 76 bp, and
in 1997 it decreased  further to 74 bp. The narrowing of spread between  average
costs of borrowings and average costs of deposits is attributable primarily to a
deliberate  shift by management of the nature of FHLB  borrowings  from fixed to
variable rate, as part of its overall asset/liability strategy. See "-- Deposits
and Borrowings."

Provision for Loan Losses and Asset Quality

      The  provision  for loan  losses  represents  charges  made to earnings to
maintain an adequate  allowance for loan losses.  The allowance is maintained at
an amount  believed to be  sufficient  to absorb  losses in the loan  portfolio.
Factors  considered in establishing an appropriate  allowance  include a careful
assessment of the financial condition of the borrower; a realistic determination
of the value and adequacy of underlying  collateral;  the condition of the local
economy  and  the  condition  of  the  specific  industry  of  the  borrower;  a
comprehensive analysis of the levels and trends of loan categories; and a review
of delinquent and classified loans. The Company applies a systematic process for
determining the adequacy of the allowance for loan losses  including an internal
loan review  function and a monthly  analysis of the adequacy of the  allowance.
The monthly analysis includes  determination of specific  potential loss factors
on individual  classified loans,  historical potential loss factors derived from
actual  net  charge-off  experience  and  trends  in  nonperforming  loans,  and
potential   loss   factors  for  other  loan   portfolio   risks  such  as  loan
concentrations, local economy, and the nature and volume of loans.

      The  recorded  values  of loans  actually  removed  from the  consolidated
balance sheets are referred to as charge-offs  and, after netting out recoveries
on previously  charged-off assets, become net charge-offs.  The Company's policy
is to charge  off  loans,  when,  in  management's  opinion,  the loan is deemed
uncollectible,  although  concerted efforts are made to maximize  recovery.  The
Company's level of net charge-offs to average loans was 0.35% in 1997,  0.17% in
1996 and 0.11% in 1995. Charge-offs were relatively immaterial through 1996, but
increased to $1.8 million in 1997, due to two commercial  credits charged off by
BankFirst, and a smaller increase in loan charge-offs by Athens. Management does
not believe that 1997 charge-offs are indicative of an overall  deterioration in
the credit quality of the portfolio.


                                       48
<PAGE>

                      Analysis of Allowance for Loan Losses
<TABLE>
<CAPTION>
                                    1997          1996         1995           1994         1993
                                    ----          ----         ----           ----         ----
                                                                 (Dollars in thousands)
<S>                              <C>           <C>           <C>           <C>           <C>      

 Balance at beginning of year    $   4,723     $   4,690     $   4,526     $   4,054     $   3,392
 Loans charged off
   Commercial business .......      (1,079)         (182)         (203)         (234)         (241)
   Commercial real estate ....        (161)            6          --            --             (14)
   Construction loans ........        --            --            --             (45)         --
   Residential real estate ...         (76)          (55)          (44)           (1)          (61)
   Installment ...............        (503)         (661)         (454)         (291)         (289)
   Lease financing ...........         (14)         --            --            --            --
                                 ---------     ---------     ---------     ---------     ---------
     Total charge-offs .......      (1,833)         (904)         (701)         (571)         (605)
                                 ---------     ---------     ---------     ---------     ---------
 Charge-offs recovered
   Commercial business .......          41            53           146           149           184
   Commercial real estate ....           2          --            --               7          --
   Construction loans ........          33            12          --            --            --
   Residential real estate ...          39            21            13            42            17
   Installment ...............         158           184           153           141           142
   Lease financing ...........        --            --            --            --            --
                                 ---------     ---------     ---------     ---------     ---------
     Total recoveries ........         273           270           312           339           343
                                 ---------     ---------     ---------     ---------     ---------
 Net loans charged off .......      (1,560)         (634)         (389)         (232)         (262)
 Current year provision ......       2,935           667           553           704           924
                                 ---------     ---------     ---------     ---------     ---------
 Balance at end of year ......   $   6,098     $   4,723     $   4,690     $   4,526     $   4,054
                                 =========     =========     =========     =========     =========
 Loans, net at year end ......   $ 464,967     $ 412,793     $ 350,652     $ 306,905     $ 253,692
 Ratio of allowance to loans at
   year end ..................        1.31%         1.14%         1.34%         1.47%         1.60%
 Average loans ...............   $ 442,296     $ 379,930     $ 339,989     $ 282,812     $ 243,431
 Ratio of net loans charged off
   to average loans ..........        0.35%         0.17%         0.11%         0.08%         0.11%
</TABLE>


