<PAGE>

                      SOUTHERN BANCSHARES (N.C.), INC.

                           1997 ANNUAL REPORT

                           MISSION STATEMENT

The  mission  of  our  Company  is  to  provide  quality  financial services to
individuals  and  small  businesses  in our defined trade areas at a reasonable
profit  while  at  all  times  maintaining  high quality assets, high levels of
liquidity, reasonable  capital, and  a  well  trained staff that is willing and
eager to fulfill this mission.



THIS REPORT HAS NOT BEEN REVIEWED OR CONFIRMED FOR ACCURACY OR RELEVANCE BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION.

<PAGE>

Chairman's Letter______________________________________________________________

March 20, 1998

     For  Southern  BancShares, 1997  was a year of major accomplishments. Your
Company  made significant strides in technology, customer service, and lending.
Net  income increased $2.2 million, or 50 percent, from $4.4 million in 1996 to
$6.6  million in 1997. This increase was principally the result of gains on the
sale of available-for-sale securities and a reduction in income taxes resulting
from  the  donation  of  available-for-sale securities.  Total deposits of your
Company  at December 31, 1997, totaled $513 million compared to $481 million at
year-end  1996, a  7  percent increase. Total loans of your Company at December
31, 1997, totaled  $349 million compared to $318 million at year-end 1996, a 10
percent  increase.  Total  consolidated  assets of your Company at December 31,
1997, totaled  $591  million  compared  to  $541  million at year-end 1996, a 9
percent increase.

     Net  interest  income  increased  5 percent during 1997, while noninterest
expenses  increased  27 percent.  To  a  large  extent, we credit balance sheet
growth  for  the  increase  in  net  interest  income, while higher acquisition
related  personnel  and  operating costs and additional funding of a charitable
foundation  caused  most  of  the  increase  in  noninterest expenses. The 1997
personnel  expenses  include  a full year of expenses for one acquired location
each  in June and August of 1996, a partial year of expenses for three branches
acquired in May 1997 and one new branch opened in August 1997.

     Charitable  contribution expenses increased $3.5 million in 1997. In 1996,
BancShares initially funded a foundation to support charitable organizations by
donating  securities  which resulted in a $0.5 million contribution expense and
$0.5  million  gain  on  investments.  In  1997, BancShares provided additional
funding  to  the  foundation  by the donation of securities resulting in a $4.1
million  contribution  expense.   The  donation  and  the  sale  of  securities
available-for-sale resulted in $5.6 million of investment gains.

     These  overall  results  are  particularly  gratifying  because  they were
accomplished  in  a  year during which your Company made important progress and
investments  in  new product delivery systems, continued staff training, branch
acquisitions and new branches as discussed below.

Acquisitions

     During  1997,  your  Company  entered  into  strategic  acquisitions  that
improved  its  position  in  several  North  Carolina  markets and expanded its
services  to  customers  in  new North Carolina markets. The acquisition of the
Aulander, Aurora  and  Hamilton  offices of  Wachovia  Bank in May allowed your
Company  to  expand  its presence in the existing Aurora market and allowed the
Company to enter the new markets of Aulander and Hamilton. In 1997 your Company
also opened a second location in Rocky Mount.

     An  agreement  has  been  entered  into  to purchase the Enfield branch of
Enfield  Savings  Bank.  This  transaction, subject  to regulatory approval, is
expected  to be completed in the second quarter of 1998 and should result in an
increase  in  total  deposits  of approximately $21 million in a new market for
your  Company.  As  of  March 20, 1998 your  Company had 42 branches serving 39
North Carolina communities.

Product Delivery Systems

     As  your  Company  expanded  its geographic presence, it also continued to
improve the efficiency of its product delivery systems to meet the needs of all
of  its customers.  The Company began offering personal computer banking to its
customers in 1997 and established an internet web-site containing bank history,
product  and  service information, banking locations and E-mail capabilities at
www.southernbank.com.  During  1997, construction of new main offices in Warsaw
and  Windsor  were completed and the Automated Teller Machine (ATM) network was
expanded to provide 24 hour service to a total of 19 communities.

The Year Ahead

     I  believe  that  the North Carolina economy in general should continue to
outpace  most  of  the  nation in 1998 and that the economic base of the market
service area of your Company will continue to support economic growth.

     The  management  of your Company understands that, in order to be the best
bank  for  our customers in our market service areas, we must put our customers
needs  first  in  each  of the products, policies and procedures under which we
operate.

     Your  Company  believes  that its investments in quality personnel, modern
technology, extensive  education, expansion  of  its  service  market areas and
improvements in customer product delivery systems will help it realize its goal
of being the first choice in its markets for all financial services.

     I am pleased with the overall results accomplished in 1997 and I thank our
shareholders, staff, customers  and friends for their confidence in, loyalty to
and support of Southern Bank and Trust Company.

Sincerely,



R. S. Williams
Chairman of the Board
                                      2
<PAGE>

BUSINESS:

     Southern  BancShares  (N.C.), Inc., a  Delaware  corporation (hereinafter,
with  all  of its subsidiaries, referred to as "BancShares"), is a bank holding
company  pursuant to the provisions of the Bank Holding Company Act of 1956, as
amended.  BancShares  is  the  successor to Southern BancShares (N.C.), Inc., a
North  Carolina  corporation  ("SBS")  which  was  formed in 1982 to become the
parent  company  of Southern Bank and Trust Company ("Southern"), its principal
operating subsidiary, which it acquired in late 1982.  BancShares was formed in
1986  in order to effect the reincorporation in Delaware of the holding company
of  Southern  by  the  merger  of  SBS  into BancShares, which was effective on
December  28, 1986.  All  significant  activities  of  the  Registrant  and its
subsidiary  are  banking  related  so  that  the Registrant operates within one
industry  segment.  Neither  BancShares  nor  its  subsidiary  has  any foreign
operations, nor  does  either  company  operate  in the international financing
market.

     Southern conducts a general banking business designed to meet the needs of
the people of its market area.  These services, all of which are offered at its
42  offices, include, among  other  items:  taking deposits; cashing checks and
providing  for  individual  and  commercial  cash needs; and providing numerous
checking  and  savings  plans, including  automatic  transfer  services, direct
deposit, and banking by mail.

     Southern also makes commercial, consumer and mortgage loans at its 31 full
service  offices  and  provides  individual  retirement  account  service, safe
deposit  box  rental, travelers' check  service, and MasterCard and Visa credit
card programs.

     Southern has twenty automatic teller machines; one each in Ahoskie, Ayden,
Belhaven,  Bethel,  Edenton,  Farmville,  LaGrange, Mount  Olive, Murfreesboro,
Nashville,  Plymouth,  Roanoke  Rapids,  Warsaw, Whitakers  and  Windsor, North
Carolina  and  two  in  Kill Devil Hills, North Carolina and Rocky Mount, North
Carolina. Southern has one satellite automatic teller machine at Duplin General
Hospital in Kenansville, North Carolina.

     Southern  has a wholly-owned subsidiary: Goshen, Inc., which acts as agent
for  credit life and credit accident and health insurance written in connection
with loans made by Southern Bank.


FORM 10-K

     BancShares'  Annual  Report  on  Form 10-K is available on the internet at
htpp://www.sec.gov/cgi-bin/srch-edgar  or  a  copy  is available by providing a
written  request to David A. Bean, Secretary, Southern BancShares (N.C.), Inc.,
Post  Office  Box  729, Mount  Olive, North  Carolina  28365-0729.  A  copy  of
BancShares' Annual Report on Form 10-K for 1997, including Financial Statements
and Schedules thereto will be provided without charge to any shareholder making
such request.
                                      3
<PAGE>

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

INTRODUCTION

    This discussion provides information concerning changes in the consolidated
financial  condition  and  results of operations of Southern BancShares (N.C.),
Inc. ("BancShares")  and  its  subsidiary,  Southern  Bank  and  Trust  Company
("Southern"), for 1997, 1996 and 1995.  The comments are intended to supplement
and   should  be  reviewed  in  conjunction  with  the  consolidated  financial
statements, related  notes  and  selected  financial  data  presented elsewhere
herein.

<TABLE>
<CAPTION>

Table 1
Five-Year Financial Summary, Selected Balances and Ratios
(Dollars in thousands, except share data and ratios)

                                                                             December 31,
                                                        _____________________________________________________
                                                        1997         1996        1995        1994        1993
                                                        ____         ____        ____        ____        ____
<S>                                                   <C>         <C>          <C>         <C>         <C>
Summary of Operations

Interest income                                    $   39,055       36,776      32,894      27,164      22,418
Interest expense                                       18,827       17,450      16,055      11,044       8,803
                                                       ______       ______      ______      ______      ______
Net interest income                                    20,228       19,326      16,839      16,120      13,615
Provision for loan losses                                  60          140         -           -           300
Net interest income                                    ______       ______      ______      ______      ______
    after provision for loan losses                    20,168       19,186      16,839      16,120      13,315
Noninterest income                                      9,849        4,508       4,028       2,888       3,197
Noninterest expense                                    23,064       18,203      15,661      13,918      10,978
                                                       ______       ______      ______      ______      ______
Income before income taxes                              6,953        5,491       5,206       5,090       5,534
Income taxes                                              340        1,127       1,293       1,402       1,741
                                                       ______       ______      ______      ______      ______
Net income                                          $   6,613        4,364       3,913       3,688       3,793
                                                       ======       ======      ======      ======      ======
Selected Year-End Balances

Total assets                                        $ 590,752     540,758     496,980     408,035      411,604
Investment securities and federal funds sold          190,373     179,709     164,526     123,852      145,732
Loans                                                 349,353     317,755     287,960     252,611      236,732
Interest earning assets                               544,926     499,164     452,486     376,463      382,464
Deposits                                              513,328     480,566     449,002     367,522      375,061
Interest bearing liabilities                          458,339     422,941     396,631     326,442      338,515
Shareholders' equity                                   54,984      44,778      37,163      30,965       24,650
Common shares outstanding                             119,918     119,918     119,918     121,767      130,031

Selected Average Balances

Total assets                                         $567,236     519,541     456,499     407,554      326,232
Investment securities and federal funds sold          162,936     157,779     145,417     131,923      114,321
Loans                                                 340,195     310,389     270,563     242,217      191,360
Interest earning assets                               507,971     469,792     415,980     374,140      305,681
Deposits                                              498,303     459,552     407,252     367,618      294,264
Interest bearing liabilities                          445,354     411,960     366,597     331,104      263,097
Shareholders' equity                                   45,703      40,234      34,657      28,445       23,126
Common shares outstanding                             119,918     119,918     121,226     123,521      130,312

Profitability Ratios (averages)
Return on average total assets                         1.17%         0.84        0.86        0.90         1.16
Return on average shareholders' equity                14.47         10.85       11.29       12.97        16.40
Dividend payout ratio (1)                              8.85         13.45       13.57       12.80        11.65

Liquidity and Capital Ratios (averages)
Loans to deposits                                     68.27%        67.54       66.44       65.89        65.03
Shareholders' equity to total assets                   8.06          7.74        7.59        6.98         7.09

Per share of common stock
Net income (2)                                       $51.77         33.00       28.90       27.04        26.72
Cash dividends                                         1.50          1.50        1.00        1.00         1.00
Book value (3)                                       458.51        373.41      309.90      254.30       189.57

(1)  Total  common  and  preferred  dividends  paid  for  the  year  ended  December  31  divided by net income for the year ended
     December 31.

(2)  Net  income  less  preferred  dividends  paid  for  the year ended December 31 divided by the average number of common shares
     outstanding  for  the  year  ended December 31.  BancShares adoption of Statement 128, "Earnings per Share," had no effect on
     its earnings per share disclosure since BancShares has no dilutive securities.

(3)  Shareholders' equity at December 31 divided by the number of common shares outstanding at December 31.

                                      4
</TABLE>
<PAGE>

                                 ACQUISITIONS

    In  May  1997 BancShares acquired the Aulander, North Carolina, the Aurora,
North  Carolina  and  the  Hamilton, North Carolina offices of Wachovia Bank of
North  Carolina, N.A.  These acquisitions were accounted for as purchases, and,
therefore, the  results  of  operations  prior  to  purchase  of  the financial
institutions  are  not  included in the consolidated financial statements.  The
acquisitions were as follows:

<TABLE>
<CAPTION>

Table 2
Branch Transactions                                            Transaction     Loans     Deposits
(dollars in thousands)                                            Date        Acquired   Acquired
                                                               ___________    ________   ________
<S>                                                             <C>           <C>         <C>
Wachovia  Bank of North Carolina, N.A. - Aulander, NC            May 1997      $  180      $5,117

Wachovia  Bank of North Carolina, N. A. - Aurora, NC             May 1997         852      11,838

Wachovia  Bank of North Carolina, N. A. - Hamilton, NC           May 1997         412       4,106
                                                                               ______     _______
        1997 acquisition totals                                                $1,444     $21,061
                                                                               ======     =======

      In  June  1996  BancShares acquired the Windsor, North Carolina office of
First-Citizens  Bank  &  Trust  Company  and  sold  its Scotland Neck office to
Triangle  Bank.  In August 1996 BancShares acquired the Edenton, North Carolina
office  of  United  Carolina  Bank.  These  acquisitions  were accounted for as
purchases, so  the results of operations prior to the purchase of the financial
institutions  are  not  included in the consolidated financial statements.  The
1996 acquisitions and divestitures were as follows:

Branch Transactions                                                            Loans       Deposits
(dollars in thousands)                                        Transaction     Acquired     Acquired
                                                                 Date          (Sold)       (Sold)
                                                              ___________     ________     ________
First Citizens Bank & Trust - Windsor, NC                     June 1996         $   83       $7,348

Triangle Bank  - Scotland Neck, NC                            June 1996            (42)      (4,037)

United Carolina Bank  - Edenton, NC                         August 1996          5,304        6,085
                                                                                ______       ______
     Net 1996 acquisition totals                                                $5,345       $9,396
                                                                                ======       ======
</TABLE>

RESULTS OF OPERATIONS

Earnings

    For  1997 net income of $6.6 million represented a 50 percent increase from
1996  net  income  of  $4.4 million. Net income for 1995 was $3.9 million.  The
increase  in 1997 net income was principally the result of gains on the sale of
available-for-sale  securities  and  a reduction in income taxes resulting from
the   donation  of  available-for-sale  securities.  Excluding  the  impact  of
securities  gains  and  charitable  contributions, income  before  income taxes
decreased by approximately $158 thousand between 1996 and 1997, principally due
to increased costs associated with expansion in existing and new markets.

