SCHEDULE 14A INFORMATION
                Proxy Statement Pursuant to Section 14(a) of the
                        Securities Exchange Act of 1934.
                                (Amendment No. )

Filed by the  Registrant  [X]
Filed by a Party other than the  Registrant  [ ]
Check the appropriate box:
[X]  Preliminary Proxy Statement
[ ]  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)
     (2)
[ ]  Definitive Proxy Statement
[ ]  Definitive Additional Materials
[ ]  Soliciting Material Pursuant to ss. 240.14a-12

                         COMMUNITY FIRST BANCORPORATION
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                (Name of Registrant as Specified In Its Charter)



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     (Name of Person(s) Filing Proxy Statement if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):
[X]   No Fee Required.
[ ]   Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

     1)   Title of each class of securities to which transaction applies:


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     2)   Aggregate number of securities to which transaction applies:


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     3)   Per unit  price  or other  underlying  value of  transaction  computed
          pursuant to Exchange Act Rule 0-11:


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     4)   Proposed maximum aggregate value of transaction:


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     5)   Total fee paid


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[ ]   Fee paid previously with preliminary materials

[ ]   Check box if any part of the fee is offset as  provided  by  Exchange  Act
Rule  0-11(a)(2)  and identify the filing for which the  offsetting fee was paid
previously.  Identify the previous filing by registration  statement  number, or
the Form or Schedule and the date of its filing.

     1)   Amount Previously Paid:

     2)   Form, Schedule or Registration Statement No.:

     3)   Filing Party:

     4)   Date Filed:



                                                              PRELIMINARY COPIES

                         COMMUNITY FIRST BANCORPORATION
                             449 Highway 123 ByPass
                          Seneca, South Carolina 29678

Dear Shareholder:

         You are cordially invited to attend the Special Meeting of Shareholders
of Community First Bancorporation to be held on Tuesday,  January 27, 2009, 1:30
p.m.  EST, at  Community  First Bank,  449  Highway  123 ByPass,  Seneca,  South
Carolina 29678.

         This important meeting is being held for the following purposes:

          1. Creation of a New Class of Capital  Stock.  To vote on an amendment
          to our  Articles of  Incorporation  to  authorize  the  issuance of 10
          million shares of preferred stock with such  preferences,  limitations
          and relative rights, within legal limits, of the class, or one or more
          series within the class, as are set by the Board of Directors.

          2. Other  Business.  To transact  such other  business as may properly
          come  before the  Special  Meeting or any  adjournment  of the Special
          Meeting.

         The purpose of the  amendment  to our Articles of  Incorporation  is to
increase the types of equity  instruments  we may use to raise  capital,  and to
cause us to be eligible to participate in the U.S.  Department of the Treasury's
Capital Purchase Program under the Emergency  Economic Stability Act of 2008. We
are proposing the amendment because our Board of Directors has concluded,  after
careful  consideration,  that it is in the best  interest of our Company for the
Board of Directors to be given the authority to issue preferred stock with terms
set by the Board of  Directors on short  notice,  especially  during  periods of
unsettled  economic  conditions such as national and  international  markets are
currently  experiencing.  Although our current capital position  continues to be
strong,  our Board of Directors  believes  that it is prudent to prepare for the
possibility  that a need for additional  capital could arise  unexpectedly.  OUR
BOARD  RECOMMENDS  THAT  YOU  VOTE  "FOR"  THE  AMENDMENT  TO  OUR  ARTICLES  OF
INCORPORATION.  We  encourage  you to read  carefully  the Proxy  Statement  and
attached appendices.

         Shareholders are or may be entitled to assert  dissenters' rights under
Chapter 13 of the South  Carolina  Business  Corporation  Act if: (i) you do not
vote in favor of the proposed  amendment to our Articles of Incorporation,  (ii)
you elect to dissent,  and perfect your dissenters' rights,  (iii) the amendment
to our Articles of  Incorporation is approved by our  shareholders,  and (iv) we
make the required filing to amend our Articles of  Incorporation.  If you comply
with the statutory  requirements to perfect your dissenters' rights, you will be
entitled to receive the "fair value" of your shares. A copy of Chapter 13 of the
South  Carolina  Business  Corporation  Act is  attached  as  Appendix  A to the
enclosed Proxy  Statement.  You must strictly  comply with the  requirements  of
Chapter 13 in order to exercise your dissenters' rights.  Please read Chapter 13
of the South  Carolina  Business  Corporation  Act and the  section  entitled  "
Dissenters' Rights" beginning on page 4 of the Proxy Statement in their entirety
for complete  disclosure about your dissenters'  rights. We encourage you not to
exercise your dissenters'  rights because doing so will reduce our capital,  and
would thus be  contrary  to the  purpose of the  amendment  to our  Articles  of
Incorporation,  which is to  facilitate  our  ability to raise  capital.  Should
dissenters' rights be exercised for a substantial number of shares, our Board of
Directors  will make a  judgment  as to whether  it is in our best  interest  to
proceed with the amendment or abandon it.

         Your vote is very  important.  Whether  or not you plan to  attend  the
Special  Meeting,  please  complete,  date,  sign and return your proxy, or such
other  document as your  broker or other  nominee  instructs  you to use if your
shares  are held in  "street  name,"  promptly  in the  enclosed  pre-addressed,
postage-paid  envelope.  If you are a record  shareholder and attend the Special
Meeting,  you may  vote in  person  if you  wish,  even if you  have  previously
returned your proxy.

         On  behalf of our  Board of  Directors,  I would  like to  express  our
appreciation for your continued loyal support of our Company.

                                                   Sincerely,

                                                   Frederick D. Shepherd, Jr.
                                                   President



                                                              PRELIMINARY COPIES


                         Community First Bancorporation
                             449 Highway 123 ByPass
                          Seneca, South Carolina 29678

                    NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

TO OUR SHAREHOLDERS:

         NOTICE IS HEREBY GIVEN THAT a Special  Meeting of the  Shareholders  of
Community  First  Bancorporation  will be held at the offices of Community First
Bank at 449 Highway 123 ByPass, Seneca, South Carolina, on Tuesday,  January 27,
2009, at 1:30 p.m., for the following purposes:

         (1) To  vote  on an  amendment  to our  Articles  of  Incorporation  to
authorize  the  issuance  of 10  million  shares of  preferred  stock  with such
preferences, limitations and relative rights, within legal limits, of the class,
or one or more series  within the class,  as are set by the Board of  Directors;
and

         (2) To act upon other  such  matters as may  properly  come  before the
meeting or any adjournment thereof.

         Only  shareholders  of record at the close of business on December  20,
2008,  are  entitled  to notice of and to vote at the  Special  Meeting  and any
adjournment of the Special Meeting.

         Shareholders are or may be entitled to assert  dissenters' rights under
Chapter 13 of the South  Carolina  Business  Corporation  Act if: (i) you do not
vote in favor of the proposed  amendment to our Articles of Incorporation,  (ii)
you elect to dissent,  and perfect your dissenters' rights,  (iii) the amendment
to our Articles of  Incorporation is approved by our  shareholders,  and (iv) we
make the  required  filing to amend our  Articles  of  Incorporation.  A copy of
Chapter  13 of the  South  Carolina  Business  Corporation  Act is  attached  as
Appendix A to the enclosed Proxy  Statement.  You must strictly  comply with the
requirements of Chapter 13 in order to exercise your dissenters' rights.  Please
read Chapter 13 of the South Carolina  Business  Corporation Act and the section
entitled "  Dissenters'  Rights"  beginning on page 4 of the Proxy  Statement in
their  entirety  for  complete  disclosure  about your  dissenters'  rights.  We
encourage  you not to exercise  your  dissenters'  rights  because doing so will
reduce our capital,  and would thus be contrary to the purpose of the  amendment
to our Articles of  Incorporation,  which is to facilitate  our ability to raise
capital.  Should  dissenters'  rights be exercised for a  substantial  number of
shares,  our Board of Directors  will make a judgment as to whether it is in our
best interest to proceed with the amendment or abandon it.

         You are  cordially  invited and urged to attend the Special  Meeting in
person.  WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
COMPLETE,  DATE,  SIGN AND  PROMPTLY  RETURN THE ENCLOSED  PROXY,  OR SUCH OTHER
DOCUMENT AS YOUR BROKER OR OTHER NOMINEE INSTRUCTS YOU TO USE IF YOUR SHARES ARE
HELD IN "STREET NAME," IN THE ACCOMPANYING PRE-ADDRESSED, POSTAGE-PAID ENVELOPE.
If you need  assistance  in  completing  your proxy,  please call the Company at
(864)  886-0206.  If you are the  record  owner of your  shares  and  attend the
Special  Meeting and desire to revoke your proxy and vote in person,  you may do
so. In any event,  a proxy may be  revoked by the record  owner of shares at any
time before it is  exercised by giving  notice of  revocation  to our  Corporate
Secretary,  or by  returning a properly  executed  proxy with a later date at or
before the meeting. If your shares are held in "street name" by your broker, you
must  follow the  instructions  you will  receive  from your broker to change or
revoke your proxy.

         We do not know of any other  matters  to be  presented  at the  Special
Meeting, but if other matters are properly presented, the persons named as proxy
agents will vote on such matters in their discretion.

THE COMPANY'S BOARD OF DIRECTORS  UNANIMOUSLY  RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" THE PROPOSAL TO AMEND OUR ARTICLES OF INCORPORATION PRESENTED ABOVE.

                                           By Order of the Board of Directors


December ____, 2008                        Frederick D. Shepherd, Jr.
                                           President


                                                              PRELIMINARY COPIES

                         Community First Bancorporation
                             449 Highway 123 ByPass
                          Seneca, South Carolina 29678

               PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS

         We are providing this Proxy Statement to our shareholders in connection
with the  solicitation  of proxies by the Board of Directors of Community  First
Bancorporation  for  use at a  Special  Meeting  of  Shareholders  to be held on
Tuesday, January 27, 2009, at 1:30 p.m. at Community First Bank, 449 Highway 123
ByPass,  Seneca, South Carolina, and at any adjournment or adjournments thereof.
Throughout  this Proxy  Statement,  we use terms such as "we," "us," "our," "our
Company,"  and "the  Company" to refer to Community  First  Bancorporation,  and
terms such as "you" and "your" to refer to our shareholders.

         A Notice of Special  Meeting is attached to this Proxy  Statement and a
form of proxy is  enclosed.  We first  began  mailing  this Proxy  Statement  to
shareholders on or about________________,  2008. We are paying the costs of this
solicitation  of proxies and other expenses  associated with the Special Meeting
of Shareholders. The only method of solicitation we currently plan to use, other
than the mail, is personal contact,  including by telephone, or other electronic
means  by our  directors,  officers  and  regular  employees,  who  will  not be
specially  compensated.  We may, however,  subsequently decide to use paid proxy
solicitors  if we  determine it would be helpful to do so. We do not believe the
cost of such  solicitors  would  be  significant.  We  intend  to  request  that
brokerage   houses,   nominees,   fiduciaries  and  other   custodians   forward
solicitation materials to beneficial owners of our common stock and obtain their
voting  instructions,  if  necessary,  and we  will  reimburse  them  for  their
expenses.

                             PURPOSE OF THE MEETING

         The purpose of the  Special  Meeting of  Shareholders  is to vote on an
amendment  to our  Articles of  Incorporation  to  authorize  the issuance of 10
million  shares of  preferred  stock  with  such  preferences,  limitations  and
relative rights, within legal limits, of the class, or one or more series within
the  class,  as are set by the Board of  Directors,  and to act upon such  other
matters as may properly come before the meeting or any adjournment  thereof.  We
sometimes  refer to the  amendment  to our Articles of  Incorporation  described
above as the "Amendment."

Reasons for the Amendment

         Our existing Articles of Incorporation only allow us to issue one class
of stock - common stock.  We propose to amend the Articles of  Incorporation  to
allow us to issue up to 10 million shares of preferred  stock in addition to the
10  million  shares  of common  stock  already  authorized  by our  Articles  of
Incorporation.  If the  Amendment  is approved,  our Board of Directors  will be
authorized to set the preferences, limitations and relative rights, within legal
limits,  of the class of preferred  stock or one or more series within the class
of preferred  stock, and will have the authority to issue preferred stock at any
time it deems it appropriate to do so.

         Amending our  Articles of  Incorporation  to authorize  the issuance of
preferred   stock  will  provide  our  Board  of  Directors  with  much  greater
flexibility  in raising  capital that will enable us and our bank  subsidiary to
continue  to  meet  our  various   capital   requirements   and  to  respond  to
unanticipated  circumstances  that could adversely affect our capital positions.
Although we are currently well  capitalized and have not experienced many of the
problems  currently  besetting  our industry,  we face the  challenges of a weak
economy and real estate market.  Accordingly,  there can be no assurance that we
will not have a need for  additional  capital  in the  future.  Thus,  our Board
believes  it is in our  interest  to be  prepared  to  respond  quickly  to such
situations should the need arise.

         Our  timing for  seeking  to amend the  Articles  of  Incorporation  is
occasioned  by the U. S.  Department  of the  Treasury's  creation  of a Capital
Purchase Program under the authority of the recently enacted Emergency  Economic
Stabilization  Act of 2008. The program  permits  eligible  institutions to sell
senior preferred stock to the Treasury. If we had a class of preferred stock, we
would be eligible to  participate  in the  program,  which is why we are seeking
approval  of  the  Amendment  at  this  time.  The  program  outlines   numerous



requirements  and  conditions  for the sale of the  preferred  stock,  which are
discussed in more detail  under the caption  "Description  of Capital  Stock and
Capital  Purchase Program - Proposed  Issuance of Senior  Preferred  Stock." The
Treasury has adopted two versions of the Capital Purchase Program,  one of which
applies to public  companies and one of which  applies to non-public  companies.
Although it is not completely  clear from the Treasury's  definition of the term
"public company," we believe we would be deemed a non-public  company.  Included
among the  conditions to non-public  company  participation  in the program is a
condition that an  application to sell the preferred  stock be filed by December
8, 2008,  which we have done, and that all required  documentation  be completed
within 30 days after receiving  preliminary  approval. We do not know whether or
when we will receive preliminary approval.  Nevertheless, we believe approval of
the  proposed  Amendment  at the  Special  Meeting  would  allow  us to meet the
applicable  deadline.  Further information about the requirements of the program
is  discussed  under the  caption  "Description  of  Capital  Stock and  Capital
Purchase Program - Proposed Issuance of Senior Preferred Stock."

         Although  we have  not  made a final  decision  to  participate  in the
program if the Amendment is approved,  our Board of Directors currently believes
that  participation  could be in our best interest.  The additional capital that
would be obtained  by selling  preferred  stock to the  Treasury  would  provide
additional  protection  against an unanticipated  event or series of events that
might erode our capital to levels below regulatory requirements.  If our capital
were to erode to levels below regulatory  requirements,  we or our bank could be
exposed to  strenuous  corrective  measures,  which  could  severely  impair our
ability to do business.  Thus, although participation in the program will entail
a level of cost, it may provide us with a desirable level of protection  against
a disastrous situation.

         We have no  assurance  that  our  application  will  be  approved.  The
Treasury has not  announced  the criteria it will use in making its decision and
our impact on the stability of the national economy is minimal.  Fortunately, we
do not  presently  need the  capital  for  liquidity  purposes or to support our
current operations, and we do not believe we will need it in the next few years.
Indeed,  even if our application is approved,  we could decide that the costs of
having the capital are  unreasonable in comparison to the benefit we will derive
from having it in case it is ever useful.

         Whether or not we participate in the Capital Purchase  Program,  if the
Amendment  is  approved,  our Board of  Directors  will be  authorized  to issue
preferred  shares  at any  time it deems it  appropriate  to do so,  and will be
authorized to set the preferences, limitations and relative rights, within legal
limits, of such stock.

         Our Board of Directors  believes the  Amendment is in the best interest
of our Company, and unanimously recommends that you vote "FOR" the Amendment.

                                VOTING PROCEDURES

Quorum

         You are only  entitled to notice of and to vote at the Special  Meeting
if you were a record  shareholder  of our common stock on December 20, 2008 (the
"record date"). On that date, we had outstanding  3,394,873 shares of our common
stock, no par value per share.  Each share  outstanding  will be entitled to one
vote upon each matter submitted at the meeting.

         A majority of the shares  entitled  to be voted at the Special  Meeting
constitutes a quorum.  If a share is represented  for any purpose at the Special
Meeting by the  presence  of the  registered  owner or a person  holding a valid
proxy for the  registered  owner,  it is deemed to be present  for  purposes  of
establishing a quorum.  Therefore,  valid proxies which are marked  "Abstain" or
"Withhold" and shares that are not voted, including proxies submitted by brokers
that are the record owners of shares  (so-called  "broker  non-votes"),  will be
included  in  determining  the  number of votes  present or  represented  at the
Special Meeting.

         If a  quorum  is  not  present  or  represented  at  the  meeting,  the
shareholders  entitled to vote,  present in person or represented by proxy, have
the power to adjourn  the  meeting  from time to time.  If the  meeting is to be
reconvened within thirty days, no notice of the reconvened meeting will be given


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other than an  announcement  at the adjourned  meeting.  If the meeting is to be
adjourned  for thirty days or more,  notice of the  reconvened  meeting  will be
given as provided in the Bylaws. At any reconvened  meeting at which a quorum is
present or  represented,  any  business may be  transacted  that might have been
transacted at the meeting as originally noticed.

Vote Required and Method of Counting Votes

         If a quorum is present  at the  Special  Meeting,  the  Amendment  will
require the affirmative  vote of two-thirds of our outstanding  common stock, or
at  least   2,260,985   shares.   Our  directors  and  executive   officers  own
approximately 36% of our outstanding  shares,  and they have indicated that they
intend to vote their shares  "FOR" the  Amendment.  If a quorum is present,  all
other matters that may be considered and acted upon at the Special  Meeting will
be approved if the number of shares of common stock voted in favor of the matter
exceeds the number of shares of common stock voted against the matter.

         Only  shares   affirmatively  voted  for  approval  of  the  Amendment,
including  proxies  properly  executed  by  shareholders  of record  that do not
contain voting instructions,  will be counted in favor of the proposal. A record
shareholder's failure to execute and return a proxy card or otherwise to vote at
the special meeting will have the same effect as a vote "AGAINST" the Amendment.
If a record shareholder  abstains from voting, the abstention will also have the
effect of a vote "AGAINST" the Amendment. Additionally, failure of a shareholder
whose shares are held in street name to complete and return voting  instructions
as required by the broker or other nominee that holds such shares of record will
have the same effect as a vote "AGAINST" the Amendment.

         Accordingly,  our Board of Directors  urges you to complete,  date, and
sign the accompanying proxy form, or such other document as your broker or other
nominee  instructs  you to use if your  shares  are held in  "street  name," and
return it promptly in the enclosed, postage-paid envelope.

Voting by Record Shareholders

         If you hold your  shares of record in your own name,  you can vote your
shares by marking the enclosed proxy form,  dating it, signing it, and returning
it to us in the enclosed  postage-paid  envelope.  If you are a  shareholder  of
record and sign,  date,  and return your proxy card without  indicating  how you
want to vote,  your proxy will be voted "FOR" approval of the Amendment.  If you
are a shareholder of record, you can also attend the Special Meeting and vote in
person.

Voting by Shareholders whose Shares are held in "Street Name"

         If you hold your shares in street name with a broker or other  nominee,
you can direct their vote by submitting  voting  instructions  to your broker or
nominee in  accordance  with the  procedure on the voting card  provided by your
broker or nominee.  If you hold your shares in street  name,  you may attend the
Special Meeting, but you may not vote in person without a proxy appointment from
a shareholder of record.

         Brokers or other  nominees  will not have the  authority to vote shares
they hold for you in street name on the Amendment  unless you give them specific
instructions  on how to vote following the directions  they have provided to you
with this Proxy Statement.  Although valid proxies submitted by brokers or other
nominees  that hold  shares in street  name as record  owners and as to which no
vote is marked (so-called "broker  non-votes"),  will be included in determining
the number of votes present or represented  at the Special  Meeting for purposes
of determining a quorum, the shares will not be voted on the Amendment, and will
have the same effect as votes "AGAINST" the Amendment.

Revocation of Proxy by Record Shareholder

         If you hold your  shares of  record  in your own name and  execute  and
deliver a proxy,  you may revoke the proxy at any time before it is voted by any
of the following methods:

          o    by  mailing  or  delivering   written  notice  of  revocation  to
               Community First Bancorporation,  449 Highway 123 ByPass,  Seneca,
               South Carolina 29678, Attention: Corporate Secretary;



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          o    by submitting a proxy having a later date;

          o    by appearing at the meeting and giving  notice of  revocation  to
               the corporate  officers  responsible  for maintaining the list of
               shareholders; or

          o    by  giving  notice  of such  revocation  in open  meeting  of the
               shareholders.

         Your attendance at the Special  Meeting will not in itself,  constitute
revocation of a proxy. However, if you are a record shareholder and desire to do
so, you may attend the meeting and vote in person,  in which case the proxy will
not be used.

Revocation of Proxy by Shareholders whose Shares are held in "Street Name"

         If you hold your shares in street  name with a broker or other  nominee
you may change or revoke your proxy  instructions  only by submitting new voting
instructions  to the broker or other nominee in accordance  with the  procedures
provided by the broker or other nominee.

Actions to be Taken by the Proxies

         Our Board of Directors  selected  the persons  named as proxy agents on
the enclosed proxy form.  When the form of proxy  enclosed is properly  executed
and  returned,  the shares that it represents  will be voted at the meeting.  In
each case where you have  appropriately  specified how the proxy is to be voted,
it  will  be  voted  in  accordance  with  your  specifications.  If  you  are a
shareholder  of record and you return a properly  executed  proxy card that does
not contain  voting  instructions,  the proxy agents will vote your shares "FOR"
approval  of the  Amendment  to our  Articles  of  Incorporation.  Our  Board of
Directors is not aware of any other  matters that may be presented for action at
the Special  Meeting of  Shareholders,  but if other  matters do  properly  come
before  the  meeting,  the  persons  named in the  proxy  intend to vote on such
matters in accordance with their best judgment.

                       EFFECTIVENESS OF PROPOSED AMENDMENT

         If the  proposed  Amendment  is  approved  by the  affirmative  vote of
two-thirds of the shares of our common stock outstanding on the record date, the
Amendment  will become  effective if, and when,  Articles of Amendment are filed
with the Secretary of State of South Carolina.  Approval of the Amendment by the
shareholders  will not require that the Articles of Amendment be filed,  and our
Board of  Directors  may  decide to  abandon  the  Amendment  after  shareholder
approval.

         Should  dissenters'  rights be exercised  for a  substantial  number of
shares,  our Board of Directors  will make a judgment as to whether it is in the
best interest of the Company to proceed with filing the Articles of Amendment or
to abandon the  Amendment.  In making its judgment,  the Board of Directors will
take into  consideration  the negative impact on the Company's  capital and cash
resources  of paying  dissenters  the fair value of their  shares.  Because such
impact is  completely  at odds with the purpose of the  Amendment,  the Board of
Directors encourages  shareholders not to exercise dissenters' rights, which are
discussed below.

                               DISSENTERS' RIGHTS

         If the Amendment is approved by shareholders and becomes effective, and
if you comply with the  requirements of Sections  33-13-101 et seq. of the South
Carolina  Business  Corporation Act ("SCBCA"),  you have the right to dissent to
adoption of the  Amendment and receive the fair value of your shares in cash. As
discussed  above under the caption  "Effectiveness  of Proposed  Amendment," the
Amendment will become  effective only if (i) it is approved by our  shareholders
and (ii) Articles of Amendment to our Articles of  Incorporation  are filed with
the South Carolina  Secretary of State.  Accordingly,  even if our  shareholders
approve the Amendment,  if we decide not to file the Articles of Amendment,  the
Amendment will not become effective, and you will not be entitled to be paid the
fair value of your shares.



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         The discussion below summarizes the provisions of Sections 33-13-101 et
seq. of the SCBCA, but it does not grant you any rights that are not provided by
the SCBCA. Your only rights of dissent are those provided by Sections  33-13-101
et seq.  of the SCBCA,  a copy of which is  included as Appendix A to this Proxy
Statement.

         Pursuant to the provisions of Sections  33-13-101 et seq. of the SCBCA,
if the  Amendment  becomes  effective,  you will only be entitled to receive the
fair value of your shares if you:

          o    prior to the vote at the  Special  Meeting  with  respect  to the
               approval of the Amendment,  give us written notice of your intent
               to  demand   payment  for  your   shares  of  our  common   stock
               (hereinafter  referred to as "shares") if the  Amendment  becomes
               effective;

          o    do not vote in favor of the  Amendment,  provided  that a vote in
               favor of the Amendment cast by the holder of a proxy solicited by
               us will not disqualify a shareholder  from demanding  payment for
               his shares; and

          o    comply with the statutory requirements summarized below.

         If you perfect your dissenters' rights, you will receive the fair value
of your shares determined as of the effective date of the Amendment.

         If you are a record  shareholder,  you may assert dissenters' rights as
to fewer than all of the shares registered in your name only if you dissent with
respect to all shares  beneficially owned by any one beneficial  shareholder and
you notify us in writing of the name and address of each person on whose  behalf
you are  asserting  dissenters'  rights.  The rights of a partial  dissenter are
determined  as if the shares as to which that holder  dissents and that holder's
other shares were registered in the names of different shareholders.

         If you are a beneficial  owner of shares but do not hold your shares of
record in your name, you may assert dissenters' rights as to shares held on your
behalf  only if you  dissent  with  respect  to all  shares of which you are the
beneficial  shareholder or over which you have power to direct the vote, and you
must notify us in writing of the name and address of the record  shareholder  of
the shares, if known to you.

         Voting  against the  Amendment  will not  satisfy  the  written  demand
requirement. In addition to not voting in favor of the Amendment, if you wish to
preserve  the right to  dissent  and seek  appraisal,  you must give a  separate
written notice of your intent to demand payment for your shares if the Amendment
is  effected.  Such  written  notice  should be  addressed  to  Community  First
Bancorporation, 449 Highway 123 ByPass, Seneca, South Carolina 29678, Attention:
Corporate Secretary.

         If our shareholders  approve the Amendment at the Special  Meeting,  we
must deliver a written  dissenters' notice (the "Dissenters'  Notice") to all of
our shareholders who have satisfied the foregoing requirements.  The Dissenters'
Notice must be sent within 10 days after the effective date of the Amendment and
must:

          o    state  where and when  dissenting  shareholders  should  send the
               demand for  payment  and where and when  dissenting  shareholders
               should deposit certificates for the shares;

          o    inform holders of  uncertificated  shares to what extent transfer
               of these shares will be  restricted  after the demand for payment
               is received;

          o    supply a form for demanding payment that includes the date of the
               first announcement of the terms of the Amendment and requires the
               person   asserting   dissenters'   rights   (or  the   beneficial
               shareholder on whose behalf he is asserting  dissenters'  rights)
               to certify whether or not he acquired beneficial ownership of the
               shares prior to the announcement date;

          o    set a date by which we must receive the demand for payment (which
               date may not be fewer  than 30 nor more  than 60 days  after  the
               Dissenters'  Notice  is  delivered)  and  set  a  date  by  which
               certificates for certificated shares must be deposited, which may
               not be earlier than 20 days after the demand date; and

          o    be  accompanied  by a copy of Sections  33-13-101  et seq. of the
               SCBCA.



                                       5


         A shareholder who receives the Dissenters'  Notice must demand payment,
certify  whether  he (or  the  beneficial  shareholder  on  whose  behalf  he is
asserting dissenters' rights) acquired beneficial ownership of the shares before
the date of  announcement  of the  terms of the  Amendment  as set  forth in the
Dissenters'  Notice,  and deposit such holder's  certificates in accordance with
the terms of the Dissenters'  Notice.  Dissenting  shareholders  will retain all
other  rights of a  shareholder  until those  rights are canceled or modified by
effectiveness of the Amendment.  A shareholder who does not comply substantially
with the requirements that he demand payment and deposit his share  certificates
where required,  each by the date set in the Dissenters' Notice, is not entitled
to payment for his shares under Sections 33-13-101 et seq. of the SCBCA.

         We may restrict the transfer of uncertificated  shares from the date we
receive the demand for payment for them until the Amendment becomes effective or
the restrictions are released as discussed below.

         Except  as  described  below,  we must upon the  effective  date of the
Amendment,  pay each dissenting  shareholder who substantially complied with the
payment demand and deposit  requirements  described above the amount we estimate
to be the fair value of the shares,  plus accrued interest.  Our payment must be
accompanied by:

          o    our balance sheet,  income  statement and statement of changes in
               shareholders'  equity as of the end of the fiscal year ending not
               more than 16  months  before  the date of  payment,  and  interim
               financial statements, if any;

          o    our  estimate of the fair value of the shares and an  explanation
               of how the fair value was calculated;

          o    an explanation of how the interest was calculated;

          o    a statement of the dissenter's right to demand additional payment
               under the SCBCA; and

          o    a copy of Sections 33-13-101 et seq. of the SCBCA.

         If the  Amendment  does not become  effective  within 60 days after the
date set for demanding payment and depositing share certificates, we must return
the  deposited  certificates  and release the transfer  restrictions  imposed on
uncertificated  shares.  We must send a new Dissenters'  Notice if the Amendment
becomes effective after the return of certificates and repeat the payment demand
procedure described above.

         A  dissenting  shareholder  may  notify us in writing of his or her own
estimate of the fair value of such holder's shares and the interest due, and may
demand  payment  of such  holder's  estimate  (less any  payment  made under the
procedure described above) (the "Additional Payment"), if:

          o    he or she believes  that the amount we paid is less than the fair
               value of his or her shares or that we have calculated incorrectly
               the interest due;

          o    we fail to make  payment  within  60 days  after the date set for
               demanding payment; or

          o    we, having failed to cause the Amendment to become effective,  do
               not return the  deposited  certificates  or release the  transfer
               restrictions  imposed  on  uncertificated  shares  within 60 days
               after the date set for demanding payment.

         A  dissenting  shareholder  waives  his  or her  right  to  demand  the
Additional  Payment unless he or she notifies us of his or her demand in writing
within 30 days after we make payment for his or her shares.

         If a demand for Additional Payment remains unsettled,  we must commence
a proceeding  in the Court of Common  Pleas of Oconee  County,  South  Carolina,
within 60 days after  receiving the Additional  Payment demand and must petition
the court to determine the fair value of the shares and accrued interest.  If we
do not commence the proceeding within those 60 days, we must pay each dissenting
shareholder  whose demand for Additional  Payment  remains  unsettled the amount
demanded. We are required to make all dissenting  shareholders whose demands for
Additional  Payment remain unsettled  parties to the proceeding and serve a copy
of the petition upon each of them.  The court may appoint  appraisers to receive
evidence and to recommend a decision on fair value. Each dissenting  shareholder


                                       6


made a party to the  proceeding is entitled to judgment for the amount,  if any,
by which the court finds the fair value of his shares,  plus  interest,  exceeds
the amount we paid.

         The court in an  appraisal  proceeding  commenced  under the  foregoing
provision  must  determine  the  costs  of the  proceeding,  excluding  fees and
expenses of attorneys and experts for the  respective  parties,  and must assess
those costs  against us,  except that the court may assess the costs against all
or some of the dissenting  shareholders to the extent the court finds they acted
arbitrarily,  vexatiously,  or not in good faith in demanding payment. The court
also  may  assess  the  fees and  expenses  of  attorneys  and  experts  for the
respective parties against us if the court finds we did not substantially comply
with the requirements of specified provisions of the SCBCA, or against either us
or  a  dissenting   shareholder  if  the  court  finds  that  such  party  acted
arbitrarily,  vexatiously,  or not in good faith with respect to the dissenters'
rights provided by the SCBCA.

         If the court finds that the  services of attorneys  for any  dissenting
shareholder  were  of  substantial  benefit  to  other  dissenting  shareholders
similarly situated,  and that the fees for those services should be not assessed
against  us,  the court may award  those  attorneys  reasonable  fees out of the
amounts awarded the dissenting  shareholders who were benefited. In a proceeding
commenced by dissenters  to enforce our  statutory  liability for our failure to
commence an appraisal  proceeding  within the 60 day period described above, the
court will assess costs of the  proceeding  and fees and expenses of dissenters'
counsel against us and in favor of the dissenters.

         This is a summary of the material  rights of a  dissenting  shareholder
and is qualified  in its entirety by reference to Sections  33-13-101 et seq. of
the SCBCA,  included  as  Appendix A to this Proxy  Statement.  If you intend to
dissent from approval of the Amendment,  you should review carefully the text of
Appendix A and should also consult with your attorney.  We will not give you any
further  notice of the events  giving  rise to  dissenters'  rights or any steps
associated  with  perfecting  dissenters'  rights,  except as indicated above or
otherwise required by law.

                    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                              OWNERS AND MANAGEMENT

         The  following  table shows  information  as of December 20, 2008 about
shares of our  common  stock  beneficially  owned by each of our  directors  and
executive officers.  Except as otherwise indicated,  to management's  knowledge,
all shares are owned directly with sole voting power. Other than as shown below,
no persons were known by management to be the beneficial  owners,  as defined in
Rule  13d-3 of the  Securities  and  Exchange  Commission,  of 5% or more of our
common stock.


