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

                                    FORM 10-K


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

For the Fiscal Year Ended December 31, 2001                File Number 000-22054

                           COMMUNITY BANKSHARES, INC.
             (Exact name of registrant as specified in its charter)

             South Carolina                                57-0966962
    (State or Other Jurisdiction                        (IRS Employer
     of Incorporation or Organization)                  Identification Number)

               791 Broughton St., Orangeburg, South Carolina 29115
                (Address of Principal Executive Office, Zip Code)

       Registrant's Telephone Number, Including Area Code: (803) 535-1060

           Securities Registered Pursuant to Section 12(b) of the Act:
              Common Stock, No Par Value - American Stock Exchange
         (Title of Class) - (Name of each exchange on which registered)

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

         Indicate  by check mark  whether the  registrant  (1) has filed all the
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 if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. __

         The aggregate market value voting and non-voting  common equity held by
non-affiliates  on March 7, 2002 was approximately  $32,236,000.  As of March 7,
2002 there were 3,299,674 shares of the Registrant's Common Stock, no par value,
outstanding.  For purposes of the foregoing  calculation only, all directors and
executive officers of the Registrant have been deemed affiliates.

                       DOCUMENTS INCORPORATED BY REFERENCE

(1)  Portions of the Registrant's Proxy Statement for the 2002 Annual Meeting of
     Shareholders - Part III







                             10-K TABLE OF CONTENTS




                                                       Part I                                                     Page
                                                                                                             
     Item 1      Description of Business .......................................................................    3
     Item 2      Description of Property .......................................................................   10
     Item 3      Legal Proceedings .............................................................................   10
     Item 4      Submission of Matters to a Vote of Security Holders ...........................................   10

                                                      Part II
     Item 5      Market for Common Equity and Related Stockholder Matters ......................................   11
     Item 6      Selected Financial Data .......................................................................   12
     Item 7      Management's Discussion and Analysis of Financial Condition and Results of ....................   12
                 Operations
    Item 7A      Quantitative and Qualitative Disclosures about Market Risk ....................................   33
     Item 8      Financial Statements and Supplementary Data ...................................................   37
                 Independent Auditor's Report ..................................................................   38
                 Consolidated Balance Sheets, December 31, 2001 and 2000 .......................................   39
                 Consolidated Statements of Income, Years Ended December 31, 2001, 2000 and 1999 ...............   40
                 Consolidated Statements of Changes in Shareholders' Equity, Years Ended December ..............   42
                      31, 2001, 2000 and 1999
                 Consolidated Statements of Cash Flows, Years Ended December 31, 2001, 2000 and
                      1999 .....................................................................................   44
                 Notes to Consolidated Financial Statements ....................................................   46
                 Quarterly Data for 2001 and 2000 ..............................................................   76
     Item 9      Changes In and Disagreements with Accountants on Accounting and Financial
                      Disclosure ...............................................................................   77

                                                      Part III
    Item 10      Directors and Executive Officers ..............................................................    *
    Item 11      Executive Compensation ........................................................................    *
    Item 12      Security Ownership of Certain Beneficial Owners and Management ................................    *
    Item 13      Certain Relationships and Related Transactions ................................................    *

                                                      Part IV
    Item 14      Exhibits and Reports on  Form 8-K .............................................................   78

         * Incorporated by reference to Registrant's Proxy Statement for
           2002 Annual Meeting of Shareholders



                                       2


                                     PART I

Item 1.  Description of Business

Form of organization

         Community Bankshares,  Inc. (CBI) is a South Carolina corporation and a
bank  holding  company.   CBI  commenced   operations  on  July  1,  1993,  upon
effectiveness  of the  acquisition of the  Orangeburg  National Bank as a wholly
owned  subsidiary.  In June 1996 CBI acquired  all the stock of Sumter  National
Bank, which is also a wholly owned subsidiary. In July 1998 CBI acquired all the
stock of Florence National Bank, which is also a wholly owned subsidiary.

         Orangeburg  National  Bank (the  Orangeburg  bank) is a national  bank,
chartered  in 1987,  operating  from two offices  located in  Orangeburg,  South
Carolina.

         Sumter National Bank (the Sumter bank) is a national bank, chartered in
1996, operating from two offices located in Sumter, South Carolina.

         Florence  National  Bank  (the  Florence  bank)  is  a  national  bank,
chartered  in 1998,  operating  from  one  office  located  in  Florence,  South
Carolina.

         In November 2001 CBI acquired all the common stock of Resource Mortgage
Inc., a Columbia,  South Carolina based mortgage  company.  The mortgage company
operates as a wholly owned  subsidiary  of the holding  company and is now named
Community Resource Mortgage Inc.

Business of banking

         The Orangeburg, Sumter and Florence banks (hereafter referred to as the
Banks) offer a full array of commercial bank services.  Deposit services include
business and personal checking accounts, NOW accounts,  savings accounts,  money
market accounts,  various term certificates of deposit, IRA accounts,  and other
deposit services.  The Federal Deposit Insurance Corporation insures deposits up
to applicable limits. Most of the Banks' deposits are attracted from individuals
and small businesses.

         The Banks  offer  secured  and  unsecured,  short-to-intermediate  term
loans,  with  floating  and fixed  interest  rates for  commercial  and consumer
purposes.  Consumer  loans include:  car loans,  home equity  improvement  loans
secured by first and second mortgages,  personal  expenditure  loans,  education
loans, and the like.  Commercial loans include short-term unsecured loans, short
and  intermediate  term real  estate  mortgage  loans,  loans  secured by listed
stocks,  loans secured by equipment,  inventory,  accounts  receivable,  and the
like.  The Banks do not and will not  discriminate  against  any  applicant  for
credit on the basis of race, color,  creed,  sex, age, marital status,  familial
status, handicap, or derivation of income from public assistance programs.

         Other services  offered by the Banks include safe deposit boxes,  night
depository service, VISA and Master Card charge cards (through a correspondent),
tax  deposits,  sale of U.S.  Treasury  bonds,  notes  and bills and other U. S.
government securities (through a correspondent),  and twenty-four hour automated
teller service. Each of the Banks has ATMs and they are all part of the Star and
Cirrus networks.

         The  mortgage  company  provides a wide  variety of one to four  family
residential  mortgage  products  in the  Columbia,  Sumter and  Anderson,  South
Carolina  markets.  Management  expects that these  products  will augment those
currently available through the Banks.


                                       3



Competition

         The  market for  financial  institutions  in  Orangeburg,  Sumter,  and
Florence is highly  competitive.  Banks  generally  compete with other financial
institutions  through the banking services and products offered,  the pricing of
services,  the level of service  provided,  the convenience and  availability of
services,  and the degree of expertise and personal  concern with which services
are offered.  The Banks encounter strong  competition from most of the financial
institutions in their market areas.

         The market area for the Orangeburg  bank generally  encompasses an area
extending  nine miles  around the city of  Orangeburg.  The market  area for the
Sumter bank generally  encompasses the county of Sumter. The market area for the
Florence  bank  generally  encompasses  the city of Florence.  In the conduct of
certain banking  business,  the Banks also compete with credit unions,  consumer
finance  companies,  insurance  companies,  money market mutual funds, and other
financial  institutions,  some of which are not  subject  to the same  degree of
regulation and restrictions  imposed upon the Banks.  Many of these  competitors
have substantially greater resources and lending limits than the Banks and offer
certain  services,  such as international  banking and trust services,  that the
Banks do not provide.  The Banks believe,  however,  that their relatively small
size  permits  them to  offer  more  personalized  services  than  many of their
competitors.  The Banks attempt to compensate  for their lower lending limits by
participating larger loans with other institutions, often with each other.

         Most of the other financial institutions in the Orangeburg, Sumter, and
Florence areas are branch offices of large,  regional  banks.  At June 30, 2001,
there were eight  financial  institutions  competing with the Corporation in the
city of Orangeburg,  seven financial institutions competing with the Corporation
in Sumter County, and 18 financial  institutions  competing with the Corporation
in the city of Florence.  At June 30, 2001, the  Orangeburg  bank had the second
largest  deposit base in the city of  Orangeburg.  At June 30, 2001,  the Sumter
bank had the fifth largest deposit base in Sumter County.  At June 30, 2001, the
Florence bank had the eighth largest deposit base in the city of Florence.  Each
of the Corporation's subsidiary banks increased its market share in 2001.

Dependence on Major Customers

         The Banks do not consider  themselves  dependent on any single customer
or small group of customers, either in the deposit or lending areas.

SUPERVISION AND REGULATION

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

         As discussed below under the caption "Recent Legislation", Congress has
recently adopted extensive changes in the laws governing the financial  services
industry.  Among the changes  adopted  are  creation  of the  financial  holding
company,  a new type of bank holding  company  with powers that  greatly  exceed
those of standard holding companies, and creation of the financial subsidiary, a
subsidiary that can be used by national banks to engage in many, though not all,
of the same  activities  in which a financial  holding  company may engage.  The
legislation  also establishes the concept of functional  regulation  whereby the
various financial activities in which financial institutions engage are overseen
by the regulator with the relevant  regulatory  experience.  Neither CBI nor the
Banks has yet made a decision as to how to adapt the new legislation to its use.
Accordingly,  the following discussion relates to the supervisory and regulatory
provisions that apply to CBI and the Banks as they currently operate.



                                       4




Regulation of Bank Holding Companies

General

         As a bank holding company registered under the Bank Holding Company Act
("BHCA"),  CBI is subject to the regulations of the Federal  Reserve.  Under the
BHCA,  CBI's  activities and those of its  subsidiaries  are limited to banking,
managing or controlling banks, furnishing services to or performing services for
its  subsidiaries  or engaging in any other activity  which the Federal  Reserve
determines to be so closely related to banking or managing or controlling  banks
as to be a proper incident thereto. The BHCA prohibits CBI from acquiring direct
or  indirect  control  of  more  than  5% of the  outstanding  voting  stock  or
substantially  all of the assets of any bank or from  merging  or  consolidating
with another bank holding company without prior approval of the Federal Reserve.
The BHCA also prohibits CBI from acquiring control of any bank operating outside
the State of South Carolina unless such action is specifically authorized by the
statutes of the state where the bank to be acquired is located.

         Additionally, the BHCA prohibits CBI from engaging in or from acquiring
ownership  or control  of more than 5% of the  outstanding  voting  stock of any
company engaged in a non-banking  business unless such business is determined by
the  Federal  Reserve  to be so closely  related  to  banking as to be  properly
incident thereto. The BHCA generally does not place territorial  restrictions on
the activities of such non-banking-related activities.

         As discussed below under "Recent  Legislation",  a bank holding company
that meets certain  requirements may now qualify as a financial  holding company
and thereby  significantly  increase  the variety of services it may provide and
the investments it may make.

         CBI is also subject to limited  regulation and supervision by the South
Carolina  State Board of Financial  Institutions.  A South Carolina bank holding
company may be required to provide the State Board with information with respect
to  the  financial   condition,   operations,   management   and   inter-company
relationships of the holding company and its subsidiaries.  The State Board also
may require such other information as is necessary to keep itself informed about
whether the  provisions  of South  Carolina law and the  regulations  and orders
issued  thereunder  by the State Board have been  complied  with,  and the State
Board may examine any bank holding  company and its  subsidiaries.  Furthermore,
pursuant to applicable law and  regulations,  the Company must receive  approval
of, or give notice to (as  applicable)  the State Board prior to engaging in the
acquisition of banking or non-banking institutions or assets.

Obligations of Holding Company to its Subsidiary Banks

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

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



                                       5


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

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

Capital Adequacy Guidelines for Bank Holding Companies and National Banks

         The various federal bank regulators,  including the Federal Reserve and
the FDIC,  have adopted  risk-based  and leverage  capital  adequacy  guidelines
assessing bank holding company and bank capital adequacy. These standards define
what qualifies as capital and establish minimum capital standards in relation to
assets and off balance  sheet  exposures,  as  adjusted  for credit  risks.  The
capital  guidelines and CBI's capital  position are summarized in Note 20 to the
Financial Statements, contained elsewhere in this report. All three of the Banks
are considered well capitalized.

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

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


Payment of Dividends

         CBI is a legal entity separate and distinct from the Banks. Most of the
revenues  of CBI  result  from  dividends  paid to CBI by the  Banks.  There are
statutory and regulatory  requirements applicable to the payment of dividends by
subsidiary banks as well as by CBI to its shareholders.

         Each national banking  association is required by federal law to obtain
the prior  approval of the OCC for the payment of  dividends if the total of all
dividends  declared  by the  board of  directors  of such  bank in any year will
exceed the total of (i) such bank's net profits (as defined and  interpreted  by
regulation)  for that year plus (ii) the  retained  net  profits (as defined and
interpreted  by  regulation)  for the  preceding  two years,  less any  required
transfers to surplus. In addition,  national banks can only pay dividends to the
extent that retained net profits (including the portion  transferred to surplus)
exceed bad debts (as defined by regulation).

         The payment of  dividends  by CBI and the Banks may also be affected or
limited by other factors,  such as the requirements to maintain adequate capital
above regulatory  guidelines.  In addition, if, in the opinion of the applicable
regulatory authority, a bank under its jurisdiction is engaged in or is about to
engage in an unsafe or  unsound  practice  (which,  depending  on the  financial
condition of the Banks, could include the payment of dividends),  such authority
may require, after notice and hearing, that such bank cease and desist from such
practice.  The OCC has indicated  that paying  dividends that deplete a national
bank's  capital  base to an  inadequate  level  would be an unsafe  and  unsound
banking practice.  The Federal Reserve,  the OCC and the FDIC have issued policy
statements,  which provide that bank holding  companies and insured banks should
generally only pay dividends out of current operating earnings.


                                       6



Certain Transactions by CBI with its Affiliates

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

FDIC Insurance Assessments

         Because  Orangeburg  National  Bank's,   Sumter  National  Bank's,  and
Florence  National Bank's deposits are insured by the Bank Insurance Fund of the
FDIC ("BIF"), the Banks are subject to semiannual insurance  assessments imposed
by the FDIC. Since January 1, 1997, the assessments imposed on all FDIC deposits
for deposit  insurance  have an effective rate ranging from 0 to 27 basis points
per $100 of insured deposits,  depending on the  institution's  capital position
and other supervisory  factors.  However,  because  legislation  enacted in 1996
requires that both Savings  Association  Insurance Fund ("SAIF") insured and BIF
insured  deposits pay a pro rata portion of the interest due on the  obligations
issued by the Financing  Corporation  ("FICO"),  the FDIC is currently assessing
BIF-insured  deposits an additional 1.26 basis points per $100 of deposits,  and
SAIF-insured  deposits an additional 6.30 basis points per $100 of deposits,  to
cover  those  obligations.  The FICO  assessment  will  continue  to be adjusted
quarterly to reflect  changes in the assessment  bases of the  respective  funds
based on quarterly Call Report and Thrift Financial Report submissions.

Regulation of the Banks

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

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

Other Safety and Soundness Regulations

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



                                       7


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

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

Interstate Banking

         Under the Riegle-Neal  Interstate Banking and Branching  Efficiency Act
of 1994 ("Riegel-Neal"),  CBI and any other adequately  capitalized bank holding
company located in South Carolina can acquire a bank located in any other state,
and a bank holding  company located outside South Carolina can acquire any South
Carolina-based  bank, in either case subject to certain  deposit  percentage and
other  restrictions.  Rieglel-Neal also provides that, in any state that has not
previously  elected to prohibit  out-of-state  banks from  operating  interstate
branches within its territory,  adequately  capitalized and managed bank holding
companies can  consolidate  their  multistate bank operations into a single bank
subsidiary and branch interstate through  acquisitions.  De novo branching by an
out-of-state bank is permitted only if it is expressly  permitted by the laws of
the host state. The authority of a bank to establish and operate branches within
a state will continue to be subject to applicable  state branching  laws.  South
Carolina  law was amended,  effective  July 1, 1996,  to permit such  interstate
branching but not de novo branching by an out-of-state bank.

         The  Riegel-Neal  Act,  together  with  legislation  adopted  in  South
Carolina,  resulted in a number of South  Carolina banks being acquired by large
out-of-state  bank  holding  companies.  Size  gives the  larger  banks  certain
advantages  in competing for business from larger  customers.  These  advantages
include  higher  lending limits and the ability to offer services in other areas
of South  Carolina  and the  region.  As a result,  the  Banks do not  generally
attempt to compete  for the banking  relationships  of large  corporations,  but
concentrate   their  efforts  on  small  to   medium-sized   businesses  and  on
individuals.  CBI believes its Banks have  competed  effectively  in this market
segment by offering quality, personal service.

Legislative Proposals

         Other  proposed   legislation  which  could  significantly  affect  the
business of banking has been  introduced  or may be  introduced in Congress from
time to time. CBI cannot predict the future course of such legislative proposals
or their impact on CBI should they be adopted.

Recent Legislation

         On November 12, 1999, the President signed the Gramm-Leach-Bliley  Act,
which  makes it easier for  affiliations  between  banks,  securities  firms and
insurance companies to take place. The Act removes Depression-era  barriers that
had separated  banks and securities  firms,  and seeks to protect the privacy of
consumers' financial information.  Most of the provisions of the Act require the
applicable   regulators  to  adopt  regulations  in  order  to  implement  these
provisions, and a significant number of regulations have already been adopted.

         Under provisions of the new legislation, which were effective March 11,
2000, banks,  securities firms and insurance companies are able to structure new
affiliations  through  a  holding  company  structure  or  through  a  financial
subsidiary.  The legislation creates a new type of bank holding company called a


                                       8


"financial  holding  company" which has powers much more extensive than those of
standard holding companies. These expanded powers include authority to engage in
"financial  activities,"  which are activities that are (1) financial in nature;
(2) incidental to activities that are financial in nature;  or (3) complementary
to a  financial  activity  and that do not impose a safety and  soundness  risk.
Significantly,   the  permitted  financial   activities  for  financial  holding
companies  include  authority  to  engage  in  merchant  banking  and  insurance
activities,  including insurance portfolio investing. A bank holding company can
qualify as a financial holding company and expand the services it offers only if
all of its subsidiary depository institutions are well-managed, well-capitalized
and  have  received  a  rating  of   "satisfactory"   on  their  last  Community
Reinvestment Act examination.

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

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

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

         The Act also  establishes  a minimum  federal  standard  of  privacy to
protect the confidentiality of a consumer's  personal financial  information and
gives the consumer the power to choose how personal financial information may be
used by financial institutions.

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

Fiscal and Monetary Policy

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


                                       9


Employees

         At December 31, 2001 the Corporation  employed 126 full time equivalent
employees. Management believes that its employee relations are excellent.

Item 2.  Description of Property

         The  Corporation's  Orangeburg  bank owns land located at 1820 Columbia
Road NE, in Orangeburg,  South Carolina, where the Orangeburg bank maintains its
main office. The Bank operates from a one-story building of approximately  7,000
square feet.

         The Orangeburg bank also owns a building, which was previously a branch
of the bank, at the corner of Broughton and Glover  Streets in  Orangeburg.  The
Orangeburg  bank  currently  rents this facility to the  Corporation  for office
space. In June 1999 the Bank moved into a new branch facility  located  adjacent
to the old building. This new branch office is approximately 6,500 square feet.

         The  foregoing  properties  are owned in fee  simple by the  Orangeburg
bank.

         The  Corporation's  Sumter  bank  has fee  simple  title  to land and a
one-story  6,500 square foot building  located at 683 Bultman Drive,  in Sumter,
South Carolina, where the Sumter bank maintains its main office.

         The  Corporation's  Sumter bank  opened a branch  bank on West  Liberty
Street in Sumter in  February  2002.  The  branch  is a  one-story  building  of
approximately  3,600  square  feet.  The  approximate  cost of the  building  is
$705,000.   The  land,   approximately   one  acre,  is  being  leased  under  a
noncancellable  operating lease for an initial term of twenty years. The details
of the lease  are  discussed  in Note 6 to the  financial  statements  contained
elsewhere in this report.

         The Florence bank is leasing approximately 1.7 acres of land located at
2009 Hoffmeyer Road in Florence,  South  Carolina.  This land is the site of the
main office for Florence  National  Bank. The details of the lease are discussed
in Note 6 to the financial  statements  contained  elsewhere in this report. The
Corporation  has  constructed  a one-story  building  for the  Florence  bank of
approximately 7,500 share feet on the leased site.

         See Note 6 to the Corporation's  audited financial  statements included
in this report for further information about the lease terms.

Item 3.  Legal Proceedings

         The Company,  the Banks and the mortgage  company are from time to time
subject  to legal  proceedings  in the  ordinary  course of their  business.  No
proceedings  were pending at December 31, 2001, that  management  believes would
have a material adverse effect on the Company or its subsidiaries.

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

         No matters were submitted for a vote of the security holders during the
fourth quarter of 2001.







                                       10



                                     PART II

Item 5. Market for the  Registrant's  Common Stock and Related  Security  Holder
        Matters

         The  Corporation's  shares of Common  Stock are traded on the  American
Stock Exchange (the AMEX) under the ticker symbol SCB.

         The following table summarizes the range of high and low prices for the
Corporation's  Common Stock as reported on the American  Stock Exchange for each
quarterly period over the last two years.

                  Sales price of the Corporation's Common Stock
                    Quarter ended          High        Low
                    Mar. 31, 2000         $12.88     $10.88
                    June 30, 2000         $12.50     $10.75
                    Sept. 30, 2000        $12.56     $11.13
                    Dec. 31, 2000         $11.87     $10.56
                    Mar. 31, 2001         $11.25     $10.20
                    June 30, 2001         $11.49     $10.65
                    Sept. 30, 2001        $12.60     $10.30
                    Dec. 31, 2001         $13.20     $11.00

The above amounts have been restated for a  five-percent  stock dividend paid on
January 31, 2000.

During 2001 the  Corporation had a stock sales volume of 133,900 shares compared
to 181,500 shares in 2000.

         There were 1,925  holders of record of the  Corporation's  Common Stock
(no par value) as of December 31, 2001 compared to 1,891 the prior year.

         During  2001,  The  Corporation  authorized  and  paid  quarterly  cash
dividends  totaling 28 cents per share.  The total cost of these  dividends  was
$904,000 or 23% of after tax profits. During 2000 The Corporation authorized and
paid  quarterly cash  dividends  totaling 22 cents per share.  The total cost of
these dividends was $645,000 or 20% of after tax profits. The dividend policy of
the  Corporation  is subject to the  discretion  of the Board of  Directors  and
depends upon a number of factors, including earnings,  financial condition, cash
needs  and  general  business  conditions,  as  well  as  applicable  regulatory
considerations.  Subject to  ongoing  review of these  circumstances,  the Board
expects to maintain a reasonable, safe, and sound dividend payment policy.

         The current  source of dividends to be paid by the  Corporation  is the
dividends  received  from its banking  subsidiaries.  Accordingly,  the laws and
regulations   that  govern  the  payment  of  dividends   by  national   banking
associations may restrict the Corporation's  ability to pay dividends.  National
banks may pay  dividends  only out of present and past  earnings  with  numerous
limitations  designed to ensure that the Banks have adequate  capital to operate
safely and  soundly  (See Item 1.  Description  of  Business -  Supervision  and
Regulation - Payment of Dividends).  At December 31, 2001 the Banks could pay up
to $5,936,000 in dividends  without  special  approval of the Comptroller of the
Currency.