     The  increase  in  1996 net income was principally the result of increased
net  interest  income  resulting  from  the  1996 full year impact of June 1995
acquisitions.  Net income per average share of common stock increased to $51.77
in 1997, from $33.00 in 1996, due to increased earnings. Net income per average
share  of  common stock increased to $33.00 in 1996, from $28.90 in 1995 due to
increased earnings and a decrease in the average shares outstanding for 1996.

Net Interest Income

     The  greatest portion of BancShares' earnings is from net interest income,
which  is the difference between interest income on interest earning assets and
interest paid on deposits and other interest bearing liabilities.  The  primary
factors   affecting   net  interest  income  are  changes  in  the  volume  and
yields/rates  on  earning  assets  and  interest  bearing  liabilities, and the
ability  to  respond  to  changes  in  interest  rates  through asset/liability
management.  In 1997 net interest income was $20.2 million as compared to $19.3
million in 1996, an increase of $0.9 million or 5 percent. In 1996 net interest

                                      5
<PAGE>

income  was  $19.3 million as compared to $16.8 million in 1995, an increase of
$2.5  million  or  15 percent.  The 1997 increase was primarily attributable to
increased  loan  revenue  from  a  10 percent increase in average loan balances
outstanding  from  $310  million  in  1996 to $340 million in 1997.  The yields
received  on average loans for 1997 decreased to 8.59 percent from 8.66 percent
for  1996.  The  rates  paid  on interest bearing liabilities decreased 1 basis
point during 1997 and the average interest bearing deposits increased 8 percent
between  1996  and  1997  resulting  in an 8 percent increase in total interest
expense.

     The  1996  increase  was  primarily attributable to increased loan revenue
from  a  14  percent  increase  in  average loan balances outstanding from $271
million  in 1995 to $310 million in 1996.  The yields received on average loans
for  1996 decreased to 8.66 percent from 9.00 percent for 1995.  The rates paid
on  interest  bearing liabilities decreased 14 basis points during 1996 and the
average  interest  bearing  deposits increased 12 percent between 1995 and 1996
resulting in a 9 percent increase in  total interest expense.

     Loans  produced  the  largest  component  of interest income, amounting to
$29.2  million  in 1997, $26.9 million in 1996 and $24.3 million in 1995.  This
represented  an  increase in 1997 of 9 percent. For the year ended December 31,
1996, interest income on loans increased 10 percent.  During 1997 average loans
outstanding  increased  $30  million  or 10 percent.  This average increase was
primarily  due  to loan growth in the existing branch network and the impact of
the  1997  branch  acquisitions  as  set forth in Table 2. The 1996 increase in
interest income was primarily due to loan growth in the existing branch network
and  the  impact  of the 1996 branch acquisitions discussed above. In 1997, the
average  yield  on  loans  decreased to 8.59 percent from 8.66 percent in 1996.
This  decrease resulted from overall lower market interest rates during most of
1997. The 1995 average yield was 9.00 percent.

     Earnings  from  investments and federal funds sold provided the balance of
interest  income, contributing $9.8 million in 1997,  $9.9 million in 1996, and
$8.6  million in 1995.  In 1997, BancShares realized lower yields on investment
securities  and  federal  funds sold and maintained larger average balances for
each   period.  In  1996,  BancShares  realized  higher  yields  on  investment
securities  and  federal  funds  sold  and  larger  average  balances.  Average
investment  securities  and  federal  funds  sold  was $163 million in 1997, an
increase  from  $158 million in 1996. The 1997 average increase was principally
the result of the acquisitions made in May 1997.

     Total  1997  interest  expense  for  BancShares  increased 8 percent after
increasing  in  1996  by  9  percent.  The  principal  component of BancShares'
interest  expense, interest  paid  on  deposits, totaled $18.2 million in 1997,
$16.9  million  in  1996  and  $15.4 million in 1995.  BancShares' deposit base
increased  7  percent  in 1997, primarily as a result of the 1997 acquisitions.
The  cost  of  interest  bearing deposits also increased in 1997 primarily as a
result  of  the  1997  acquisitions.  The  cost  of  interest  bearing deposits
increased  in  1996 principally as a result of deposit growth within the branch
network  excluding  the 1996 acquisitions.  The average effective rates paid on
interest bearing liabilities were 4.23 percent, 4.24  percent, and 4.38 percent
in  1997, 1996, and  1995  respectively.  During 1993, BancShares borrowed $5.5
million to purchase a savings bank.  During 1997, BancShares utilized long term
borrowings  to  provide a $5.0 million injection of capital into its subsidiary
and  to  refinance the remaining balance of the 1993 borrowings.  The 1993 debt
was  being repaid at $100 thousand per month plus interest.  These debts are to
be  repaid at $450 thousand per quarter plus interest.  Interest on these debts
was $295 thousand in 1997, $117 thousand in 1996 and $309 thousand in 1995. The
outstanding debt at December 31, 1997 was $4.8 million.

     BancShares' interest  rate  spread was 3.60 percent, 3.75 percent and 3.63
percent  on  a  tax  equivalent  basis  in  1997, 1996  and 1995, respectively.
BancShares' ability  to maintain a favorable spread between interest income and
interest  expense  is  a  major factor in generating earnings; therefore, it is
necessary   to   effectively   manage   earning  assets  and  interest  bearing
liabilities.

Noninterest Income

     Noninterest  income  which consists primarily of securities gains, service
charges, commissions, fees  and gains on sales of loans, increased $5.3 million
in  1997.  Total  noninterest  income  was $9.8 million in 1997, as compared to
$4.5  million  in  1996 and $4.0 million in 1995.  Total noninterest income for
1997  includes  securities  gains  of  $5.6 million related to the funding of a
charitable   foundation   by  the  contribution  of  available-for-sale  equity
securities  and  the sale of available-for-sale securities.  Service charges on
deposit  accounts  increased  $254  thousand, or  9  percent, in  1997  to $2.9
million, from  $2.7  million in 1996.  This increase was primarily attributable
to  the full year impact of the accounts subject to service charges acquired in
June  and  August  1996  and  the May acquisitions of 1997.  Service charges on
deposit accounts increased $317 thousand, or 14%, in 1996, from $2.3 million in
1995 to $2.7 million for 1996.  This increase was primarily attributable to the
full  year  impact  of the accounts subject to service charges acquired in June
1995 and the June and August acquisitions of 1996.

     BancShares  had  an  increase in 1997 in other service charges and fees of
$88  thousand.  BancShares had an increase in 1996 in other service charges and
fees of $135 thousand.

     During  1997, the remaining noninterest income decreased $0.1 million from
$0.6  million  in  1996  to  $0.5  million in 1997. This decrease was primarily
attributable  to  a  gain  of  $213  thousand  on the sale of a branch in 1996.
During  1996, the remaining noninterest income decreased $0.4 million from $1.0
million  in  1995  to  $0.6  million  in  1996.  This  decrease  was  primarily
attributable  to a favorable one time $410 thousand settlement of a law suit in
1995.
                                      6
<PAGE>

Noninterest expense

     Noninterest  expense  includes  personnel, intangibles  amortization, data
processing,  occupancy,  furniture  and  equipment, Federal  Deposit  Insurance
Corporation  ("FDIC")  assessments, printing, supplies, legal  and professional
fees, postage  and other miscellaneous operating expenses.  Noninterest expense
was  $23.1  million in 1997 compared to $18.2 million in 1996 and $15.7 million
in  1995.  In 1997 BancShares recorded $4.1 million of charitable contributions
expense  related  to  the  funding  of  a  charitable  foundation.  Control  of
noninterest  expense  is an important aspect in managing net income.  The 1995,
1996  and  1997  acquisitions  should  enhance  the future operating results of
BancShares.  However, for  the following ten years, earnings will be reduced as
BancShares amortizes intangibles resulting from assets acquired.

     The  most  significant  element  of  BancShares'  noninterest  expense  is
personnel costs.  In  1997, salaries  and benefits represented $8.8 million, or
38  percent, of total noninterest expense.  The personnel costs of 1997 include
the impact of a full year of the costs related to the acquisitions made in June
and  August  1996  and a partial year of costs for the acquisitions made in May
1997.  In  1996, salaries and benefits represented $8.0 million, or 44 percent,
of  total  noninterest expense.  The personnel costs of 1996 include the impact
of a full year of the costs related to the acquisitions made in June 1995 and a
partial  year  of costs for the acquisitions made in June and August, 1996.  In
1995, salaries  and  benefits represented $6.9 million, or 44 percent, of total
noninterest expense.  The personnel costs of 1995 included the impact of a full
year  of the costs related to the acquisitions made in the last quarter of 1994
and the partial year costs for the acquisitions made in June, 1995.

     The   1997  noninterest  expense,  other  than  personnel  and  charitable
contributions, was  $10.2  million, an  increase of $0.6 million, or 6 percent,
from  $9.6  million in 1996.  Occupancy expenses increased from $0.9 million in
1995  to  $1.2  million in 1996 to $1.4 million in 1997.  These increases of 33
percent  and 17 percent, respectively, are principally the result of additional
expenditures  incurred as a result of the 1995, 1996 and 1997 acquisitions, the
replacements  of  aging  branch  facilities  and  the  1997 opening of a second
location  in  Rocky  Mount, North  Carolina.  Furniture  and  fixture  expenses
increased from $1.1 million in 1995 to $1.3 million in 1996 and to $1.6 million
in  1997.  These  increases of 18 percent and 23 percent, respectively, reflect
the  additional  equipment expenses incurred as a result of the acquisitions in
1995, 1996 and 1997 and the opening of the second Rocky Mount branch in 1997.

     Data  processing  costs  represent  charges  by  vendors that perform data
processing  services  for  Southern.  Southern  has  contracts  with  four such
companies.  Data  processing  fees  are  primarily  based  upon per item or per
account  charges.  Data processing costs in 1997 were $1.6 million, an increase
of  14  percent, over  1996  data  processing  expenses  of $1.4 million.  This
increase  was the result of the 1996 and 1997 acquisitions and volume increases
in  the  existing  branch  system.  Data  processing  costs  in  1996 were $1.4
million, an  increase  of 8 percent, over 1995 data processing expenses of $1.3
million.  This  increase  was  the result of the 1995 and 1996 acquisitions and
volume increases in the existing branch system.

     Intangibles  amortization  in 1997 was $1.8 million, a 13 percent increase
over  the  1996 intangibles amortization.  Intangibles amortization in 1996 was
$1.6  million, a  14 percent increase over the 1995 intangibles amortization of
$1.4 million. The 1997 amortization included a full year's amortization for the
1996  acquisitions  and partial year amortizations for the acquisitions made in
May 1997.  The  1996  amortization  included a full year's amortization for the
1995  acquisitions  and partial year amortizations for the acquisitions made in
June   and   August   1996.  The  1995  amortization  included  a  full  year's
amortization  for  the 1994 acquisitions and partial year amortizations for the
acquisitions made in June 1995.

     Southern  has  deposits  insured under both of the FDIC's insurance funds,
the  Bank  Insurance  Fund  ("BIF")  and the Savings Association Insurance Fund
("SAIF").  In July 1995, the FDIC and other regulatory agencies proposed a plan
to  recapitalize  the SAIF, and Congress mandated a one-time assessment for all
SAIF  insured  deposits  on  September 30, 1996.  Congress required that 80% of
Southern's  SAIF insured deposits as reported on Southern's March 31, 1995 call
report  and 100% of SAIF insured deposits purchased by Southern after March 31,
1995  be  assessed  at  .657  percent.  On  September  30,  1996  Southern  had
approximately  $87  million of SAIF-insured deposits based on the above formula
and  recorded  a  $569  thousand  charge to earnings on September 30, 1996 as a
one-time FDIC SAIF insurance expense.  The decrease in 1997 and the increase in
1996 FDIC assessment expenses of $660 thousand and $121 thousand, respectively,
for  FDIC  premiums, resulted  primarily  from  the  1996  one-time  assessment
discussed  above  and  the 1995 reduction in deposit premiums for Bank deposits
for  all  Banks  combined  with the full year assessment for the deposit growth
from  the  1995  and  1996  acquisitions  respectively  and  the  partial  year
assessment for the 1997 acquisitions.