      The level of  non-performing  loans is an  important  element in assessing
asset  quality and the  relevant  risk in the credit  portfolio.  Non-performing
loans include non-accrual loans, restructured loans and loans delinquent 90 days
or more.  Loans are  classified as  non-accrual  when  management  believes that
collection of interest is doubtful but principal is considered collectible. When
loans are placed on nonaccrual  status, all unpaid accrued interest is reversed.
Another element associated with asset quality is other real estate owned (OREO),
which  represents  properties  reacquired  through loan  defaults by  customers.
Non-performing loans were 0.61% of loans in 1997 and 0.59% of loans in 1996, and
the allowance  for loan losses is more than double the amount of  non-performing
loans at year-end 1997. The dollar increase in non-performing  loans during 1997
is due to the maturing  portfolio,  and less  attributable  to conditions in the
marketplace.  The Company considers commercial loans on nonaccrual or classified
as doubtful under the internal  grading system to be impaired.  See  "Business--
Lending  Activities."  For these  loans,  a specific  reserve is computed  using
discounted  expected  cash  flows or  conversion  of  collateral.  There were no
material impaired loans at year-end 1997.

      Even though the Company has relatively low levels of non-performing  loans
and has  experienced  low  charge-offs,  management  has sought to maintain  the
allowance for loan losses at a level adequate to cover credit losses inherent in
the  portfolio.  Management's  judgment as to the  adequacy of the  allowance is
based upon a number of  assumptions  about future events which it believes to be
reasonable, but are likely to change. There can be no 


                                       49
<PAGE>

assurance  that  charge-offs  in future periods will not exceed the allowance or
that  additional  increases in the allowance will not be required.  During 1997,
BankFirst  recorded  a  provision  for loan  losses of $2.9  million,  which was
substantially  higher than the two preceding  years.  Factors which gave rise to
the 1997 increased  provision and the resultant  29.1% increase in the allowance
included a 36.6%  increase in  commercial  business  loans during the year and a
146.1%  increase  in net  charge-offs  during  the  year,  which  increased  the
historical loss factors applied to the portfolio.

                              Non-Performing Assets


                                               As of December 31,
                                  ----------------------------------------------
                                   1997     1996      1995      1994      1993
                                   ----     ----      ----      ----      ----
                                              (Dollars in thousands)
Principal balance
 Nonaccrual ...................  $1,141    $  900    $  581    $  871    $  477
  90 days or more past due
   and still accruing .........   1,705     1,518       461       264       125
                                 ------    ------    ------    ------    ------
    Total non-performing loans   $2,846    $2,418    $1,042    $1,135    $  602
                                 ======    ======    ======    ======    ======


Non-perf. as a percent of loans    0.61%     0.59%     0.30%     0.37%     0.24%
Other real estate owned .......  $  878    $  309    $  770    $  317    $  396
OREO as a percent of loans ....    0.19%     0.07%     0.22%     0.10%     0.16%
Allowance as a percent of
  nonperforming loans .........  214.27%   195.33%   450.10%   398.77%   673.42%

      The 1997 loan portfolio was 55.5%  commercial  and commercial  real estate
loans, which represent higher risk than residential  mortgage and consumer loans
because of their larger size and greater  dependency  on cash flow.  The Company
also has a  concentration  of  commercial  real estate loans to the  hospitality
industry,  substantially in Sevier County, Tennessee.  Management has determined
that a total allowance level of $6.1 million,  or 1.31% of total loans for 1997,
is adequate for losses inherent in the total  portfolio.  Future  provisions for
loan losses will be dependent on loan growth,  loan mix,  portfolio  credit risk
and actual losses incurred.  Provisions during 1998 are expected to be less than
1997 levels.