             Name and                    Amount and Nature
       Address of 5% owners           of Beneficial Ownership        % of Class
       --------------------           -----------------------        ----------

Larry S. Bowman, M.D.                     107,959 (1)                   3.19%

William M. Brown                           98,258 (2)                   2.91%

Robert H. Edwards                         125,303 (3)                   3.70%

Blake L. Griffith                         163,453 (4)                   4.82%

John R. Hamrick                           111,366 (5)                   3.31%

James E. McCoy                            126,729 (6)                   3.74%

Frederick D. Shepherd, Jr.                289,088 (7)                   8.44%
   449 Highway 123 Bypass
   Seneca, S.C.  29678

                                 7


Gary V. Thrift                             92,598 (8)                   2.73%

James E. Turner                           216,984 (9)                   6.42%
   P. O. Box 367
   Seneca, S.C. 29679

Charles L. Winchester                    171,307 (10)                   5.06%
   P. O. Box 456
   Salem, S.C. 29676

All Directors, nominees
and executive officers
as a group (10 persons)                1,503,045 (11)                  41.24%
----------------
(1)  Includes  41,698  shares  jointly owned with Mary M. Bowman,  Dr.  Bowman's
     wife; 16,728 shares owned by Mrs. Bowman; 11,733 shares held as trustee for
     Dr. Bowman's children;  and 23,045 shares subject to currently  exercisable
     options.
(2)  Includes 3,790 shares owned by Annie B. Brown, Mr. Brown's wife; and 23,045
     shares subject to currently exercisable options.
(3)  Includes  30,055 shares  jointly owned with Ruth D. Edwards,  Mr.  Edward's
     wife; 7,035 shares owned by Mrs. Edwards;  11,222 shares owned by Robert H.
     Edwards LLC; and 30,180 shares subject to currently exercisable options.
(4)  Includes  19,477 shares owned by Susan P. Griffith,  Mr.  Griffith's  wife;
     113,622 shares jointly owned with Mrs. Griffith;  and 30,180 shares subject
     to currently exercisable options.
(5)  Includes 33,547 shares jointly owned with Frances R. Hamrick, Mr. Hamrick's
     wife;  6,839 shares  owned by Mrs.  Hamrick;  and 4,735  shares  subject to
     currently exercisable options.
(6)  Includes  85,714 shares jointly owned with Charlotte B. McCoy,  Mr. McCoy's
     wife, and 30,180 shares subject to currently  exercisable  options.  Of the
     total shares  beneficially owned by Mr. McCoy,  67,330 have been pledged as
     security.
(7)  Includes  presently  exercisable  options to purchase 67,653 shares. Of the
     total shares  beneficially owned by Mr. Shepherd,  74,443 have been pledged
     as security.
(8)  Includes 30,180 shares subject to currently exercisable options.
(9)  Includes 22,636 shares owned by Patricia S. Turner,  Mr. Turner's wife; and
     23,045 shares subject to currently exercisable options.
(10) Includes  46,643  shares  jointly  owned  with  Joan  O.  Winchester,   Mr.
     Winchester's wife; 3,460 shares owned by Mrs. Winchester; 1,906 shares held
     as custodian for Mr. Winchester's grandchildren;  and 23,045 shares subject
     to currently exercisable options.
(11) Includes currently exercisable options to purchase 285,288 shares.


                        DESCRIPTION OF CAPITAL STOCK AND
                            CAPITAL PURCHASE PROGRAM

Common Stock

Capitalization

         We currently have 10 million shares of authorized  voting common stock,
no par value per share. As of the record date, we had 3,394,873 shares of common
stock  outstanding.  The  outstanding  shares of common stock are fully paid and
nonassessable.

General voting requirements

         The holders of our common  stock are  entitled to one vote per share in
all  proceedings  in which action shall be taken by our  shareholders,  and have
sole voting  control over the Company.  Our Board is divided into three classes,
which are as nearly equal in number as possible.  Approximately one-third of our
directors are elected each year and directors serve three-year terms.  Directors
are elected by a plurality  of the votes cast by shares  present and entitled to
vote at a meeting at which a quorum is present.  Except for such greater  voting
requirements  as may be required by law or our  Articles  of  Incorporation,  as
discussed below under the caption  "--Additional  Rights of our Common Stock and
Preferred  Stock,"  all other  matters  acted upon by the  shareholders  will be
approved if a quorum is present  and the number of shares  voted in favor of the


                                       8


matter  exceeds the number of shares voted against the matter.  Our common stock
does not have cumulative voting rights.

         In the event any issue of  preferred  stock is  entitled  to vote,  the
common stock would vote  together with the  preferred  stock,  unless the matter
being voted on would change the rights of the preferred  stock, or the matter to
be voted on was unique to the preferred  stock, in which case it would vote as a
separate group.

Dividend Rights

            We have  never  paid cash  dividends,  and in order to  support  our
continuing  need for  capital to  support  anticipated  asset  growth and market
expansion, we do not expect to declare or pay cash dividends on our common stock
in the near  future.  We are not  required  to pay any  dividends  on our common
stock.  The holders of our common stock are entitled to dividends  when, as, and
if  declared  by our  Board of  Directors  out of funds  legally  available  for
dividends.  Under South  Carolina  law, we may legally  declare or pay dividends
only if, after their payment, we can pay our debts as they come due in the usual
course of business, and then only if our total assets equal or exceed the sum of
our liabilities.  Our principal source of funds with which to pay cash dividends
is cash  dividends  our  subsidiary  bank  pays to us.  South  Carolina  banking
regulations  restrict the amount of cash  dividends  the bank can pay to us, and
the bank's  payment of cash  dividends to us is subject to the prior approval of
the South Carolina Commissioner of Banking.

         If the  Amendment  is  approved,  the payment of any  dividends  on our
common  stock may be subject  to the rights  granted to holders of any shares of
the preferred stock we issue, for example,  as discussed below under the caption
"--Proposed  Issuance of Senior  Preferred Stock - Preferences,  Limitations and
Relative Rights of the Senior Preferred Stock --Dividend Rights."

 No Preemptive Rights

         Our  shareholders  do not have  preemptive  rights with  respect to the
issuance of additional shares, options or rights to any class of our stock. As a
result, the directors may sell additional  authorized shares of our common stock
without  first  offering  them to  existing  shareholders  and  giving  them the
opportunity  to purchase  sufficient  additional  shares to prevent  dilution of
their ownership interests.

Rights upon liquidation

         In  the  event  of  our  voluntary  or   involuntary   liquidation   or
dissolution,  or the winding-up of our affairs, our assets will be applied first
to  the  payment,   satisfaction   and  discharge  of  our  existing  debts  and
obligations,  including the necessary  expenses of dissolution  or  liquidation,
then,  if the  Amendment  is  effective,  to any issued  preferred  stock with a
liquidation preference, and then pro rata to the holders of our common stock.

Conversion; Redemption; Sinking Fund

         None of our common stock is convertible,  has any redemption  rights or
is entitled to any sinking fund.

Preferred Stock

         Our Articles of  Incorporation  do not currently  authorize us to issue
any shares of preferred  stock.  The Amendment to our Articles of  Incorporation
that you will consider at the Special Meeting will provide for the authorization
of 10 million shares of preferred stock.

         If the  Amendment is approved and we file  Articles of Amendment to our
Articles of  Incorporation,  our Board of  Directors  would have the  authority,
without  approval  of our  shareholders,  from  time to time  to  authorize  the
issuance  of  preferred  stock  in one or more  series  with  such  preferences,
limitations and relative rights, within legal limits, and for such consideration
as our Board of Directors may determine.



                                       9


         Although our Board of Directors has no intention at the present time of
doing so, it could cause the issuance of preferred  stock that could  discourage
an acquisition  attempt or other  transactions  that some, or a majority of, our
shareholders  might  believe  to be in their  best  interests  or in  which  the
shareholders  might  receive a premium for their shares of common stock over the
market price of such shares.

Proposed Issuance of Senior Preferred Stock

         If the  Amendment is approved and we file  Articles of Amendment to our
Articles of Incorporation, and our application is approved, we currently plan to
participate in the U.S.  Department of the Treasury's  Capital  Purchase Program
under the Emergency  Economic  Stabilization  Act of 2008 ("EESA").  Although we
currently  have enough  capital to meet our  foreseeable  needs,  the additional
capital would provide additional  protection against  unforeseeable effects of a
prolonged continuation of current economic conditions.  We do not know the exact
terms of our potential  participation  at this time.  However,  the Treasury has
published  term  sheets  which set out the terms of the  program  for public and
non-public  companies as it was contemplated by the Treasury on October 14, 2008
and November 17, 2008, respectively. Although the terms of our participation, if
any,  could  change,   if  our   application  is  accepted  and  we  participate
substantially as described in the term sheet for non-public companies,  we would
issue between approximately 3,000 and 9,000 shares of Senior Preferred Stock and
warrants to the Treasury for proceeds of between approximately $3 million and $9
million. Based on the term sheet, the material terms of our participation in the
Capital Purchase Program and the material terms of the securities we would issue
to the Treasury are described below.

Preferences, Limitations and Relative Rights of the Senior Preferred Stock

         The  Senior  Preferred  Stock  would  have the  following  preferences,
limitations and relative rights.

         Dividend  Rights.  The  Senior  Preferred  Stock  will  pay  cumulative
compounding  dividends at a rate of 5% per annum until the fifth  anniversary of
the date of issue and thereafter at a rate of 9% per annum.

         Redemption Provisions. Senior Preferred Stock may not be redeemed for a
period of three years from the date of issue,  except with the proceeds from one
or more cash sales of common or preferred  stock which result in aggregate gross
proceeds to us of not less than 25% of the issue  price of the Senior  Preferred
Stock.  After the third  anniversary of the date of issue,  the Senior Preferred
Stock may be redeemed,  in whole or in part,  at any time and from time to time,
at our option.  All redemptions of the Senior Preferred Stock will be at 100% of
its issue price, plus any accrued and unpaid  dividends,  and will be subject to
the approval of the Federal Reserve.

         Voting Rights and Right to Elect Directors.  The Senior Preferred Stock
will be non-voting,  other than class voting rights on (i) any  authorization or
issuance  of shares  ranking  senior to the  Senior  Preferred  Stock,  (ii) any
amendment to the rights of Senior Preferred Stock, or (iii) any merger, exchange
or similar  transaction  which would  adversely  affect the rights of the Senior
Preferred Stock. If dividends on the Senior Preferred Stock are not paid in full
for six dividend periods, whether or not consecutive, the Senior Preferred Stock
will have the right to elect two  directors.  The right to elect  directors will
end when full dividends have been paid for four consecutive dividend periods.

         Liquidation  Rights. The Senior Preferred Stock will have a liquidation
preference  of $1,000  per share  which must be paid  before  the  common  stock
receives any proceeds of a liquidation.

         Restrictions on Dividends. For as long as any Senior Preferred Stock is
outstanding,  no dividends may be declared or paid on junior  preferred  shares,
preferred  shares ranking  equally with the Senior  Preferred  Stock,  or common
shares (other than, in the case of equally preferred shares,  dividends on a pro
rata basis with the Senior Preferred Stock), nor may we repurchase or redeem any
junior  preferred  shares,  preferred  shares  ranking  equally  with the Senior
Preferred  Stock or common shares,  unless all accrued and unpaid  dividends for
all past  dividend  periods on the Senior  Preferred  Stock are fully paid.  The
Treasury's  consent will be required for any increase in common stock  dividends
per share until the third anniversary of the date of issue unless, prior to such
third  anniversary,  the  Senior  Preferred  Stock is  redeemed  in whole or the
Treasury has transferred all of the Senior Preferred Stock to third parties.  In
addition to these  restrictions,  under the  non-public  company  version of the
program,  increases  in common  stock  dividends  will be limited to 3% per year
until the tenth  anniversary  of the issue  date,  unless,  prior to such  tenth
anniversary, the Senior Preferred Stock is redeemed in whole or the Treasury has


                                       10


transferred all of the Senior  Preferred  Stock to third parties.  Additionally,
under the non-public company version of the program, after the tenth anniversary
of the issue date no dividends  may be paid as long as the Treasury  owns any of
our securities.

         Repurchases.  The  Treasury's  consent  will be required  for any share
repurchases  (other than (i) repurchases of the Senior  Preferred Stock and (ii)
repurchases of junior  preferred  shares or common shares in connection with any
benefit plan in the ordinary  course of business  consistent with past practice)
until the tenth  anniversary  of the date of issue  unless,  prior to such tenth
anniversary, the Senior Preferred Stock is redeemed in whole or the Treasury has
transferred  all of the Senior  Preferred  Stock to third parties.  In addition,
there may be no share repurchases of junior preferred  shares,  preferred shares
ranking equally with the Senior  Preferred Stock, or common shares if prohibited
as described above under "Restrictions on Dividends."

Additional Terms of Participation in the Capital Purchase Program

         Additional terms that would apply to us as a result of participation in
the program include the following.

Registration Rights

         We will be required to file a shelf registration statement covering the
Senior  Preferred Stock as promptly as practicable  after the date of issue and,
if necessary,  shall take all action  required to cause such shelf  registration
statement to be declared  effective  as soon as possible.  We will also grant to
the Treasury  piggyback  registration  rights for the Senior Preferred Stock.

Executive Compensation

         As a  condition  to the  closing of the  issuance  of Senior  Preferred
Stock,  we and our senior  executive  officers  covered  by EESA must  modify or
terminate all benefit  plans,  arrangements  and  agreements  (including  golden
parachute  agreements)  to the extent  necessary to be in compliance  with,  and
following  the closing  and for so long as  Treasury  holds any of our equity or
debt  securities,  we will agree to be bound by the executive  compensation  and
corporate  governance  requirements  of Section 111 of EESA and any  guidance or
regulations  issued by the  Secretary of the Treasury on or prior to the date of
issue to carry out the provisions of such subsection. As an additional condition
to closing,  we and our senior executive  officers covered by EESA must grant to
the Treasury a waiver  releasing  the Treasury  from any claims that we and such
senior executive  officers may otherwise have as a result of the issuance of any
regulations  which  modify  the  terms  of  benefits  plans,   arrangements  and
agreements to eliminate any provisions  that would not be in compliance with the
executive  compensation and corporate governance  requirements of Section 111 of
EESA and any guidance or regulations  issued by the Secretary of the Treasury on
or prior to the date of issue to carry out the  provisions  of such  subsection.
The  specific  impact  of   participation   in  the  program  on  our  executive
compensation  arrangements  is further  discussed  below  under the  caption "--
Impact of Participation in the Capital Purchase Program - Company Operations."

Related Party Transactions

         The  non-public  company  version of the program would prohibit us from
entering  into any  related  party  transactions  unless  the  terms are no less
favorable to us than could be obtained from an unaffiliated third party, and any
permissible  related  party  transactions  would  have  to be  approved  by  our
independent directors.

Warrants

         If we participate in the non-public company version of the program,  in
addition to the shares of Senior  Preferred Stock, we would be required to issue
to the Treasury, for no additional consideration,  ten-year warrants to purchase
between 150 shares and 450 shares of our preferred stock (the "Warrant Preferred
Stock").  The exercise price of the preferred stock warrant will be one cent per
share.  The  preferred  stock  covered by the warrants  will have a  liquidation
preference  equal to $1,000 per share.  The terms of the preferred stock subject
to the warrants will be exactly the same as the Senior Preferred  Stock,  except
the dividend  will be 9% instead of 5%, and it may not be redeemed  until all of


                                       11


the Senior Preferred Stock has been redeemed. The Treasury has indicated that it
intends to exercise these warrants immediately.

Impact of Participation in the Capital Purchase Program

Use of Proceeds

         If our  application is approved and we sell Senior  Preferred  Stock to
the Treasury, we expect to receive proceeds of between $3 million and $9 million
before the payment of expenses  associated with the sale of the Senior Preferred
Stock and  warrants,  which are  estimated  to be  $25,000  or less.  Unless our
agreement with the Treasury requires some other use, we expect to use the amount
we receive to pay the expenses of the sale and,  initially,  to deposit the rest
in a non-interest  bearing account with our bank subsidiary,  which will use the
funds for additional liquidity.  Thereafter, the funds may be contributed to the
bank subsidiary as capital or used for other corporate purposes.  However, there
can be no assurance that our application  will be approved or if it is approved,
that we will receive an amount within the range estimated above.

Rights of Existing Common Shareholders

         Issuance of Senior  Preferred  Stock and Warrant  Preferred  Stock will
give  holders  the  right,  in  case we are  ever  liquidated,  to be  paid  the
liquidation  value of the Senior Preferred Stock and Warrant Preferred Stock out
of our residual  assets  before any payment is made to the common  shareholders.
All dividends due on the Senior Preferred Stock and Warrant Preferred Stock must
be paid before any  dividends  can be paid on our common stock and the amount of
our common stock dividends cannot be increased in the first three years that the
Treasury owns the Senior Preferred Stock or Warrant  Preferred Stock without the
consent of the Treasury.  If we do not pay the dividends on the Senior Preferred
Stock or Warrant  Preferred Stock in full for six dividend  periods,  whether or
not consecutive, the holders of the Senior Preferred Stock and Warrant Preferred
Stock will have the right to elect two directors to our board of directors. That
right will continue until all past dividends on the Senior  Preferred  Stock and
Warrant Preferred Stock are paid in full.

Dilution of Common Shareholders

         Because the  preferential  liquidation  amount of the Senior  Preferred
Stock will equal its gross purchase price,  the issuance of the Senior Preferred
Stock will not change the  tangible  book value of our common  stock,  pro rated
between the Senior  Preferred  Stock and our common  stock on the basis of their
relative tangible book value.  Issuance of Warrant Preferred Stock will cause an
immaterial  reduction  in the  tangible  book of our common  stock.  Because the
Senior Preferred Stock's and the Warrant Preferred Stock's claim on our earnings
is limited to a fixed amount, the tangible book value of our common stock before
the payment of any common  stock  distributions  may increase or decrease in the
future  depending on whether or not our earnings  exceed the amount  required to
pay dividends due on the Senior Preferred Stock and Warrant  Preferred Stock. As
noted above,  we will not be able to pay dividends on our common stock unless we
have paid all dividends due on the Senior Preferred Stock and Warrant  Preferred
Stock.

Registration Rights

         As discussed above under "-- Additional  Terms of  Participation in the
Capital Purchase Program," if we sell Senior Preferred Stock to the Treasury, we
will be required to grant  registration  rights to the  Treasury.  Those  rights
require  us,  at our  expense,  to  register  with  the  SEC  some or all of our
securities that are held by the Treasury in order to permit the Treasury to make
a public offering of those securities. The out-of-pocket cost to us of doing so,
as well as the  indirect  cost of the time  that  would  have to be spent by our
personnel, could be substantial.

Company Operations

         If we sell Senior  Preferred Stock and warrants to the Treasury we will
be  required  to  make  modifications  to the  way  our  executive  compensation
arrangements are structured.  Specifically,  our board of directors will have to
review our incentive compensation arrangements with our senior officers and make
reasonable  efforts to ensure that such arrangements do not encourage our senior
executive  officers to take  unnecessary  and excessive  risks that threaten the
value of our Company.  As long as the Treasury  owns our  securities,  our board
will also have to meet annually with our senior executive officers to review the


                                       12


relationship between our risk management policies and practices. It will also be
a  requirement  that any bonus and  incentive  compensation  paid to our  senior
executives  during the period that the Treasury  holds our  securities  acquired
under the  Capital  Purchase  Program be  subject  to being  repaid to us if the
payments  were based on  materially  inaccurate  financial  statements  or other
performance metric criteria. Further, we will be required, during the period the
Treasury holds our securities  acquired under the Capital Purchase  Program,  to
prohibit  severance  payments to our senior  executive  officers in excess of an
amount  which  is  approximately   three  times  the  average  of  their  annual
compensation  for the prior five years.  This  requirement  will  necessitate  a
temporary  change in the  terms of our  president's  compensation  arrangements.
Finally,  we will be required  not to claim a deduction  for federal  income tax
purposes  of  executive  compensation  that would not be  deductible  if Section
162(m)(5) of the Internal Revenue Code were to apply to us.

         All of these  requirements are expected to increase our  administrative
costs somewhat and are not likely to reduce the compensation  paid to our senior
executive officers. Neither are they expected to have any material impact on the
way we operate our business or our financial condition or results of operations.

Capital

         If we sell between $3 million and $9 million of Senior  Preferred Stock
and warrants to the Treasury, the impact on our capital will be approximately as
follows (using the assumption that the sale had occurred,  and the proceeds were
held as cash, on September 30, 2008):

          o    Our total  shareholders  equity would  increase from  $40,790,000
               (actual)  to   $43,790,000   (if  $3  million  is   received)  or
               $49,790,000 (if $9 million is received).

          o    Our regulatory capital ratios would increase as shown below:



                                                          Actual at            $3 million            $9 million
                            Ratio                       Sept. 30, 2008            Sold                  Sold
                            -----                       --------------            ----                  ----

                                                                                               
           Total capital (to risk-weighted assets)             15.0%              16.0%                 18.0%

           Tier 1 capital (to risk-weighted assets)            13.8%              14.8%                 16.8%

           Tier 1 capital (to average assets)                   9.5%              10.2%                 11.6%


Pro Forma Financial Impact of Senior Preferred Stock

         The following  tables set forth our financial  position as of September
30, 2008 and results of operations for the nine months ended  September 30, 2008
and the year ended December 31, 2007:

         o     on an actual basis; and

         o on an as adjusted  basis to give effect to the sale of $3 million and
$9 million of Senior  Preferred  Stock and  issuance of warrants to purchase 150
shares  or 450  shares,  respectively,  of  Warrant  Preferred  Stock  with a 9%
dividend for $1.50 or $4.50, respectively.

         The pro forma financial information below assumes that the warrants are
immediately  exercised  and that we  received  proceeds  from the sale of Senior
Preferred  Stock to the  Treasury  and  deposited  the funds into a  noninterest
bearing  account  during the periods  presented.  This pro forma impact does not
represent the planned use of the proceeds of the sale of Senior Preferred Stock.
If Treasury makes the  investment and does not impose  limitations on our use of
the funds,  we will ultimately use these proceeds to increase the capital of our
bank  subsidiary  or for other  corporate  purposes.  The  financial  impact and
benefit to us from these uses is  expected to be  significant,  but has not been
included in the pro forma financial information.




                                       13


         These tables should be read in conjunction  with the information  under
the caption  "Management's  Discussion  and Analysis of Financial  Condition and
Results  of  Operations"  and our  unaudited  condensed  consolidated  financial
statements  for the  nine  months  ended  September  30,  2008  included  in our
Quarterly  Report on Form 10-Q for the quarter then ended,  and the  information
under the caption  "Management's  Discussion and Analysis of Financial Condition
and Results of Operations" and our audited consolidated financial statements for
the year  ended  December  31,  2007  and  related  notes  and  other  financial
information  included in our Annual Report on Form 10-K for the year then ended,
all of which is included in Appendix B to, this proxy statement.

         The following  unaudited pro forma  consolidated  financial data is not
necessarily  indicative of our financial  position or results of operations that
actually would have been attained had proceeds from the Capital Purchase Program
been received,  or had the issuance and exercise of the warrants pursuant to the
Capital  Purchase  Program  been  made,  at  the  dates  indicated,  and  is not
necessarily  indicative of our financial  position or results of operations that
will be achieved in the future.  We have  included the  following  unaudited pro
forma   consolidated   financial  data  solely  for  the  purpose  of  providing
shareholders with information that may be useful for purposes of considering and
evaluating  the  proposal  to amend our  Articles of  Incorporation.  Our future
results are subject to prevailing  economic and industry specific conditions and
financial, business and other known and unknown risks and uncertainties, certain
of which are beyond our control.



                                       14



Condensed Consolidated Balance Sheets


                                                                                                     As of September 30, 2008
                                                                                                           (Unaudited)
                                                                                               -------------------------------------
(Dollars in thousands except share data)                                                                       $3,000       $9,000
                                                                                               Actual         Pro forma    Pro forma
                                                                                               ------         ---------    ---------

Assets
                                                                                                                   
Cash and cash equivalents .............................................................       $ 29,044         32,044         38,044
Securities available for sale .........................................................        110,524        110,524        110,524
Other investments, at cost ............................................................         13,527         13,527         13,527
Loans, net of allowance for loan losses ($3,503) ......................................        263,572        263,572        263,572
Premises and equipment, net ...........................................................          8,691          8,691          8,691
Bank owned life insurance .............................................................          8,388          8,388          8,388
Interest receivable ...................................................................          2,557          2,557          2,557
Other assets ..........................................................................          2,062          2,062          2,062
                                                                                              --------       --------       --------
Total assets ..........................................................................       $438,365        441,365        447,365
                                                                                              ========       ========       ========

Liabilities
Deposits:
     Noninterest bearing ..............................................................       $ 42,830         42,830         42,830
     Interest bearing .................................................................        340,892        340,892        340,892
                                                                                              --------       --------       --------
          Total deposits ..............................................................        383,722        383,722        383,722
Short-term borrowings .................................................................          1,500          1,500          1,500
Long-term debt ........................................................................          9,500          9,500          9,500
Accrued interest payable ..............................................................          1,911          1,911          1,911
Other liabilities .....................................................................            942            942            942
                                                                                              --------       --------       --------
Total liabilities .....................................................................        397,575        397,575        397,575
                                                                                              --------       --------       --------

Shareholders' Equity
Preferred stock, no par value;  10,000,000 shares authorized as adjusted, 3,000
    and 9,000 shares with 5% initial dividend issued and outstanding pro forma (1) ....              -          2,973          8,918
    150 and 450 shares with 9% dividend issued and outstanding
    pro forma (1) .....................................................................              -            177            532
Common stock, no par value; 10,000,000 shares authorized; 3,394,873 shares
    issued and outstanding as of September 30, 2008 ...................................         35,374         35,374         35,374
Additional paid-in capital (2) ........................................................            681            531            231
Retained earnings .....................................................................          4,654          4,654          4,654
Accumulated other comprehensive income ................................................             81             81             81
                                                                                              --------       --------       --------
Total shareholders' equity ............................................................         40,790         43,790         49,790
                                                                                              --------       --------       --------
Total liabilities and shareholders' equity ............................................       $438,365        441,365        447,365
                                                                                              ========       ========       ========


(1) Based on an assumed investment by Treasury of $3,000 and $9,000 respectively
which has been allocated  between Senior  Preferred Stock and Warrant  Preferred
Stock based on their estimated relative fair values. The fair value of each type
of preferred  stock is determined  based on  assumptions  regarding the discount
rate (market  rate) on the preferred  stock  (currently  estimated at 12%).  The
expected life upon issuance is five years.
(2) Pro forma amounts include  discount  recorded at issuance of preferred stock
of $150 and $450.


                                       15


Condensed Consolidated Statements of Operations



                                                                                            Nine Months Ended September 30, 2008
                                                                                                          (Unaudited)
                                                                                            ----------------------------------------
(Dollars in thousands except per share data)                                                                $3,000          $9,000
                                                                                            Actual         Pro forma       Pro forma
                                                                                            ------         ---------       ---------
                                                                                                                    
Interest income .................................................................          $18,629          $18,629          $18,629
Interest expense ................................................................            9,741            9,741            9,741
                                                                                           -------          -------          -------
         Net interest income ....................................................            8,888            8,888            8,888
Provision for loan losses .......................................................            1,375            1,375            1,375
                                                                                           -------          -------          -------
         Net interest income after provision for loan losses ....................            7,513            7,513            7,513
                                                                                           -------          -------          -------
Other income ....................................................................            1,868            1,868            1,868
Other expense ...................................................................            5,830            5,830            5,830
                                                                                           -------          -------          -------
         Income before income taxes .............................................            3,551            3,551            3,551
Income tax expense ..............................................................            1,037            1,037            1,037
                                                                                           -------          -------          -------
         Net income .............................................................            2,514            2,514            2,514
                                                                                           =======          =======          =======
Net income attributable to preferred shareholders (1) ...........................                -              142              427
                                                                                           -------          -------          -------
Net income available to common shareholders .....................................          $ 2,514          $ 2,372
                                                                                                            =======          =======
Earnings per common share - basic ...............................................             0.74             0.70             0.62
                                                                                           =======          =======          =======
Earnings per common share - diluted .............................................             0.71             0.67             0.59
                                                                                           =======          =======          =======


(1)The pro forma amounts  include  dividends paid on the preferred stock of $123
and $368 and accretion of the discount  recorded at issuance of $20 and $59. The
discount is accreted back to par value on a constant effective yield method over
a five  year  term,  which is the  expected  life of the  preferred  stock  upon
issuance.



                                                                                           Year Ended December 31, 2007 (Unaudited)
                                                                                           ----------------------------------------
(Dollars in thousands except per share data)                                                                 $3,000         $9,000
                                                                                            Actual         Pro forma       Pro forma
                                                                                            ------         ---------       ---------
                                                                                                                    
Interest income .................................................................          $23,578          $23,578          $23,578
Interest expense ................................................................           13,230           13,230           13,230
                                                                                           -------          -------          -------
         Net interest income ....................................................           10,348           10,348           10,348
Provision for loan losses .......................................................              594              594              594
                                                                                           -------          -------          -------
         Net interest income after provision for loan losses ....................            9,754            9,754            9,754
                                                                                           -------          -------          -------

Other income ....................................................................            2,206            2,206            2,206
Other expense ...................................................................            7,132            7,132            7,132
                                                                                           -------          -------          -------
         Net income before tax expense ..........................................            4,828            4,828            4,828
Income tax expense ..............................................................            1,497            1,497            1,497
                                                                                           -------          -------          -------
         Net income .............................................................          $ 3,331          $ 3,331          $ 3,331
                                                                                           =======          =======          =======
Net income attributable to preferred shareholders (1) ...........................                -              190              570
                                                                                           -------          -------          -------
Net income available to common shareholders .....................................          $ 3,331          $ 3,141          $ 2,761
                                                                                           =======          =======          =======
Earnings per common share - basic ...............................................             1.02             0.96             0.84
                                                                                           =======          =======          =======
Earnings per common share - diluted .............................................             0.96             0.90             0.79
                                                                                           =======          =======          =======


(1)The pro forma amounts  include  dividends paid on the preferred stock of $163
and $490 and accretion of the discount  recorded at issuance of $27 and $79. The
discount is accreted back to par value on a constant effective yield method over
a five  year  term,  which is the  expected  life of the  preferred  stock  upon
issuance.

                                       16



No Assurances as to Issuance of Preferred Stock

         As noted  above,  although  we  intend to apply to  participate  in the
Capital Purchase  Program,  our application may not be accepted or it may not be
accepted on the terms  described  above.  We may or may not also decide to issue
preferred stock whether or not we participate in the Capital  Purchase  Program.
Accordingly,  there can be no  assurance  that we will ever issue any  preferred
stock and, if we do, what its terms will be.

Additional Rights of our Common Stock and Preferred Stock

Statutory Matters

         Business Combination Statute. The South Carolina Business  Combinations
Statute  provides  that a 10% or  greater  shareholder  of a  resident  domestic
corporation  cannot  engage  in a  "business  combination"  (as  defined  in the
statute) with such  corporation  for a period of two years following the date on
which the 10% shareholder  became such,  unless the business  combination or the
acquisition of shares is approved by a majority of the disinterested  members of
such  corporation's  board  of  directors  before  the 10%  shareholder's  share
acquisition  date. This statute further provides that at no time (even after the
two-year  period  subsequent  to  such  share  acquisition  date)  may  the  10%
shareholder  engage in a  business  combination  with the  relevant  corporation
unless certain approvals of the board of directors or disinterested shareholders
are obtained or unless the consideration  given in the combination meets certain
minimum  standards set forth in the statute.  The law is very broad in its scope
and is  designed  to inhibit  unfriendly  acquisitions  but it does not apply to
corporations whose articles of incorporation contain a provision electing not to
be covered by the law.  Our  Articles of  Incorporation  do not  contain  such a
provision.  An amendment of our Articles of  Incorporation to that effect would,
however,  permit a business combination with an interested  shareholder although
that status was obtained prior to the amendment.  Ordinarily, this statute would
only apply to us as long as we continue to have a class of securities registered
under  Section  12 of the  Securities  Exchange  Act of 1934.  However,  we have
specifically  elected in our Articles of Incorporation to make the provisions of
the statute  applicable  to us whether or not we have a class of  securities  so
registered.

         Control  Share  Acquisitions.  The  South  Carolina  law also  contains
provisions that, under certain circumstances,  would preclude an acquiror of the
shares  of a  South  Carolina  corporation  who  crosses  one  of  three  voting
thresholds  (20%,  33-1/3% or 50%) from obtaining voting control with respect to
such shares unless a majority in interest of the  disinterested  shareholders of
the corporation votes to accord voting power to such shares.

         The  legislation  provides  that,  if  authorized  by the  articles  of
incorporation or bylaws prior to the occurrence of a control share  acquisition,
the  corporation  may redeem the control shares if the acquiring  person has not
complied  with  certain  procedural  requirements  (including  the  filing of an
"acquiring  person  statement"  with the  corporation  within 60 days  after the
control share acquisition) or if the control shares are not accorded full voting
rights  by  the  shareholders.   We  are  not  authorized  by  our  Articles  of
Incorporation or Bylaws to redeem control shares.

         The provisions of the Control Share Acquisitions Act will only apply to
us as long as we continue to have a class of securities registered under Section
12 of the Securities Exchange Act of 1934.


                  INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

         We  expect  that  representatives  from J. W.  Hunt and  Company,  LLP,
Certified Public Accountants, our independent registered public accounting firm,
will be present and  available  to answer  appropriate  questions at the Special
Meeting,  and will have the opportunity to make a statement if they desire to do
so.

                                  OTHER MATTERS

         The Board of  Directors  knows of no other  business to be presented at
the  Special  Meeting of  shareholders.  If matters  other than those  described
herein  should  properly  come  before the  meeting,  the  persons  named in the
enclosed form of proxy intend to vote at such meeting in  accordance  with their


                                       17


best judgment on such matters.  If you specify a different choice on your proxy,
your shares will be voted in accordance with the specifications so made.