     BancShares  expects  that under current FDIC assessment guidelines that it
will  not  incur  any  FDIC  deposit  insurance assessments for 1998.  However,
beginning  in  1997  the FDIC began collecting from all banks an assessment for
Financing  Corporation  ("FICO") funding requirements.  Accordingly, BancShares
expects  a  1998  FDIC  FICO assessment expense of approximately $112 thousand,
based  on  the  FDIC  FICO  assessment rates in effect for the first quarter of
1998.

     Charitable  contributions  increased $3.5 million, to $4.1 million in 1997
from  $0.6  million  in 1996 after increasing $0.4 million from $0.2 million in
1995.  Charitable  contributions expense for 1997 includes $4.1 million related
to  the  additional funding of a charitable foundation through the contribution
of  available-for-sale  securities.  Charitable  contributions expense for 1996
includes  $0.5  million  related  to  the  contribution  of  available-for-sale
securities to a charitable foundation.

                                      7
<PAGE>

     Other miscellaneous noninterest operating expenses were $3.7 million, $3.3
million  and  $3.2  million  for 1997, 1996 and 1995 respectively.  Included in
other  miscellaneous  noninterest operating expenses were losses resulting from
the   abandonment/replacement  of  premises  and  equipment  for  aging  branch
facilities  of  $0.3 million, $0.1 million and $0.3 million for 1997, 1996, and
1995 respectively.

     In  1997, 1996, and  1995, BancShares had taxable income for book purposes
that  resulted  in  income  tax  expense of $0.3 million, $1.1 million and $1.3
million  respectively.  Decreases in these expenses are primarily the result of
an  increase  in  tax-exempt  income  for  1996 and 1995.  The 1997 decrease is
principally  a result of the 1997 contribution of available-for-sale securities
to the charitable foundation discussed above.

                            FINANCIAL CONDITION

Earning and Nonearning Assets

     Earning  assets  consist  of  loans, investment securities, and short-term
investments  that  earn interest.  Average earning assets during 1997 were $508
million, an  increase of 8 percent from the 1996 average of $470 million.  This
increase  was  due  primarily to growth within the existing branch system.  The
1997  full year average impact of the June and August 1996 acquisitions and the
partial  year  impact  of  the  May 1997 acquisitions increased average earning
assets  to  a  much  lesser  extent.  The cash received in the acquisitions was
ultimately invested primarily in loans and short-term investments.

     Average  earning  assets  during 1996 were $470 million, an increase of 13
percent from the 1995 average of $416 million.  This increase was due primarily
to  the  1996  full  year  average impact of the June 1995 acquisitions and the
partial  year  impact  of the June 1996 and August 1996 acquisitions.  The cash
received  in  the  acquisitions  was ultimately invested primarily in loans and
short-term investments including federal funds.

     Average  non-interest  earning  assets  during  1997  were $59 million, an
increase of 18 percent from the 1996 average of $50 million.  This increase was
due  primarily to the 1997 full year average impact of the June and August 1996
acquisitions and the partial year impact of the May 1997 acquisitions.  Average
non-interest  earning  assets  during  1996 were $50 million, an increase of 22
percent  from the 1995 average of $41 million.  The principal  nonearning asset
for BancShares is cash and due from banks. Cash and due from banks averaged $18
million in 1997, $16 million in 1996 and $15 million in 1995.

     Return  on  total  average  assets was 1.17 percent in 1997 as compared to
0.84  percent  in  1996  and  0.86  percent  in 1995.  The increase in 1997 was
principally  the  result of gains on the sale of available-for-sale securities.
The decrease in 1996 was principally the result of increased average assets.

Interest Bearing and Noninterest Bearing Liabilities

     Interest  bearing  liabilities  consists  of deposits, short term borrowed
funds and long-term notes payable.  Average interest bearing liabilities during
1997  were $445 million, an increase of 8 percent from the 1996 average of $412
million.  This  increase  was due primarily to the 1997 full year impact of the
June  and  August 1996 acquisitions and the partial year 1997 impact of the May
1997  acquisitions.  The  principal  interest bearing liabilities of BancShares
are  interest bearing deposits.  Average noninterest bearing liabilities during
1997  were  $76 million, an increase of 13 percent from the 1996 average of $67
million.  This  increase was also due primarily to the 1997 full year impact of
the  June  and August 1996 acquisitions and the partial year 1997 impact of the
May 1997 acquisitions.  Noninterest  bearing  demand deposits are the principal
noninterest  bearing liability.  The cost of total interest bearing liabilities
was  4.23  percent in 1997 as compared to 4.24 percent in 1996. The decrease in
1997  was  principally  the  result  of a generally lower deposit interest rate
market in 1997.

     Average  interest  bearing  liabilities  during 1996 were $412 million, an
increase  of  12  percent from the 1995 average of $367 million.  This increase
was  due  primarily  to the 1996 full year impact of the June 1995 acquisitions
and  the  partial  year  1996  impact of the June and August 1996 acquisitions.
Average  noninterest  bearing  liabilities  during  1996  were  $67 million, an
increase  of  22  percent  from  the  1995 average of $55 million.  Noninterest
bearing  demand deposits are the principal noninterest bearing liability.  This
increase  was  also due primarily to the 1996 full year impact of the June 1995
acquisitions  and  the  partial  year  1996  impact of the June and August 1996
acquisitions.  The  cost of total interest bearing liabilities was 4.24 percent
in  1996  as  compared  to  4.38  percent  in  1995.  The  decrease in 1996 was
principally  the  result  of  a generally lower deposit interest rate market in
1996.

Loans

     As  of December 31, 1997, loans, net of allowance for loan losses, totaled
$343  million  compared  to  $312  million  at year-end 1996.  A portion of the
growth  was  related to the current year acquisitions, as discussed above.  The
loan  portfolio  grew  $1.4  million through these acquisitions.  The remaining
increase  was  attributed  to  normal loan growth, particularly the real estate
mortgage  and  commercial  loan portfolios.  Both portfolios grew approximately
$13 million.  There were no significant loan promotions in the current year nor
were there any significant changes made to underwriting standards.

                                      8
<PAGE>

     Rate  sensitivity  and  liquidity  in  the  loan portfolio are achieved by
making  loans  with  adjustable  interest  rates  and shorter maturities.  This
allows Southern to adjust its pricing structure with changes in interest rates.
At  the  end  of 1997, 56 percent of the loan portfolio was due to mature or be
available for repricing of interest rates during 1998.

Investments

     Management's  asset/liability strategies include maintaining an investment
securities  portfolio  with appropriate maturities to preclude the necessity of
selling investment securities for purposes of liquidity.

     Traditionally, BancShares  has  maintained  a  larger investment portfolio
than  its  peers.  BancShares  traditionally  has  carried  unrealized gains on
investments  significantly  greater  than  the  average  of  its peers in North
Carolina  primarily due to its investments in marketable equity securities.  At
the  end  of  1997  and  1996, BancShares' subsidiary, Southern, had one of the
highest  ratios  of Market Value to Book Value for its investment securities in
the state of North Carolina.

     BancShares  accounts  for  investment  securities  under the provisions of
Statement   of  Financial  Accounting  Standards  No.  115  ("Statement  115"),
"Accounting  for  Certain  Investments  in  Debt  and Equity Securities," which
requires  that investments in debt and equity securities be classified in three
categories  and  accounted  for as follows: debt securities that BancShares has
the  positive  intent  and  ability  to  hold  to  maturity  are  classified as
held-to-maturity  and  reported  at  amortized cost; debt and equity securities
that  are  bought  and  held principally for the purpose of selling them in the
near term are classified as trading securities and reported at fair value, with
unrealized  gains  and  losses included in earnings; debt and equity securities
not  classified as either held-to-maturity securities or trading securities are
classified  as  available-for-sale  securities and reported at fair value, with
unrealized  gains  and losses excluded from earnings and reported as a separate
component  of  shareholders' equity.  Securities  available-for-sale consist of
certain  debt  and  marketable  equity  securities  not  classified  as trading
securities  nor as securities held-to-maturity, and consist of securities which
may  be  sold  in  response  to  changes  in  interest  rates, prepayment risk,
regulatory capital requirements and liquidity needs.

     At  December  31, 1997  the  fair  value  of available-for-sale securities
exceeded  the  carrying value by $22.9 million, deferred taxes related to these
available-for-sale  securities  were  $7.8  million  and  shareholders'  equity
included   $15.1   million  for  the  net  unrealized  gain  related  to  these
available-for-sale  securities.   At  December  31,  1996  the  fair  value  of
available-for-sale  securities  exceeded  the  carrying value by $16.5 million,
deferred taxes related to these available-for-sale securities were $5.6 million
and  shareholders' equity  included  $10.9  million for the net unrealized gain
related to these available-for-sale securities.  BancShares does not maintain a
trading account.

     On  December 17, 1996, the  board  of directors of Southern Bank and Trust
Company  approved  the  contribution  of  7,500  shares  of  marketable  equity
securities  to  the Southern Bank Foundation.  These investments had an average
cost  basis  of  $78  thousand  and, on December 17, 1996, a fair value of $536
thousand. Southern recorded a securities gain of $458 thousand and a charitable
contribution expense of $536 thousand related to this transaction.

     On  February  14, 1997, the  board of directors of Southern Bank and Trust
Company  approved  the  contribution  of  48,250  shares  of  marketable equity
securities  to  the Southern Bank Foundation.  These investments had an average
cost  basis  of $542 thousand and, on February 5, 1997, a fair value of  $4,071
thousand.  Southern  recorded  a  1997  securities  gain of $3,529 thousand and
charitable contribution expense of $4,071 thousand related to this transaction.

                               ASSET QUALITY

Provision and allowance for loan losses

     Because  the  loan portfolio represents BancShares' largest earning asset,
BancShares  continually  monitors  the quality of its loan portfolio.  Southern
operates  in  an area dominated by agriculture and, accordingly, many loans are
made  to  commercial enterprises or to consumers who are directly or indirectly
supported   by   the   region's  agricultural  economy.   In  1997,  BancShares
charged-off  loans  net  of  recoveries  of  $252  thousand.  This represents a
decrease  of  $46  thousand  from  1996 net charge-offs of $298 thousand.  This
decrease  is  primarily  the  result  of  decreased  gross charge-offs in 1997.
Recoveries  of  loans  previously  charged  off  also  decreased  in 1997.  The
percentage  of charge-offs (net of recoveries) to average outstanding loans was
0.07 percent in  1997, 0.10 percent in 1996 and 0.12 percent in 1995.

     The ratio of total non-performing loans to total loans increased from 0.16
percent  at  December 31, 1996 to 0.20 percent at December 31,1997, principally
due  to  increases  in  non-performing  loans  (nonaccrual,  restructured,  and
accruing  loans greater than 90 days past due) to $696 thousand at December 31,
1997,   compared   to   $498  thousand  at  December  31, 1996.  The  ratio  of
non-performing  loans  and  assets to total assets increased to 0.13 percent at
December 31, 1997 from 0.09 percent a year before.  This increase was primarily
the  result of increased non-performing loans.  At December 31, 1997 BancShares
had  $48  thousand  of assets classified as other real estate.  At December 31,
1996 BancShares had no assets classified as other real estate.

     Accrual of interest is discontinued on a loan when management believes the
borrower's financial condition is such that collection of principal or interest
is  doubtful.  Loans  are  returned  to  the  accrual  status  when the factors
indicating doubtful collectibility cease to exist.

                                      9
<PAGE>

     Management  considers  a  loan  to  be  impaired  when  based  on  current
information or events, it is probable that a borrower will be unable to pay all
amounts  due  according  to  contractual terms of the loan agreement.  Impaired
loans  are  valued using either the discounted expected cash flow method or the
value  of  the  collateral.  When  the  ultimate collectibility of the impaired
loan's principal is doubtful, all cash receipts are applied to principal.  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.  Future  cash  receipts  are  recorded  as  recoveries of any amounts
previously charged-off.

     At  December  31, 1997  and  1996, Southern  had  nonaccrual loans of $230
thousand  and  $147  thousand, respectively.  At  December  31, 1997  and 1996,
Southern  had  restructured  loans  of  $0  and  $8 thousand, respectively.  At
December  31, 1997  and  1996, Southern  had accruing loans past due 90 days or
more  totaling  $466  thousand  and $343 thousand, respectively. The amounts of
foregone  interest  on  nonaccrual  and  restructured loans for the years ended
December  31, 1997, 1996  and 1995 were not material for the periods presented.
At  December  31, 1997 and 1996, Southern's impaired loans, as determined under
Statement  114, were  less  than  the  nonaccrual and restructured loan amounts
presented above.

     There  are certain loans classified for regulatory purposes as substandard
or  special  mention  that  have  not been disclosed in the nonperforming asset
amounts  above.   Such  loans  do  not  represent  or  result  from  trends  or
uncertainties which management reasonably expects will materially impact future
operating results, liquidity, or capital resources.  Such classified loans also
do  not  represent  material  credits  about  which  management is aware of any
information which causes management to have serious doubts as to the ability of
such borrowers to comply with the loan repayment terms.