         In connection  with the acquisition of Resource  Mortgage,  Inc. in the
fourth  quarter of 2001, the Company issued an aggregate of 95,454 shares of its
common stock to  shareholders of Resource  Mortgage,  Inc. At December 31, 2001,
63,640 of such shares were held in escrow by  Orangeburg  National  Bank pending
satisfaction  of conditions to release set forth in the  acquisition  agreement.
Issuance of such shares was exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933 because no public offering was involved.




                                       11



Item 6. Selected Financial Data

         The following is a summary of the consolidated  financial  position and
results of operations of the  Corporation  for the years ended December 31, 1997
through December 31, 2001.



For the years ended December 31,                      2001              2000             1999              1998               1997
                                                      ----              ----             ----              ----               ----
          Financial Condition
                                                                                                           
Investment securities ....................        $  43,707         $  53,566         $  43,936         $  34,148         $  32,452
Net loans  receivable ....................          227,075           192,653           155,152           116,336            90,811
Total assets .............................          318,617           273,323           228,030           182,281           134,574
Total deposits ...........................          255,433           218,811           184,364           147,630           117,167
Long-term obligations ....................           20,280            20,350            19,420             9,490             1,060
Stockholders' equity .....................        $  27,547         $  23,139         $  20,245         $  19,659         $  13,037

           Earnings Summary
Interest income ..........................        $  21,201         $  20,203         $  15,388         $  12,320         $   9,820
Interest expense .........................          (10,261)           (9,975)           (6,958)           (5,554)           (4,374)
                                                  ---------         ---------         ---------         ---------         ---------
  Net interest income ....................           10,940            10,228             8,430             6,766             5,446
Provision for loan losses ................             (650)             (688)             (612)             (484)             (358)
Other operating income ...................            3,584             1,966             1,479             1,055               768
Other operating expenses .................           (7,810)           (6,552)           (6,066)           (5,107)           (4,004)
                                                  ---------         ---------         ---------         ---------         ---------
  Net income before taxes ................            6,064             4,954             3,231             2,230             1,852
Income taxes .............................           (2,156)           (1,807)           (1,049)             (663)             (636)
                                                  ---------         ---------         ---------         ---------         ---------

  Net income .............................        $   3,908         $   3,147         $   2,182         $   1,567         $   1,216
                                                  =========         =========         =========         =========         =========

           Per share data *
 Basic earnings per share ................        $    1.21         $    0.99         $    0.68         $    0.52         $    0.44
 Diluted earnings per share ..............        $    1.20         $    0.98         $    0.68         $    0.51         $    0.43
 Dividends per share .....................        $    0.28         $    0.22         $    0.19         $    0.15         $    0.14


*Per share information is adjusted for a 5% stock dividend paid on Jan. 31, 2000


Item 7. Management's  Discussion and Analysis of Financial Condition and Results
        of Operation

INTRODUCTION

         The  discussion  and data  presented  below  analyze  major factors and
trends regarding the financial  condition and results of operations of Community
Bankshares  Inc. and its  subsidiaries  for the three year period ended December
31, 2001.

Forward Looking Statements

         Statements   included  in  Management's   Discussion  and  Analysis  of
Financial Condition and Results of Operations which are not historical in nature
are intended to be, and are hereby  identified as `forward  looking  statements'
for  purposes  of the safe  harbor  provided  by Section  21E of the  Securities
Exchange Act of 1934, as amended.  The words "estimate,"  "project,"  "intend,",
"expect,"  "believe,"  "anticipate,"  "plan," and similar  expressions  identify
forward-looking  statements.  The  Corporation  cautions  readers  that  forward


                                       12


looking  statements,   including  without  limitation,  those  relating  to  the
Corporation's  future  business  prospects,  ability to  successfully  integrate
recent and proposed acquisitions,  revenues, working capital, liquidity, capital
needs,   interest  costs,   and  income,   are  subject  to  certain  risks  and
uncertainties  that could cause actual results to differ  materially  from those
indicated in the forward looking  statements,  due to several  important factors
herein  identified,  among others,  and other risks and factors  identified from
time to time in the Corporation's reports filed with the Securities and Exchange
Commission.


Business of the Corporation

         Community Bankshares Inc. is a bank holding company. CBI now owns three
banking  subsidiaries:  Orangeburg  National  Bank,  Sumter  National  Bank, and
Florence National Bank; and a mortgage company  subsidiary,  Community  Resource
Mortgage,  Inc. ("CRM"),  which was acquired in November 2001. CBI provides item
and data processing and other technical  services for its banking  subsidiaries.
The  consolidated  financial  report for 2001  represents  the operations of the
holding  company and its three banks and its newly  acquired  mortgage  company.
Parent-only   financial  statements  are  presented  in  the  footnotes  to  the
consolidated financial statements.

         Orangeburg   National  Bank  is  a  national  banking  association  and
commenced  operations in November  1987. It operates two offices in  Orangeburg,
South  Carolina.  Sumter  National Bank is a national  banking  association  and
commenced  operations  in June 1996.  It operates  two offices in Sumter,  South
Carolina. Florence National Bank is a national banking association and commenced
operations in July 1998. It operates one office in Florence, South Carolina. The
banks provide commercial banking services in their respective communities. Their
primary customer markets are consumers and small to medium size businesses.

         Community  Resource  Mortgage  is a South  Carolina  corporation  which
commenced business in 1996, and was acquired by the Corporation in 2001. It is a
mortgage  company  that  provides  a variety of one to four  family  residential
mortgage products from offices in Columbia, Sumter and Anderson, South Carolina.

         Also in late November 2001 the Corporation entered into an agreement to
acquire the common stock of Ridgeway  Bancshares  Inc., the holding  company for
the Bank of  Ridgeway.  The  agreement  provides  for the  Corporation  to issue
1,000,000  shares of its stock and  $4,000,000  cash in exchange for 100% of the
stock of  Ridgeway.  The  transaction  must be  approved  by  two-thirds  of the
shareholders  of both  companies,  as well as  various  regulators.  Shareholder
meetings for both companies have been scheduled for April 2002. CBI  anticipates
completion of the transaction by July 1, 2002.


Stock Dividend

         On January  31,  2000 the  Corporation  effected a  five-percent  stock
dividend.  All references to per share information  contained in this discussion
have been adjusted accordingly.


                                       13



DISTRIBUTION OF ASSETS AND LIABILITIES

         The following table presents the average  balance  sheets,  the average
yield and the interest  earned on earning  assets,  and the average rate and the
interest paid on interest  bearing  liabilities for the years ended December 31,
2001, 2000 and 1999.



 Years ended December 31,                          2001                            2000                            1999
 ------------------------              ----------------------------    -----------------------------   -----------------------------
                                                 Interest                        Interest                        Interest
                                       Average    Income/   Yields/    Average    Income/    Yields/   Average    Income/   Yields/
                   Assets              Balance  Expense(1)  Rates(1)   Balance  Expense(1)  Rates(1)   Balance  Expense(1)  Rates(1)
                                       -------  ---------- ---------   -------  ----------  --------   -------  ----------  --------
                                                                       (Dollar amounts in thousands)
                                                                                                   
 Interest bearing deposits           $  4,044     $   161     3.98%  $  1,024    $    64     6.25%    $  1,937     $   101    5.21%
 Investment securities taxable         37,751       2,167     5.74%    47,377      3,025     6.38%      39,856       2,458    6.17%
 Investment securities--tax exempt        766          29     5.74%       807         32     6.01%         783          30    5.81%
 Federal funds sold                    19,095         734     3.84%     6,670        430     6.45%      10,967         555    5.06%
 Loans receivable (2)                 211,901      18,110     8.55%   179,654     16,652     9.27%     139,215      12,244    8.80%
                                     --------     -------            --------    -------              --------     -------
 Total interest earning assets        273,557      21,201     7.75%   235,532     20,203     8.58%     192,758      15,388    7.98%
 Cash and due from banks                9,305                           8,582                            8,896
 Allowance for loan losses             (2,655)                         (2,186)                          (1,692)
 Premises and equipment                 4,614                           4,564                           44,549
 Goodwill                                 149                               0                                0
 Other assets                           3,036                           3,232                            2,251
                                     --------                        --------                         --------
 Total assets                        $288,006                        $249,724                         $206,762
                                     ========                        ========                         ========

    Liabilities and
      Shareholders' Equity
 Interest bearing deposits
 Savings                             $ 38,194     $ 1,117     2.92%  $ 33,445    $ 1,358     4.06%    $ 28,321         943    3.33%
 Interest bearing
   transaction accounts                26,917         264     0.98%    21,039        329     1.56%      17,417         269    1.54%
 Time deposits                        136,938       7,494     5.47%   119,949      6,905     5.76%      96,761       4,901    5.07%
                                     --------     -------            --------    -------              --------      ------
 Total interest
   bearing deposits                   202,049       8,875     4.39%   174,433      8,592     4.93%     142,499       6,113    4.29%
 Short term borrowing                   7,533         237     3.15%     4,501        218     4.84%       5,210         170    3.26%
 FHLB advances                         19,899       1,149     5.77%    19,385      1,165     6.01%      12,335         675    5.47%
                                     --------     -------            --------    -------              --------      ------
 Total interest
   bearing liabilities                229,481      10,261     4.47%   198,319      9,975     5.03%     160,044       6,958    4.35%
 Noninterest bearing
   demand deposits                     31,643                          28,531                           26,124
 Other liabilities                      1,799                           1,421                              978
 Shareholders' equity                  25,083                          21,453                           19,616
                                     --------                        --------                         --------
 Total liabilities and
   shareholders' equity              $288,006                        $249,724                         $206,762
                                     ========                        ========                         ========

 Interest rate spread(3)                                      3.28%                          3.55%                            3.64%
 Net int. income and net
   yield on earning assets(4)                     $10,940     4.00%              $10,228     4.34%                  $8,430    4.37%

1.   Computed on a fully  taxable  equivalent  basis using a federal tax rate of
     34%.
2.   Nonaccruing loans are included in the average loan balances and income from
     such loans is recognized on a cash basis. Loans fees are immaterial.
3.   Total interest earning assets yield less total interest bearing liabilities
     rate.
4.   Net yield  equals net interest  income  divided by total  interest  earning
     assets.


                                       14



Earnings Performance, 2001 compared to 2000

         The  Corporation's  net  income was  $3,908,000  or $.1.21 per share in
2001.  This  compares to  $3,147,000  or $.99 per share in 2000,  an increase of
$761,000, or 24.2%.

         This increase in earnings  resulted  from improved  profit at all three
banks. Earnings at the Sumter bank increased to $1,184,000 in 2001 from $908,000
in 2000,  an increase of 30.4% or  $276,000.  Earnings  at the  Orangeburg  bank
increased to $2,507,000 in 2001 from $2,243,000 in 2000, an increase of 11.8% or
$264,000.  Earnings  at the  Florence  bank  increased  to $154,000 in 2001 from
$78,000 in 2000, an increase of 97.4% or $76,000.

         On  November  1,  2001  the  Corporation  acquired  Community  Resource
Mortgage in a purchase  transaction.  Resource earned $172,000 for the two month
period ended December 31, 2001.

Interest Income and Interest Expense, 2001 compared to 2000

         The   Corporation's   interest   income  and   interest   expense  were
substantially  influenced by the extraordinary  interest rate environment during
2001.  When the year began the prime  lending rate was at 9.5%,  by year end the
rate had fallen to 4.75%, a fifty percent  decline in market rates within twelve
months.

         The Corporation's interest income increased slightly in 2001 from 2000.
In 2001 the Corporation earned $21,201,000 in total interest income, up from the
prior year's $20,203,000.  This represented a $998,000 or a 4.9% increase.  This
growth was the result of increased volume of earning assets at the banks,  which
more than offset the reduction in rates.

         Interest  bearing  deposits  in other  banks  contributed  $161,000  to
interest  income in 2001, up from $64,000 the prior year, an increase of $97,000
or 152%.  In 2001 the  Corporation  had an average  of  $4,044,000  in  interest
bearing deposits, up from the prior year's $1,024,000, an increase of $3,020,000
or 295%.  The average yield on these deposits  during 2001 was 3.98%,  down from
the prior  year's  6.25%.  The decline in market  interest  rates caused a large
number of  investments  to be called  prior to maturity,  generating  extra cash
which was placed in interest bearing deposits and federal funds sold.

         Taxable investments  contributed $2,167,000 to interest income in 2001,
down from  $3,025,000  the prior year,  a decrease  of  $858,000  or 28.4%.  The
investment  portfolio  averaged  $37,751,000 in 2001, down from the prior year's
$47,377,000,  a decrease of $9,626,000 or 20.3%.  The  Corporation's  investment
portfolio  consists  primarily of  short-term U. S.  government  and agency debt
issues.  The average yield on investments during 2001 was 5.74%, down from 6.38%
in 2000.

         The Corporation's tax-exempt securities portfolio earned $29,000 during
2001,  down from  $32,000  the prior  year,  a decrease  of $3,000 or 9.4%.  The
portfolio  averaged  $766,000 in 2001, down from $807,000 in 2000, a decrease of
$41,000 or 5.1%. The average yield was 5.74%,  compared to 6.01% the prior year,
on a fully taxable equivalent basis.

         Federal  funds sold  represent  temporary  surplus  funds that one bank
lends to another.  These funds are a source of day to day  operating  liquidity.
Federal  funds sold  contributed  $734,000 to interest  income in 2001,  up from
$430,000 in the prior year,  an increase of $304,000 or 70.7%.  The  Corporation
had an average of  $19,095,000  in federal  funds during 2001, up from the prior
year's  $6,670,000,  an increase of  $12,425,000  or 186%.  The average yield on
federal  funds during 2001 was 3.84%,  down from 6.45% in 2000.  As noted above,
the decline in market  interest rates caused  numerous  investments to be called


                                       15


prior to  maturity,  which  generated  unusually  high  amounts of cash that the
Company placed in interest bearing deposits and federal funds.

         The  Corporation's   major  source  of  interest  income  is  the  loan
portfolio,  which  contributed  $18,110,000 to interest  income in 2001, up from
$16,652,000  in the prior year, an increase of  $1,458,000 or 8.8%.  The average
loan  portfolio  for  2001  was  $211,901,000   compared  to  the  prior  year's
$179,654,000,  an increase of $32,247,000 or 17.95%.  The average yield on loans
during 2001 was 8.55%, down from 9.27% in 2000.

         The  Corporation  had average  earning assets in 2001 of  $273,557,000,
which earned a yield of 7.75%.  The  Corporation  had average  earning assets in
2000 of  $235,532,000,  which earned a yield of 8.58%.  Average  earning  assets
increased  $38,025,000 or 16.1%, while the yield on these assets decreased by 83
basis points or 9.7%.

         Savings accounts  consist of savings and money market  accounts.  Total
savings accounts averaged  $38,194,000 in 2001, up from $33,445,000 in the prior
year, an increase of $4,749,000 or 14.2%.  The cost of these funds  decreased to
2.92% in 2001 from 4.06% in the prior year.

         Interest bearing transaction accounts are the primary checking accounts
that the Banks offer customers.  This overall category  averaged  $26,917,000 in
2001, up from  $21,039,000  in 2000,  an increase of  $5,878,000  or 27.9%.  The
average  cost of these  funds  was .98% in 2001  compared  to 1.56% in the prior
year.

         Time  deposits  are  the  largest   category  of  deposits,   averaging
$136,938,000  in 2001,  up from  $119,949,000  in the prior year, an increase of
$16,989,000 or 14.2%. The cost of time deposits decreased to 5.47% from 5.76%.

         Short-term  borrowing  includes  federal funds purchased and securities
sold under agreements to repurchase.  The repurchase agreements are entered into
with a number of larger commercial  customers.  These accounts are not deposits;
they are considered other  obligations of the Banks.  Balances in these accounts
are subject to wide  fluctuation and they constitute a relatively  small portion
of the balance  sheet.  The average  balance  for 2001 was  $7,533,000,  up from
$4,501,000 in the prior year,  an increase of  $3,032,000 or 67.4%.  The cost of
these funds decreased to 3.15% from 4.84%.

         The Banks  are  members  of and have the  ability  to  borrow  from the
Federal Home Loan Bank (FHLB). The Banks had an average $19,899,000  outstanding
borrowing  balance  during  2001 at an average  cost of 5.77%.  The Banks had an
average  $19,385,000  outstanding  during  2000 at an  average  cost  of  6.01%.
Borrowings increased by $514,000 or 2.7%. These borrowings are mostly for longer
terms  than  other  interest  bearing  liabilities  and are  part of the  Banks'
on-going  asset/liability  management  strategy.  These  loans are  secured by a
blanket  lien  on  the  Banks'  one-to-four  family  residential  mortgage  loan
portfolios or portions of their investment portfolios and the Banks' FHLB stock.

         The Corporation had  average total interest bearing liabilities in 2001
of  $229,481,000  costing an average of 4.47%  compared  with  interest  bearing
liabilities  in 2000 of  $198,319,000  costing  an  average  of  5.03%.  Average
interest bearing liabilities  increased  $31,162,000 or 15.7%, while the cost of
these liabilities decreased by 56 basis points or 11.1%.



                                       16



Earnings Performance, 2000 compared to 1999

         The  Corporation's net income was $3,147,000 or $.99 per share in 2000.
This  compares to $2,182,000 or $.68 per share in 1999, an increase of $965,000,
or 44.2%.

         This increase in earnings  resulted  from improved  profit at all three
banks.  Earnings at the Sumter bank  increased to $908,000 in 2000 from $559,000
in 1999,  an increase of 62.4% or  $349,000.  Earnings  at the  Orangeburg  bank
increased to $2,243,000 in 2000 from  $2,054,000 in 1999, an increase of 9.2% or
$189,000. Earnings at the Florence bank increased to $78,000 in 2000 from a loss
of $314,000 for 1999, an improvement of $392,000.

Interest Income and Interest Expense, 2000 compared to 1999

         The Corporation's interest income increased  substantially in 2000 from
1999. In 2000 the Corporation  earned  $20,203,000 in total interest income,  up
from the prior year's  $15,388,000.  This  represented  a $4,815,000  or a 31.3%
increase.  This growth was mostly the result of increased volume in the loan and
investment portfolios at the banks.

         Interest  bearing  deposits  in  other  banks  contributed  $64,000  to
interest  income in 2000,  down from  $101,000  the prior  year,  a decrease  of
$37,000  or 36.6%.  In 2000 the  Corporation  had an average  of  $1,024,000  in
interest bearing deposits, down from the prior year's $1,937,000,  a decrease of
$913,000 or 47.1%. The average yield on these deposits during 2000 was 6.25%, up
from the prior year's 5.21%.

         Taxable investments  contributed $3,025,000 to interest income in 2000,
up from  $2,458,000  the prior year,  an  increase  of  $567,000  or 23.1%.  The
investment  portfolio  averaged  $47,377,000  in 2000,  up from the prior year's
$39,856,000,  an increase of $7,521,000 or 18.9%. The  Corporation's  investment
portfolio  consists  primarily of  short-term U. S.  government  and agency debt
issues. The average yield on investments during 2000 was 6.38%, up from 6.17% in
1999.

         The Corporation's tax-exempt securities portfolio earned $32,000 during
2000,  up from  $30,000  the prior  year,  an  increase  of $2,000 or 6.7%.  The
portfolio  averaged  $807,000 in 2000,  up from $783,000 in 1999, an increase of
$24,000 or 3.1%. The average yield was 6.01%,  compared to 5.81% the prior year,
on a fully taxable equivalent basis.

         Federal  funds sold  contributed  $430,000 to interest  income in 2000,
down from  $555,000  in the prior year,  a decrease  of  $125,000 or 22.5%.  The
Corporation had an average of $6,670,000 in federal funds during 2000, down from
the prior year's  $10,967,000,  a decrease of $4,297,000  or 39.2%.  The average
yield on federal funds during 2000 was 6.45%, up from 5.06% in 1999. The decline
in federal funds sold was directly related to continued strong loan demand.

         The  Corporation's   major  source  of  interest  income  is  the  loan
portfolio,  which  contributed  $16,652,000 to interest  income in 2000, up from
$12,244,000  in the prior year, an increase of $4.246,000 or 34.2%.  The average
loan  portfolio  for  2000  was  $179,654,000   compared  to  the  prior  year's
$139,215,000,  an increase of  $40,439,000  or 29%.  The average  yield on loans
during 2000 was 9.27%, up from 8.80% in 1999.

         The  Corporation  had average  earning assets in 2000 of  $235,532,000,
which earned a yield of 8.58%.  The  Corporation  had average  earning assets in
1999 of  $192,758,000,  which earned a yield of 7.98%.  Average  earning  assets
increased $42,774,000 or 22.2%.



                                       17


         The  category  savings  accounts  consist of savings  and money  market
accounts.   Total  savings  accounts  averaged  $33,445,000  in  2000,  up  from
$28,321,000  in the prior year, an increase of $5,124,000 or 18.1%.  The cost of
these funds increased to 4.06% in 2000 from 3.33% in the prior year.

         Interest bearing transaction accounts are the primary checking accounts
that the Banks offer  customers.  This overall category was $21,039,000 in 2000,
up from  $17,417,000  in 1999, an increase of  $3,622,000 or 20.8%.  The average
cost of these funds was 1.56% in 2000 compared to 1.54% in the prior year.

         Time  deposits  are  the  largest   category  of  deposits,   averaging
$119,949,000  in 2000,  up from  $96,761,000  in the prior year,  an increase of
$23,188,000 or 24%. The cost of time deposits increased to 5.76% from 5.07%.

         Short-term  borrowings  are  subject  to  wide  fluctuation,  and  they
constitute a relatively  small portion of the balance sheet. The average balance
for 2000 was  $4,501,000,  down from $5,210,000 in the prior year, a decrease of
$709,000 or 13.6%. The cost of these funds increased to 4.84% from 3.26%.

         The Banks had an average $19,385,000 outstanding borrowing balance with
the FHLB  during  2000 at an  average  cost of 6.01%.  The banks had an  average
$12,335,000 with the FHLB  outstanding  during 1999 at an average cost of 5.47%.
Borrowings  increased by $7,050,000 or 57.2%.  These  borrowings  are mostly for
longer terms than other interest bearing  liabilities and are part of the Banks'
on-going  asset/liability  management  strategy.  These  loans are  secured by a
blanket  lien  on  the  Banks'  one-to-four  family  residential  mortgage  loan
portfolios or portions of their investment portfolios and the Banks' FHLB stock.

         The  Corporation  had total  interest  bearing  liabilities  in 2000 of
$198,319,000  costing  an  average  of  5.03%  compared  with  interest  bearing
liabilities  in 1999 of  $160,044,000  costing  an  average  of  4.35%.  Average
interest bearing liabilities increased $38,275,000 or 23.9%.


Volume and Rate Variance Analysis

         The table  "Volume and Rate  Variance  Analysis"  provides a summary of
changes in net interest  income  resulting from changes in volume and changes in
rate.  (The changes in volume are the  difference  between the current and prior
year's  balances  times the  prior  year's  rate.  The  changes  in rate are the
difference  between  the current  and prior  year's rate times the prior  year's
balance.)

         As reflected in the table,  the increase in 2001 net interest income of
$712,000  is due to changes in volume.  Of the  $998,000  increase  in  interest
income,  most was attributed to increased  volume in the loan portfolio.  Of the
$286,000 increase in interest  expense,  most was attributed to increased volume
of time deposits. The increase in 2000 net interest income of $1,798,000 is also
primarily  due to changes in volume.  Of the  $4,815,000  increase  in  interest
income,  $3,812,000 or 79% was from volume growth in the loan portfolio.  Of the
$3,017,000  increase in interest  expense,  $1,276,000  or 42% was due to volume
increases for time  deposits.  Also,  $728,000 or 24% of the increase was due to
rate changes in time deposits.

