SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D. C.

                                   FORM 10-KSB

              Annual Report Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

                   For the Fiscal Year Ended December 31, 2001

                          COMMISSION FILE NO. 000-30001

                       DARLINGTON COUNTY BANCSHARES, INC.
                       ----------------------------------
             (Exact name or Registrant as specified in its charter)

          South Carolina                                     57-0805621
          --------------                                     ----------
 (State of other jurisdiction of                            (IRS Employer
 incorporation or organization)                           Identification No.)

                     202 CASHUA STREET, DARLINGTON, SC 29532
                     ---------------------------------------
           (Address of Principal Executive Office, Including Zip Code)

       Registrant's Telephone Number, Including Area Code: (843) 395-1956

             Securities Registered Pursuant to Section 12(b) of the
                        Securities Exchange Act of 1934:
                                      NONE

             Securities Registered Pursuant to Section 12(g) of the
                        Securities Exchange Act of 1934:
                          COMMON STOCK. $.01 PAR VALUE
                                (Title of Class)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter  period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [    ]      No [ X ]

Check if there is no  disclosure of  delinquent  filers  pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure  will 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-KSB or any
amendment to this Form 10-KSB. [ X ]

The issuer's revenues for its fiscal year were $2,354,388.

The aggregate  market value of the voting and  non-voting  common equity held by
nonaffiliates of the Registrant (141,633 shares) has not been determined.  As of
such date,  no  organized  trading  market  existed for the common  stock of the
Registrant. For the purpose of this response, officers, directors and holders of
5% or more of the  Registrant's  common stock are  considered  affiliates of the
Registrant at that date.

The number of shares  outstanding of the Registrant's  common stock, as of March
15, 2001: 158,000 shares of $.01 par value common stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

              Portions of the Registrant's Proxy Statement for the
                 2001 Annual Meeting of Shareholders - Part III

         Transitional Small Business Disclosure Format Yes [ ] No [ X ]


                                      -1-
<PAGE>

                                     PART I


ITEM 1.           BUSINESS

FORWARD LOOKING STATEMENTS

From time to time,  Darlington  County  Bancshares,  Inc.  (the  "Company")  may
publish  forward-looking  statements  to  assist  in the  understanding  of such
matters as anticipated financial performance, business prospects,  technological
developments,   new  products  and  similar  matters.   The  Private  Securities
Litigation  Reform  Act of  1995  provides  a safe  harbor  for  forward-looking
statements.  In order to comply with terms of the safe harbor, the Company notes
that a  variety  of  factors  could  cause  the  Company's  actual  results  and
experience  to  differ   materially  from  the  anticipated   results  or  other
expectations expressed in the Company's  forward-looking  statements.  The risks
and uncertainties that may affect the operations, performances,  development and
results  of the  Company's  business  include,  but  are  not  limited  to,  the
following:  risks from changes in economic and industry  conditions;  changes in
interest  rates;  risks inherent in making loans  including  repayment risks and
value of collateral;  dependence on senior management;  and  recently-enacted or
proposed  legislation.  Statements contained in this filing regarding the demand
for the Company's products and services, changing economic conditions,  interest
rates,  consumer  spending and  numerous  other  factors may be  forward-looking
statements  and  are  subject  to  uncertainties  and  risks.  When  considering
forward-looking  statements  in making  decisions  with  respect to the Company,
investors  and  others  are  cautioned  to  consider  these and other  risks and
uncertainties.

Such  forward-looking  statements  speak  only  as of the  date  on  which  such
statements  are made. We undertake no  obligation to update any  forward-looking
statement  to  reflect  events or  circumstances  after  the date on which  such
statement  is made  to  reflect  the  occurrence  of  unanticipated  events.  In
addition,  certain  statements  in  future  filings  by  the  Company  with  the
Securities  and Exchange  Commission,  in press releases and in oral and written
statements  made by or with the approval of the Company which are not statements
of historical fact constitute forward-looking statements.


THE COMPANY

Darlington County Bancshares, Inc. was organized in July 1999 for the purpose of
being the holding  company for Darlington  County Bank (the "Bank").  On July 1,
1999,  pursuant  to a Plan of Merger  approved by the  stockholders,  all of the
outstanding  shares of common  stock of the Bank were  exchanged  for  shares of
common stock of the Company.  The Company presently engages in no other business
other  than that of owning  the  Bank,  has no  employees  and  operates  as one
business segment. The Company is subject to regulation by the Board of Governors
of the Federal Reserve System (the "Federal Reserve Board").

Prior  to  the  organization  of  the  Company,  the  Bank  filed  its  periodic
securities--related  reports  with the Federal  Deposit  Insurance  Corporation.
Beginning  July 1, 1999,  with the  formation of the bank holding  company,  the
Company  became  subject to the  informational  requirements  of the  Securities
Exchange Act of 1934.

Darlington  County Bank was  incorporated  under the laws of South  Carolina and
began operations on March 10, 1986 for the purpose of becoming a community bank.

The Company's  principal  offices are located at 202 Cashua Street,  Darlington,
South Carolina 29532. The Company's telephone number is (843) 395-1956. The sole
branch is also located in this facility.


                                      -2-
<PAGE>

GENERAL BUSINESS

The Bank  provides a variety of  services  and  products to small  business  and
individual  customers.  The  Bank's  services  include  checking  accounts,  NOW
accounts, certificates of deposit, money market accounts, savings accounts, real
estate loans,  overdraft protection,  lines of credit, and personal and business
use loans. The Bank has no material  concentration of deposits from one customer
or group of customers.  No significant portion of loans is concentrated within a
single industry or group of related industries.

The  Company's  significant  accounting  policies  are included  throughout  the
following  discussion  and  are  summarized  in  Note  1 of the  Company's  2001
consolidated financial statements (See Item 7).


TERRITORY AND COMPETITION

The  Bank  serves  its  customers  from  one  location.  It  primarily  services
individuals and small businesses in the South Carolina midlands region.

The Bank  competes with one other  community  bank and a credit union as well as
three other major banks. In Darlington  County,  such  competitors  have broader
geographical markets and higher lending limits than the Bank and may, therefore,
make more effective use of media  advertising,  support  services and electronic
technology than can the Bank. The Bank generally offers more personal service to
its  customers,  but may have to offer lower loan rates and higher deposit rates
in order to increase its market share.

Competition between commercial banks and thrift  institutions  (savings and loan
associations  and  credit  unions)  has been  intensified  significantly  by the
elimination of many previous distinctions between the various types of financial
institutions   and  the  expanded  powers  and  increased   activity  of  thrift
institutions  in areas of banking  that  previously  had been the sole domain of
commercial  banks. The Company believes that recent  legislation,  together with
other  regulatory  changes by the primary  regulators  of the various  financial
institutions,  has  resulted  in  the  almost  total  elimination  of  practical
distinctions  between a commercial  bank and thrift  institution.  Consequently,
competition  among financial  institutions  of all types is virtually  unlimited
with respect to legal ability and authority to provide most financial services.




                                      -3-
<PAGE>
<TABLE>
<CAPTION>
INTEREST RATES AND INTEREST DIFFERENTIAL
                                                        AVERAGE BALANCES, INCOME AND EXPENSES, AND RATES
                                                                          DECEMBER 31,
                                        -----------------------------------------------------------------------------------
                                                         2001                                      2000
                                         ---------------------------------------- -----------------------------------------
                                            AVERAGE       REVENUE/      YIELD/        AVERAGE        REVENUE/     YIELD/
                                            BALANCE       (EXPENSE)      RATE         BALANCE        EXPENSE       RATE
                                         -------------- -------------- ---------- ---------------- ------------ -----------
<S>                                      <C>               <C>           <C>          <C>           <C>             <C>
Interest earning assets
   Loans                                 $  18,047,485     $1,536,015    8.51%        $16,720,620   $1,585,826      9.48%
   Investment securities
     Taxable                                 4,873,420        287,216    5.89           5,104,257      324,557      6.36
     Tax exempt                                719,257         31,130    4.33             797,980       34,266      4.29
                                         -------------- -------------- ---------- ---------------- ------------ -----------
       Total investment securities           5,592,677        318,346    5.69          5,902,237       358,823      6.08

Federal funds sold and securities
   purchased under agreements to
     resell                                  4,364,285        163,260    3.74          3,096,639      176,072       5.69
                                         -------------- -------------- ---------- ---------------- ------------ -----------
       Total average interest earning
         Assets                             28,004,447      2,017,621    7.20         25,719,496    2,120,721       8.25
Non-interest earning assets
   Cash and due from banks                   1,133,683                                   875,002
   Premises and equipment                    1,021,388                                   889,197
   Other, less reserve for loan losses         231,196                                   293,032
                                         --------------                           ----------------
       Total average non-interest
         earning assets                      2,386,267                                 2,057,231
                                         --------------                           ----------------

       Total average assets               $ 30,390,714                                $27,776,727
                                         ==============                           ================
</TABLE>
<TABLE>
<CAPTION>
                                                         AVERAGE BALANCES, INCOME AND EXPENSES, AND RATES
                                                                           DECEMBER 31,
                                        --------------------------------------------------------------------------------------
                                                          2001                                       2000
                                         ------------------------------------------ ------------------------------------------
                                            AVERAGE       REVENUE/       YIELD/        AVERAGE       REVENUE/       YIELD/
                                            BALANCE       EXPENSE         RATE         BALANCE       EXPENSE         RATE
                                         -------------- ------------- ------------- -------------- ------------ --------------
<S>                                        <C>              <C>            <C>       <C>             <C>              <C>
Interest-bearing liabilities
   Deposits:
   Savings                                 $ 2,368,025      $ 48,291       2.04%     $ 2,217,811     $ 48,629         2.19%
   NOW and money market                      8,662,579       181,004       2.09        7,049,743      153,199         2.17
   Time deposits                            10,537,019       562,447       5.34        9,849,900      544,695         5.53
                                         -------------- -------------               -------------- ------------
     Total interest-bearing liabilities     21,567,623       791,742       3.67       19,117,454      746,523         3.90
                                         -------------- -------------               -------------- ------------
Non-interest-bearing liabilities
   Demand deposits                           5,110,375                                 5,163,931
   Other liabilities                           115,569                                   114,582
                                         --------------                             --------------
     Total non-interest-bearing
         liabilities                         5,225,944                                 5,278,513
Stockholders' equity                         3,597,147                                 3,380,760
                                         --------------                             --------------

       Total average liabilities and
         stockholders' equity             $ 30,390,714                               $27,776,727
                                         ==============                             ==============

Net interest income                                       $1,225,879                               $ 1,374,198
                                                        =============                              ============
Interest rate spread                                                       3.53                                       4.35

Interest income/earning assets                                             7.20                                       8.25

Interest expense/earning assets                                            2.83                                       2.90
                                                                      -------------                             --------------
Net interest income/earning
   Assets (interest yield)                                                  4.38%                                      5.34%
                                                                      =============                             ==============
</TABLE>

                                      -4-
<PAGE>

NET INTEREST INCOME

Net interest income, the principal source of earnings, is the difference between
the income earned on earning assets (primarily loans and investment  securities)
and the  interest  expenses  incurred on interest  bearing  liabilities  (mainly
deposits). The net interest spread represents the differential between the yield
earned  on  average   earning   assets   and  the  rate  paid  on  the   average
interest-bearing  liabilities.  The net interest  yield  represents net interest
income divided by average earning assets.

Net interest income in 2001 decreased $148,319 or 10.8% from net interest income
in  2000.   Interest  income  in  2001  decreased  $103,100  or  4.9%  from  the
corresponding  amount earned in 2000. Interest expense in 2001 increased $45,219
or 6.1% from the amount paid in 2000. The net interest yield  decreased to 4.38%
in 2001 from 5.34% in 2000. See Item  6--"Management  Discussion and Analysis of
Financial  Condition and Results of Operation"--for a detailed discussion of the
Bank's net interest yield in 2001.

VOLUME AND YIELDS/RATE VARIANCE

The volume and yield/rate variance table below analyzes the increase or decrease
in interest  income due to growth or change of rate in each  category of earning
assets and interest bearing liabilities.
<TABLE>
<CAPTION>
                                             2001 COMPARED TO 2000                           2000 COMPARED TO 1999
                                -------------------------------------------------------------------------------------------------
                                                           VOLUME/                                         VOLUME/
                                  VOLUME        RATE        RATE        NET       VOLUME        RATE        RATE         NET
                                ------------ ----------- ----------- ----------------------- ----------- ----------- ------------
<S>                             <C>          <C>         <C>         <C>        <C>          <C>          <C>         <C>
Interest income
     Loans                      $  125,843   $(162,740)  $ (12,914)  $ (49,811) $   32,020   $ 74,451     $  1,613    $108,084
     Investment securities:
        Taxable                    (14,678)    (23,737)      1,074     (37,341)    (10,017)    12,699         (395)      2,287
        Tax exempt                  (3,380)        271         (27)     (3,136)     (9,119)    (3,096)         616     (11,599)
Federal funds sold and securities
     purchased under agreements
     to resell                      72,077     (60,232)    (24,657)    (12,812)     (1,663)    21,897         (234)     20,000
                                ------------ ----------- ----------- ----------------------- ----------- ----------- ------------
             Total earning assets  179,862    (246,438)    (36,524)   (103,100)     11,221    105,951        1,600     118,772
                                ------------ ----------- ----------- ----------------------- ----------- ----------- ------------

Interest expense
     Savings                         3,293      (3,401)       (230)       (338)     (19,030)   (2,539)         695     (20,874)
     NOW and money market           35,049      (5,895)     (1,349)     27,805       (6,407)   (3,083)         122      (9,368)
     Time deposits                  37,997     (18,925)     (1,320)     17,752       19,728    88,632        4,045     112,405
     Federal funds purchased and
       securities sold under
       agreements to repurchase          -           -           -           -          (92)     (92)           92         (92)
        repurchase
                                ------------ ----------- ----------- ----------------------- ----------- ----------- ------------
             Total interest-bearing
                Liabilities         76,339     (28,221)     (2,899)     45,219       (5,801)   82,918       44,954      82,071
                                ------------ ----------- ----------- ----------------------- ----------- ----------- ------------
             Net interest       $  103,523   $(218,217)  $ (33,625)  $(148,319) $   17,022   $ 23,033     $ (3,354)   $ 36,701
             income
                                ============ =========== =========== ======================= =========== =========== ============
</TABLE>

LOAN PORTFOLIO

The  Bank  engages  in  a  full  complement  of  lending  activities,  including
commercial, consumer, installment and real estate loans.