     The  allowance  for  loan losses represented 858 percent of non-performing
loans  at  December 31, 1997.  This was a decrease of 380 basis points from the
1,238  percent  ratio  at  December  31, 1996.  The  allowance  for loan losses
represented 1.71 percent and 1.94 percent of loans outstanding at year end 1997
and  1996, respectively.  Southern's  provision for loan losses charged against
earnings was $60 thousand in 1997, $140 thousand in 1996 and $0 in 1995.

     Management  considers  the  December  31, 1997  allowance  for loan losses
adequate  to  cover  the  losses  inherent in the loan portfolio.  Management's
periodic  evaluation  of  the  adequacy of the allowance is based on Southern's
past  loan  loss experience, known and inherent risks in the portfolio, adverse
situations  that  may  affect the borrower's experience, the estimated value of
any  underlying collateral, current economic conditions and other risk factors.
Management  believes  it  has  established  the  allowance  in accordance  with
generally  accepted  accounting  principles and in consideration of the current
economic  environment.  While management uses the best information available to
make  evaluations, future  adjustments  may  be necessary if economic and other
conditions differ substantially from the assumptions used.

     In  addition, various  regulatory  agencies, as  an integral part of their
examination  process, periodically  review Southern's allowance for loan losses
and  losses  on other real estate owned.  Such agencies may require Southern to
recognize  additions  to the allowances based on the examiners' judgments about
information available to them at the time of their examinations.

              LIQUIDITY, MARKET RISK AND INTEREST SENSITIVITY

Liquidity

     Liquidity refers to the ability of BancShares to generate sufficient funds
to meet its financial obligations and commitments at a reasonable cost.  One of
BancShares' objectives  is to maintain a high level of liquidity, and this goal
continues  to  be  met.  Maintaining  liquidity  ensures  that  funds  will  be
available  for  reserve  requirements, customer demand for loans, withdrawal of
deposit  balances  and  maturities  of  other  deposits and liabilities.  These
events  may  take  place daily or at other intervals in the normal operation of
the  business.  Past  experiences  helps management anticipate cyclical demands
and  amounts  of  cash required.  These obligations can be met by existing cash
reserves or funds from maturing loans and investments, but in the normal course
of business are met by deposit growth.

     In  assessing  liquidity, many relevant factors are considered, including:
stability  of  deposits, quality  of  assets, economy  of  the  markets served,
business   concentrations,  competition   and   BancShares'  overall  financial
condition.  BancShares' liquid  assets  include  available-for-sale  investment
securities, federal  funds  sold, and  cash  and  due from banks.  These assets
represented 32 percent of total deposits at December 31, 1997, an increase from
29 percent at December 31, 1996.

     Southern's  liquidity  ratio, which is defined as net cash plus short term
and  marketable  securities divided by net deposits and short term liabilities,
was  34  percent at December 31, 1997, compared to 27 percent and 39 percent at
year-end 1996 and 1995 respectively.

     BancShares  has  traditionally  maintained  a  high  level  of  liquidity,
characteristic  of  the  high  ratio  of  investment securities to total assets
and/or total deposits that BancShares maintains.  Although loans increased with
the 1996 and 1997 acquisitions, BancShares' ability to manage its liquidity was
enhanced  with  the  addition  of  a mortgage loan department acquired in 1993.
With  this  acquisition, BancShares has the ability to sell mortgage loans held
for  sale,  if  needed,  for  liquidity  or  other  asset/liability  management
requirements.

     Any  maturing  investments  whose  funds  are not immediately necessary to
sustain  BancShares' liquidity, will be invested in similar instruments or used
to  fund any increased loan demand.  Investments scheduled to mature within the
one  year  time  frame represented 50 percent, 49 percent and 41 percent of the
total  investment  securities  portfolio  at  December 31, 1997, 1996 and 1995,
respectively.
                                     10
<PAGE>

     Included  in  investments  maturing  within  one  year  are investments in
marketable  equity  securities  held  by  BancShares  with  fair  values of $30
million, $25  million  and  $17  million  in 1997, 1996 and 1995, respectively.
Although  these investments do not "mature" in the next twelve months, they are
available-for-sale and could be sold at management's discretion.

     Since   the  volume  of  investments  actually  maturing  during  1998  is
comparable  to the volumes that matured during 1997 and 1996, the effect on net
interest  margin  and  operating  results  for  1998  should also be similar to
effects realized in 1997 and 1996.

     The  consolidated  statements of cash flows disclose the principal sources
and  uses  of cash from operating, investing and financing activities for 1997,
1996, and  1995.  In  1997, operating  activities  of  BancShares provided cash
flows  of  $9.8  million.  Net  income  of  $6.6 million, adjusted for non-cash
operating  activities, provided the majority of cash generated from operations.
Decreases in other assets of $1.8 million and decreases in other liabilities of
$1.3  million, increased  and  decreased, respectively, the contribution of net
income  to  BancShares' cash  flow.  Investing  activities, including  lending,
utilized  $19.8  million  of  BancShares' cash  flow.  Loans originated, net of
principal  collected, used $30.4 million.  BancShares received $18.0 million in
cash   in  connection  with  the  branches  purchased  from  another  financial
institution in 1997.

     Net  additional  cash  inflows  of  $16.2  million resulted from financing
activities.  Net  deposit inflows of $11.7 million were improved by an increase
in short term borrowed funds of $1.8 million and by an increase of $3.4 million
in  long  term  obligations  and  reduced  by  payments  for cash dividends and
retirements of stock totaling $0.6 million.

     In  1996, operating  activities  of BancShares provided cash flows of $7.4
million.   Net   income  of  $4.4  million,  adjusted  for  non-cash  operating
activities, provided the majority of cash generated from operations.  Decreases
in  other  assets  of  $1.7  million and increases in other liabilities of $2.3
million, increased  the  contribution  of  net income to BancShares' cash flow.
Investing  activities, including lending, utilized $41.8 million of BancShares'
cash  flow.  Loans  originated, net of principal collected, used $24.7 million.
BancShares  received  $3.4  million  in  cash  in  connection with the branches
purchased  from  other  financial  institutions  in  1996.  Net additional cash
inflows  of  $24.0  million  resulted  from  financing activities.  Net deposit
inflows  of  $22.2  million were improved by an increase in short term borrowed
funds  of  $3.6  million  and reduced by the $1.2 million repayment oflong term
obligations, payments for cash dividends and retirements of stock totaling $599
thousand.

     In  1995, operating  activities  of BancShares provided cash flows of $9.6
million.   Net   income   of  $3.9  million, adjusted  for  non-cash  operating
activities, provided the majority of cash generated from operations.  Increases
in  other  assets  of  $114 thousand and increases in other liabilities of $2.2
million, increased  the  contribution  of  net income to BancShares' cash flow.
Investing  activities, including lending, utilized $12.0 million of BancShares'
cash  flow.  Loans  originated, net of principal collected, used $33.1 million.
BancShares  received  $46.1  million  in  cash  in connection with the branches
purchased  from  other financial institutions in 1995.  In 1995, net additional
cash outflows of $28.1 million resulted from financing activities.  Net deposit
inflows  of  $30.6  million  were reduced by the $1.2 million repayment of long
term  obligations, a decrease in short term borrowed funds of $497 thousand and
payments for cash dividends and retirements of stock totaling $784 thousand.

     Southern  has no brokered deposits. Jumbo certificates of deposit ("CD's")
are considered to include all CD's of $100 thousand or more.  Southern does not
and  has  never aggressively bid on these deposits.  Southern does not seek nor
does  it accept deposits from outside of its general trade area.  Almost all of
Southern's Jumbo CD customers have other relationships with Southern, including
savings, demand  and other time deposits, and in some cases, loans. At December
31, 1997  and  1996, Jumbo  CD's  represented  10.3  percent  and  9.0 percent,
respectively, of total deposits.

     In  the  opinion  of  management, BancShares  has  the ability to generate
sufficient  amounts  of  cash  to  cover normal requirements and any additional
needs  which  may  arise, within  realistic  limitations, and management is not
aware  of  any  known  demands, commitments  or  uncertainties that will affect
liquidity in a material way.

Market Risk

     Market  risk  reflects  the  risk  of economic loss resulting from adverse
changes in market price and interest rates.  This risk of loss can be reflected
in  either  diminished  current market values or reduced potential net interest
income in future periods.

     BancShares' market  risk arises primarily from interest rate risk inherent
in  its  lending  and  deposit taking activities.  The structure of BancShares'
loan  and  deposit  portfolios  is such that a significant decline in the prime
rate   may  adversely  impact  net  market  values  and  net  interest  income.
Management  seeks  to  manage  this  risk  through  the  use  of  shorter  term
maturities.  The composition and size of the investment portfolio is managed so
as to reduce the interest rate risk in the deposit and loan portfolios while at
the same time maximizing the yield generated from the portfolio.

     The  table below presents in tabular form the contractual balances and the
estimated  fair value of financial instruments at their expected maturity dates
as   of   December   31, 1997.  The  expected  maturity  categories  take  into
consideration   historical   prepayment  experience  as  well  as  management's
expectations  based  on  the interest rate environment as of December 31, 1997.
For core deposits without contractual maturity (i.e.,interest bearing checking,
savings  and money market accounts), the table presents principal cash flows as
maturing  in  1998  since  they  are  subject to immediate repricing.  Weighted
average  variable  rates  are  based  on the implied forward rates in the yield
curve as of December 31, 1997.
                                     11
<PAGE>

<TABLE>
<CAPTION>

                                        Maturing in Years ended December 31
                               -------------------------------------------------------
                                1998     1999     2000     2001     2002    Thereafter     Total     Fair Value
Assets                        _______  _______  _______  _______  _______    ________    _________   __________
<S>                           <C>      <C>      <C>      <C>      <C>        <C>         <C>          <C>
  Loans
    Fixed Rate                $49,436  $40,406  $29,803  $26,304  $33,081     $32,215     $211,245     $210,268
    Average rate (%)             8.37%    8.96%    8.04%    8.28%    7.56%       7.90%        8.23%

    Variable rate              55,149   20,429    7,890    8,143    7,375      40,551      139,537      139,537
    Average rate (%)             9.06%    9.94%    8.99%    8.89%    8.73%       9.21%        9.20%

  Investment securities
    Fixed rate                 82,487   73,358    1,196    1,021    1,063      15,951      175,076      176,089
    Average rate (%)             5.64%    5.96%    8.35%    8.58%    8.37%       8.21%        6.10%

    Variable rate                 -      1,400      -         -        -        3,657        5,057        5,057
    Average rate (%)              -       9.34%     -         -        -         9.34%        9.34%

Liabilities

  Savings and interest
    bearing checking
    Fixed rate                167,843      -        -         -        -          -        167,843      167,843
    Average rate (%)             2.13%     -        -         -        -          -           2.13%

  Certificates of deposit
    Fixed rate                223,080   32,214   15,708      338       -          -        271,340      272,107
    Average rate (%)             5.33%    5.72%    5.90%    5.90%      -          -           5.41%

    Variable rate               5,088    2,492      -         -        -          -          7,580        7,580
    Average rate (%)             4.77%    4.85%     -         -        -          -           4.83%

  Long-term debt
    Variable rate               1,800    1,800    1,150       -        -          -          4,750        4,750
    Average rate (%)             6.71%    6.71%    6.71%      -        -          -           6.71%

</TABLE>

Interest Sensitivity

     Deregulation  of  interest rates and short-term, interest bearing deposits
which  are more volatile, have created a need for shorter maturities of earning
assets.  As  a  result, an increasing percentage of commercial, installment and
mortgage  loans  are  being  made  with variable rates or shorter maturities to
increase liquidity and interest rate sensitivity.

     The  difference  between  interest  sensitive asset and interest sensitive
liability  repricing  within  time  periods is referred to as the interest rate
sensitivity  gap.  Gaps  are  identified as either positive (interest sensitive
assets  in  excess  of  interest  sensitive  liabilities) or negative (interest
sensitive liabilities in excess of interest sensitive assets).

     As of December 31, 1997, BancShares had a negative one year cumulative gap
position  of  19%.  BancShares  has  interest  earning  assets  of $298 million
maturing  or repricing within one year and interest bearing liabilities of $408
million repricing or maturing within one year.  This is primarily the result of
stable  core  deposits  being used to fund longer term interest earning assets,
such  as loans and investment securities.  A negative gap position implies that
interest  bearing  liabilities  (deposits)  will  reprice at a faster rate than
interest   earning    assets   (loans  and  investments).  In  a  falling  rate
environment, this  position  will generally have a positive effect on earnings,
while in a rising rate environment this position will generally have a negative
effect on earnings.

     BancShares' savings  and  core  time  deposits  of  $394  million  include
interest   bearing  checking  accounts  of  $67  million.  These  deposits  are
considered  as repricing in the earliest period because the rate can be changed
weekly.  However, history  has  shown  that the decreases in the interest rates
paid  on  these  deposits  have little, if any, effect on their movement out of
Southern.  Therefore, in  reality, they  are not sensitive to changes in market
rates and could be considered in the Non-Rate Sensitive column.  If this change
were  made, BancShares' rate  sensitive  assets  and rate sensitive liabilities
would be more closely matched at the end of the one year period.

                                     12
<PAGE>

Inflation

     The  effect of inflation on financial institutions differs from the impact
on  other  types  of  businesses.  Since  assets  and  liabilities of banks are
primarily  monetary  in  nature, they  are more affected by changes in interest
rates than by the rate of inflation.