         The prime  interest rate has changed  dramatically  over the last three
years.  The prime  rate was 7.75%  during  the first  half of 1999,  when  rates
started to climb. By May 2000 the rate had climbed to 9.50%. In January 2001 the
Federal  Reserve began a series of rate cuts that brought the prime rate down to
4.75% by December.  Management expects interest rates to be fairly stable in the


                                       18


near term. Therefore, as in 2001, any improvements in net interest income during
2002 are more  likely to be the  result  of  changes  in  volume  and the mix of
earning assets and interest bearing liabilities than changes in rates.


                        Volume and Rate Variance Analysis



                                                              2001 compared to 2000                    2000 compared to 1999
                                                              ---------------------                    ---------------------
                                                        Volume        Rate         Total          Volume        Rate         Total
                                                        ------        ----         -----          ------        ----         -----
 Interest earning assets                                                        (Dollar amounts in thousands)

                                                                                                          
Interest bearing deposits ......................      $   127       $   (30)      $    97       $   (54)      $    17       $   (37)
Investment securities taxable ..................         (574)         (284)         (858)          480            87           567
Investment securities--tax exempt ..............           (2)           (1)           (3)            1             1             2
Federal funds sold .............................          536          (232)          304          (252)          127          (125)
Loans receivable ...............................        2,827        (1,369)        1,458         3,812           596         4,408
                                                      -------       -------       -------       -------       -------       -------
   Total interest income .......................        2,914        (1,916)          998         3,987           828         4,815
                                                      -------       -------       -------       -------       -------       -------

Interest bearing liabilities
Savings ........................................          175          (416)         (241)          188           227           415
Interest bearing trans. accounts ...............           77          (142)          (65)           57             3            60
Time deposits ..................................          942          (353)          589         1,276           728         2,004
                                                      -------       -------       -------       -------       -------       -------
   Total interest bearing deposits .............        1,194          (911)          283         1,521           958         2,479
Short term borrowing ...........................          113           (94)           19           (25)           73            48
FHLB advances ..................................           31           (47)          (16)          416            74           490
                                                      -------       -------       -------       -------       -------       -------
   Total interest expense ......................        1,338        (1,052)          286         1,912         1,105         3,017
                                                      -------       -------       -------       -------       -------       -------

Net interest income ............................      $ 1,576       $  (864)      $   712       $ 2,075       $  (277)      $ 1,798
                                                      =======       =======       =======       =======       =======       =======


The change in interest due to both and  yield/rate  has been allocated to change
due to volume and change due to yield/rate  in proportion to the absolute  value
of the change in each.


PREMISES AND EQUIPMENT

         Premises and equipment were $5,177,000 at December 31, 2001 compared to
$4,411,000  the prior  year,  an  increase  of  $766,000  or 17.4%.  Most of the
increase was due to the  construction  of a new branch  office in Sumter,  which
opened in February 2002.  Premises and equipment are discussed further in Note 6
to the consolidated financial statements.

INVESTMENT PORTFOLIO

         The Corporation's investment portfolio consists primarily of short-term
U. S. government and agency debt issues.  Investment  securities  averaged $38.5
million in 2001,  $48.2 million in 2000 and $40.6 million in 1999. Note 4 to the
consolidated financial statements provides further information on the investment
portfolio.



                                       19





         The  table  below  gives  the  amortized  cost  and  fair  value of the
Corporation's investment portfolio for the past three years.



                                                            2001                          2000                        1999
                                                            ----                          ----                        ----
                                                 Amortized        Fair        Amortized         Fair        Amortized        Fair
                                                   cost           value         cost            value         cost           value
                                                   ----           -----         ----            -----         ----           -----
Securities held-to-maturity                                                (Dollar amounts in thousands)

                                                                                                           
U.S. government and agencies .............        $   500        $   500        $12,371        $12,217        $13,369        $12,919
State and local government ...............              -              -              -              -              -              -
                                                  -------        -------        -------        -------        -------        -------
 Total held-to-maturity ..................        $   500        $   500        $12,371        $12,217        $13,369        $12,919
                                                  =======        =======        =======        =======        =======        =======

Securities available-for sale
U.S. government and agencies .............        $40,437        $40,415        $38,599        $38,403        $28,931        $28,151
State and local government ...............            801            810            813            810            825            814
Other securities .........................          1,982          1,982          1,982          1,982          1,601          1,601
                                                  -------        -------        -------        -------        -------        -------
 Total available for sale ................        $43,220        $43,207        $41,394        $41,195        $31,357        $30,566
                                                  =======        =======        =======        =======        =======        =======



Information  on  the  maturity  distribution  of  the  investment  portfolio  is
presented in Note 4 to the financial statements.

         At December 31, 2001 the  Corporation's  available  for sale  portfolio
showed  a net of tax  other  comprehensive  loss in the  equity  section  of the
balance  sheet of $7,000  compared  to a loss of $131,000  the prior  year.  The
change in the valuation of the investment  portfolio was directly related to the
changes in market interest rates during the year.


LOAN PORTFOLIO

         The  average  size of the loan  portfolio  in 2001 was  $211.9  million
compared to $179.7 million in 2000 and $139.2 million in 1999.

         At December 31, 2001 the net loan portfolio was $227 million,  compared
to $192.7 million the prior year, an increase of $34.3 million or 17.8%.

         Management believes the loan portfolio is adequately diversified. There
are no foreign loans and few agricultural loans.

         The table,  "Loan  Portfolio  Composition,"  in the following  section,
indicates the amounts of loans outstanding  according to the type of loan at the
dates indicated.


                                       20


Loan Portfolio Composition

         The following table shows the composition of the loan portfolio for the
years ended December 31, 1997 through 2001.



Loan category                                                  2001            2000            1999           1998            1997
                                                               ----            ----            ----           ----            ----
                                                                                                             
Commercial, financial  and agricultural ............        $ 56,515        $ 52,264        $ 40,220        $ 29,943        $ 22,306
Real estate - construction .........................          19,557          15,389           9,156           5,738           6,563
Real estate - mortgage .............................         127,002          98,154          84,680          62,789          46,734
Loans to individuals ...............................          26,831          29,270          23,033          19,325          16,348
                                                            --------        --------        --------        --------        --------
     Total loans - gross ...........................        $229,905        $195,077        $157,089        $117,795        $ 91,951
                                                            ========        ========        ========        ========        ========



         Commercial,  financial,  and agricultural loans, primarily representing
loans made to small and medium size  businesses,  increased  by $4.2  million or
8.1% during  2001.  These loans may be made on either a secured or an  unsecured
basis.   When  taken,   security  usually  consists  of  liens  on  inventories,
receivables, equipment, and furniture and fixtures. Unsecured business loans are
generally  short-term with emphasis on repayment strengths and low debt-to-worth
ratios.

         Real estate loans  consist of  construction  loans and loans secured by
mortgages. Construction loans are also generally secured with mortgages. Because
the  Corporation's  subsidiaries are community banks, real estate loans comprise
the bulk of the loan  portfolio.  Construction  loans  increased $4.2 million or
27.1% in 2000. Mortgage loans increased $28.8 million or 29.4% in 2001.

         The  Corporation's  Banks  generally do not compete with 15 and 30 year
fixed rate secondary  market  mortgage  interest  rates, so they have elected to
pursue the  origination  of  mortgage  loans that could be easily  sold into the
secondary mortgage market. Community Resource Mortgage also originates loans for
sale in the secondary market.  These loans are generally  pre-qualified with the
underwriters  to avoid problems in the sale of the loans. In 2001, 2000 and 1999
the   Corporation   sold  $34.9  million,   $5.9  million,   and  $9.9  million,
respectively,  in such loans.  These loans are usually sold at par so no gain or
loss is recognized at the time of sale.  However,  the  origination  and sale of
these loans generates fee income.  The Corporation also makes mortgage loans for
its own account. Such loans are usually for a shorter term than loans originated
to sell and usually have a variable rather than a fixed interest rate.

         Loans to individuals held by the Corporation  decreased $2.4 million or
8.3% in 2001.

         Interest  income  from the loan  portfolio  was $18.1  million  in 2001
compared to $16.7  million in 2000,  an increase  of $1.4  million or 8.4%.  The
average yield on the portfolio was 8.55% in 2001 compared to 9.32% in 2000.



                                       21


Maturity Distribution of Loans

           The  following  table sets  forth the  maturity  distribution  of the
Corporation's  loans,  by type,  as of December  31, 2001 as well as the type of
interest on loans due after one year.



                                                                                   After one
                                                                                    year but
                                                               Within one          within five         Over five
Category                                                          year                years               years               Total
--------                                                          ----                -----               -----               -----
                                                                                                                
Commercial .........................................            $ 29,114            $ 24,361            $  3,040            $ 56,515
Real estate ........................................              41,409              77,133              28,017             146,559
Individuals ........................................               7,311              18,473               1,047              26,831
                                                                --------            --------            --------            --------
Total ..............................................            $ 77,834            $119,967            $ 32,104            $229,905
                                                                ========            ========            ========            ========

Loans due after one year
Predetermined interest rate ........................                                                                        $149,352
Floating interest rate .............................                                                                           2,719
                                                                                                                            --------
Total ..............................................                                                                        $152,071
                                                                                                                            ========


Lending Risks

         Because extending credit involves a certain degree of risk,  management
has established loan and credit policies  designed to control both the types and
amounts  of  risks  assumed  and  to  minimize  losses.  Such  policies  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.
The  Corporation  also  conducts  internal loan reviews to monitor on an ongoing
basis the quality of its portfolio.

         The Corporation has a geographic concentration of loans within its home
communities of Orangeburg,  Sumter,  and Florence,  South Carolina,  because its
primary business is community banking.

         Concentrations  of credit  also occur where a number of  customers  are
engaged  in  similar  business  activities.  A  concentration  is  defined  as a
concentration  of loans exceeding 10% of total loans. The banks regularly review
their  business  lending in an effort to detect,  monitor and control  such loan
concentrations.   At  December  31,  2001  the  Corporation  had  no  such  loan
concentrations.

Nonaccrual and Past Due Loans

         The  nonaccrual,  past due,  and  impaired  loans and other real estate
owned are summarized in Note 5 to the  consolidated  financial  statements.  The
Corporation had no restructured loans in 2001 or 2000.


                                                                        2001          2000          1999         1998          1997
                                                                        ----          ----          ----         ----          ----
                                                                                       (Dollar amounts in thousands)
                                                                                                                
Nonaccrual loans .............................................         $281          $  238         $ 90         $ 31          $ 81
Accruing loans 90 days or more past due ......................           17              93            6          187             -
                                                                       ----          ------         ----         ----          ----
     Total ...................................................         $298          $  331         $ 96         $218          $ 81
                                                                       ====          ======         ====         ====          ====
     Total as a % of outstanding loans .......................         0.13%           0.17%        0.06%        0.19%         0.09%
                                                                       ====          ======         ====         ====          ====
Other Real Estate Owned ......................................         $267          $    -         $  -         $266          $132
                                                                       ====          ======         ====         ====          ====
Impaired Loans (included in non accrual) .....................         $281          $  238         $ 90         $ 31          $ 81
                                                                       ====          ======         ====         ====          ====



                                       22


         Gross income that would have been recorded for the years ended December
31, 2001 and 2000, if nonaccrual  loans had been  performing in accordance  with
their  original  terms was  approximately  $7,000 and $33,000  respectively.  No
interest income was recognized in the current period on the non-accrual loans.

         The  Corporation's  policies  on  nonaccrual  and  impaired  loans  are
discussed in Note 2 to the consolidated financial statements.

         Nonaccrual  loans and  impaired  loans were not material in relation to
the portfolio as a whole in 2001.  Management  is aware of no trends,  events or
uncertainties that would cause nonaccrual loans to change materially in 2002.

Potential Problem Loans

         At December 31, 2001 the Corporation's internal loan review program had
identified   $1,684,000   (0.73%  of  the  portfolio)  in  various  loans  where
information  about credit  problems of borrowers  had caused  management to have
concerns  about the ability of the borrowers to comply with  original  repayment
terms.  The amount  identified does not represent  management's  estimate of the
potential losses since a large portion of these loans are secured by real estate
and other marketable collateral.

Secured versus Unsecured Loans

         The Corporation  does not  aggressively  seek to make unsecured  loans,
since these loans may be somewhat more risky than  collateralized  loans.  There
are, however,  occasions when it is in the business interests of the Corporation
to  provide  short-term,  unsecured  loans to  selected  customers.  In 2001 the
Corporation  had $16.1 million in unsecured loans or 6.6% of its loan portfolio.
In 2000 the Corporation had $12.4 million in unsecured loans or 6.4% of its loan
portfolio.  Such loans are made on the basis of  management's  evaluation of the
customer's ability to repay and net worth.


Loan Participations

         Periodically,  the Corporation's  banking subsidiaries enter into sales
or  purchases  of loan  participations  with one  another  and  other  financial
institutions.  The banks generally only sell  participations in loans that would
cause the bank to exceed its lending  limitation  to a single  customer.  As the
Banks' lending limits increase they may buy back such loan participations.  Such
loans are  usually  commercial  in  nature,  subject  to the  purchasing  Bank's
standard underwriting requirements, and all risks associated with the portion of
the loan sold flow to the purchaser.

         At  the  end  of  2001  the  three  banks  had   $16,868,000   in  loan
participations  purchased.  Of these  loans  $5,265,000  was with  nonaffiliated
banks.

         At  the  end  of  2001  the  three  banks  had   $11,953,000   in  loan
participations sold. Of these loans $801,000 was with nonaffiliated banks.

         At  the  end  of  2000  the  three  banks  had   $14,748,000   in  loan
participations  purchased.  Of these  loans  $6,017,000  was with  nonaffiliated
banks.



                                       23


         At  the  end  of  2000  the  three  banks  had   $10,895,000   in  loan
participations sold. Of these loans $2,164,000 was with nonaffiliated banks.

Other Real Estate

         Other real estate, consisting of foreclosed properties, was $267,000 in
2001 and $0 in 2000 and 1999.  Other real  estate is  initially  recorded at the
lower of net loan balance or its estimated fair value, net of estimated disposal
costs.  The estimate of fair value for  foreclosed  properties  is determined by
appraisal at the time of acquisition.


SUMMARY OF LOAN LOSS EXPERIENCE

Allowance for Loan Losses

         The  allowance  for loan losses is increased by the  provision for loan
losses,  which is a direct  charge  to  expense.  Losses on  specific  loans are
charged against the allowance in the period in which management  determines that
such loans become uncollectible.  Recoveries of previously charged-off loans are
credited to the allowance.  At December 31, 2001 and 2000 the allowance for loan
losses was 1.23% and 1.24%,  respectively,  of total loans.  The following table
provides details on the changes in the allowance for loan losses during the past
five fiscal years.


                                       24




(Dollar amounts in thousands)                                2001            2000             1999            1998           1997
                                                             ----            ----             ----            ----           ----

                                                                                                            
Average amount of loans outstanding ................       $211,901        $179,654        $139,215        $103,500        $ 81,167
                                                           ========        ========        ========        ========        ========
Allowance for loan losses - January 1 ..............       $  2,424        $  1,936        $  1,459        $  1,140        $    876
                                                           --------        --------        --------        --------        --------

Loan charge-offs:
   Real estate .....................................              9              78               0               7               0
   Installment .....................................            202             116              95             111             121
   Credit cards and related plans ..................              9               9               5               6               9
   Commercial ......................................             87              33              80              56               2
                                                           --------        --------        --------        --------        --------
Total charge-offs ..................................            307             236             180             180             132
                                                           --------        --------        --------        --------        --------

Recoveries:
   Real Estate .....................................              0               3               0               0               0
   Installment .....................................             33              25              17              12              34
   Credit cards and related plans ..................              2               2               3               3               4
   Commercial ......................................              0               6              25               0               0
                                                           --------        --------        --------        --------        --------
Total recoveries ...................................             35              36              45              15              38
                                                           --------        --------        --------        --------        --------

Net charge-offs ....................................            272             200             135             165              94
Provision for loan losses (1) ......................            678             688             612             484             358
                                                           --------        --------        --------        --------        --------

Allowance - at end of year .........................       $  2,830        $  2,424        $  1,936        $  1,459        $  1,140
                                                           ========        ========        ========        ========        ========

Ratios
Net charge-offs to average loans
     outstanding ...................................           0.13%           0.11%           0.10%           0.16%           0.12%
Net charge-offs to loans outstanding at
     end of year ...................................           0.12%           0.10%           0.09%           0.14%           0.10%
Allowance for loan losses to average
     loans .........................................           1.34%           1.35%           1.39%           1.41%           1.40%
Allowance for loan losses to total
     loans at end of year ..........................           1.23%           1.24%           1.23%           1.24%           1.24%
Net charge-offs to allowance for losses ............           9.61%           8.25%           6.97%          11.31%           8.25%
Net charge-offs to provision for loans
     losses ........................................          40.12%          29.07%          22.06%          34.09%          26.26%


(1)  The provision  expense for 2001 includes $28,000 that was acquired with the
     purchase of  Community  Resource  Mortgage.  The amount  attributed  to the
     operation of the banks was $650,000.

         Management  reviews  its  allowance  for loan  losses  in  three  broad
categories: commercial, real estate and loans to individuals. The combination of
a relatively short operating history and relatively high asset quality precludes
management from establishing a meaningful  specific loan loss percentage for the
computation of the allowance for each category.  Instead  management  assigns an
estimated percentage factor to each in the computation of the overall allowance.
In general  terms,  the real  estate  portfolio  is  subject to the least  risk,
followed by the commercial loan portfolio,  followed by the loans to individuals
portfolio.  The Banks' internal and external loan review programs will from time


                                       25


to time identify  loans that are subject to specific  weaknesses  and such loans
will be reviewed for a specific loan loss allowance.

         The  Corporation  operates three  independent  community banks in South
Carolina.  Under the provisions of the National Bank Act each board of directors
is responsible  for  determining the adequacy of its bank's loan loss allowance.
In addition, each bank is supervised and regularly examined by the Office of the
Comptroller  of the  Currency  (the  "OCC").  As a normal  part of a safety  and
soundness examination, the OCC examiners will assess and comment on the adequacy
of a national bank's allowance for loan losses.  The allowance  presented in the
financial statements is on an aggregated basis and as such might differ from the
allowance  that  would be  present  if the  Corporation  had  only  one  banking
subsidiary.

         The nature of community  banking is such that the loan  portfolios will
be predominantly comprised of small and medium size business and consumer loans.
As community  banks there is by definition a geographic  concentration  of loans
within the Banks'  respective  city or county.  Management at each bank monitors
the  loan  concentrations  and  loan  portfolio  quality  on  an  ongoing  basis
including,  but not  limited  to:  quarterly  analysis  of loan  concentrations,
monthly  reporting of past dues,  non-accruals,  and watch loans,  and quarterly
reporting of loan charge-offs and recoveries.  These efforts focus on historical
experience  and are bolstered by quarterly  analysis of local and state economic
conditions,  which is part of the Banks'  assessment  of the  adequacy  of their
allowances for loan losses.

         Based on the current levels of non-performing  and other problem loans,
management  believes that loan charge-offs in 2002 will at least approximate the
2001 levels as such loans  progress  through the  collection,  foreclosure,  and
repossession process. Management believes that the allowance for loan losses, as
of December  31,  2001 is  sufficient  to absorb the  expected  charge-offs  and
provide  adequately for the inherent  losses that remain in the loan  portfolio.
Management  will continue to closely  monitor the levels of  non-performing  and
potential  problem loans and address the  weaknesses in these credits to enhance
the amount of  ultimate  collection  or  recovery  of these  assets.  Management
considers  the  levels  and  trends  in  non-performing  and past  due  loans in
determining how the provision for loan losses is adjusted.

         The following  table  presents the allocation of the allowance for loan
losses, as of December 31, 1997 through 2001, compared with the percent of loans
in the applicable categories to total loans.



                                           % of                % of                % of                 % of                % of
                                           loans               loans               loans in             loans               loans
(Dollar amounts                            in each             in each             each                 in each            in each
 in thousands)                   2001      category  2000      category    1999    category     1998    category    1997   category
                                 ----      --------  ----      --------    ----    --------     ----    --------    ----   --------
                                                                                               
Commercial ................    $1,019        24%    $  801        27%    $  660        28%    $  364        25%    $  336        24%
Real estate ...............     1,322        65%     1,136        58%       916        58%       707        58%       516        58%
Individual ................       489        11%       487        15%       360        15%       388        16%       288        18%
                               ------    ------     ------    ------     ------    ------     ------    ------     ------    ------
     Total ................    $2,830       100%    $2,424       100%    $1,936       100%    $1,459       100%    $1,140       100%
                               ======    ======     ======    ======     ======    ======     ======    ======     ======    ======





                                       26


         The  Corporation  maintains  an  allowance  for loan losses it believes
sufficient to cover  estimated  losses.  The allowance is allocated to different
segments of the portfolio,  based on  management's  expectations of risk in that
segment  of the  portfolio.  This  allocation  is an  estimate  only  and is not
intended  to  restrict  the  Corporation's  ability to  respond  to losses.  The
Corporation  charges  losses from any segment of the portfolio to the allowance,
regardless of the allocation.

         In reviewing  the adequacy of the  allowance for loan losses at the end
of each period,  the  Corporation  considers  historical  loan loss  experience,
current economic  conditions,  loans  outstanding,  trends in non-performing and
delinquent  loans,  and the quality of collateral  securing  problem loans.  The
allowance for loan losses is management's  best estimate of probable loan losses
that have been incurred as of December 31, 2001.


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,  general
economic  conditions  and the adequacy of the  allowance  for loan  losses.  The
amount of the  provision is the amount which is necessary to cause the allowance
to be adequate. Provisions for loan losses totaled $678,000 and $688,000 in 2001
and 2000,  respectively.  Based on the available  information,  the  Corporation
considers its 2001 provision for loan losses adequate.

         Net  charge-offs  in 2001 were  $272,000 or 40.1% of the  provision for
loan losses  compared to $200,000 or 29.1% of the  provision  for loan losses in
the prior year.  See "Allowance for Loan Losses" for a discussion of the factors
management  considers  in its  review  of the  adequacy  of  the  allowance  and
provision for loan losses.

AVERAGE DEPOSITS

         The  Corporation's  average deposits in 2001 were $234 million compared
to $203 million in 2000, an increase of $30.8 million or 15.2%.

         The total  average  deposits  for the  Corporation  for the years ended
December 31, 2001, 2000 and 1999 are summarized below:



                                                    2001                          2000                          1999
                                                    ----                          ----                          ----
                                           Average          Average       Average         Average       Average      Average
                                           balance           cost         balance          cost         balance       cost
                                           -------           ----         -------          ----         -------       ----
                                                                     (Dollar amounts in thousands)
                                                                                                     
Noninterest bearing demand                 $ 31,643                       $ 28,531                      $ 26,124
Interest bearing transaction accounts        26,917         0.98%           21,039        1.56%           17,417       1.54%
Savings-regular                               8,705         1.60%            8,414        2.12%            8,595       2.08%
Savings- money market                        29,489         3.37%           25,031        4.73%           19,726       3.97%
Time deposits less than $100,000             92,515         5.45%           81,797        5.66%           39,406       5.09%
Time deposits greater than $100,000          44,423         5.50%           38,152        6.10%           57,355       5.14%
                                           --------                       --------                      --------

Total average deposits                     $233,692                       $202,964                      $168,623
                                           ========                       ========                      ========




                                       27


         At December 31, 2001 the Corporation had $51,374,000 in certificates of
deposit  of  $100,000  or more.  The  maturities  of these  certificates  are as
follows:

Maturity
                                      (Dollar amounts in
                                          thousands)
Of 3 months or less .................        $16,522
From 3 to 6 months ..................         18,072
From 6 to 12 months .................         12,048
Over 12 months ......................          4,732
                                             -------
Total ...............................        $51,374
                                             =======


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 the years ended December 31, 2001, 2000, and 1999.