Commercial  loans are spread  across  various  industry  groups,  with no single
industry accounting for a significant amount of the portfolio.  Commercial loans
are made on either a secured or unsecured basis.  When taken,  security consists
of liens on  inventories,  receivables,  equipment,  and furniture and fixtures.
Unsecured  commercial loans are generally  short-term with emphasis on repayment
strengths and low debt to net worth ratios. At December 31, 2001,  approximately
$1,750,060 of loans were unsecured.

                                      -5-
<PAGE>

Consumer  loans are  primarily  secured  installment  loans to  individuals  for
personal,  family  and  household  purposes,   including  automobile  loans  and
pre-approved lines of credit.

Management believes that the loan portfolio is adequately diversified. There are
no foreign  loans in the  portfolio.  The  following  table  presents  the major
categories  of loans in the Bank's loan  portfolio and total amount of all loans
at December 31, 2001 and 2000:
<TABLE>
<CAPTION>
                                                                                       2001             2000
                                                                                  ---------------- ---------------

<S>                                                                               <C>                <C>
Real estate - mortgage                                                            $    7,954,000     $  7,408,000
Real estate - construction                                                               611,000          602,000
Commercial and industrial                                                              3,477,000        3,467,000
Loans to individuals for household, family and
     other consumer expenditures                                                       4,090,000        3,469,000
Agriculture                                                                              833,000          759,000
All other loans, including overdrafts                                                    629,083          604,946
Deferred loan origination costs                                                           18,455           20,910
                                                                                  ---------------- ---------------

                                                                                  $   17,612,538     $ 16,330,856
                                                                                  ================ ===============
</TABLE>
Accrual  of  interest  is  discontinued  on a loan when  management  of the Bank
determines,  after  consideration  of economic  and business  factors  affecting
collection  efforts,  that  collection of interest is doubtful.  At December 31,
2001, and 2000 the Bank had approximately $15,900 and $940,500, respectively, in
non-accruing loans. At December 31, 2000, the Bank had one loan on nonaccrual in
the  amount  of  926,000.  The  loan is  guaranteed  by an  agency  of the  U.S.
Government  and has been  restructured  following  a  bankruptcy  filing  by the
borrower. The loan has been returned to accrual status due to the current status
of the restructured Note.

With  respect  to the loans  accounted  for on a  non-accrual  basis,  the gross
interest  income that would have been  recorded if the loans had been current in
accordance  with their original terms and  outstanding  throughout the period or
since  origination  amounts to $1,364 for the year ended  December  31, 2001 and
$174,341 for the year ended December 31, 2000.

As of December 31, 2001, there were no loans classified for regulatory  purposes
as doubtful,  substandard  or special  mention that (i) represent or result from
trends or  uncertainties  that  management  reasonably  expects will  materially
impact  future  operating  results,  liquidity,  or capital  resources,  or (ii)
represent  material  credits about which  management is aware of any information
that  causes  management  to  have  serious  doubts  as to the  ability  of such
borrowers to comply with the loan repayment terms.

The  Bank  accounts  for  impaired  loans  in  accordance  with  SFAS  No.  114,
"Accounting by Creditors for Impairment of a Loan".  This standard requires that
all  creditors  value loans at the loan's fair value if it is probable  that the
creditor will be unable to collect all amounts due according to the terms of the
loan  agreement.  Fair value may be  determined  based upon the present value of
expected cash flows,  market price of the loan,  if  available,  or value of the
underlying collateral.  Expected cash flows are required to be discounted at the
loan's  effective  interest  rate.  SFAS No. 114 was  amended by SFAS No. 118 to
allow a creditor to use existing  methods for recognizing  interest income on an
impaired  loan and by  requiring  additional  disclosures  about how a  creditor
recognizes interest income on an impaired loan. When the ultimate collectibility
of an impaired  loan's  principal  is in doubt,  wholly or  partially,  all cash
receipts are applied to principal. When this doubt does not exist, cash receipts
are applied under the contractual terms of the loan agreement first to principal
then to interest income. Once the recorded principal balance has been reduced to
zero,  future cash receipts are applied to interest  income,  to the extent that
any interest has been foregone. Further cash receipts are recorded as recoveries
of any amounts previously charged off.

A loan is also considered  impaired if its terms are modified in a troubled debt
restructuring.  For these accruing  impaired loans,  cash receipts are typically
applied to principal and interest receivable in accordance with the terms of the
restructured loan agreement.  Interest income is recognized on these loans using
the accrual method of  accounting.  As of December 31, 2001 the Bank had no such
impaired  loans.  As of December 31, 2000 the Bank had $183,000 of such impaired
loans.

                                      -6-
<PAGE>

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is based on management's ongoing evaluation of the
loan portfolio and reflects an amount that, in management's opinion, is adequate
to  absorb  losses in the  existing  portfolio.  In  evaluating  the  portfolio,
management takes into consideration numerous factors, including current economic
conditions,  prior loan loss experience,  the composition of the loan portfolio,
and  management's  estimate  of  anticipated  credit  losses.  Loans are charged
against  the  allowance  at such  time  as they  are  determined  to be  losses.
Subsequent  recoveries  are credited to the  allowance.  The  allowance for loan
losses is estimated by applying  average loss  percentages to accounts graded by
management as substandard or doubtful and adding a percentage of all outstanding
loans to allow for  unidentified  losses  inherent in the portfolio.  Management
reviews  loans that are  exhibiting  signs of  weakness  and grades  those loans
according  to the  borrowers'  financial  status,  ability  to repay,  estimated
collateral values, etc. Management considers the year-end allowance  appropriate
and  adequate  to  cover  possible  losses  in  the  loan  portfolio.   However,
management's judgment is based upon a number of assumptions about future events,
which are believed to be reasonable, but which may or may not prove valid. Thus,
there can be no assurance that charge-offs in future periods will not exceed the
allowance for loan losses or that additional increases in the allowance for loan
losses will not be required.

The Bank is  subject  to  regulatory  examinations  that  include  a  review  of
methodology used to calculate loan losses and the size of the allowance for loan
losses in  comparison  to a group of peer  banks  identified  by the  regulatory
agencies.  Regulatory  agencies may require  additions to the allowance for loan
losses based upon the regulators' credit  evaluations and information  available
to them at the time of their examination.

In assessing the adequacy of the allowance,  management relies  predominantly on
its ongoing  review of the loan  portfolio,  which  reviews  specific  loans for
potential charge-off as well as an assessment of the portfolio in the aggregate.

On December 31, 2001 and 2000,  the  allowance  for loan losses was $187,808 and
$252,219,  respectively.  The ratio of the  allowance  for loan  losses to loans
outstanding  was 1.07% at  December  31, 2001 and 1.54% at  December  31,  2000.
During 2001, the Bank  experienced net  charge-offs of $124,403  compared to net
charge-offs of $67,636 in the prior year.  Net  charge-offs in 2001 included one
loan on which the Bank is the loss payee on certain  insurance  policies.  Those
policies  may allow  the Bank to  recover  certain  amounts  in future  periods.
However,  the  timing  of  collection  of those  amounts  may not be in the near
future.  Therefore,  the Bank has  charged  off the  entire  loan  balance as of
December 31, 2001.

The Bank made recoveries of loans previously charged off of $118,465 and $17,666
for the years ended December 31, 2001 and 2000, respectively.

The Bank made provisions for loan losses of  approximately  $60,000 for the year
ended  December 31, 2001.  The Bank made  provision for loan losses for the year
ended December 31, 2000 of approximately $111,200.

Management  continues  to  closely  monitor  the  levels of  non-performing  and
potential  problem  loans and will  address  the  weaknesses  in these  loans to
enhance the ultimate collection or recovery on these assets. Should increases in
the overall level of non-performing  and potential problem loans accelerate from
the historical trend, management will adjust the methodology for determining the
allowance for loan losses and will increase the provision and allowance for loan
losses. This would likely decrease net income.

The following table summarizes changes in the allowance arising from charge-offs
and  recoveries  by category  and  additions  to the  allowance  which have been
charged to expense.

                                      -7-
<PAGE>
<TABLE>
<CAPTION>
                                                                              SUMMARY OF LOAN LOSS EXPERIENCE
                                                                              FOR THE YEARS ENDED DECEMBER 31,
                                                                                2001                    2000
                                                                          ------------------      -----------------

<S>                                                                            <C>                    <C>
Balance at beginning of year                                                   $   252,219            $   208,642
Charge-offs:
     Commercial and industrial                                                    (209,000)                (7,000)
     Consumer                                                                      (33,868)               (78,302)
                                                                          ------------------      -----------------
                                                                                  (242,868)               (85,302)
                                                                          ------------------      -----------------
Recoveries:
     Commercial and industrial                                                          -                   9,000
     Real estate                                                                    80,000                      -
     Consumer                                                                       38,465                  8,666
                                                                          ------------------      -----------------
                                                                                   118,465                 17,666
                                                                          ------------------      -----------------

Net charge-offs                                                                   (124,403)               (67,636)

Provision for loan losses                                                           59,992                111,213
                                                                          ------------------      -----------------
Balance at end of year                                                      $      187,808            $   252,219
                                                                          ==================      =================
</TABLE>

The following  table presents the allocation of the allowance for loan losses at
December  31,  2001 and 2000,  based on the  percentage  of total  loans in each
category for the applicable year. Management does not segregate the allowance by
category  and the  entire  allowance  is  available  to absorb  losses  from all
categories.
<TABLE>
<CAPTION>

                                                                         YEARS ENDED DECEMBER 31,
                                                      ----------------------------------------------------------------
                                                                    2001                             2000
                                                      ---------------------------------- -----------------------------
                                                                           % OF                             % OF
                                                          AMOUNT           LOANS          AMOUNT           LOANS
                                                      --------------- -------------------------------- ---------------

<S>                                                      <C>             <C>              <C>             <C>
Commercial and industrial                                $   36,998       19.7%           $   53,545       21.2%
Real estate - construction                                    6,573        3.5                 9,297        3.7
Real estate - mortgage                                       84,890       45.2               114,412       45.4
Consumer installment                                         59,347       31.6                74,965       29.7
                                                      --------------- -------------------------------- ---------------
         Total                                           $  187,808      100.0%           $  252,219      100.0%
                                                      =============== ================================ ===============
</TABLE>

Management  considers the allowance for loan losses  adequate to cover  inherent
losses on loans  outstanding as of December 31, 2001 and 2000. The determination
of the  allowance  for loan losses  using the Bank's  procedures  and methods is
based upon judgments and assumptions about future economic  conditions and other
factors  affecting  loans.  No  assurance  can be given  that the Bank  will not
sustain  losses that are sizeable in comparison  to the amount  reserved or that
subsequent  evaluation  of the loan  portfolio  will not require  changes to the
allowance  for loan  losses.  The  allowance  for loan losses is also subject to
review by regulatory  agencies through periodic  examinations.  Such examination
could result in required changes to the allowance for loan losses.

INVESTMENTS

The Bank invests  primarily in federal agency  obligations  and mortgage  backed
securities. Federal agency obligations are guaranteed by the United States.