     Inflation  generates  increased  credit demand and fluctuation in interest
rates.  Although  credit  demand  and  interest  rates are not directly tied to
inflation, each  can  significantly  impact  net  interest  income.  As  in any
business  or  industry, expenses  such  as  salaries, equipment, occupancy, and
other  operating  expenses  are also subject to the upward pressures created by
inflation.

     Since  the  rate  of  inflation has been relatively stable during the last
several years, the impact of inflation on the earnings presented in this report
is insignificant.

                             CAPITAL RESOURCES

Shareholders' Equity and Capital Adequacy

     Sufficient  levels  of  capital are necessary to sustain growth and absorb
losses.  To  this  end, the  Federal  Reserve  Board  ("FRB"), which  regulates
BancShares, and  the  FDIC, which  regulates  Southern, has established capital
adequacy  guidelines.  These guidelines relate to a company's Leverage Capital,
and  Tier  1  and  Total  Risk  Based  Capital  ("RBC").  In  1997,  BancShares
experienced an increase in all of its regulatory capital ratios.

     For  BancShares, Leverage Capital consists of total equity less intangible
assets.  When  Leverage  Capital  is  divided by the average total consolidated
assets  of  the  previous  quarter, the  Leverage  Ratio  is the result.  As of
December  31, 1997, BancShares' Leverage  Ratio  was 6.07 percent, up from 5.46
percent  and  5.60  percent, respectively, at  year  end  1996  and  1995.  For
regulatory  purposes, a  5.00  percent  Tier 1 Leverage Ratio represents a well
capitalized financial institution.

     Within  the RBC calculations, BancShares' assets, including commitments to
lend  and  other  off-balance  sheet  items, are  weighted according to Federal
regulatory   guidelines  for  the  risk  considered  inherent  in  the  assets.
BancShares' Tier  1  RBC  ratio as of December 31, 1997 was 11.43 percent which
is, along  with  a  ratio  of  9.33 percent and 8.87 percent for 1996 and 1995,
respectively,   representative   of   a   well-capitalized   institution.   The
calculation  of  the  Total RBC ratio allows, in BancShares' circumstances, the
inclusion  of  BancShares' allowance  for loan losses in capital, but only to a
maximum  of  1.25  percent  of  risk  weighted assets.  As of December 31, 1997
BancShares' Total  RBC  ratio  was  12.78 percent, which is representative of a
well-capitalized institution.  The Total RBC ratio for 1996 and 1995 were 10.66
percent and 10.19 percent, respectively, both of which were also representative
of a well capitalized financial institution.

     These  ratios will only improve if BancShares' capital increases at a rate
proportionately  faster than liabilities.  Management is aware that growth must
be  controlled.  The  projected 1998 acquisition of the branch office discussed
below  may  appear  to  be contrary to this policy but management is also aware
that  the  process  of  expanding  market  share by normal business development
processes  can  be  very  difficult  and  expensive.  Management  believes that
improvement  in  its  overall  market  share  within  an existing trade area is
valuable  in  the  long run and should be pursued by BancShares, when it can be
done prudently.

     BancShares' primary  source  of  new  capital is earnings. In 1997, equity
capital  increased  through  retention  of  earnings  by  $6.0 million, by $3.8
million  in  1996  and  by  $3.4 million in 1995.  BancShares' internal capital
generation  rate  was  13.19  percent  in  1997, 9.39 percent in 1996, and 9.76
percent  in  1995.  As  of  December 31, 1997, shareholders' equity totaled $55
million compared to $45 million in 1996.  The shareholders' equity for 1997 and
1996  included, as  discussed above, $15 million and $11 million, respectively,
of  net unrealized securities gains as a result of BancShares' adoption of SFAS
115.

     The ratio of average shareholders' equity to average total assets was 8.06
percent  in 1997 and 7.74 percent in 1996.  The 1997 increase was primarily the
result  of  the  substantial  increase in unrealized gain on available-for-sale
securities.

     Retention  of sufficient earnings to maintain an adequate capital position
that  provides BancShares with expansion capabilities is an important factor in
determining   dividends.   During   1997,  BancShares  paid  $585  thousand  in
dividends, versus  $587  thousand  in  1996  and  $531  thousand in 1995.  As a
percentage of net income, dividends were 8.85 percent in 1997, 13.45 percent in
1996  and  13.57 percent in 1995.  The 1997 percentage decrease was principally
the  result of increased earnings resulting from the sale of available-for-sale
securities.

Economy of Eastern North Carolina

     BancShares  is headquartered and operates primarily in rural eastern North
Carolina.  Economic  information from state and national sources indicates that
the  seventeen  counties  served  by  Southern  lag the median figures of North
Carolina  in  the  areas  of  per  capita income, family income, and population
growth  rates.  Between 1980 and 1990, Southern's market counties experienced a
negative  net  migration of the population. Only in the area of unemployment is

                                     13
<PAGE>

Southern's  market area in slightly better shape than the rest of eastern North
Carolina, but this may be related to the negative growth during the same period
and the agricultural nature of the area.

     On  a positive note, the most recent annual economic projections for North
Carolina prepared and published by North Carolina State University, indicate an
improving  economy in most of the regions of the state served by Southern.  The
analysis includes data covering retail sales, construction and employment.

     From  the  ratios and other information discussed above, the management of
BancShares  recognizes  that  future  growth in BancShares will likely not come
from  people  moving  into the markets served by BancShares.  Southern must win
customers from other institutions or purchase customers in existing markets, as
it  did  in  1995, 1996 and 1997, or expand into new markets as it did in 1995,
1996 and 1997.

     BancShares  does  anticipate  some  offices of other institutions becoming
available  in  the  near  future, and  presently  plans  one acquisition, a $21
million  deposit  branch  in  Enfield,  North  Carolina.  This  acquisition  is
projected to be completed in the second quarter of 1998.

Agriculture

     The  tobacco  industry contributes significantly to the economy of eastern
North  Carolina and especially in the seventeen eastern North Carolina counties
where  Southern  operates.  Management  remains  aware of the on-going pressure
placed on the tobacco industry.

     For  several  decades  tobacco  has  come  under  increasing criticism for
potential  health  risks.  Because of the these criticisms, many businesses and
municipalities   have   instituted   "Smoke   Free"  policies,  increasing  the
possibility of reduced tobacco production, sales and usage.  Recent lawsuits by
certain  states, have targeted the tobacco industry with responsibility for the
costs of ongoing medical treatment for smoking-related illnesses of citizens of
those  states.  Should  the  courts  find  in  favor of the states, the tobacco
farmers in our market area could ultimately be affected.


                         ACCOUNTING AND OTHER MATTERS

     In  June  1997, the  FASB  issued  SFAS  No. 130,"Reporting  Comprehensive
Income" ("Statement 130").  Statement  130  establishes standards for reporting
and  display  of  comprehensive  income  and  its  components  in a full set of
general-purpose   financial   statements.  It   does   not  address  issues  of
recognition  or  measurement  for comprehensive income and its components.  The
provisions  of  Statement  130  are  effective for fiscal years beginning after
December  15, 1997. BancShares plans to adopt this statement in fiscal 1998 and
will  make  the  necessary  disclosures  of  comprehensive  income  for periods
beginning in 1998.

     In  June 1997, the FASB issued SFAS No. 131,"Disclosures about Segments of
an  Enterprise  and  Related  Information"  ("Statement  131").  Statement  131
requires  that  public  business  enterprises  report certain information about
operating   segments  in  complete  sets  of  financial  statements  issued  to
shareholders.  It also requires that public business enterprises report certain
information  about  their  products and services, the geographic areas in which
they  operate  and  their major customers.  The provisions of Statement 131 are
effective for fiscal years beginning after December 15, 1997.  Adoption of this
pronouncement  is  not  expected  to  have  a  material  effect  on BancShares'
consolidated financial statements.

     In  February  1998, the  FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits."  This statement standardizes
the  disclosure  requirements  of  pensions  and other postretirement benefits.
This  statement  does not change any measurement or recognition provisions, and
thus  will  no t materially impact BancShares.  This statement is effective for
fiscal years beginning after December 15, 1997.

     The  FASB also issues exposure drafts for proposed statements of financial
accounting  standards.  Such  exposure  drafts  are subject to comment from the
public, to  revisions  by  the  FASB  and  to  final  issuance  by  the FASB as
statements  of  financial accounting standards. Management considers the effect
of  the  proposed  statements  on  the  consolidated  financial  statements  of
BancShares  and monitors the status of changes to issued exposure drafts and to
proposed effective dates.

     In 1997 BancShares developed a plan to deal with the "Year 2000 issue" and
contracted  with  an  industry consultant to review its overall exposure to the
year  2000  issue.  The  year  2000  issue relates to computer programs written
using  two  digits  rather  than  four  to define the applicable year.  In 1997
management  reviewed  the  results  of the consultant's analysis of BancShares'
data  processing  year  2000 exposure and committed the human resources and the
financial  resources for BancShares to complete its resolution of the year 2000
issue  in  1998.  The  total  cost  of  the  year  2000  conversion project for
BancShares  is  estimated  to  be  $200  thousand  and  is being funded through
operating  cash  flows.  BancShares  is expensing all costs associated with the
required  systems  changes as the costs are incurred.  As of December 31, 1997,
$3  thousand  had  been  expensed.  As discussed in note 15 to the consolidated
financial  statements, BancShares  utilizes  the  mainframe system of a related
bank  holding  company  and  its subsidiary (the "Corporation") for most of its
mission-critical  applications.  These  systems are currently being remediated,

                                     14
<PAGE>

replaced  or retired as part of the Corporation's Year 2000 compliance program.
BancShares   is   closely  monitoring  the  Corporation's  progress.  Based  on
discussions with management of the Corporation, BancShares' management does not
expect  significant  increases in future data processing costs relating to Year
2000 compliance.

     Management  is not aware of any other known trends, events, uncertainties,
or current recommendations by regulatory authorities that will have or that are
reasonably  likely  to have a material effect on BancShares' liquidity, capital
resources or other operations.

   MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

     There  is  no  active  trading  market for BancShares' common or preferred
stock  although  isolated  transactions  occur  from  time to time.  Prices for
BancShares' common  and  preferred  stock listed in the Selected Quarterly Data
table  are  based on management's knowledge of the most recent sales prices for
specific transactions of each security.

     The approximate number of record holders of BancShares' outstanding common
stock  at  December  31, 1997  was  339.  Dividends  paid  to  shareholders  of
BancShares  are  dependent upon dividends received by BancShares from Southern.
Southern  is restricted as to dividend payout by state laws applicable to banks
and  may  pay  dividends  only out of undivided profits. Should at any time its
surplus  be less than 50 percent of its paid-in capital stock, Southern may not
declare  a  dividend until it has transferred from undivided profits to surplus
25  percent  of  its  undivided  profits  or  any lesser percentage that may be
required  to  restore  its  surplus  to  an  amount  equal to 50 percent of its
paid-in capital stock.

     Additionally, dividends  paid  by  Southern  may be limited by the need to
retain  sufficient  earnings to satisfy minimum capital requirements imposed by
the  Federal  Deposit  Insurance  Corporation.  Dividends on BancShares' common
stock  may  be paid only after dividends on preferred Series "B" and "C" shares
have   been   paid.   Common   share   dividends  are  based  upon  BancShares'
profitability  and  are  paid  at  the  discretion  of  the Board of Directors.
Management  does  not  expect  any  of the foregoing restrictions to materially
limit its ability to pay dividends comparable to those paid in the past.

     Common shareholders are entitled to one vote per share and both classes of
preferred  stockholders  are entitled to one vote for each 38 shares owned of a
class.


                          FORWARD LOOKING STATEMENTS

     The  foregoing  discussion  may  contain  statements  that could be deemed
forward-looking  statements within the meaning of Section 21E of the Securities
Exchange  Act  of  1934 and the Private Securities Litigation Reform Act, which
statements  are inherently subject to risks and uncertainties.  Forward-looking
statements  are  statements that include projections, predictions, expectations
or  beliefs  about  future events or results or otherwise are not statements of
historical  fact.  Such  statements  are  often  characterized  by  the  use of
qualifying   words   (and   their  derivatives) such  as  "expect,"  "believe,"
" estimate," "plan," "project," or  other  statements  concerning  opinions  or
judgment  of  BancShares  and its management about future events.  Factors that
could  influence  the  accuracy of such forward-looking statements include, but
are not limited to, the financial success or changing strategies of BancShares'
customers, actions  of  government  regulators, the  level  of  market interest
rates, and general economic conditions.