                           FORWARD-LOOKING STATEMENTS

         Statements  contained  in this  Proxy  Statement  that  are not  purely
historical  are  forward-looking  statements,  including,  but not  limited  to,
statements regarding our expectations,  hopes, beliefs, intentions or strategies
regarding  the  future.  Actual  results  could  differ  materially  from  those
projected in any forward-looking  statements as a result of a number of factors,
including those detailed in this Proxy Statement. The forward-looking statements
are made as of the date of this Proxy  Statement  and we undertake no obligation
to update or revise the forward-looking statements, or to update the reasons why
actual   results   could  differ   materially   from  those   projected  in  the
forward-looking statements.

         We  caution  you not to place  undue  reliance  on any  forward-looking
statements made by us, or on our behalf in this Proxy Statement or in any of our
filings  with the  Securities  and  Exchange  Commission  ("SEC") or  otherwise.
Additional  information  with  respect to factors  that may cause the results to
differ  materially  from those  contemplated  by  forward-looking  statements is
included in our current and subsequent  filings with the SEC. See "Where You Can
Find More Information" below.

                       WHERE YOU CAN FIND MORE INFORMATION

         We  are  subject  to the  information  requirements  of the  Securities
Exchange Act of 1934, as amended,  and in accordance  therewith we file reports,
proxy  statements  and  other  information  with the SEC.  Such  reports,  proxy
statements  and other  information  can be  inspected  and  copied at the public
reference  facilities of the SEC at 100 F Street,  N.E.,  Washington,  DC 20549.
Copies of such materials can also be obtained at prescribed  rates by writing to
the Public Reference Section of the SEC at 100 F Street,  N.E.,  Washington,  DC
20549. In addition,  such reports,  proxy  statements and other  information are
available from the Edgar filings that can be obtained through the SEC's Internet
Website (http://www.sec.gov).

                              SHAREHOLDER PROPOSALS

         If  you  wish  to  submit  proposals  for  the   consideration  of  the
shareholders at our 2009 Annual Meeting you may do so by sending them in writing
to  Community  First  Bancorporation,  449  Highway 123  ByPass,  Seneca,  South
Carolina 29678,  Attention:  Corporate Secretary.  You must send or deliver such
written  proposals in time for us to receive them prior to December 1, 2008,  if
you want us to include them, if otherwise  appropriate,  in our proxy  statement
and form of proxy  relating to that  meeting.  If we do not receive  notice of a
shareholder  proposal  prior to February  15, 2009,  the persons  named as proxy
agents in the proxy materials relating to the 2009 Annual Meeting will use their
discretion in voting the proxies when such proposal is raised at that meeting.



                                       18



                                   APPENDIX A

                               DISSENTERS' RIGHTS
                 SOUTH CAROLINA CODE SECTIONS 33-13-101, et seq.







                                   CHAPTER 13

                               DISSENTERS' RIGHTS

                                   ARTICLE 1.

                 RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES

SECTION 33-13-101. Definitions.

In this chapter:

(1)  "Corporation" means the issuer of the shares held by a dissenter before the
     corporate  action,  or the surviving or acquiring  corporation by merger or
     share exchange of that issuer.

(2)  "Dissenter"  means a shareholder  who is entitled to dissent from corporate
     action under Section 33 13 102 and who exercises that right when and in the
     manner required by Sections 33 13 200 through 33 13 280.

(3)  "Fair value", with respect to a dissenter's shares,  means the value of the
     shares immediately before the effectuation of the corporate action to which
     the  dissenter  objects,  excluding any  appreciation  or  depreciation  in
     anticipation  of the  corporate  action  to which  the  dissenter  objects,
     excluding any appreciation or depreciation in anticipation of the corporate
     action unless exclusion would be inequitable. The value of the shares is to
     be determined by  techniques  that are accepted  generally in the financial
     community.

(4)  "Interest"  means interest from the effective date of the corporate  action
     until  the date of  payment,  at the  average  rate  currently  paid by the
     corporation on its principal bank loans or, if none, at a rate that is fair
     and equitable under all the circumstances.

(5)  "Record  shareholder"  means the person in whose name shares are registered
     in the records of a corporation  or the  beneficial  owner of shares to the
     extent  of the  rights  granted  by a  nominee  certificate  on file with a
     corporation.

(6)  "Beneficial  shareholder"  means the  person who is a  beneficial  owner of
     shares held by a nominee as the record shareholder.

(7)  "Shareholder" means the record shareholder or the beneficial shareholder.

SECTION 33-13-102. Right to dissent.

     (A)  A shareholder  is entitled to dissent from,  and obtain payment of the
          fair  value  of,  his  shares  in the  event  of any of the  following
          corporate actions:

          (1)  consummation  of a plan of merger to which the  corporation  is a
               party (i) if  shareholder  approval is required for the merger by
               Section  33-11-103  or the  articles  of  incorporation  and  the
               shareholder  is  entitled  to vote on the  merger  or (ii) if the
               corporation is a subsidiary  that is merged with its parent under
               Section  33-11-104 or 33-11-108 or if the corporation is a parent
               that is merged with its subsidiary under Section 33-11-108;

          (2)  consummation of a plan of share exchange to which the corporation
               is a party as the corporation whose shares are to be acquired, if
               the shareholder is entitled to vote on the plan;


                                      A-1


          (3)  consummation of a sale or exchange of all, or substantially  all,
               of the  property of the  corporation  other than in the usual and
               regular  course of business,  if the  shareholder  is entitled to
               vote on the sale or  exchange,  including a sale in  dissolution,
               but not  including  a sale  pursuant to court order or a sale for
               cash pursuant to a plan by which all or substantially  all of the
               net proceeds of the sale must be distributed to the  shareholders
               within one year after the date of sale;

          (4)  an amendment of the articles of incorporation that materially and
               adversely  affects  rights in  respect  of a  dissenter's  shares
               because it:

              (i)    alters or abolishes a preferential right of the shares;

              (ii)   creates,  alters,  or  abolishes  a  right  in  respect  of
                     redemption, including a provision respecting a sinking fund
                     for the redemption or repurchase, of the shares;

              (iii)  alters or abolishes a preemptive right of the holder of the
                     shares to acquire shares or other securities;

              (iv)   excludes  or limits  the right of the shares to vote on any
                     matter,  or to cumulate  votes,  other than a limitation by
                     dilution  through  issuance  of shares or other  securities
                     with similar voting rights; or

              (v)    reduces the number of shares owned by the  shareholder to a
                     fraction of a share if the  fractional  share so created is
                     to be acquired for cash under Section 33-6-104; or

          (5)  in the case of  corporations  which are not public  corporations,
               the approval of a control  share  acquisition  under Article 1 of
               Chapter 2 of Title 35;

          (6)  any corporate action to the extent the articles of incorporation,
               bylaws,  or a resolution of the board of directors  provides that
               voting or  nonvoting  shareholders  are  entitled  to dissent and
               obtain payment for their shares.

     (B)  Notwithstanding  subsection  (A),  no  dissenters'  rights  under this
          section  are  available  for  shares  of any class or series of shares
          which, at the record date fixed to determine  shareholders entitled to
          receive  notice of a vote at the meeting of  shareholders  to act upon
          the agreement of merger or exchange,  were either listed on a national
          securities exchange or designated as a national market system security
          on an  interdealer  quotation  system by the National  Association  of
          Securities Dealers, Inc.

SECTION 33-13-103. Dissent by nominees and beneficial owners.

(a)  A record shareholder may assert dissenters' rights as to fewer than all the
     shares  registered  in his name only if he  dissents  with  respect  to all
     shares beneficially owned by any one person and notifies the corporation in
     writing of the name and address of each  person on whose  behalf he asserts
     dissenters' rights. The rights of a partial dissenter under this subsection
     are  determined  as if the shares to which he dissents and his other shares
     were registered in the names of different shareholders.

(b)  A beneficial shareholder may assert dissenters' rights as to shares held on
     his behalf  only if he dissents  with  respect to all shares of which he is
     the beneficial shareholder or over which he has power to direct the vote. A
     beneficial  shareholder  asserting dissenters' rights to shares held on his


                                      A-2


     behalf shall notify the  corporation  in writing of the name and address of
     the record shareholder of the shares, if known to him.

                                   ARTICLE 2.

                  PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS

SECTION 33-13-200. Notice of dissenters' rights.

(a)  If proposed  corporate  action  creating  dissenters'  rights under Section
     33-13-102 is submitted to a vote at a  shareholders'  meeting,  the meeting
     notice  must  state  that  shareholders  are or may be  entitled  to assert
     dissenters'  rights under this chapter and be accompanied by a copy of this
     chapter.

(b)  If corporate action creating  dissenters' rights under Section 33-13-102 is
     taken  without a vote of  shareholders,  the  corporation  shall  notify in
     writing all  shareholders  entitled to assert  dissenters'  rights that the
     action was taken and send them the dissenters'  notice described in Section
     33-13-220.

SECTION 33-13-210. Notice of intent to demand payment.

(a)  If proposed  corporate  action  creating  dissenters'  rights under Section
     33-13-102 is submitted to a vote at a shareholders'  meeting, a shareholder
     who wishes to assert  dissenters'  rights (1) must give to the  corporation
     before the vote is taken written notice of his intent to demand payment for
     his shares if the proposed  action is effectuated and (2) must not vote his
     shares in favor of the  proposed  action.  A vote in favor of the  proposed
     action cast by the holder of a proxy solicited by the corporation shall not
     disqualify a shareholder  from demanding  payment for his shares under this
     chapter.

(b)  A shareholder  who does not satisfy the  requirements  of subsection (a) is
     not entitled to payment for his shares under this chapter.

SECTION 33-13-220. Dissenters' notice.

(a)  If proposed  corporate  action  creating  dissenters'  rights under Section
     33-13-102 is authorized at a shareholders'  meeting,  the corporation shall
     deliver a written  dissenters' notice to all shareholders who satisfied the
     requirements of Section 33-13-210(a).

(b)  The  dissenters'  notice must be delivered no later than ten days after the
     corporate action was taken and must:

     (1)  state where the payment demand must be sent and where certificates for
          certificated shares must be deposited;

     (2)  inform holders of uncertificated shares to what extent transfer of the
          shares is to be restricted after the payment demand is received;

     (3)  supply a form for  demanding  payment  that  includes  the date of the
          first  announcement  to news media or to  shareholders of the terms of
          the proposed  corporate  action and requires that the person asserting
          dissenters'  rights  certify  whether or not he or, if he is a nominee
          asserting  dissenters'  rights on behalf of a beneficial  shareholder,
          the beneficial shareholder acquired beneficial ownership of the shares
          before that date;

     (4)  set a date by which the  corporation  must receive the payment demand,
          which may not be fewer than  thirty nor more than sixty days after the
          date the  subsection  (a) notice is delivered  and set a date by which
          certificates for certificated shares must be deposited,  which may not
          be earlier than twenty days after the demand date; and



                                      A-3


     (5)  be accompanied by a copy of this chapter.

SECTION 33-13-230. Shareholders' payment demand.

(a)  A shareholder sent a dissenters' notice described in Section 33-13-220 must
     demand payment,  certify whether he (or the beneficial shareholder on whose
     behalf he is asserting dissenters' rights) acquired beneficial ownership of
     the shares before the date set forth in the dissenters'  notice pursuant to
     Section  33-13-220(b)(3),  and deposit his  certificates in accordance with
     the terms of the notice.

(b)  The  shareholder  who demands  payment and deposits his share  certificates
     under subsection (a) retains all other rights of a shareholder  until these
     rights are  canceled or modified  by the taking of the  proposed  corporate
     action.

(c)  A shareholder who does not comply  substantially with the requirements that
     he demand payment and deposit his share certificates  where required,  each
     by the date set in the dissenters'  notice,  is not entitled to payment for
     his shares under this chapter.

SECTION 33-13-240. Share restrictions.

(a)  The corporation may restrict the transfer of uncertificated shares from the
     date the  demand  for  payment  for them is  received  until  the  proposed
     corporate  action is taken or the  restrictions  are released under Section
     33-13-260.

(b)  The person for whom  dissenters'  rights are asserted as to  uncertificated
     shares  retains all other  rights of a  shareholder  until these rights are
     canceled or modified by the taking of the proposed corporate action.

SECTION 33-13-250. Payment.

(a)  Except as provided in Section 33-13-270,  as soon as the proposed corporate
     action is taken, or upon receipt of a payment demand, the corporation shall
     pay each dissenter who  substantially  complied with Section  33-13-230 the
     amount the corporation  estimates to be the fair value of his shares,  plus
     accrued interest.

(b)  The payment must be accompanied by:

     (1)  the corporation's  balance sheet as of the end of a fiscal year ending
          not more than  sixteen  months  before the date of payment,  an income
          statement  for that year,  a  statement  of  changes in  shareholders'
          equity  for that  year,  and the latest  available  interim  financial
          statements, if any;

     (2)  a  statement  of the  corporation's  estimate of the fair value of the
          shares and an explanation of how the fair value was calculated;

     (3)  an explanation of how the interest was calculated;

     (4)  a statement  of the  dissenter's  right to demand  additional  payment
          under Section 33-13-280; and

     (5)  a copy of this chapter.




                                      A-4



SECTION 33-13-260. Failure to take action.

(a)  If the  corporation  does not take the  proposed  action  within sixty days
     after the date set for demanding payment and depositing share certificates,
     the  corporation,  within  the same  sixty day  period,  shall  return  the
     deposited  certificates  and release the transfer  restrictions  imposed on
     uncertificated shares.

(b)  If,  after  returning   deposited   certificates  and  releasing   transfer
     restrictions, the corporation takes the proposed action, it must send a new
     dissenters'  notice under Section  33-13-220 and repeat the payment  demand
     procedure.

SECTION 33-13-270. After acquired shares.

(a)  A corporation may elect to withhold payment  required by section  33-13-250
     from a dissenter as to any shares of which he (or the  beneficial  owner on
     whose behalf he is  asserting  dissenters'  rights) was not the  beneficial
     owner on the date set  forth in the  dissenters'  notice as the date of the
     first  announcement  to news media or to  shareholders  of the terms of the
     proposed  corporate action,  unless the beneficial  ownership of the shares
     devolved upon him by operation of law from a person who was the  beneficial
     owner on the date of the first announcement.

(b)  To the extent the corporation  elects to withhold  payment under subsection
     (a), after taking the proposed corporate action, it shall estimate the fair
     value of the shares,  plus accrued  interest,  and shall pay this amount to
     each dissenter who agrees to accept it in full  satisfaction of his demand.
     The  corporation  shall send with its offer a statement  of its estimate of
     the fair  value of the  shares,  an  explanation  of how the fair value and
     interest  were  calculated,  and a statement  of the  dissenter's  right to
     demand additional payment under Section 33-13-280.

SECTION 33-13-280. Procedure if shareholder dissatisfied with payment or offer.

(a)  A dissenter  may notify the  corporation  in writing of his own estimate of
     the fair value of his shares and amount of interest due and demand  payment
     of his estimate  (less any payment under  Section  33-13-250) or reject the
     corporation's  offer under Section 33-13-270 and demand payment of the fair
     value of his shares and interest due, if the:

     (1)  dissenter  believes  that the amount paid under  Section  33-13-250 or
          offered  under  Section  33-13-270  is less than the fair value of his
          shares or that the interest due is calculated incorrectly;

     (2)  corporation  fails to make payment under Section 33-13-250 or to offer
          payment under Section  33-13-270  within sixty days after the date set
          for demanding payment; or

     (3)  corporation,  having  failed  to take the  proposed  action,  does not
          return the deposited certificates or release the transfer restrictions
          imposed on uncertificated  shares within sixty days after the date set
          for demanding payment.

(b)  A  dissenter  waives  his right to demand  additional  payment  under  this
     section  unless he notifies the  corporation of his demand in writing under
     subsection  (a) within  thirty days after the  corporation  made or offered
     payment for his shares.




                                      A-5



                                   ARTICLE 3.

                          JUDICIAL APPRAISAL OF SHARES

SECTION 33-13-300. Court action.

(a)  If  a  demand  for  additional  payment  under  Section  33-13-280  remains
     unsettled,  the corporation  shall commence a proceeding  within sixty days
     after receiving the demand for additional payment and petition the court to
     determine  the fair  value  of the  shares  and  accrued  interest.  If the
     corporation  does not commence the proceeding  within the sixty day period,
     it shall pay each  dissenter  whose  demand  remains  unsettled  the amount
     demanded.

(b)  The  corporation  shall commence the proceeding in the circuit court of the
     county where the corporation's principal office (or, if none in this State,
     its  registered  office)  is  located.  If  the  corporation  is a  foreign
     corporation  without a registered  office in this State,  it shall commence
     the proceeding in the county in this State where the principal  office (or,
     if none in this State, the registered  office) of the domestic  corporation
     merged with or whose shares were  acquired by the foreign  corporation  was
     located.

(c)  The corporation shall make all dissenters (whether or not residents of this
     State) whose demands  remain  unsettled  parties to the proceeding as in an
     action  against  their shares and all parties must be served with a copy of
     the petition. Nonresidents may be served by registered or certified mail or
     by publication, as provided by law.

(d)  The  jurisdiction  of the court in which the proceeding is commenced  under
     subsection (b) is plenary and exclusive.  The court may appoint  persons as
     appraisers to receive  evidence and recommend  decisions on the question of
     fair  value.  The  appraisers  have  the  powers  described  in  the  order
     appointing  them or in any amendment to it. The  dissenters are entitled to
     the same discovery rights as parties in other civil proceedings.

(e)  Each  dissenter  made a party to the proceeding is entitled to judgment for
     the amount,  if any, by which the court finds the fair value of his shares,
     plus interest, exceeds the amount paid by the corporation.

SECTION 33-13-310. Court costs and counsel fees.

(a)  The court in an appraisal  proceeding  commenced  under  Section  33-13-300
     shall  determine  all costs of the  proceeding,  including  the  reasonable
     compensation  and expenses of appraisers  appointed by the court. The court
     shall assess the costs against the  corporation,  except that the court may
     assess costs  against all or some of the  dissenters,  in amounts the court
     finds  equitable,  to the  extent  the  court  finds the  dissenters  acted
     arbitrarily,  vexatiously,  or not in good faith in demanding payment under
     Section 33-13-280.

(b)  The court also may assess the fees and  expenses of counsel and experts for
     the respective parties, in amounts the court finds equitable:

     (1)  against the  corporation  and in favor of any or all dissenters if the
          court  finds the  corporation  did not comply  substantially  with the
          requirements of Sections 33-13-200 through 33-13-280; or

     (2)  against either the  corporation or a dissenter,  in favor of any other
          party,  if the court  finds that the party  against  whom the fees and
          expenses are assessed acted arbitrarily,  vexatiously,  or not in good
          faith with respect to the rights provided by this chapter.


                                      A-6


(c)  If the court finds that the services of counsel for any  dissenter  were of
     substantial benefit to other dissenters  similarly  situated,  and that the
     fees for those services should not be assessed against the corporation, the
     court  may  award to these  counsel  reasonable  fees to be paid out of the
     amounts awarded the dissenters who were benefited.

(d)  In a proceeding  commenced by  dissenters  to enforce the  liability  under
     Section  33-13-300(a)  of a  corporation  that has  failed to  commence  an
     appraisal  proceeding  within the sixty day period,  the court shall assess
     the  costs  of the  proceeding  and the fees and  expenses  of  dissenters'
     counsel against the corporation and in favor of the dissenters.



                                      A-7



                                   APPENDIX B

                              FINANCIAL INFORMATION

         The following information is included in this Appendix:

          o    our Quarterly Report on Form 10-Q for the quarter ended September
               30, 2008 (without exhibits); and

          o    the  following  portions  of our Annual  Report to  Shareholders,
               which are filed as a part of  Exhibit 13 to our Form 10-K for the
               fiscal year ended December 31, 2007:

               o    Report of Independent Registered Public Accounting Firm

               o    Consolidated Balance Sheets at December 31, 2007 and 2006

               o    Consolidated  Statements  of  Income  for  the  years  ended
                    December 31, 2007, 2006 and 2005

               o    Consolidated  Statements of Changes in Shareholders'  Equity
                    for the years ended December 31, 2007, 2006 and 2005

               o    Consolidated  Statements  of Cash Flows for the years  ended
                    December 31, 2007, 2006 and 2005

               o    Notes to Consolidated Financial Statements

               o    Management's  Discussion and Analysis of Financial Condition
                    and Results of Operations




                                       B-1






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

                                    FORM 10-Q

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

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


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


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


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


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

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

         Yes [ X ]  No [   ]

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

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

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

         Yes [  ]  No [X]

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




                                      B-2



                         COMMUNITY FIRST BANCORPORATION

                                    FORM 10-Q

                                      Index



                                                                                                                     Page
PART I -          FINANCIAL INFORMATION

Item 1.           Financial Statements

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

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

PART II -         OTHER INFORMATION

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

SIGNATURE         ................................................................................................     23



                                      B-3



                         PART I - FINANCIAL INFORMATION

Item 1. - Financial Statements

COMMUNITY FIRST BANCORPORATION
Consolidated Balance Sheets


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

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

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

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

            Total liabilities and shareholders' equity .........................................        $ 438,365         $ 402,148
                                                                                                        =========         =========


See accompanying notes to unaudited consolidated financial statements.



                                      B-4


COMMUNITY FIRST BANCORPORATION
Consolidated Statements of Income


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

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

Per share*
     Net income ..............................................         $   0.21          $   0.24         $   0.74          $   0.82
     Net income, assuming dilution ...........................             0.20              0.21             0.71              0.77

--------
* Per share information has been  retroactively  adjusted to reflect a 10% stock
dividend effective December 20, 2007.

See accompanying notes to unaudited consolidated financial statements.




                                      B-5


COMMUNITY FIRST BANCORPORATION
Consolidated Statements of Changes in Shareholders' Equity



                                                                         (Unaudited)

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

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

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



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

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











See accompanying notes to unaudited consolidated financial statements.



                                      B-6


COMMUNITY FIRST BANCORPORATION
Consolidated Statements of Cash Flows


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

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

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

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


See accompanying notes to unaudited consolidated financial statements.




                                      B-7



COMMUNITY FIRST BANCORPORATION

Notes to Unaudited Consolidated Financial Statements

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

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

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

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



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

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

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

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

    Net income per share, assuming dilution ............         $      .20         $      .22         $      .71         $      .77
                                                                 ==========         ==========         ==========         ==========


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



                                      B-8


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



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

                                                                                                                 
Securities available-for-sale ...................................                $      -             $110,524            $       -



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

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

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

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

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

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

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



                                      B-9


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

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

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

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

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

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

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

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


          CAUTIONARY NOTICE WITH RESPECT TO FORWARD-LOOKING STATEMENTS

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

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


                                      B-10


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

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

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


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

Changes in Financial Condition

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



                                      B-11


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

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

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

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


Results of Operations

Three Months Ended September 30, 2008 and 2007

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

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

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



                                      B-12




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


Nine Months Ended September 30, 2008 and 2007

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

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

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

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



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


Net Interest Income


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


                                      B-13


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

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

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

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


Three Months Ended September 30, 2008 and 2007

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

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



                                      B-14




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

Liabilities and shareholders' equity
Interest bearing deposits
      Interest bearing transaction accounts .......      $56,370     $   250       1.76%             $57,297     $   457       3.16%
      Savings .....................................       18,700          46       0.98%              19,068          92       1.91%
      Time deposits $100M and over ................      113,755       1,021       3.57%              85,990       1,038       4.79%
      Other time deposits .........................      145,886       1,589       4.33%             130,076       1,734       5.29%
                                                      ----------     -------                       ---------     -------
           Total interest bearing
             deposits .............................      334,711       2,906       3.45%             292,431       3,321       4.51%
Short-term borrowings .............................        1,500           8       2.12%                   -           -       0.00%
Long-term debt ....................................        9,500          92       3.85%               4,500          46       4.06%
                                                      ----------     -------                       ---------     -------
           Total interest bearing
             liabilities ..........................      345,711       3,006       3.46%             296,931       3,367       4.50%
Noninterest bearing demand deposits ...............       41,637                                      41,084
Other liabilities .................................        2,907                                       3,061
Shareholders' equity ..............................       40,025                                      35,373
                                                      ---------                                    ---------
           Total liabilities and shareholders'
             equity ...............................   $  430,280                                   $ 376,449
                                                      ==========                                   =========
Interest rate spread ..............................                                2.68%                                       2.15%
Net interest income and net yield
      on earning assets ...........................                  $ 3,230       3.18%                         $ 2,614       2.91%
Interest free funds supporting earning  assets ....      $58,659                                   $  59,937

-----------------------------------------
(1)  Yields and rates are annualized
(2)  Yields on tax exempt instruments have not been adjusted to a tax-equivalent
     basis.
(3)  Nonaccrual  loans are included in the average  loan  balances and income on
     such loans is recognized on a cash basis.
(4)  Includes immaterial amounts of loan fees.



                                      B-15



Nine Months Ended September 30, 2007 and 2006

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

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

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




                                      B-16




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

Liabilities and shareholders' equity
Interest bearing deposits
      Interest bearing transaction accounts ........       $58,022      $   843      1.94%          $57,293      $ 1,373       3.20%
      Savings ......................................        28,523          323      1.51%           28,282          616       2.91%
      Time deposits $100M and over .................       108,347        3,231      3.98%           82,312        2,901       4.71%
      Other time deposits ..........................       143,881        5,157      4.79%          123,391        4,729       5.12%
                                                        ----------      -------                   ---------      -------
           Total interest bearing
             deposits ..............................       338,773        9,554      3.77%          291,278        9,619       4.42%
Short-term borrowings ..............................           504            8      2.12%               17            3      23.59%
Long-term debt .....................................         6,321          179      3.78%            5,119          155       4.05%
                                                        ----------      -------                   ---------      -------
           Total interest bearing
             liabilities ...........................       345,598        9,741      3.76%          296,414        9,777       4.41%
Noninterest bearing demand deposits ................        40,910                                   40,028
Other liabilities ..................................         3,787                                    3,139
Shareholders' equity ...............................        39,613                                   34,588
                                                        ----------                                ---------
           Total liabilities and shareholders'
             equity ................................    $  429,908                                $ 374,169
                                                        ==========                                =========
Interest rate spread ...............................                                 2.41%                                     2.13%
Net interest income and net yield
      on earning assets ............................                    $ 8,888      2.94%                       $ 7,685       2.88%
Interest free funds supporting earning assets ......       $57,605                                $  60,313

-----------------------------------------
(1)  Yields and rates are annualized
(2)  Yields on tax exempt instruments have not been adjusted to a tax-equivalent
     basis.
(3)  Nonaccrual  loans are included in the average  loan  balances and income on
     such loans is recognized on a cash basis.
(4)  Includes immaterial amounts of loan fees.



                                      B-17


Provision and Allowance for Loan Losses

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

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



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





                                      B-18



Non-Performing and Potential Problem Loans



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


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

Noninterest Income

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

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

Noninterest Expenses

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

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



                                      B-19


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

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

Liquidity

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

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

Capital Resources

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

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

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

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



                                      B-20


Off-Balance-Sheet Arrangements

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

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

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


         Loan  commitments  involve  agreements to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses and some
involve payment of a fee. Many of the commitments are expected to expire without
being fully  drawn;  therefore,  the total amount of loan  commitments  does not
necessarily represent future cash requirements. Each customer's creditworthiness
is evaluated on a case-by-case basis. The amount of collateral obtained, if any,
upon  extension  of credit is based on  management's  credit  evaluation  of the
borrower. Collateral held varies but may include commercial and residential real
properties, accounts receivable, inventory and equipment.

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

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

Item 3.  - Quantitative and Qualitative Disclosures About Market Risk

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

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

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


                                      B-21


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


Item 4T. - Controls and Procedures

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

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


                           PART II - OTHER INFORMATION

Item 1A.  Risk Factors

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

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

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

2.   Current levels of market volatility are unprecedented.

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

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

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

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

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


                                      B-22


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


Item 6. - Exhibits

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

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





                                      B-23



SIGNATURE

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


                                  COMMUNITY FIRST BANCORPORATION

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





                                      B-24


  FINANCIAL INFORMATION FROM THE FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2008

            Report of Independent Registered Public Accounting Firm




The Shareholders and Board of Directors
    of Community First Bancorporation

         We  have  audited  the  accompanying  consolidated  balance  sheets  of
Community First  Bancorporation and subsidiary as of December 31, 2007 and 2006,
and the related  consolidated  statements  of income,  changes in  shareholders'
equity,  and cash flows for each of the three years in the period ended December
31, 2007.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

         We conducted our audits in accordance  with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  The  Company is not
required  to have,  nor were we engaged  to  perform,  an audit of its  internal
control over financial reporting.  Our audit included  consideration of internal
control over financial  reporting as a basis for designing audit procedures that
are appropriate in the  circumstances,  but not for the purpose of expressing an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a  test  basis,  evidence  supporting  the  amounts  and  disclosures  in the
financial statements. An audit also includes assessing the accounting principles
used and  significant  estimates made by  management,  as well as evaluating the
overall financial statement  presentation.  We believe that our audits provide a
reasonable basis for our opinion.

         In our opinion,  the  financial  statements  referred to above  present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Community First  Bancorporation and subsidiary as of December 31, 2007 and 2006,
and the  consolidated  results of their operations and their  consolidated  cash
flows for each of the three years in the period  ended  December  31,  2007,  in
conformity with U. S. generally accepted accounting principles.


s/J. W. Hunt and Company, LLP
------------------------------------
J. W. Hunt and Company, LLP
Columbia, South Carolina
March 28, 2008




                                      B-25


Consolidated Balance Sheets
Community First Bancorporation and Subsidiary



                                                                                                            December 31,
                                                                                                            ------------
                                                                                                      2007                  2006
                                                                                                      ----                  ----
Assets
                                                                                                                
      Cash and due from banks (Note B) ...................................................       $  10,272,260        $   6,951,934
      Interest bearing deposits due from banks ...........................................             164,781               66,941
      Federal funds sold .................................................................          24,236,000           24,126,000
                                                                                                 -------------        -------------
           Cash and cash equivalents .....................................................          34,673,041           31,144,875
      Securities available-for-sale (Note C) .............................................          99,026,049          102,487,395
      Securities held-to-maturity (fair value of $5,625,083 for 2007 and
           $6,529,691 for 2006) (Note C) .................................................           5,663,113            6,595,026
      Federal Home Loan Bank stock, at cost ..............................................             839,900              980,200
      Loans (Note D) .....................................................................         244,131,013          202,965,700
           Allowance for loan losses .....................................................          (2,573,758)          (2,241,947)
                                                                                                 -------------        -------------
                Loans - net ..............................................................         241,557,255          200,723,753
      Premises and equipment - net (Note E) ..............................................           8,621,525            7,937,482
      Accrued interest receivable ........................................................           2,529,155            2,181,572
      Bank-owned life insurance ..........................................................           7,107,784                    -
      Other assets .......................................................................           2,130,413            1,859,069
                                                                                                 -------------        -------------

                Total assets .............................................................       $ 402,148,235        $ 353,909,372
                                                                                                 =============        =============

Liabilities
      Deposits (Note F)
           Noninterest bearing ...........................................................       $  42,288,971        $  40,576,371
           Interest bearing ..............................................................         313,577,582          267,380,938
                                                                                                 -------------        -------------
                Total deposits ...........................................................         355,866,553          307,957,309
      Accrued interest payable ...........................................................           3,479,569            2,702,946
      Short-term borrowings (Note G) .....................................................                   -            4,500,000
      Long-term debt (Note H) ............................................................           4,500,000            5,500,000
      Other liabilities ..................................................................             391,125               34,087
                                                                                                 -------------        -------------
                Total liabilities ........................................................         364,237,247          320,694,342
                                                                                                 -------------        -------------

      Commitments and contingent liabilities (Note M)

Shareholders' equity (Note I)
      Common stock - no par  value; 10,000,000 shares authorized; issued and
           outstanding - 3,324,105 for 2007 and
           2,958,558 for 2006 ............................................................          35,008,926           30,061,392
      Additional paid-in capital .........................................................             681,498              593,100
      Retained earnings ..................................................................           2,140,465            3,284,692
      Accumulated other comprehensive income (loss) ......................................              80,099             (724,154)
                                                                                                 -------------        -------------
                Total shareholders' equity ...............................................          37,910,988           33,215,030
                                                                                                 -------------        -------------

                Total liabilities and shareholders' equity ...............................       $ 402,148,235        $ 353,909,372
                                                                                                 =============        =============


See accompanying notes to consolidated financial statements.


                                      B-26


Consolidated Statements of Income
Community First Bancorporation and Subsidiary



                                                                                           Years Ended December 31,
                                                                                           ------------------------
                                                                                  2007                2006                   2005
                                                                                  ----                ----                   ----
Interest income
                                                                                                                
     Loans, including fees .......................................           $17,600,104           $13,864,479           $11,497,766
     Securities
        Taxable ..................................................             3,890,240             3,868,407             3,564,081
        Tax-exempt ...............................................               816,428               635,967               149,880
     Federal funds sold ..........................................             1,208,738             1,174,768               667,735
     Other .......................................................                55,829                52,121                38,714
     Interest bearing deposits due from banks ....................                 6,277                 4,393                 5,003
                                                                             -----------           -----------           -----------
        Total interest income ....................................            23,577,616            19,600,135            15,923,179
                                                                             -----------           -----------           -----------

Interest expense
     Time deposits $100,000 and over .............................             4,054,315             2,952,983             2,117,851
     Other deposits ..............................................             8,972,052             7,193,745             4,202,097
     Short-term borrowings .......................................                     -                 1,789                17,971
     Long-term debt ..............................................               203,871               236,864               282,893
                                                                             -----------           -----------           -----------
        Total interest expense ...................................            13,230,238            10,385,381             6,620,812
                                                                             -----------           -----------           -----------

Net interest income ..............................................            10,347,378             9,214,754             9,302,367
Provision for loan losses (Note D) ...............................               594,000                65,000               250,000
                                                                             -----------           -----------           -----------
Net interest income after provision ..............................             9,753,378             9,149,754             9,052,367
                                                                             -----------           -----------           -----------

Other income
     Service charges on deposit accounts .........................             1,473,469             1,515,390             1,580,043
     Credit life insurance commissions ...........................                28,587                48,303                32,422
     Mortgage brokerage income ...................................                33,203                68,194               109,890
     Other income ................................................               671,140               521,855               416,244
                                                                             -----------           -----------           -----------
        Total other income .......................................             2,206,399             2,153,742             2,138,599
                                                                             -----------           -----------           -----------

Other expenses (Notes J and L)
     Salaries and employee benefits ..............................             4,120,766             3,647,451             2,902,693
     Net occupancy expense .......................................               432,852               346,610               267,760
     Furniture and equipment expense .............................               441,010               431,078               344,687
     Other expense ...............................................             2,136,968             2,326,626             1,905,008
                                                                             -----------           -----------           -----------
        Total other expenses .....................................             7,131,596             6,751,765             5,420,148
                                                                             -----------           -----------           -----------

Income before income taxes .......................................             4,828,181             4,551,731             5,770,818
Income tax expense (Note K) ......................................             1,497,469             1,533,762             2,040,892
                                                                             -----------           -----------           -----------
Net income .......................................................           $ 3,330,712           $ 3,017,969           $ 3,729,926
                                                                             ===========           ===========           ===========

Per share (Note I)
     Net income, basic ...........................................           $      1.02           $      0.93           $      1.16
     Net income, assuming dilution ...............................                  0.96                  0.87                  1.10


See accompanying notes to consolidated financial statements.