                                      -8-
<PAGE>
The  amortized  cost  and  approximate  fair  value  of  investment  securities,
including maturities, are summarized as follows at December 31:
<TABLE>
<CAPTION>

                                                                                                      2001
                                                                                    -----------------------------------------
                                                                                        AMORTIZED                FAIR
                                                                                           COST                 VALUE
                                                                                    -------------------   -------------------
<S>                                                                                 <C>                   <C>
AVAILABLE FOR SALE
------------------
     Federal Agencies
        One to five years                                                           $        5,000,000    $       4,979,505
                                                                                    -------------------   -------------------
     Mortgage backed
        One to five years                                                                      659,746              666,511
        After ten years                                                                      2,010,885            1,992,210
                                                                                    -------------------   -------------------
                                                                                             2,670,631            2,658,721
                                                                                    -------------------   -------------------
     Total available for sale                                                        $       7,670,631    $       7,638,226
                                                                                    ===================   ===================

HELD TO MATURITY
----------------
     State, county and municipal
        Less than one year                                                                $    75,360           $    76,133
        One to five years                                                                     168,924               174,459
        Five to ten years                                                                     473,520               466,133
                                                                                    -------------------   -------------------
     Total held to maturity                                                               $   717,804           $   716,725
                                                                                    ===================   ===================


                                                                                                      2000
                                                                                    -----------------------------------------
                                                                                        AMORTIZED                FAIR
                                                                                           COST                 VALUE
                                                                                    -------------------   -------------------
AVAILABLE FOR SALE
------------------
     Federal Agencies
        One to five years                                                               $   3,800,000          $  3,758,469
                                                                                    -------------------   -------------------
     Mortgage backed
        Less than one year                                                                    178,029               176,485
        One to five years                                                                     667,836               655,190
        After ten years                                                                        71,033                71,652
                                                                                    -------------------   -------------------
                                                                                              916,898               903,327
                                                                                    -------------------   -------------------
     Total available for sale                                                           $   4,716,898          $  4,661,796
                                                                                    ===================   ===================

HELD TO MATURITY
----------------
     State, county and municipal
        One to five years                                                                 $    247,514          $    249,540
        Five to ten years                                                                      472,761               464,005
                                                                                    -------------------   -------------------
     Total held to maturity                                                               $    720,275          $    713,545
                                                                                    ===================   ===================
</TABLE>
For purposes of the maturity table,  mortgage-backed  securities,  which are not
due at a single maturity date, have been allocated over maturity groupings based
on an average  maturity  life  computation  of the  underlying  collateral.  The
mortgage-backed  securities may mature earlier than their average maturity lives
because of principal prepayments.

Investment   securities  with  an  aggregate  amortized  cost  of  approximately
$1,162,225  ($1,168,885  fair value) and $1,172,000  ($1,149,000  fair value) at
December 31, 2001 and 2000, respectively, were pledged to secure public deposits
and for other purposes.

                                      -9-
<PAGE>

The Bank accounts for  investment  securities in  accordance  with  Statement of
Financial   Accounting   Standards   (SFAS)  No.  115  "Accounting  for  Certain
Investments in Debt and Equity  Securities." Debt securities are classified upon
purchase  as  available  for sale,  held to  maturity  or  trading.  Such assets
classified as available for sale are carried at fair value.  Unrealized gains or
losses are  reported  as a  component  of  shareholders'  equity net of deferred
income taxes.  Securities classified as held to maturity are carried at cost and
adjusted for the  amortization  of premiums and the accretion of  discounts.  In
order to qualify as held to maturity, the Bank must have the ability to hold the
securities to maturity. Trading securities are carried at market value. The Bank
has no trading  securities.  Gains or losses on  disposition  of securities  are
based on the  difference  between the net  proceeds  and the  adjusted  carrying
amount of the securities sold, using the specific identification method.

DEPOSITS

The  Bank  offers  a full  range  of  interest-bearing  and  noninterest-bearing
accounts,  including commercial and retail checking accounts,  negotiable orders
of withdrawal  ("NOW") accounts,  money market accounts,  individual  retirement
accounts,  regular interest-bearing  statement savings accounts and certificates
of deposit with fixed rates and a range of maturity date options. The sources of
deposits  are  residents,  businesses  and  employees of  businesses  within the
midlands region. The Bank pays competitive  interest rates on interest checking,
savings, money market, time and individual retirement accounts.

The Bank's average interest-bearing deposits in 2001 were $21,567,623,  compared
to $19,117,454 in the prior year, an increase of $2,450,169 or 12.8%.

The following  tables  present,  for the years ended December 31, 2001 and 2000,
the  average  amount  and  average  rate paid on each of the  following  deposit
categories:
<TABLE>
<CAPTION>
                                                              AVERAGE AMOUNT                 AVERAGE RATE PAID
                                                      ----------------------------------------------------------------
                                                           2001            2000            2001             2000
                                                      --------------- -------------------------------- ---------------

<S>                                                     <C>              <C>               <C>           <C>
Noninterest-bearing deposits                            $ 5,110,375      $  5,163,931         - %           - %
Interest-bearing deposits
    Interest checking                                     6,769,453         7,088,868      1.72          2.11
    Savings deposits                                      2,368,024         3,054,208      2.04          2.19
    Money market                                          1,893,127           249,845      3.41          3.22
    Certificates of deposit                               8,610,010         7,356,112      5.24          5.50
    Individual retirement accounts                        1,927,009         2,063,495      5.78          5.68
</TABLE>
The Bank's core deposits  consist of consumer time deposits,  savings  accounts,
NOW accounts,  money market accounts and checking  accounts.  Although such core
deposits are becoming  increasingly interest sensitive for both the Bank and the
industry  as a whole,  such core  deposits  continue  to provide the Bank with a
large and stable  source of funds.  The Bank  closely  monitors  its reliance on
certificates of deposits greater than $100,000,  which are generally  considered
less stable and less reliable as a source of funds than core deposits.

At  December  31,  2001 and 2000,  certificate  of  deposits of $100,000 or more
totaled $1,822,000 and $1,998,000, respectively.

RETURN ON EQUITY AND ASSETS

The following table presents certain ratios relating to the Company's equity and
assets:
<TABLE>
<CAPTION>
                                                                                      YEAR ENDED DECEMBER 31,
                                                                                  --------------------------------
                                                                                       2001             2000
                                                                                  ---------------- ---------------

<S>                                                                                       <C>            <C>
Return on average total assets                                                              .82%          1.24%
Return on average stockholders equity                                                      6.96          10.15
Cash dividend payout ratio                                                                63.09          36.87
Average equity to average assets ratio                                                    11.84          12.17

                                      -10-
<PAGE>

</TABLE>

DIVIDENDS

State banking regulations  restrict the amount of dividends that can be paid and
require prior  approval of the State Board of Financial  Institutions.  The Bank
paid a cash  dividend  of $1.00 per share in  January  2001 to  stockholders  of
record as of December  31, 2000.  The Bank paid a cash  dividend of 80 cents per
share in January 2000 to shareholders of record as of December 31, 1999.

CAPITAL RESOURCES

The  capital  base for the Bank  increased  by  $107,430  during  2001.  This is
comprised of $250,448 of net income and a $14,982  unrealized  gain on available
for sale securities  offset by $158,000 paid in dividends to  stockholders.  The
Bank's equity to asset ratio was 11.85 percent on December 31, 2001, as compared
to 12.60 percent on December 31, 2000.

The Federal Deposit  Insurance  Corporation has issued guidelines for risk-based
capital  requirements.  As of December  31,  2001,  the Bank exceeds the capital
requirement levels that it is required to maintain.
<TABLE>
<CAPTION>

                                                                                           CAPITAL RATIOS
                                                                                       (AMOUNTS IN THOUSANDS)
                                                                                                            ADEQUATELY
                                                                             WELL CAPITALIZED               CAPITALIZED
                                                    ACTUAL                     REQUIREMENT                  REQUIREMENT
                                          ---------------------------- ---------------------------- ---------------------------
                                             AMOUNT         RATIO         AMOUNT         RATIO         AMOUNT        RATIO
                                          -------------- ------------- ------------- -------------- ------------ --------------

<S>                                       <C>                  <C>     <C>                  <C>     <C>                 <C>
Total capital (to risk weighted assets)   $      3,904         19.6%   $   1,989            10.0%   $  1,592            8.0%

Tier 1 capital (to risk weighted assets)         3,716         18.7%       1,194             6.0%        796            4.0%

Tier 1 capital (to average assets)               3,716         11.6%       1,608             5.0%      1,286            4.0%
</TABLE>


LIQUIDITY AND ASSET/LIABILITY MANAGEMENT

Asset/liability  management  is the  process  by  which  the Bank  monitors  and
controls  the mix and  maturities  of its  assets  and  liabilities  in order to
promote stable growth in net interest income.  The goal of liquidity  management
is to ensure the  availability of adequate funds to meet the loan demand and the
deposit  withdrawal  needs of bank  customers.  Maintaining an adequate level of
liquidity is achieved  through a combination of sufficient  liquid assets,  core
deposit  growth and access to alternate  sources of funds that provide a sizable
base from which to draw as liquidity needs arise.

At December 31, 2001, the Bank had an unused line of credit to purchase  Federal
funds from an  unrelated  bank  totaling  $2.5  million.  This line of credit is
available  on a one to seven day basis for  general  corporate  purposes  of the
Bank. The lender has reserved the right to withdraw this line at its option.

Interest  sensitive  assets  and  liabilities  are  those  that are  subject  to
repricing in the near term,  including both floating rate  instruments and those
with  approaching  maturities.  The interest  sensitivity  gap is the difference
between total interest-sensitive  assets and liabilities in a given time period.
The  objective  of interest  rate  sensitivity  management  is to  maintain  the
difference  between  interest-sensitive  assets and  liabilities at a level that
will  minimize the effects on the net interest  margin of  significant  interest
rate shifts.


                                      -11-
<PAGE>

The Bank's periodic and cumulative  interest-sensitive positions that existed at
year-end are as follows.
<TABLE>
<CAPTION>
                                                                                    OVER ONE
                                                                      TOTAL         YEAR OR
                                           0-3           4-12         WITHIN      NON-SENSITIVE
                                          MONTHS        MONTHS       ONE YEAR                       TOTAL
                                       ------------- ------------- -------------  -------------  -------------
<S>                                    <C>           <C>           <C>            <C>            <C>
Earning assets
     Loans net of unearned income      $    7,030    $    1,770    $    8,800     $    8,813     $    17,613
     Investment securities                  3,571            75         3,646          8,273          11,919
                                       ------------- ------------- -------------  -------------  -------------
          Total earning assets             10,601         1,845        12,446         17,086          29,532

Percentage of total earning assets          35.90%         6.25%        42.15%         57.85%         100.00%

Interest-bearing liabilities
     Certificates of deposits of
     $100,000 or more                         932           890         1,822              -           1,822
     Other time and savings deposits       15,131         5,041        20,172            454          20,626
                                       ------------- ------------- -------------  -------------  -------------
          Total interest-bearing
            liabilities                    16,063         5,931        21,994            454          22,448
Other sources                                   -             -             -          7,084           7,084
                                       ------------- ------------- -------------  -------------  -------------
          Total sources                $   16,063    $    5,931    $   21,994     $    7,538     $    29,532
                                       ============= ============= =============  =============  =============

Percentage of total earning assets          54.39%        20.08%        74.47%         25.53%         100.00%

Interest sensitive gap                     (5,462)        (4,086)       (9,548)        9,548

Cumulative interest sensitive gap          (5,462)        (9,548)       (9,548)
</TABLE>
<TABLE>
<CAPTION>
                                              SOURCES AND USES OF FUNDS
                             (AVERAGE BALANCES FOR YEARS ENDED DECEMBER 31 IN THOUSANDS)

                                                                               DECEMBER 31,
                                                      ----------------------------------------------------------------
                                                                   2001                            2000
                                                      ----------------------------------------------------------------
                                                          AMOUNT          PERCENT         AMOUNT          PERCENT
                                                      --------------- -------------------------------- ---------------
<S>                                                   <C>                   <C>            <C>               <C>
Composition of sources:
    Demand deposits                                   $        5,110        16.80%         $    5,164        18.59%
    NOW and money market                                       8,663        28.51               7,050        25.38
    Time and savings deposits                                 12,905        42.46              12,068        43.45
    Short-term borrowings                                          -            -                   -            -
    Other non interest-bearing funds                             116          .39                 114          .41
    Stockholders' equity                                       3,597        11.84               3,381        12.17
                                                      --------------- -------------------------------- ---------------

       Total sources                                  $       30,391       100.00%         $   27,777       100.00%
                                                      =============== ================================ ===============
Composition of sources:
    Loans*                                            $       18,048        59.39%         $   16,721        59.37%
    Investment securities                                      5,593        18.40               5,902        21.25
    Other earning assets                                       4,364        14.36               3,097        11.15
Other assets                                                   2,386         7.85               2,057         8.23
                                                      --------------- -------------------------------- ---------------
     Total uses                                   $           30,391       100.00%         $   27,777       100.00%
                                                      =============== ================================ ===============

  * Loan balances stated net of unearned income
</TABLE>

                                      -12-
<PAGE>

SOURCES OF FUNDS

Average sources of funds increased $2,614,000 to $30,391,000 in 2001 compared to
$27,777,000  in 2000.  This  represents  an  increase  of 9.4% in total  average
sources of funds.  Average NOW and money  market  deposits  and time and savings
deposits increased  $2,450,000 or 12.8%. This was partially offset by a decrease
of $54,000 in demand  deposits,  a nominal  percentage  decrease.  Average loans
increased  $1,327,000  or 7.9% while  average  investment  securities  decreased
$309,000 or 5.2% and other earning  assets  increased  $1,267,000  or 40.9%,  to
account for the majority of the overall increase of total uses of funds in 2001.

OFF BALANCE SHEET RISK

The Bank is a party to financial  instruments with off balance sheet risk in the
normal course of business to meet the financing  needs of its  customers.  These
financial  instruments  include available credit on credit lines and commitments
to extend credit.  Those instruments  involve,  to varying degrees,  elements of
credit  and  interest  rate  risk in  excess  of the  amount  recognized  in the
statements  of financial  position.  The contract  amounts of these  instruments
reflect  the  extent  of  involvement  the Bank  has in  particular  classes  of
financial  instruments.  The Bank  uses  the  same  credit  policies  in  making
commitments  and  conditional  obligations  as it  does  for  on  balance  sheet
instruments.