                                                2001        2000         1999
                                                ----        ----         ----
Return on assets (ROA) ..................      1.36%        1.26%        1.06%
Return on equity (ROE) ..................     15.58%       14.67%       11.12%
Dividend payout ratio
  (dividends/net income) ................     23.13%       20.50%       27.82%
Equity as a percent of assets ...........      8.71%        8.59%        9.49%

SHORT-TERM BORROWINGS

         The  Corporation's  short-term  borrowings  consist  of  federal  funds
purchased and securities  sold under  agreements to repurchase,  which generally
mature each business  day.  There was  $4,171,000,  $9,352,000,  and  $2,782,000
outstanding at year-end 2001, 2000 and 1999,  respectively.  Further information
is provided in the following table.

                                               2001          2000          1999
                                               ----          ----          ----
                                                (Dollar amounts in thousands)
Outstanding at year-end ..............      $ 4,171       $ 9,352       $ 2,782
Interest rate at year-end ............         2.08%         5.01%         3.50%
Maximum month-end balance
  during the year ....................      $10,976       $ 9,532       $ 6,473
Average amount outstanding
  during the year ....................      $ 7,533       $ 4,501       $ 5,210
Weighted average interest
  rate during the year ...............         3.15%         4.84%         3.26%

         Lines  of  credit  payable  represent   warehouse  lines  funding  loan
production  for CRM.  At year end these  balances  totaled  $9,028,000.  Of this
amount $8,324,000 was borrowed from BB&T at the one month LIBOR rate plus 1.95%.
The BB&T line expires in October  2002.  The lines are secured with the value of
the underlying mortgages and the guarantee of the Corporation to a maximum of $9
million.  The remaining  lines are priced at prime plus 1.5% to 2% and are being
phased out in favor of the BB&T line.  The  operations  of CRM are  included for
only the two month period ended December 31, 2001, and  accordingly  the average
balance of the lines are small and included with the above reported table.

                                       28



FEDERAL HOME LOAN BANK ADVANCES

         The Corporation's  banking subsidiaries are members of the Federal Home
Loan Bank of Atlanta.  As such they have access to long-term  borrowing from the
FHLB. There were  $20,280,000,  $20,350,000 and $19,420,000  outstanding in such
advances at year-end 2001, 2000 and 1999,  respectively.  Further information on
these borrowings from the FHLB is provided in the following table.

                                               2001         2000          1999
                                               ----         ----          ----
                                                (Dollar amounts in thousands)
Outstanding at year-end ..............      $20,280       $20,350       $19,420
Interest rate at year-end ............         5.54%         6.04%         5.55%
Maximum month-end balance
  during the year ....................      $20,350       $20,350       $19,420
Average amount outstanding
  during the year ....................      $19,899       $19,385       $12,335
Weighted average interest
  rate during the year ...............         5.77%         6.01%         5.47%


CAPITAL

Dividends

         During 2001 the  Corporation  paid cash dividends to shareholders of 28
cents per share,  which totaled  $904,000.  This  represented a dividend  payout
ratio (dividends divided by net income) of 23%. During 2000 the Corporation paid
cash dividends to  shareholders of 22 cents per share,  which totaled  $645,000.
This represented a dividend payout ratio of 20.5%.

Common Stock Account

         The common  stock  account at  December  31, 2001  totaled  $17,208,000
compared to $15,928,000 the prior year, an increase of $1,280,000. Virtually all
of this increase was related to the issuance of 95,454 shares in connection with
the acquisition of Resource Mortgage Inc. at November 1, 2001.


Capital Adequacy

         The Federal Reserve and federal bank regulatory agencies have adopted a
risk-based capital standard for assessing the capital adequacy of a bank holding
company or financial  institution.  The minimum required ratio is 8%. Orangeburg
National  Bank,  Sumter  National  Bank,  and  Florence  National  Bank are each
considered `well capitalized' for regulatory purposes.  This category requires a
minimum  risk  based  capital  ratio  of  10%.   Detailed   information  on  the
Corporation's  capital  position,  as well as that of its subsidiary  banks,  is
provided in Note 20 to the consolidated  financial  statements.  The Corporation
considers its current and projected capital position to be adequate.


NONINTEREST INCOME AND EXPENSE

Noninterest income, 2001 compared to 2000

         Noninterest  income  increased to $3,584,000 in 2001 from $1,966,000 in
2000, a $1,618,000 or 82.3%  increase.  There were two major  components of this
increase.  The Corporation acquired a mortgage company during the fourth quarter


                                       29


of 2001, which was a boom period for mortgage  originations.  This accounted for
most of the increase in gains on sales of loans,  which was  $1,033,000  in 2001
compared to only  $98,000 in 2000.  Also  during the second  quarter of 2001 the
banks began offering an automated  overdraft product to customers.  This product
enables  customers to overdraw their accounts  within  specific dollar limits in
exchange  for a fee;  they then have thirty days to bring their  account  into a
positive  balance.  The product  accounted  for most of the  increase in service
charge income, which was $2,058,000 in 2001 compared to $1,475,000 in 2000.

Noninterest expense, 2001 compared to 2000

         Overall,  non-interest  expenses  increased to  $7,810,000 in 2001 from
$6,552,000  in 2000,  an  increase of  $1,258,000  or 19.2%.  Of this  increase,
approximately  $515,000 or 41% is  associated  with the  operations of Community
Resource Mortgage.

         Personnel  costs in 2001 were  $4,651,000  compared to  $3,779,000  the
prior year, an increase of $872,000 or 23.1%.

         Premises and  equipment  expenses in 2001 were  $1,009,000  compared to
$942,000 the prior year, a $67,000 or 7.1% increase.

         Marketing expenses in 2001 were $266,000 compared to $207,000 the prior
year, a $59,000 or 28.5% increase.

         Regulatory  fees in 2001 were  $181,000  compared to $140,000 the prior
year, a $41,000 or 29.3% decrease.

         Supplies expense was $166,000 in 2001 compared to $160,000 in the prior
year, an increase of $6,000 or 3.8%.

         Director  fees were  $162,000 in 2001 compared to $137,000 in the prior
year,  an increase of $25,000 or 18.2%.  Orangeburg  National  Bank pays outside
directors $600 per month.  Sumter  National Bank and Florence  National Bank pay
their outside  directors $300 per month. The Florence bank began paying director
fees during 2000. The Corporation pays its outside directors $200 per month.

         FDIC  insurance  costs were $48,000 in 2001  compared to $33,000 in the
prior year, an increase of $15,000 or 45.5%.

         All other  expenses  were  $1,327,000 in 2001 compared to $1,154,000 in
the prior year, an increase of $173,000 or 15%.

Income Taxes, 2001 compared to 2000

         The  Corporation  pays U. S. corporate  income taxes and South Carolina
bank and  corporate  income  taxes.  The 2001  provision  for  income  taxes was
$2,156,000  compared to  $1,807,000  the prior year,  an increase of $349,000 or
19.3%. The  Corporation's  effective average tax rate was 35.6% in 2001 compared
to 36.5% the prior year.



                                       30



Noninterest income, 2000 compared to 1999

         Noninterest  income  increased to $1,966,000 in 2000 from $1,479,000 in
1999, a $487,000 or 32.9%  increase.  The major  component of this change was in
service  charge income,  which in 2000 was $1,475,000  compared to $1,031,000 in
the prior year, a $444,000 or 43.1% increase.  Most of this increase was related
to growth in the  Florence  and Sumter  banks'  returned  check fees and deposit
account service charge income.

Noninterest expense, 2000 compared to 1999

         Overall,  non-interest  expenses  increased to  $6,552,000 in 2000 from
$6,066,000 in 1999, an increase of $486,000 or 8%.

         Personnel  costs in 2000 were  $3,779,000  compared to  $3,493,000  the
prior year, an increase of $286,000 or 8.2%.

         Premises  and  equipment  expenses  in 2000 were  $942,000  compared to
$886,000 the prior year, a $56,000 or 6.3% increase.

         Marketing expenses in 2000 were $207,000 compared to $180,000 the prior
year, a $27,000 or 15% increase.

         Regulatory  fees in 2000 were  $140,000  compared to $155,000 the prior
year, a $15,000 or 9.7% decrease.

         Supplies expense was $160,000 in 2000 compared to $155,000 in the prior
year, an increase of $5,000 or 3.1%.

         Director  fees were  $137,000 in 2000 compared to $121,000 in the prior
year,  an increase of $16,000 or 13.2%.  Orangeburg  National  Bank pays outside
directors $600 per month.  Sumter  National Bank and Florence  National Bank pay
their outside  directors $300 per month. The Florence bank began paying director
fees during 2000. The Corporation pays its outside directors $200 per month.

         FDIC  insurance  costs were $33,000 in 2000  compared to $23,000 in the
prior year, an increase of $10,000 or 43.4%.

         All other  expenses  were  $1,154,000 in 2000 compared to $1,053,000 in
the prior year, an increase of $101,000 or
9.6%.

Income Taxes, 2000 compared to 1999

         The  Corporation  pays U. S. corporate  income taxes and South Carolina
bank income taxes.  The 2000 provision for income taxes was $1,807,000  compared
to  $1,049,000   the  prior  year,  an  increase  of  $758,000  or  72.3%.   The
Corporation's effective average tax rate was 36.5% in 2000 compared to 32.4% the
prior  year.  The  Corporation  received  a tax  benefit  from the  exercise  of
non-qualified   stock  options  on  27,500  shares  during  1999.   The  benefit
approximated  $89,000 and accounts for the temporary  reduction in the effective
tax rate during 1999.



                                       31



INFLATION

         The assets and  liabilities of the  Corporation  are mostly monetary in
nature. Accordingly, the financial results and operations of the Corporation are
much more affected by changes in interest rates than changes in inflation. There
is, however,  a strong correlation  between increasing  inflation and increasing
interest  rates.  The impact of inflation  has been very  moderate,  about 1.5%,
during 2001.  Prospects  appear good for continued low  inflation,  despite some
increases  in  energy  costs.  Although  inflation  does not  normally  affect a
financial  institution  as  dramatically  as it  affects  businesses  with large
investments in plants and inventories, it does have an effect. During periods of
high inflation  there are usually  corresponding  increases in the money supply,
and banks  experience  above  average  growth in assets,  loans,  and  deposits.
General  increases in the prices of goods and services  also result in increased
operating expenses.


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 a timely and economical  manner.
The most manageable  sources of liquidity are composed of liabilities,  with the
primary  focus of  liquidity  management  being the ability to attract  deposits
within the Banks' service areas. Core deposits (total deposits less certificates
of deposit of  $100,000  or more)  provide a  relatively  stable  funding  base.
Certificates  of deposit of $100,000 or more are  generally  more  sensitive  to
changes  in rates,  so they must be  monitored  carefully.  Asset  liquidity  is
provided by several  sources,  including  amounts due from banks,  federal funds
sold, and investments available-for-sale.

         The Corporation maintains an  available-for-sale  investment portfolio.
While investment securities purchased for this portfolio are generally purchased
with the intent to be held to  maturity,  such  securities  are  marketable  and
occasional  sales  may  occur  prior  to  maturity  as  part of the  process  of
asset/liability  and liquidity  management.  The  Corporation  also  maintains a
held-to-maturity   investment  portfolio.   Securities  in  this  portfolio  are
generally not considered a primary source of liquidity.  Management deliberately
maintains a short-term  maturity schedule for its investments so that there is a
continuing stream of maturing investments. The Corporation intends to maintain a
short-term  investment  portfolio  in order  to  continue  to be able to  supply
liquidity to its loan portfolio and for customer withdrawals.

         The Corporation has  substantially  more liabilities that mature in the
next 12 months than it has assets  maturing  in the same  period.  Further,  the
Corporation has legal obligations to extend credit pursuant to loan commitments,
lines of credit  and  standby  letters  of  credit  which  totaled  $11,596,000,
$18,342,000 and $2,877,000,  respectively,  at December 31, 2001 (see Note 14 to
the  consolidated  financial  statements).  However,  based  on  its  historical
experience, and that of similar financial institutions, the Corporation believes
that it is unlikely  that so many  deposits  would be  withdrawn,  without being
replaced by other deposits, and extensions of credit would be required, that the
Corporation  would be unable to meet its  liquidity  needs with the  proceeds of
maturing assets, in the ordinary course of business.

         The  Corporation  also maintains  various federal funds lines of credit
with  correspondent  banks and is able to borrow from the Federal Home Loan Bank
and the Federal Reserve's discount window.



                                       32


         The  Corporation,  through  its Banks,  has a  demonstrated  ability to
attract  deposits from its market area.  Deposits have grown from $72 million in
1995 to over $255 million in 2001.  This stable  growing base of deposits is the
major source of operating liquidity.

         The  Corporation's   long-term  liquidity  needs  are  expected  to  be
primarily  affected by the maturing of  long-term  certificates  of deposit.  At
December  31,  2001  the   Corporation  had   approximately   $18.6  million  in
certificates of deposit and other obligations maturing in one to five years. The
Corporation  had $18.3 million in  obligations  maturing  after five years.  The
Corporation's  assets  maturing in the same  periods were $139 million and $25.8
million, respectively.  Even with a substantially larger dollar amount of assets
maturing in both periods than liabilities, the Corporation believes that it will
not have any significant long-term liquidity problems.

         In the  opinion of  management,  the current  and  projected  liquidity
position is adequate.


Item 7A. Quantitative and Qualitative Disclosures about Market Risk

         Market risk is the risk of loss from adverse  changes in market  prices
and rates. The Corporation's  market risk arises  principally from interest rate
risk  inherent in its  lending,  deposit and  borrowing  activities.  Management
actively  monitors and manages its  interest  rate risk  exposure.  Although the
Corporation  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  Corporation's  financial  condition  and  results  of
operations.  Other types of market risks such as foreign currency  exchange risk
and commodity price risk, do not arise in the normal course of community banking
activities.

         Achieving  consistent growth in net interest income is the primary goal
of the  Corporation's  asset/liability  function.  The  Corporation  attempts to
control the mix and maturities of assets and  liabilities to achieve  consistent
growth in net interest  income despite  changes in market  interest  rates.  The
Corporation seeks to accomplish this goal while maintaining  adequate  liquidity
and capital. The Corporation's  asset/liability mix is sufficiently  balanced so
that the effect of interest rates moving in either  direction is not expected to
be significant over time.

         The Corporation's  Asset/Liability Committee uses a simulation model to
assist in  achieving  consistent  growth in net interest  income while  managing
interest rate risk.  The model takes into account  interest rate changes as well
as changes in the mix and volume of assets and liabilities.  The model simulates
the  Corporation's  balance sheet and income  statement under several  different
rate  scenarios.  The model's inputs (such as interest rates and levels of loans
and  deposits)  are  updated  on a  quarterly  basis in order to obtain the most
accurate  forecast   possible.   The  forecast   presents   information  over  a
twelve-month  period. It reports a base case in which interest rates remain flat
and reports  variations  that occur when rates increase and decrease 100 and 200
basis points. According to the model, as of December 31, 2001 the Corporation is
positioned so that net interest  income would  increase  $803,000 and net income
would  increase  $494,000 if interest rates were to rise 300 basis points in the
next twelve months.  Conversely,  net interest income would decline $535,000 and
net income would  decline  $329,000 if interest  rates were to decline 200 basis
points.  Given the current  state of market  interest  rates,  in the opinion of
management  it appears  more likely  that rates will rise or remain  stable than
that  they  will  decline  further.   Computation  of  prospective   effects  of
hypothetical interest rate changes are based on numerous assumptions,  including
relative levels of market interest rates and loan prepayment,  and should not be
relied upon as indicative of actual results.  Further,  the  computations do not
contemplate any actions the  Corporation  could undertake in response to changes
in interest rates.



                                       33


         The  Market  Risk  table,  which  follows  this  discussion,  shows the
Corporation's  financial  instruments  that are sensitive to changes in interest
rates.  The  Corporation  uses certain  assumptions  to estimate fair values and
expected maturities.  For assets, expected maturities are based upon contractual
maturity, projected repayments, and prepayment of principal and potential calls.
For core deposits without contractual maturity (i.e., interest checking, savings
and money market  accounts),  the table  presents  principal cash flows based on
management's judgment concerning their most likely runoff. The actual maturities
and runoff  could vary  substantially  if future  prepayments,  runoff and calls
differ from the Corporation's historical experience.






                                       34







                                                                            Expected Maturity
                                                     -----------------------------------------------------------------
                                                                                                        2007               Estimated
                                       Average                                                           and                 Fair
                                         rate      2002      2003       2004       2005        2006     after     Balance    value
                                         ----      ----      ----       ----       ----        ----     -----     -------    -----
                                                                       (Dollar amounts in thousands)
Earnings assets
                                                                                                 
  Interest bearing deposits ..          3.98%  $  2,376    $     -    $     -    $     -    $     -   $      -   $  2,376   $  2,376
  Investment securities ......          5.74%        92      6,782     17,699     12,251      4,680      2,203     43,707     43,707
  Federal funds sold .........          3.84%    11,063          -          -          -          -          -     11,063     11,063
  Loans (gross) ..............          8.55%   108,763     15,963     26,411     16,237     39,129     23,402    229,905    231,795


Interest bearing liabilities
  Savings ....................          2.92%    39,479          -          -          -          -          -     39,479
  Interest bearing
    transaction accts ........          0.98%    41,564          -          -          -          -          -     41,564
  Time deposits < $100,000 ...          5.45%    75,304      8,617      1,654      1,269        290          -     87,134
  Time deposits > $100,000 ...          5.50%    46,642      3,556        278        797          -        101     51,374
                                                                                                                 --------
  Total deposits .............                                                                                    219,551    221,070
  Short term borrowing .......          3.15%     4,171          -          -          -          -          -      4,171      4,175
  Lines of credit payable.....          4.00%     9,028          -          -          -          -          -      9,028      9,028
  FHLB advances ..............          5.77%  $      -    $     -    $     -   $    280    $ 1,800   $ 18,200   $ 20,280   $ 19,656





         The static interest rate sensitivity gap position, while not a complete
measure  of  interest  sensitivity,  is also  reviewed  periodically  to provide
insights  related to the static  repricing  structure  of the Banks'  assets and
liabilities.  At December 31, 2001 on a cumulative  basis through twelve months,
rate sensitive liabilities exceeded rate sensitive assets, by $93.9 million. The
liability  sensitive  position is largely due to the assumption  that the Banks'
$41 million in interest bearing transaction accounts, savings accounts and money
market  accounts will reprice within a year.  This  assumption may or may not be
valid,  since these accounts vary greatly in their  sensitivity to interest rate
changes in the market.





                                       35



         The following table summarizes the Corporation's  interest  sensitivity
position as of December 31, 2001.

                          Interest Sensitivity Analysis



                                                             Within 3                                        Over 5
                                                              months       4-12 months       1-5 years        years          Total
                                                              ------       -----------       ---------        -----          -----
                                                                                 (Dollar amounts in thousands)
Interest earning assets
                                                                                                            
  Interest bearing deposits .........................      $   2,376        $       -        $       -      $       -      $   2,376
  Taxable investment securities .....................              -                -           40,672          2,223         42,895
  Tax exempt investment securities ..................              -                -              617            195            812
  Federal funds sold ................................         11,063                -                -              -         11,063
  Loans, net of unearned income .....................         92,837           15,922           97,744         23,402        229,905
                                                           ---------        ---------        ---------      ---------      ---------

    Total interest earning assets ...................        106,276           15,922          139,033         25,820        287,051
                                                           ---------        ---------        ---------      ---------      ---------

Interest bearing liabilities
  Savings ...........................................         39,479                -                -              -         39,479
  Interest bearing transaction accounts .............         41,564                -                -              -         41,564
  Time deposits .....................................         46,524           75,422           16,461            101        138,508
  Short term borrowing ..............................         13,199                -                -              -         13,199
  FHLB advances .....................................              -                -            2,080         18,200         20,280
                                                           ---------        ---------        ---------      ---------      ---------

    Total interest bearing liabilities ..............      $ 140,766        $  75,422        $  18,541      $  18,301      $ 253,030
                                                           ---------        ---------        ---------      ---------      ---------

Interest sensitivity gap ............................      $ (34,490)       $ (59,500)       $ 120,492      $   7,519      $  34,021
Cumulative gap ......................................        (34,490)         (93,990)          26,478         34,021
RSA/RSL .............................................             75%              21%
Cumulative RSA/RSL ..................................             75%              57%


     RSA- rate sensitive assets; RSL- rate sensitive
     liabilities


         The above table  reflects the balances of interest  earning  assets and
interest  bearing  liabilities  at the  earlier of their  repricing  or maturity
dates. Amortizing fixed rate loans are reflected at the scheduled maturity date.
Variable rate amortizing  loans are reflected at the earliest date at which they
may be repriced  contractually.  Deposits in other banks and debt securities are
reflected at each instrument's  ultimate maturity date.  Overnight federal funds
sold are reflected as instantly  repriceable.  Interest bearing liabilities with
no  contractual  maturity,   such  as  savings  deposits  and  interest  bearing
transaction  accounts,  are reflected in the earliest repricing period possible.
Fixed rate time deposits are reflected at the earlier of their next repricing or
maturity dates.


Item 8.  Financial Statements and Supplementary Data

         Please see the attached  audited  financial  statements  for the period
ended December 31, 2001.




                                       36



















                   COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES



                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




                                                                                                         PAGE

                                                                                                       
Independent Auditors' Report .........................................................................    38
Consolidated Balance Sheets, December 31, 2001 and 2000 ..............................................    39
Consolidated Statements of Income, Years Ended December 31,
   2001, 2000, and 1999 ..............................................................................    40
Consolidated Statements of Changes in Shareholders' Equity, Years Ended
   December 31, 2001, 2000, and 1999 .................................................................    42
Consolidated Statements of Cash Flows, Years Ended December 31,
   2001, 2000, and 1999 ..............................................................................    44
Notes to Consolidated Financial Statements ...........................................................    46





                                       37











                          INDEPENDENT AUDITORS' REPORT


To the Shareholders and
Board of Directors of
Community Bankshares, Inc.


We have  audited  the  accompanying  consolidated  balance  sheets of  Community
Bankshares,  Inc.,  and  subsidiaries  as of December 31, 2001 and 2000, and the
related consolidated  statements of income, changes in shareholders' equity, and
cash flows for each of the years in the  three-year  period  ended  December 31,
2001. These  consolidated  financial  statements are the  responsibility  of the
Corporation's  management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in  all  material   respects,   the  financial  position  of  Community
Bankshares,  Inc.,  and  subsidiaries  at December  31,  2001 and 2000,  and the
results  of their  operations  and their cash flows for each of the years in the
three-year  period ended  December  31,  2001,  in  conformity  with  accounting
principles generally accepted in the United States of America.