                                      B-27


Consolidated Statements of Changes in Shareholders' Equity
Community First Bancorporation and Subsidiary




                                                      Common Stock                                       Accumulated
                                                      ------------         Additional                      Other
                                                Number of                    Paid-in       Retained     Comprehensive
                                                 Shares         Amount      Capital        Earnings     Income (Loss)       Total
                                                 ------         ------      -------        --------     -------------       -----
                                                                                                     
Balance, January 1, 2005 ..................    2,648,230   $ 24,216,002    $       -   $  2,220,083    $   (499,640)   $ 25,936,445

Comprehensive income:
    Net income ............................            -              -            -      3,729,926               -       3,729,926
                                                                                                                       ------------
    Unrealized net holding losses
      on available-for-sale securities
      arising during the period, net of
      income tax effects of $502,764 ......            -              -            -              -        (897,693)       (897,693)
                                                                                                                       ------------
        Total other comprehensive
         income (loss) ....................            -              -            -              -               -        (897,693)
                                                                                                                       ------------
           Total comprehensive income .....            -              -            -              -               -       2,832,233
                                                                                                                       ------------
Issuance of 5% stock dividend,
    including cash payment for
    fractional shares .....................      132,136      2,647,600            -     (2,653,949)              -          (6,349)
Exercise of employee stock options ........       18,043         92,059            -              -               -          92,059
                                               ---------   ------------    ---------   ------------    ------------    ------------
Balance, December 31, 2005 ................    2,798,409     26,955,661            -      3,296,060      (1,397,333)     28,854,388

Comprehensive income:
    Net income ............................            -              -            -      3,017,969               -       3,017,969
                                                                                                                       ------------
    Unrealized net holding gains on
      available-for-sale securities arising
      during the period, net of income tax
      effects of $377,023 .................            -              -            -              -         673,179         673,179
                                                                                                                       ------------
        Total other comprehensive
          income (loss)....................            -              -            -              -               -         673,179
                                                                                                                       ------------
           Total comprehensive income .....            -              -            -              -               -       3,691,148
                                                                                                                       ------------
Issuance of 5% stock dividend,
    including cash payment for
    fractional shares .....................      140,570      3,022,534            -     (3,029,337)              -          (6,803)
Share-based compensation, net
 of tax benefits ..........................            -              -      593,100              -               -         593,100
Exercise of employee stock options ........       19,579         83,197            -              -               -          83,197
                                               ---------   ------------    ---------   ------------    ------------    ------------
Balance, December 31, 2006 ................    2,958,558     30,061,392      593,100      3,284,692        (724,154)     33,215,030

Comprehensive income:
    Net income ............................            -              -            -      3,330,712               -       3,330,712
                                                                                                                       ------------
    Unrealized net holding gains
       on available-for-sale securities
       arising during the period, net of
       income tax effects of $450,431 .....            -              -            -              -         804,253         804,253
                                                                                                                       ------------
        Total other comprehensive
          income (loss) ...................            -              -            -              -               -         804,253
                                                                                                                       ------------
           Total comprehensive income .....            -              -            -              -               -       4,134,965
                                                                                                                       ------------
Income tax benefits from exercises of
    non-qualified stock options in
    excess of amount previously provided ..            -              -       88,398              -               -          88,398
Declaration of 10% stock dividend
    distributed on January 15, 2008 and
    cash payment for fractional shares ....      295,470      4,469,444            -     (4,474,939)              -          (5,495)
Exercise of employee stock options ........       70,077        478,090            -              -               -         478,090
                                               ---------   ------------    ---------   ------------    ------------    ------------
Balance, December 31, 2007 ................    3,324,105   $ 35,008,926    $ 681,498   $  2,140,465    $     80,099    $ 37,910,988
                                               =========   ============    =========   ============    ============    ============


See accompanying notes to consolidated financial statements.


                                      B-28


Consolidated Statements of Cash Flows
Community First Bancorporation and Subsidiary


                                                                                                   Years Ended December 31,
                                                                                                   ------------------------
                                                                                           2007              2006            2005
                                                                                           ----              ----             ----
Operating activities
                                                                                                              
     Net income ....................................................................   $  3,330,712    $  3,017,969    $  3,729,926
     Adjustments to reconcile net income to net
         cash provided by operating activities
            Provision for loan losses ..............................................        594,000          65,000         250,000
            Writedowns of foreclosed assets ........................................              -               -          25,000
            Depreciation ...........................................................        399,456         373,883         298,889
            Deferred income taxes ..................................................       (266,418)       (131,488)        (43,114)
            Amortization of net loan fees and costs ................................       (225,117)       (224,944)        (96,374)
            Securities accretion and premium amortization ..........................         53,843         152,566         275,137
            Accretion of cash surrender value of life insurance ....................       (107,784)              -               -
            Loss on sale or other disposition of fixed assets ......................              -               -           5,000
            (Gain) loss on sale of foreclosed assets ...............................           (354)        (30,621)          9,191
            Increase in interest receivable ........................................       (347,583)       (552,818)       (297,296)
            Increase in interest payable ...........................................        776,623         885,813         595,015
            (Increase) decrease in prepaid expenses ................................       (506,041)       (179,823)        148,738
            Increase (decrease) in other accrued expenses ..........................        357,038         (13,753)          6,991
            Share-based compensation expense .......................................              -         593,100               -
                                                                                       ------------    ------------    ------------
                Net cash provided by operating activities ..........................      4,058,375       3,954,884       4,907,103
                                                                                       ------------    ------------    ------------

Investing activities
     Purchases of available-for-sale securities ....................................    (25,224,140)    (25,209,833)    (58,600,965)
     Maturities, calls and paydowns of available-for-sale securities ...............     29,879,688      25,682,329      46,930,477
     Maturities, calls and paydowns of held-to-maturity securities .................        938,552       1,163,035       1,626,880
     Purchases of other investments ................................................              -         (31,800)       (162,300)
     Proceeds of redemptions of other investments ..................................        140,300               -         225,000
     Net increase in loans made to customers .......................................    (41,202,385)    (33,566,455)    (11,670,099)
     Purchases of premises and equipment ...........................................     (1,083,499)     (1,506,718)     (2,695,756)
     Proceeds from sale of foreclosed assets .......................................         14,589         167,942          57,768
     Proceeds from sale of real estate held for sale ...............................         36,449               -               -
     Purchases of bank-owned life insurance ........................................     (7,000,000)              -               -
                                                                                       ------------    ------------    ------------
                Net cash used by investing activities ..............................    (43,500,446)    (33,301,500)    (24,288,995)
                                                                                       ------------    ------------    ------------

Financing activities
     Net (decrease) increase in demand deposits, interest
         bearing transaction accounts and savings accounts .........................     (4,715,971)     25,163,011      (1,966,994)
     Net increase in certificates of deposit and other
         time deposits .............................................................     52,625,215       2,801,699      13,811,368
     Net (decrease) increase in short-term borrowings ..............................     (4,500,000)      1,000,000       1,000,000
     Repayment of long-term debt ...................................................     (1,000,000)     (1,000,000)     (1,000,000)
     Payment of cash in lieu of fractional shares
         for stock dividend ........................................................         (5,495)         (6,803)         (6,349)
     Exercise of employee stock options ............................................        478,090          83,197          92,059
     Excess tax benefits of exercises of stock options .............................         88,398               -               -
                                                                                       ------------    ------------    ------------
                Net cash provided by financing activities ..........................     42,970,237      28,041,104      11,930,084
                                                                                       ------------    ------------    ------------
Increase (decrease) in cash and cash equivalents ...................................      3,528,166      (1,305,512)     (7,451,808)
Cash and cash equivalents, beginning ...............................................     31,144,875      32,450,387      39,902,195
                                                                                       ------------    ------------    ------------
Cash and cash equivalents, ending ..................................................   $ 34,673,041    $ 31,144,875    $ 32,450,387
                                                                                       ============    ============    ============

Supplemental  Disclosure  of Cash Flow  Information

     Cash paid during the period for:
         Interest (net of amount capitalized) ......................................   $ 12,453,615    $  9,499,568    $  6,025,797
         Income taxes ..............................................................      1,700,000       1,851,154       1,980,856
     Noncash investing and financing activities:
         Transfer of loans to foreclosed assets ....................................              -          54,235               -
         Transfers from retained earnings to common stock
            in connection with stock dividends .....................................      4,469,444       3,022,534       2,647,600
         Other comprehensive income (loss) .........................................        804,253         673,179        (897,693)


See accompanying notes to consolidated financial statements.


                                      B-29


Notes to Consolidated Financial Statements
Community First Bancorporation and Subsidiary

NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization - Community First  Bancorporation  (the "Company"),  a bank holding
company, and its wholly-owned  subsidiary,  Community First Bank, are engaged in
providing  domestic  commercial banking services from their offices in Walhalla,
Seneca, Anderson,  Williamston and Westminster, South Carolina. The Company is a
South  Carolina  corporation  and its banking  subsidiary  is a state  chartered
commercial  bank with its  deposits  insured by the  Federal  Deposit  Insurance
Corporation (the "FDIC"). Therefore, the Company and its bank subsidiary operate
under the supervision,  rules and regulations of the Federal Reserve Board, FDIC
and South Carolina State Board of Financial  Institutions.  The holding  company
was  incorporated  on May 23, 1997 and  Community  First Bank was  organized  on
December 1, 1988, and received its charter and commenced operations on March 12,
1990.

Community First Bank is a  community-oriented  institution offering a full range
of  traditional  banking  services,   with  the  exception  of  trust  services.
Substantially all of its loans are made to individuals and businesses within its
markets in Oconee and Anderson counties of South Carolina.  Also,  substantially
all of its deposits  are acquired  within its local market areas and no brokered
deposits are accepted.

Principles  of  Consolidation  and  Basis  of  Presentation  - The  consolidated
financial  statements include the accounts of the parent company and its banking
subsidiary  after  elimination  of all  significant  intercompany  balances  and
transactions.  The  accounting  and  reporting  policies  of the Company and its
subsidiary are in conformity with generally accepted  accounting  principles and
general practices within the banking  industry.  In certain  instances,  amounts
reported  in  prior  years'   consolidated   financial   statements   have  been
reclassified to conform with the current  presentation.  Such  reclassifications
had no effect on previously reported shareholders' equity or net income.

Accounting  Estimates - In preparing  financial  statements in  conformity  with
generally  accepted  accounting  principles,  management  is  required  to  make
estimates  and  assumptions  that affect the  reported  amounts of revenues  and
expenses during the reporting period.  Actual results could differ significantly
from those estimates.  Material  estimates that are particularly  susceptible to
significant change in the near-term relate to the determination of the allowance
for loan losses.  In connection with the determination of the allowance for loan
losses, management has identified specific loans as well as adopting a policy of
providing amounts for loan valuation  purposes which are not identified with any
specific loan but are derived from actual loss  experience  ratios,  loan types,
loan volume,  economic  conditions and industry  standards.  Management believes
that the allowance for loan losses is adequate.  While management uses available
information to recognize losses on loans,  future additions to the allowance may
be necessary based on changes in economic  conditions.  In addition,  regulatory
agencies, as an integral part of their examination process,  periodically review
the banking  subsidiary's  allowance for loan losses.  Such agencies may require
additions to the allowance based on their judgments about information  available
to them at the time of their examination.

Concentrations  of  Credit  Risk  - Most  of  the  Company's,  and  its  banking
subsidiary's,  activities  are with  customers  located  within the local market
areas of Oconee and Anderson  Counties of South  Carolina.  Note C discloses the
types of  securities  invested  in,  and Note D  discusses  the types of lending
engaged  in. The  ability of  borrowers  to comply  with the terms of their loan
contracts  is largely  dependent  upon local real  estate and  general  economic
conditions in the Company's  market areas. The Company and its subsidiary do not
have any  significant  concentrations  to any single  industry or customer.  The
Company  does not engage in  originating,  holding,  guaranteeing,  servicing or
investing  in  loans  where  the  terms  of the  loan  product  give  rise  to a
concentration  of credit  risk as that term is used in  Statement  of  Financial
Accounting  Standards  No.  107,  "Disclosures  about Fair  Values of  Financial
Instruments."

Securities - Equity  securities that have readily  determinable  fair values and
all debt securities are classified generally at the time of purchase into one of
three  categories:   held-to-maturity,   trading  or  available-for-sale.   Debt
securities  which the  Company  has the  positive  intent and ability to hold to
ultimate  maturity are  classified  as  held-to-maturity  and  accounted  for at
amortized  cost.  Debt and equity  securities that are bought and held primarily
for sale in the near term are  classified as trading and are accounted for on an
estimated fair value basis,  with unrealized  gains and losses included in other
income. However, the Company has never held any securities for trading purposes.
Securities not classified as either  held-to-maturity  or trading are classified
as available-for-sale and are accounted for at estimated fair value.  Unrealized
holding gains and losses on available-for-sale  securities are excluded from net
income and recorded as other comprehensive  income, net of applicable income tax
effects.  Dividend and interest income, including amortization of any premium or
accretion of discount  arising at acquisition,  are included in earnings for all
three  categories of securities.  Realized gains and losses on all categories of


                                      B-30


securities are included in other operating  income,  based on the amortized cost
of the specific security on a trade date basis.

Federal  Home Loan Bank  Stock - Federal  Home Loan Bank  stock is a  restricted
security and is carried at cost.  Management  periodically  evaluates this stock
for impairment,  with any appropriate downward valuation  adjustments being made
when necessary.

Loans and Interest Income - Loans are carried at principal amounts  outstanding,
increased  or reduced by  deferred  net loan costs or fees.  Interest  income on
loans is recognized  using the interest method based upon the principal  amounts
outstanding.  Loan  origination  and  commitment  fees and  certain  direct loan
origination costs (principally  salaries and employee benefits) are deferred and
amortized as an adjustment of the related loan's yield. Generally, these amounts
are amortized over the contractual life of the related loans or commitments.

A loan is considered  to be impaired  when, in  management's  judgment  based on
current  information and events, it is probable that the obligation's  principal
or interest will not be collectible in accordance with the terms of the original
loan  agreement.  Impaired  loans include  non-accrual  loans and loans past due
according to their contractual terms 90 days or more with respect to interest or
principal  payments.  Impaired  loans,  when not  material,  are  carried in the
balance sheet at a value not to exceed their observable market price or the fair
value of the  collateral if the repayment of the loan is expected to be provided
solely by the underlying collateral. The carrying value of any material impaired
loan is  measured  based on the  present  value of  expected  future  cash flows
discounted  at the loan's  effective  interest  rate,  which is the  contractual
interest rate adjusted for any deferred loan fees or costs,  premium or discount
existing at the inception or acquisition of the loan. Generally,  the accrual of
interest is discontinued on impaired loans and any previously  accrued  interest
on such loans is reversed against current income. Any subsequent interest income
is  recognized  on  a  cash  basis  when  received  unless  collectibility  of a
significant amount of principal is in serious doubt. In such cases,  collections
are credited first to the remaining  principal balance on a cost recovery basis.
An impaired loan is not returned to accrual status unless principal and interest
are current and the borrower  has  demonstrated  the ability to continue  making
payments as agreed.

Allowance  for Loan Losses - An  allowance  for loan losses is  maintained  at a
level deemed  appropriate  by  management  to provide  adequately  for known and
inherent  losses in the loan portfolio.  When management  determines that a loan
will not perform  substantially  as agreed, a review of the loan is initiated to
ascertain whether it is more likely than not that a loss has occurred.  If it is
determined that a loss is probable,  the estimated amount of the loss is charged
off and  deducted  from  the  allowance.  The  provision  for  loan  losses  and
recoveries  on  loans  previously  charged  off  are  added  to  the  allowance.
Determining  the amount and adequacy of the allowance  for loan losses  involves
estimating  probable  losses  incurred  in the loan  portfolio  based on factors
discussed  below and their  potential  effects  based on  judgments  applied  to
currently known facts and circumstances.  Changes in the estimated allowance for
loan losses necessitated as new events occur or more information is obtained are
accounted for as changes in  accounting  estimates in the  accounting  period in
which the change occurs.

The allowance for loan losses is composed of specific,  general and  unallocated
amounts.  Specific  amounts are determined  when  necessary on individual  loans
based  on  management's   evaluation  of  the  Company's  credit  loss  exposure
considering the current payment  status,  underlying  collateral and other known
information  about the particular  borrower's  circumstances.  Typically,  these
loans are  considered  impaired or have been  assigned  internal  risk grades of
management attention,  special mention, substandard or doubtful. General amounts
are provided for all other loans,  excluding  those for which  specific  amounts
were  determined,  by  applying  estimated  loss  percentages  to the  portfolio
categorized  using risk  grades.  These  percentages  are based on  management's
current evaluation with consideration  given to historical loss experience.  The
unallocated portion of the allowance consists of an amount deemed appropriate to
provide for the elements of  imprecision  and  estimation  risk  inherent in the
specific and general amounts and is determined based on management's  evaluation
of various  conditions that are not directly measured by the other components of
the allowance.  This evaluation includes general national and local economic and
business  conditions  affecting key lending market areas, credit quality trends,
collateral values, loan volumes,  portfolio seasoning, and any identified credit
concentrations.  The  findings of  internal  credit  reviews  and  results  from
external audits and regulatory examinations are also considered.

The  Company  utilizes  its  risk  grading  system  for  all  loans  held in the
portfolio. This system involves the Company's lending officers' assigning a risk
grade, on a loan-by-loan  basis,  considering  information  about the borrower's
capacity to repay,  collateral,  payment history, and other known factors.  Risk
grades  assigned  are  updated  monthly for any known  changes in  circumstances
affecting  the borrower or the loan.  The risk grading  system is monitored on a
continuing basis by management and the Company's external credit reviewer who is
independent of the lending function.

Premises  and  Equipment  - Premises  and  equipment  are  stated at cost,  less
accumulated  depreciation.  The provision for depreciation is computed using the


                                      B-31


straight-line method. Rates of depreciation are generally based on the following
estimated  useful lives:  buildings - 40 years;  land  improvements  - 15 years;
furniture  and  equipment - 5 to 25 years.  The cost of assets sold or otherwise
disposed of, and the related  allowance for  depreciation is eliminated from the
accounts and the  resulting  gains or losses are  reflected in the  consolidated
income  statement.  Maintenance  and repairs  are charged to current  expense as
incurred and the costs of major renewals and improvements are capitalized.

Foreclosed  Assets  - Assets  (primarily  real  estate  and  vehicles)  acquired
through, or in lieu of, foreclosure are held for sale and are initially recorded
at fair  value,  less  estimated  costs  to sell,  at the  date of  foreclosure,
establishing a new cost basis.  Loan losses arising from the acquisition of such
property as of that date are  charged  against the  allowance  for loan  losses.
Subsequent to foreclosure,  valuations are periodically  performed by management
and the  assets are  carried  at the lower of the new cost basis or fair  value,
less estimated costs to sell.  Revenues and expenses from operations and changes
in any  subsequent  valuation  allowance are included in net  foreclosed  assets
costs and  expenses.  The carrying  value of foreclosed  assets  included in the
balance  sheets was  $40,000  and  $54,235  as of  December  31,  2007 and 2006,
respectively.

Bank-owned  Life Insurance - The Company  accounts for bank-owned life insurance
in accordance  with Emerging  Issues Task Force Issue No. 06-4,  "Accounting for
Deferred   Compensation  and  Postretirement   Benefit  Aspects  of  Endorsement
Split-Dollar  Life  Insurance  Arrangements"  which  concludes  that an employer
should not offset the liability to provide postretirement benefits with the cash
surrender value of an endorsement  split-dollar life insurance  arrangement held
to fund the benefit.

Transfers of Financial  Assets - Transfers of financial assets are accounted for
as sales,  when  control  over the assets  has been  surrendered.  Control  over
transferred  assets is deemed to be  surrendered  when (1) the assets  have been
isolated  from the  Company,  (2) the  transferee  obtains  the  right  (free of
conditions  that constrain it from taking  advantage of that right) to pledge or
exchange the transferred assets, and (3) the Company does not maintain effective
control over the  transferred  assets  through an agreement to  repurchase  them
before their maturity.

Advertising - The Company  expenses  advertising and promotion costs as they are
incurred.

Retirement  Plan - The  Company  has a  salary  reduction  profit  sharing  plan
pursuant to Section 401(k) of the Internal  Revenue Code as more fully described
in  Note  L.  The  Company  does  not  sponsor  any  other   postretirement   or
postemployment benefits,  except with respect to the Chief Executive Officer. In
2007, the Company's Board of Directors  approved  supplemental  benefits for the
Chief Executive Officer as more fully described in Note L.

Deferred  Income  Taxes - The Company uses an asset and  liability  approach for
financial accounting and reporting of deferred income taxes. Deferred tax assets
and  liabilities  are determined  based on the difference  between the financial
statement  and income tax bases of assets and  liabilities  as  measured  by the
currently  enacted  tax rates  which are  assumed  will be in effect  when these
differences reverse. If it is more likely than not that some portion or all of a
deferred tax asset will not be realized,  a valuation  allowance is  recognized.
Deferred  income tax expense or credit is the result of changes in deferred  tax
assets and liabilities.

Stock-Based  Compensation  - As of  December  31,  2007,  the  Company  has  two
stock-based employee  compensation plans, which are described more fully in Note
I.  Effective  January 1, 2006,  the  Company  adopted  Statement  of  Financial
Accounting  Standards  No.  123  (revised  2004)  ("SFAS  123(R)")  "Share-Based
Payment."  Prior to adoption of SFAS  123(R),  the Company  accounted  for those
plans under the recognition and measurement  principles of Accounting Principles
Board ("APB")  Opinion No. 25,  "Accounting  for Stock Issued to Employees," and
related  interpretations.  Accordingly,  prior to  adoption of SFAS  123(R),  no
stock-based  employee  compensation  cost was  reflected  in net income,  as all
options  granted  under those  plans had an  exercise  price equal to the market
value of the underlying common stock on the date of grant.

The  following  table  illustrates  the  effect on net income and net income per
share if the  Company  had  applied  the fair value  recognition  provisions  of
Statement of Financial  Accounting  Standards ("SFAS") No. 123,  "Accounting for
Stock-Based Compensation," to stock-based employee compensation awarded in 2005.
Per share  amounts  have been  adjusted  to reflect  the  effects of a 10% stock
dividend  effective as of December 20, 2007 and a 5% stock dividend effective as
of December 18, 2006.


                                      B-32


                                                                   Year Ended
                                                               December 31, 2005
                                                               -----------------

Net income, as reported ...................................       $   3,729,926
Deduct:  Total stock-based employee
      compensation expense determined under
      fair value based method for all awards,
      net of any related tax effects ......................            (237,807)
                                                                  -------------
Pro forma net income ......................................       $   3,492,119
                                                                  =============

Net income per share, basic
      As reported .........................................       $        1.16
      Pro forma ...........................................                1.09
Net income per share, assuming dilution
      As reported .........................................       $        1.10
      Pro forma ...........................................                1.03

The fair values of options  granted  during 2006 and 2005 were $9.90,  and $8.06
per share, respectively. No options were granted in 2007. For 2006 and 2005, the
fair value was  estimated as of the grant date using the  Black-Scholes  options
pricing model and the following assumptions: dividend yield of 0%, expected life
of 10 years,  risk  free  interest  rates of 5.08%  and  4.38%  and stock  price
volatility  of 25.35% and  25.71%,  respectively.  Because of the  limited  time
during  which the  Company's  stock has traded in a public  market,  the Company
estimated stock price volatility  based primarily on the historic  volatility of
another bank holding  company  domiciled in South  Carolina  that was founded at
about the same time as the  Company.  Management  believes  that the other  bank
holding company is sufficiently  similar to the Company in its operating history
to make it a suitable  reference for  estimating the volatility of the Company's
stock price.

Earnings  Per Share - Basic net income per share is  calculated  by dividing net
income by the weighted  average  number of shares of the Company's  common stock
outstanding  during the  period.  Net income per share,  assuming  dilution,  is
calculated by dividing net income by the total of the weighted average number of
shares  outstanding  during the period and the  weighted  average  number of any
dilutive  potential  common  shares  and  stock  options  that  would  have been
outstanding if the dilutive  potential shares and stock options had been issued.
In computing the number of dilutive  potential common shares, it is assumed that
all dilutive  stock options are exercised at the beginning of each year and that
the proceeds are used to purchase  shares of the  Company's  common stock at the
average market price during the year. See Note I.

Comprehensive  Income - Comprehensive  income consists of net income or loss for
the current period and other comprehensive income, defined as income,  expenses,
gains and  losses  that  bypass  the  consolidated  statement  of income and are
reported directly in a separate  component of shareholders'  equity. The Company
classifies and reports items of other  comprehensive  income  according to their
nature, reports total comprehensive income or loss in the consolidated statement
of changes in shareholders' equity and displays the accumulated balance of other
comprehensive  income or loss separately in the shareholders'  equity section of
the consolidated balance sheet. See Note I.

Consolidated  Statement of Cash Flows - The consolidated statement of cash flows
reports  net  cash  provided  or  used by  operating,  investing  and  financing
activities and the net effect of those flows on cash and cash equivalents.  Cash
equivalents  include  amounts due from banks,  federal funds sold and securities
purchased under agreements to resell.

NOTE B - CASH AND DUE FROM BANKS

Banks are  generally  required by regulation to maintain an average cash reserve
balance  based on a  percentage  of  deposits.  The average  amounts of the cash
reserve balances at December 31, 2007 and 2006 were approximately $1,847,000 and
$2,403,000, respectively.

NOTE C - SECURITIES

The aggregate amortized cost and estimated fair values of securities, as well as
gross unrealized gains and losses of securities were as follows:


                                      B-33




                                                                          December 31,
                                                                          ------------
                                                   2007                                                2006
                                                   ----                                                ----
                                             Gross       Gross                                 Gross         Gross
                                           Unrealized  Unrealized  Estimated                 Unrealized    Unrealized    Estimated
                             Amortized      Holding     Holding      Fair      Amortized       Holding       Holding         Fair
                                Cost         Gains       Losses      Value        Cost          Gains         Losses        Value
                                ----         -----       ------      -----        ----          -----         ------        -----
                                                                                                
Available-for-sale
Government sponsored
  enterprises (GSEs) .....   $ 56,098,415  $ 511,039  $  64,423  $ 56,545,031  $ 56,616,368   $ 125,758   $   537,843   $ 56,204,283
Mortgage-backed securities
  issued by GSEs .........     22,471,385     48,925    327,297    22,193,013    28,135,834       3,299       795,252     27,343,881
State, county and
  municipal ..............     20,331,290     92,261    135,546    20,288,005    18,864,918     122,074        47,761     18,939,231
                             ------------  ---------  ---------  ------------  ------------   ---------   -----------   ------------
               Total .....   $ 98,901,090  $ 652,225  $ 527,266  $ 99,026,049  $103,617,120   $ 251,131   $ 1,380,856   $102,487,395
                             ============  =========  =========  ============  ============   =========   ===========   ============
Held-to-maturity
Government sponsored
  enterprises ............   $          -  $       -  $       -  $          -  $          -   $       -   $         -   $          -
Mortgage-backed securities
  issued by GSEs .........      5,663,113        967     38,997     5,625,083     6,595,026           -        65,335      6,529,691
State, county and
  municipal ..............              -          -          -             -             -           -             -              -
                             ------------  ---------  ---------  ------------  ------------   ---------   -----------   ------------
               Total .....   $  5,663,113  $     967  $  38,997  $  5,625,083  $  6,595,026   $       -   $    65,335   $  6,529,691
                             ============  =========  =========  ============  ============   =========   ===========   ============


The  amortized  cost and  estimated  fair  value of  securities  by  contractual
maturity are shown below:



                                                                                     December 31, 2007
                                                                                     -----------------
                                                                   Available-for-sale                 Held-to-maturity
                                                                   ------------------                 ----------------
                                                              Amortized           Estimated           Amortized          Estimated
                                                                 Cost             Fair Value             Cost            Fair Value
                                                                 ----             ----------             ----            ----------
                                                                                                             
Due within one year ................................         $14,137,093         $14,096,156         $         -         $         -
Due after one through five years ...................          18,619,977          18,822,524                   -                   -
Due after five through ten years ...................          23,146,709          23,392,611                   -                   -
Due after ten years ................................          20,525,926          20,521,745                   -                   -
                                                             -----------         -----------         -----------         -----------
                                                              76,429,705          76,833,036                   -                   -
Mortgage-backed securities
  issued by government-
  sponsored enterprises ............................          22,471,385          22,193,013           5,663,113           5,625,083
                                                             -----------         -----------         -----------         -----------
     Total .........................................         $98,901,090         $99,026,049         $ 5,663,113         $ 5,625,083
                                                             ===========         ===========         ===========         ===========


The estimated  fair values and gross  unrealized  losses of all of the Company's
investment  securities whose estimated fair values were less than amortized cost
as  of  December  31,  2007  and  2006  which  had  not  been  determined  to be
other-than-temporarily  impaired,  are presented below. The securities have been
aggregated  by  investment  category  and the  length  of time  that  individual
securities have been in a continuous unrealized loss position.


                                      B-34




                                                                                December 31, 2007
                                                                                -----------------
                                                            Continuously in Unrealized Loss Position for a Period of
                                                            --------------------------------------------------------
                                                   Less than 12 Months           12 Months or more                  Total
                                                   -------------------           -----------------                  -----
Available-for-sale                             Estimated      Unrealized      Estimated      Unrealized     Estimated     Unrealized
                                              Fair Value         Loss        Fair Value         Loss        Fair Value       Loss
                                              ----------         ----        ----------         ----        ----------       ----
                                                                                                       
Government-sponsored
  enterprises (GSEs) .....................    $ 3,993,971    $     4,322    $16,072,715    $    60,101    $20,066,686    $    64,423
Mortgage-backed securities
  issued by GSEs .........................        293,088          1,269     18,403,894        326,028     18,696,982        327,297
State, county and
  municipal securities ...................      7,681,060         78,781      3,201,751         56,765     10,882,811        135,546
                                              -----------    -----------    -----------    -----------    -----------    -----------
                        Total ............    $11,968,119    $    84,372    $37,678,360    $   442,894    $49,646,479    $   527,266
                                              ===========    ===========    ===========    ===========    ===========    ===========
Held-to-maturity
  Government-sponsored enterprises .......    $         -    $         -    $ 4,719,740    $    38,997    $ 4,719,740    $    38,997
                                              -----------    -----------    -----------    -----------    -----------    -----------
                        Total ............    $         -    $         -    $ 4,719,740    $    38,997    $ 4,719,740    $    38,997
                                              ===========    ===========    ===========    ===========    ===========    ===========




                                                                                December 31, 2006
                                                                                -----------------
                                                            Continuously in Unrealized Loss Position for a Period of
                                                            --------------------------------------------------------
                                                   Less than 12 Months           12 Months or more                  Total
                                                   -------------------           -----------------                  -----
Available-for-sale                             Estimated      Unrealized      Estimated      Unrealized     Estimated     Unrealized
                                              Fair Value         Loss        Fair Value         Loss        Fair Value       Loss
                                              ----------         ----        ----------         ----        ----------       ----
                                                                                                       
Government-sponsored
  enterprises ............................    $ 7,977,500    $    18,329    $34,233,795    $   519,514    $42,211,295    $   537,843
Mortgage-backed securities
  issued by GSEs .........................        617,351         20,299     26,253,632        774,953     26,870,983        795,252
State, county and
  municipal securities ...................      4,783,660         30,100      2,422,828         17,661      7,206,488         47,761
                                              -----------    -----------    -----------    -----------    -----------    -----------
                        Total ............    $13,378,511    $    68,728    $62,910,255    $ 1,312,128    $76,288,766    $ 1,380,856
                                              ===========    ===========    ===========    ===========    ===========    ===========
Held-to-maturity
  Government-sponsored enterprises .......    $ 2,463,645    $    19,498    $ 4,066,046    $    45,837    $ 6,529,691    $    65,335
                                              -----------    -----------    -----------    -----------    -----------    -----------
                                              $ 2,463,645    $    19,498    $ 4,066,046    $    45,837    $ 6,529,691    $    65,335
                                              ===========    ===========    ===========    ===========    ===========    ===========


At December 31, 2007, 29 securities had been  continuously in an unrealized loss
position for less than 12 months and 72 securities had been  continuously  in an
unrealized  loss  position for 12 months or more.  The Company does not consider
these investments to be  other-than-temporarily  impaired because the unrealized
losses resulted  primarily from higher interest rates and the securities consist
primarily of issuances of  government-sponsored  enterprises such as the Federal
Home Loan Banks,  Federal  National  Mortgage  Association and Federal Home Loan
Mortgage   Corporation.   The   contractual   terms  of  securities   issued  by
government-sponsored  enterprises  do  not  permit  the  issuer  to  settle  the
securities at a price less than the face amount of the securities. The principal
and    interest    payments   of    mortgage-backed    securities    issued   by
government-sponsored  enterprises  are  guaranteed by that  enterprise and it is
expected  that  those  securities  would not be settled at a price less than the
face amount of the securities. Although the Company classifies a majority of its
investment securities as available-for-sale,  management has not determined that
any specific  securities will be disposed of prior to maturity and believes that
the Company has both the ability and the intent to hold those  investments until
a recovery of fair value,  including  until maturity.  Also,  there have been no
significant adverse changes in the credit ratings of any of the security issuers
that would indicate that the Company will be unable to collect all principal and
interest  amounts  according  to  contractual  terms.  Substantially  all of the
issuers  of state,  county  and  municipal  securities  held were rated at least
"investment grade" as of December 31, 2007 and 2006.