                                                               CONTRACT
                                                                AMOUNT
                                                         ---------------------
     Financial  instruments  whose  contract  amounts
       Represent credit risk at December 31, 2001:

          Commitments to extend credit                     $   3,446,000
                                                         =====================

Of these  commitments  to extend  credit,  $2,991,000  are at variable rates and
$455,000 are at fixed rates.

Commitments  to  extend  credit  are  agreements  to lend 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 Bank evaluates each  customer's  creditworthiness  on a
case-by-case basis. The amount of collateral obtained if deemed necessary by the
Bank upon extension of credit is based on management's credit evaluation.

EFFECTS OF REGULATORY ACTION

REGULATION OF THE BANK

The Bank is  extensively  regulated  under  federal and state law. To the extent
that the following information describes statutory or regulatory provisions,  it
is  qualified  in its  entirety by  references  to the  particular  statutory or
regulatory provisions.  Any change in applicable laws may have a material effect
on the bank's business and prospects.  The Bank's  operations may be affected by
possible  legislative and regulatory changes and by the monetary policies of the
United States.

The Bank is subject to examination by the State Board of Financial Institutions.
In  addition,  the Bank is subject to various  other state and federal  laws and
regulations,  including state usury laws, laws relating to fiduciaries, consumer
credit and laws relating the branch banking. The Bank's loan operations are also
subject to certain  federal  consumer  credit laws and  regulations  promulgated

                                      -13-
<PAGE>

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 facts
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 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 Bank are also subject to the Trust 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 Bank is also 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 is also 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."

A bank that is  "undercapitalized"  becomes  subject to  provisions of the FDIA:
restricting payment of capital distributions and management fees; requiring FDIC
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 payment 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 FDIC move promptly to take over
banks that are unwilling or unable to take such steps.
                                      -13-
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 payment of rates), while "undercapitalized" banks may not accept
brokered deposits.  Management does not believe that these regulations will have
a material adverse effect on the operations of the Bank.

The Bank currently meets the definition of "well capitalized."

INTERSTATE BANKING

         Current  Federal law authorizes  interstate  acquisitions  of banks and
bank holding companies without geographic limitation.  Effective June 1, 1998, a
bank   headquartered   in  one  state  was  authorized  to  merge  with  a  bank
headquartered  in another state,  as long as neither of the states had opted out
of such  interstate  merger  authority  prior  to such  date.  After a bank  has
established  branches in a state through an interstate merger  transaction,  the

                                      -14-
<PAGE>

bank may establish and acquire additional  branches at any location in the state
where a bank  headquartered  in that state  could have  established  or acquired
branches under applicable Federal or state law.


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.

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
"financial  holding  company" that 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) complimentary
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 a 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.

                                      -15-
<PAGE>

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

LEGISLATIVE PROPOSALS

New proposed legislation that could significantly affect the business of banking
has  been  introduced  or may be  introduced  in  Congress  from  time to  time.
Management  of the Bank  cannot  predict the future  course of such  legislative
proposals or their impact on the Company and the Bank should they be adopted.

IMPACT OF INFLATION

Unlike  most  industrial  companies,  the assets and  liabilities  of  financial
institutions  such as the Bank are  primarily  monetary  in  nature.  Therefore,
interest rates have a more significant  impact on the Bank's performance than do
the effects of changes in the general rate of  inflation  and changes in prices.
In addition, interest rates do not necessarily move in the same magnitude as the
prices of goods and  services.  As  discussed  previously,  management  seeks to
manage the relationships  between  interest-sensitive  assets and liabilities in
order to protect against wide rate fluctuations,  including those resulting from
inflation.

EMPLOYEES

The  Bank  presently  employs  15  full-time  equivalent  employees.  Management
believes that its employee relations are good.

ITEM 2. PROPERTIES

The  Company's  corporate  office is located at 202 Cashua  Street,  Darlington,
South  Carolina.  The  building  also houses the Bank's  branch  facilities  and
central operations, including data processing and accounting.

The Bank believes that its facilities  are adequate for its current  operations.
The Bank currently owns its facilities, which are not subject to any liens.


ITEM 3. LEGAL PROCEEDINGS

There are no material pending legal  proceedings to which the Company is a party
or of  which  any of  their  properties  are  subject;  nor are  there  material
proceedings  known  to  the  Company  to be  contemplated  by  any  governmental
authority;  nor are there material proceedings known to the Company,  pending or
contemplated,  in which any  director,  officer or  affiliate  or any  principal
security holder of the Company,  or any associate of any of the foregoing,  is a
party or has an interest adverse to the Company.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No  matter  was  submitted  to a vote of  security  holders  of the  Company  by
solicitation  of proxies or otherwise  during the fourth  quarter ended December
31, 2001.


                                      -16-
<PAGE>

                                     PART II


ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS


Shares of Darlington  Bancshares  are currently  traded on Nasdaq's OTC Bulletin
Board.

As of March 15, 2002,  the number of holders of record for the Company's  common
stock was 496.


ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND  RESULTS
        OF OPERATION


2001 COMPARED TO 2000

Net income for the year ended  December 31, 2001 was  $250,448  compared to 2000
net income of  $343,196.  The  Company  earned  $1.59 per  common  share in 2001
compared  to $2.17  per  share in 2000.  The  decrease  in net  income is mainly
attributable to a lower net interest margin as a result of significant  interest
rate reductions during the year.

Net interest  income,  which is the difference  between  interest  earned on the
Company's  interest  earning  assets  and  interest  paid  on  interest  bearing
liabilities,  was  $1,225,879  for the year ended  December 31, 2001 compared to
$1,374,198 for the year ended December 31, 2000. Net interest  income,  the main
driver of the Company's  earnings,  decreased $148,319 or 10.8% in 2001 compared
to 2000.  Interest  income  decreased in 2001  primarily  due to lower  interest
rates.

Average  earning  assets were  $28,004,000  or 92.1% of total average  assets as
compared to  $25,719,000  or 92.6% of total average  assets in 2000. The primary
types  of  earning  assets  are  loans,  investment  securities  and  short-term
investments.  Loans  comprised  approximately  64.4% of the Bank's total earning
assets, while investment  securities comprised 20.0% and short-term  investments
15.6% in 2001.

Average loans  increased $1.3 million or 7.9% during 2001 as compared to average
loans in 2000. However,  the average yield on loans dropped 10% to 8.51% in 2001
from 9.48% in 2000 due to decreases in overall short-term market interest rates.
The Federal  Reserve  decreased  the Federal Funds rate eleven (11) times during
2001. The total decrease in the Federal Funds rate was 425 basis points in 2001,
bringing the Federal Funds rate to its lowest level in forty (40) years.

Commercial,  industrial  and  agricultural  loans  comprised  24.5%  of the loan
portfolio as of December 31, 2001.  Loans secured by real estate comprised 48.6%
of the  portfolio,  while consumer and other loans  comprised  26.9% of the loan
portfolio as of year ended December 31, 2001.

During 2001 interest  expense on deposits was  $792,000,  an increase of $45,000
over 2000 levels. During the year, the Bank was not able to decrease the average
rate paid on time  deposits  as  quickly  or by the same  magnitude  that  rates

                                      -17-
<PAGE>

decreased on interest  earning  assets.  As a result,  the interest  rate spread
dropped  from 4.35% in 2000 to 3.53% in 2001.  The  Company  expects  spreads to
improve  in 2002  since many of the  Bank's  time  deposits  will renew at lower
rates.

The amount of net loans charged off in 2001 was approximately  $124,000 compared
to $68,000 in 2000 and $71,000 in 1999. The ratio of net  charge-offs to average
loans, net of unearned  income,  for 2001 was 0.69% as compared to 0.41% in 2000
and 0.43% in 1999.

Provision  for loan  losses in 2001 was  approximately  $60,000  and in 2000 was
$111,000.  There was no provision  for loans losses made in 1999.  The allowance
for loan losses as a percentage of loans, net of unearned  income,  was 1.07% at
December  31,  2001  and  1.55%  and  1.27%  at  December  31,  2000  and  1999,
respectively. The decrease in the allowance as a percentage of loans is due to a
decrease in  non-performing  assets at December 31, 2001.  Loans greater than 90
days past due totaled  $54,000 at December 31, 2001  compared to  $1,011,000  at
December 31, 2000.  Management  believes  that the  allowance for loan losses is
adequate to cover losses inherent in the loan portfolio as of December 31, 2001.

Non-interest  income  increased  $71,139  or 26.8% in 2001.  Service  charges on
deposit accounts increased $70,660 or 29.6% and accounted for almost 100% of the
increase. The increase in service fees on deposit accounts is due to an increase
in  overall  account  balances  and  in  overdraft  charges.  Overdraft  charges
increased  approximately $50,000 or 28.8% in 2001 compared to 2000. In addition,
the Bank earned  approximately  $25,000 in miscellaneous  bookkeeping charges in
2001, which represented an increase of 89.2% over 2000 levels.

Non-interest  expense increased  $74,534 or 7.0% in 2001.  Salaries and employee
benefits expense increased $81,000 or 14.7% in 2001.  Additional employees hired
in 2000 were included in salary  expense for a full year in 2001.  Furniture and
equipment  increased $17,000 or 26.7%, due to depreciation  expenses and service
contracts  associated  with new equipment.  Other  operating  expense  decreased
$40,000 or 16.1% in 2001. 2000 included expenses related to misappropriations by
a former  employee.  Data  processing  fees also increased 12.5% during the year
ended December 31, 2001 due to an upgrade in the system used by the Bank.

RECENTLY ISSUED ACCOUNTING STANDARDS

Statement of Financial  Accounting  Standards ("SFAS") No. 133,  "Accounting for
Derivative Instruments and Hedging Activities" and SFAS No. 138, "Accounting for
Certain Derivative  Instruments and Certain Hedging Activities,  an Amendment of
FASB  133"  establish   accounting   and  reporting   standards  for  derivative
instruments,   including  certain  derivative   instruments  embedded  in  other
contracts  and hedging  activities.  They require that an entity  recognize  all
derivatives  as either  assets or  liabilities  in the  statement  of  financial
position, and measure those instruments at fair value. Changes in the fair value
of those derivatives will be reported in earnings or other comprehensive  income
depending on the use of the derivative and whether the derivative  qualifies for
hedge accounting.  The Company adopted SFAS No. 133, as amended by SFAS No. 138,
on January 1, 2001. The adoption was not material to the Company's  consolidated
financial statements.

SFAS No. 140,  "Accounting  for Transfers and Servicing of Financial  Assets and
Extinguishments of Liabilities -- a replacement of FASB No. 125, " was issued in
September 2000. It revises the standards for accounting for  securitizations and
other  transfers  of  financial  assets  and  collateral  and  requires  certain
disclosures  but will  carry  over  most of SFAS No.  125's  provisions  without
reconsideration.  SFAS 140 is effective for transfers and servicing of financial
assets and  extinguishment  of liabilities  occurring after March 31, 2001. This
statement is effective for  recognition and  reclassification  of collateral and
for disclosures related to securitization transactions and collateral for fiscal
years ending after December 15, 2000. The adoption of the provisions of SFAS No.
140 in 2001 did not have a material effect on the Company.

In July 2001, the Financial  Accounting Standards Board ("FASB") issued SFAS No.
141, "Business  Combinations",  and SFAS No. 142, "Goodwill and Other Intangible
Assets."  SFAS No. 141 requires  that the purchase  method of accounting be used
for all  business  combinations  initiated  after June 30,  2001.  SFAS 141 also
specifies  criteria  intangible  assets  acquired in a purchase  method business
combination must meet to be recognized and reported apart from goodwill,  noting

                                      -18-
<PAGE>

that any purchase price allocable to an assembled workforce may not be accounted
for  separately.  SFAS No. 142 will require that goodwill and intangible  assets
with  indefinite  useful lives no longer be  amortized,  but instead  tested for
impairment at least annually in accordance with the provisions of SFAS No. 142.

The Company was required to adopt the provisions of SFAS No. 141 immediately and
must  adopt  SFAS No.  142  effective  January  1,  2002.  The  adoption  of the
provisions  of SFAS  No.  141 in 2001  did not  have a  material  effect  on the
Company.

In July 2001, the SEC issued Staff Accounting Bulletin ("SAB") No. 102 "Selected
Loan Loss Allowance Methodology and Documentation Issues." This staff accounting
bulletin   clearly  defines  the  required   development,   documentation,   and
application of a systematic  methodology for determining allowances for loan and
lease losses in accordance with accounting  principles generally accepted in the
United States of America.  The Company's management believes it is in compliance
with the provisions of SAB No. 102.

In August 2001, the FASB issued SFAS No. 144,  "Accounting for the Impairment or
Disposal  of  Long-Lived  Assets."  This SFAS  supersedes  prior  pronouncements
associated  with  impairment  or  disposal  of  long-lived   assets.   The  SFAS
establishes   methodologies  for  assessing  impairment  of  long-lived  assets,
including assets to be disposed of by sale or by other means.  This statement is
effective for all fiscal years  beginning  after December 15, 2001. This SFAS is
not expected to have a material impact on the Company's financial position.