                              Allowance Allocation

                                                 As of December 31,
                                   ---------------------------------------------
                                   1997      1996      1995      1994     1993
                                   -----    ------     -----    ------   ------
                                               (Dollars in thousands)
Commercial business ..........    $1,231    $  801    $  714    $  617    $  754
Commercial real estate .......     1,874     1,366     1,263     1,187     1,161
Construction loans ...........       244       338       276       273       167
Residential real estate ......       839     1,126     1,227     1,063       811
Installment ..................       986       666       709       764       409
Unallocated ..................       924       426       501       622       752
                                  ------    ------    ------    ------    ------
  Total ......................    $6,098    $4,723    $4,690    $4,526    $4,054
                                  ======    ======    ======    ======    ======


                                       50
<PAGE>

Noninterest Income and Expense

                         Noninterest Income and Expense
<TABLE>
<CAPTION>
                                                % change                 % change
                                        1997    from `96     1996        from `95     1995
                                        ----    --------     ----        --------     ----
                                                    (Dollars in thousands)
<S>                                <C>             <C>     <C>             <C>      <C>     
Noninterest Income
Deposit service charges and fees   $  3,811        0.40%   $  3,796        14.86%   $  3,305
Trust department income ........        704       13.55         620         6.53         582
Other ..........................        607       (0.98)        613       107.10         296
Realized gain on sale of loans .        226       (3.42)        234        29.28         181
Security gains/(losses) ........        309    1,645.00         (20)     (500.00)          5
                                   --------                --------                 --------
  Total noninterest income .....   $  5,657        7.90%   $  5,243        20.00%   $  4,369
                                   ========                ========                 ========
Noninterest Expense                                                                
Salaries and employee benefits .   $ 11,110        5.42%   $ 10,539         8.10%   $  9,749
Occupancy expenses .............      1,716      (19.40)      2,129        37.98       1,543
Equipment expenses .............      2,537        6.51       2,382        41.36       1,685
Office expenses ................        775      108.90         371       (49.59)        736
Data processing expenses .......      1,253       39.69         897        33.09         674
FDIC assessments ...............         48      (88.18)        406       (45.06)        739
Other ..........................      3,884       (4.69)      4,075         1.09       4,031
                                   --------                --------                 --------
  Total noninterest expense ....   $ 21,323        2.52%   $ 20,799         8.57%   $ 19,157
                                   ========                ========                 ========
</TABLE>

      The primary  recurring source of noninterest  income is service charges on
deposit accounts.  Service charges on deposit accounts  increased 0.4% from 1996
to 1997, and increased 14.9% from 1995 to 1996. Trust department income provided
$704,000 in 1997,  an increase  of 13.6% from 1996.  The  majority of this trust
income is generated  by Athens;  however,  management  expects that the combined
trust  departments  of both Banks will provide  future growth in trust income to
the Company.

      Another  component of  noninterest  income is gains on sales of securities
and loans. The Company  classifies all of its securities as "available for sale"
to provide flexibility for asset liability management. Security sales were $35.5
million in 1997,  generating  $309,000  in gains.  There  were $13.0  million of
security sales in 1996,  resulting in $20,000 in losses. In 1995, security sales
of $14.1 combined with $8.2 million sales of trading  securities by BankFirst in
generating $5,000 in gains.  BankFirst  discontinued  trading  securities during
1995,  and  current  policies  do not permit  trading.  Gains from loan sales of
$226,000  in 1997,  $234,000  in 1996 and  $181,000  in 1995 were  solely  gains
realized from sales of mortgage loan  servicing to private  investors.  Proceeds
from sales of these  mortgage  loans were $15.5 million  during 1997.  BankFirst
generally has not retained mortgage loans in its portfolio. With the acquisition
of Curtis Mortgage, BankFirst expects to utilize its various retail locations as
a source for expanded mortgage loan origination volume. Curtis Mortgage, through
increased volume, is expected to provide a significant increase in gains on loan
sales as well as to enhance earnings from loan servicing income.