The  Company's  subsidiary  bank is a member  of the  Federal  Home Loan Bank of
Atlanta ("FHLB") and,  accordingly,  is required to own restricted stock in that
institution  in  amounts  that  may  vary  from  time to  time.  Because  of the


                                      B-35


restrictions  imposed,  the  stock  may  not be sold to  other  parties,  but is
redeemable by the FHLB at the same price as that at which it was acquired by the
Company's  subsidiary.  The Company evaluates this security for impairment based
on  the  probability  of  ultimate  recoverability  of  the  par  value  of  the
investment. No impairment has been recognized based on this evaluation.

The Company did not sell any available-for-sale  securities during 2007, 2006 or
2005.  There  were  no  transfers  of  available-for-sale  securities  to  other
categories in 2007, 2006 or 2005.

At December 31, 2007 and 2006,  securities  with a carrying value of $63,853,671
and  $72,203,027,  respectively,  were pledged as  collateral  to secure  public
deposits.


NOTE D - LOANS

Loans consisted of the following:


                                                          December 31,
                                                          ------------
                                                     2007              2006
                                                     ----              ----
Commercial, financial and industrial ........   $  23,865,216     $  24,268,227
Real estate- construction ...................       2,201,343         1,982,035
Real estate - mortgage ......................     185,198,250       147,944,221
Consumer installment ........................      32,866,204        28,771,217
                                                -------------     -------------
      Total .................................     244,131,013       202,965,700
Allowance for loan losses ...................      (2,573,758)       (2,241,947)
                                                -------------     -------------
      Loans - net ...........................   $ 241,557,255     $ 200,723,753
                                                =============     =============
--------------------------
Net deferred  loan fees of $382,235 and $308,944  were  allocated to the various
loan categories as of December 31, 2007 and 2006, respectively.

Loans which  management has identified as impaired  generally are  nonperforming
loans.  Nonperforming  loans include nonaccrual loans or loans which are 90 days
or more delinquent as to principal or interest payments.  Following is a summary
of activity regarding the Company's impaired loans:



                                                                                                                  December 31,
                                                                                                                  ------------
                                                                                                            2007               2006
                                                                                                            ----               ----
Investment in impaired loans
                                                                                                                      
     Nonaccrual ..................................................................................         $625,017         $ 50,384
     Accruing 90 days and over past due ..........................................................                -                -
                                                                                                           --------         --------
         Total ...................................................................................         $625,017         $ 50,384
                                                                                                           ========         ========

Average total investment in impaired loans during the year .......................................         $413,500         $399,000
Amount of impaired loans for which an allowance for loan losses is established ...................          625,017           50,384
Allowance for loan losses on impaired loans at year end ..........................................          145,038           19,976


The  amount of  interest  income  that  would  have been  included  in income if
nonaccrual loans had been current in accordance with their terms and the amounts
of  interest  income  actually  accrued and  collected  were  immaterial  to the
consolidated  financial  statements  for 2007,  2006 and 2005. The average total
investment  in  impaired  loans  during  2005  was  $1,052,000.  There  were  no
irrevocable  commitments  to lend  additional  funds to debtors owing amounts on
impaired loans at December 31, 2007.

As of December 31, 2007 and 2006,  there were no significant  concentrations  of
credit risk in any single  borrower or groups of borrowers.  The Company's  loan
portfolio   consists  primarily  of  extensions  of  credit  to  businesses  and
individuals in its Oconee and Anderson County,  South Carolina market areas. The
economy of these areas is diversified and does not depend on any one industry or
group of related  industries.  Management  has  established  loan  policies  and
practices that include set limitations on loan-to-collateral value for different
types of collateral,  requirements  for  appraisals,  obtaining and  maintaining
current credit and financial information on borrowers, and credit approvals.


                                      B-36


Transactions in the allowance for loan losses are summarized below:


                                               Years Ended December 31,
                                               ------------------------
                                         2007           2006             2005
                                         ----           ----             ----

Balance at January 1 ..............   $ 2,241,947    $ 2,266,086    $ 2,239,873
Provision charged to expense ......       594,000         65,000        250,000
Recoveries ........................        30,098         44,981         79,374
Charge-offs .......................      (292,287)      (134,120)      (303,161)
                                      -----------    -----------    -----------
Balance at December 31 ............   $ 2,573,758    $ 2,241,947    $ 2,266,086
                                      ===========    ===========    ===========

Certain  officers  and  directors  of the  Company  and  its  subsidiary,  their
immediate  families and business interests were loan customers of, and had other
transactions  with,  the banking  subsidiary  in the normal  course of business.
Related party loans are made on substantially the same terms, including interest
rates  and   collateral,   and  do  not   involve   more  than  normal  risk  of
collectibility.  The aggregate  dollar amount of these loans was  $5,356,855 and
$6,238,430 at December 31, 2007 and 2006, respectively. During 2007, $691,347 of
new loans were made and repayments totaled $1,572,922.

NOTE E - PREMISES AND EQUIPMENT

Premises and equipment consisted of the following:

                                                            December 31,
                                                            ------------
                                                       2007              2006
                                                       ----              ----

Land .......................................       $ 2,916,997       $ 2,916,997
Buildings and land improvements ............         5,400,702         4,569,189
Furniture and equipment ....................         3,279,919         3,027,933
                                                   -----------       -----------
     Total .................................        11,597,618        10,514,119
Accumulated depreciation ...................         2,976,093         2,576,637
                                                   -----------       -----------
     Premises and equipment - net ..........       $ 8,621,525       $ 7,937,482
                                                   ===========       ===========

Depreciation  expense for the years ended  December 31, 2007,  2006 and 2005 was
$399,456,  $373,883,  and  $298,889,  respectively.  During  2006,  the  Company
capitalized interest of $18,218 to construction in progress.

NOTE F - DEPOSITS

A summary of deposits follows:

                                                             December 31,
                                                             ------------
                                                       2007             2006
                                                       ----             ----
Noninterest bearing demand ...................     $ 42,288,971     $ 40,576,371
Interest bearing transaction accounts ........       55,389,292       52,619,354
Savings ......................................       21,457,667       30,656,176
Time deposits $100,000 and over ..............       96,547,178       68,276,913
Other time deposits ..........................      140,183,445      115,828,495
                                                   ------------     ------------
     Total deposits ..........................     $355,866,553     $307,957,309
                                                   ============     ============

As of  December  31,  2007  and  2006,  local  governmental  deposits  comprised
approximately  12% and 13% of total deposits,  respectively.  As of December 31,
2007 and 2006, $153,964 and $141,405,  respectively, of overdrawn demand deposit
balances  have been  reclassified  as loans.  As of December  31, 2007 and 2006,
deposits of directors,  officers and their related  business  interests  totaled
approximately $7,817,000 and $12,039,000, respectively.


                                      B-37


At December 31, 2007, the scheduled maturities of time deposits are as follows:

                       Year                               Amount
                       ----                               ------

                       2008                           $ 223,939,600
                       2009                              12,130,147
                       2010                                 225,690
                       2011                                 317,871
                       2012                                 117,315
                 Thereafter                                       -

NOTE G - SHORT-TERM BORROWINGS

Short-term borrowings consisted of:

                                                            December 31,
                                                            ------------
                                                       2007              2006
                                                       ----              ----

Federal funds purchased ....................           $  -           $4,500,000
                                                       ====           ==========

As of December 31, 2006,  federal funds were purchased from a correspondent bank
at a rate of 5.63% and were repayable on January 3, 2007.

As of December 31, 2007,  the banking  subsidiary had unused  short-term  credit
accommodations available from unrelated banks which allow the banking subsidiary
to purchase up to  $10,900,000 of federal funds.  The  accommodations  limit the
Bank's ability to obtain funds to, in one case, seven  consecutive  days, or, in
the other case,  fourteen days in any calendar month. The counterparties may, in
their sole discretion,  allow the banking  subsidiary to borrow for time periods
longer  than  indicated  above,  but  higher  rates  would be  charged  for such
borrowings, if any are allowed.

NOTE H - LONG-TERM DEBT

Long-term debt consisted of:

                                                             December 31,
                                                             ------------
                                                        2007             2006
                                                        ----             ----


Fixed rate notes due to FHLB due in
   annual installments of $1,000,000
   beginning in 2007 .........................       $1,000,000       $2,000,000
Variable rate note due to FHLB
   due June 18, 2014 .........................        3,500,000        3,500,000
                                                     ----------       ----------
                                                     $4,500,000       $5,500,000
                                                     ==========       ==========

Long-term debt represents  amounts borrowed from the FHLB under the FHLB's Fixed
Rate Advance Credit and Convertible Advance programs.  Borrowings obtained under
the Fixed Rate Credit  program were  $1,000,000 at a rate of 4.40%,  maturing on
June 18, 2008. The remaining  $3,500,000 is an FHLB Convertible  Advance bearing
interest  initially at 3.92% and maturing  June 18, 2014.  The interest  rate on
this Convertible Advance has remained at its initial value subject to the FHLB's
option to convert the advance to a variable  rate  instrument  on any  quarterly
interest  payment  date on or after June 18, 2005 if the  3-month  LIBOR rate is
7.00% or greater. In the event of such conversion, this advance would thereafter
be subject to a variable interest rate until maturity.  As of December 31, 2007,
the  3-month  LIBOR  rate was  4.70%.  Each of the  Fixed  Rate and  Convertible
Advances may be prepaid on any quarterly  interest payment date at the Company's
option.  With limited  exceptions,  any such  prepayments  would be subject to a
prepayment penalty.


                                      B-38


The contractual maturities of long-term debt are as follows:

                                                  December 31, 2007
                                                  -----------------
                                      Fixed Rate     Variable Rate        Total
                                      ----------     -------------        -----

Due in 2008 ....................      $1,000,000      $        -      $1,000,000
Due in 2014 ....................               -       3,500,000       3,500,000
                                      ----------      ----------      ----------
     Total long-term debt ......      $1,000,000      $3,500,000      $4,500,000
                                      ==========      ==========      ==========

The  Company  has  pledged  certain  of its  first  mortgage  loans  secured  by
one-to-four  family  residential  properties  and its  holdings  of FHLB  stock,
included in the balance sheet in other investments,  (collectively,  "qualifying
collateral instruments") to secure its debt due to the FHLB under a blanket lien
agreement.  The amount of qualifying  collateral  instruments as of December 31,
2007  was  approximately  $35,466,000.  The  qualifying  collateral  instruments
required to secure the Company's short-term  borrowings and long-term debt as of
December 31, 2007 was approximately $5,415,000.

The banking  subsidiary had unused credit  availability under the FHLB's blanket
lien  agreement  of up to an  additional  $24,041,000  under the FHLB's  various
credit  programs,  subject to  pledging  and other  requirements.  The amount of
eligible collateral  instruments  remaining available as of December 31, 2007 to
secure any additional FHLB borrowings totaled approximately $29,211,000.

NOTE I - SHAREHOLDERS' EQUITY

Restrictions on Subsidiary Dividends, Loans or Advances - South Carolina banking
regulations restrict the amount of dividends that banks can pay to shareholders.
Any of the banking subsidiary's  dividends to the parent company which exceed in
amount the subsidiary's  current  year-to-date  earnings ($3,346,110 at December
31, 2007) are subject to the prior approval of the South  Carolina  Commissioner
of Banking. In addition,  dividends paid by the banking subsidiary to the parent
company would be prohibited if the effect thereof would cause the Bank's capital
to be reduced  below  applicable  minimum  capital  requirements.  Under Federal
Reserve  Board  regulations,  the amounts of loans or advances  from the banking
subsidiary  to the parent  company  are  generally  limited to 10% of the Bank's
capital stock and surplus on a secured basis.

Stock Dividends - For stockholders of record on December 20, 2007,  December 18,
2006 and  November 30, 2005 the  Company's  Board of  Directors  declared  stock
dividends of 10%, 5% and 5%,  respectively.  All per share  information has been
retroactively adjusted to give effect to the stock dividends.

Accumulated  Other  Comprehensive  Income  (Loss) - As of December  31, 2007 and
2006,  accumulated other comprehensive  income (loss) included as a component of
shareholders'  equity in the accompanying  consolidated balance sheets consisted
of  accumulated  changes  in  the  unrealized  holding  gains  and  (losses)  on
available-for-sale  securities,  net of income tax effects, amounting to $80,099
and $(724,154) respectively.

Earnings  per Share - Net income  per share and net  income per share,  assuming
dilution, were computed as follows:


                                      B-39




                                                                                              Years Ended December 31,
                                                                                              ------------------------
                                                                                       2007               2006               2005
                                                                                       ----               ----               ----
Net income per share, basic
                                                                                                                 
  Numerator - net income ..................................................         $3,330,712         $3,017,969         $3,729,926
                                                                                    ==========         ==========         ==========
  Denominator
    Weighted average common shares issued and outstanding .................          3,269,042          3,242,502          3,214,643
                                                                                    ==========         ==========         ==========
                Net income per share, basic ...............................         $     1.02         $      .93         $     1.16
                                                                                    ==========         ==========         ==========

Net income per share, assuming dilution
  Numerator - net income ..................................................         $3,330,712         $3,017,969         $3,729,926
                                                                                    ==========         ==========         ==========
  Denominator
    Weighted average common shares issued and outstanding .................          3,269,042          3,242,502          3,214,643
    Effect of dilutive stock options ......................................            209,068            215,339            186,040
                                                                                    ----------         ----------         ----------
                Total shares ..............................................          3,478,110          3,457,841          3,400,683
                                                                                    ==========         ==========         ==========
                Net income per share, assuming dilution ...................         $      .96         $      .87         $     1.10
                                                                                    ==========         ==========         ==========


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

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Company and its banking  subsidiary to maintain  minimum amounts and
ratios set forth in the table  below of Total and Tier 1 Capital,  as defined in
the regulations,  to risk weighted assets, as defined, and of Tier 1 Capital, as
defined, to average assets, as defined.  Management believes, as of December 31,
2007 and 2006,  that the Company and its  subsidiary  bank  exceeded all capital
adequacy minimum requirements.

As of December 31, 2007, the most recent  notification from the FDIC categorized
Community  First Bank as well  capitalized  under the  regulatory  framework for
prompt  corrective  action.  To be categorized as well capitalized as defined in
the Federal Deposit  Insurance Act,  Community First Bank must maintain  minimum
total risk-based,  Tier 1 risk-based, and Tier 1 leverage ratios as set forth in
the  table.  There are no  conditions  or events  since that  notification  that
management  believes have changed Community First Bank's category.  Bank holding
companies with higher levels of risk, or that are  experiencing  or anticipating
significant growth, are expected by the Federal Reserve to maintain capital well
above the minimums.  The Company's  and  Community  First Bank's actual  capital
amounts and ratios are also presented in the table.


                                      B-40




                                                                                         Minimum for               Minimum to be
                                                                  Actual              Capital Adequacy           Well Capitalized
                                                                  ------              ----------------           ----------------
                                                           Amount        Ratio     Amount         Ratio       Amount         Ratio
                                                           ------        -----     ------         -----       ------         -----
December 31, 2007                                                                 (Dollars in thousands)
     The Company
                                                                                                            
         Total Capital to risk weighted assets ........    $40,405       17.3%    $18,642          8.0%           NA             NA
         Tier 1 Capital to risk weighted assets .......    $37,831       16.2%    $ 9,321          4.0%           NA             NA
         Tier 1 Capital to average assets (leverage) ..    $37,831        9.7%    $15,594          4.0%           NA             NA
     Community First Bank
         Total Capital to risk weighted assets ........    $38,763       17.3%    $18,642          8.0%      $23,302          10.0%
         Tier 1 Capital to risk weighted assets .......    $36,189       16.2%    $ 9,321          4.0%      $13,981           6.0%
         Tier 1 Capital to average assets (leverage) ..    $36,189        9.7%    $15,594          4.0%      $19,492           5.0%

December 31, 2006
     The Company
         Total Capital to risk weighted assets ........    $35,457       15.7%    $18,063          8.0%           NA             NA
         Tier 1 Capital to risk weighted assets .......    $33,215       14.7%    $ 9,032          4.0%           NA             NA
         Tier 1 Capital to average assets (leverage) ..    $33,215        9.7%    $13,737          4.0%           NA             NA
     Community First Bank
         Total Capital to risk weighted assets ........    $34,997       15.5%    $18,063          8.0%      $22,579          10.0%
         Tier 1 Capital to risk weighted assets .......    $32,755       14.5%    $ 9,032          4.0%      $13,547           6.0%
         Tier 1 Capital to average assets (leverage) ..    $32,755        9.5%    $13,738          4.0%      $17,172           5.0%


Stock  Options - In 1998,  the  Company's  shareholders  approved the 1998 Stock
Option Plan under which an aggregate of 713,467 shares  (adjusted for subsequent
stock  dividends  and a stock split) of the  Company's  authorized  but unissued
common  stock was reserved  for  possible  issuance  pursuant to the exercise of
stock  options.  Generally,  options may be granted to  directors,  officers and
employees under terms and conditions, including expiration date, exercise price,
and vesting as determined by the Board of Directors.  In 1990, the  shareholders
approved the 1989  Incentive  Stock Option Plan.  The 1989 plan provided for the
granting of options to certain  eligible  employees and reserved  498,654 shares
(adjusted  for stock  dividends  and  splits)  of  authorized  common  stock for
issuance upon the exercise of such options.  Although some options granted under
the 1989 Plan can still be  exercised,  no further  options may be granted under
the 1989 Plan.  For all stock  options  ever  granted  under the two plans,  the
exercise  price was the fair market value of the  Company's  common stock on the
date the option was granted as  determined  by the Board of  Directors.  Options
terminate  according to the conditions of the grant, not to exceed 10 years from
the date of grant. The expiration of the options accelerates upon the optionee's
termination  of  employment  with the  Company or death,  and vesting of options
accelerates  upon a change in control of the  Company,  in  accordance  with the
provisions  of the two plans.  During  2006,  the  Company's  Board of Directors
accelerated the vesting of all other previously awarded and outstanding  options
such that all options were vested by December 31, 2006. The  acceleration of the
options' vesting  resulted in pre-tax  expenses of approximately  $394,000 being
recognized in 2006 that would  otherwise have been  recognized in 2007, 2008 and
2009.


                                      B-41


Transactions under the plans are summarized as follows:



                                                                          Years Ended December 31,
                                                                          ------------------------
                                                   2007                              2006                             2005
                                                   ----                              ----                             ----

                                                                  Average                           Average
                                                      Wtd. Avg.  Intrinsic              Wtd. Avg.  Intrinsic             Wtd. Avg.
                                                      Exercise     Value                Exercise     Value               Exercise
                                            Shares      Price      (000s)     Shares      Price      (000s)    Shares      Price
                                            ------      -----      ------     ------      -----      ------    ------      -----
                                                                                                   
Outstanding at beginning of year .......   520,212     $ 10.95               494,664     $ 9.90               476,687      $ 9.17
Granted ................................         -           -                48,164      18.40                40,142       15.67
Exercised ..............................   (70,077)       6.82               (22,614)      3.68               (20,839)       4.39
Forfeited or expired ...................       (13)       5.55                    (2)      3.90                (1,326)      12.71
                                           -------                           -------                          -------
Outstanding at end of year .............   450,122       11.59    $ 2,435    520,212       10.95    $ 3,970   494,664        9.90
                                           =======                           =======                          =======

Options exercisable at year-end ........   450,122     $ 11.59    $ 2,435    520,212     $ 10.95    $ 3,970   403,893      $ 9.08
                                           =======                           =======                          =======

-------------------
Numbers of shares and exercise  prices have been adjusted in the table above for
a 10%  stock  dividend  effective  December  20,  2007  and 5%  stock  dividends
effective December 18, 2006 and November 30, 2005.

The aggregate  intrinsic  value of a stock option in the table above  represents
the pre-tax intrinsic value (the amount by which the current market value of the
underlying  stock exceeds the exercise price of the option) that would have been
received by the option holder had all option holders  exercised their options on
December 31, 2007.  This amount  changes based on changes in the market value of
the Company's stock.

Information pertaining to the fair values of stock options issued in each of the
past three years and the methods and  assumptions  used to compute  those values
are included in Note A.

The following table summarizes information about the options outstanding:



                                                                             December 31, 2007
                                                                             -----------------
                                                   Options Outstanding                               Options Exercisable
                                                   -------------------                               -------------------
                                                        Weighted
                                                        Average
                                                       Remaining          Weighted                                     Weighted
                                    Number             Contractual         Average                Number                Average
Range of Exercise Prices          Outstanding          Life (Years)      Exercise Price         Outstanding           Exercise Price
------------------------          -----------          ------------      --------------         -----------           --------------
                                                                                                         
$ 2.84  to  $ 5.19                   70,779                0.31              $ 5.16                 70,779              $  5.16
 10.65  to   12.74                  291,200                3.88               11.47                291,200                11.47
 15.67  to   18.61                   88,143                7.86               17.16                 88,143                17.16
                                    -------                                                        -------

                                    450,122                4.10              $11.59                450,122              $ 11.59
                                    =======                                                        =======


Of the 1,212,121  shares of the  Company's  authorized  common stock  originally
reserved for  issuance  upon the  exercise of options  under the plans,  175,814
shares authorized under the 1998 plan remained available for future grants as of
December 31, 2007.  However,  the 1998 plan terminated on March 19, 2008, and no
further  options may be granted under the plan after that date.  The Company has
no current  plans to adopt a new stock option plan,  though the Board may decide
to do so in the future.


                                      B-42


NOTE J - OTHER EXPENSES

Other expenses are summarized below:



                                                                                               Years Ended December 31,
                                                                                               ------------------------
                                                                                    2007                2006                 2005
                                                                                    ----                ----                 ----
                                                                                                                 
Salaries and employee benefits ......................................           $4,120,766           $3,647,451           $2,902,693
Net occupancy expense ...............................................              432,852              346,610              267,760
Furniture and equipment expense .....................................              441,010              431,078              344,687
Other expense
      Stationery, printing and postage ..............................              286,382              299,042              247,126
      Telephone .....................................................              152,656              143,422              102,249
      Advertising and promotion .....................................              118,565              124,968               97,258
      Professional services .........................................              284,907              202,278              169,465
      Insurance .....................................................               73,991               75,507               67,374
      FDIC insurance assessment .....................................               37,168               35,654               35,785
      Directors' compensation .......................................               94,400              392,471              100,800
      Foreclosed assets costs and expenses, net .....................                3,142                8,154               42,933
      Data processing expenses ......................................              250,728              272,867              236,445
      Other .........................................................              835,029              772,263              805,573
                                                                                ----------           ----------           ----------
          Total .....................................................           $7,131,596           $6,751,765           $5,420,148
                                                                                ==========           ==========           ==========


NOTE K - INCOME TAXES

Income tax expense consisted of:


                                              Years Ended December 31,
                                              ------------------------
                                          2007           2006           2005
                                          ----           ----           ----
Current
    Federal ........................  $ 1,613,312    $ 1,528,379    $ 1,915,653
    State ..........................      150,575        136,871        168,353
                                      -----------    -----------    -----------
        Total current ..............    1,763,887      1,665,250      2,084,006
Deferred
    Federal ........................     (266,418)      (131,488)       (43,114)
                                      -----------    -----------    -----------
        Total income tax expense ...  $ 1,497,469    $ 1,533,762    $ 2,040,892
                                      ===========    ===========    ===========

The  principal  components  of the  deferred  portion of income  tax  expense or
(credit) were:

                                                 Years Ended December 31,
                                                 ------------------------
                                            2007           2006           2005
                                            ----           ----           ----

Provision for loan losses ............    $(109,564)    $   7,971     $  (8,656)
Accelerated depreciation .............       (5,049)      (18,701)      (29,869)
Deferred net loan costs and fees .....      (24,201)      (34,576)       (4,589)
Writedowns of other real estate ......            -         9,906             -
Non-qualified stock options ..........            -       (96,088)            -
Deferred compensation expense ........     (127,604)            -             -
                                          ---------     ---------     ---------
            Total ....................    $(266,418)    $(131,488)    $ (43,114)
                                          =========     =========     =========

Income before income taxes  presented in the  consolidated  statements of income
for the years  ended  December  31,  2007,  2006 and 2005  included  no  foreign
component.  A  reconciliation  between  the  income tax  expense  and the amount
computed by applying the federal  statutory  rate of 34% to income before income
taxes follows:


                                      B-43


                                                Years Ended December 31,
                                                ------------------------
                                          2007           2006           2005
                                          ----           ----           ----

Tax expense at statutory rate .....   $ 1,641,582    $ 1,547,589    $ 1,962,078
State income tax, net of federal
    income tax benefit ............        99,380         90,335        111,403
Tax-exempt interest income ........      (276,416)      (220,098)       (60,143)
Non-deductible interest expense to
    carry tax-exempt instruments ..        46,616         34,608          7,209
Other, net ........................       (13,693)        81,328         20,345
                                      -----------    -----------    -----------
            Total .................   $ 1,497,469    $ 1,533,762    $ 2,040,892
                                      ===========    ===========    ===========

Deferred tax assets and liabilities  included in the consolidated  balance sheet
consisted of the following:

                                                               December 31,
                                                               ------------
                                                           2007           2006
                                                           ----           ----
Deferred tax assets
    Allowance for loan losses ....................     $  702,622     $  593,058
    Deferred net loan fees .......................        126,214        102,013
    Non-qualified stock options ..................         96,088         96,088
    Deferred compensation ........................        127,604              -
    Unrealized net holding losses on
      available-for-sale securities ..............              -        405,571
                                                       ----------     ----------
            Gross deferred tax assets ............      1,052,528      1,196,730
    Valuation allowance ..........................              -              -
                                                       ----------     ----------
            Total ................................      1,052,528      1,196,730
                                                       ----------     ----------

Deferred tax liabilities
    Accelerated depreciation .....................        195,411        200,460
    Unrealized net holding gains on
      available-for-sale securities ..............         44,860              -
                                                       ----------     ----------
            Gross deferred tax liabilities .......        240,271        200,460
                                                       ----------     ----------
Net deferred income tax assets ...................     $  812,257     $  996,270
                                                       ==========     ==========

The portion of the change in net  deferred  tax assets or  liabilities  which is
related to unrealized holding gains and losses on available-for-sale  securities
is charged or  credited  directly  to other  comprehensive  income or loss.  The
balance of the change in net  deferred  tax  assets is  charged or  credited  to
income tax expense. In 2007, 2006 and 2005,  $450,431 was charged,  $377,023 was
charged,  and  $502,764  was  credited  to other  comprehensive  income or loss,
respectively.  In 2007,  $266,418 was  credited to income tax expense;  in 2006,
$131,488 was credited to income tax expense;  and, in 2005, $43,114 was credited
to income tax expense.

Management  believes that the Company will fully realize the deferred tax assets
as of December 31, 2007 and 2006 based on refundable income taxes available from
carryback years, as well as estimates of future taxable income.

NOTE L - RETIREMENT PLAN

The Company  sponsors the Community  First Bank 401(k) Plan (the "401(k)  Plan")
for the exclusive  benefit of all eligible  employees  and their  beneficiaries.
Employees  are  eligible to  participate  in the 401(k) Plan with no minimum age
requirement after completing twelve months of service in which they are credited
with at  least  501  hours of  service.  Employees  are  allowed  to  defer  and
contribute  up to 15% of their  salary each year.  The Company  matches $.50 for


                                      B-44


each dollar deferred up to 10% of total salary.  The Board of Directors can also
elect to make  discretionary  contributions.  Employees are fully vested in both
the matching and any  discretionary  contributions  after five years of service.
The employer  contributions to the plan for 2007, 2006 and 2005 totaled $84,941,
$66,764, and $58,983, respectively.

In 2007, the Company's Board of Directors approved certain supplemental benefits
for the Chief  Executive  Officer.  These  benefits are not qualified  under the
Internal Revenue Code and they are not funded. However, life insurance contracts
owned by the Bank provide  informal,  indirect  funding for those benefits.  The
Company  recorded  deferred  compensation  expense  related to these benefits of
$386,446 in 2007.

NOTE M - COMMITMENTS AND CONTINGENCIES

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

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

                                                             December 31,
                                                             ------------
                                                         2007            2006
                                                         ----            ----

                Loan commitments ...............     $35,953,550     $33,764,489
                Standby letters of credit ......       1,038,600       1,113,600

Loan commitments involve agreements to lend to a customer as long as there is no
violation of any condition  established in the contract.  Commitments  generally
have  fixed  expiration  dates or other  termination  clauses  and some  involve
payment of a fee. Many of the  commitments  are expected to expire without being
fully  drawn;  therefore,   the  total  amount  of  loan  commitments  does  not
necessarily represent future cash requirements. Each customer's creditworthiness
is evaluated on a case-by-case basis. The amount of collateral obtained, if any,
upon  extension  of credit is based on  management's  credit  evaluation  of the
borrower. Collateral held varies but may include commercial and residential real
properties, accounts receivable, inventory and equipment.

Standby  letters  of  credit  are  conditional   commitments  to  guarantee  the
performance of a customer to a third party.  The credit risk involved in issuing
standby  letters  of  credit  is the  same  as  that  involved  in  making  loan
commitments to customers.

Litigation - The Company and its  subsidiary  were not involved as defendants in
any  litigation at December 31, 2007.  Management is not aware of any pending or
threatened litigation,  or unasserted claims or assessments that are expected to
result in losses,  if any, that would be material to the consolidated  financial
statements.

New Offices - Land intended to be used for the Bank's future  expansion has been
obtained near Powdersville, SC. The Company has established neither a budget nor
a schedule for the construction of that proposed office.

Other - The  Company  and its  banking  subsidiary  are not  involved  in  other
off-balance-sheet contractual relationships or transactions that could result in
liquidity needs or other commitments or significantly impact earnings.

NOTE N - DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS

SFAS No. 107,  "Disclosures  about Fair  Values of  Financial  Instruments,"  as
amended, requires disclosure of the estimated fair value of on-balance sheet and
off-balance sheet financial  instruments.  A financial  instrument is defined by
SFAS No.  107 as cash,  evidence  of an  ownership  interest  in an  entity or a
contract  that creates a  contractual  obligation or right to deliver or receive
cash or  another  financial  instrument  from a  second  entity  on  potentially
favorable or unfavorable terms.

Fair  value  estimates  are made at a specific  point in time based on  relevant
market  information  about the  financial  instrument.  These  estimates  do not
reflect any premium or discount  that could result from offering for sale at one
time the Company's  entire  holdings of a particular  financial  instrument.  No
active  trading  market  exists  for a  significant  portion  of  the  Company's
financial  instruments.  Fair value estimates for these instruments are based on
management's  judgments  regarding  future  expected  loss  experience,  current
economic conditions, risk characteristics of various financial instruments,  and
other   factors.   These   estimates  are   subjective  in  nature  and  involve


                                      B-45


uncertainties  and  matters of  significant  judgment  and  therefore  cannot be
determined with precision. Changes in assumptions could significantly affect the
estimates.

Fair value  estimates are based on existing  on-and-off  balance sheet financial
instruments  without  attempting  to estimate  the value of  anticipated  future
business  and the  value of  assets  and  liabilities  that  are not  considered
financial   instruments.   Significant  assets  and  liabilities  that  are  not
considered  financial assets or liabilities  include net deferred tax assets and
premises and equipment. In addition, the income tax ramifications related to the
realization of the unrealized gains and losses can have a significant  effect on
fair value estimates and have not been considered in the estimates.

The following methods and assumptions were used by the Company in estimating the
fair values of its financial instruments:

For cash and due from  banks,  interest  bearing  deposits  due from  banks  and
federal funds sold, the carrying  amount  approximates  fair value because these
instruments generally mature in 90 days or less. The carrying amounts of accrued
interest receivable or payable approximate fair values.

The fair value of debt securities issued by Government sponsored  enterprises is
estimated based on published closing quotations. The fair value of state, county
and municipal  securities is generally not available from published  quotations;
consequently,  their fair values estimates are based on matrix pricing or quoted
market prices of similar  instruments  adjusted for credit  quality  differences
between the quoted  instruments and the securities being valued.  Fair value for
mortgage-backed securities is estimated primarily using dealers' quotes.

The fair value of FHLB stock approximates the carrying amount.

Fair values are estimated for loans using  discounted cash flow analyses,  using
interest  rates  currently  offered  for loans  with  similar  terms and  credit
quality.  The Company  does not engage in  originating,  holding,  guaranteeing,
servicing or investing in loans where the terms of the loan product give rise to
a concentration of credit risk.

The fair value of deposits with no stated maturity  (noninterest bearing demand,
interest  bearing  transaction  accounts and savings) is estimated as the amount
payable on demand,  or  carrying  amount.  The fair  value of time  deposits  is
estimated using a discounted cash flow  calculation that applies rates currently
offered to aggregate expected maturities.