Additional  accounting  standards  that have been issued or proposed by the FASB
that do not  require  adoption  until a future  date are not  expected to have a
material impact on the consolidated financial statements upon adoption.

See "Liquidity and Asset Liability Management" for further discussion.

INFLATION

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

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

The Bank believes that the effects of inflation are generally manageable through
asset/liability management.


                                      -19-
<PAGE>

ITEM 7.        FINANCIAL STATEMENTS

The following financial statements are filed with this report:

-   Independent Auditor's Report
-   Consolidated Balance Sheets as of December 31, 2001 and 2000
-   Consolidated Statements of Income for the years ended December 31, 2001,
    2000 and 1999
-   Consolidated Statements of Stockholders' Equity for the years ended December
    31, 2001, 2000 and 1999
-   Consolidated Statements of Cash Flows for the years ended December 31, 2001,
    2000 and 1999
-   Notes to Consolidated Financial Statements



                DARLINGTON COUNTY BANCSHARES, INC. AND SUBSIDIARY
                           DARLINGTON, SOUTH CAROLINA


                                TABLE OF CONTENTS


                                                                     PAGE

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                     21

FINANCIAL STATEMENTS
     Consolidated balance sheets                                       22
     Consolidated statements of income                                 23
     Consolidated statements of stockholders' equity                   24
     Consolidated statements of cash flows                             25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                          26-37

                                      -20-
<PAGE>





               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



The Directors and Stockholders
DARLINGTON COUNTY BANCSHARES, INC. AND SUBSIDIARY
Darlington, South Carolina


             We have audited the  accompanying  consolidated  balance  sheets of
DARLINGTON  COUNTY  BANCSHARES,  INC. AND SUBSIDIARY as of December 31, 2001 and
2000, and the related  consolidated  statements of income,  stockholders' equity
and comprehensive  income 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 Company'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 consolidated  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  consolidated  financial
position of DARLINGTON COUNTY BANCSHARES, INC. AND SUBSIDIARY as of December 31,
2001 and 2000 and the results of their operations and cash flows for each of the
years in the three year period  ended  December  31, 2001,  in  conformity  with
auditing standards generally accepted in the United States of America.



/s/ Elliott Davis, LLP

January 19, 2002
Greenville, South Carolina


                                      -21-
<PAGE>

<TABLE>
<CAPTION>
                DARLINGTON COUNTY BANCSHARES, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS

                                                                                                    DECEMBER 31,
                                                                                      -----------------------------------------
                                                                                             2001                  2000
                                                                                      -------------------   -------------------
                                                            ASSETS

<S>                                                                                         <C>                  <C>
CASH AND DUE FROM BANKS                                                                     $   314,713          $  1,089,597

FEDERAL FUNDS SOLD                                                                            3,513,000             4,420,000

INVESTMENT SECURITIES HELD TO MATURITY
     (FAIR VALUE $716,725 IN 2001 AND $713,545 IN 2000)                                         717,804               720,275

INVESTMENT SECURITIES AVAILABLE FOR SALE                                                      7,638,226             4,661,796

OTHER INVESTMENTS, AT COST                                                                       50,405                50,405

LOANS                                                                                        17,612,538            16,330,856

     Less allowance for loan losses                                                            (187,808)             (252,219)
                                                                                      -------------------   -------------------

            Net loans                                                                        17,424,730            16,078,637

PREMISES AND EQUIPMENT                                                                        1,063,384               875,051

ACCRUED INTEREST RECEIVABLE                                                                     253,713               421,380

OTHER ASSETS                                                                                    196,937               172,324
                                                                                      -------------------   -------------------

                                                                                           $ 31,172,912         $  28,489,465
                                                                                      ===================   ===================

                                             LIABILITIES AND STOCKHOLDERS' EQUITY

DEPOSITS
     Demand                                                                                $  4,910,391          $  4,788,254
     Savings and NOW                                                                         12,743,457             9,245,878
     Other time                                                                               9,705,264            10,715,949
                                                                                      -------------------   -------------------

            Total deposits                                                                   27,359,112            24,750,081

OTHER LIABILITIES                                                                               119,413               152,427
                                                                                      -------------------   -------------------

            Total liabilities                                                                27,478,525            24,902,508
                                                                                      -------------------   -------------------

COMMITMENTS AND CONTINGENCIES - NOTE 9

STOCKHOLDERS' EQUITY
     Common stock - $.01 par value, 1,000,000 shares authorized,  158,000 shares
        issued and outstanding at December 31, 2001
        and 2000                                                                                  1,580                 1,580
     Capital in excess of par value of stock                                                  1,617,920             1,617,920
     Retained earnings                                                                        2,096,274             2,003,826
     Accumulated other comprehensive loss                                                       (21,387)              (36,369)
                                                                                      -------------------   -------------------

            Total stockholders' equity                                                        3,694,387             3,586,957
                                                                                      -------------------   -------------------

                                                                                           $ 31,172,912         $  28,489,465
                                                                                      ===================   ===================


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

</TABLE>

                                      -22-
<PAGE>
<TABLE>
<CAPTION>

                DARLINGTON COUNTY BANCSHARES, INC. AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME


                                                                                      FOR THE YEARS ENDED DECEMBER 31,
                                                                   ------------------------------------------------------------
                                                                          2001                 2000                1999
                                                                   -------------------   ------------------  ------------------
<S>                                                                    <C>                    <C>                  <C>
INTEREST INCOME
     Loans                                                             $   1,536,015         $  1,585,826          $1,477,742
     Investment securities
        Taxable                                                              285,394              322,026             317,797
        Exempt from federal income taxes                                      31,130                                   45,865
                                                                                                   34,266
                                                                   -------------------   ------------------  ------------------

            Total interest on investment securities                          316,524              356,292             363,662

     Federal funds sold                                                      163,260              176,072             156,072
     Other                                                                     1,822                2,531               4,473
                                                                   -------------------   ------------------  ------------------

            Total interest income                                          2,017,621            2,120,721           2,001,949

INTEREST EXPENSE
     Deposits                                                                791,742              746,523             664,452
                                                                   -------------------   ------------------  ------------------

            Net interest income                                            1,225,879            1,374,198           1,337,497

PROVISION FOR LOAN LOSSES                                                     59,992              111,213                   -
                                                                   -------------------   ------------------  ------------------

            Net interest income after provision for loan
            losses                                                         1,165,887            1,262,985           1,337,497

NONINTEREST INCOME
     Service charges on deposit accounts                                     309,082              238,422             255,534
     Other service charges and fees                                           27,685               27,206              20,933
                                                                   -------------------   ------------------  ------------------

            Total noninterest income                                         336,767              265,628             276,467

NONINTEREST EXPENSES
     Salaries and employee benefits                                          630,724              549,827             506,880
     Occupancy                                                                69,472               64,951              62,587
     Furniture and equipment                                                  80,147               63,283              63,802
     Office supplies                                                          46,664               45,549              53,628
     Data processing fees                                                    104,622               93,014              89,484
     Other operating                                                         211,477              251,948             231,055
                                                                   -------------------   ------------------  ------------------

            Total noninterest expenses                                     1,143,106            1,068,572           1,007,436
                                                                   -------------------   ------------------  ------------------

            Income before income taxes                                       359,548              460,041             606,528

PROVISION FOR INCOME TAXES                                                   109,100              116,845             194,000
                                                                   -------------------   ------------------  ------------------

            Net income                                                  $    250,448          $   343,196         $   412,528
                                                                   ===================   ==================  ==================

NET INCOME PER SHARE OF COMMON STOCK                                    $      1.59           $      2.17         $      2.61
                                                                   ===================   ==================  ==================



     The  accompanying  notes  are an  integral  part of these consolidated financial statements.
</TABLE>


                                      -23-
<PAGE>
<TABLE>
<CAPTION>

                DARLINGTON COUNTY BANCSHARES, INC. AND SUBSIDIARY
    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999

                                                                       CAPTIAL IN                     ACCUMULATED        TOTAL
                                                 COMMON STOCK           EXCESS OF                      OTHER COM-        STOCK-
                                            ------------------------    PAR VALUE       RETAINED       PREHENSIVE       HOLDERS'
                                              SHARES       AMOUNT       OF STOCK        EARNINGS     INCOME (LOSS)       EQUITY
                                            -----------  -----------  --------------  -------------  --------------- ---------------

<S>                                            <C>       <C>            <C>           <C>              <C>            <C>
BALANCE, DECEMBER 31, 1998                     158,000   $ 790,000      $   829,500   $ 1,477,202      $    11,028    $  3,107,730
                                                                                                                     ---------------
    Net income                                                                            412,528                          412,528
    Par value conversion                                  (788,420)         788,420                                              -
    Other comprehensive income, net of
       income taxes of $58,708:
       Unrealized loss on securities
           available for sale                                                                             (113,676)       (113,676)
                                                                                                                     ---------------
       Comprehensive income                                                                                                298,852
    Cash dividend, $.65 per share                                                        (102,700)                        (102,700)
                                            -----------  -----------  --------------  -------------  --------------- ---------------

BALANCE, DECEMBER 31, 1999                     158,000       1,580        1,617,920     1,787,030         (102,648)      3,303,882
                                                                                                                     ---------------
    Net income                                                                            343,196                          343,196
    Other comprehensive income, net of
       income taxes of $34,145:
       Unrealized gain on securities
           available for sale                                                                               66,279          66,279
                                                                                                                     ---------------
       Comprehensive income                                                                                                409,475
    Cash dividend, $.80 per share                                                        (126,400)                        (126,400)
                                            -----------  -----------  --------------  -------------  --------------- ---------------

BALANCE, DECEMBER 31, 2000                     158,000       1,580        1,617,920     2,003,826          (36,369)      3,586,957
                                                                                                                     ---------------
    Net income                                                                            250,448                          250,448
    Other comprehensive income, net of
       income taxes of $7,715:
       Unrealized gain on securities
           available for sale                                                                               14,982          14,982
                                                                                                                     ---------------
       Comprehensive income                                                                                                265,430
    Cash dividend, $1.00 per share                                                       (158,000)                        (158,000)
                                            -----------  -----------  --------------  -------------  --------------- ---------------

BALANCE, DECEMBER 31, 2001                     158,000    $  1,580      $ 1,617,920   $ 2,096,274      $   (21,387)   $  3,694,387
                                            ===========  ===========  ==============  =============  =============== ===============






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

</TABLE>





                                      -24-
<PAGE>
<TABLE>
<CAPTION>

                DARLINGTON COUNTY BANCSHARES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                         FOR THE YEARS ENDED DECEMBER 31,
                                                                        ---------------------------------------------------------
                                                                              2001                2000                1999
                                                                        -----------------  -------------------  -----------------
<S>                                                                         <C>                  <C>                <C>
OPERATING ACTIVITIES
     Net income                                                             $   250,448          $   343,196        $   412,528
     Adjustments to reconcile net income to
        net cash provided by operating activities
        Depreciation                                                             70,598               60,889             58,806
        Amortization and accretion                                                5,161                  356              4,690
        Provision for loan losses                                                59,992              111,213                  -
        Loss on sale of premises and equipment                                    4,057                    -                  -
        Change in deferred income taxes                                          36,000              (12,865)            (8,000)
        Changes in assets and liabilities:
          (Increase) decrease in accrued interest receivable                    167,667              (22,986)           (58,956)
          Increase in other assets                                              (60,611)             (24,825)           (62,406)
          Increase (decrease) in other liabilities                              (40,729)               4,103            (65,186)
                                                                        -----------------  -------------------  -----------------
            Cash provided by operating activities                               492,583              459,081            281,476
                                                                        -----------------  -------------------  -----------------

INVESTING ACTIVITIES
     Decrease (increase) in federal funds sold                                  907,000           (2,460,000)         5,310,000
     Proceeds from maturities of investment securities
        held to maturity                                                              -              300,000            204,000
     Proceeds from maturities of investment securities
        available for sale                                                    6,686,060              921,283          1,064,738
     Purchase of investment securities held to maturity                               -                    -           (471,370)
     Purchase of investment securities available for sale                    (9,642,485)            (300,000)        (2,000,000)
     Net (increase) decrease in loans                                        (1,406,085)              92,354           (335,004)
     Proceeds from sale of premises and equipment                                 7,384                    -                  -
     Purchases of premises and equipment                                       (270,372)             (21,680)           (85,666)
     Net decrease in foreclosed real estate                                           -                    -             67,669
                                                                        -----------------  -------------------  -----------------
            Cash provided by (used for) investing activities                 (3,718,498)          (1,468,043)         3,754,367
                                                                        -----------------  -------------------  -----------------

FINANCING ACTIVITIES
     Dividends paid                                                            (158,000)            (126,400)          (102,700)
     Increase (decrease) in deposits                                          2,609,031              815,610         (3,395,601)
                                                                        -----------------  -------------------  -----------------
            Cash provided by (used for) financing activities                  2,451,031              689,210         (3,498,301)
                                                                        -----------------  -------------------  -----------------

            Increase (decrease) in cash and due from banks                     (774,884)            (319,752)           537,542

CASH AND DUE FROM BANKS, BEGINNING OF YEAR                                    1,089,597            1,409,349            871,807
                                                                        -----------------  -------------------  -----------------

CASH AND DUE FROM BANKS, END OF YEAR                                        $   314,713         $  1,089,597       $  1,409,349
                                                                        =================  ===================  =================

SUPPLEMENTAL DISCLOSURES Cash paid for:
        Interest                                                            $   825,097          $   719,539        $   677,933
                                                                        =================  ===================  =================

        Income taxes                                                        $   175,967          $   129,320        $   290,915
                                                                        =================  ===================  =================

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

</TABLE>



                                      -25-
<PAGE>



                DARLINGTON COUNTY BANCSHARES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES

    PRINCIPLES OF CONSOLIDATION AND NATURE OF OPERATIONS
      Darlington County  Bancshares,  Inc. (the "Company") was organized in July
      1999 for the purpose of being the holding  company for  Darlington  County
      Bank  (the  "Bank").  On  July 1,  1999,  pursuant  to a Plan of  Exchange
      approved  by the  stockholders,  all of the  outstanding  shares of common
      stock of the  Bank  were  exchanged  for  shares  of  common  stock of the
      Company.  The Company  presently engages in no other business than that of
      owning the Bank,  has no employees  and operates as one business  segment.
      The Company is subject to regulation  by the Federal  Reserve  Board.  The
      consolidated  financial statements include the accounts of the Company and
      the Bank with all  intercompany  balances  and  transactions  having  been
      eliminated.