                                                     s/J. W. Hunt & Company, LLP

Columbia, South Carolina
February 1, 2002




                                       38


                   COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
             CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 2001 AND 2000



                                     ASSETS
($ in thousands)                                                                                        2001                  2000
                                                                                                        ----                  ----

                                                                                                                    
Cash and due from banks ................................................................            $  14,586             $  10,209
Federal funds sold .....................................................................               11,063                 8,130
                                                                                                    ---------             ---------
                 Total cash and cash equivalents .......................................               25,649                18,339
Interest-bearing deposits with banks ...................................................                2,376                   594
Securities available for sale, at fair value ...........................................               43,207                41,195
Securities held to maturity (fair value approximates $500
   and $12,217 as of December 31, 2001 and 2000, respectively) .........................                  500                12,371
Loans held for sale ....................................................................               10,265                   343
Loans receivable, net of allowance for loan
   losses of $2,830 in 2001 and $2,424 in 2000 .........................................              227,075               192,653
Accrued interest receivable ............................................................                1,762                 2,330
Premises and equipment - net ...........................................................                5,177                 4,411
Net deferred tax asset .................................................................                  870                   795
Goodwill ...............................................................................                  921                     -
Other assets ...........................................................................                  815                   292
                                                                                                    ---------             ---------

                  Total assets .........................................................            $ 318,617             $ 273,323
                                                                                                    =========             =========

                      LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
   Deposits:
      Demand, non interest-bearing .....................................................            $  35,882             $  31,219
      Interest-bearing transaction accounts ............................................               41,564                22,708
      Savings ..........................................................................               39,479                38,385
      Certificates of deposit of $100 and over .........................................               51,374                38,702
      Other time deposits ..............................................................               87,134                87,797
                                                                                                    ---------             ---------
                  Total deposits .......................................................              255,433               218,811
   Federal funds purchased and securities sold under
      agreements to repurchase .........................................................                4,171                 9,352
   Federal Home Loan Bank advances .....................................................               20,280                20,350
   Lines of credit payable .............................................................                9,028                     -
   Accrued interest payable ............................................................                  946                 1,224
   Accrued expenses and other liabilities ..............................................                1,212                   447
                                                                                                    ---------             ---------
                  Total liabilities ....................................................              291,070               250,184
                                                                                                    ---------             ---------
Shareholders' equity:
   Common stock - no par  value, authorized shares -
      12,000,000;  issued  and
      outstanding - 3,299,674 shares
      in 2001 and 3,199,180 shares in 2000 .............................................               17,208                15,928
   Retained earnings ...................................................................               10,346                 7,342
   Accumulated other comprehensive loss ................................................                   (7)                 (131)
                                                                                                    ---------             ---------
                  Total shareholders' equity ...........................................               27,547                23,139
                                                                                                    ---------             ---------

                  Total liabilities and shareholders' equity ...........................            $ 318,617             $ 273,323
                                                                                                    =========             =========


THE  ACCOMPANYING  NOTES  ARE AN  INTEGRAL  PART OF THE  CONSOLIDATED  FINANCIAL
STATEMENTS



                                       39


                   COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME,
                 YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999



($ in thousands, except per share data)                                                   2001             2000                1999
                                                                                          ----             ----                ----
Interest and dividend income:
                                                                                                                   
   Loans, including fees ..................................................            $18,110            $16,652            $12,244
   Deposits with other financial institutions .............................                161                 64                101
   Investment securities interest and dividends:
     Interest - taxable securities ........................................              2,040              2,891              2,352
      Interest - tax-exempt securities ....................................                 29                 32                 30
      Dividends ...........................................................                127                134                106
      Federal funds sold ..................................................                734                430                555
                                                                                       -------            -------            -------
           Total interest and dividend income .............................             21,201             20,203             15,388
                                                                                       -------            -------            -------
Interest expense:
   Deposits:
      Interest-bearing transaction accounts ...............................                264                329                269
      Savings .............................................................              1,117              1,358                942
      Certificates of deposit of $100,000 and over ........................              2,415              2,279              1,523
      Certificates of deposit of less than $100,000 .......................              5,079              4,626              3,379
                                                                                       -------            -------            -------
                  Total interest on deposits ..............................              8,875              8,592              6,113
   Federal funds purchased and securities sold
      under agreements to repurchase ......................................                237                218                170
   Federal Home Loan Bank advances ........................................              1,149              1,165                675
                                                                                       -------            -------            -------
                  Total interest expense ..................................             10,261              9,975              6,958
                                                                                       -------            -------            -------
Net interest income .......................................................             10,940             10,228              8,430
Provision for loan losses .................................................                650                688                612
                                                                                       -------            -------            -------

           Net interest income after
              provision for loan losses ...................................             10,290              9,540              7,818
                                                                                       -------            -------            -------
Noninterest income:
   Service charges on deposit accounts ....................................              2,058              1,475              1,031
   Mortgage banking income ................................................              1,033                 98                162
   Gains on sales of securities ...........................................                 31                  -                  -
   Deposit box rent .......................................................                 27                 25                 24
   Bank card fees .........................................................                 28                 29                 14
   Credit life insurance commissions ......................................                 62                 77                 48
   Other ..................................................................                345                262                200
                                                                                       -------            -------            -------
                  Total noninterest income ................................              3,584              1,966              1,479
                                                                                       -------            -------            -------
Noninterest expenses:
   Salaries and employee benefits .........................................              4,651              3,779              3,493
   Premises and equipment .................................................              1,009                942                886
   Marketing ..............................................................                266                207                180
   Regulatory fees ........................................................                181                140                155
   Supplies ...............................................................                166                160                155
   Director fees ..........................................................                162                137                121
   FDIC insurance .........................................................                 48                 33                 23
   Other ..................................................................              1,327              1,154              1,053
                                                                                       -------            -------            -------
                  Total noninterest expenses ..............................              7,810              6,552              6,066
                                                                                       -------            -------            -------


                                                                  (Continued)-1.




                                       40


                  COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME, YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999




(In thousands, except per share data)                                                          2001            2000             1999
                                                                                               ----            ----             ----

                                                                                                                     
Income before provision for income taxes ...........................................          $6,064          $4,954          $3,231

Provision for income taxes .........................................................           2,156           1,807           1,049
                                                                                              ------          ------          ------

     Net income ....................................................................          $3,908          $3,147          $2,182
                                                                                              ======          ======          ======

Average number of common shares outstanding ........................................           3,218           3,194           3,189

Average number of common shares outstanding, assuming dilution .....................           3,246           3,216           3,215

Earnings per common share:

     Basic .........................................................................          $ 1.21          $ 0.99          $ 0.68

     Diluted .......................................................................          $ 1.20          $ 0.98          $ 0.68




THE  ACCOMPANYING  NOTES  ARE AN  INTEGRAL  PART OF THE  CONSOLIDATED  FINANCIAL
STATEMENTS

                                                                  (concluded) -2



                                       41



                   COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY,
                  YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999



($ in thousands, except per share data)
                                                                                                            Accumulated
                                                                                                               Other
                                                           Shares of                                        Comprehensive
                                                            Common          Common        Retained              Income
                                                             Stock           Stock        Earnings              (Loss)       Total
                                                             -----           -----        --------              ------       -----

                                                                                                          
Balance at December 31, 1998 .......................      3,200,070      $   14,648      $    4,975      $       36      $   19,659
Repurchase of common stock .........................        (49,455)           (630)              -               -            (630)
Common stock issued under options ..................         40,847             189               -               -             189
Comprehensive income:
     Net income ....................................              -               -           2,182               -           2,182
     Change in unrealized gain (loss)
       on securities  available for
       sale, net of tax effects ....................                                                           (547)           (547)
                                                                                                                             ------
         Total comprehensive income ................              -               -               -               -           1,635
                                                                                                                             ------
Cash dividends declared ($.19 per share) ...........              -               -            (608)              -            (608)
                                                          ---------          ------           -----            ----          ------

Balance, December 31, 1999 .........................      3,191,462          14,207           6,549            (511)         20,245

Shares issued by DRIP ..............................          5,335               3               -               -               3
Common stock issued under options ..................          2,520              19               -               -              19
Costs of stock dividend ............................              -             (10)              -               -             (10)
Cash-in-lieu of 5% stock dividend ..................           (137)              -               -               -               -
Market value of 5% stock dividend ..................              -           1,709          (1,709)              -               -
Comprehensive income:
     Net income ....................................              -               -           3,147               -           3,147
     Change in unrealized gain (loss)
       on securities available for
       sale, net of tax effects ....................                                                            380             380
                                                                                                                             ------
         Total comprehensive income ................                                                                          3,527
                                                                                                                             ------
Cash dividends declared ($.22 per share) ...........              -               -            (645)              -            (645)
                                                          ---------          ------           -----            ----          ------


                                                                  (continued)-1

                                       42


                   COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY,
                  YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999



                                                                                                          Accumulated
                                                                                                             Other
                                                              Shares of       Common         Retained    Comprehensive
                                                               Stock          Stock          Earnings     Income (Loss)      Total
                                                               -----          -----          --------    --------------      -----

                                                                                                     
Balance, December 31, 2000 ...........................      3,199,180         15,928          7,342            (131)      $  23,139

Common stock issued in purchase
  of Community Resource Mortgage Inc. ................         95,454          1,241                                          1,241
Common stock issued under options ....................          5,040             39                                             39
Comprehensive income:
     Net income ......................................                                        3,908                           3,908
     Change in unrealized gain
       (loss) on securities  available
       for sale, net of reclassification
       adjustment and tax effects ....................                                                          124             124
                                                                                                                          ---------
         Total comprehensive income ..................                                                                        4,032
                                                                                                                          ---------
Cash dividends declared ($.28 per share) .............              -              -           (904)              -            (904)
                                                            ---------      ---------      ---------       ---------       ---------

Balance, December 31, 2001 ...........................      3,299,674      $  17,208      $  10,346       $      (7)      $  27,547
                                                            =========      =========      =========       =========       =========


                                                                  (concluded)-2




                                       43



                   COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS,
                  YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999



($ in thousands)
                                                                                          2001              2000              1999
                                                                                          ----              ----              ----

Cash flows from operating activities:
                                                                                                                  
     Net income ..............................................................         $  3,908          $  3,147          $  2,182
     Adjustments to reconcile net income to net cash
       provided by operating activities:
         Depreciation and amortization .......................................              467               478               462
         Accretion of discounts and amortization of
           premiums - securities - net .......................................              (23)               15               (14)
         Provision for loan losses ...........................................              650               688               612
         Deferred income taxes ...............................................             (140)             (148)             (405)
         Net realized (gain) securities ......................................              (31)                -                 -
         Proceeds from sales of real estate loans held for
           sale ..............................................................           34,915             5,868             9,963
         Originations of real estate loans held for sale .....................          (34,414)           (5,942)          (10,416)
     Net changes in operating assets and liabilities:
         Accrued interest receivable .........................................              568              (630)             (458)
         Other assets ........................................................             (477)              101               289
         Accrued interest payable ............................................             (278)              454               167
         Other liabilities ...................................................              522                (2)               14
                                                                                       --------          --------          --------
         Net cash provided by operating activities ...........................            5,667             4,029             2,396
                                                                                       --------          --------          --------

Cash flows from investing activities:
     Net (increase) decrease in interest-bearing deposits
       with banks ............................................................           (1,729)              194               789
     Purchases of securities held to maturity ................................           (1,650)                -            (2,424)
     Purchases of securities available for sale ..............................          (84,959)          (16,797)          (23,050)
     Proceeds from maturities of securities  held to
       maturity ..............................................................           13,525             1,000             4,340
     Proceeds from maturities of securities available for sale ...............           76,111             6,742            10,485
     Proceeds from sales of securities available for sale ....................            7,074                 -                 -
     Cash acquired in acquisition of CRM .....................................              529                 -                 -
     Costs incurred in acquisition of CRM ....................................              (42)                -                 -
     Loan originations and principal collections, net ........................          (35,113)          (38,188)          (38,261)
     Purchases of premises and equipment .....................................           (1,164)             (270)           (1,189)
                                                                                       --------          --------          --------
         Net cash used by investing activities ...............................          (27,418)          (47,319)          (49,310)
                                                                                       --------          --------          --------


                                                                 (Continued)-1.


                                       44


                  COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS,
                 YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999




($ in thousands)                                                                        2001              2000               1999
                                                                                        ----              ----               ----
Cash flows from financing activities:
                                                                                                                  
     Net increase in demand, transaction and savings
       deposit accounts ...................................................          $ 24,613           $ 16,556           $ 10,048
     Net increase in time deposits ........................................            12,009             17,891             26,686
     Net increase (decrease) in federal funds purchased
       and securities sold under agreement to repurchase ..................            (5,181)             6,570             (1,682)
     Federal Home Loan Bank advances (repayments) .........................               (70)               930              9,930
     Repayments on lines of credit ........................................            (1,445)                 -                  -
     Repurchase of stock ..................................................                 -                  -               (630)
     Stock issuance cost ..................................................                 -                (10)                 -
     Proceeds from issuance of common stock ...............................                39                 22                189
     Dividends paid .......................................................              (904)              (645)              (608)
                                                                                     --------           --------           --------
         Net cash provided by financing activities ........................            29,061             41,314             43,933
                                                                                     --------           --------           --------

Net change in cash and cash equivalents ...................................             7,310             (1,976)            (2,981)

Cash and cash equivalents at beginning of year ............................            18,339             20,315             23,296
                                                                                     --------           --------           --------

Cash and cash equivalents at end of year ..................................            25,649             18,339             20,315
                                                                                     ========           ========           ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

     Cash payments for interest ...........................................          $ 10,539           $  9,590           $  6,751
                                                                                     ========           ========           ========

     Cash payments for income taxes .......................................          $  2,240           $  1,927           $  1,287
                                                                                     ========           ========           ========

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:

     Transfers of loans receivable to other real estate
       owned ..............................................................          $    267           $    145           $     99
                                                                                     ========           ========           ========


     Transfer from retained earnings to common stock
       outstanding for the market value of the 5% stock
       dividend ...........................................................          $      -           $  1,709           $      -
                                                                                     ========           ========           ========

     Fair value of shares issued for purchase of
       Community Resource Mortgage Inc. ...................................          $  1,241           $      -            $      -
                                                                                     ========           ========            ========


                                                               (Concluded) - 2.

THE  ACCOMPANYING  NOTES  ARE AN  INTEGRAL  PART OF THE  CONSOLIDATED  FINANCIAL
STATEMENTS




                                       45



                   COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS,
                  YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999


NOTE 1 - ORGANIZATION:

Community Bankshares, Inc. (the "Corporation"),  was organized under the laws of
the State of South  Carolina  and was  chartered  as a business  corporation  on
November  30,  1992.  Pursuant to the  provisions  of the Federal  Bank  Holding
Company  Act,  an  application  was  filed  with and  approved  by the  Board of
Governors of the Federal  Reserve  System for the  Corporation  to become a bank
holding company by the acquisition of Orangeburg National Bank (ONB).

In June 1996,  Sumter  National Bank (SNB) and in July 1998,  Florence  National
Bank  (FNB)  commenced  operations  in  Sumter  and  Florence,  South  Carolina,
respectively,  following  approval by the  Comptroller of the Currency and other
regulators.  Upon completion of their organization,  the common stock of SNB and
FNB was acquired by the Corporation.

The Banks operate as wholly-owned  subsidiaries of the Corporation with separate
Boards of Directors  and  operating  policies and provide a variety of financial
services  to  individuals  and small to medium  size  businesses  through  their
offices in South Carolina.  The primary deposit  products are checking,  savings
and term  certificate  accounts and the primary  lending  products are consumer,
commercial and mortgage loans.

In  November  2001 the  Corporation  acquired  all the common  stock of Resource
Mortgage  Inc.,  a  Columbia,   South  Carolina  based  mortgage  company.   The
Corporation issued 95,454 shares of its common stock in exchange for 100% of the
common stock of Resource.  The transaction was accounted for as a purchase.  The
subsidiary was renamed Community Resource Mortgage Inc. (CRM).

Also in November 2001 the  Corporation  entered into an agreement to acquire the
common stock of Ridgeway  Bancshares  Inc., the holding  company for the Bank of
Ridgeway.  The Corporation  agreed to issue 1,000,000 shares of its stock and to
pay  $4,000,000  cash  in  exchange  for  100% of the  stock  of  Ridgeway.  The
transaction  must  be  approved  by  two-thirds  of  the  shareholders  of  both
companies, as well as various regulators. The Corporation anticipates completion
of the transaction by July 1, 2002.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     PRINCIPLES OF CONSOLIDATION:

The consolidated  financial  statements  include the accounts of the Corporation
(the Parent Holding Company) and its subsidiaries.  All significant intercompany
balances and transactions have been eliminated in consolidation.

     USE OF ESTIMATES:

The  preparation  of  consolidated   financial  statements  in  conformity  with
accounting  principles  generally  accepted  in the  United  States  of  America
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets  and  liabilities  at the date of the  balance  sheet and the
reported amounts of revenues and expenses during the reporting period.


                                       46


Actual results could differ 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 and the related  deferred  tax
asset.

     SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK:

Most of the  Corporation's  activities are with  customers  located within South
Carolina.  Note 4 discusses the types of securities the  Corporation  purchases.
Note 5 discusses the types of lending that the Corporation engages in. The Banks
grant  agribusiness,  commercial,  consumer and  residential  loans to customers
throughout the State of South Carolina. Although the Banks have diversified loan
portfolios,  a  substantial  portion of their  debtors'  ability to honor  their
contracts is dependent  upon the  economies of Florence,  Orangeburg  and Sumter
Counties,  South  Carolina  and the  surrounding  areas.  The  mortgage  company
originates  and sells loans into the  secondary  market;  it generally  does not
maintain loans for its own portfolio.

     ORGANIZATION, STOCK OFFERING AND PREOPENING COSTS:

Preopening  costs associated with the organization of the Banks were expensed as
incurred while stock issuance costs were charged to common stock as incurred.

     CASH AND CASH EQUIVALENTS:

For purposes of the  consolidated  statements of cash flows, the Corporation has
defined  cash and cash  equivalents  as those  amounts  included  in the balance
sheets  under the caption,  "Cash and due from banks" and "Federal  funds sold",
all of which mature within ninety days.

     INTEREST-BEARING DEPOSITS WITH BANKS:

Interest-bearing  deposits with banks  generally  mature within one year and are
carried at cost.

     SECURITIES:

Securities  that  management has both the ability and positive intent to hold to
maturity are  classified  as held to maturity and carried at cost,  adjusted for
amortization of premium and accretion of discounts  using methods  approximating
the  interest  method.  Securities  that  may be  sold  prior  to  maturity  for
asset/liability  management purposes, or that may be sold in response to changes
in interest rates,  changes in prepayment risk,  increase in regulatory capital,
or other similar  factors,  are classified as available for sale and are carried
at fair value.  Unrealized gains and losses on securities available for sale are
excluded from  earnings and reported in other  comprehensive  income.  Gains and
losses on the sale of  securities  available  for sale are recorded on the trade
date and are determined using the specific  identification  method.  Declines in
the fair value of held to maturity and available for sale securities below their
cost that are deemed to be other than  temporary  are  reflected  in earnings as
realized losses.

Interest and dividends on securities, including the amortization of premiums and
the  accretion  of  discounts,   are  reported  in  interest  and  dividends  on
securities.

No securities are being held for short-term resale;  therefore,  the Corporation
does not currently use a trading account classification.




                                       47


     LOAN SALES:

The Corporation  originates  loans for sale generally  without recourse to other
financial institutions under commitments or other arrangements in place prior to
loan origination. Sales are completed at or near the loan origination date.

Mortgage  loans  originated  and intended for sale in the  secondary  market are
carried at the lower of cost or estimated fair value in the aggregate. Gains and
losses,  if any,  on the sale of such loans are  determined  using the  specific
identification  method.  All fees and other  income  from these  activities  are
recognized in income when loan sales are completed.

The  Corporation's  mortgage  subsidiary,  Community  Resource  Mortgage,  Inc.,
engages in the origination and sale of residential mortgage loans. Virtually all
the loans they originate are sold into the secondary  market within thirty days.
Accordingly,  fees and costs  associated  with this process are recognized  when
received or incurred.



     LOANS RECEIVABLE:

The Corporation grants mortgage, commercial and consumer loans to customers. The
ability of the Corporation's  debtors to honor their contracts is dependent upon
the real estate and general  economic  conditions  in its service  areas.  Loans
receivable  that  management  has  the  intent  and  ability  to  hold  for  the
foreseeable  future or until maturity or pay-off generally are reported at their
outstanding unpaid principal balance adjusted for charge-offs, the allowance for
loan losses,  and any deferred fees or costs on originated loans, or unamortized
premiums or  discounts  on purchased  loans.  Interest  income is accrued on the
unpaid principal balance.

The accrual of interest on mortgage and commercial  loans is discontinued at the
time the loan is 90 days delinquent unless the credit is well collateralized and
in process of collection.  Residential real estate loans are typically placed on
nonaccrual  at the  time the loan is 120  days  delinquent.  Unsecured  personal
credit lines and certain  consumer  finance loans are  typically  charged off no
later than the time the loan is 180 days delinquent.

Other  consumer  loans  are  charged  off at  the  time  the  loan  is 120  days
delinquent.  In all cases,  loans are placed on  nonaccrual or charged off at an
earlier date if collection of principal or interest is considered doubtful.

All interest  accrued but not  collected for loans that are placed on nonaccrual
or charged off is reversed against interest income.  The interest on these loans
is accounted for on the cash basis or cost recovery method, until qualifying for
return to accrual  status.  Loans are  returned  to accrual  status when all the
principal and interest amounts  contractually due are brought current and future
payments are reasonably assured.

     ALLOWANCE FOR LOAN LOSSES:

The allowance for loan losses is established through a provision for loan losses
charged against  earnings as losses are estimated to have occurred.  Loan losses
are charged against the allowance when management believes the  uncollectibility
of a loan balance is confirmed.  Subsequent recoveries,  if any, are credited to
the allowance.

The allowance for loan losses is evaluated on a regular basis by management  and
is based upon management's periodic review of the collectibility of the loans in
light of  historical  experience,  the nature and volume of the loan  portfolio,


                                       48


adverse  situations that may affect the borrower's  ability to repay,  estimated
value of any underlying  collateral,  and prevailing economic  conditions.  This
evaluation  is  inherently   subjective  as  it  requires   estimates  that  are
susceptible  to  significant  revision as more  information  becomes  available.
Management  of each Bank  reviews its  allowance  for loan losses in three broad
categories:  commercial and industrial,  loans secured by real estate, and loans
to  individuals,  and  assigns  an  estimated  percentage  factor to each in the
determination of the estimate of the allowance for loan losses. Where the Banks'
internal and external loan review  programs  identify  loans that are subject to
specific weaknesses, such loans are reviewed for a specific loan loss allowance.

A loan is considered  impaired when, based on current information and events, it
is  probable  that the  Corporation  will be unable  to  collect  the  scheduled
payments of principal or interest when due according to the contractual terms of
the loan agreement.  Factors considered by management in determining  impairment
include  payment  status,  collateral  value,  and the probability of collecting
scheduled  principal  and  interest  payments  when due.  Loans that  experience
insignificant payment delays and payment shortfalls generally are not classified
as  impaired.  Management  determines  the  significance  of payment  delays and
payment shortfalls on a case-by-case basis, taking into consideration all of the
known circumstances surrounding the loan and the borrower,  including the length
of the delay,  the reasons for the delay,  the borrower's  prior payment record,
and the amount of the shortfall in relation to the principal and interest  owed.
Impairment is measured on a loan by loan basis for commercial  and  construction
loans by either the present  value of expected  future cash flows  discounted at
the loan's effective  interest rate, the loan's  obtainable market price, or the
fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for
impairment. Accordingly, the Corporation does not separately identify individual
consumer and residential loans for impairment disclosures.