The  fair  values  of the  Company's  short-term  borrowings  approximate  their
carrying amounts.

The fair values of fixed rate long-term  debt  instruments  are estimated  using
discounted cash flow analyses,  based on the borrowing rates currently in effect
for  similar  borrowings.  The fair  values  of  variable  rate  long-term  debt
instruments are estimated at the carrying amount.

The estimated fair values of  off-balance-sheet  financial  instruments  such as
loan  commitments  and standby  letters of credit are generally  based upon fees
charged to enter into  similar  agreements,  taking into  account the  remaining
terms  of the  agreements  and the  counterparties'  creditworthiness.  The vast
majority  of the  banking  subsidiary's  loan  commitments  do not  involve  the
charging of a fee,  and fees  associated  with  outstanding  standby  letters of
credit are not material. For loan commitments and standby letters of credit, the
committed  interest rates are either  variable or approximate  current  interest
rates offered for similar commitments.  Therefore,  the estimated fair values of
these off-balance-sheet financial instruments are nominal.



                                      B-46


The following is a summary of the carrying  amounts and estimated fair values of
the Company's financial assets and liabilities:



                                                                                             December 31,
                                                                                             ------------
                                                                              2007                               2006
                                                                              ----                               ----
                                                                  Carrying           Estimated         Carrying          Estimated
                                                                   Amount           Fair Value         Amount            Fair Value
                                                                   ------           ----------         ------            ----------
Financial assets
                                                                                                            
   Cash and due from banks .............................       $ 10,272,260       $ 10,272,260       $  6,951,934       $  6,951,934
   Interest bearing deposits due from banks ............            164,781            164,781             66,941             66,941
   Federal funds sold ..................................         24,236,000         24,236,000         24,126,000         24,126,000
   Securities available-for-sale .......................         99,026,049         99,026,049        102,487,395        102,487,395
   Securities held-to-maturity .........................          5,663,113          5,625,083          6,595,026          6,529,691
   Federal Home Loan Bank stock ........................            839,900            839,900            980,200            980,200
   Loans ...............................................        241,557,255        238,670,000        200,723,753        200,447,000
   Accrued interest receivable .........................          2,529,155          2,529,155          2,181,572          2,181,572
Financial liabilities
   Deposits ............................................        355,866,553        357,308,000        307,957,309        307,326,000
   Accrued interest payable ............................          3,479,569          3,479,569          2,702,946          2,702,946
   Short-term borrowings ...............................                  -                  -          4,500,000          4,500,000
   Long-term debt ......................................          4,500,000          4,483,000          5,500,000          5,497,000


The following is a summary of the notional or contractual  amounts and estimated
fair values of the Company's off-balance sheet financial instruments:



                                                                                          December 31,
                                                                                          ------------
                                                                             2007                                   2006
                                                                             ----                                   ----
                                                                Notional/          Estimated          Notional/          Estimated
                                                                Contract             Fair              Contract             Fair
                                                                 Amount              Value             Amount              Value
                                                                 ------              -----             ------              -----
Off-balance sheet commitments
                                                                                                              
  Loan commitments .....................................     $35,953,550            $ -            $33,764,489            $ -
  Standby letters of credit ............................       1,038,600              -              1,113,600              -


NOTE O - ACCOUNTING CHANGES

Hybrid  Financial  Instruments  -  The  provisions  of  Statement  of  Financial
Accounting  Standards No. 155 ("SFAS No. 155"),  "Accounting  for Certain Hybrid
Financial  Instruments,  an amendment of FASB  Statements No. 133 and 140," were
effective January 1, 2007. The Company has no affected financial instruments and
adoption of the Statement had no effect on the Company's  consolidated financial
statements.

Servicing  of  Financial  Assets - The  provisions  of  Statement  of  Financial
Accounting  Standards  No. 156 ("SFAS No.  156"),  "Accounting  for Servicing of
Financial Assets, an amendment of FASB Statement No. 140" were effective January
1, 2007.  This  Statement  potentially  simplified the accounting for separately
recognized loan servicing  assets and liabilities and any financial  instruments
used to hedge risks  associated  with those assets and  liabilities.  Under SFAS
156,  separately  recognized  servicing assets and liabilities are accounted for
initially at fair value,  if  practicable,  and  subsequently  are accounted for
either at fair value or amortized  over the economic lives of the related loans.
If the fair  value  method of  subsequent  valuation  is  elected,  SFAS No. 156
permits income statement  recognition of the potential offsetting changes in the
fair values of the financial servicing rights and liabilities and the derivative
instruments  used to  hedge  them in the same  accounting  period.  The  Company
currently has no separately recognized loan servicing rights or liabilities, and
adoption of SFAS No. 156 had no effect on the Company's  consolidated  financial
statements.

Fair Value  Measurements - The  provisions of Statement of Financial  Accounting
Standards No. 157 ("SFAS No. 157"), "Fair Value Measurements," are effective for


                                      B-47


fiscal  years  beginning  after  November  15,  2007  (January  1,  2008 for the
Company).  SFAS No. 157  defines  fair value and  establishes  a  framework  for
measuring fair value in GAAP. The Statement  describes fair value as being based
on a  hypothetical  transaction  to sell an asset or transfer a  liability  at a
specific  measurement  date,  as  considered  from the  perspective  of a market
participant   who  holds  the  asset  or  owes  the  liability  (an  exit  price
perspective).  In  addition,  fair  value  should be  viewed  as a  market-based
measurement,  rather than an entity-specific measurement.  Therefore, fair value
should be determined based on the assumptions that market participants would use
in pricing an asset or liability,  including all risks and restrictions that may
be  associated  with that  asset or  liability.  SFAS No. 157 does not amend the
definition of fair value used in conjunction with Share-Based Payments accounted
for under SFAS No. 123(R).  The adoption of SFAS No. 157 in 2008 is not expected
to have a material effect on the Company's consolidated financial statements.

Accounting  for  Uncertainty  in  Income  Taxes - The  provisions  of  Financial
Accounting  Standards Board  Interpretation  No. 48 ("FIN 48"),  "Accounting for
Uncertainty  in Income  Taxes,  an  interpretation  of FASB  Statement No. 109,"
clarify  the  accounting  for  uncertainty  in  income  tax  positions.  FIN  48
prescribes  a two-step  evaluation  process  that  includes  both a  recognition
threshold and a measurement  attribute for tax positions taken or expected to be
taken in a tax return.  The  provisions of FIN 48 were effective for the Company
as of January 1, 2007. The adoption of FIN 48 did not have a material  effect on
the Company's consolidated financial statements.

Fair Value Option -The provisions of Statement of Financial Accounting Standards
No. 159 ("SFAS  No.  159"),  "The Fair  Value  Option for  Financial  Assets and
Financial  Liabilities  Including an amendment of FASB  Statement  No. 115," are
effective as of January 1, 2008.  SFAS No 159 allows  entities to choose whether
or not to measure many  financial  instruments  and certain  other items at fair
value.  However,  the Statement  also  specifies the times at which an entity is
allowed  choose  to elect the fair  value  option  for a  particular  item.  For
eligible  financial  instruments that an entity elects to measure at fair value,
all changes in fair value,  including  both  unrealized  and realized  gains and
losses,  will be recognized in income.  The Company currently does not expect to
value any items using the fair value  option of SFAS No. 159 and adoption of the
Statement,  therefore,  is expected to have no effect on the Company's financial
statements.


                                      B-48


NOTE P - COMMUNITY FIRST BANCORPORATION (PARENT COMPANY ONLY)



                                                                                                              December 31,
                                                                                                              ------------
                                                                                                     2007                    2006
                                                                                                     ----                    ----
Condensed Balance Sheets
       Assets
                                                                                                                   
             Cash ....................................................................            $ 1,633,623            $ 1,172,196
             Investment in banking subsidiary ........................................             36,269,433             32,030,672
             Other assets ............................................................                  7,932                 12,162
                                                                                                  -----------            -----------
                  Total assets .......................................................            $37,910,988            $33,215,030
                                                                                                  ===========            ===========
       Liabilities
             Other liabilities .......................................................            $         -            $         -
       Shareholders' equity ..........................................................             37,910,988             33,215,030
                                                                                                  -----------            -----------
                  Total liabilities and shareholders' equity .........................            $37,910,988            $33,215,030
                                                                                                  ===========            ===========




                                                                                               Years Ended December 31,
                                                                                               ------------------------
                                                                                     2007               2006                2005
                                                                                     ----               ----                ----
Condensed Statements of Income
       Income
                                                                                                               
             Interest income ...........................................        $    41,048         $    38,182         $    15,191
             Other income ..............................................                  -                   -               6,070
                                                                                -----------         -----------         -----------
                  Total income .........................................             41,048              38,182              21,261
                                                                                -----------         -----------         -----------
       Expenses
             Other expenses ............................................             64,378              73,953              53,098
                                                                                -----------         -----------         -----------
                  Total expenses .......................................             64,378              73,953              53,098
                                                                                -----------         -----------         -----------
       Income (loss) before income taxes and equity in
             undistributed earnings of banking subsidiary ..............            (23,330)            (35,771)            (31,837)
       Income tax expense (credit) .....................................             (7,932)            (12,162)            (10,825)
       Equity in undistributed earnings
             of banking subsidiary .....................................          3,346,110           3,041,578           3,750,938
                                                                                -----------         -----------         -----------
       Net income ......................................................        $ 3,330,712         $ 3,017,969         $ 3,729,926
                                                                                ===========         ===========         ===========




                                                                                                 Years Ended December 31,
                                                                                                 ------------------------
                                                                                         2007               2006            2005
                                                                                         ----               ----            ----
Condensed Statements of Cash Flows
       Operating activities
                                                                                                               
             Net income .........................................................     $ 3,330,712      $ 3,017,969      $ 3,729,926
                  Adjustments to reconcile net income to net
                        cash used by operating activities
                              Equity in undistributed earnings
                                of banking subsidiary ...........................      (3,346,110)      (3,041,578)      (3,750,938)
                              Decrease (increase) in other assets ...............           4,230           (1,337)           2,625
                                                                                      -----------      -----------      -----------
                                Net cash used by operating activities ...........         (11,168)         (24,946)         (18,387)
                                                                                      -----------      -----------      -----------
       Financing activities
             Exercise of employee stock options .................................         478,090           83,197           92,059
             Payment of cash in lieu of fractional
                  shares for stock dividend .....................................          (5,495)          (6,803)          (6,349)
                                                                                      -----------      -----------      -----------
                                Net cash provided by financing activities .......         472,595           76,394           85,710
                                                                                      -----------      -----------      -----------
       Increase in cash and cash equivalents ....................................         461,427           51,448           67,323
       Cash and cash equivalents, beginning .....................................       1,172,196        1,120,748        1,053,425
                                                                                      -----------      -----------      -----------
       Cash and cash equivalents, ending ........................................     $ 1,633,623      $ 1,172,196      $ 1,120,748
                                                                                      ===========      ===========      ===========


                                      B-49





                        CAUTIONARY NOTICE WITH RESPECT TO
                           FORWARD LOOKING STATEMENTS

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

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

         These  forward-looking  statements  are based on current  expectations,
estimates and projections about the banking industry,  management's beliefs, and
assumptions made by management.  Such information includes,  without limitation,
discussions  as to estimates,  expectations,  beliefs,  plans,  strategies,  and
objectives  concerning  future  financial  and  operating   performance.   These


                                      B-50


statements  are not guarantees of future  performance  and are subject to risks,
uncertainties and assumptions that are difficult to predict.  Therefore,  actual
results  may  differ  materially  from those  expressed  or  forecasted  in such
forward-looking  statements.  The risks and uncertainties  include,  but are not
limited to:

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

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


                                      B-51


Management's Discussion and Analysis of Financial Condition
         and Results of Operations

         This discussion is intended to assist in understanding the consolidated
financial condition and results of operations of Community First  Bancorporation
and its wholly-owned  subsidiary,  Community First Bank (the "Bank"),  which are
collectively  referred to as the "Company".  This information should be reviewed
in  conjunction  with the  consolidated  financial  statements and related notes
contained  elsewhere  in this  report.  Per share  net  income  and net  income,
assuming dilution,  have been adjusted to reflect a 10% stock dividend effective
December  20,  2007 and 5%  stock  dividends  effective  December  18,  2006 and
November 30, 2005.


Earnings Performance

2007 Compared with 2006

         For the year ended December 31, 2007,  the Company  recorded net income
of $3,331,000,  an increase of $313,000, or 10.4%, over net income of $3,018,000
for 2006.  Net income per share for 2007 was $1.02  compared with $.93 for 2006.
Per share net income, assuming dilution from outstanding stock options, was $.96
for 2007 and $.87 for 2006.  Return on average assets was .88% for 2007 compared
with .89% for 2006.  Return on average  shareholders'  equity was 9.46% for 2007
compared with 9.87% for 2006.

         Net income for 2007 increased due to increased  amounts of net interest
income and other  income.  Partially  offsetting  those  factors were  increased
expenses  resulting from an increase of $529,000 in the amount provided for loan
losses  during  2007,  expenses  related to the opening and  operation  of a new
banking office in the City of Anderson and the effects of agreements between the
Company  and  its  Chief  Executive  Officer  related  to his  compensation  and
retention.

         Higher  volumes  of  interest   earning  assets  and  interest  bearing
liabilities  resulted  in  increased  interest  income  and  interest  expenses.
Interest  income  increased  $3,978,000 with  approximately  71% of the increase
attributable  to higher  average  amounts  of  interest  earning  assets and 29%
attributable  to  higher  interest  rates  earned.  Interest  expense  increased
$2,845,000.  Approximately 53% of this increase was attributable to higher rates
paid for interest bearing deposit accounts and borrowings.

         Year-end total interest  earning assets  increased  $36,840,000  during
2007.  Total loans  increased  $41,165,000,  but  securities  available-for-sale
decreased $3,461,000 and securities held-to-maturity decreased $932,000. Average
loans for 2007 increased $40,321,000 and average investment securities decreased
$6,882,000 compared with the 2006 average amounts.

         Year-end total deposits grew $47,910,000 during 2007 with more than 96%
of that growth in interest bearing  deposits.  Average interest bearing deposits
during 2007 were $32,080,000 more than in 2006 and average  noninterest  bearing
demand deposits were $1,902,000 more than in 2006.

         A significant  portion of the growth in loans and deposits  during 2007
was attributable to continued growth of the Bank's new office in Seneca.

         The yield on average  earning assets for 2007 was 6.57%, an increase of
56 basis  points  over the 2006  yield,  and the rate paid on  average  interest
bearing  liabilities for 2007 increased by 55 basis points to 4.42% in 2007 from
3.87% in 2006.  The  combination  of these  factors  resulted in a 1 basis point
increase in the interest rate spread. Net yield on earning assets increased by 7
basis points to 2.89%.

         The Bank opened a new full-service  banking office on Highway 81 in the
City of Anderson, SC during the fourth quarter of 2007. The cost of construction
was  approximately  $800,000.  Land  intended to be used for the Bank's  further
expansion in Anderson County has also been obtained near  Powdersville,  SC. The
Company has established  neither a budget nor a schedule for the construction of
that  proposed  office.  During  2007,  the  Company,  the Bank and their  Chief
Executive  Officer  entered  into  agreements  related to his  compensation  and
retention.  The subsidiary Bank purchased life insurance  contracts to partially
fund its obligations under those agreements.  Approximately $386,000 of expenses
related to those  agreements  is included  in  compensation  expenses  for 2007.
Increases in the cash surrender value of the insurance  contracts during 2007 of
approximately $108,000 are included in other income for 2007.

         The provision  for loans losses for 2007 was  $594,000,  an increase of
$529,000  or 813.8%  from the  $65,000  provided  in 2006.  For  2007,  net loan



                                      B-52


charge-offs  were  $262,000,  or  $173,000  more  than in  2006.  Year  end 2007
nonperforming  loans  (nonaccrual  loans and accruing loans 90 days or more past
due) increased  $575,000 from the amount at the end of 2006.  Potential  problem
loans decreased $88,000 by the end of 2007 compared with the end of 2006. Of the
2007 year end  potential  problem  loans,  76.1%  were  secured  by real  estate
mortgages compared with 86.4% at the end of 2006.

2006 Compared with 2005

         For the year ended December 31, 2006,  the Company  recorded net income
of $3,018,000,  a decrease of $712,000,  or 19.1%, from net income of $3,730,000
for 2005.  Net income per share for 2006 was $.93  compared with $1.16 for 2005.
Per share net income, assuming dilution from outstanding stock options, was $.87
for 2006 and  $1.10  for  2005.  Return  on  average  assets  was 0.89% for 2006
compared with 1.21% for 2005. Return on average  shareholders'  equity was 9.87%
for 2006 compared with 13.65% for 2005.

         Net  income  for 2006  decreased  due to  several  primary  factors:  a
contraction of net interest income, the adoption of an accounting  standard that
resulted in the initial recognition in 2006 of share-based compensation expenses
associated  with certain stock options  granted to employees and directors,  and
expenses  related to the  opening  of a new  banking  office in  Seneca,  SC and
relocation  of the  corporate  executive  offices.  Partially  offsetting  these
factors,  the  provision  for loan  losses  charged to expense  during  2006 was
$185,000 less than in 2005.

         Rising  interest  rates during the first seven months of 2006,  coupled
with  increasing  volumes  of  interest  earning  assets  and  interest  bearing
liabilities,  resulted in increased  interest  earnings  and  interest  expenses
across all major categories.  Total loans grew $33,648,000 during 2006. Interest
income increased $3,677,000 with approximately half of the increase attributable
to higher average  amounts of interest  earning assets and half  attributable to
higher   interest  rates  earned.   Interest   expense   increased   $3,764,000.
Approximately  83% of this increase was  attributable  to higher  interest rates
paid for interest bearing deposit accounts and borrowings.

         Total deposits grew $27,964,000  during 2006 with more than 90% of that
growth  accounted for in interest  bearing  deposits.  Average  interest bearing
deposits during 2006 were $27,166,000 more than in 2005 and average  noninterest
bearing demand deposits were $3,522,000 more than in 2005.

         The significant  growth in loans and deposits in 2006 was  attributable
primarily to the opening of the Bank's new Seneca office.

         The yield on average  earning assets for 2006 was 6.01%, an increase of
66 basis points over the 2005 yield.  However, the rate paid on average interest
bearing liabilities for 2006 increased by 115 basis points to 3.87% in 2006 from
2.72% in 2005.  Promotional  rates paid for  deposits  in  conjunction  with the
opening of the new Seneca office were a significant factor in this increase. The
combination of these factors  resulted in a decrease in the interest rate spread
of 49 basis points,  and the net yield on earning  assets  decreased by 30 basis
points to 2.82%.

         The Company adopted Statement of Financial Accounting Standards No. 123
(revised 2004),  "Share-Based  Payment," ("SFAS 123(R)") effective on January 1,
2006. Accordingly, compensation expenses related to certain stock options issued
to officers and directors were initially  recognized in 2006.  Also in 2006, the
Company  modified  the terms of all  remaining  affected  non-vested  options to
provide for the vesting of those options in 2006. As a result, all of the future
compensation  costs  associated  with the  Company's  option grants to date were
accelerated  and  recognized  during  2006.  Share-based  compensation  expenses
recognized in 2006 totaled  $593,000.  Of this amount,  $302,000 was included in
salaries and employee benefits and $291,000 was included in other expense.

         During the second quarter of 2006, the Company  completed  construction
of a multi-story office building which houses an additional full service banking
office in Seneca, SC and the Company's  corporate offices.  Certain officers and
other personnel were relocated into the building, as well.

         The  provision  for loans  losses for 2006 was  $65,000,  a decrease of
$185,000  or 74.0%  from the  $250,000  provided  in 2005.  For  2006,  net loan
charge-offs   decreased  by  $135,000  from  the  2005  amount.  Year  end  2006
nonperforming  loans  (nonaccrual  loans and accruing loans 90 days or more past
due) decreased  $855,000 from the amount at the end of 2005.  Potential  problem
loans increased  $1,028,000 by the end of 2006 compared with the end of 2005. Of
the 2006 year end  potential  problem  loans,  86.4% were secured by real estate
mortgages compared with 83.7% at the end of 2005.


                                      B-53


Net Interest Income

         Net interest income,  the difference between interest income earned and
interest expense  incurred,  is the principal source of the Company's  earnings.
Net interest  income is affected by changes in the levels of interest  rates and
by changes in the volume and mix of interest earning assets and interest bearing
liabilities.

2007 Compared with 2006

         Net interest  income was  $10,348,000 and $9,215,000 for 2007 and 2006,
respectively.   Interest  income  for  2007  was  $23,578,000,  an  increase  of
$3,978,000,  or 20.3%, over 2006. Interest expense for 2007 was $13,230,000,  an
increase of  $2,845,000,  or 27.4%,  over 2006. The Company  experienced  higher
average volumes of interest earning assets and interest  bearing  liabilities in
2007 as well as higher average yields and rates on those instruments.

         During the first seven months of 2007, the Federal  Reserve  maintained
its interest rate targets at levels set previously. Beginning in September 2007,
however,  a series  of rate cuts  began  which  reduced  the  Federal  Reserve's
Discount Window Primary Credit rate from 6.25% to 4.75% by the end of the year.

         During 2007, the amount of loans outstanding  increased  significantly.
Year-end loans for 2007 were $244,131,000, an increase of $41,165,000, or 20.3%,
over the 2006 year-end amount.  The average amount of loans  outstanding  during
2007  increased by  $40,321,000,  or 21.9%,  over the 2006 average  amount.  The
average  yield  earned on loans in 2007 was 7.84%,  compared  with 7.53%  during
2006.

         Loans secured by real estate  mortgages  increased by  $37,254,000,  or
25.2%,  over the 2006 year-end amount.  Closed-end loans secured by conventional
1-4 family residential  properties  increased by $31,448,000,  or 36.4%,  during
2007. The Company does not originate or hold sub-prime mortgage loans.  Although
residential property values in the Company's market areas have not thus far been
affected negatively by the current mortgage crisis to the same extent as in some
other  areas of the  country,  management  can  make no  assurances  that  local
property  values are immune from such effects.  The Company  generally  requires
that borrowers initially provide,  and maintain throughout the life of the loan,
significant   amounts  of  equity  in  real   properties   used  as  collateral.
Additionally, and partially in response to the uncertainty surrounding potential
future  effects of the  current  national  mortgage  crisis on local real estate
values, the Company increased its provision for loan losses in 2007.

         Consumer  installment loans increased by $4,095,000,  or 14.2%,  during
2007  primarily  due to an increase of  $2,543,000,  or 19.8%,  in the amount of
loans secured by automobiles.

         As of  December  31,  2007  and  2006,  approximately  $70,000,000  and
$54,000,000,  respectively,  or 28.7% and 26.6%, respectively,  of the Company's
loan portfolio was composed of variable rate loans directly indexed to movements
in the prime rate.

         Competition for deposits in the Company's  market areas continued to be
strong during 2007. In response,  the Company  offered higher rates and interest
bearing  deposits  increased by $46,197,000,  or 17.3%,  over the prior year-end
amount,  which,  as discussed below under the caption "2006 compared with 2005,"
had  already  been  significantly  increased  over the rates paid in 2005.  Time
deposits issued in amounts of $100,000 or more grew by the largest amount of any
deposit category,  increasing by $28,270,000,  or 41.4%, over the prior year-end
amount.  The average  rate paid for these  deposits in 2007 was 67 basis  points
higher  than the 2006  average  rate.  Growth in other  time  deposits  also was
significant,  with the 2007 year-end amount increasing by $24,355,000, or 21.0%,
over the 2006 year-end amount.  The average rate paid for these deposits in 2007
was 69 basis  points  higher than in 2006.  Savings  deposits at the end of 2007
declined by  $9,198,000,  or 30.0%,  from the end of 2006. The average rate paid
for savings  deposits in 2007 was only 5 basis points  higher than the rate paid
in 2006.  The average  rate paid for all interest  bearing  deposits in 2007 was
4.42%, an increase of 55 basis points over the average rate paid in 2006.

2006 Compared with 2005

         Net interest  income was  $9,215,000  and $9,302,000 for 2006 and 2005,
respectively.   Interest  income  for  2006  was  $19,600,000,  an  increase  of
$3,677,000,  or 23.1%, over 2005. Interest expense for 2006 was $10,385,000,  an
increase of  $3,764,000,  or 56.8%,  over 2005. The Company  experienced  higher
average volumes of interest earning assets and interest  bearing  liabilities in
2006 as well as higher average yields and rates on those instruments.

         Managing  net interest  margin  effectively  during 2006 was  extremely
challenging.  During  the  first  seven  months  of 2006,  the  Federal  Reserve


                                      B-54


continued  regular,  quarter-point  increases in the federal funds rate which it
began in June 2004.  For the  remainder of the year,  the central bank adopted a
"wait and see" attitude,  and maintained its interest rate targets at the levels
set  previously.  Interest  rates  applicable to the Company's  deposit and loan
products were mainly in the shorter, more volatile end of the maturity spectrum.

         The average  interest rate spread  (average  yield on interest  earning
assets less the average rate paid on interest bearing  liabilities)  declined by
49 basis points in 2006 compared with 2005, and the net yield on average earning
assets (net interest income divided by average interest earning assets) declined
by only 30 basis  points.  This was the  result of  increasing  higher  yielding
average  loans by a greater  percentage  than  either  the other  categories  of
earning assets or interest bearing liabilities during 2006.

         As of  December  31,  2006  and  2005,  approximately  $54,000,000  and
$47,000,000,  respectively,  or 26.6% and 27.8%,  respectively  of the Company's
loan portfolio was composed of variable rate loans directly indexed to movements
in the prime rate. The average yield earned on loans in 2006 was 7.53%, compared
with 7.00% during 2005.

         Competition for interest  bearing  deposits was strong in 2006, and the
Company responded by increasing the rates paid for those funds. Additionally, in
conjunction  with the  opening  of the new  banking  office in  Seneca,  SC, the
Company offered promotional interest rates that were higher than market rates on
interest bearing  transaction  account products.  As a result, the average rates
paid for those  deposit  accounts in 2006 were 183 basis  points  higher than in
2005.  Overall,  the rates paid for all categories of average  interest  bearing
deposits  increased by 118 basis points for 2006 when  compared  with 2005,  and
interest expense for those funds in 2006 was $3,827,000,  or 60.6%, more than in
2005.  Year-over-year deposit growth was particularly strong in interest bearing
transaction accounts, primarily due to the promotional rates paid.






                                      B-55


                  Average Balances, Yields and Rates



                                                                                 Years ended December 31,
                                                                                 ------------------------
                                                               2007                        2006                       2005
                                                               ----                        ----                       ----
                                               Average       Income/  Yields/   Average   Income/ Yields/  Average   Income/ Yields/
                                              Balances(1)    Expense   Rates  Balances(1) Expense  Rates Balances(1) Expense  Rates
                                              -----------    -------   -----  ----------- -------  ----- ----------- -------  -----
                                                                                  (Dollars in thousands)
Assets
                                                                                                    
Interest bearing deposits due from banks .....   $    157   $      6   3.82%   $     82 $     4   4.88%   $    168  $     5    2.98%
Taxable securities ...........................     89,867      3,890   4.33%     99,922   3,868   3.87%    106,149    3,564    3.36%
Tax-exempt securities (2) ....................     19,630        817   4.16%     16,457     636   3.86%      4,407      150    3.40%
Federal funds sold ...........................     23,730      1,209   5.09%     24,814   1,175   4.74%     21,884      668    3.05%
Federal Home Loan Bank stock .................        888         56   6.31%        972      52   5.35%        999       38    3.80%
Loans (2) (3) (4) ............................    224,353     17,600   7.84%    184,032  13,865   7.53%    164,243   11,498    7.00%
                                                 --------   --------           -------- -------           --------  -------
         Total interest earning assets .......    358,625     23,578   6.57%    326,279  19,600   6.01%    297,850   15,923    5.35%
Cash and due from banks ......................      8,370                         6,573                      4,845
Allowance for loan losses ....................     (1,065)                       (2,263)                    (2,304)
Unrealized securities gains (losses) .........     (2,286)                       (2,341)                    (1,601)
Premises and equipment .......................      8,189                         7,586                      5,240
Other assets .................................      6,227                         3,914                      3,346
                                                 --------                      --------                   --------
         Total assets ........................   $378,060                      $339,748                   $307,376
                                                 ========                      ========                   ========

Liabilities and shareholders' equity
Interest bearing deposits
     Interest bearing transaction accounts ...   $ 57,117   $  1,783   3.12%   $ 46,942 $ 1,358   2.89%   $ 36,111  $   383    1.06%
     Savings .................................     25,042        658   2.63%     28,513     736   2.58%     28,586      381    1.33%
     Time deposits $100M and over ............     85,815      4,054   4.72%     72,936   2,953   4.05%     64,821    2,118    3.27%
     Other time deposits .....................    126,588      6,531   5.16%    114,091   5,100   4.47%    105,798    3,438    3.25%
                                                 --------   --------           -------- -------           --------  -------
         Total interest bearing
           deposits ..........................    294,562     13,026   4.42%    262,482  10,147   3.87%    235,316    6,320    2.69%
Short-term borrowings ........................          -          -   0.00%         56       2   3.57%        736       18    2.45%
Long-term debt ...............................      4,975        204   4.10%      5,955     236   3.96%      7,456      283    3.80%
                                                 --------   --------           -------- -------           --------  -------
         Total interest bearing liabilities ..    299,537     13,230   4.42%    268,493  10,385   3.87%    243,508    6,621    2.72%
Noninterest bearing demand deposits ..........     40,099                        38,197                     34,675
Other liabilities ............................      3,225                         2,489                      1,873
Shareholders' equity .........................     35,199                        30,569                     27,320
                                                 --------                      --------                   --------
         Total liabilities and shareholders'
         equity ..............................   $378,060                      $339,748                   $307,376
                                                 ========                      ========                   ========
Interest rate spread  (5) ....................                         2.15%                      2.14%                        2.63%
Net interest income and net yield
     on earning assets  (6) ..................              $ 10,348   2.89%            $ 9,215   2.82%             $ 9,302    3.12%
Interest free funds supporting earning
     assets  (7) .............................   $ 59,088                      $ 57,786                   $ 54,342


__________________________
(1)  Average balances are computed on a daily basis.
(2)  Income and yields on tax-exempt securities and loans have not been adjusted
     on a tax equivalent basis.
(3)  Nonaccrual  loans are included in the average  loan  balances and income on
     such loans generally is recognized on a cash basis.
(4)  Includes immaterial amounts of loan fees.
(5)  Total  interest  earning  assets  yield  less the  total  interest  bearing
     liabilities rate.
(6)  Net interest  income divided by total interest  earning  assets.
(7)  Total interest earning assets less total interest bearing liabilities.


                                      B-56


The table, "Volume and Rate Variance Analysis", provides a summary of changes in
net interest income resulting from changes in volumes of interest earning assets
and interest bearing liabilities (change in volume times prior period rate), and
the rates earned and paid on such assets and  liabilities  (change in rate times
prior period volume).



                                                                 2007 Compared with 2006              2006 Compared with 2005
                                                                 -----------------------              -----------------------
                                                          Volume (1)    Rate (1)     Total       Volume (1)   Rate (1)      Total
                                                          ----------    --------     -----       ----------   --------      -----
                                                                                  (Dollars in thousands)
                                                                                                          
Interest bearing deposits due from banks .............     $     3      $    (1)     $     2      $    (3)     $     2      $    (1)
Taxable securities ...................................        (410)         432           22         (218)         522          304
Tax-exempt securities ................................         129           52          181          463           23          486
Federal funds sold ...................................         (53)          87           34           99          408          507
Federal Home Loan Bank stock .........................          (4)           8            4           (1)          15           14
Loans ................................................       3,143          592        3,735        1,450          917        2,367
                                                           -------      -------      -------      -------      -------      -------
                  Total interest income ..............       2,808        1,170        3,978        1,790        1,887        3,677
                                                           -------      -------      -------      -------      -------      -------
Interest bearing deposits
      Interest bearing transaction accounts ..........         311          114          425          144          831          975
      Savings ........................................         (91)          13          (78)          (1)         356          355
      Time deposits $100M and over ...................         566          535        1,101          287          548          835
      Other time deposits ............................         594          837        1,431          287        1,375        1,662
Short-term borrowings ................................          (2)           -           (2)         (22)           6          (16)
Long-term debt .......................................         (40)           8          (32)         (59)          12          (47)
                                                           -------      -------      -------      -------      -------      -------
                  Total interest expense .............       1,338        1,507        2,845          636        3,128        3,764
                                                           -------      -------      -------      -------      -------      -------
                  Net interest income ................     $ 1,470      $  (337)     $ 1,133      $ 1,154      $(1,241)     $   (87)
                                                           =======      =======      =======      =======      =======      =======

--------------------------------------------
(1)  The  rate/volume  variance  for  each  category  has  been  allocated  on a
     consistent  basis between rate and volume variances based on the percentage
     of rate or volume variance to the sum of the two absolute  variances except
     in categories having balances in only one period. In such cases, the entire
     variance is attributed to volume variances.

         Management currently is not able to predict with any significant degree
of certainty either the direction or frequency of changes in interest rates that
may occur during 2008.  The  heightened  uncertainty is related to the potential
lingering  effects of the  "liquidity  crunch" that arose in  short-term  credit
markets  late  in the  third  quarter  of 2007  and to the  government-initiated
response to concerns that a significant  number of homeowners across the country
could  face  foreclosure  during  2008  because of  certain  lending  practices,
primarily  in the  sub-prime  segment of the  residential  housing  loan market.
Changes in interest  rates that can  significantly  affect the  Company,  either
positively or negatively, are possible.