      The Bank operates under a state charter and provides full banking services
      to its customers.  The Bank is subject to regulation by the South Carolina
      State Board of Financial  Institutions  and the Federal Deposit  Insurance
      Corporation.  The Bank makes  commercial and personal loans to individuals
      and small  businesses  located  primarily in the South  Carolina  midlands
      region.  The Bank has a  diversified  loan  portfolio  and the  borrowers'
      ability to repay their loans is not dependent  upon any specific  economic
      sector.

    USE OF ESTIMATES IN FINANCIAL STATEMENT PREPARATION
      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  and disclosure of contingent
      assets  and  liabilities  as of the dates of the  balance  sheets  and the
      statements of income for the periods covered.  Actual results could differ
      from those estimates.

    CASH AND CASH EQUIVALENTS
      For purposes of the statement of cash flows, cash and cash equivalents are
      defined as those  amounts  included in the balance sheet caption "Cash and
      Due from Banks." Cash and cash  equivalents  have an original  maturity of
      three months or less.

    INVESTMENT SECURITIES
      The Bank accounts for investment  securities in accordance  with Statement
      of Financial Accounting Standards ("SFAS") No. 115 "Accounting for Certain
      Investments in Debt and Equity Securities." Debt securities are classified
      upon  purchase as available  for sale,  held to maturity or trading.  Such
      assets  classified  as  available  for sale  are  carried  at fair  value.
      Unrealized  gains or losses are reported as a component  of  stockholders'
      equity,  accumulated  other  comprehensive  loss,  net of deferred  income
      taxes.  Securities  classified  as held to  maturity  are carried at cost,
      adjusted for the  amortization of premiums and the accretion of discounts.
      In order to qualify as held to  maturity,  the Bank must have the  ability
      and intent to hold the  securities  to maturity.  Trading  securities  are
      carried  at market  value.  The Bank has no trading  securities.  Gains or
      losses on disposition  of securities  are based on the difference  between
      the net proceeds and the adjusted  carrying amount of the securities sold,
      using the specific identification method.

    LOANS
      Interest on loans is accrued into income  based upon the interest  method.
      Loan origination and commitment fees and direct loan origination costs are
      deferred and amortized over the  contractual  life of the related loans or
      commitments as an adjustment of the related loan yields.

                                                                     (Continued)


                                      -26-
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, CONTINUED

    ALLOWANCE FOR LOAN LOSSES
      The allowance for loan losses is based on management's  ongoing evaluation
      of the loan  portfolio  and  reflects  an  amount  that,  in  management's
      opinion,  is  adequate  to absorb  losses in the  existing  portfolio.  In
      evaluating the portfolio,  management  takes into  consideration  numerous
      factors,   including   current  economic   conditions,   prior  loan  loss
      experience,  the  composition  of the  loan  portfolio,  and  management's
      estimate of  anticipated  credit  losses.  Loans are  charged  against the
      allowance  at such time as they are  determined  to be losses.  Subsequent
      recoveries  are  credited  to  the  allowance.  Management  considers  the
      year-end  allowance  appropriate  and adequate to cover possible losses in
      the loan portfolio;  however, management's judgment is based upon a number
      of assumptions  about future events,  which are believed to be reasonable,
      but which may or may not prove valid. Thus, there can be no assurance that
      charge-offs  in future  periods  will not  exceed the  allowance  for loan
      losses or that additional  increases in the allowance for loan losses will
      not be  required.  Allowances  for loan  losses  are  subject to review by
      various regulatory authorities and may be subject to adjustment upon their
      examination.

    ACCOUNTING FOR IMPAIRED LOANS
      The Bank  accounts for  impaired  loans in  accordance  with SFAS No. 114,
      "Accounting by Creditors for Impairment of a Loan". This standard requires
      that all creditors  value loans at the loan's fair value if it is probable
      that the creditor  will be unable to collect all amounts due  according to
      the terms of the loan agreement.  Fair value may be determined  based upon
      the present  value of expected  cash flows,  market price of the loan,  if
      available, or value of the underlying collateral.  Expected cash flows are
      required to be discounted at the loan's effective  interest rate. SFAS No.
      114 was  amended  by SFAS No.  118 to  allow a  creditor  to use  existing
      methods  for  recognizing  interest  income  on an  impaired  loan  and by
      requiring additional  disclosures about how a creditor recognizes interest
      income  on an  impaired  loan.  When  the  ultimate  collectibility  of an
      impaired  loan's  principal  is in doubt,  wholly or  partially,  all cash
      receipts are applied to  principal.  When this doubt does not exist,  cash
      receipts are applied under the  contractual  terms of the loan  agreement.
      Once the recorded  principal balance has been reduced to zero, future cash
      receipts are applied to interest  income,  to the extent that any interest
      has been foregone. Further cash receipts are recorded as recoveries of any
      amounts previously charged off.

      A loan is also considered impaired if its terms are modified in a troubled
      debt  restructuring.  For these accruing impaired loans, cash receipts are
      typically applied to principal and interest  receivable in accordance with
      the terms of the restructured loan agreement.

    PREMISES AND EQUIPMENT
      Premises and  equipment are stated at cost less  accumulated  depreciation
      and  amortization.  Depreciation  and  amortization  are computed over the
      estimated  useful  lives of the  assets  using the  straight-line  method.
      Additions to premises and equipment and major replacements or improvements
      are capitalized at cost.  Maintenance,  repairs and minor replacements are
      expensed  when  incurred.  Gains and  losses on routine  dispositions  are
      reflected in current operations.

    NON-PERFORMING ASSETS
      Loans  are  placed  in a  non-accrual  status  when,  in  the  opinion  of
      management,   the  collection  of  additional  interest  is  questionable.
      Thereafter,  no interest is taken into income  unless  received in cash or
      until such time as the borrower  demonstrates the ability to pay principal
      and interest.

                                                                     (Continued)

                                      -27-
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, CONTINUED

    FORECLOSED REAL ESTATE
      Foreclosed  real estate is stated at the lower of cost or  estimated  fair
      value less estimated  costs to sell.  Any accrued  interest on the related
      loan at the date of acquisition  is charged to operations.  Costs relating
      to the  development  and  improvement  of property are  capitalized to the
      extent that such costs do not exceed the estimated fair value less selling
      costs of the property,  whereas those relating to holding the property are
      charged to expense.

    INCOME TAXES
      The Company accounts for income taxes under SFAS No. 109,  "Accounting for
      Income Taxes." Certain items of income and expense for financial reporting
      (principally  provision for loan losses and  depreciation)  are recognized
      differently  for income tax purposes.  Provisions  for deferred  taxes are
      made in recognition of such temporary differences.

    NET INCOME PER SHARE
      Net  income per share is  computed  on the basis of the  weighted  average
      number of common  shares  outstanding,  158,000  shares in 2001,  2000 and
      1999. The Company has no instruments which are dilutive;  therefore,  only
      basic net income per share of common stock is presented.

    RECENTLY ISSUED ACCOUNTING STANDARDS
      SFAS No. 140,  "Accounting for Transfers and Servicing of Financial Assets
      and Extinguishments of Liabilities -- a replacement of SFAS No. 125, " was
      issued in September  2000.  It revises the standards  for  accounting  for
      securitizations and other transfers of financial assets and collateral and
      requires  certain  disclosures  but will carry over most of SFAS No. 125's
      provisions  without  reconsideration.   SFAS  No.  140  is  effective  for
      transfers  and  servicing  of  financial  assets  and   extinguishment  of
      liabilities  occurring  after March 31, 2001.  This statement is effective
      for  recognition  and  reclassification  of collateral and for disclosures
      related to  securitization  transactions  and  collateral for fiscal years
      ending after December 15, 2000. The adoption of the provisions of SFAS No.
      140 in 2001 did not have any effect on the Company.

      In July 2001, the  Financial  Accounting  Standards  Board ("FASB") issued
      SFAS No. 141,  "Business  Combinations",  and SFAS No. 142,  "Goodwill and
      Other Intangible Assets." SFAS No. 141 requires that the  purchase  method
      of accounting be used for all business  combinations  initiated after June
      30, 2001. SFAS No. 141 also specifies criteria  intangible assets acquired
      in a purchase method  business  combination  must  meet  to be  recognized
      and reported apart from goodwill, noting that any purchase price allocable
      to an assembled  workforce may not be accounted for  separately.  SFAS No.
      142 will require  that  goodwill  and  intangible  assets  with indefinite
      useful lives no longer be amortized, but instead tested for  impairment at
      least annually in  accordance  with  the provisions  of SFAS No. 142.  The
      Company was required to adopt the provisions of  SFAS No.  141 immediately
      and must adopt SFAS No. 142 effective January 1, 2002. The adoption of the
      provisions of SFAS No. 141 in 2001 did not have any effect on the Company.
      The adoption of SFAS No. 142 is not  expected to  have any  effect  on the
      Company.

      In  August  2001,  the FASB  issued  SFAS  No.  144 -  Accounting  for the
      Impairment or Disposal of Long-Lived  Assets.  This SFAS supersedes  prior
      pronouncements  associated  with  impairment  or  disposal  of  long-lived
      assets.  The SFAS establishes  methodologies  for assessing  impairment of
      long-lived assets,  including assets to be disposed of by sale or by other
      means.  This statement is effective for all fiscal years  beginning  after
      December 15, 2001.  This SFAS is not expected to have a material impact on
      the Company's financial position.

                                                                     (Continued)
                                      -27-
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, CONTINUED

      On July 2, 2001,  The Securities  and Exchange  Commission  ("SEC") issued
      Staff  Accounting  Bulletin  ("SAB") No. 102 "Selected Loan Loss Allowance
      Methodology  and  Documentation  Issues".  SAB No. 102 expresses the SEC's
      views on the  development,  documentation  and application of a systematic
      methodology  for  determining  the  allowance for loan and lease losses in
      accordance with  accounting  principles  generally  accepted in the United
      States of America.  A concurrent  statement was also issued by the Federal
      Financial Institutions Examination Council ("FFIEC"). The Company believes
      that it is currently in compliance with the requirements of SAB No. 102.

    RECLASSIFICATIONS
      Certain  previously  reported amounts have been reclassified to conform to
      the current year  presentation.  Such changes had no effect on  previously
      reported net income or stockholders' equity.

    RISKS AND UNCERTAINTIES
      In  the  normal  course  of  its  business,  the  Company  encounters  two
      significant types of risk:  economic and regulatory.  There are three main
      components of economic  risk:  interest rate risk,  credit risk and market
      risk.  The Company is subject to interest rate risk to the degree that its
      interest-bearing  liabilities mature or reprice at different speeds, or on
      different bases, than its interest earning assets.

      Credit risk is the risk of default on the Company's  loan  portfolio  that
      results  from  the   borrowers'   inability  or   unwillingness   to  make
      contractually  required  payments.  Credit risk also applies to investment
      securities  should the issuer of the security be unable to make  principal
      and  interest  payments.  Market  risk  reflects  changes  in the value of
      collateral underlying loans receivable,  the valuation of real estate held
      by the Company and the valuation of investment securities.

      The Company is subject to the regulations of various government  agencies.
      These regulations can and do change  significantly  from period to period.
      The  Company  also  undergoes  periodic  examinations  by  the  regulatory
      agencies,  which may subject it to further  changes  with respect to asset
      valuations, amounts of required loss allowances and operating restrictions
      resulting from the regulators'  judgements based on information  available
      to them at the time of their examination.

      In preparing  the  financial  statements,  management  is required to make
      estimates and assumptions  that affect the reported  amounts of assets and
      liabilities and disclosures of contingent assets and liabilities as of the
      dates of the balance  sheets and  revenues  and  expenses  for the periods
      covered.  Actual results could differ  significantly  from those estimates
      and assumptions.



NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANKS

          The Bank is required to maintain  average  reserve  balances either at
the Bank or on deposit with the Federal  Reserve  Bank.  The average  amounts of
these  reserve  balances  for the years  ended  December  31, 2001 and 2000 were
approximately $259,000 and $245,000, respectively.