                                     15

<PAGE>

<TABLE>
<CAPTION>

Selected Quarterly Data_________________________________________________


                                                    1997                            1996
                                       ______________________________________________________________
                                       Fourth   Third  Second  First    Fourth  Third  Second  First
                                       ______  ______  ______  ______   ______  ______  ______  ______
                                                (thousands except per share data and ratios)
SUMMARY OF OPERATIONS
<S>                                  <C>      <C>     <C>     <C>      <C>     <C>    <C>     <C>
Interest income                       $10,100  $9,989  $9,711  $9,255   $9,469  $9,321 $9,102  $8,884
Interest expense                        4,881   4,845   4,738   4,363    4,313   4,345  4,344   4,448
                                       ______   _____   _____   _____    _____   _____  _____   _____
Net interest income                     5,219   5,144   4,973   4,892    5,156   4,976  4,758   4,436
Provision for loan losses                 -       -       -        60       60      60     20     -
                                       ______   _____   _____   _____    _____   _____  _____   _____
Net interest income after
     provision for loan losses          5,219   5,144   4,973   4,832    5,096   4,916  4,738   4,436
Noninterest income                      3,234   1,166     979   4,470    1,426   1,018  1,013   1,051
Noninterest expense                     5,046   4,874   4,679   8,465    4,813   5,068  4,222   4,100
                                       ______   _____   _____   _____    _____   _____  _____   _____
Income before income taxes              3,407   1,436   1,273     837    1,709     866  1,529   1,387
Income taxes                              100      30     130      80       36     221    415     455
                                       ______   _____   _____   _____    _____   _____  _____   _____
Net income                             $3,307  $1,406  $1,143  $  757   $1,673  $  645 $1,114  $  932
                                       ======  ======  ======  ======   ======  ====== ======  ======

Net income applicable to
     common shares                     $3,203  $1,303  $1,045  $  657   $1,569  $  541 $1,015  $  832
                                       ======  ======  ======  ======   ======  ====== ======  ======

PER SHARE OF STOCK

Net income per common share             26.71   10.87    8.71    5.48    13.09    4.51   8.46    6.94
Cash dividends - common                  0.38    0.38    0.37    0.37     0.38    0.37  0.375   0.375
Cash dividends - preferred  B            0.23    0.23    0.22    0.22     0.23    0.23   0.22    0.22
Cash dividends - preferred  C            0.23    0.23    0.22    0.22     0.23    0.23   0.22    0.22
Common sales price
     High                              175.00  175.00  175.00  175.00   175.00  175.00 175.00  110.00
     Low                               175.00  175.00  175.00  175.00   175.00  175.00 110.00  110.00
Preferred B sales price
     High                               11.25   11.25   11.25   11.25    11.25   11.25  10.80   10.00
     Low                                11.25   11.25   11.25   11.25    11.25   10.80  10.00   10.00
Preferred C sales price
     High                               11.25   11.25   11.25   11.25    11.25   11.25  10.80   10.00
     Low                                11.25   11.25   11.25   11.25    11.25   10.80  10.00   10.00

                                     16
</TABLE>

<PAGE>

Independent Auditors'
Report_____________________________________________







The Board of Directors and Shareholders
Southern BancShares (N.C.), Inc.:


We  have  audited  the  accompanying  consolidated  balance  sheets of Southern
BancShares  (N.C.), Inc. and subsidiary (the "Company") as of December 31, 1997
and  1996, and  the  related  consolidated statements of income, cash flows and
changes  in shareholders' equity for each of the years in the three-year period
ended  December  31, 1997.  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  generally  accepted  auditing
standards.  Those  standards  require  that  we  plan  and perform the audit to
obtain  reasonable assurance about whether the financial statements are free of
material  misstatement.  An audit includes examining, on a test basis, evidence
supporting  the  amounts  and disclosures in the financial statements. An audit
also   includes  assessing  the  accounting  principles  used  and  significant
estimates  made  by  management, as  well  as  evaluating the overall financial
statement  presentation.  We believe that our audits provide a reasonable basis
for our opinion.

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



                                             KPMG Peat Marwick LLP


Raleigh, North Carolina
February 20, 1998
                                     17
<PAGE>


Southern BancShares (N.C.), Inc. and Subsidiary
Consolidated Balance Sheets____________________________________________________
(Dollars in thousands except per share data)

<TABLE>
<CAPTION>

                                                              December 31
                                                          ___________________
                                                            1997       1996
ASSETS                                                    _______     _______
<S>                                                       <C>         <C>
Cash and due from banks                                   $28,381     $21,445
Federal funds sold                                         10,240      11,020
Investment securities:
     Held-to-maturity, at amortized cost (fair
     value $57,294 and $64,559, respectively)              56,281      63,676
     Available-for-sale, at fair value
     (amortized cost $100,978 and $88,504, respectively)  123,852     105,013
Loans, net of unearned income                             349,353     317,755
     Less allowance for loan losses                        (5,971)     (6,163)
                                                          _______     _______
Net loans                                                 343,382     311,592
Premises and equipment                                     18,157      15,439
Accrued interest receivable                                 4,205       3,999
Intangible assets                                           5,506       5,991
Other assets                                                  748       2,583
                                                          _______     _______
             Total assets                                $590,752    $540,758
                                                          =======     =======

LIABILITIES
Deposits:
     Noninterest-bearing                                 $ 66,565    $ 64,089
     Interest-bearing                                     446,763     416,477
                                                          _______     _______
Total deposits                                            513,328     480,566
Short-term borrowings                                       6,826       5,064
Long-term obligations                                       4,750       1,400
Accrued interest payable                                    4,394       3,204
Other liabilities                                           6,470       5,746
                                                          _______     _______
           Total liabilities                              535,768     495,980


SHAREHOLDERS' EQUITY
Series  B  non-cumulative  preferred  stock,
  no  par  value; 408,728 shares authorized;
  404,946  and  407,752  shares  issued  and
  outstanding at December 31, 1997 and 1996,
  respectively                                              1,976       1,986
Series  C  non-cumulative  preferred  stock,
  no  par  value;  43,631 shares authorized;
  43,631  shares  issued  and outstanding at
  December 31,1997 and 1996                                   578         578
Common  stock, $5  par value; 158,485 shares
  authorized;  119,918   shares  issued  and
  outstanding  at December 31, 1997 and 1996                  600         600
Surplus                                                    10,000      10,000
Retained earnings                                          26,733      20,718
Unrealized gain on securities available-for-sale,
 net of tax                                                15,097      10,896
                                                           ______      ______
         Total shareholders' equity                        54,984      44,778
                                                          _______     _______
             Total liabilities and shareholders' equity  $590,752    $540,758
                                                          =======     =======

</TABLE>



The  accompanying  notes  are  an integral part of these consolidated financial
statements.
                                     18
<PAGE>

Southern BancShares (N.C.), Inc. and Subsidiary
Consolidated Statements of Income______________________________________________
(Dollars in thousands except share and per share data)

<TABLE>
<CAPTION>

                                                  Year ended December 31,
                                                 ________________________
                                                  1997     1996     1995
                                                 ______   ______   ______
Interest income:
<S>                                             <C>      <C>      <C>
     Loans                                      $29,225  $26,878  $24,338
     Investment securities:
       U. S. Government                           6,353    6,756    5,365
       State, county and municipal                2,057    2,163    2,135
       Other                                        797      577      246
         Total investment securities              _____    _____    _____
          interest income                         9,207    9,496    7,746
     Federal funds sold                             623      402      810
                                                 ______   ______   ______
             Total interest income               39,055   36,776   32,894

Interest expense:
     Deposits                                    18,229   16,933   15,410
     Short-term borrowings                          303      400      336
     Long-term obligations                          295      117      309
                                                 ______   ______   ______
          Total interest expense                 18,827   17,450   16,055

          Net interest income                    20,228   19,326   16,839
Provision for loan losses                            60      140      -
          Net interest income after              ______   ______   ______
           provision for loan losses             20,168   19,186   16,839

Noninterest income:
     Service charges on deposit accounts          2,918    2,664    2,347
     Other service charges and fees                 868      780      645
     Investment securities gains, net             5,567      460        1
     Insurance commissions                           90      145       99
     Gain (loss) on sale of loans                    52     (158)      39
     Other                                          354      617      897
                                                  _____    _____    _____
          Total noninterest income                9,849    4,508    4,028


Noninterest expense:
     Personnel                                    8,763    7,975    6,892
     Intangibles amortization                     1,755    1,638    1,362
     Data processing                              1,598    1,440    1,334
     Furniture and equipment                      1,633    1,314    1,111
     Occupancy                                    1,388    1,203      941
     FDIC insurance assessment                      112      772      651
     Charitable contributions                     4,076      589      173
     Other                                        3,739    3,272    3,197
                                                 ______   ______   ______
          Total noninterest expense              23,064   18,203   15,661
            Income before income taxes            6,953    5,491    5,206
            Income taxes                            340    1,127    1,293
                                                  _____    _____    _____
              Net income                         $6,613   $4,364   $3,913
Per share information:                            =====    =====    =====
     Net income applicable to common shares      $51.77   $33.00   $28.90
     Cash dividends declared on common shares      1.50     1.50     1.00
     Weighted average common shares outstanding 119,918  119,918  121,226
                                                =======  =======  =======

</TABLE>

The  accompanying  notes  are  an integral part of these consolidated financial
statements.
                                     19
<PAGE>

Southern BancShares (N.C.), Inc. and Subsidiary
Consolidated Statements of Cash Flows__________________________________________
(In thousands)
<TABLE>
<CAPTION>
                                                                                        Year ended December 31,
                                                                               _____________________________________
                                                                                 1997           1996            1995
OPERATING ACTIVITIES:                                                          ______         ______          ______
<S>                                                                            <C>            <C>             <C>
     Net income                                                                $6,613         $4,364          $3,913
     Adjustments to reconcile net income to net cash
     provided by operating activities:
          Provision for loan losses                                                60            140             -
          Contribution expense for donation of marketable equity securities     4,071            536             -
          Gain on contribution of marketable equity securities                 (3,529)          (458)            -
          Gains on sales and issuer calls of securities                        (2,038)            (2)             (1)
          Loss on sale and abandonment of premises and equipment                  317             55             315
          Net accretion on investments                                            (88)           (66)            (40)
          Amortization of intangibles                                           1,755          1,638           1,362
          Depreciation                                                          1,139            963             811
          Net increase in accrued interest receivable                            (206)           (28)           (603)
          Net (decrease) increase in accrued interest payable                   1,190           (287)          1,810
          Net decrease (increase) in other assets                               1,839         (1,666)           (114)
          Net (decrease) increase inother liabilities                          (1,339)         2,275           2,184
                                                                                _____          _____           _____
NET CASH PROVIDED BY OPERATING ACTIVITIES                                       9,784          7,464           9,637
                                                                                _____          _____           _____

INVESTING ACTIVITIES:
     Proceeds from maturities and issuer calls of
          investment securities available-for-sale                             25,798            111              81
     Proceeds from maturities and issuer calls of
          investment securities held-to-maturity                               43,856         53,749          50,457
     Proceeds from sales of investment securities available-for-sale            2,246            105             -
     Purchases of investment securities held-to-maturity                      (37,261)       (11,414)        (53,850)
     Purchases of investment securities available-for-sale                    (38,134)       (58,592)        (18,650)
     Net increase in loans                                                    (30,406)       (24,748)        (33,141)
     Proceeds from sales of premises and equipment                                -               12             -
     Additions to premises and equipment                                       (3,899)        (4,472)         (2,906)
     Net cash received for branches acquired                                   17,966          3,380          46,056
                                                                               ______         ______          ______
NET CASH USED IN  INVESTING ACTIVITIES                                        (19,834)       (41,869)        (11,953)
                                                                               ______         ______          ______

FINANCING ACTIVITIES:
     Net (decrease) increase in demand and
          interest bearing demand deposits                                     (4,658)        15,455          18,226
     Net increase in time deposits                                             16,360          6,713          12,330
     Net proceeds (repayments) of long-term obligations                         3,350         (1,200)         (1,200)
     Net proceeds (repayments) of short-term borrowed funds                     1,762          3,595            (497)
     Cash dividends paid                                                         (585)          (587)           (531)
     Purchase and retirement of stock                                             (23)           (12)           (253)
                                                                               ______         ______          ______
NET CASH PROVIDED BY FINANCING ACTIVITIES                                      16,206         23,964          28,075
                                                                               ______         ______          ______

NET INCREASE (DECREASE)  IN CASH AND
     CASH EQUIVALENTS                                                           6,156        (10,441)         25,759
CASH AND CASH EQUIVALENTS AT
     THE BEGINNING OF YEAR                                                     32,465         42,906          17,147
                                                                               ______         ______          ______
CASH AND CASH EQUIVALENTS AT THE END OF YEAR                                  $38,621        $32,465         $42,906
                                                                               ======         ======          ======

SUPPLEMENTAL DISCLOSURES OF CASH PAID DURING
     THE YEAR FOR:
     Interest                                                                 $17,637        $17,737         $14,245
     Income taxes                                                             $ 1,776        $ 1,085         $ 1,764
                                                                               ======         ======          ======


SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
     AND FINANCING ACTIVITIES:
Unrealized gain on securities available-for-sale                               $6,365         $5,833          $4,650
                                                                                =====          =====           =====

</TABLE>

The  accompanying  notes  are  an integral part of these consolidated financial
statements.
                                     20
<PAGE>

Southern BancShares (N.C.), Inc. and Subsidiary
Consolidated Statements of Changes in Shareholders' Equity
For the Years Ended December 31, 1997, 1996 and 1995___________________________
(Dollars in thousands except per share data)