Provision for Loan Losses

         The  provision  for  loan  losses  is  charged  to  earnings  based  on
management's  continuing  review and  evaluation  of the loan  portfolio and its
estimate of the related  allowance for loan losses.  Provisions  for loan losses
were $594,000,  $65,000 and $250,000 for the years ended December 31, 2007, 2006
and 2005,  respectively.  The larger  provision  amount for 2007  resulted  from
higher net charge-offs,  a significant  increase in loans outstanding at the end
of the year,  uncertainty  about  whether the  Company's  market  areas would be
susceptible  to the  declines  in real estate  values  that have been  exhibited
elsewhere,  and an increase in the amount of nonaccrual loans. The allowance for
loan  losses  as a  percentage  of total  loans at  year-end  was 1.05% for 2007
compared  with  1.10% for 2006.  Net  charge-offs  for 2007  were  $262,000,  an
increase of $173,000  over the 2006 amount.  See  "Impaired  Loans,"  "Potential
Problem  Loans,"  "Allowance  for Loan Losses" and "The  Application of Critical
Accounting Policies" for further information and a discussion of the methodology
used and factors  considered  by management in its estimate of the allowance for
loan losses.


                                      B-57


Other Income

         Noninterest  income for 2007  increased  by $52,000 over the amount for
2006 due to increases in the cash  surrender  value of life  insurance  policies
owned by the  Bank and  higher  amounts  of  income  from  ATM and  other  debit
card-related  services.  There  were no  realized  gains or  losses  on sales of
investment  securities in 2007 or 2006.  Service charges on deposit accounts for
2007 were $42,000  less than in 2006 due to lower  activity  associated  with an
overdraft  protection  product.  Mortgage brokerage income declined to less than
half of its 2006 level as the Company originated more residential mortgage loans
for its own portfolio in 2007.

         Noninterest  income for 2006  increased  by $15,000 over the amount for
2005,  primarily  due to  increased  sales of credit life  insurance  and higher
amounts of income from ATM and other debit card-related services.  There were no
realized  gains or losses  on sales of  investment  securities  in 2006 or 2005.
Mortgage brokerage income for 2006 was $42,000 less than for 2005.


Other Expenses

2007 Compared with 2006

         Noninterest  expense for 2007 increased by $380,000,  or 5.6%, over the
amount for 2006. Salaries and employee benefits increased by $474,000, or 13.0%,
over the amount for 2006  primarily  due to $386,000  in  deferred  compensation
expense recognized under the compensation and retention  agreements entered into
with the Company's Chief Executive  Officer,  which was partially  offset by the
non-recurring  effects of the  adoption of SFAS 123(R) and  acceleration  of the
vesting  schedules of all  affected  options in 2006.  Share-based  compensation
expense  recognized in salaries and employee  benefits in 2006 was approximately
$302,000.  During 2006, the Company  discontinued  granting stock options to its
officers and directors;  therefore, there was no comparable expense in 2007. The
remainder of the increase in salaries  and  benefits is  attributable  to normal
salary increases,  and increases in personnel related to the continued expansion
of the Bank's network of offices.

         Net occupancy and furniture and equipment expense for 2007 increased by
$96,000 over the amounts for 2006 due to higher depreciation,  real estate taxes
and other expenses related to operating the expanded office network.

         Other expenses for 2007 decreased by $190,000 from the 2006 amount. The
non-recurring  effects of  adopting  SFAS  123(R) in 2006  included  $291,000 of
directors'  compensation  that was then  included in other  operating  expenses.
Other expenses decreasing in 2007 including expenses for printing and stationery
(down  $13,000),  advertising  and promotion  (down  $6,000),  other real estate
expenses  (down  $5,000),  and  data  processing  and  software  expenses  (down
$22,000).  Other  notable  increases in other  expenses  were noted in telephone
expense  which  increased  by $9,000 and  professional  services  expense  which
increased by $83,000  primarily for fees paid to a  compensation  consultant for
services related to the CEO's compensation and retention agreements.

         Certain  noninterest  expenses  are expected to continue to increase in
2008,  including  occupancy and furniture  and  equipment  expense.  The Company
continues  to expand the Bank's  network  of  offices  as  evidenced  by the new
Seneca,  SC office  opened in 2006, a new Highway 81  Anderson,  SC office which
opened in the fourth quarter of 2007, and the acquisition of property for future
expansion  near  Powdersville,   SC.  Management  closely  monitors  noninterest
expenses so that profitability objectives may be achieved while promoting growth
in the Company's market share in Oconee and Anderson counties.

2006 Compared with 2005

         Noninterest  expense for 2006 increased by $1,332,000,  or 24.6%,  over
the amount for 2005.  Salaries and employee benefits  increased by $744,000,  or
25.6%,  over the amount for 2005 primarily due to the effects of the adoption of
SFAS 123(R),  the opening of the new Seneca banking office,  and normal periodic
salary  increases.  Occupancy  and  furniture  and  equipment  expenses for 2006
increased by $166,000 or 27.1%.

         Prior to January 1, 2006,  the Company  accounted  for its  stock-based
compensation   plans  under  the  recognition  and  measurement   principles  of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations. No stock-based employee compensation
cost was previously  reflected in net income, as all options granted under those
plans had an exercise price equal to the market value of the  underlying  common


                                      B-58


stock on the date of grant. The Company  previously  provided only the pro forma
disclosures  required by Financial Accounting Standards Board ("FASB") Statement
No. 123,  "Accounting  for  Stock-Based  Compensation,"  as  amended.  Effective
January 1, 2006, the Company adopted SFAS 123(R),  "Share-Based Payment." In the
fourth  quarter  of  2006,  the  Company's  Board  of  Directors   modified  all
outstanding options so that they would be vested immediately.  Therefore, all of
the  compensation  costs for all affected  options ever granted were included in
the determination of net income for 2006.

         In the second quarter of 2006, the Company completed  construction of a
new three-story office building in Seneca, SC where it opened a new full-service
banking  office and into which it relocated  several of its officers and related
support  staff.  As a result,  the Walhalla  banking  office and the deposit and
computer  operations  departments  expanded  into  the  floor  space  previously
occupied by those personnel, the older office in Seneca gained additional office
space,  and the Company  realized  increased  efficiency  by having its officers
housed in one location.

Income Taxes

         For 2007,  federal and state income taxes decreased by $37,000 from the
2006 amount. For 2006, federal and state income taxes decreased by $507,000,  or
24.8%, to $1,534,000. The effective income tax rates (income tax expense divided
by income before income  taxes) were 31.0% for 2007,  33.7% for 2006,  and 35.4%
for 2005.  The  Company's  income from  nontaxable  sources,  such as nontaxable
investment securities or loans to local governments,  has recently become a more
significant  factor in the  determination of its effective tax rate.  Nontaxable
securities  income totaled  $817,000 in 2007,  $636,000 in 2006, and $150,000 in
2005. Also, 2007 is the first year in which the Company had income  representing
increases in the cash surrender  value of bank-owned  life  insurance  policies.
Such income, which totaled $108,000, is not subject to federal income taxes.

Securities

         The following table summarizes the carrying value amounts of securities
held by the Company at each of the dates indicated.

                                 Securities Portfolio Composition



                                                                                                      December 31,
                                                                                                      ------------
                                                                                       2007                2006               2005
                                                                                       ----                ----               ----
                                                                                                (Dollars in thousands)
Available-for-sale
                                                                                                                   
   Government-sponsored enterprises (GSEs) .............................            $ 56,545            $ 56,204            $ 58,004
   State, county and municipal .........................................              20,288              18,939               9,960
   Mortgage-backed securities issued by GSEs ...........................              22,193              27,344              34,106
                                                                                    --------            --------            --------
       Total available-for-sale ........................................              99,026             102,487             102,070
                                                                                    --------            --------            --------
Held-to-maturity
   Mortgage-backed securities issued by GSEs ...........................               5,663               6,595               7,751
                                                                                    --------            --------            --------
       Total securities ................................................            $104,689            $109,082            $109,821
                                                                                    ========            ========            ========



                                      B-59



         The following table presents  maturities and weighted average yields of
securities  at  December  31,  2007.  Yields on  tax-exempt  state,  county  and
municipal obligations have not been computed on a taxable-equivalent basis.

                   Securities Portfolio Maturities and Yields



                                                                           December 31, 2007
                                                                           -----------------
                                                               After             After
                                                              One Year         Five Years
                                           Within             Through           Through              After
                                          One Year           Five Years        Ten Years           Ten Years           Total
                                          --------           ----------        ---------           ---------           -----
                                       Amount    Yield     Amount   Yield    Amount   Yield     Amount    Yield   Amount     Yield
                                       ------    -----     ------   -----    ------   -----     ------    -----   ------     -----
                                                                        (Dollars in thousands)
                                                                                                
Government-sponsored
     enterprises (GSEs) ..........   $ 14,096    3.58%   $ 17,539   4.66%   $ 20,894    5.45%    $ 4,016   5.83%   $ 56,545   4.77%
State, county and municipal ......          -    0.00%      1,284   3.49%      2,499    3.98%     16,505   4.07%     20,288   4.02%
Mortgage-backed securities
     issued by GSEs ..............      1,247    3.79%      9,521   3.87%      4,097    3.84%     12,991   4.32%     27,856   4.07%
                                     --------            --------           --------            --------          ---------
        Total ....................   $ 15,343    3.60%   $ 28,344   4.34%   $ 27,490    5.08%   $ 33,512   4.38%  $ 104,689   4.44%
                                     ========            ========           ========            ========          =========

____________________________
(1)  Maturity  categories  based  upon  final  stated  maturity  dates.  Average
     maturity  is  substantially  shorter  because  of  the  monthly  return  of
     principal on certain securities.

         Government-sponsored enterprises ("GSEs") are agencies and corporations
established by the U.S.  Government,  including,  among others, the Federal Home
Loan Banks,  Federal National Mortgage  Association,  Federal Home Loan Mortgage
Corporation  and  Federal  Farm  Credit  Banks.   Securities   issued  by  these
enterprises are not obligations of the U.S. Government and are not backed by the
full faith and credit of the U.S. Government or otherwise guaranteed by the U.S.
Government.   Evidencing  the  high-quality  of  the  issuers,   however,  these
securities  generally are eligible to be used as security for public deposits of
the U.S.  Treasury,  government  agencies and  corporations and states and other
political  subdivisions.  The  Company  believes  that its  investment  in these
securities at these levels is prudent, given the excellent credit ratings of the
GSEs. As of December 31, 2007,  securities  with a carrying value of $63,852,000
were pledged to secure public deposits.

         On an ongoing basis,  management  assigns securities upon purchase into
one of three categories (trading,  available-for-sale or held-to-maturity) based
on intent,  taking into consideration  other factors including  expectations for
changes in market rates of interest, liquidity needs, asset/liability management
strategies, and capital requirements.  The Company has never held securities for
trading  purposes.  During 2007, 2006 and 2005, the Company realized no gains or
losses on sales of investment securities.  No transfers of available-for-sale or
held-to-maturity  securities to other  categories  were made in any of the years
2005 through 2007.

         The investment  portfolio decreased by $4,393,000 in 2007 from the 2006
year-end amount.  During 2007, the Company's  investment in securities issued by
GSEs increased only minimally,  securities issued by state, county and municipal
governments increased by $1,349,000, or 7.1%, and investments in mortgage-backed
securities  issued by GSEs decreased by $6,083,000,  or 17.9%.  The Company last
purchased  mortgage-backed  securities  issued by GSEs in July 2005. Income from
securities issued by state, county and municipal governments is generally exempt
from federal  income taxes.  Through the interest rate cycle,  the advantages of
holding  different  types of  securities,  and  management's  preferences  among
categories of earning  assets,  change.  Consequently,  the  composition  of the
investment portfolio may change as management  continually seeks to maximize the
yield  realized  from  earning  assets  within  the  constraints  of other  risk
mitigation policies.

         The  investment  portfolio  decreased by $739,000 in 2006 from the 2005
year-end amount.  During 2006, the Company's  investment in securities issued by
state,  county and  municipal  governments  increased  by  $8,979,000  while its
investment in mortgage-backed securities issued by GSEs decreased by $7,918,000,
continuing a trend which began in 2005.

         The overall yield on investment securities held as of December 31, 2007
was 4.44%,  compared with 4.10% as of December 31, 2006 and 3.61% as of December
31, 2005.  Short-term market rates of interest were steady for the first half of
2007  before  declining  somewhat  in the latter  half of the year.  Those rates
increased  somewhat  during  2006 and  more  dramatically  in 2005.  Longer-term
interest  rates  have  been  relatively  more  stable.  These  external  factors


                                      B-60


determine  the  yields   available  on  investment   securities  and  contribute
significantly  to the  Company's  pricing  structure  for its loan  and  deposit
products.

         All  mortgage-backed  securities  held by the  Company in 2007 and 2006
were issued by the Federal Home Loan Mortgage Corporation,  the Federal National
Mortgage Association or the Government National Mortgage Association.


Loan Portfolio

         Management believes the loan portfolio is adequately diversified. There
are no concentrations of loans in any particular individual,  industry or groups
of  related  individuals  or  industries,  and there are no foreign  loans.  The
Company's loan portfolio is, however,  dependent upon economic and other factors
that affect its local market area.

         The amounts of loans outstanding as of the end of each of the last five
years,  and the  percentage  of each  category to total loans,  are shown in the
following tables according to type of loan:

          Loan Portfolio Composition


                                                                                          December 31,
                                                                                          ------------
                                                              2007             2006           2005             2004             2003
                                                              ----             ----           ----             ----             ----
                                                                                    (Dollars in thousands)
Commercial, financial and industrial
                                                                                                             
      Commercial and industrial ....................        $ 22,042        $ 22,268        $ 20,873        $ 21,907        $ 20,592
      Purchasing or carrying securities ............           1,823           2,000           2,136           2,372           2,323
Real estate - construction .........................           2,201           1,982             674             338             436
Real estate - mortgage
      1-4 family residential .......................         131,944          98,708          72,774          65,360          58,762
      Multifamily (5 or more) residential ..........           2,421           1,900           1,229           1,036           2,095
      Nonfarm, nonresidential ......................          50,833          47,337          46,544          43,589          40,834
Consumer installment
      Credit card and checking credit ..............           1,407           1,334           1,148           1,036             998
      Other ........................................          31,460          27,437          23,940          22,137          21,610
                                                            --------        --------        --------        --------        --------
                     Total loans ...................        $244,131        $202,966        $169,318        $157,775        $147,650
                                                            ========        ========        ========        ========        ========


             Percentage Loan Portfolio Composition



                                                                                            December 31,
                                                                                            ------------
                                                                     2007         2006          2005          2004          2003
                                                                     ----         ----          ----          ----          ----
Commercial, financial and industrial
                                                                                                            
      Commercial and industrial ..............................       9.0%         11.0%         12.3%         13.9%         13.9%
      Purchasing or carrying securities ......................       0.8%          1.0%          1.3%          1.5%          1.6%
Real estate - construction ...................................       0.9%          1.0%          0.4%          0.2%          0.3%
Real estate - mortgage
      1-4 family residential .................................      54.0%         48.6%         43.0%         41.4%         39.8%
      Multifamily (5 or more) residential ....................       1.0%          0.9%          0.7%          0.7%          1.4%
      Nonfarm, nonresidential ................................      20.8%         23.3%         27.5%         27.6%         27.7%
Consumer installment
      Credit card and checking credit ........................       0.6%          0.7%          0.7%          0.7%          0.7%
      Other ..................................................      12.9%         13.5%         14.1%         14.0%         14.6%
                                                                   -----         -----         -----         -----         -----
                     Total loans .............................     100.0%        100.0%        100.0%        100.0%        100.0%
                                                                   =====         =====         =====         =====         =====


         A certain degree of risk taking is inherent in the extension of credit.
Management has established  loan and credit  policies and practices  designed to
control  both the types and amounts of risks  assumed,  and to minimize  losses.


                                      B-61


Such policies and practices include limitations on loan-to-collateral values for
various  types  of  collateral,  requirements  for  appraisals  of  real  estate
collateral,  problem loan management  practices and collection  procedures,  and
nonaccrual and charge-off guidelines.

         Total  loans  grew   $41,165,000  or  20.3%  in  2007,   compared  with
$33,648,000  or 19.9% in 2006. The ratio of total loans to total deposits at the
end of 2007 was 68.6%,  compared with 65.9% at the end of 2006.  The  percentage
composition  of the loan  portfolio as to type of loan trended more toward loans
secured  by 1-4  family  residential  real  estate  and  away  from  commercial,
financial and  industrial  loans during the five year period ended  December 31,
2007.

         Commercial  and  industrial   loans   primarily   represent   loans  to
businesses,  and may be made on either a secured  or an  unsecured  basis.  When
taken,   collateral  usually  consists  of  liens  on  receivables,   equipment,
inventories,  furniture and  fixtures.  Unsecured  business  loans are generally
short-term with emphasis on repayment  strengths and low  debt-to-worth  ratios.
During 2007,  total  commercial  and industrial  loans  decreased by $226,000 or
1.0%, compared with an increase of $1,395,000 or 6.7%, during 2006. Loans mainly
for business and investment  purposes that are secured by real estate  (nonfarm,
nonresidential)  increased  by  $3,496,000  or 7.4% in  2007,  compared  with an
increase of $793,000 or 1.7% in 2006.  Commercial  lending involves  significant
risk  because  repayment  usually  depends  on the  cash  flows  generated  by a
borrower's business, and the debt service capacity of a business can deteriorate
because of downturns in national and local economic conditions. To control risk,
more in-depth  initial and continuing  financial  analysis of a borrower's  cash
flows and other financial information is generally required.

         Real estate  construction  loans  generally  consist of  financing  the
construction  of 1-4 family  dwellings  and some  nonfarm,  nonresidential  real
estate. Usually, loan-to-value ratios are limited to 75% and permanent financing
commitments are usually required prior to the advancement of loan proceeds.

         Loans secured by real estate mortgages comprised  approximately 76% and
73% of the Company's loan  portfolio at the end of 2007 and 2006,  respectively.
Real  estate  mortgage  loans of all types grew  $37,253,000  during 2007 and by
$27,398,000  during 2006.  Residential real estate loans consist mainly of first
and second  mortgages on single family homes,  with some multifamily home loans.
Loan-to-value  ratios  for  these  instruments  are  generally  limited  to 80%.
Nonfarm, nonresidential real estate loans are secured by business and commercial
properties with loan-to-value  ratios generally limited to 70%. The repayment of
both  residential  and business real estate loans is dependent  primarily on the
income  and cash  flows of the  borrowers,  with the real  estate  serving  as a
secondary or  liquidation  source of  repayment.  The Company does not originate
high-risk  mortgage  loans  such as  so-called  option  ARMs,  loans  with  high
loan-to-value ratios (without requiring the purchaser to obtain private mortgage
insurance),  loans with fixed  monthly  payment  amounts  that are less than the
interest  accrued on the loan, or loans with low initial  monthly  payments that
increase to much higher levels at some future time.

         Real  estate  values  in  the  Company's  market  areas,   particularly
residential real properties, have so far remained relatively steady and have not
suffered the  precipitous  decreases seen in some areas,  though there can be no
assurance  that  such  values  will not  suffer  declines  in the  future.  High
foreclosure rates drive down property values, are related to higher crime rates,
displace  families,  and have other  negative  effects on the local and national
economies. National political and industry leaders recently have been working to
encourage  private-sector  programs whereby lenders and mortgage servicers would
be able to work with distressed borrowers to prevent a glut of foreclosures.  By
reworking loan terms,  including  eliminating or reducing to a manageable  level
the payment shock that often results when certain adjustable-rate loans "reset,"
it may be possible for borrowers to continue making monthly  payments and remain
in their homes. In addition, the Federal Reserve recently has initiated a series
of interest  rate cuts to provide  stimulus to the  national  economy and has on
several occasions proactively provided liquidity to the banking system.

Maturity and Interest Sensitivity Distribution of Loans

         The  following  table  sets  forth  the  maturity  distribution  of the
Company's  loans,  by type,  as of  December  31,  2007,  as well as the type of
interest requirement on such loans.


                                      B-62




                                                                                         December 31, 2007
                                                                                         -----------------
                                                                        Due in          Due after
                                                                       One Year         One through     Due after
                                                                        or Less        Five Years       Five Years         Total
                                                                        -------        ----------       ----------         -----
                                                                                       (Dollars in thousands)
                                                                                                              
Commercial, financial and industrial ...............................     $ 10,199        $  12,624        $  1,042        $  23,865
Real estate - construction .........................................          519            1,624              58            2,201
Real estate - mortgage .............................................       68,804           75,154          41,240          185,198
Consumer installment ...............................................        8,747           21,276           2,844           32,867
                                                                         --------        ---------        --------        ---------
                 Total loans .......................................     $ 88,269        $ 110,678        $ 45,184        $ 244,131
                                                                         ========        =========        ========        =========

Predetermined rate, maturity greater than one year .................                     $ 101,348        $ 10,635        $ 111,983
                                                                                         =========        ========        =========

Variable rate or maturity within one year ..........................     $ 88,269        $   9,330        $ 34,549        $ 132,148
                                                                         ========        =========        ========        =========


Impaired Loans

         Impaired loans are those loans on which,  based on current  information
and  events,  it is  probable  that the  Company  will be unable to collect  all
amounts due  according to the  contractual  terms of the loan  agreement.  Loans
which management has identified as impaired  generally are nonperforming  loans.
Nonperforming loans include nonaccrual loans and loans which are 90 days or more
delinquent  as to  principal  or  interest  payments.  The  Company had no loans
accounted for as troubled debt restructurings in the past five years.  Following
is a summary of the Company's impaired loans:

            Nonaccrual and Past Due Loans


                                                                                             December 31,
                                                                                             ------------
                                                                   2007           2006          2005           2004           2003
                                                                   ----           ----          ----           ----           ----
                                                                                        (Dollars in thousands)
                                                                                                              
Nonaccrual loans ........................................        $  625         $   50         $  900         $1,465         $  997
Accruing loans 90 days or more past due .................             -              -              5              9              -
                                                                 ------         ------         ------         ------         ------
             Total ......................................        $  625         $   50         $  905         $1,474         $  997
                                                                 ======         ======         ======         ======         ======

Percent of total loans ..................................           0.3%           0.0%           0.5%           0.9%           0.7%


         When an  impaired  loan is 90 days or more past due as to  interest  or
principal or there is serious doubt as to ultimate  collectibility,  the accrual
of interest income is generally  discontinued.  Previously  accrued  interest on
loans placed in a nonaccrual  status is reversed  against  current  income,  and
subsequent interest income is recognized on a cash basis when received. When the
collectibility  of a  significant  amount  of  principal  is in  serious  doubt,
collections  are credited  first to the  remaining  principal  balance on a cost
recovery  basis.  An impaired  nonaccrual loan is not returned to accrual status
unless  principal and interest are current and the borrower has demonstrated the
ability to continue  making  payments as agreed.  The amount of interest  income
that would have been included in income if nonaccrual  loans had been current in
accordance with their terms and the amounts of interest income actually  accrued
and collected were immaterial to the consolidated financial statements for 2007,
2006 and 2005.

         As of December 31, 2007, there were no irrevocable  commitments to lend
additional funds to debtors owing amounts on nonaccrual loans.

Potential Problem Loans

         Management  has  identified  and maintains a list of potential  problem
loans that are not included in impaired loans (nonaccrual or past due 90 days or
more and still  accruing).  A loan is added to the  potential  problem list when
management  becomes  aware of  information  about  possible  credit  problems of
borrowers  that causes doubts as to the ability of such borrowers to comply with


                                      B-63


the current  loan  repayment  terms.  The total amount of loans  outstanding  at
December 31, 2007  determined by  management  to be potential  problem loans was
$3,088,000,  a decrease of $88,000  from the amount of such loans as of December
31,  2006.  This amount does not  represent  management's  estimate of potential
losses  since a large  proportion  of such loans is secured by various  types of
collateral.  The  following  table  presents  information  about  the  types  of
collateral securing potential problem loans.

                                                     December 31, 2007
                                                     -----------------
                                                   Amount                %
                                                   ------              ------
                                                   (Dollars in thousands)

Real estate mortgage .......................      $2,349               76.1%
Vehicles ...................................         131                4.2%
Mobile homes ...............................          16                0.5%
Other ......................................         467               15.1%
Unsecured ..................................         125                4.1%
                                                  ------              -----
           Total ...........................      $3,088              100.0%
                                                  ======              =====

Allowance for Loan Losses

         The table, "Summary of Loan Loss Experience",  summarizes loan balances
at the end of each period  indicated,  averages for each period,  changes in the
allowance  arising  from  charge-offs  and  recoveries  by  loan  category,  and
additions to the allowance which have been charged to expense.

         Management  believes  that  an  aggregate  evaluation  that  emphasizes
individual  loan risk  grades and  specific  problem  loan  allocations  is more
meaningful than an allocation by loan categories. Management is not aware of any
significant  degree of increased  exposure,  risk of collection or other adverse
features in any particular  category of loans.  See "The Application of Critical
Accounting  Policies" for further  discussion of the factors and procedures used
by management in estimating the allowance for loan losses.


                                      B-64


                 Summary of Loan Loss Experience


                                                                                        Years Ended December 31,
                                                                                        ------------------------
                                                                          2007        2006         2005        2004          2003
                                                                          ----        ----         ----        ----          ----
                                                                                                  (Dollars in thousands)
                                                                                                            
Total loans outstanding at end of period ..........................    $244,131     $202,966     $169,318     $157,775     $147,650
Average amount of loans outstanding ...............................     224,353      184,032      164,243      152,546      142,322

Balance of allowance for loan losses - beginning ..................    $  2,242     $  2,266     $  2,240     $  2,197     $  1,950
                                                                       --------     --------     --------     --------     --------
Loans charged off
     Commercial and industrial ....................................          88           13            -           31          305
     Real estate - mortgage .......................................          13            6           61          104            -
     Consumer installment .........................................         191          115          242          226            -
                                                                       --------     --------     --------     --------     --------
           Total charge-offs ......................................         292          134          303          361          305
                                                                       --------     --------     --------     --------     --------
Recoveries of loans previously charged off
     Commercial and industrial ....................................           -            -            -            6           30
     Real estate - mortgage .......................................           -           31           10            -            -
     Consumer installment .........................................          30           14           69           18            -
                                                                       --------     --------     --------     --------     --------
           Total recoveries .......................................          30           45           79           24           30
                                                                       --------     --------     --------     --------     --------
Net charge-offs ...................................................         262           89          224          337          275
                                                                       --------     --------     --------     --------     --------
Additions to allowance charged to expense .........................         594           65          250          380          522
                                                                       --------     --------     --------     --------     --------
Balance of allowance for loan losses - ending .....................    $  2,574     $  2,242     $  2,266     $  2,240     $  2,197
                                                                       ========     ========     ========     ========     ========

Ratios
     Net charge-offs to average loans .............................        0.12%        0.05%        0.14%        0.22%        0.19%
     Net charge-offs to loans at end of period ....................        0.11%        0.04%        0.13%        0.21%        0.19%
     Allowance for loan losses to average loans ...................        1.15%        1.22%        1.38%        1.47%        1.54%
     Allowance for loan losses to loans at end of period ..........        1.05%        1.10%        1.34%        1.42%        1.49%
     Net charge-offs to allowance for loan losses .................       10.18%        3.97%        9.89%       15.04%       12.52%
     Net charge-offs to provision for loan losses .................       44.11%      136.92%       89.60%       88.68%       52.68%


Deposits

         The average amounts and percentage  composition of deposits held by the
Company for the years ended  December 31, 2007,  2006 and 2005,  are  summarized
below:

                                Average Deposits



                                                                               Years Ended December 31,
                                                                               ------------------------
                                                                   2007                     2006                      2005
                                                         Amount           %         Amount         %          Amount         %
                                                         ------         -----       ------       -----        ------       ------
                                                                                 (Dollars in thousands)
                                                                                                        
Noninterest bearing demand .....................       $ 40,099         12.0%     $ 38,197        12.7%     $ 34,675       12.8%
Interest bearing transaction accounts ..........         57,117         17.1%       46,942        15.6%       36,111       13.4%
Savings ........................................         25,042          7.5%       28,513         9.5%       28,586       10.6%
Time deposits $100M and over ...................         85,815         25.6%       72,936        24.3%       64,821       24.0%
Other time deposits ............................        126,588         37.8%      114,091        37.9%      105,798       39.2%
                                                       --------        -----      --------       -----      --------      -----
            Total deposits .....................       $334,661        100.0%     $300,679       100.0%     $269,991      100.0%
                                                       ========        =====      ========       =====      ========      =====


         As of December 31, 2007,  there were  $96,547,000  in time  deposits of
$100,000  or  more.  Approximately   $25,246,000  mature  within  three  months,


                                      B-65


$32,252,000  mature over three through six months,  $34,559,000  mature over six
through twelve months and $4,490,000  mature after one year. This level of large
time deposits,  as well as the growth in other deposits, is attributed to growth
planned by management.  The vast majority of time deposits $100,000 and over are
acquired  within the Company's  market areas in the ordinary  course of business
from customers  with standing  banking  relationships.  As of December 31, 2007,
approximately  $23,345,000  of time  deposits of  $100,000  or more  represented
deposits of local governmental entities. It is a common industry practice not to
consider  time  deposits  of  $100,000  or  more as core  deposits  since  their
retention can be influenced heavily by rates offered.  Therefore,  such deposits
have the  characteristics  of  shorter-term  purchased  funds.  Certificates  of
deposit  $100,000  and over  require  that the Company  achieve and  maintain an
appropriate matching of maturity  distributions and a diversification of sources
to achieve an  appropriate  level of  liquidity.  The Company  does not purchase
brokered deposits.


Return on Equity and Assets

         The following  table shows the return on assets (net income  divided by
average total assets),  return on equity (net income divided by average equity),
dividend  payout ratio  (dividends  declared per share divided by net income per
share),  and equity to assets ratio  (average  equity  divided by average  total
assets) for each period indicated.

                                                Years Ended December 31,
                                                ------------------------
                                           2007            2006           2005
                                           ----            ----           ----

          Return on assets .............   0.88%          0.89%          1.21%
          Return on equity .............   9.46%          9.87%         13.65%
          Dividend payout ratio ........   0.00%          0.00%          0.00%
          Equity to assets ratio .......   9.31%          9.00%          8.89%

Liquidity

         Liquidity is the ability to meet current and future obligations through
liquidation  or maturity of existing  assets or the  acquisition  of  additional
liabilities.  Adequate  liquidity  is  necessary  to meet  the  requirements  of
customers for loans and deposit  withdrawals  in the most timely and  economical
manner.  Some liquidity is ensured by maintaining  assets which are  convertible
immediately  into cash at minimal cost (amounts due from banks and federal funds
sold).  However,  the most  manageable  sources of  liquidity  are  composed  of
liabilities, with the primary focus on liquidity management being on the ability
to obtain  deposits  within the  Company's  market areas.  Core deposits  (total
deposits less time  deposits of $100,000 and over)  provide a relatively  stable
funding base,  and the average of these  deposits  represented  65.8% of average
total assets during 2007  compared  with 67.0% during 2006.  Deposits of several
local  governmental  entities  comprised  approximately  12%  and  13% of  total
deposits at the end of 2007 and 2006,  respectively.  Because of the potentially
volatile  nature of this funding  source,  the Bank maintains  membership in the
Federal  Home Loan Bank of Atlanta  (the  "FHLB") in order to gain access to its
credit  programs.  During 2004, the banking  subsidiary  obtained  approximately
$10,000,000  of short-term  borrowings  and long-term  debt from the FHLB. As of
December 31, 2007,  $4,500,000 of these borrowings remained  outstanding and the
banking  subsidiary is eligible to borrow up to an additional  $39,779,000  from
the FHLB.  Such borrowings are secured by a lien on its investment in FHLB stock
and  certain  first  mortgage  residential  loans  held.  The amount of eligible
collateral instruments remaining available as of December 31, 2007 to secure any
additional FHLB borrowings totaled approximately  $29,211,000.  In addition, the
banking  subsidiary has available unused  short-term lines of credit to purchase
up to an additional  $10,900,000 of federal funds from  unrelated  correspondent
institutions.  The lines  generally  limit the  period of time that any  related
borrowings  may be  outstanding  and are  cancelable  at any  time  in the  sole
discretion  of the lender.  Asset  liquidity is provided  from several  sources,
including   amounts   due  from  banks  and  federal   funds  sold.   Securities
available-for-sale  and funds  available  from  maturing  loans and  paydowns of
mortgage-backed securities provide secondary sources of liquidity.

         Community First  Bancorporation's  ability to meet its cash obligations
or to pay any  possible  future cash  dividends  to  shareholders  is  dependent
primarily on the successful  operation of the subsidiary bank and its ability to
pay cash dividends to the parent company.  Any of the banking  subsidiary's cash
dividends  in excess  of the  amount of the  subsidiary's  current  year-to-date
earnings  ($3,346,000 at December 31, 2007) are subject to the prior approval of
the South Carolina  Commissioner of Banking. In addition,  dividends paid by the
banking  subsidiary  to the parent  company  would be  prohibited  if the effect
thereof would cause the Bank's  capital to be reduced below  applicable  minimum
regulatory requirements.  In 2007, 2006 and 2005, the parent company received no
cash  dividends  from  its  banking  subsidiary.  Under  Federal  Reserve  Board
regulations, the amounts of loans or advances from the banking subsidiary to the
parent company are also restricted.


                                      B-66


         Management  believes  that the  overall  liquidity  sources of both the
Company and its banking subsidiary are adequate to meet their operating needs.