      Noninterest expense increased 2.5% in 1997 from 1996.  Increases in office
administration  and data  processing  costs were offset by declines in occupancy
and FDIC  assessments.  The Company's FDIC insurance rate is at the lowest level
charged by the FDIC,  which is  currently  close to zero.  Noninterest  expenses
increased 8.6% from 1995 to 1996,  primarily from occupancy,  equipment and data
processing  expenses  resulting  from the  combination  of Smoky  Mountain's and
BankFirst's  operations,  offset  by a  decline  in FDIC  assessments  and other
expenses.  Future occupancy expenses are expected to increase as a result of new
branch  locations  currently  being  constructed,   and  the  1997  purchase  of
additional main office space. Data processing  expenses are expected to increase
with growth and from new software  purchased by BankFirst  during 1998. In 1998,
noninterest  expense  will  include  costs  associated  with the First  Franklin
merger, which are estimated to be $500,000.


                                       51
<PAGE>

Income Taxes

      The Company's  effective income tax rate has remained fairly constant,  at
34% in 1997,  34.5% in 1996,  and 32.7% in 1995.  The Company had  deferred  tax
liabilities of $756,000 at year-end 1997 and $437,000 at year-end  1996.  Note 9
to the consolidated  financial statements contains additional analysis of income
taxes.

Interest Rate Sensitivity

      A key element in the financial  performance of financial  institutions  is
the level and type of interest  rate risk assumed.  The single most  significant
measure of interest rate risk is the  relationship  of the repricing  periods of
earning assets and interest-bearing  liabilities. The more closely the repricing
periods are correlated,  the less interest rate risk assumed by the Company.  In
general,  community bank customer preferences tend to push the average repricing
period  for  costing  liabilities  to a  shorter  time  frame  than the  average
repricing  period of earning  assets,  resulting  in a net  liability  sensitive
position in time frames less than one year. A summary of the repricing  schedule
of the  Company's  interest  earning  assets and  interest  bearing  liabilities
("GAP") at year-end 1997 follows:

                     Liquidity and Interest Rate Sensitivity
<TABLE>
<CAPTION>
                                                                  At December 31, 1997
                                          --------------------------------------------------------------
                                           1 - 90       91 - 365        1 - 5         Over 5
                                           Days          Days          Years          Years        Total
                                           -----       --------        -----         ------       ------
                                                              (Dollars in thousands)
<S>                                       <C>           <C>           <C>          <C>          <C>      
Interest earning assets
   Loans, net .........................   $ 186,527     $  68,914     $ 168,081    $  41,445    $ 464,967
   Securities available for sale
     Taxable ..........................       2,425        12,202        49,476       26,837       90,940
     Tax-exempt .......................          50           613         4,330       31,826       36,819
                                          ---------     ---------     ---------    ---------    ---------
   Total securities ...................       2,475        12,815        53,806       58,663      127,759
   Federal funds sold .................       7,000          --            --           --          7,000
                                          ---------     ---------     ---------    ---------    ---------
     Total interest earning assets ....   $ 196,002     $  81,729     $ 221,887    $ 100,108    $ 599,726
                                          =========     =========     =========    =========    =========
 Interest bearing liabilities
   Interest-bearing demand deposits ...   $ 150,762     $    --       $    --      $    --      $ 150,762
   Savings deposits ...................      37,269          --            --           --         37,269
   Time deposits ......................      67,566       128,028        73,070          325      268,989
   Repurchase agreements and other
     borrowed funds ...................      17,303           458           500         --         18,261
   Long-term borrowings ...............          25        10,072           384        1,640       12,121
                                          ---------     ---------     ---------    ---------    ---------
     Total interest bearing liabilities   $ 272,925     $ 138,558     $  73,954    $   1,965    $ 487,402
                                          =========     =========     =========    =========    =========
 Rate sensitive gap ...................     (76,923)      (56,829)      147,933       98,143
 Rate sensitive cumulative gap ........     (76,923)     (133,752)       14,181      112,324      112,324
 Cumulative gap as a percentage
   of earning assets ..................      (12.83)%      (22.30)%        2.36%       18.73%
</TABLE>