<TABLE>
<CAPTION>                                                                                                Unrealized
                                                                                                          gain on
                                                 Preferred Stock          Common                         securities
                                           Series B       Series C         Stock                         available-     Total
                                       _______________  ____________   _____________ _______  Retained    for-sale   Shareholders'
                                        Shares  Amount  Shares Amount  Shares Amount Surplus  Earnings  net of taxes    Equity
                                       ______   ______  ______  ____  _______   ___  _______   _______     ______      _______
<S>                                   <C>       <C>    <C>      <C>  <C>       <C>   <C>       <C>         <C>         <C>
BALANCE, DECEMBER 31, 1994             413,389  $2,014  43,959  $582  121,767  $609  $10,000   $13,783     $3,977      $30,965
Net income                                -        -       -      -      -       -       -       3,913        -          3,913
Purchase and retirement of stock        (4,661)    (23)   (328)   (4)  (1,849)   (9)     -        (217)       -           (253)
Cash dividends:
     Common stock ($1.00 per share)        -        -       -     -      -       -       -        (121)       -           (121)
     Preferred B ($.90 per share)          -        -       -     -      -       -       -        (370)       -           (370)
     Preferred C ($.90 per share)          -        -       -     -      -       -       -         (40)       -            (40)
Change in unrealized gain on
     available-for-sale securities,
     net of taxes                          -        -       -     -      -       -       -         -        3,069        3,069
                                       _______   _____  ______   ___  _______   ___   ______    ______      _____       ______
BALANCE, DECEMBER 31, 1995             408,728  $1,991  43,631  $578  119,918  $600  $10,000   $16,948     $7,046      $37,163

Net income                                 -        -       -     -      -       -       -       4,364        -          4,364
Purchase and retirement of stock          (976)     (5)     -     -      -       -       -          (7)       -            (12)
Cash dividends:
     Common stock ($1.50 per share)        -        -       -     -      -       -       -        (180)       -           (180)
     Preferred B ($.90 per share)          -        -       -     -      -       -       -        (368)       -           (368)
     Preferred C ($.90 per share)          -        -       -     -      -       -       -         (39)       -            (39)
Change in unrealized gain on
     available-for-sale securities,
     net of taxes                          -        -       -     -      -       -       -       3,850        -          3,850
                                       _______   _____  ______   ___  _______   ___   ______    ______      _____       ______
BALANCE, DECEMBER 31, 1996             407,752  $1,986  43,631  $578  119,918  $600  $10,000     $20,718  $10,896      $44,778

Net income                                 -        -       -     -      -       -       -       6,613        -          6,613
Purchase and retirement of stock        (2,806)    (10)     -     -      -       -       -         (13)       -            (23)
Cash dividends:
     Common stock ($1.50 per share)        -        -       -     -      -       -       -        (180)       -           (180)
     Preferred B ($.90 per share)          -        -       -     -      -       -       -        (366)       -           (366)
     Preferred C ($.90 per share)          -        -       -     -      -       -       -         (39)       -            (39)
Change in unrealized gain on
     available-for-sale securities,
     net of taxes                          -        -       -     -      -       -       -       4,201        -          4,201
                                       _______   _____  ______   ___  _______   ___   ______    ______      _____       ______
BALANCE, DECEMBER 31, 1997             404,946  $1,976  43,631  $578  119,918  $600  $10,000   $26,733    $15,097      $54,984
                                       =======   =====  ======   ===  =======   ===   ======    ======     ======       ======

</TABLE>


The  accompanying  notes  are  an integral part of these consolidated financial
statements.
                                     21
<PAGE>

Southern BancShares (N.C.), Inc. and Subsidiary
Notes to Consolidated Financial Statements_____________________________________
(Dollars in thousands)

Note 1     Summary of Significant Accounting Policies

BancShares

Southern  BancShares  (N.C.), Inc. ("BancShares") is  the  holding  company for
Southern Bank and Trust Company ("Southern"), which operates 42 banking offices
in  eastern North Carolina.  Southern, which began operations in January, 1901,
has  a  non-bank  subsidiary, Goshen, Inc., whose  insurance  agency operations
complement   the   operations  of  its  parent.  Southern  and  BancShares  are
headquartered in Mount Olive, North Carolina.

Principles of Consolidation

The  consolidated  financial  statements include the accounts of BancShares and
its  wholly-owned  subsidiary,  Southern.   The  statements  also  include  the
accounts  of  Goshen, Inc. a  wholly-owned subsidiary of Southern.  BancShares'
financial resources are primarily provided by dividends from Southern and there
are  no  material  differences  between  the results of operations or financial
position  of BancShares and of Southern.  All significant intercompany balances
have been eliminated in consolidation.

Basis of Financial Statement Presentation

The  preparation  of financial statements in conformity with generally accepted
accounting  principles  requires  management  to make estimates and assumptions
that  affect  the  reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts  of  revenues and expenses during the reporting period.  Actual results
could  differ  from  those  estimates.  The  most significant estimates made by
BancShares  in the preparation of its consolidated financial statements are the
determination  of  the  allowance  for loan losses, the valuation of other real
estate, the  valuation  allowance  for  deferred  tax  assets  and  fair  value
estimates for financial instruments.

Reclassifications

Certain  prior  year  balances have been reclassified to conform to the current
year  presentation.  Such  reclassifications  had  no  effect  on net income or
shareholders' equity as previously reported.

Cash and Cash Equivalents

For  purposes  of  reporting cash flows, cash and cash equivalents include cash
and  due  from  banks  and federal funds sold.  Federal funds are purchased and
sold for one day periods.

Investment Securities

BancShares accounts for investment securities under the provisions of Statement
of  Financial  Accounting  Standards  ("Statement")  No. 115,  "Accounting  for
Certain  Investments  in  Debt  and Equity Securities".  Statement 115 requires
that investments in certain debt and equity securities be classified as either:
held-to-maturity  (reported at amortized cost), trading (reported at fair value
with  unrealized  gains and losses included in earnings), or available-for-sale
(reported at fair value with unrealized gains and losses excluded from earnings
and  reported,  net  of  related  income  taxes, as  a  separate  component  of
shareholders' equity).

BancShares'investment securities are classified in two categories and accounted
for as follows:

-   Securities  held-to-maturity:  Securities  held-to-maturity consist of debt
    instruments  for  which  BancShares  has the positive intent and ability to
    hold to maturity, and are reported at amortized cost.

-   Securities  available-for-sale:  Securities  available-for-sale  consist of
    certain  debt  and  marketable  equity securities not classified as trading
    securities  nor  as  securities held-to-maturity, and consist of securities
    which  may  be  sold  in  response to changes in interest rates, prepayment
    risk, regulatory capital requirements and liquidity needs.  BancShares does
    not hold any trading securities.
                                     22
<PAGE>

Gains  and losses on the sale and contribution of securities available-for-sale
are   determined   using   the  specific-identification  method.  Premiums  and
discounts are amortized into income on a level yield basis.

Loans

Loans  are  stated at principal amounts outstanding, reduced by unearned income
and an allowance for loan losses.

Southern  originates  certain  residential  mortgages  with the intent to sell.
Such loans held-for-sale are included in loans in the accompanying consolidated
balance  sheets at the lower of cost or fair value as determined by outstanding
commitments from investors or current quoted market prices.

Interest  income  on  substantially  all  loans  is recognized in a manner that
approximates  the  level  yield  method  when  related  to the principal amount
outstanding.  Accrual  of  interest  is  discontinued on a loan when management
believes  the  borrower's  financial  condition  is  such  that  collection  of
principal  or  interest  is doubtful.  Loans are returned to the accrual status
when the factors indicating doubtful collectibility cease to exist.

Management considers a loan to be impaired when based on current information or
events, it  is  probable  that a borrower will be unable to pay all amounts due
according  to  contractual  terms  of  the  loan agreement.  Impaired loans are
valued  using either the discounted expected cash flow method or the collateral
or  the  collateral  value.  When  the  ultimate collectibility of the impaired
loan's principal is doubtful, all cash receipts are applied to principal.  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.  Future  cash  receipts  are  recorded  as  recoveries of any amounts
previously charged-off.

Southern  provides an allowance for loan losses on a reserve basis and includes
in  operating  expenses  a  provision for loan losses determined by management.
The   allowance   is  reduced  by  charge-off's  and  increased  by  subsequent
recoveries.  Management's  periodic evaluation of the adequacy of the allowance
is  based  on Southern's past loan loss experience, known and inherent risks in
the  portfolio, adverse  situations  that may affect the borrower's experience,
the  estimated  value of any underlying collateral, current economic conditions
and  other  risk factors.  Allowances for loan losses related to loans that are
identified  as  impaired  are  based  on discounted cash flows using the loans'
initial  interest  rates  or  the  fair  value of the collateral if the loan is
collateral  dependent.  Large  groups of smaller balance, homogenous loans that
are  collectively  evaluated  for  impairment (such as credit card, residential
mortgage  and  consumer  installment  loans)  are excluded from this impairment
evaluation, and  their  allowance  for  loan losses is calculated in accordance
with the allowance for loan losses policy discussed above.

Management  believes  it  has  established  the  allowance  in  accordance with
generally  accepted  accounting  principles and in consideration of the current
economic  environment.  While management uses the best information available to
make  evaluations, future  adjustments  may  be necessary if economic and other
conditions differ substantially from the assumptions used.

In  addition,  various  regulatory  agencies, as  an  integral  part  of  their
examination  process, periodically  review Southern's allowance for loan losses
and  losses  on other real estate owned.  Such agencies may require Southern to
recognize  additions  to the allowances based on the examiners' judgments about
information available to them at the time of their examinations.

Premises and Equipment

Premises  and  equipment  are  stated at cost less accumulated depreciation and
amortization.   Depreciation   and   amortization   are   computed   using  the
straight-line method over the estimated lives of the assets.

Depreciation  of  buildings  and  improvements, and  furniture and equipment is
provided over the estimated useful lives of the assets.  Estimated useful lives
range  from  15  to 31.5 years for buildings and improvements and 3 to 10 years
for furniture and equipment.

Intangible Assets

Intangible assets amounted to $5,506 and $5,991 in 1997 and 1996, respectively.
Such assets are generally amortized on an accelerated basis over a period of 10
years.  Intangible  assets  are subject to periodic review and are adjusted for
any impairment of value.
                                     23
<PAGE>

Southern BancShares (N.C.), Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued) ________________________
(Dollars in thousands)

Note 1.          Summary of Significant Accounting Policies - continued

Income Taxes

BancShares  uses  the asset and liability method to account for deferred income
taxes.  The  objective  of  the  asset  and  liability  method  is to establish
deferred  tax  assets and liabilities for the temporary differences between the
financial  reporting  basis  and the income tax basis of BancShares' assets and
liabilities  at  enacted  rates  expected to be in effect when such amounts are
realized or settled.

BancShares files a consolidated federal income tax return with Southern and its
subsidiaries.   The   method  of  allocating  federal  income  tax  expense  is
determined  under  a  tax  allocation  agreement  between  BancShares  and  the
subsidiaries.  This allocation agreement specifies that income tax expense will
be computed for subsidiaries on a separate company basis.

Recognition  of  deferred tax assets is based on management's belief that it is
"more  likely  than not" that the tax benefit associated with certain temporary
differences, operating loss carry forwards and tax credits will be realized.  A
valuation  allowance  is recorded for deferred tax assets when the "more likely
than not" standard is not met.

Earnings Per Common Share

In  February  1997,  the  FASB  issued  Statement  128, "Earnings  per  Share".
Statement  128  establishes standards for computing and presenting earnings per
share  ("EPS")  and  applies  to  entities  with  publicly held common stock or
potential  common stock.  This statement simplifies the standards for computing
EPS  previously  found  in  APB Opinion No. 15, "Earnings per Share", and makes
them  comparable  to  international  EPS standards.  Statement 128 replaces the
presentation  of  primary  EPS with a presentation of basic EPS.  Statement 128
also  requires  dual  presentation  of basic and diluted EPS on the face of the
income  statement for all entities with complex capital structures and requires
a  reconciliation of the numerator and denominator of the basic EPS computation
to the numerator and denominator of the diluted EPS computation.  Statement 128
is  effective for financial statements issued for periods ending after December
15, 1997, including  interim  periods, with  earlier application not permitted.
Additionally, once  adopted, restatement of all prior-period EPS data presented
was  required.  Adoption  of  this  pronouncement  did  not  have  an effect on
BancShares' consolidated  financial statements since BancShares has no dilutive
securities.

Earnings  per common share are computed by dividing income applicable to common
shares  by  the weighted average number of common shares outstanding during the
period.  Income  applicable  to  common shares represents net income reduced by
dividends paid to preferred shareholders.

Earnings per common share are calculated based on the following amounts for the
years ended December 31:

<TABLE>
<CAPTION>
                                              1997        1996        1995
                                             ______      ______      ______
<S>                                          <C>         <C>         <C>
Net income                                   $6,613      $4,364      $3,913
Less: Preferred dividends                      (405)       (407)       (410)
                                              _____       _____       _____
Net income applicable to common  shares      $6,208      $3,957      $3,503
                                              =====       =====       =====
Weighted average common shares
   outstanding during the period             119,918     119,918     121,226
                                             =======     =======     =======

</TABLE>
                                     24
<PAGE>

New Accounting Standards

In  June 1997, the FASB issued Statement 130, "Reporting Comprehensive Income".
Statement  130 establishes standards for reporting and display of comprehensive
income  and  its  components  in  a  full  set  of  general  purpose  financial
statements.  It  does  not  address  issues  of  recognition or measurement for
comprehensive  income  and its components.  The provisions of Statement 130 are
effective for fiscal years beginning after December 15, 1997.  BancShares plans
to  adopt this statement in fiscal 1998 and will make the necessary disclosures
of comprehensive income for periods beginning in 1998.