Capital Resources

         Shareholders' equity increased by $4,696,000 and $4,361,000 during 2007
and 2006,  respectively.  During 2007, net income increased shareholders' equity
by $3,331,000  and the exercise of stock options and related income tax benefits
provided increases totaling $566,000.  Other comprehensive income or loss, which
consisted   of  the   change  in   unrealized   holding   gains  and  losses  on
available-for-sale   securities,   net  of  deferred  tax   effects,   increased
shareholders'  equity by $804,000.  Approximately $5,000 was paid in lieu of the
issuance  of  fractional  shares  in  conjunction  with the 10%  stock  dividend
declared in 2007.  During 2006,  net income  increased  shareholders'  equity by
$3,018,000  and the exercise of employee  stock options  provided an increase of
$83,000.  Share-based  compensation  costs included in net income were offset by
increases in additional paid-in capital totaling  $593,000,  as required by SFAS
123(R).  Other  comprehensive  income or loss,  which consisted of the change in
unrealized  holding gains and losses on  available-for-sale  securities,  net of
deferred tax effects, increased shareholders' equity by $673,000.  Approximately
$6,000 was paid in lieu of the issuance of fractional shares in conjunction with
the 5% stock dividend declared in 2006.

         The Company and its banking  subsidiary  are each subject to regulatory
risk-based  capital  adequacy  standards.  Under these  standards,  bank holding
companies and banks are required to maintain  certain  minimum ratios of capital
to  risk-weighted  assets and average total assets.  Under the provisions of the
Federal  Deposit  Insurance  Corporation  Improvement  Act of  1991  ("FDICIA"),
federal bank regulatory authorities are required to implement prescribed "prompt
corrective  actions" upon the deterioration of the capital position of a bank or
bank holding company. If the capital position of an affected institution were to
fall below certain levels,  increasingly stringent regulatory corrective actions
are  mandated.   Unrealized  holding  gains  and  losses  on  available-for-sale
securities are generally excluded for purposes of calculating regulatory capital
ratios.  However,  the extent of any unrealized  appreciation or depreciation on
securities  will continue to be a factor that regulatory  examiners  consider in
their overall assessment of capital adequacy.

         Quantitative  measures  established  by  regulation  to ensure  capital
adequacy  require both the Company and the Bank to maintain  minimum amounts and
ratios, as set forth in the table below, of Total and Tier 1 Capital, as defined
in the regulation,  to risk weighted assets, as defined,  and of Tier 1 Capital,
as defined, to average assets, as defined.  Management believes,  as of December
31, 2007 and 2006,  that the Company and the Bank exceeded all capital  adequacy
minimum requirements to which they were subject.

         To be  categorized as well  capitalized  as defined in Federal  Deposit
Insurance  Act,  the  Bank  must  maintain  minimum  Total  risk-based,  Tier  1
risk-based,  and Tier 1 leverage ratios as set forth in the table below. Federal
regulators may also categorize the Bank as less than well  capitalized  based on
subjective criteria.  Bank holding companies with higher levels of risk, or that
are experiencing or anticipating significant growth, are expected by the Federal
Reserve to maintain capital well above the minimums.  There are no conditions or
events that management believes would cause the Company's or the Bank's category
to be other than that resulting from meeting the minimum ratio requirements.


                                      B-67




                                                                                          Minimum for               Minimum to be
                                                                 Actual                Capital Adequacy           Well Capitalized
                                                                 ------                ----------------           ----------------
                                                          Amount         Ratio       Amount         Ratio       Amount         Ratio
                                                          ------         -----       ------         -----       ------         -----
December 31, 2007                                                                   (Dollars in thousands)
     The Company
                                                                                                            
         Total Capital to risk weighted assets ........     $40,405       17.3%      $18,642        8.0%          NA             NA
         Tier 1 Capital to risk weighted assets .......     $37,831       16.2%      $ 9,321        4.0%          NA             NA
         Tier 1 Capital to average assets (leverage) ..     $37,831        9.7%      $15,594        4.0%          NA             NA
     Community First Bank
         Total Capital to risk weighted assets ........     $38,763       17.3%      $18,642        8.0%     $23,302          10.0%
         Tier 1 Capital to risk weighted assets .......     $36,189       16.2%      $ 9,321        4.0%     $13,981           6.0%
         Tier 1 Capital to average assets (leverage) ..     $36,189        9.7%      $15,594        4.0%     $19,492           5.0%

December 31, 2006
     The Company
         Total Capital to risk weighted assets ........     $35,457       15.7%      $18,063        8.0%          NA             NA
         Tier 1 Capital to risk weighted assets .......     $33,215       14.7%      $ 9,032        4.0%          NA             NA
         Tier 1 Capital to average assets (leverage) ..     $33,215        9.7%      $13,737        4.0%          NA             NA
     Community First Bank
         Total Capital to risk weighted assets ........     $34,997       15.5%      $18,063        8.0%     $22,579          10.0%
         Tier 1 Capital to risk weighted assets .......     $32,755       14.5%      $ 9,032        4.0%     $13,547           6.0%
         Tier 1 Capital to average assets (leverage) ..     $32,755        9.5%      $13,738        4.0%     $17,172           5.0%


Inflation

         Since the assets and  liabilities  of a bank are primarily  monetary in
nature (payable in fixed,  determinable  amounts),  the performance of a bank is
affected  more by changes in interest  rates than by inflation.  Interest  rates
generally increase as the rate of inflation increases,  but the magnitude of the
change in rates may not be the same.

         While the effect of inflation  on banks is normally not as  significant
as is its influence on those  businesses  having large  investments in plant and
inventories, it does have an effect. During periods of high inflation, there are
normally  corresponding  increases in the money supply,  and banks will normally
experience  above-average  growth in assets,  loans and deposits.  Also, general
increases in the prices of goods and services will result in increased operating
expenses.


Off-Balance   Sheet   Arrangements,   Contractual   Obligations  and  Contingent
Liabilities and Commitments

         The  Company  presently  engages  in  only  limited  off-balance  sheet
arrangements.   Such   arrangements   are   defined  as   potentially   material
transactions,  agreements,  or other contractual  arrangements which the Company
has  entered  into that  involve  an entity  that is not  consolidated  into its
financial statements and, under which the Company,  whether or not it is a party
to the arrangement, has, or in the future may have:

     o    any  obligation  under a  direct  or  indirect  guarantee  or  similar
          arrangement;
     o    a  retained  or  contingent  interest  in  assets  transferred  to  an
          unconsolidated entity or similar arrangement;
     o    derivatives,  to the extent  that the fair value  thereof is not fully
          reflected as a liability or asset in the financial statements; or
     o    any  obligation  or  liability,  including a contingent  obligation or
          liability,  to the  extent  that  it is  not  fully  reflected  in the
          financial statements (excluding the footnotes thereto).

         The Company's  off-balance-sheet  arrangements  presently  include only
commitments  to extend credit and standby  letters of credit.  Such  instruments
have  elements of credit risk in excess of the amount  recognized in the balance
sheet. The exposure to credit loss in the event of  nonperformance  by the other
parties to these  instruments is represented  by the  contractual,  or notional,
amount  of those  instruments.  Generally,  the same  credit  policies  used for
on-balance  sheet  instruments,  such  as  loans,  are  used in  extending  loan
commitments and letters of credit.  The following table sets out the contractual
amounts of those arrangements:


                                      B-68


                                                           December 31,
                                                           ------------
                                                    2007                  2006
                                                    ----                  ----
                                                      (Dollars in thousands)

              Loan commitments ................   $ 35,954              $ 33,764
              Standby letters of credit .......      1,039                 1,114

         Loan  commitments  involve  agreements to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses and some
involve payment of a fee. Many of the commitments are expected to expire without
being fully  drawn;  therefore,  the total amount of loan  commitments  does not
necessarily represent future cash requirements. Each customer's creditworthiness
is evaluated on a case-by-case basis. The amount of collateral obtained, if any,
upon  extension  of credit is based on  management's  credit  evaluation  of the
borrower. Collateral held varies but may include commercial and residential real
properties, accounts receivable, inventory and equipment.

         Standby letters of credit are conditional  commitments to guarantee the
performance of a customer to a third party.  The credit risk involved in issuing
standby  letters  of  credit  is the  same  as  that  involved  in  making  loan
commitments to customers.

         The Bank obtained the required  regulatory approval to purchase land on
which it plans to construct a new banking office building in Powdersville, South
Carolina.  The Bank has not yet  applied  for  regulatory  approval to open that
office and no budgets or timetables for construction have yet been made.

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


Short-Term Borrowings

         The Company did not have any short-term  borrowings  outstanding at any
time during 2007.

The Application of Critical Accounting Policies

         The  consolidated  financial  statements are based on the selection and
application of accounting  principles generally accepted in the United States of
America, which require management to make estimates and assumptions about future
events  that  affect  the  amounts  reported  in the  financial  statements  and
accompanying  notes.  Future events and their effects cannot be determined  with
absolute  certainty.  Therefore,  the  determination  of estimates  requires the
exercise of judgment.  Actual results could differ from those estimates, and any
such  differences  may be  material  to  the  financial  statements.  Management
believes that the provision and allowance for loan losses  discussed  below is a
critical  accounting  policy  that may involve a higher  degree of judgment  and
complexity in its application and represents the critical accounting policy used
in  the  preparation  of  the  Company's  financial  statements.   If  different
assumptions  or  conditions  were to prevail,  the results  could be  materially
different from the reported results.

         Management has discussed the selection,  development  and disclosure of
this critical accounting policy's methodology and assumptions with the Company's
audit committee to enhance that body's  awareness of those factors and to enable
the  committee to assess the  appropriateness  of  management's  procedures  and
conclusions, and its disclosures about this accounting policy.

Provision and Allowance for Loan Losses

         The  Company is required to  estimate  the  collectibility  of its loan
portfolio as of each accounting period end and, based on such estimates, provide
for an allowance for loan losses.  The allowance for loan losses is increased by
the provision for loan losses charged to expense, and any recoveries received on
loans previously charged off. The allowance is decreased by deducting the amount
of uncollectible loans charged off.

         A  considerable  amount of  judgment is required in order to compute an
estimate of the amount of the allowance for loan losses.  Management's judgments



                                      B-69


must be applied in  assessing  the  current  creditworthiness  of the  Company's
borrowers and in estimating probable losses incurred in the loan portfolio based
on factors  discussed below and their potential effects based on currently known
facts and  circumstances.  Changes in the  estimated  allowance  for loan losses
arising as new events occur or more information is obtained are accounted for as
changes in accounting  estimates in the accounting period in which such a change
occurs.

         The  allowance  for loan losses is composed  of  specific,  general and
unallocated  amounts.  Specific  allowance  amounts are provided for  individual
loans based on  management's  evaluation of the Company's  loss exposure  taking
into account the current payment status,  underlying  collateral and other known
information about a particular borrower's circumstances.  Typically, these loans
are  identified  as  impaired  or have been  assigned  internal  risk  grades of
management attention,  special mention, substandard or doubtful. General amounts
are provided for all other loans,  excluding  those for which  specific  amounts
were  determined,  by  applying  estimated  loss  percentages  to the  portfolio
categorized  using risk  grades.  These  percentages  are based on  management's
current evaluation with consideration  given to historical loss experience.  The
unallocated  portion  of the  allowance  consists  of an amount  believed  to be
appropriate  to provide for the  elements of  imprecision  and  estimation  risk
inherent  in the  specific  and  general  amounts  and is  determined  based  on
management's  evaluation of various conditions that are not directly measured by
the other components of the allowance. This evaluation includes general national
and local economic and business  conditions  affecting key lending market areas,
credit quality trends, collateral values, loan volumes, portfolio seasoning, and
any identified  credit  concentrations.  The findings of internal credit reviews
and  results  from  external  audits  and  regulatory   examinations   are  also
considered.

         The Company  utilizes its risk grading system for all loans held in the
portfolio.  This system involves the Company's lending officers assigning a risk
grade, on a loan-by-loan  basis,  considering  information  about the borrower's
capacity to repay,  collateral,  payment history, and other known factors.  Risk
grades  assigned  are  updated  monthly for any known  changes in  circumstances
affecting  the borrower or the loan.  The risk grading  system is monitored on a
continuing  basis by  management  and  validated  by the  Company's  independent
external credit review firm.

         The provision for loan losses  charged to expense  increased in 2007 to
$594,000  compared with $65,000 in 2006 and $250,000 for 2005. The allowance for
loan losses at the end of 2007 was $2,574,000,  an increase of $332,000 from the
allowance of  $2,242,000  as of the end of 2006.  As a percentage of total loans
outstanding at year end, the allowance for loan losses was 1.05%,  1.10%, 1.34%,
1.42%, and 1.49% for 2007, 2006, 2005, 2004 and 2003, respectively.

         A significant  increase in the amount of loans outstanding during 2007,
higher amounts of net charge-offs,  heightened  uncertainty  about the degree of
protection available to the Bank from residential properties taken as collateral
due to the  negative  pressure on property  values  stemming  from the  mortgage
lending crisis, higher levels of nonaccrual loans and only a slight reduction in
potential  problem  loans were factors  leading to the increase in the provision
for loan losses in 2007.  Although  the Company uses  conservative  underwriting
standards,  including  adhering to prudent  loan-to-value  ratios, the values of
properties taken as collateral  generally are determined by appraisal  processes
that rely, in part, on other recent local transactions as an indicator of value.
If values in a local market become overstated due to relaxed credit standards of
other lenders or other factors,  appraisals  become less reliable  indicators of
the properties' true values. While management believes that the appraised values
of real estate in the Company's markets have been fairly stated, there remains a
higher-than-normal  possibility  that property  values could decline if economic
conditions deteriorate significantly.

         Higher  levels of loans  collateralized  by  mortgages  on real estate,
lower amounts of  nonperforming  loans,  and a significantly  lower incidence in
loan  charge-offs in 2006  contributed to the decrease in the 2006 provision for
loan losses.  The Company's loan portfolio  increasingly  is  collateralized  by
residential and commercial  real estate.  Such  collateral,  combined with other
conservative   underwriting   standards,   is  believed  to  offer  the  Company
substantial  protection  from  ultimately  incurring  losses in the  event  that
foreclosure and liquidation of the collateral is necessary,  though there can be
no assurances to that effect.

         The $250,000  provision  for loan losses 2005 resulted  primarily  from
increases  in  potential  problem  loans,  the  $11,543,000  growth  of the loan
portfolio,  and was  influenced by lower net  charge-offs  that reflected both a
reduced level of charge-offs and higher recoveries of amounts previously charged
against the allowance.  Net  charge-offs to average loans in 2005 was,  however,
substantially lower than the trailing four-year average of that measure.

         In 2004, the $380,000 provision for loan losses resulted primarily from
higher  levels of  charge-offs,  increased  levels of  nonaccrual  and potential
problem loans,  changes in the economic  characteristics of the Company's market
area,  uncertainty  about  the  effect  of  increasing  interest  rates  on loan
customers' abilities to cope with potentially higher repayment requirements, and
growth of the loan portfolio.



                                      B-70


         In 2003, the $522,000 provision for loan losses resulted primarily from
uncertainty  caused  by the  bankruptcy  of the  funding  subsidiary  of a local
mortgage   banking   operation   which  resulted  in  losses  of   approximately
$200,000,000 among local investors. In making its judgments about the percentage
factors applied to loan risk grade categories in 2003, management was relatively
pessimistic about local conditions.  Several key factors influenced management's
development of its loan loss estimates that year,  including  increases in loans
outstanding,  net  loan  charge-offs,   impaired  or  non-performing  loans  and
potential problem loans over the previous three years.

         Management  believes that the local economy remains  relatively healthy
and the effects on the  Company's  borrowers  from the 2003  bankruptcy  are now
better  understood.  Manufacturing  remains  a  significant  sector of the local
economy,  but it  continues  to be  affected  by  industry  pressures  including
increased off-shoring of production,  especially as related to textile products.
Total  year-end  loans  grew  20.3%,  19.9%  and  7.3% in 2007,  2006 and  2005,
respectively.  Net loan charge-offs  increased to $262,000 in 2007 and decreased
to $89,000 in 2006 from $224,000 in 2005. As of the end of 2007,  impaired loans
increased to $625,000  compared with $50,000 one year earlier,  representing  an
increase of $575,000.  Potential  problem loans were $3,088,000 as of the end of
2007 compared with $3,176,000 as of the end of 2006 and $2,148,000 at the end of
2005.  Collateral  values of real estate and vehicles taken on many of the loans
recognized  as impaired and  potential  problem loans in prior years have so far
helped keep  charge-offs  relatively low considering the total credit  exposures
present in those loans.

         Management has established  loan and credit policies and practices that
are designed to control credit risks as a part of the loan underwriting process.
These policies and practices include, for example, requirements for minimum loan
to collateral value ratios,  real estate appraisal  requirements,  and obtaining
credit and  financial  information  on borrowers.  However,  if the capacity for
borrowers to repay and/or collateral values should deteriorate subsequent to the
underwriting  process,  the estimate of the  provision  and  allowance  for loan
losses might increase,  thereby decreasing net income and shareholders'  equity.
The  total  amount  of loans  secured  by real  estate  mortgages  increased  by
$83,507,000,  or 82.1%,  from $101,691,000 at the end of 2003 to $185,198,000 at
the end of 2007. Of this increase, $73,182,000 consisted of loans secured by 1-4
family  residential  real estate  mortgages,  and $9,999,000  consisted of loans
secured by nonfarm,  nonresidential  real estate  mortgages.  A  significant  or
prolonged downturn in national and local economic and business  conditions could
negatively  affect the  borrowers'  capacity to repay these loans as well as the
value  of  the  underlying   collateral.   This  scenario  would  be  likely  to
substantially  increase  the  level of  impaired  or  non-performing  loans  and
non-earning  foreclosed assets and increase overall credit risk by shrinking the
margin of collateral values as compared with loans  outstanding.  Another factor
that could adversely  affect  borrowers'  ability to make payments in accordance
with loan terms is the potential  for  continued  increases in rates charged for
loans. The Company has a significant  amount of variable rate loans outstanding.
In addition, some loans are refinanced at maturity rather than being paid out in
a lump sum. If interest  rates were to increase  sharply in a short time period,
some  loan  customers  might  not be able to afford  payments  on loans  made or
repriced at the higher  resulting  interest rates, nor would they necessarily be
able to obtain more favorable terms elsewhere. This could also cause an increase
in the amounts of impaired or non-performing assets and other credit risks.

Impact of Recent Accounting Changes

Hybrid  Financial  Instruments  -  The  provisions  of  Statement  of  Financial
Accounting  Standards No. 155 ("SFAS No. 155"),  "Accounting  for Certain Hybrid
Financial  Instruments,  an amendment of FASB  Statements No. 133 and 140," were
effective January 1, 2007. The Company has no affected financial instruments and
adoption of the Statement had no effect on the Company's  consolidated financial
statements.

Servicing  of  Financial  Assets - The  provisions  of  Statement  of  Financial
Accounting  Standards  No. 156 ("SFAS No.  156"),  "Accounting  for Servicing of
Financial Assets, an amendment of FASB Statement No. 140" were effective January
1, 2007.  This  Statement  potentially  simplified the accounting for separately
recognized loan servicing  assets and liabilities and any financial  instruments
used to hedge risks  associated  with those assets and  liabilities.  Under SFAS
156,  separately  recognized  servicing assets and liabilities are accounted for
initially at fair value,  if  practicable,  and  subsequently  are accounted for
either at fair value or amortized  over the economic lives of the related loans.
If the fair  value  method of  subsequent  valuation  is  elected,  SFAS No. 156
permits income statement  recognition of the potential offsetting changes in the
fair values of the financial servicing rights and liabilities and the derivative
instruments  used to  hedge  them in the same  accounting  period.  The  Company
currently has no separately recognized loan servicing rights or liabilities, and
adoption of SFAS No. 156 had no effect on the Company's  consolidated  financial
statements.



                                      B-71


Fair Value  Measurements - The  provisions of Statement of Financial  Accounting
Standards No. 157 ("SFAS No. 157"), "Fair Value Measurements," are effective for
fiscal  years  beginning  after  November  15,  2007  (January  1,  2008 for the
Company).  SFAS No. 157  defines  fair value and  establishes  a  framework  for
measuring fair value in GAAP. The Statement  describes fair value as being based
on a  hypothetical  transaction  to sell an asset or transfer a  liability  at a
specific  measurement  date,  as  considered  from the  perspective  of a market
participant   who  holds  the  asset  or  owes  the  liability  (an  exit  price
perspective).  In  addition,  fair  value  should be  viewed  as a  market-based
measurement,  rather than an entity-specific measurement.  Therefore, fair value
should be determined based on the assumptions that market participants would use
in pricing an asset or liability,  including all risks and restrictions that may
be  associated  with that  asset or  liability.  SFAS No. 157 does not amend the
definition of fair value used in conjunction with Share-Based Payments accounted
for under SFAS No. 123(R).  The adoption of SFAS No. 157 in 2008 is not expected
to have a material effect on the Company's consolidated financial statements.

Accounting  for  Uncertainty  in  Income  Taxes - The  provisions  of  Financial
Accounting  Standards Board  Interpretation  No. 48 ("FIN 48"),  "Accounting for
Uncertainty  in Income  Taxes,  an  interpretation  of FASB  Statement No. 109,"
clarify  the  accounting  for  uncertainty  in  income  tax  positions.  FIN  48
prescribes  a two-step  evaluation  process  that  includes  both a  recognition
threshold and a measurement  attribute for tax positions taken or expected to be
taken in a tax return.  The  provisions of FIN 48 were effective for the Company
as of January 1, 2007. The adoption of FIN 48 did not have a material  effect on
the Company's consolidated financial statements.

Fair Value Option -The provisions of Statement of Financial Accounting Standards
No. 159 ("SFAS  No.  159"),  "The Fair  Value  Option for  Financial  Assets and
Financial  Liabilities  Including an amendment of FASB  Statement  No. 115," are
effective as of January 1, 2008.  SFAS No 159 allows  entities to choose whether
or not to measure many  financial  instruments  and certain  other items at fair
value.  However,  the Statement  also  specifies the times at which an entity is
allowed  choose  to elect the fair  value  option  for a  particular  item.  For
eligible  financial  instruments that an entity elects to measure at fair value,
all changes in fair value,  including  both  unrealized  and realized  gains and
losses,  will be recognized in income.  The Company currently does not expect to
value any items using the fair value  option of SFAS No. 159 and adoption of the
Statement,  therefore,  is expected to have no effect on the Company's financial
statements.

Quantitative and Qualitative Disclosures about Market Risk

         Market risk for the Company  consists  primarily of interest rate risk,
particularly   with   respect   to   appropriately    aligning   the   repricing
characteristics  of its earning  assets and interest  bearing  funding  sources.
Management  actively  monitors  and manages  the  Company's  interest  rate risk
exposure.  Other risks,  such as credit  quality and  liquidity  risk,  are also
managed in the normal course of business, but management considers interest rate
risk to be the most significant  market risk facing the Company.  Other types of
market risks, such as foreign currency exchange risk and commodity price risk do
not constitute significant risks to the Company in the conduct of its business.

         The  Company's  primary  goal  is  to  manage  the  mix  and  repricing
characteristics of its interest earning assets and interest bearing  liabilities
within the context of a dynamic interest rate environment in such a way that net
interest income grows consistently.  To be successful,  the Company must be able
to achieve this result while  simultaneously  maintaining  adequate  capital and
liquidity to meet its other obligations.

         All of the Company's  interest  bearing deposits and its long-term debt
mature or reprice within five years. Accordingly,  the interest rates offered by
the Company to attract such deposits are determined  principally by reference to
(1) the  yield  curve  for U. S.  Treasury  securities  with  similar  remaining
maturities  (adjusted  for credit  quality)  and (2) the rates  offered by other
financial institutions in the Company's local market areas.

         Rates  charged  for loans and  accepted  in return for  investments  in
securities are determined similarly.  Certain loan products, such as residential
mortgage  loans and loans for the purpose of  financing  commercial  real estate
development,  may be relatively long-lived  instruments.  As such, the life-time
funding of these types of loans usually consists of several  short-term  deposit
or other debt instruments  acquired  serially  throughout the life of the asset.
Each of  those  funding  events  is  associated  with  its own  borrowing  cost.
Therefore,  the profitability of the Company's  interest earning assets may vary
as the  funding  sources  for the assets  change  through  time.  In some cases,
longer-term  deposits and  borrowings  may be acquired on a variable rate basis.
The repricing characteristics of those sources do not necessarily match with the
repricing characteristics of the assets that may be purchased with those funds.


                                      B-72


         Management  limits the risks inherent in funding  long-term assets with
short-term  sources  primarily by limiting the potential period of "mismatch" in
the  repricing   characteristics  of  affected  assets  and  liabilities  or  by
attempting to limit the amount by which the rates may vary. Generally, all loans
with  original  maturities  in excess of five years are made on a variable  rate
basis  with  frequent  interest  rate  "reset"  dates.  Alternatively,  when the
repayment term of a loan is initially  established in excess of five years,  the
Company  ordinarily  requires  that the loan be reviewed and the  interest  rate
changed to reflect  current  market  conditions  at least as often as every five
years.

         To mitigate other types of risks that are indirectly related to changes
in interest  rate,  such as those risks that could arise for  customers who have
sufficient resources to service their debts as long as interest rates remain low
but  insufficient  resources if interest rates rise, the Company  generally does
not  promote or grant  loans to  borrowers  who  qualify  for credit only if the
associated  initial  interest  rate is unusually  low.  Also,  consumers are not
encouraged to borrow the maximum amount for which they might qualify.

         In addition,  the Company does not offer  interest-only  type loans for
protracted periods,  and discourages loans where there are high loan-to-value or
high  debt-to-income  ratios.  The Company generally does not use credit scoring
techniques in isolation as a basis for extending consumer credit.

Interest Rate Sensitivity

         Interest  rate  sensitivity  measures  the timing and  magnitude of the
repricing  of  assets  compared  with the  repricing  of  liabilities  and is an
important  part of  asset/liability  management.  The objective of interest rate
sensitivity  management is to generate stable growth in net interest income, and
to  control  the risks  associated  with  interest  rate  movements.  Management
constantly  monitors interest rate risk exposures and the expected interest rate
environment so that adjustments in interest rate sensitivity can be timely made.

         The  table,  "Interest  Sensitivity  Analysis",  indicates  that,  on a
cumulative basis through twelve months, rate sensitive liabilities exceeded rate
sensitive assets at the end of 2007 by  $155,857,000,  resulting in a cumulative
gap ratio of .49.  When interest  sensitive  assets  exceed  interest  sensitive
liabilities for a specific repricing  "horizon," a positive interest sensitivity
gap results.  The gap is negative when  interest  sensitive  liabilities  exceed
interest  sensitive  assets,  as was the case at the end of 2007 with respect to
the one-year time  horizon.  For a bank with a negative  gap,  falling  interest
rates would  ordinarily  be expected to have a positive  effect on net  interest
income and rising rates would  ordinarily be expected to have a negative effect.
During  2007,  the Company was able to prolong the  maturities  of certain  time
deposits  beyond the one-year  horizon,  invested in longer-term  securities and
originated more loans with extended maturities or repricing periods.

         The table,  "Interest Sensitivity  Analysis",  reflects the balances of
interest earning assets and interest bearing liabilities at the earlier of their
repricing or maturity  dates.  Amounts of fixed rate loans are  reflected at the
loans' final maturity dates. Variable rate loans are reflected at the earlier of
their  contractual  maturity date or the date at which the loans may be repriced
contractually.  Securities  are  reflected  at the earlier of each  instrument's
ultimate  maturity or contractual  repricing date.  Overnight federal funds sold
are  reflected  in  the  earliest  contractual  repricing  interval  due  to the
immediately  available nature of these funds.  Interest bearing liabilities with
no  contractual  maturity,  such as interest  bearing  transaction  accounts and
savings  deposits,  are  reflected in the  earliest  repricing  interval.  These
liabilities  are subject to contractual  arrangements  that allow  management to
vary the rates paid on these  deposits  within a thirty-day  or shorter  period.
However,  the Company is not obligated to vary the rates paid on those  deposits
within any given period. Fixed rate time deposits,  principally  certificates of
deposit, are reflected at their contractual  maturity dates.  Variable rate time
deposits,  principally  individual  retirement  accounts,  are  reflected at the
earlier of their next repricing or maturity dates.



                                      B-73


                  Interest Sensitivity Analysis



                                                                                           December 31, 2007
                                                                                           -----------------
                                                                     Within          4-12      Over 1-5        Over 5
                                                                    3 Months        Months       Years          Years        Total
                                                                    --------        ------       -----          -----        -----
                                                                                       (Dollars in thousands)
Interest earning assets
                                                                                                            
      Interest bearing deposits due from banks ............     $     165       $      -       $      -       $      -     $     165
      Securities ..........................................         4,442         12,091         32,677         55,479       104,689
      Federal Home Loan Bank stock ........................           840              -              -              -           840
      Federal funds sold ..................................        24,236              -              -              -        24,236
      Loans (1) ...........................................        62,405         45,055        125,250         10,796       243,506
                                                                ---------      ---------      ---------      ---------     ---------
              Total interest earning assets ...............        92,088         57,146        157,927         66,275     $ 373,436
                                                                ---------      ---------      ---------      ---------     =========
Interest bearing liabilities
      Interest bearing deposits
          Interest bearing transaction accounts ...........     $  55,389       $      -       $      -       $      -     $  55,389
          Savings .........................................        21,458              -              -              -        21,458
          Time deposits $100M and over ....................        25,246         66,811          4,317            173        96,547
          Other time deposits .............................        22,609        109,078          8,234            263       140,184
      Long-term debt ......................................         3,500          1,000              -              -         4,500
                                                                ---------      ---------      ---------      ---------     ---------
              Total interest bearing liabilities ..........       128,202        176,889         12,551            436     $ 318,078
                                                                ---------      ---------      ---------      ---------     =========

Interest sensitivity gap ..................................     $ (36,114)     $(119,743)     $ 145,376      $  65,839
Cumulative interest sensitivity gap .......................     $ (36,114)     $(155,857)     $ (10,481)     $  55,358
Gap ratio .................................................          0.72           0.32
Cumulative gap ratio ......................................          0.72           0.49

-----------------------------------------------------
(1)  Loans are net of nonaccruing loans totaling $625,000.

         The following table shows the Company's financial  instruments that are
sensitive to changes in interest rates. The Company uses certain  assumptions to
estimate fair values and expected  maturities.  For assets,  expected maturities
are based upon  contractual  maturity,  projected  repayments and prepayments of
principal,  and potential and probable calls of investment securities.  For core
deposits without  contractual  maturity (i.e.,  interest  checking,  savings and
money market  accounts),  the table  presents  cash flows based on  management's
estimate  of their most  likely  runoff  pattern.  Actual  cash flows could vary
significantly from the estimated amounts presented.


                                      B-74




                                         2007 Year-
                                            End
                                          Average                                                                         Estimated
                                         Yield/Rate    2008     2009      2010       2011      2012   Thereafter Balance  Fair Value
                                         ----------    ----     ----      ----       ----      ----   ---------- -------  ----------
                                                                          (Dollars in thousands)
Interest earning assets
                                                                                                 
  Interest-bearing deposits
    with other banks ..................      4.00%  $    165   $     -   $     -    $    -    $    -   $     -   $    165   $    165
  Investment securities ...............      4.36%    30,766    22,794    14,337     4,574     3,206    29,012    104,689    104,651
  Federal funds sold ..................      5.09%    24,236         -         -         -         -         -     24,236     24,236
  Loans ...............................      7.84%   128,572    55,685    55,371     1,919     1,098     1,486    244,131    238,670


Interest bearing liabilities
  Savings .............................      2.64%  $ 21,458   $     -   $     -    $    -    $    -   $     -   $ 21,458   $ 21,458
  Interest bearing transaction accounts      3.24%    55,389         -         -         -         -         -     55,389     55,389
  Time deposits .......................      4.98%   224,814    11,258       225       317       117         -    236,731    238,172
                                                    --------   -------   -------    ------    ------   -------   --------   --------
        Total interest bearing deposits      4.49%   301,661    11,258       225       317       117         -    313,578    315,019
  Long-term debt ......................      4.21%     1,000         -         -         -         -     3,500      4,500      4,483




                                      B-75



                                 [FORM OF PROXY]

         REVOCABLE PROXY
         PLEASE MARK VOTES
         AS IN THIS EXAMPLE

                         COMMUNITY FIRST BANCORPORATION

               PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
             FOR SPECIAL MEETING OF SHAREHOLDERS - January 27, 2009

         Frederick D.  Shepherd,  Jr. and Benjamin L. Hiott,  or either of them,
with full  power of  substitution,  are  hereby  appointed  as  agent(s)  of the
undersigned  to vote as  proxies  for the  undersigned  at a Special  Meeting of
Shareholders  to be held on Tuesday,  January 27, 2009,  and at any  adjournment
thereof, as follows:

1.       Proposal  to amend our  Articles  of  Incorporation  to  authorize  the
         issuance of 10 million shares of preferred stock with such preferences,
         limitations and relative rights,  within legal limits, of the class, or
         one or  more  series  within  the  class,  as are set by the  Board  of
         Directors.

                 FOR [ ]           AGAINST [ ]            ABSTAIN [ ]

2.       And, in the discretion of said agents,  upon such other business as may
         properly come before the meeting, and matters incidental to the conduct
         of the meeting. (Management at present knows of no other business to be
         brought before the meeting.)

THE PROXIES WILL BE VOTED AS INSTRUCTED.  IF NO CHOICE IS INDICATED WITH RESPECT
TO A MATTER  WHERE A CHOICE IS  PROVIDED,  THIS PROXY  WILL BE VOTED  "FOR" SUCH
MATTER.

Please sign exactly as name appears below.  When signing as attorney,  executor,
administrator,  trustee,  or guardian,  please give full title. If more than one
trustee, all should sign. All joint owners must sign.



                                                   ------------------
Please be sure to sign and date                    Date
 this Proxy in the box below.
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