                                       52
<PAGE>

     As shown  in the  table,  the  Company  has a  cumulative  negative  GAP of
approximately  13% and 22% at the end of 90  days  and one  year,  respectively.
Management believes that this level of negative GAP is appropriate since many of
the  liabilities   which  are  contractually   immediately   repricable  can  be
effectively  repriced  more  slowly  than the  assets  which  are  contractually
immediately  repricable  in  a  rising  rate  environment.   Conversely,   those
liabilities  can often be repriced  downward  more  rapidly  than  contractually
required assets  repricing in a downward rate  environment.  The degree to which
management  can  control  the rate of change in  deposit  liabilities  which are
contractually  immediately repricable is affected to a large extent by the speed
and amount of interest  rate  movements.  Management's  estimates  regarding the
actual  repricing  of  contractually   immediately   repricable  liabilities  is
incorporated into the Company's earnings simulation model.

     The Company uses an earnings  simulation  model to analyze the net interest
income  sensitivity.  Potential  changes  in  market  interest  rates  and their
subsequent  effect on interest income is then evaluated.  The model projects the
effect  of  instantaneous  movements  in  interest  rates  of 100  and  200  bp.
Assumptions based on the historical  behavior of the Company's deposit rates and
balances in relation to interest rates are also incorporated in the model. These
assumptions  are  inherently  uncertain  and,  as a  result,  the  model  cannot
precisely  measure  net  interest  income or  precisely  predict  the  impact of
fluctuations  in market  interest rates on net interest  income.  Actual results
will differ  from the model's  simulated  results due to timing,  magnitude  and
frequency of interest rate changes,  as well as changes in market conditions and
the application of various management strategies.

                                   Market Risk
<TABLE>
<CAPTION>
                                          Decrease in Rates                            Increase in Rates
                                     ---------------------------                  -----------------------------
                                         200             100           Level          100               200
                                    Basis Points    Basis Points       Rates     Basis Points      Basis Points
                                     -----------     -----------      ------      -----------       -----------
                                                              (Dollars in thousands)
<S>                                    <C>             <C>            <C>           <C>               <C>    

 Projected Interest Income
 Loans .............................   $42,721         $45,240        $47,763       $50,286           $52,809
 Investments .......................     9,138           9,266          9,396         9,523             9,653
 Federal funds sold ................        77              96            115           135               155
                                       -------         -------        -------       -------           -------
 Total interest income .............    51,936          54,602         57,274        59,944            62,617
 Projected Interest Expense
 Deposits ..........................    19,420          20,999         22,463        24,041            25,609
 FHLB term advances ................       554             611            668           725               782
 Federal funds purchased
   and other .......................       878           1,117          1,364         1,603             1,843
                                       -------         -------        -------       -------           -------
 Total interest expense ............    20,852          22,727         24,495        26,369            28,234
                                       -------         -------        -------       -------           -------
 Net interest income ...............   $31,084         $31,875        $32,779       $33,575           $34,383
 Change from level rates ...........    (1,695)           (904)                         796             1,604
 % change from level rates .........     (5.17)%         (2.76)%                       2.43%             4.89%
</TABLE>

     In the event of an immediate 100 bp upward shift in the yield curve,  it is
estimated  that net interest  income would  increase by $796,000  compared to an
increase of $1.6 million in the event of a similar 200 bp rate  movement.  These
changes represent 2.4% and 4.9% of net interest income,  respectively.  Downward
rate movements  result in estimated  decreases in net interest income of similar
amounts and percentages.

     Even  though the  Company's  cumulative  GAP at one year is  negative,  the
earnings simulation model indicates that an increase in interest rates of 100 bp
and 200 bp would result in increased net interest  income.  This occurs  because
management believes that if overall market interest rates increase modestly, the
market  would not  require an  immediate,  corresponding  repricing  of non-term
deposit liabilities.

Liquidity

     Liquidity  management  is  both a daily  and  long-term  responsibility  of
management.  The Company  adjusts its  investments in liquid assets and long and
short term borrowing,  based upon  management's  consideration  of expected loan
demand,  expected deposit flows and securities sold under repurchase  agreements
(which  are  generally  deposit   equivalents  arising  from  a  corporate  cash
management  program  offered by the Company).  Management  looks to deposits and
other  borrowings  as its primary  sources of  liquidity.  See " -- Deposits and
Borrowings." The Banks' Asset/Liability Committees evaluate funding sources on a
quarterly basis, set funding policy,  and evaluate repricing and maturity of the
Banks' assets and liabilities in order to diminish the potential  adverse impact
that changes in interest rates could have on the Banks' net interest income.