     STOCK-BASED COMPENSATION:

Statement of Financial  Accounting  Standards ("SFAS") No. 123,  "Accounting for
Stock-Based  Compensation",  encourages all entities to adopt a fair value based
method of accounting for employee stock compensation plans, whereby compensation
cost is  measured  at the  grant  date  based on the  value of the  award and is
recognized  over the  service  period,  which is  usually  the  vesting  period.
However,  it also allows an entity to continue to measure  compensation cost for
those plans using the intrinsic  value based method of accounting  prescribed by
Accounting  Principles  Board  Opinion No 25,  "Accounting  for Stock  Issued to
Employees",  whereby  compensation  cost is the  excess,  if any,  of the quoted
market price of the stock at the grant date (or other measurement date) over the
amount an employee must pay to acquire the stock. Stock options issued under the
Corporation's  stock option plans have no intrinsic value at the grant date, and
under  Opinion  No.  25  no  compensation  cost  is  recognized  for  them.  The
Corporation  has elected to continue with the accounting  methodology in Opinion
No. 25 and, as a result,  has provided pro forma  disclosures  of net income and
earnings per share and other  disclosures,  as if the fair value based method of
accounting had been applied.

     FORECLOSED ASSETS:

Foreclosed  assets,  which are  recorded  in other  assets,  include  properties
acquired through  foreclosure or in full or partial  satisfaction of the related
loan and are held for sale.

Foreclosed  assets  are  initially  recorded  at  fair  value  at  the  date  of
foreclosure,   establishing  a  new  cost  basis.   Subsequent  to  foreclosure,


                                       49


management  periodically  performs  valuations and the assets are carried at the
lower of carrying amount or fair value less costs to sell.  Revenue and expenses
from  operations  and changes in the  valuation  allowance are included in other
expenses.

     PREMISES AND EQUIPMENT:

Premises  and  equipment  are  stated  at cost,  less  accumulated  depreciation
computed principally on the straight-line method over the estimated useful lives
of the assets.  Useful lives generally used in providing for depreciation are as
follows:

Building .........................................................      40 years
Building components ..............................................    5-30 years
Vault doors, safe deposit boxes, night depository, etc. ..........      40 years
Furniture, fixtures and equipment ................................    5-25 years

     INCOME TAXES:

Deferred income tax assets and  liabilities  are reflected at currently  enacted
income tax rates  applicable  to the period in which the  deferred tax assets or
liabilities  are  expected to be realized or settled.  As changes in tax laws or
rates are enacted,  deferred tax assets and liabilities are adjusted through the
provision  for income taxes.  The  provision  (benefit) for income taxes of each
subsidiary is recorded as if each subsidiary filed a separate return.

     ADVERTISING COSTS:

The cost of advertising is expensed as incurred.

     FINANCIAL INSTRUMENTS:

In the ordinary  course of business the Banks enter into  commitments  to extend
credit and grant standby  letters of credit.  Such  off-balance-sheet  financial
instruments are recorded in the consolidated  financial statements when they are
funded.

     SEGMENTS:

Community Bankshares, Inc. through its banking subsidiaries,  ONB, SNB, and FNB,
and its mortgage  subsidiary,  CRM, provides a broad range of financial services
to individuals and companies in South Carolina.  These services  include demand,
time,  and savings  deposits;  lending  services;  ATM  processing;  and similar
financial services.  While the Corporation's decision makers monitor the revenue
streams of the various financial  products and services,  operations are managed
and financial performance is evaluated on a corporate-wide  basis.  Accordingly,
the subsidiary operations are not considered by management to comprise more than
one reportable operating segment.

     COMPREHENSIVE INCOME:

Accounting principles generally require that recognized revenue, expenses, gains
and losses be  included in net income.  Although  certain  changes in assets and
liabilities,  such as unrealized  gains and losses on  securities  available for

                                       50


sale, are reported as a separate  component of the equity section of the balance
sheet,  such  items,  along with net income,  are  components  of  comprehensive
income.  Currently,  the  Corporation's  only component of Comprehensive  Income
(Loss) is its unrealized gains (losses) on securities available for sale.


     RECENT ACCOUNTING PRONOUNCEMENTS:

In September 2000, the FASB issued Statement of Financial  Accounting  Standards
No. 140,  "Accounting  for  Transfers  and  Servicing  of  Financial  Assets and
Extinguishment  of  Liabilities"  (SFAS 140) which  replaces  SFAS 125. SFAS 140
revises the standards for accounting for  securitizations and other transfers of
financial  assets and collateral  and requires  certain  additional  disclosures
regarding these activities. SFAS 140 is effective for transfers and servicing of
financial  assets or  extinguishment  of liabilities  that occur after March 31,
2001. SFAS 140 was adopted by the Corporation with no resulting  material effect
on its financial condition or operating results.

In June 2001, the FASB issued  Statement of Financial  Accounting  Standards No.
141, "Business  Combinations" (SFAS 141). SFAS 141 supercedes APB Opinion Number
16, "Business Combinations". SFAS 141 eliminates the pooling-of-interests method
of  accounting  for  business   combinations  and  requires  that  all  business
combinations in the scope of SFAS 141 be accounted for using the purchase method
of accounting.  SFAS 141 is effective for business combinations  initiated after
June 30, 2001.  SFAS 141 was adopted by the  Corporation  and was applied to the
acquisition of Community Resource Mortgage, Inc.

In June 2001, the FASB issued  Statement of Financial  Accounting  Standards No.
142,  "Goodwill and Other Intangible  Assets" (SFAS 142). SFAS 142 requires that
goodwill and other intangible assets that have indefinite lives are to no longer
be amortized  unless there is an  impairment.  SFAS 142 is effective  for fiscal
years  beginning  after December 15, 2001.  Management  expects that adoption of
this standard will not have a material  effect on the financial  statements  for
2002.

Also in July 2001,  the Financial  Accounting  Standards  Board issued SFAS 143,
Accounting  for Asset  Retirement  Obligations.  SFAS 143 requires that the fair
value of a liability  for an asset  retirement  obligation  be recognized in the
period in which it is incurred if a reasonable  estimate  can be made,  and that
the  associated  asset  retirement  costs be capitalized as part of the carrying
amount of the long-lived asset. SFAS 143, if applicable,  will be adopted by the
Corporation upon its required effective date, for its fiscal year ended December
31, 2002.  Management  expects that  adoption of this  standard  will not have a
material effect on the financial statements for 2002.

In August  2001,  the  Financial  Accounting  Standards  Board  issued SFAS 144,
Accounting  for the Impairment or  Disposition  of Long-Lived  Assets.  SFAS 144
requires that one accounting model be used for long-lived  assets to be disposed
of by  sale,  whether  previously  held  and  used  or  newly  acquired,  and by
broadening the  presentation of discounted  operations to include  primarily all
disposal  transactions.  It further  establishes  criteria to  determine  when a
long-lived  asset is held for sale and establishes  measurement  criteria at the
asset's or group of assets' lower of unamortized  cost or fair value at the date
the asset is  reclassified  as held and used.  SFAS 144, if applicable,  will be
adopted by the Company upon its  required  effective  date,  for its fiscal year
ended December 31, 2002.  Management expects that adoption of this standard will
not have a material effect on the financial statements for 2002.

     OTHER:

Certain amounts previously  reported in the statements have been reclassified to
conform to the current year's  presentation and disclosure  requirements.  These
reclassifications had no effect on net income.


                                       51


NOTE 3 - RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS:

The Banks are required to maintain  average  reserve  balances  with the Federal
Reserve or in available cash. The average daily reserve balance  requirements at
December 31, 2001 were approximately $1.9 million.

At December 31, 2001, the Corporation had cash balances with correspondent banks
totaling approximately  $286,000, all but $36,000 of which were fully insured by
the FDIC.


NOTE 4 - SECURITIES:

Securities held to maturity consist of the following (in thousands of dollars):



                                                                                                December 31, 2001
                                                                                               GROSS          GROSS
                                                                           AMORTIZED        UNREALIZED      UNREALIZED         FAIR
                                                                              COST             GAINS          LOSSES          VALUE
                                                                              ----             -----          ------          -----

                                                                                                                 
U.S. Government and federal agencies ...........................           $   500           $     -         $     -         $   500
                                                                           =======           =======         =======         =======










                                                                                                December 31, 2000
                                                                                               GROSS          GROSS
                                                                           AMORTIZED        UNREALIZED      UNREALIZED         FAIR
                                                                              COST             GAINS          LOSSES          VALUE
                                                                              ----             -----          ------          -----

                                                                                                                 
U.S. Government and federal agencies ...........................           $12,371           $     1         $  (155)        $12,217
                                                                           =======           =======         =======         =======



                                       52



Securities  available  for  sale  consist  of the  following  (in  thousands  of
dollars):




                                                                                            December 31, 2001
                                                                                           GROSS            GROSS
                                                                     AMORTIZED          UNREALIZED       UNREALIZED           FAIR
                                                                        COST               GAINS           LOSSES             VALUE
                                                                        ----               -----           ------             -----

                                                                                                                 
U.S. Government and federal agencies ......................           $40,437           $   150           $  (172)           $40,415

State and local government ................................               802                 9                 -                811

Federal Home Loan stock ...................................             1,396                 -                 -              1,396

Federal Reserve stock .....................................               408                 -                 -                408

Equity securities .........................................               177                 -                 -                177
                                                                      -------           -------           -------            -------

  Total ...................................................           $43,220           $   159           $  (172)           $43,207
                                                                      =======           =======           =======            =======




                                                                                            December 31, 2000
                                                                                         GROSS              GROSS
                                                                     AMORTIZED        UNREALIZED         UNREALIZED           FAIR
                                                                        COST             GAINS             LOSSES             VALUE
                                                                        ----             -----             ------             -----

                                                                                                                 
U.S. Government and federal agencies ......................           $38,599           $    21           $  (216)           $38,404

State and local government ................................               814                 1                (5)               810

Federal Home Loan stock ...................................             1,396                 -                 -              1,396

Federal Reserve stock .....................................               408                 -                 -                408

Equity securities .........................................               177                 -                 -                177
                                                                      -------           -------           -------            -------

  Total ...................................................            41,394                22              (221)            41,195
                                                                      =======           =======           =======            =======




                                       53



The  amortized  cost and fair value of debt  securities at December 31, 2001, by
contractual  maturity are detailed below.  Expected  maturities will differ from
contractual  maturities  because  borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.



(In thousands of dollars)                                                   Held to Maturity               Available for Sale
                                                                    Amortized cost      Fair Value      Amortized cost    Fair Value
                                                                    --------------      ----------      --------------    ----------
                                                                                                                 
Within 1 year ..........................................            $     -            $     -            $     -            $     -
Over 1 through 5 years .................................                500                500             40,794             40,781
After 5 years through 10 years .........................                  -                  -                445                445
Over 10 years ..........................................                  -                  -                  -                  -
                                                                    -------            -------            -------            -------
subtotal ...............................................                500                500             41,239             41,226
Equities ...............................................                  0                  0              1,981              1,981
                                                                    -------            -------            -------            -------
     Grand total .......................................            $   500            $   500            $43,220            $43,207
                                                                    =======            =======            =======            =======












                                       54




NOTE 4 - INVESTMENT SECURITIES (CONTINUED):

The  following  is a  summary  of  maturities  and  weighted  average  yields of
securities held to maturity and securities available for sale as of December 31,
2001 (in thousands of dollars):


                                                     After one year but   After five but
                                                     within five years   within ten years   After ten years              Total
                                                     -----------------   ----------------   ---------------      -------------------
Securities held to maturity:
                                                                                                             
  Federal agency obligations ..................   $   500      3.50%    $  -          -     $    -         -     $   500       3.50%
                                                  -------      ----     ----       ----     ------      ----     -------       ----
          Total held to maturity ..............       500      3.50%       -          -          -         -     $   500       3.50%
                                                  -------      ----     ----       ----     ------      ----     -------       ----

Securities available for sale:
  Federal agency obligations ..................    40,163      4.30%     252       5.46%         -                40,415       4.31%
  State and local governments .................       618      5.35%     193       6.53%         -                   811       5.63%
  Equities ....................................         -                  -       0.00%     1,981      7.14%      1,981       7.14%
                                                  -------      ----     ----       ----     ------      ----     -------       ----
         Total available for sale .............    40,781      4.32%     445       5.92%     1,981      7.14%     43,207       4.46%
                                                  -------      ----     ----       ----     ------      ----     -------       ----

Total for portfolio ...........................   $41,281      4.31%    $445       5.92%    $1,981      7.14%    $43,707       4.45%
                                                  =======      ====     ====       ====     ======      ====     =======       ====


Yields on tax exempt  obligations  have been computed on a tax equivalent  basis
using the maximum  federal tax rate of 34%. No  investments  matured  within one
year.

The Banks,  as members of the Federal  Home Loan Bank  ("FHLB") of Atlanta,  are
required to own capital stock in the FHLB of Atlanta based  generally upon their
balances of residential  mortgage  loans and FHLB  advances.  FHLB capital stock
owned by ONB and SNB is pledged as collateral on FHLB advances.  No ready market
exists for this stock and it has no quoted market value. However,  redemption of
this stock has historically been at par value.

All  equity  securities  including  investments  in the FHLB  stock and  Federal
Reserve Bank stock (as  required of the  respective  banks) have no  contractual
maturity and are classified in the maturity category of over ten years.

At December 31, 2001 and 2000,  investment  securities  with a carrying value of
$29,167,000  and  $19,282,000,  respectively,  were  pledged  to  secure  public
deposits,  FHLB advances,  and for other purposes required and permitted by law.
At December 31, 2001 and 2000,  the  carrying  amount of  securities  pledged to
secure  repurchase  agreements was  approximately  $6,108,000  and  $10,051,000,
respectively.




                                       55



NOTE 5 - LOANS RECEIVABLE:

The  following  is a summary of loans by category at December  31, 2001 and 2000
(in thousands of dollars):

Loan category                                       2001                  2000
                                                    ----                  ----
Commercial, financial and agricultural ........   $ 56,515             $ 52,264
Real estate - construction ....................     19,557               15,389
Real estate - mortgage ........................    127,002               98,154
Installment loans to individuals ..............     26,831               29,270
                                                  --------             --------
     Total loans - gross ......................   $229,905             $195,077
                                                  ========             ========


The loan  portfolio  included  fixed rate and  adjustable  rate  loans  totaling
$145,540,000 and $84,365,000, respectively, at December 31, 2001.

Total  overdrawn  demand  deposits  totaling  $1,304,000  and $864,000 have been
reclassified as loan balances at December 31, 2001 and 2000, respectively.

Gross  proceeds  on mortgage  loans  originated  for resale  were  approximately
$34,915,000,  $5,868,000,  and $9,963,000 for the years ended December 31, 2001,
2000,  and  1999,  respectively.  The  Bank  sold  all of  these  loans  at par;
therefore, no gain or loss was recognized on the sales.

Loans outstanding to directors,  executive officers, principal holders of equity
securities,  or to any of their associates  totaled  $10,367,000 at December 31,
2001,  and  $7,299,000 at December 31, 2000. A total of $9,145,000 in loans were
made or added,  while a total of $6,077,000 were repaid or deducted during 2001.
Related party loans are made on substantially the same terms, including interest
rates  and  collateral,   as  those   prevailing  at  the  time  for  comparable
transactions  with unrelated persons and do not involve more than normal risk of
collectibility.  Changes in the  composition  of the board of  directors  or the
group  comprising  executive  officers also result in additions to or deductions
from loans outstanding to directors,  executive officers or principal holders of
equity securities.


                                       56


Changes in the allowance for loan losses and related  ratios for the years ended
December 31, 2001, 2000, and 1999, were as follows (in thousands of dollars):


                                                                                                     2001        2000         1999
                                                                                                     ----        ----         ----

                                                                                                                  
Average amount of loans outstanding ............................................................   $211,901    $179,654    $139,215
                                                                                                   ========    ========    ========
Allowance for loan losses - January 1 ..........................................................   $  2,424    $  1,936    $  1,459
                                                                                                   --------    --------    --------

Loan charge-offs:
   Real estate .................................................................................          9          78           0
   Installment .................................................................................        202         116          95
   Credit cards and related plans ..............................................................          9           9           5
   Commercial and other ........................................................................         87          33          80
                                                                                                   --------    --------    --------
Total charge-offs ..............................................................................        307         236         180
                                                                                                   --------    --------    --------

Recoveries:
   Real Estate .................................................................................          0           3           0
   Installment .................................................................................         33          25          17
   Credit cards and related plans ..............................................................          2           2           3
   Commercial ..................................................................................          0           6          25
                                                                                                   --------    --------    --------
Total recoveries ...............................................................................         35          36          45
                                                                                                   --------    --------    --------

Net charge-offs ................................................................................        272         200         135
Provision for loan losses (1) ..................................................................        678         688         612
                                                                                                   --------    --------    --------

Allowance for loan losses at end of year .......................................................   $  2,830    $  2,424    $  1,936
                                                                                                   ========    ========    ========

Ratios
Net charge-offs to average loans outstanding ...................................................       0.13%       0.11%       0.10%
Net charge-offs to loans outstanding at end of year ............................................       0.12%       0.10%       0.09%
Allowance for loan losses to average loans .....................................................       1.34%       1.35%       1.39%
Allowance for loan losses to total loans at end of
     year ......................................................................................       1.23%       1.24%       1.23%
Net charge-offs to allowance for losses ........................................................       9.61%       8.25%       6.97%
Net charge-offs to provision for loans losses ..................................................      40.12%      29.07%      22.06%


(1)  Provision  expense  includes  $28,000  acquired  with  purchase  of  CRM on
     November 1, 2001

The following is a summary of information pertaining to impaired loans:

                                                                   December 31,
                                                                 2001       2000
                                                                 ----       ----
                                                                  (In thousands)

Impaired loans without a valuation allowance .............       $  -       $  -
Impaired loans with a valuation allowance ................        281        238
                                                                 ----       ----

Total impaired loans .....................................        281        238
                                                                 ====       ====

Valuation allowance related to impaired loans ............       $ 42       $ 36



                                       57




                                                                                                     Years Ended December 31,
                                                                                                     ------------------------
                                                                                                2001            2000            1999
                                                                                                ----            ----            ----
                                                                                                           (In thousands)

                                                                                                                       
Average investment in impaired loans ...............................................            $260            $331            $ 53

Interest income recognized on impaired loans .......................................            $  -            $  -             $ -

Interest  income recognized on a cash basis on impaired loans ......................            $  -            $  -             $ -


No additional  funds are  committed to be advanced in  connection  with impaired
loans.

Nonaccrual, past due loans, and other real estate owned at December 31, 2001 and
2000, were as follows (in thousands of dollars):

                                                              2001         2000
                                                              ----         ----
Nonaccrual loans .....................................       $ 281        $ 238
Accruing loans 90 days or more past due ..............          17           93
               --                                            -----        -----
     Total ...........................................       $ 298        $ 331
                                                             =====        =====
     Total as a % of outstanding loans ...............        0.13%        0.17%
Other Real Estate Owned ..............................       $ 267        $   -

Gross interest income that would have been recorded for the years ended December
31, 2001,  2000, and 1999 if nonaccrual  loans had been performing in accordance
with  their  original  terms was  approximately  $7,000,  $33,000,  and  $2,000,
respectively.


NOTE 6 - PREMISES AND EQUIPMENT:

Premises and  equipment at December 31, 2001 and 2000,  consist of the following
(in thousands of dollars):


                                                             2001          2000
                                                             ----          ----
Land ...............................................        $  867        $  761
Building and components ............................         3,454         2,821
Furniture, fixtures and equipment ..................         3,576         3,055
                                                            ------        ------
          Total ....................................         7,897         6,637
Less, accumulated depreciation .....................         2,720         2,226
                                                            ------        ------
          Premises and equipment - net .............        $5,177        $4,411
                                                            ======        ======

Depreciation expense was approximately $467,000, $478,000, and $462,000, for the
years ended December 31, 2001, 2000, and 1999, respectively.

The FNB office building was built on leased land. The land is being leased under
a  noncancellable  operating  lease for an initial term of ten years.  The lease


                                       58


terms provide for two ten year renewal options and a third renewal of two years.
FNB is responsible for property taxes and improvements. The annual basic rent in
lease years one through five is $48,000 and in years six through ten $53,000.

Rent expense  totaled  $48,000,  $48,000,  and $50,000 in 2001,  2000, and 1999,
respectively.

At the balance sheet date SNB was  constructing  a branch office on West Liberty
Street in Sumter,  SC. The building was completed in January 2002.  The building
is approximately  3,600 square feet and cost approximately  $705,000.  The land,
approximately  one acre, is being leased under a noncancellable  operating lease
for an initial term of twenty years.  The lease terms provide for four five-year
renewal  options after the initial term. SNB is  responsible  for property taxes
and  improvements.  The annual  basic rent in lease  years one  through  five is
$35,000;  in years six through ten  $36,000;  in years  eleven  through  fifteen
$38,000; and in years sixteen through twenty $40,000.

Rent expense, which began in October, totaled $9,000 in 2001.

CRM rents all three of its current  locations.  Rent  expense for  November  and
December 2001 totaled $10,000.

NOTE 7 - DEPOSITS:

At December 31, 2001,  the scheduled  maturities  of time deposits  greater than
$100,000 are as follows (in thousands of dollars):

Maturing in
           2002                     $46,642
           2003                       3,556
           2004                         278
           2005                         797
           2006                           -
        Thereafter                      101
                                    -------
          Total                     $51,374
                                    =======

Deposits  of  directors  and  officers  totaled  approximately   $3,913,000  and
$3,825,000 at December 31, 2001 and 2000, respectively.

NOTE 8 - OTHER BORROWED FUNDS:

Federal funds purchased and securities  sold under  agreements with customers to
repurchase  generally mature within one to four days from the transaction  date.
Securities  sold under  agreements to repurchase  are reflected at the amount of
cash received in connection with the transaction.  The Corporation  monitors the
fair value of the  underlying  securities  on a daily basis and it is the Banks'
policy to maintain a collateral  value  greater than the  principal  and accrued
interest of the  transaction.  All securities  underlying  these  agreements are
institution-owned securities.

Information  concerning  securities  sold  under  agreements  to  repurchase  is
summarized as follows (in thousands of dollars):


                                       59


                                                            2001          2000
                                                            ----          ----
Outstanding at year end ..............................     $ 4,171      $ 9,352
Interest rate at year end ............................        2.08%        5.01%
Interest expense .....................................     $   237      $   218
Maximum month end balance during the year ............     $10,976      $ 9,532
Average amount outstanding during the year ...........     $ 7,533      $ 4,501
Weighted average interest rate during the year .......        3.15%        4.84%

At December 31, 2001 and 2000 there were no federal funds purchased.