                                      -28-
<PAGE>

NOTE 3 - INVESTMENT SECURITIES

          The  amortized   cost  and   approximate   fair  value  of  investment
securities, including maturities, are summarized as follows at December 31:
<TABLE>
<CAPTION>

                                                                                         2001
                                                          -------------------------------------------------------------------
                                                                                   GROSS UNREALIZED
                                                             AMORTIZED      --------------------------------      FAIR
                                                                COST             GAINS           LOSSES           VALUE
                                                          ----------------- ---------------- --------------- ----------------

<S>                                                           <C>                <C>             <C>             <C>
AVAILABLE FOR SALE
   Federal Agencies
     One to five years                                        $  5,000,000       $    1,875      $   22,370      $ 4,979,505
                                                          ----------------- ---------------- --------------- ----------------

   Mortgage backed
     One to five years                                             659,746            6,765               -          666,511
     After ten years                                             2,010,885            5,599          24,274        1,992,210
                                                          ----------------- ---------------- --------------- ----------------

                                                                 2,670,631           12,364          24,274        2,658,721
                                                          ----------------- ---------------- --------------- ----------------

Total available for sale                                      $  7,670,631       $   14,239      $   46,644      $ 7,638,226
                                                          ================= ================ =============== ================

HELD TO MATURITY
   State, county and municipal
     Less than one year                                        $    75,360        $     773        $      -       $   76,133
     One to five years                                             168,924            5,535               -          174,459
     Five to ten years                                             473,520                -           7,387          466,133
                                                          ----------------- ---------------- --------------- ----------------

Total held to maturity                                         $   717,804       $    6,308      $    7,387       $  716,725
                                                          ================= ================ =============== ================



                                                                                         2000
                                                          -------------------------------------------------------------------
AVAILABLE FOR SALE
   Federal Agencies
     One to five years                                        $  3,800,000       $    1,031      $   42,562      $ 3,758,469
                                                          ----------------- ---------------- --------------- ----------------

   Mortgage backed
     Less than one year                                            178,029                -           1,544          176,485
     One to five years                                             667,836                -          12,646          655,190
     After ten years                                                71,033              619               -           71,652
                                                          ----------------- ---------------- --------------- ----------------

                                                                   916,898              619          14,190          903,327
                                                          ----------------- ---------------- --------------- ----------------

Total available for sale                                      $  4,716,898       $    1,650      $   56,752      $ 4,661,796
                                                          ================= ================ =============== ================

HELD TO MATURITY
   State, county and municipal
     One to five years                                         $   247,514       $    2,026        $      -       $  249,540
     Five to ten years                                             472,761                -           8,756          464,005
                                                          ----------------- ---------------- --------------- ----------------

Total held to maturity                                         $   720,275       $    2,026      $    8,756       $  713,545
                                                          ================= ================ =============== ================

</TABLE>


                                                                     (Continued)
                                      -29-
<PAGE>

NOTE 3 - INVESTMENT SECURITIES, (CONTINUED)

          For purposes of the maturity table,  mortgage-backed securities, which
are not due at a  single  maturity  date,  have  been  allocated  over  maturity
groupings  based on an  average  maturity  life  computation  of the  underlying
collateral. The mortgage-backed securities may mature earlier than their average
maturity lives because of principal prepayments.

          Investment   securities   with   an   aggregate   amortized   cost  of
approximately  $1,162,225  ($1,168,885  fair  value) at  December  31,  2001 and
$1,172,000  ($1,149,000 fair value) at December 31, 2000, were pledged to secure
public deposits and for other purposes.  Fair value of investment  securities is
determined using quoted market prices.

NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES

          Following is a summary of loans by major classification:
<TABLE>
<CAPTION>

                                                                                                   DECEMBER 31,
                                                                                       --------------------------------------
                                                                                              2001                2000
                                                                                       -------------------  -----------------

<S>                                                                                         <C>                 <C>
Real estate - mortgage                                                                      $   7,954,000       $  7,408,000
Real estate - construction                                                                        611,000            602,000
Commercial and industrial                                                                       3,477,000          3,467,000
Loans to individuals for household, family and other consumer expenditures                      4,090,000          3,469,000
Agriculture                                                                                       833,000            759,000
All other loans, including overdrafts                                                             629,083            604,946
Deferred loan origination costs                                                                    18,455             20,910
                                                                                       -------------------  -----------------

                                                                                            $  17,612,538       $ 16,330,856
                                                                                       ===================  =================
</TABLE>

           Changes in the  allowance  for loan losses are  summarized as follows
for the years ended December 31,:
<TABLE>
<CAPTION>

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

<S>                                                                  <C>                 <C>                   <C>
Balance, beginning of year                                           $   252,219         $   208,642           $    279,749
Recoveries of loans previously charged against
    the allowance                                                        118,465              17,666                 16,921

   The allowance

Provision for loan losses                                                 59,992             111,213                      -
Loans charged against the allowance                                     (242,868)            (85,302)               (88,028)
                                                                -------------------  -------------------  -------------------

Balance, end of year                                                 $   187,808         $   252,219           $    208,642
                                                                ===================  ===================  ===================
</TABLE>

               At  December  31,  2001  and  2000,   non-accrual  loans  totaled
approximately  $15,900 and $940,500,  respectively.  The gross  interest  income
which would have been recorded under the original terms of the non-accrual loans
amounted to $1,364 in 2001,  $174,341  in 2000 and $11,719 in 1999.  No interest
was recorded on nonaccrual loans in 2001, 2000 and 1999. As of December 31, 2001
the Bank had no impaired  loans.  As of December 31, 2000, the Bank had $183,000
of impaired loans.

                                      -30-
<PAGE>

NOTE 5 -  PREMISES AND EQUIPMENT

           Premises and equipment at December 31 is summarized as follows:
<TABLE>
<CAPTION>


                                                                                         2001               2000
                                                                                    ----------------   ---------------

<S>                                                                                     <C>                <C>
Land and buildings                                                                      $   965,625        $  964,580
Furniture, fixtures and equipment                                                           753,547           500,609
                                                                                    ----------------   ---------------

                                                                                          1,719,172         1,465,189
Less accumulated depreciation and amortization                                              655,788           590,138
                                                                                    ----------------   ---------------

                                                                                       $  1,063,384        $  875,051
                                                                                    ================   ===============
</TABLE>


           Depreciation and amortization of bank premises and equipment  charged
to operating  expense  totaled  $70,598 in 2001,  $60,889 in 2000 and $58,806 in
1999.



NOTE 6 - DEPOSITS

           At December 31, 2001 and 2000, certificates of deposit of $100,000 or
more totaled  approximately  $1,822,000 and $1,998,000,  respectively.  Interest
expense on these  deposits was $80,153 in 2001,  $105,302 in 2000 and $75,263 in
1999.

           At December 31, 2001,  the scheduled  maturities of  certificates  of
deposit are as follows:

                  2002                                          $ 9,251,483
                  2003                                              380,401
                  2004                                               67,507
                  2005                                                5,873
                                                           -----------------

                                                                $ 9,705,264
                                                           =================



NOTE 7 - UNUSED LINES OF CREDIT

           At  December  31,  2001,  the Bank has an unused  short-term  line of
credit to purchase  Federal funds from an unrelated  bank  totaling  $2,500,000.
This line of credit is  available  on a one to  fourteen  day basis for  general
corporate  purposes of the Bank.  The lender has  reserved the right to withdraw
this line at its option.






                                      -31-
<PAGE>

NOTE 8 - INCOME TAXES

           The following  summary of the provision for income taxes includes tax
deferrals  which arise from temporary  differences in the recognition of certain
items of revenue and expense for tax and  financial  reporting  purposes for the
years ended December 31,:
<TABLE>
<CAPTION>


                                                                      2001                  2000                1999
                                                                -------------------  -------------------  -------------------
<S>                                                                  <C>                  <C>                  <C>
Income taxes currently payable
    Federal                                                          $    63,400          $   119,460          $    183,000
    State                                                                  9,700               10,250                19,000
                                                                -------------------  -------------------  -------------------

                                                                          73,100              129,710               202,000
                                                                -------------------  -------------------  -------------------

Tax consequences of differences
    Loan losses                                                           13,448              (14,816)                    -
    Depreciation                                                           9,968               (1,344)                1,630
    Other                                                                 12,584                3,295                (9,630)
                                                                -------------------  -------------------  -------------------

                                                                          36,000              (12,865)               (8,000)
                                                                -------------------  -------------------  -------------------

      Provision                                                      $   109,100          $   116,845          $    194,000
                                                                ===================  ===================  ===================

</TABLE>

           The income tax effect of cumulative temporary differences at December
31, are as follows:
<TABLE>
<CAPTION>

                                                                                        DEFERRED TAX ASSET (LIABILITY)
                                                                                  --------------------------------------------
                                                                                         2001                    2000
                                                                                  --------------------    --------------------

<S>                                                                                      <C>                     <C>
Allowance for loan losses                                                                $    72,306             $    85,754
Accumulated depreciation                                                                     (44,473)                (34,505)
Unrealized loss on investment securities                                                      12,478                  18,734
Other, net                                                                                   (13,068)                   (375)
                                                                                  --------------------    --------------------

                                                                                         $    27,243             $    69,608
                                                                                  ====================    ====================
</TABLE>

           The net  deferred  tax asset is  reported  in the  category  of other
assets in the balance sheets at December 31, 2001 and 2000.

           The  provision for income taxes is reconciled to the amount of income
tax computed at the federal statutory rate on income before income taxes for the
years ended December 31, as follows:
<TABLE>
<CAPTION>

                                                      2001                          2000                          1999
                                           ----------------------------  ---------------------------  -----------------------------
                                              AMOUNT            %           AMOUNT           %            AMOUNT            %

<S>                                         <C>                 <C>       <C>                <C>        <C>                <C>
Tax expense at statutory rate               $  122,246          34.00%    $  156,414         34.0%      $  206,220         34.0%
Increase (decrease) in taxes resulting
from:
   Tax exempt interest                         (15,600)         (4.32)       (17,221)        (3.7)         (21,975)        (3.6)
   State bank tax (net of federal benefit)      10,000           2.77          9,201          2.0           11,400          1.9
   Other - net                                  (7,546)         (2.21)       (31,549)        (6.9)          (1,645)         (.3)
                                           --------------   -----------  --------------  -----------  ---------------  ------------

       Tax provision                        $  109,100          30.24%    $  116,845         25.4%      $  194,000         32.0%
                                           ==============   ===========  ==============  ===========  ===============  ============
</TABLE>


                                      -32-
<PAGE>

NOTE 9 - FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK
          The Bank is a party to financial  instruments  with off balance  sheet
risk in the  normal  course  of  business  to meet  the  financing  needs of its
customers.  These financial instruments include available credit on credit lines
and commitments to extend credit. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount  recognized in
the statements of financial position.  The contract amounts of these instruments
reflect  the  extent  of  involvement  the Bank  has in  particular  classes  of
financial  instruments.  The Bank  uses  the  same  credit  policies  in  making
commitments  and  conditional  obligations  as it  does  for  on  balance  sheet
instruments.
<TABLE>
<CAPTION>

                                                                                           CONTRACT
                                                                                            AMOUNT
                                                                                     ---------------------
     <S>                                                                                    <C>
     Financial  instruments  whose  contract  amounts  Represent  credit risk at
       December 31, 2001:

          Commitments to extend credit                                                      $   3,446,000
                                                                                     =====================
</TABLE>

          Of these  commitments  to extend  credit,  $2,991,000  are at variable
rates and $455,000 are at fixed rates.

          Commitments  to extend credit are  agreements to lend 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  Bank  evaluates  each  customer's
creditworthiness  on a case-by-case  basis. The amount of collateral obtained if
deemed  necessary by the Bank upon extension of credit is based on  management's
credit evaluation.

NOTE 10 - CARRYING AMOUNTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS

            SFAS  No.   107,   "Disclosures   about  Fair  Value  of   Financial
Instruments,"  requires  disclosure  of fair value  information,  whether or not
recognized  in the balance  sheets,  when it is  practical  to estimate the fair
value.  SFAS No. 107  defines a  financial  instrument  as cash,  evidence of an
ownership  interest in an entity,  or contractual  obligations which require the
exchange of cash or other financial instruments.  Certain items are specifically
excluded from the disclosure requirements, including the Company's common stock,
premises and equipment, accrued interest receivable and payable and other assets
and liabilities.

            For  cash  and  due  from  banks,  Federal  funds  sold,  and  other
investments, the carrying value is a reasonable estimate of fair value.

            For investment  securities  held to maturity and available for sale,
fair value is based on available  quoted  market  prices or quoted market prices
for similar securities if a quoted market price is not available.

            The fair value of loans is estimated  based upon  discounted  future
cash flows at the weighted average rates in the portfolio compared to discounted
future cash flows using discount rates comparable to rates currently offered for
such loans.

            The fair value of deposits is estimated by  discounting  the amounts
payable at the rates currently offered for deposits of similar account types.