                                       53
<PAGE>

                            Funding Uses and Sources

<TABLE>
<CAPTION>
                                                      1997                                 1996
                                       ---------------------------------   -----------------------------------
                                        Average      Increase/(decrease)    Average       Increase/(decrease)
                                        Balance      Amount     Percent      Balance      Amount      Percent
                                       --------     --------   --------     ---------    --------    --------
                                                               (Dollars in thousands)
<S>                                     <C>          <C>        <C>         <C>           <C>         <C>     

 Funding Uses
   Loans, net of unearned income ...    $442,296     $62,366    16.42%      $379,930      $39,941     11.75%
   Taxable securities ..............     105,180      (8,240)   (7.27)       113,420       (2,422)    (2.09)
   Tax exempt securities ...........      23,328          (8)   (0.03)        23,336        3,631     18.43
   Federal funds sold ..............       5,850      (4,619)  (44.12)        10,469       (1,713)   (14.06)
                                        --------     -------    -----       --------      -------     -----
       Total uses ..................    $576,654     $49,499     9.39%      $527,155      $39,437      8.09%
                                        ========     =======    =====       ========      =======     =====
 Funding Sources
   Noninterest bearing deposits ....   $  80,294    $  8,210    11.39%     $  72,084     $  3,789      5.55%
   Interest bearing demand .........     141,941      13,893    10.85        128,048        2,582      2.06
   Savings deposits ................      36,803      (1,052)   (2.78)        37,855       (3,812)    (9.15)
   Time deposits ...................     270,782      16,334     6.42        254,448       21,808      9.37
   Repurchase agreements ...........       9,110       1,764    24.01          7,346        2,507     51.81
   Other borrowings ................       7,173       2,463    52.29          4,710           36      0.77
   Long-term borrowings ............      12,214       3,670    42.95          8,544        2,991     53.86
                                        --------     -------    -----       --------      -------     -----
       Total sources ...............    $558,317     $45,282     8.83%      $513,035      $29,901      6.19%
                                        ========     =======    =====       ========      =======     =====
</TABLE>

     The Company  believes it has the ability to raise  deposits  quickly within
its market area by slightly  raising interest rates, but has typically been able
to achieve  deposit  growth  without  paying above market  interest  rates.  The
current  strategy  calls for the Banks to be no higher  than  second  highest in
their  pricing as  compared to their  primary  competitors.  Deposit  growth has
funded most of the significant  asset growth in the past several years,  but has
decreased  modestly as a percent of total funding.  The Company does not solicit
brokered deposits. Included in certificates of deposit over $100,000 at year-end
1997 are $9  million  in  deposits  from the State of  Tennessee.  During  1998,
management  intends  to  reduce  this  relationship  by $1  million  per  month,
replacing these deposits with other sources of funds, because of the restrictive
nature of the pledging requirements associated with these deposits.

     The Company actively solicits customer cash management  relationships which
often  includes  a  securities   repurchase   agreement  feature.   Under  these
agreements, commercial customers are able to generate earnings on otherwise idle
funds on deposits with the Banks.  These accounts are considered  volatile under
regulatory  requirements,  although  the  Company  has found them to be a steady
source of funding. The Company has been able to increase customer  relationships
because of its strong business lending  program.  While more costly than deposit
funding,  these deposit-related  accounts are typically the lowest cost borrowed
funds available to the Company.

     Although it had no borrowings of this type  outstanding  at year-end  1997,
the  Company  maintains   significant  lines  of  credit  with  other  financial
institutions.  At that date total borrowing  capacity under those lines amounted
to  approximately  $36 million under  agreements with six commercial  banks. The
Banks also have the capacity to borrow an additional $49.0 million from the FHLB
without purchasing additional FHLB stock.