Lines of credit payable  represent  warehouse  lines funding loan production for
CRM. At year end these balances totaled  $9,028,000.  Of this amount  $8,324,000
was  borrowed  from BB&T at the one month LIBOR rate plus  1.95%.  The BB&T line
expires in October 2002. The lines are secured with the value of the  underlying
mortgages and the guarantee of the  Corporation to a maximum of $9 million.  The
remaining  lines are priced at prime plus 1.5% to 2% and are being phased out in
favor of the BB&T line.  The  operations  of CRM are  included  for only the two
month period ended December 31, 2001, and accordingly the average balance of the
lines are small and included with the above reported table.


NOTE 9 - FEDERAL HOME LOAN BANK ADVANCES:

The Banks are members of the Federal Home Loan Bank of Atlanta and as such, have
access to long-term  borrowing.  The collateral for any such borrowings consists
of blanket liens on ONB's and SNB's one-to-four family residential loans and all
the banks'  stock in the Federal  Home Loan Bank.  Portions of FNB's  investment
portfolio are also collateral for advances.  Borrowings during 2001 and 2000 are
summarized as follows (in thousands of dollars):

                                                             2001          2000
                                                             ----          ----

Outstanding at year-end ..............................     $20,280      $20,350
Interest rate at year-end ............................        5.54%        6.04%
Maximum amount outstanding at any month-end ..........     $20,350      $20,350
Average amount outstanding during the year ...........      19,899      $19,385
Weighted average interest rate during the year .......        5.77%        6.01%

Required principal reductions are as follows (in thousands of dollars):

            YEAR ENDING:
                2002 .................     $     -
                2003 .................           -
                2004 .................           -
                2005 .................       1,580
                2006 .................         500
               Thereafter ............      18,200
                                           -------

                   Total .............     $20,280
                                           =======


                                       60


NOTE 10 - COMMON STOCK:

The  Corporation  repurchased  49,455  shares  of  its  common  stock  from  the
Corporation's  former chief  executive  officer in January 1999.  The repurchase
price per share was at the then market price of $12.74 and totaled approximately
$630,000.

The  Corporation  declared a five percent stock  dividend in January  2000.  The
average  number of common shares  outstanding  and all earnings per common share
amounts included in the accompanying consolidated financial statements and notes
are based on the increased  number of shares giving  retroactive  effect for the
stock dividend.

The  Corporation  issued  95,454  shares of its common stock in November 2001 in
exchange for 100% of the common stock of Resource Mortgage, Inc. The shares were
valued  at the then  market  price of  $13.00  and  totaled  approximately  $1.2
million.

Under the Corporation's  Dividend  Reinvestment Plan,  shareholders may reinvest
all or part of their cash  dividends in shares of common stock and also purchase
additional shares of common stock.

NOTE 11 - STOCK OPTIONS AND DIVIDEND REINVESTMENT SHARES:

At December 31, 2001,  485,600 common shares were reserved for issuance pursuant
to an employee  stock option plan and 630,000  common  shares were  reserved for
issuance  pursuant to the dividend  reinvestment  and additional  stock purchase
plan.

During 2001 the  Corporation  amended its 1997 Stock  Option Plan to increase by
200,000  shares the number of shares  reserved  for  issuance  upon  exercise of
options and to permit participation in the plan by non-employee directors. Under
the Plan, as amended, up to 485,600 shares of common stock were authorized to be
granted to selected officers, other employees, and non-employee directors of the
Corporation  and/or its  subsidiaries  pursuant  to exercise  of  incentive  and
nonqualified stock options.  Of such shares,  290,050 were reserved for issuance
pursuant to exercise of incentive  stock  options and 195,550 were  reserved for
issuance pursuant to exercise of nonqualified stock options.

The exercise price of any incentive option granted is equal to the fair value of
the common stock on the date the option is granted.  Nonqualified options can be
issued for less than fair value;  however,  the  Corporation  has not elected to
issue  these  options  for less than fair  value at the date of the  grant.  The
options are vested upon issuance,  but may be exercised no earlier than one year
after issuance.


                                       61


A summary of the status of the Corporation's  1997 pre-amended stock option plan
is presented below:



                                                            2001                         2000                         1999
                                                            ----                         ----                         ----
                                                 Exercise                    Exercise                     Exercise
                                                  Shares           Price       Shares           Price       Shares            Price
                                                  ------           -----       ------           -----       ------            -----
Fixed options:
                                                                                                         
  Outstanding at
   beginning of year ..................          61,320        $   7.60       63,840         $   7.60       75,390          $   7.60
  Granted .............................               -            -               -             -               -                -
  Exercised ...........................          (5,040)           7.60       (2,520)            7.60      (10,710)             7.60
  Forfeited ...........................          (1,680)           7.60            -             -            (840)             7.60
                                                 ------                       ------                        ------
  Outstanding at end of
        year ..........................          54,600            7.60       61,320             7.60       63,840              7.60
                                                 ======                       ======                        ======

Options exercisable at
   year-end ...........................          54,600            7.60       61,320             7.60       63,840              7.60


A summary of the status of the Corporation's  1997 stock option plan, as amended
in 1999 to increase  the number of shares  reserved for  issuance,  is presented
below:



                                                                                2001                             2000
                                                                                ----                             ----
                                                                      Shares          Exercise Price      Shares      Exercise Price
                                                                      ------          --------------      ------      --------------
Fixed options:
                                                                                                             
   Outstanding at beginning of year ......................           157,920           $   12.83         161,700         $   12.83
        Granted ..........................................                 -                   -               -                 -
        Exercised ........................................                 -                   -               -                 -
        Forfeited ........................................            (3,255)              12.83          (3,780)            12.83
                                                                     -------

   Outstanding at end of year ............................           154,665           $   12.83         157,920             12.83
                                                                     =======                             =======

   Options exercisable at year end .......................           154,665           $   12.83         157,920         $   12.83





                                       62


A summary of the status of the Corporation's  1997 stock option plan, as amended
in 2001, is presented below:




                                                                                      2001                            2000
                                                                                      ----                            ----
                                                                                                Exercise                    Exercise
                                                                             Shares               Price         Shares        Price
                                                                             ------               -----         ------        -----
Fixed options:
                                                                                                                    
   Outstanding at beginning of year............................                    -                      -          -            -
        Granted ...............................................              191,400              $   11.00          -            -
        Exercised .............................................                    -                      -          -            -
        Forfeited .............................................               (1,500)                     -          -            -
                                                                             -------                            ------
   Outstanding at end of year .................................              189,900              $   11.00          -            -
                                                                             =======                            ======

   Options exercisable at year end ............................                    -              $       -          -            -

   Weighted average fair value
   of options granted during year .............................                    -              $    3.04




Information  pertaining  to  options  outstanding  at  December  31,  2001 is as
follows:



                                           Options Outstanding                             Options Exercisable
                                           -------------------                             -------------------
                                                  Weighted
                                                  Average           Weighted                             Weighted
       Range of                                  Remaining           Average                              Average
       Exercise                 Number          Contractual         Exercise            Number           Exercise
        Prices               Outstanding            Life             Price            Exercisable          Price
        ------               -----------            ----             -----            -----------          -----

                                                                                        
       $7.60-$12.83             399,165               7.8             $11.24            209,265           $11.47




The fair value of the option  grant is  estimated on the date of grant using the
Black-Scholes   option  pricing  model  with  the  following   weighted  average
assumptions:

                                                      Year Ended December 2001
                                                      ------------------------
Dividend yield ......................................         2.15%
Expected life .......................................       10 years
Expected volatility .................................           18%
Risk free interest rate .............................        5.032%

The  Corporation  applies  APB Opinion  No. 25 and  related  interpretations  in
accounting for its stock-based compensation plans. Accordingly,  no compensation
cost has been recognized.  Had  compensation  cost for the  Corporation's  stock
option  plans been  determined  based on the fair  value at the grant  dates for
awards under the plans  consistent  with the method  prescribed by SFAS No. 123,
the  Corporation's net income and earnings per share would have been adjusted to
the pro forma amounts indicated below:


                                       63




                                                                                                Year Ended December 31
                                                                                                ----------------------
                                                                                      2001               2000                1999
                                                                                      ----               ----                ----
                                                                                        (In thousands, except per share data)

                                                                                                                  
Net income - as reported ...........................................              $   3,908              $  -              $   2,182
Net income - pro forma .............................................                  3,326                 -                  1,678

Basic earnings per share - as reported .............................                   1.21                 -                    .68
Basic earnings per share - pro forma ...............................                   1.02                 -                    .53

Diluted earnings per share - as reported ...........................                   1.20                 -                    .68
Diluted earnings per share - pro forma .............................                   1.02                 -                    .52


No options were granted in 2000.

NOTE 12 - INCOME TAXES:

The Corporation files consolidated federal income tax returns on a calendar-year
basis.

The 2001,  2000,  and 1999  provision for income taxes consists of the following
(in thousands of dollars):


                                             2001          2000             1999
                                             ----          ----             ----
Current tax provision:
   Federal ........................       $ 2,177        $ 1,801        $ 1,065
   South Carolina .................           119            154             85
Deferred tax benefit ..............          (140)          (148)          (101)
                                          -------        -------        -------

          Total ...................         2,156          1,807          1,049
                                          =======        =======        =======

The provision  for income taxes  differs from that computed by applying  federal
statutory  rates to income before federal income tax expense as indicated in the
following summary (in thousands of dollars):


                                                                                     2001                2000                 1999
                                                                                     ----                ----                 ----
                                                                                                                   
Income tax at statutory rate on income
   before income taxes ..............................................             $ 2,062              $ 1,684              $ 1,099
Increase (decrease) resulting from:
   Exercise of certain stock options ................................                   -                    -                  (89)
   South Carolina bank tax, net of federal
      tax benefit ...................................................                 164                  147                   96
   Tax exempt interest ..............................................                 (16)                 (17)                 (19)
   Amortization of organization costs ...............................                 (16)                 (24)                 (24)
   Other ............................................................                 (38)                  17                  (14)
                                                                                  -------              -------              -------
          Provision for income taxes ................................               2,156                1,807                1,049
                                                                                  =======              =======              =======



                                       64



Temporary differences, which give rise to deferred tax assets and liabilities at
December 31, 2001 and 2000, are as follows (in thousands of dollars):

                                                                2001        2000
                                                                ----        ----
Deferred tax assets:
  Allowance for loan losses ..............................      $908      $ 778
  Net unrealized losses on securities
     available for sale ..................................         4         69
  Preopening costs .......................................        20         39
  State tax net operating loss carry forward .............        43         58
  Other ..................................................         -          -
                                                                ----       ----
          Total deferred tax assets ......................       975        944
                                                                ----       ----

Deferred tax liabilities:
  Depreciation ...........................................       105        120
  Accretion ..............................................         -          4
                                                                ----       ----

          Total deferred tax liabilities .................       105        124
                                                                ----       ----

          Net deferred tax asset before valuation
               allowance .................................       870        820

          Less, valuation allowance ......................         -        (25)
                                                                ----       ----

          Net deferred tax asset .........................       870        795
                                                                ====       ====

At December 31,  2001,  the  Corporation  and FNB had net  operating  loss (NOL)
carryforwards for state income tax purposes of approximately  $899,000 available
to offset future state taxable income. The NOL carryforwards expire in the years
2007 through 2016.  Beginning with the current year the  Corporation has filed a
consolidated  state income tax return with CRM, thus allowing the Corporation to
reverse the valuation allowance of its' separate state NOL carryfoward.  For the
prior year the  valuation  allowance  represented  management's  estimate of the
state  NOL  carryforwards  that  would  not  have  been  realized  based on then
available  information.  Each of the Corporation's  banking subsidiaries files a
separate state bank income tax return.

NOTE 13 - EMPLOYEE BENEFIT PLANS:

The Corporation  provides a defined  contribution  plan with an Internal Revenue
Code Section  401(k)  provision.  All employees who have  completed 500 hours of
service  during a six-month  period and have attained age 21 may  participate in
the plan.

A participant  may elect to make tax deferred  contributions  up to a maximum of
12% of eligible  compensation.  The Corporation will make matching contributions
on behalf of each  participant  in the amount of 100% of the elective  deferral,
not exceeding 3% of the  participant's  compensation.  The  Corporation may also
make  nonelective  contributions  determined  at the  discretion of the Board of
Directors.

                                       65


The  Corporation's  contributions  for 401K related profit sharing for the years
ended  December  31,  2001,  2000,  and  1999  totaled  approximately  $146,000,
$119,000, and $122,000,  respectively.  Beginning in 2001 the senior officers of
the Company are no longer included in this profit sharing program.

NOTE 14 - OFF-BALANCE-SHEET ACTIVITIES:

The  Banks  are   parties  to  credit   related   financial   instruments   with
off-balance-sheet  risk in the normal  course of business to meet the  financing
needs of their customers.  These financial  instruments  include  commitments to
extend  credit and  standby  letters of credit.  Such  commitments  involve,  to
varying  degrees,  elements  of credit and  interest  rate risk in excess of the
amount recognized in the consolidated balance sheets.

The Banks' exposure to credit loss is represented by the  contractual  amount of
these commitments.  The Banks use the same credit policies in making commitments
as they do for on-balance-sheet instruments.

At  December  31,  2001 and  2000,  the  following  financial  instruments  were
outstanding whose contract amounts represent credit risk:

                                                             Contract Amount
                                                             ---------------
                                                            2001           2000
                                                            ----           ----
                                                         (Dollars in thousands)

Commitments to grant loans .......................        $11,596        $12,822
Unfunded commitments under lines of
    credit .......................................         18,342         12,115
Standby letters of credit ........................          2,877          3,426

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee. Since many of the  commitments are expected to expire
without  being  drawn  upon,  the total  commitment  amounts do not  necessarily
represent future cash requirements. The amount of collateral obtained, if deemed
necessary by the Banks upon extension of credit, is based on management's credit
evaluation of the counter-party. Collateral held varies but may include personal
residences, accounts receivable,  inventory, property, plant, and equipment, and
income-producing commercial properties.

Standby  letters of credit are  conditional  commitments  issued by the Banks to
guarantee  the  performance  of a customer to a third  party.  Those  letters of
credit are  primarily  issued to support  private  borrowing  arrangements.  All
letters of credit are short-term guarantees. The credit risk involved in issuing
letters of credit is  essentially  the same as that  involved in extending  loan
facilities to customers.  The Banks generally hold collateral  supporting  those
commitments if deemed necessary.

To  reduce  credit  risk  related  to  the  use  of   credit-related   financial
instruments,  the Bank might deem it necessary to obtain collateral.  The amount
and nature of the collateral  obtained is based on the Banks' credit  evaluation
of the  customer.  Collateral  held  varies but may  include  cash,  securities,
accounts receivable, inventory, property, plant and equipment and real estate.



                                       66



NOTE 15 - EARNINGS PER COMMON SHARE:

Basic  earnings  per  common  share   represent   income   available  to  common
stockholders divided by the weighted-average number of common shares outstanding
during the year.  Diluted  earnings per common share reflect  additional  common
shares that would have been outstanding if dilutive  potential common shares had
been  issued.  Potential  common  shares  that may be issued by the  Corporation
relate  solely  to  outstanding  stock  options,  and are  determined  using the
treasury stock method.

Earnings per common share have been computed based on the following:



                                                                                                Years Ended December 31,
                                                                                                ------------------------
                                                                                      2001                 2000                1999
                                                                                      ----                 ----                ----
                                                                                                     (Dollars in thousands)

                                                                                                                 
Net income .............................................................          $    3,908          $    3,147          $    2,182
                                                                                  ==========          ==========          ==========

Average number of common shares outstanding ............................           3,217,902           3,194,129           3,189,235
Effect of dilutive options .............................................              28,576              21,403              25,888
                                                                                  ----------          ----------          ----------
Average number of common shares outstanding  used to
   calculate diluted earnings per common  share
                                                                                   3,246,478           3,215,532           3,215,123
                                                                                  ==========          ==========          ==========



NOTE 16 - OTHER COMPREHENSIVE INCOME (LOSS):

The components of other comprehensive  income (loss) and related tax effects are
as follows:



                                                                                                Years Ended December 31,
                                                                                                ------------------------
                                                                                       2001               2000                1999
                                                                                       ----               ----                ----
                                                                                                 (Dollars in thousands)
                                                                                                                     
Unrealized holding gains (losses) on available for sale securities........              $225                $594              $(855)

Less:  Reclassification adjustment for
     gains (losses) realized in income ..................................               (31)                  -                   -
                                                                                       ----               -----               -----
Net unrealized (losses) .................................................               194                 594                (855)
Tax effect ..............................................................               (70)               (214)                308
                                                                                       ----               -----               -----

Net-of-tax amount .......................................................              $124                $380               $(547)
                                                                                       ====                ====               =====



NOTE 17 - CREDIT RISK CONCENTRATIONS

Concentrations  of credit risk arise when a number of  customers  are engaged in
similar business  activities,  or activities in the same geographic  region,  or
have  similar  economic   features  that  would  cause  their  ability  to  meet
contractual  obligations  to  be  similarly  affected  by  changes  in  economic
conditions.

                                       67


The Banks regularly  monitor various  segments of their credit risk portfolio to
assess potential  concentration  risks and to obtain  collateral when considered
necessary.

NOTE 18 - FAIR VALUE OF FINANCIAL INSTRUMENTS:

The fair value of a financial  instrument  is the  current  amount that would be
exchanged  between willing  parties,  other than in a forced  liquidation.  Fair
value is best  determined  based upon quoted  market  prices.  However,  in many
instances,  there are no quoted  market  prices  for the  Corporation's  various
financial  instruments.  In cases where quoted market prices are not  available,
fair  values  are based on  estimates  using  present  value or other  valuation
techniques. These techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. Accordingly, the
fair value  estimates  may not be realized  in an  immediate  settlement  of the
instrument.   SFAS  No.  107,   "Disclosures   about  Fair  Value  of  Financial
Instruments",  excludes  certain  financial  instruments  and  all  nonfinancial
instruments from its disclosure  requirements.  Accordingly,  the aggregate fair
value amounts presented may not necessarily  represent the underlying fair value
of the Corporation.

The following methods and assumptions were used by the Corporation in estimating
fair values of financial instruments as disclosed herein:

     Cash  and  cash  equivalents.   The  carrying  amounts  of  cash  and  cash
     equivalents approximate fair values.

     Interest-bearing   deposits   with   banks.   The   carrying   amounts   of
     interest-bearing deposits with banks approximate their fair values.

     Securities  available  for sale  and  held to  maturity.  Fair  values  for
     securities,  excluding  Federal  Home Loan Bank and  Federal  Reserve  Bank
     stock,  are based on quoted market  prices.  The carrying  value of Federal
     Home Loan Bank and Federal Reserve Bank stock approximates fair value based
     on the  redemption  provisions  of the  Federal  Home Loan Bank and Federal
     Reserve Bank.  The market values of state and local  government  securities
     are established with the assistance of an independent pricing service.  The
     values are based on data which often  reflect  transactions  of  relatively
     small  size  and  are  not  necessarily  indicative  of  the  value  of the
     securities when traded in large volumes.

     Loans held for sale. The carrying amounts approximate their fair values.

     Loans receivable.  For variable-rate loans that reprice frequently and with
     no  significant  change in credit  risk,  fair values are based on carrying
     values.  Fair values for certain  mortgage loans (for example,  one-to-four
     family  residential)  and other  consumer  loans are based on quoted market
     prices  of  similar   loans  sold,   adjusted  for   differences   in  loan
     characteristics.  Fair values for  commercial  real  estate and  commercial
     loans are estimated  using  discounted  cash flow analyses,  using interest
     rates  currently being offered for loans with similar terms to borrowers of
     similar credit quality.  Fair values for non-performing loans are estimated
     using discounted cash flow analyses or underlying  collateral values, where
     applicable.

     Deposit liabilities.  The fair values disclosed for demand deposits are, by
     definition,  equal to the amount  payable on demand at the  reporting  date
     (that is, their carrying  amounts).  The carrying amounts of variable-rate,
     fixed-term   money-market   accounts  and  certificates  of  deposit  (CDs)
     approximate  their  fair  values at the  reporting  date.  Fair  values for
     fixed-rate CDs are estimated using a discounted cash flow  calculation that


                                       68


     applies  interest  rates  currently  being  offered  on  certificates  to a
     schedule of aggregated expected monthly maturities on time deposits.

     Short-term borrowings.  The carrying amounts of federal funds purchased and
     borrowings under repurchase agreements, approximate their fair values.

     Federal Home Loan Bank  advances.  The fair values of the Federal Home Loan
     Bank advances are estimated  using  discounted  cash flow analyses based on
     the Corporation's  current incremental borrowing rates for similar types of
     borrowing arrangements.

     Accrued interest. The carrying amounts of accrued interest approximate fair
     value.

     Off-balance-sheet    instruments.   Fair   values   for   off-balance-sheet
     credit-related financial instruments are based on fees currently charged to
     enter into similar  agreements,  taking into account the remaining terms of
     the agreements and the counterparties' credit standings.

The  estimated  fair  values and related  carrying  or  notional  amounts of the
Corporation's  financial  instruments  at  December  31,  2001 and 2000,  are as
follows (in thousands of dollars):



                                                                                        2001                          2000
                                                                                        ----                          ----
                                                                              CARRYING           FAIR       CARRYING           FAIR
                                                                               AMOUNT            VALUE       AMOUNT            VALUE
                                                                               ------            -----       ------            -----
Financial assets:
                                                                                                                
   Cash and cash equivalents ...........................................       $ 25,649       $ 25,649       $ 18,339       $ 18,339
   Interest-bearing deposits with banks ................................          2,376          2,376            594            594
   Investment securities ...............................................         43,719         43,707         53,566         53,412
   Loans held for sale .................................................         10,265         10,265            343            343
   Loans receivable ....................................................        227,075        228,915        192,653        197,811
   Accrued interest receivable .........................................          1,762          1,762          2,330          2,330

Financial liabilities:
   Deposits ............................................................       $255,433       $256,952       $218,811       $218,584
   Federal funds purchased and
      securities sold under agreements
      to repurchase ....................................................          4,171          4,175          9,352          9,352
   Federal Home Loan Bank advances .....................................         20,280         19,656         20,350         20,309
   Notes payable .......................................................          9,028          9,028              0              0
   Accrued interest payable ............................................            946            946          1,224          1,224

Off-balance-sheet credit related financial instruments:
      Commitments to extend credit .....................................         11,596         11,596         12,822         12,822
      Unfunded commitments under
         lines of credit ...............................................         18,342         18,342         12,115         12,115
      Standby letters of credit ........................................          2,877          2,877          3,426          3,426



                                       69


NOTE 19 - CONTINGENCIES:

CLAIMS AND LAWSUITS:

The  Corporation  is subject at times to claims and lawsuits  arising out of the
normal  course of business.  As of December 31, 2001, no claims or lawsuits were
pending which, in the opinion of management, would have a material effect on the
Corporation's consolidated financial statements.


NOTE 20 - REGULATORY MATTERS:

The Banks, as national banks, are subject to the dividend restrictions set forth
by the Comptroller of the Currency. Under such restrictions,  the Banks may not,
without the prior approval of the Comptroller of the Currency, declare dividends
in  excess of the sum of the  current  year's  earnings  (as  defined)  plus the
retained  earnings  (as defined)  from the prior two years.  The  dividends,  at
December 31,  2001,  that the Banks could  declare,  without the approval of the
Comptroller of the Currency,  amounted to approximately $5,936,000. In addition,
dividends paid by the Banks to the Corporation would be prohibited if the effect
thereof would cause the Banks'  capital to be reduced below  applicable  minimum
capital requirements.