                                                                     (Continued)
                                      -33-
<PAGE>

NOTE 10 - CARRYING AMOUNTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED

            The  carrying  amounts  and fair values of the  Company's  financial
instruments are as follows:
<TABLE>
<CAPTION>

                                                                                 DECEMBER 31,
                                                    -------------------------------------------------------------------------
                                                                  2001                                 2000
                                                    -----------------------------------  ------------------------------------
                                                      CARRYING                              CARRYING
                                                       AMOUNT           FAIR VALUE           AMOUNT           FAIR VALUE
                                                    ----------------   ----------------  -----------------  -----------------
<S>                                                    <C>                 <C>                <C>               <C>
Financial assets:
   Cash and due from banks                             $     314,713       $   314,713        $  1,089,597      $  1,089,597
   Federal funds sold                                      3,513,000         3,513,000           4,420,000         4,420,000
   Investment securities held to maturity                    717,804           716,725             720,275           713,545
   Investment securities available for sale                7,638,226         7,638,226           4,661,796         4,661,796
   Other investments                                          50,405            50,405              50,405            50,405
   Loans, gross                                           17,612,538        17,657,064          16,330,856        17,041,248

Financial liabilities:
   Deposits                                            $  27,359,112     $  27,444,529       $  24,750,081     $  23,722,953

</TABLE>

            The  Company  had   $3,446,000  of   off-balance   sheet   financial
commitments,  which are  commitments  to  originate  loans and  unused  lines of
credit.  Since these obligations are based on current market rates, the carrying
amount is considered to be a reasonable estimate of fair value.

            Fair value estimates are made at a specific point in time,  based on
relevant  market  information and  information  about the financial  instrument.
These  estimates  do not reflect any premium or discount  that could result from
offering  for sale the  Company's  entire  holdings  of a  particular  financial
instrument.  Because no active market  exists for a  significant  portion of the
Company's  financial  instruments,  fair value  estimates are based on judgments
regarding future expected loss experience,  current economic conditions, current
interest rates and prepayment trends, risk  characteristics of various financial
instruments  and other  factors.  These  estimates are  subjective in nature and
involve  uncertainties and matters of significant  judgment and therefore cannot
be  determined  with  precision.  Changes  in any of these  assumptions  used in
calculating fair value would also significantly  affect the estimates.  Further,
the fair value  estimates  were  calculated  as of  December  31, 2001 and 2000.
Changes in market interest rates and prepayment  assumptions could significantly
change  the fair  value.  Therefore,  management  believes  that  the  foregoing
information  is of limited  value and has no basis for  determining  whether the
fair value  presented would be indicative of the value which could be negotiated
during an actual sale.

            Fair value estimates are based on existing on and off-balance  sheet
financial  instruments  without  attempting to estimate the value of anticipated
future business and the value of assets and liabilities  that are not considered
financial  instruments.  For  example,  the Company has  significant  assets and
liabilities that are not considered  financial  assets or liabilities  including
deposit  franchise  value,  deferred tax assets and liabilities and premises and
equipment.  In addition, the tax ramifications related to the realization of the
unrealized  gains  and  losses  can  have a  significant  effect  on fair  value
estimates and have not been considered in any of these estimates.


NOTE 11 - RESTRICTIONS ON DIVIDENDS

            The ability of the Company to pay cash  dividends is dependent  upon
receiving  cash in the form of  dividends  from the  Bank.  Banking  regulations
restrict  the  amount  of  dividends  that can be paid by the  Bank and  require
approval of the State Board of Financial Institutions.

                                      -34-
<PAGE>

NOTE 12 - TRANSACTIONS WITH DIRECTORS, OFFICERS AND ASSOCIATES

            Directors and officers of the Company and associates of such persons
are customers of and had  transactions  with the Bank in the ordinary  course of
business.  Additional  transactions may be expected to take place in the future.
Also,  included in the loan  transactions are outstanding loans and commitments,
all of which  were  made on  comparable  terms,  including  interest  rates  and
collateral, as those prevailing at the time for other customers of the Bank, and
did not  involve  more than  normal  risk of  collectibility  or  present  other
unfavorable  features.  Total loans to all  officers  and  directors,  including
immediate  family and business  interests,  at December 31, 2001 and 2000,  were
$738,310 and $1,031,840,  respectively.  During 2001, $962,812 in new loans were
made to this group and  repayments  of  $1,256,342  were  received.  Deposits by
directors,  officers and their  related  interests,  as of December 31, 2001 and
2000, approximated $1,418,150 and $894,185, respectively.

NOTE 13 - RETIREMENT PLAN

            The Bank  sponsors  Simplified  Employee  Pension  (SEP)  individual
retirement  accounts  for all  officers and  employees  meeting  certain age and
service  requirements.  Contributions  are at the  discretion of and  determined
annually  by the Board of  Directors  and are not to exceed the  maximum  amount
deductible under the applicable  section of the Internal Revenue Code.  Included
in expenses are  contributions  to the  retirement  plan of $26,000, $19,191 and
$25,035 for the years ended December 31, 2001, 2000 and 1999, respectively.


NOTE 14 - REGULATORY MATTERS

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

            Quantitative  measures  established  by regulation to ensure capital
adequacy  require the Bank to maintain  minimum amounts and ratios (set forth in
the table  below) of total and Tier I capital to  risk-weighted  assets,  and of
Tier I capital to average assets.  Management believes, as of December 31, 2001,
that the Bank meets all capital adequacy requirements to which it is subject.

            As of December 31, 2001, the most recent  notification from the FDIC
categorized  the Bank as well  capitalized  under the  regulatory  framework for
prompt  corrective  action.  There  are  no  conditions  or  events  since  that
notification that management  believes have changed the institution's  category.
The Bank's actual capital amounts and ratios and minimum  regulatory amounts and
ratios are presented as follows:





                                      -35-
<PAGE>

NOTE 14 - REGULATORY MATTERS, (CONTINUED)
<TABLE>
<CAPTION>

                                                                                                              TO BE WELL
                                                                                                           CAPITALIZED UNDER
                                                                                  FOR CAPITAL              PROMPT CORRECTIVE
                                                                               ADEQUACY PURPOSES           ACTION PROVISIONS
                                                                          --------------------------- ---------------------------
                                                      ACTUAL                        MINIMUM                     MINIMUM
                                            ----------------------------  --------------------------- ---------------------------
                                                AMOUNT         RATIO        AMOUNT         RATIO         AMOUNT         RATIO
                                            --------------- ------------  ------------ -------------- -------------  ------------
<S>                                              <C>            <C>        <C>               <C>         <C>             <C>
AS OF DECEMBER 31, 2001
   Total capital (to risk weighted assets)       $   3,904      19.6%      $  1,592          8.0%        $  1,989        10.0%
   Tier 1 capital (to risk weighted assets)          3,716      18.7            796          4.0            1,194         6.0
   Tier 1 capital (to average assets)                3,716      11.6          1,286          4.0            1,608         5.0

AS OF DECEMBER 31, 2000
   Total capital (to risk weighted assets)       $   3,838      22.4%      $  1,370          8.0%        $  1,712        10.0%
   Tier 1 capital (to risk weighted assets)          3,624      21.2            685          4.0            1,027         6.0
   Tier 1 capital (to average assets)                3,624      12.5          1,155          4.0            1,444         5.0


</TABLE>

NOTE 15 - PARENT COMPANY FINANCIAL INFORMATION

     Following  is  condensed   financial   information  of  Darlington   County
Bancshares, Inc. (parent company only):

<TABLE>
<CAPTION>
                             CONDENSED BALANCE SHEET

                                                                                                  DECEMBER 31,
                                                                                    -----------------------------------------
                                                                                           2001                  2000
                                                                                    -------------------   -------------------
<S>                                                                                      <C>                    <C>
ASSETS
     Investment in Bank subsidiary                                                       $   3,694,387          $  3,586,957
                                                                                    ===================   ===================

LIABILITIES AND STOCKHOLDER'S EQUITY
     Stockholders' equity                                                                $   3,694,387          $  3,586,957
                                                                                    ===================   ===================

</TABLE>
<TABLE>
<CAPTION>

                          CONDENSED STATEMENT OF INCOME

                                                                                              FOR THE YEARS ENDED
                                                                                                  DECEMBER 31,
                                                                                    -----------------------------------------
                                                                                           2001                  2000
                                                                                    -------------------   -------------------
<S>                                                                                       <C>                    <C>
DIVIDEND FROM BANK SUBSIDIARY BEFORE EQUITY IN

     UNDISTRIBUTED NET INCOME OF BANK SUBSIDIARY                                          $    158,000           $   141,645

EQUITY IN UNDISTRIBUTED NET INCOME OF
     BANK SUBSIDIARY                                                                            92,448               201,551
                                                                                    -------------------   -------------------

         Net income                                                                       $    250,448           $   343,196
                                                                                    ===================   ===================

</TABLE>


                                                                     (Continued)
                                      -36-
<PAGE>

NOTE 15 - PARENT COMPANY FINANCIAL INFORMATION, (CONTINUED)

<TABLE>
<CAPTION>
                        CONDENSED STATEMENT OF CASH FLOWS

                                                                                              FOR THE YEARS ENDED
                                                                                                  DECEMBER 31,
                                                                                    -----------------------------------------
                                                                                           2001                  2000
                                                                                    -------------------   -------------------
<S>                                                                                      <C>                    <C>
OPERATING ACTIVITIES
     Net income                                                                          $    250,448           $   343,196
     Adjustments to reconcile net income to net cash
         provided by operating activities
        Equity in undistributed net income of Bank subsidiary                                 (92,448)             (201,551)
        Decrease in due to Bank subsidiary                                                          -               (15,245)
                                                                                    -------------------   -------------------

         Net cash provided by operating activities                                            158,000               126,400

FINANCING ACTIVITY
     Dividends paid                                                                          (158,000)             (126,400)

CASH AND DUE FROM BANKS, BEGINNING OF YEAR                                                          -                     -
                                                                                    -------------------   -------------------

CASH AND DUE FROM BANKS, END OF YEAR                                                       $        -             $       -
                                                                                    ===================   ===================


</TABLE>












                                      -37-
<PAGE>

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTS AND FINANCIAL
         DISCLOSURE

There have been no changes in or  disagreements  with  accountants on accounting
and financial disclosure.


ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS COMPLIANCE
         WITH SECTION 16(a) OF THE EXCHANGE ACT

See Election of Directors,  Executive Officers, Business Experience of Directors
and  Executive  Officers,  and  Section  16(a)  Beneficial  Ownership  Reporting
Compliance  in the  Registrant's  Proxy  Statement  relating  to the 2002 Annual
Meeting of Shareholders filed with the Securities and Exchange Commission, which
information is incorporated herein by reference.

ITEM 10. EXECUTIVE COMPENSATION

See  Compensation  of Directors  and Executive  Officers and Board  Compensation
Committee Report on Executive  Compensation in the Registrant's  Proxy Statement
relating to the 2002 Annual  Meeting of  Shareholders  filed with the Securities
and Exchange Commission, which information is incorporated herein by reference.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

See  Security  Ownership  of Certain  Beneficial  Owners and  Management  in the
Registrant's Proxy Statement relating to the 2002 Annual Meeting of Shareholders
filed  with  the  Securities  and  Exchange  Commission,  which  information  is
incorporated herein by reference.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

See Certain  Relationships  and Related  Transactions in the Registrant's  Proxy
Statement  relating to the 2002 Annual  Meeting of  Shareholders  filed with the
Securities and Exchange Commission,  which information is incorporated herein by
reference.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)       Exhibits

               None

(b)       Reports

               None

                                      -38-
<PAGE>

SIGNATURES

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


              Darlington County Bancshares, Inc.
              ----------------------------------
                      Name of Bank



By:  /s/  W.B. McCOWN, III                           Date:
     ----------------------------------------
     W. B. McCown, III, President and
     Chief Executive Officer
    (Principal Executive Officer)



By: /s/ ALBERT L. JAMES, III                         Date:
    ------------------------------------------
    Albert L. James, III, Secretary and Treasurer
    (Principal Financial Officer)


SIGNATURES

In  accordance  with the Exchange  Act, this report has been signed below by the
following persons on behalf of the registrant in the capacities and on the dates
indicated.

<TABLE>
<CAPTION>

                  Signature                                              Title                       Date
<S>                                                               <C>                           <C>

/s/ R. E. Goodson, Sr.
--------------------------------------------                      Chairman of the Board         March 29, 2002
R. E. Goodson, Sr.

/s/ Hubert C. Baker
--------------------------------------------                      Director                      March 29, 2002
Hubert C. Baker

/s/ W. Edwin Dargan
-------------------------------------------                       Director                      March 29, 2002
W. Edwin Dargan

/s/ Raymond Galloway
-------------------------------------------                       Director                      March 29, 2002
Raymond Galloway

/s/ Charles G. Howard
-------------------------------------------                       Director                      March 29, 2002
Charles G. Howard

/s/ Albert L. James, III
-------------------------------------------                       Director                      March 29, 2002
Albert L. James, III

/s/ G. Clyde Scott
-------------------------------------------                       Director                      March 29, 2002
G. Clyde Scott

/s/ Eugene A. Vaughn
-------------------------------------------                       Director                      March 29, 2002
Eugene A. Vaughn

/s/ W. B. McCown, III
-------------------------------------------                       President and Chief           March 29, 2002
W. B. McCown, III                                                   Executive Officer

</TABLE>


                                      -39-