     Sales and maturities of assets are another  source of funds.  Proceeds from
maturities of securities were $32.2 million,  $87.3 million and $45.6 million in
1997, 1996 and 1995,  respectively.  While management is currently extending the
average maturity of its securities for interest rate risk purposes,  substantial
liquidity is available from normal  maturities of  securities.  The Company also
has $127.7 million in securities  classified as "available for sale" at year-end
1997.  The  ability  to sell such  securities  is  another  potential  source of
liquidity,  although  management  generally  does not use this source of funding
frequently. To the extent such securities are pledged to outstanding borrowings,
they are not available for liquidity  purposes.  Proceeds from the maturities of
loans are another steady source of funding,  although on a net basis the demands
for new loans and renewal have exceeded funds provided by maturing  loans.  


                                       54
<PAGE>

                                 Loan Liquidity
<TABLE>
<CAPTION>
                                                               Loan Maturities at December 31, 1997
                                                     ---------------------------------------------------
                                                        1 year         1 - 5         Over 5    
                                                       and less        years          years       Total
                                                      -----------    ---------      ---------   --------
                                                                      (Dollars in thousands)
<S>                                                  <C>            <C>           <C>          <C>      

 Commercial business ............................... $  43,546      $  37,358     $  14,239    $  95,143
 Commercial real estate ............................    25,443         38,901        99,758      164,102
 Real estate - construction and residential ........    31,892         45,377        67,851      145,120
 Installment and Other .............................    13,854         43,377         5,339       62,570
                                                      --------       --------      --------     --------
 Total selected loans ..............................  $114,735       $165,013      $187,187     $466,935
                                                      ========       ========      ========     ========
 Loans maturing after 1 year with:
 Fixed interest rates ..............................                                            $177,774
 Floating interest rates ...........................                                             174,426
                                                                                                --------
                                                                                                $352,200
                                                                                                ========

</TABLE>

     The liquidity  discussion above has described the Company's liquidity needs
on a  consolidated  basis.  In  general,  the  deposit  and  borrowing  capacity
described above is at the bank level,  while the equity based sources of funding
are at the holding company level. Substantial liquidity can be moved between the
Banks  and  the  holding   company,   although  there  are  certain   regulatory
restrictions on such flows,  particularly from the Banks to the holding company,
as described in note 12 to the financial statements. At year-end 1997, the Banks
had the ability to  transfer  approximately  $9.1  million in  dividends  to the
holding  company  without  special  regulatory  approval.  The  holding  company
currently  has no  borrowings,  and  management's  current  policy is to not pay
dividends on common stock;  rather  earnings are retained to provide  capital to
support the Company's  growth. As a result,  the holding  company's  independent
liquidity needs result  primarily from holding company only expenses,  which are
quite small in relation to its sources of liquidity.

Effects of Inflation

     The accompanying  consolidated  financial  statements have been prepared in
accordance  with generally  accepted  accounting  principles,  which require the
measurement of financial  position and operating  results in terms of historical
dollars without considering the change in the relative purchasing power of money
over  time due to  inflation.  The  impact  of  inflation  is  reflected  in the
increased  cost  of the  Company's  operations.  Nearly  all of the  assets  and
liabilities of the Company are financial, unlike most industrial companies. As a
result,  the Company's  performance is directly  impacted by changes in interest
rates,  which  are  indirectly  influenced  by  inflationary  expectations.  The
Company's  ability to match the interest  sensitivity of its financial assets to
the interest  sensitivity of its financial  liabilities  in its  asset/liability
management  may tend to minimize  the effect of change in interest  rates on the
Company's performance.  Changes in interest rates do not necessarily move to the
same extent as changes in the prices of goods and services.


                                       55
<PAGE>

Item 6.  Exhibits and Reports on Form 8-K

      a.    Exhibits

            Exhibit 27 - Financial Data Schedule

      b.    Reports on Form 8-K

            The Company  filed no reports on Form 8-K for the quarter ended June
      30, 1998.


                                       56
<PAGE>

                                   SIGNATURES

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


                                           BANKFIRST CORPORATION
                                           by


Date:  August 14, 1998                     /s/ C. David Allen
                                           -----------------------------
                                           C. David Allen
                                           Chief Financial Officer



                                       57