Under Federal  Reserve  regulation,  the Banks also are limited as to the amount
they may  lend to the  Corporation  unless  such  loans  are  collateralized  by
specified obligations.  The maximum amount available for transfer from the Banks
to the  Corporation  in the  form of  loans or  advances  totaled  approximately
$4,817,000 at December 31, 2001.

Also under Federal  Reserve  regulation,  the Banks are limited as to the amount
they may loan any non-depository  affiliate, such as CRM. Such loans are subject
to the requirements of section 23A of the Federal Reserve Act and in general are
limited to not more than 10% of capital  and must have at least 120%  collateral
to loan amount.

The Corporation  (on a consolidated  basis) and the 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 adverse effect on the  Corporation's and the Banks'
financial  statements.  Under capital  adequacy  guidelines  and the  regulatory
framework for prompt corrective  action, the Corporation and the 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. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components,  risk weightings,  and
other factors.  Prompt  corrective  action provisions are not applicable to bank
holding companies.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the  Corporation  and the Banks to maintain  minimum  amounts and ratios
(set forth in the table  below) of total and Tier I capital  (as  defined in the
regulations)  to  risk-weighted  assets (as  defined),  and of Tier I capital to
average assets (as defined).  Management  believes,  as of December 31, 2001 and
2000, that the Corporation and the Banks met all capital  adequacy  requirements
to which they are subject.

As of  December  31,  2001,  for  ONB,  for SNB and for  FNB,  the  most  recent
notifications from the Office of the Comptroller of the Currency categorized the
Banks as well capitalized  under the regulatory  framework for prompt corrective


                                       70


action. To be categorized as well  capitalized,  the Banks must maintain minimum
total risk-based,  Tier I risk-based, and Tier I leverage ratios as set forth in
the  table.  There are no  conditions  or events  since the  notifications  that
management  believes have changed the Banks'  categories.  The Corporation's and
the Banks' actual capital amounts and ratios are also presented in the following
table (in thousands of dollars).


                                                                                                                 MINIMUM REQUIRED
                                                                                                              TO BE WELL CAPITALIZED
                                                                   MINIMUM REQUIRED                                UNDER PROMPT
                                                                     FOR CAPITAL                                    CORRECTIVE
                                                                       ACTUAL            ADEQUACY PURPOSES      ACTION PROVISIONS
                                                                       ------            -----------------      -----------------
                                                              AMOUNT          RATIO      AMOUNT      RATIO      AMOUNT        RATIO
                                                              ------          -----      ------      -----      ------        -----

At December 31, 2001:

Tier I Capital to Average Assets
                                                                                                           
      Consolidated ....................................       $26,633         7.9%     $13,498        4.0%     $16,872         5.0%
      ONB .............................................        13,270         7.9%       6,760        4.0%       8,450         5.0%
      SNB .............................................         6,736         7.6%       3,550        4.0%       4,438         5.0%
      FNB .............................................         4,087         8.8%       1,854        4.0%       2,317         5.0%

Tier I Capital to Risk Weighted Assets
      Consolidated ....................................       $26,633        11.4%       9,383        4.0%      14,074         6.0%
      ONB .............................................        13,270        11.6%       4,568        4.0%       6,852         6.0%
      SNB .............................................         6,736         8.9%       3,023        4.0%       4,534         6.0%
      FNB .............................................         4,087        10.4%       1,573        4.0%       2,359         6.0%

Total Capital to Risk Weighted Assets
      Consolidated ....................................        29,368        12.5%      18,766        8.0%      23,457        10.0%
      ONB .............................................        14,698        12.9%       9,136        8.0%      11,420        10.0%
      SNB .............................................         7,638        10.1%       6,045        8.0%       7,556        10.0%
      FNB .............................................         4,492        11.4%       3,145        8.0%       3,932        10.0%

At December 31, 2000:

Tier I Capital to Average Assets
      Consolidated ....................................       $21,709         8.2%     $10,672        4.0%     $13,340         5.0%
      ONB .............................................        11,883         7.7%       6,173        4.0%       7,716         5.0%
      SNB .............................................         5,893         8.1%       2,910        4.0%       3,638         5.0%
      FNB .............................................         3,933         9.9%       1,589        4.0%       1,986         5.0%

Tier I Capital to Risk Weighted Assets
      Consolidated ....................................        21,709        11.1%       7,776        4.0%      11,663         6.0%
      ONB .............................................        11,833        11.9%       3,978        4.0%       5,966         6.0%
      SNB .............................................         5,893         9.7%       2,430        4.0%       3,645         6.0%
      FNB .............................................         3,933        11.5%       1,368        4.0%       2,052         6.0%

Total Capital to Risk Weighted Assets
      Consolidated ....................................        24,000        12.3%      15,560        8.0%      19,449        10.0%
      ONB .............................................        13,132        13.2%       7,959        8.0%       9,949        10.0%
      SNB .............................................         6,628        10.9%       4,865        8.0%       6,081        10.0%
      FNB .............................................         4,240        12.4%       2,736        8.0%       3,419        10.0%


                                       71


NOTE 21 - CONDENSED FINANCIAL STATEMENTS:

Presented below are the condensed financial statements for Community Bankshares,
Inc. (Parent Company only) (in thousands of dollars):

COMMUNITY BANKSHARES, INC. (PARENT COMPANY ONLY)


                                                                                                                 December 31,
                                                                                                                 ------------
                                                                                                          2001                 2000
                                                                                                          ----                 ----
Balance Sheets:
Assets:
                                                                                                                       
     Cash ..............................................................................               $ 1,399               $ 1,194
     Investment in subsidiaries ........................................................                24,598                21,578
     Securities available for sale, at fair value ......................................                    50                    50
     Premises and equipment (net of accumulated ........................................                   403                   235
         depreciation of $620 in 2001 and $520 in 2000)
     Goodwill ..........................................................................                   921                     -
     Other assets ......................................................................                   294                   138
                                                                                                       -------               -------
Total assets ...........................................................................               $27,665               $23,195
                                                                                                       =======               =======
Liabilities and shareholders' equity:
     Other liabilities .................................................................               $   118               $    56
     Shareholders' equity ..............................................................                27,547                23,139
                                                                                                       -------               -------
Total liabilities and shareholders' equity .............................................               $27,665               $23,195
                                                                                                       =======               =======






                                                                                            2001              2000              1999
                                                                                            ----              ----              ----
Statements of Income:
   Income:
                                                                                                                     
      Management fees assessed subsidiaries ......................................          $1,440          $ 1,352           $1,176
      Dividends from subsidiaries ................................................           1,460            1,027              872
      Interest ...................................................................              79               67               61
                                                                                            ------          -------           ------
                  Total ..........................................................           2,979            2,446            2,109
                                                                                            ------          -------           ------
   Expenses:
      Salaries and employee benefits .............................................             976              842              796
      Premises and equipment .....................................................             278              272              260
      Supplies ...................................................................              69               61               59
      Director fees ..............................................................              22               22               22
      Other general expenses .....................................................             314              276              281
                                                                                            ------          -------           ------
                  Total ..........................................................           1,659            1,473            1,418
                                                                                            ------          -------           ------
Income before income tax  (provision)  benefit and equity in .....................           1,320              973              691
     undistributed earnings of subsidiaries
Applicable income tax (provision) benefit ........................................              53              (28)              60
Equity in undistributed earnings of subsidiaries .................................           2,535            2,202            1,431
                                                                                            ======          =======           ======
Net income .......................................................................          $3,908          $ 3,147           $2,182
                                                                                            ======          =======           ======



                                       72





                                                                                          2001             2000                1999
                                                                                          ----             ----                ----
Statements of Cash Flows:
Cash flows from operating activities:
                                                                                                                   
     Net income ..............................................................          $ 3,908           $ 3,147           $ 2,182
Adjustments to reconcile net income to net cash provided by
operating activities
     Depreciation and amortization ...........................................              103               107               107
     Decrease (increase) in other assets .....................................             (156)               28               (38)
     Increase (decrease) in other liabilities ................................               62                 6               (90)
     Equity in undistributed earnings of subsidiaries ........................           (2,535)           (2,202)           (1,431)
                                                                                        -------           -------           -------

         Net cash provided by operating activities ...........................            1,382             1,086               730
                                                                                        -------           -------           -------

Cash flows from investing activities:
     Investment in SNB .......................................................                -              (250)             (500)
     Costs associated with acquisition of CRM ................................              (43)                -                 -
     Purchase of premises and equipment ......................................             (269)              (50)              (70)
                                                                                        -------           -------           -------

         Net cash used by investing activities ...............................             (312)             (300)             (570)
                                                                                        -------           -------           -------

Cash flows from financing activities:
     Repurchase of stock .....................................................                -                 -              (630)
     Common stock issued - stock options .....................................               39                22               189
     Stock issuance cost .....................................................                -               (10)                -
     Cash dividends paid .....................................................             (904)             (645)             (608)
                                                                                        -------           -------           -------
         Net cash used by financing activities ...............................             (865)             (633)           (1,049)
                                                                                        -------           -------           -------

Net increase (decrease) in cash ..............................................              205               153              (889)

Cash at beginning of year ....................................................            1,194             1,041             1,930
                                                                                        -------           -------           -------

Cash at end of year ..........................................................          $ 1,399           $ 1,194           $ 1,041
                                                                                        =======           =======           =======

Supplemental disclosures of cash flow information:
     Cash payments for income taxes ..........................................          $ 2,043           $ 1,780           $ 1,214
                                                                                        =======           =======           =======

Supplemental schedule of non-cash investing activities:
     Transfer from retained earnings to common stock
         outstanding for the market value of the 5% stock
         dividend ............................................................          $     -           $ 1,709           $     -
                                                                                        =======           =======           =======
     Fair value of shares issued for purchase of Community
         Resource Mortgage Inc. ..............................................          $ 1,241           $     -           $     -
                                                                                        =======           =======           =======





                                       73



NOTE 21 - ACQUISITION

Resource Mortgage Inc. On November 1, 2001 the Corporation  acquired 100% of the
common stock of Resource  Mortgage Inc.,  which was renamed  Community  Resource
Mortgage,  Inc. (CRM). The results of CRM's operations have been included in the
consolidated  financial  statements  since that date. CRM is a mortgage  company
with offices  located in Columbia,  Anderson and Sumter,  South  Carolina.  As a
result  of the  acquisition  the  Corporation  expects  to be able to  provide a
greater variety of one to four family  mortgage  products than it was previously
able to provide.

The aggregate  purchase  price was $1.2  million,  which was comprised of 95,454
shares  of  CBI  common  stock.  One-third  of the  shares  were  issued  at the
consummation of the transaction.  The remainder are being held in escrow pending
the attainment of certain  financial  goals.  The value of the 95,454 shares was
determined based on the average market price of the  Corporation's  common stock
for the two day period  before and after the  announcement  of the  acquisition.
Based on the  operating  results for the year ended  December  31, 2001 in March
2002, 47,727  additional  shares were distributed to the former  shareholders of
Resource Mortgage, Inc.

The following  table  summarizes  the estimated  fair market value of the assets
acquired and liabilities assumed at the date of the acquisition.

At November 1, 2001
(thousands of dollars)
Current assets ............................................            $    582

Property, plant and equipment .............................                  69
Mortgages receivable ......................................              10,395

Other assets ..............................................                  46
Goodwill ..................................................                 879
                                                                       --------
Total assets acquired .....................................              11,971
Liabilities acquired ......................................             (10,730)
                                                                       --------
     Net assets acquired ..................................            $  1,241
                                                                       ========

Subsequent to the acquisition date CBI recognized an additional $42,000 in costs
directly  associated  with the  purchase  of CRM.  Accordingly,  the  balance in
goodwill at December 31, 2001 is $921,000.

Ridgeway Bancshares Inc. (proposed)
On November 21, 2001 the  Corporation  entered into an agreement to acquire 100%
of the common stock of Ridgeway  Bancshares Inc., the parent company of the Bank
of Ridgeway.  The Corporation  agreed to issue 1,000,000  shares of common stock
and pay  $4,000,000  cash,  in exchange for 100% of the common stock of Ridgeway
Bancshares.  Shareholder  and  regulatory  approval  must  be  obtained  for the
acquisition.  The Corporation  anticipates completion of the transaction on July
1, 2002.

At year end 2001 Ridgeway Bancshares Inc. had approximately $79 million in total
assets, with equity of $8.7 million and earned net income of $1 million.


                                       74


NOTE 22 - GOODWILL

At December 31, 2001 the Corporation  had total goodwill of $921,000  associated
entirely with the current year acquisition of Community  Resource  Mortgage Inc.



                                       75



NOTE 23 - QUARTERLY DATA (UNAUDITED):


                                                                            Years ended December 31,
                                                                            ------------------------
                                                                 2001                                       2000
                                                                 ----                                       ----
                                                Fourth      Third     Second   First       Fourth     Third      Second      First
                                                quarter     quarter   quarter  quarter     quarter    quarter    quarter    quarter
                                                -------     -------   -------  -------     -------    -------    -------    -------

                                                                                                    
 Interest & dividend income ................   $ 5,001    $ 5,261    $ 5,389    $ 5,550    $ 5,557    $ 5,273    $ 4,888    $ 4,583
 Interest expense ..........................    (2,187)    (2,491)    (2,737)    (2,846)    (2,856)    (2,625)    (2,329)    (2,165)
                                               -------    -------    -------    -------    -------    -------    -------    -------

 Net interest income .......................     2,814      2,770      2,652      2,704      2,701      2,648      2,559      2,418
 Provision for loan losses .................      (193)      (180)      (135)      (142)      (198)      (152)      (158)      (180)
                                               -------    -------    -------    -------    -------    -------    -------    -------

 Net interest income after
     provision for loan losses .............     2,621      2,590      2,517      2,562      2,503      2,496      2,401      2,238
 Noninterest income ........................     1,597        744        692        551        519        464        448        437
 Noninterest expense .......................    (2,488)    (1,833)    (1,777)    (1,712)    (1,700)    (1,625)    (1,627)    (1,600)
                                               -------    -------    -------    -------    -------    -------    -------    -------

 Income before income taxes ................     1,730      1,501      1,432      1,401      1,322      1,335      1,222      1,075
 Provision for income taxes ................      (615)      (539)      (502)      (500)      (517)      (470)      (439)      (381)
                                               -------    -------    -------    -------    -------    -------    -------    -------

 Net income ................................   $ 1,115    $   962    $   930    $   901    $   805    $   865    $   783    $   694
                                               =======    =======    =======    =======    =======    =======    =======    =======

Earnings per share
    Basic ..................................   $  0.34    $  0.30    $  0.29    $  0.28    $  0.25    $  0.27    $  0.25    $  0.22
    Diluted ................................   $  0.33    $  0.30    $  0.29    $  0.28    $  0.24    $  0.27    $  0.25    $  0.22







    THESE NOTES ARE AN INTEGRAL PART OF THE ACCOMPANYING FINANCIAL STATEMENTS





                                       76



Item 9.  Changes  In  and  Disagreements  with  Accountants  on  Accounting  and
         Financial Disclosure

         There were no disagreements with or changes in accountants.


                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

         The  information  set forth under the caption  "Management - Directors"
and  "Management  - Executive  Officers"  and under  "Section  16(a)  Beneficial
Ownership Reporting Compliance" in the Proxy Statement to be used in conjunction
with the 2002 Annual Meeting of Shareholders (the "Proxy Statement"), which will
be filed within 120 days of the  Corporation's  fiscal year end, is incorporated
herein by reference.

Item 11.  Executive Compensation

         With the  exception  of the  information  set forth under the  captions
"Board Report on Executive Officer  Compensation"  and "Shareholder  Performance
Graph", which is not incorporated herein by reference, the information set forth
under  the  caption   "Management   Compensation"  in  the  Proxy  Statement  is
incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

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

Item 13.  Certain Relationships and Related Transactions

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



                                       77


Item 14. Exhibits and Reports on Form 8-K

(a)      (1) All financial statements:

Consolidated Balance Sheets, December 31, 2001 and 2000
Consolidated Statements of Income, Years Ended December 31, 2001, 2000 and
     1999
Consolidated Statements of Changes in Shareholders' Equity, Years Ended
     December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows, Years Ended December 31, 2001, 2000
     and 1999
Notes to Consolidated Financial Statements

(2) Financial statement schedules:

Quarterly Data for 2001 and 2000

(3)
Exhibit No.            Description
(from item
601 of S-K)

         2.1            Agreement  and Plan of  Merger  between  Registrant  and
                            Ridgeway Bancshares, Inc. (incorporated by reference
                            to  exhibits  filed in the  Registrant's  Form  S-4,
                            Commission File No. 333-819000).

         3.1            Articles of Incorporation,  as amended  (incorporated by
                            reference to exhibits filed in the Registrant's Form
                            10-QSB filed September 30, 1997).

         3.2            Bylaws,  as  amended   (incorporated   by  reference  to
                            exhibits  filed  in  the   Registrant's   Form  S-4,
                            Commission File No. 33-55314).

          4             Stock certificate (incorporated by reference to exhibits
                            filed in the Registrant's  Registration Statement on
                            Form S-2, filed September 11, 1995,  Commission File
                            No. 33-96746).

        10.1            1997Stock  Option Plan  (incorporated  by  reference  to
                            Registrant's   Form  S-8,   filed  June  22,   2001,
                            Commission File No. 333-63598).

        10.2            Lease for site of Florence  National Bank  (incorporated
                            by reference to Registrant's  Form 10-K for the year
                            ended December 31, 1999).

        10.3            Change of Control  Agreements between the Registrant and
                            each of  William  W.  Traynham,  Michael  A.  Wolfe,
                            William H. Nock and Jesse A. Nance  (incorporated by
                            reference  to exhibits to  Registrant's  Form 10-QSB
                            for the quarter ended June 30, 1999).

        10.4            Loan Agreement,   dated   November   1,   2001,    among
                            Registrant,  Resource Mortgage, Inc. and Branch Bank
                            and Trust  Company  (incorporated  by  reference  to
                            exhibits filed in the Registrant's Form 10-Q for the
                            quarter end September 30, 2001).

        10.5            Guaranty,  dated  November  1, 2001,  by  Registrant  of
                            obligations  of  Resource  Mortgage,  Inc. to Branch
                            Bank and Trust Company (incorporated by reference to
                            exhibits filed in the Registrant's Form 10-Q for the
                            quarter end September 30, 2001).

        10.6            Employment Agreement between Community Resource Mortgage
                            Inc. and A. Wade Douroux  (incorporated by reference
                            to  exhibits  filed in the  Registrant's  Form  S-4,
                            Commission File No. 333-819000).

        10.7            Form of Employment Agreement between the Corporation and
                            William A.  Harwell  (incorporated  by  reference to
                            exhibits  filed  in  the   Registrant's   Form  S-4,
                            Commission File No. 333-819000).

                                       78


         21             Subsidiaries   of  the   registrant   (incorporated   by
                            reference to exhibits filed in the Registrant's Form
                            S-4, Commission File No. 333-819000).

         23             Consent of J. W. Hunt and Company, LLP


(b)   Reports on Form 8-K.  None.



                                       79



Signatures
         Pursuant to the  requirements  of Section 13 or 15(d) 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.


                                                           DATED: March 25, 2002

By:  s/E. J. Ayers, Jr.
    -------------------
Chief Executive Officer


By  s/William W. Traynham, Jr.
    --------------------------
Chief Financial Officer


                                       80


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities and on the dates indicated.

s/ Alvis J. Bynum
----------------------------------                               March 25, 2002
Alvis J. Bynum, Director


s/ Martha Rose C. Carson
----------------------------------                               March 25, 2002
Martha Rose C. Carson, Director


s/ Anna O. Dantzler
----------------------------------                               March 25, 2002
Anna O. Dantzler, Director


s/ A. Wade Douroux
----------------------------------                               March 25, 2002
A. Wade Douroux, Director


s/J. M. Guthrie
----------------------------------                               March 25, 2002
J. M. Guthrie, Director


s/Richard L. Havekost
----------------------------------                               March 25, 2002
Richard L. Havekost, Director


s/ Phil P. Leventis
----------------------------------                               March 25, 2002
Phil P. Leventis, Director


s/Jess A. Nance
----------------------------------                               March 25, 2002
Jess A. Nance, Director


s/William H. Nock
----------------------------------                               March 25, 2002
William H. Nock, Director


s/ Samuel F. Reid, Jr.
----------------------------------                               March 25, 2002
Samuel F. Reid, Jr., Director


s/ J. Otto Warren, Jr.
----------------------------------                               March 25, 2002
J. Otto Warren, Jr., Director



----------------------------------
Wm. Reynolds Williams, II, Director


s/ Michael A. Wolfe, II
----------------------------------                               March 25, 2002
Michael A. Wolfe, II, Director


                                       81


                                  EXHIBIT INDEX

     Exhibit No.
from item 601 of S-K)                    Description
---------------------                    -----------

         2.1            Agreement  and Plan of  Merger  between  Registrant  and
                            Ridgeway Bancshares, Inc. (incorporated by reference
                            to  exhibits  filed in the  Registrant's  Form  S-4,
                            Commission File No. 333-819000).

         3.1            Articles of Incorporation,  as amended  (incorporated by
                            reference to exhibits filed in the Registrant's Form
                            10-QSB filed September 30, 1997).

         3.2            Bylaws,  as  amended   (incorporated   by  reference  to
                            exhibits  filed  in  the   Registrant's   Form  S-4,
                            Commission File No. 33-55314).

          4             Stock certificate (incorporated by reference to exhibits
                            filed in the Registrant's  Registration Statement on
                            Form S-2, filed September 11, 1995,  Commission File
                            No. 33-96746).

        10.1            1997Stock  Option Plan  (incorporated  by  reference  to
                            Registrant's   Form  S-8,   filed  June  22,   2001,
                            Commission File No. 333-63598).

        10.2            Lease for site of Florence  National Bank  (incorporated
                            by reference to Registrant's  Form 10-K for the year
                            ended December 31, 1999).

        10.3            Change of Control  Agreements between the Registrant and
                            each of  William  W.  Traynham,  Michael  A.  Wolfe,
                            William H. Nock and Jesse A. Nance  (incorporated by
                            reference  to exhibits to  Registrant's  Form 10-QSB
                            for the quarter ended June 30, 1999).

        10.4            Loan Agreement,   dated   November   1,   2001,    among
                            Registrant,  Resource Mortgage, Inc. and Branch Bank
                            and Trust  Company  (incorporated  by  reference  to
                            exhibits filed in the Registrant's Form 10-Q for the
                            quarter end September 30, 2001).

        10.5            Guaranty,  dated  November  1, 2001,  by  Registrant  of
                            obligations  of  Resource  Mortgage,  Inc. to Branch
                            Bank and Trust Company (incorporated by reference to
                            exhibits filed in the Registrant's Form 10-Q for the
                            quarter end September 30, 2001).

        10.6            Employment Agreement between Community Resource Mortgage
                            Inc. and A. Wade Douroux  (incorporated by reference
                            to  exhibits  filed in the  Registrant's  Form  S-4,
                            Commission File No. 333-819000).

        10.7            Form of Employment Agreement between the Corporation and
                            William A.  Harwell  (incorporated  by  reference to
                            exhibits  filed  in  the   Registrant's   Form  S-4,
                            Commission File No. 333-819000).

         21             Subsidiaries   of  the   registrant   (incorporated   by
                            reference to exhibits filed in the Registrant's Form
                            S-4, Commission File No. 333-819000).

         23             Consent of J. W. Hunt and Company, LLP


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