In  June 1997, the FASB issued Statement 131, "Disclosures about Segments of an
Enterprise  and  Related  Information".  Statement  131  requires  that  public
business  enterprises  report  certain  information about operating segments in
complete sets of financial statements issued to shareholders.  It also requires
that  public  business  enterprises  report  certain  information  about  their
products  and  services, the  geographic  areas in which they operate and their
major  customers.  The  provisions  of  Statement  131 are effective for fiscal
years beginning after December 15, 1997.  Adoption of this pronouncement is not
expected  to  have  a  material  effect  on  BancShares' consolidated financial
statements.

In  February 1998, the FASB issued Statement 132, "Employers' Disclosures about
Pensions  and  Other Postretirement Benefits."  This statement standardizes the
disclosure  requirements  of  pensions and other postretirement benefits.  This
statement  does  not change any measurement or recognition provisions, and thus
will  not materially impact BancShares.  This statement is effective for fiscal
years beginning after December 15, 1997.

Note 2.      Investment Securities

The  amortized  cost  and  estimated  fair  values  of investment securities at
December 31 were as follows:

<TABLE>
<CAPTION>
                                                1997                                        1996
                                                ____                                        ____
                                          Gross       Gross     Estimated              Gross       Gross      Estimated
                             Amortized  Unrealized  Unrealized    Fair     Amortized Unrealized  Unrealized     Fair
                               Cost       Gains       Losses      Value       Cost     Gains       Losses       Value
                             ________    ________    ________   ________   ________   ______      _______      _______
SECURITIES HELD-TO-MATURITY:
<S>                          <C>         <C>       <C>        <C>        <C>         <C>         <C>          <C>
  U. S. Government            $33,969       122          -        34,091    $36,311       91           -        36,402
  Obligations of states and
    political subdivisions     22,212       890          -        23,102     27,165      799           (4)      27,960
  Corporate securities            100         1          -           101        200       -            (3)         197
                               ______     _____       ______      ______     ______      ___         ____       ______
                               56,281     1,013          -        57,294     63,676      890           (7)      64,559
                               ______     _____       ______      ______     ______      ___         ____       ______



SECURITIES AVAILABLE-FOR-SALE:

  U. S. Government             82,471       130         (9)       82,592     70,121       -           (15)      70,106
  Marketable equity securities  8,119    22,183         (8)       30,294      8,612    6,296          (97)      24,811
  Obligations of states and
    political subdivisions      8,411       527          -         8,938      7,647      278           (4)       7,921
  Mortgage-backed securities    1,977        51          -         2,028      2,124      106          (55)       2,175
                               ______     _____       ______      ______     ______   ______         ____       ______

                              100,978    22,891        (17)      123,852     88,504   16,680         (171)     105,013
                               ______     _____       ______      ______     ______   ______         ____       ______

TOTALS                       $157,259    23,904        (17)      181,146   $152,180   17,570         (178)     169,572
                              =======    ======       ======     =======    =======   ======          ===      =======
</TABLE>

Securities  with  a  par  value of $53,015 were pledged at December 31, 1997 to
secure  public  deposits  and  for  other  purposes  as  required  by  law  and
contractual arrangements.
                                     25
<PAGE>

Southern BancShares (N.C.), Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued) ________________________
(Dollars in thousands)

Note 2.     Investment Securities - continued

The  amortized cost and estimated fair value of debt securities at December 31,
1997, by  contractual  maturity, are  shown  below.  Expected  maturities  will
differ  from  contractual maturities because issuers may have the right to call
or prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                                       Amortized     Fair
                                                          Cost       Value
Held-to-maturity securities:                            _______      ______
<S>                                                   <C>         <C>
  Due in one year or less                              $  6,584    $  6,595
  Due after one year through five years                  40,060      40,356
  Due after five years through ten years                  6,911       7,331
  Due after ten years                                     2,726       3,012
                                                         ______      ______
                                                         56,281      57,294
                                                         ======      ======
Available-for-sale securities:
  Due in one year or less                                45,609      45,649
  Due after one year through five years                  37,869      37,978
  Due after five years through ten years                  2,124       2,277
  Due after ten years                                     5,280       5,626
  Mortgage-backed securities                              1,977       2,028
  Marketable equity securities                            8,119      30,294
                                                        _______     _______
                                                       $100,978    $123,852
                                                        =======     =======
</TABLE>

On  December  17, 1996,  the  board  of  directors  of  Southern  approved  the
contribution  of  7,500  shares of marketable equity securities to the Southern
Bank Foundation.  These investments had a cost basis of $78 and a fair value of
$536  on  that date, resulting in the recognition of a realized securities gain
of  $458.  BancShares  recorded charitable contribution expense of $536 related
to this transaction.

On  February  14,  1997, the  board  of  directors  of  Southern  approved  the
contribution  of  48,250 shares of marketable equity securities to the Southern
Bank  Foundation.  These investments had a cost basis of  $542 and a fair value
of  $4,071  on that date, resulting in the recognition of a realized securities
gain  of $3,529.  BancShares recorded charitable contribution expense of $4,071
related to this transaction.

Sales  of securities available-for-sale having a cost basis of $216 resulted in
gross  realized  gains  of  $2,030 for 1997.  There were no sales of securities
available-for-sale   during  the  years  ended  December  31,  1996  and  1995.
Excluding  the  gains  discussed above, gains on investment securities in 1997,
1996 and 1995 were attributable to issuer calls of debt securities.

Note 3.      Loans

<TABLE>
<CAPTION>

Loans by type were as follows:

                                                      December 31,
                                                      ____________
                                                  1997            1996
                                                  ____            ____
<S>                                           <C>             <C>
Commercial, financial and agricultural         $ 84,281        $ 70,881
Real estate - construction                        5,209           2,470
Real estate - mortgage                          220,127         206,870
Consumer                                         35,780          35,512
Lease financing                                   5,385           2,370
                                                _______         _______
  Total loans                                   350,782         318,103
    Less unearned income                         (1,429)           (348)
                                                _______         _______
      Total loans lessunearned income          $349,353        $317,755
                                                =======         =======

Loans held for sale                            $  3,019        $  4,143
Loans serviced for others                      $ 78,426        $ 73,202

</TABLE>

                                     26
<PAGE>

On December 31, 1997 and 1996, total loans to directors, executive officers and
related  individuals  and  organizations  were $1,469 and $4,734, respectively.
During  1997, $208  of new loans were made to this group and repayments totaled
$3,473.  There were no restructured or nonaccrual loans to directors, executive
officers  or  related  individuals and organizations.  All extensions of credit
to  such  persons  have  been  made  in  the  ordinary  course  of  business on
substantially the same terms, including interest rates and collateral, as those
prevailing  at  the  time  in  comparable  transactions with others and did not
involve more than normal risks of collectibility.

Note 4.      Allowance for Loan Losses

Transactions  in  the  allowance  for  loan  losses  for  the three years ended
December 31 were:

<TABLE>
<CAPTION>
                                                    December 31,
                                                    ___________
                                             1997       1996       1995
                                             ____       ____       ____
<S>                                        <C>        <C>        <C>
Balance at beginning of year                $6,163     $6,321     $6,653
Provision for loan losses                       60        140        -
Loans charged off                             (463)      (539)      (463)
Loan recoveries                                211        241        131
                                             _____      _____      _____
Balance at end of the year                  $5,971     $6,163     $6,321
                                             =====      =====      =====
</TABLE>

At  December 31, 1997 and 1996, Southern had nonaccrual loans of $230 and $147,
respectively.  At  December  31, 1997 and 1996, Southern had restructured loans
of  $0  and  $8, respectively.  At  December  31, 1997  and  1996, Southern had
accruing  loans  past due 90 days or more totaling $466 and $343, respectively.
The  amounts  of foregone interest on nonaccrual and restructured loans for the
years  ended December 31, 1997, 1996 and 1995 were not material for the periods
presented.  At  December  31,  1997  and  1996, Southern's  impaired  loans, as
determined  under Statement 114, were less than the nonaccrual and restructured
loan amounts presented above, and no additional allowances for loan losses were
required  as  a  result  of  the application of Statement 114 to these impaired
loans.

Note 5.      Premises and Equipment

<TABLE>
<CAPTION>

The components of premises and equipment were as follows:

                                                     December 31,
                                                    _____________
                                                    1997     1996
                                                    ____     ____
<S>                                              <C>      <C>
Land                                              $ 3,377  $ 2,783
Buildings and improvements                         14,292    9,262
Furniture and equipment                             6,387    5,804
Construction-in-progress                               90    3,467
                                                   ______   ______
                                                   24,146   21,316
Less: accumulated depreciation                     (5,989)  (5,877)
                                                   ______   ______
                                                  $18,157  $15,439
                                                   ======   ======
</TABLE>

Note 6.      Income Taxes

<TABLE>
<CAPTION>

The  components of income tax expense (benefit) for the years ended December 31
were:

                                               1997     1996    1995
                                               ____     ____    ____
<S>                                           <C>     <C>      <C>
Current:
  Federal                                     $1,737  $1,348   $1,040
  State                                            8      21        6
                                               _____   _____    _____
                                               1,745   1,369    1,046
                                               _____   _____    _____
Deferred:
  Federal                                     (1,405)   (242)     247
                                               _____   _____    _____
                                              $  340   1,127   $1,293
                                               =====   ===== =  =====
</TABLE>
                                     27
<PAGE>

Southern BancShares (N.C.), Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued) ________________________
(Dollars in thousands)

Note 6.          Income Taxes - continued

A  reconciliation  of  the expected tax expense, based on the Federal statutory
rate  of  34 percent, to the actual tax expense for the years ended December 31
is as follows:

<TABLE>
<CAPTION>
                                                 1997     1996     1995
                                                 ____     ____     ____
<S>                                            <C>     <C>      <C>
Amount of tax computed at Federal
  statutory rate of 34 percent                  $2,364  $ 1,867  $ 1,770
Increase (decrease) in taxes
resulting from:
  Tax exempt income                               (943)    (792)    (625)
  Amortization of intangible assets                172      167      190
  Nontaxable gain on securities donated         (1,200)    (162)      -
  State income tax (net of federal benefit)          5       14        4
  Other, net                                       (58)      33      (46)
                                                 _____    _____    _____
                                                $  340  $ 1,127  $ 1,293
                                                 =====    =====    =====

  Effective tax rate                                 5%      21%      25%
                                                 =====    =====    =====
</TABLE>

Significant components of BancShares' deferred tax liabilities and (assets) are
as follows:

<TABLE>
<CAPTION>

                                                          December 31,
                                                        _______________
                                                        1997      1996
                                                        ____      ____
<S>                                                  <C>      <C>
Deferred tax liabilities:
  Depreciation                                        $  741    $  703
  Leased assets                                          164       134
  Investment securities                                7,777     5,613
  Other                                                  264       279
                                                       _____     _____
    Gross deferred tax liabilities                     8,946     6,729
                                                       _____     _____
Deferred tax assets:
  Allowance for loan losses                           (1,594)   (1,574)
  Intangible assets                                     (696)     (446)
  Other                                               (1,245)      (57)
                                                       _____     _____
    Gross deferred tax assets                         (3,535)   (2,077)
                                                       _____     _____
Net deferred tax liability                           $ 5,411   $ 4,652
                                                       =====     =====
</TABLE>

No  valuation  allowance  for  deferred tax assets was required at December 31,
1997  or  1996.  Management has determined that it is more likely than not that
the  net  deferred  tax asset can be supported by carrybacks to federal taxable
income  in  the  carryback period.  A portion of the change in the net deferred
tax  liability  relates  to  unrealized gains on securities available-for-sale.
The  related  deferred  tax  charges of approximately $2,164 and $1,983 for the
years  ended  December  31, 1997  and  1996, respectively, have  been  recorded
directly to shareholders' equity as a reduction of the related unrealized gains
on securities available-for-sale.
                                     28
<PAGE>

Note 7.      Deposits

<TABLE>
<CAPTION>

Deposits at December 31 are summarized as follows:


                                                    1997         1996
                                                    ____         ____
<S>                                             <C>          <C>
Demand                                           $ 66,565     $ 64,089
Checking  with  interest                           66,695       66,554
Savings                                            51,087       51,969
Money market accounts                              50,061       45,027
Time                                              278,920      252,927
                                                  _______      _______
  Total deposits                                 $513,328     $480,566
                                                  =======      =======
</TABLE>

Total  time  deposits  with  a  denomination  of  $100 or more were $53,004 and
$45,566 at December 31, 1997 and 1996, respectively.
<TABLE>
<CAPTION>

At December 31, 1997, the scheduled maturities of time deposits were:

<S>                 <C>                                    <C>
                     1998                                   $ 228,168
                     1999                                      34,706
                     2000                                      15,708
                     2001                                         338
                     2002 and thereafter                          -
                                                              _______
                           Total time deposits               $278,920
                                                              =======
</TABLE>

Note 8.      Short-Term Borrowings and Long-Term Obligations

Short-Term Borrowings

<TABLE>
<CAPTION>

Short-term borrowings at December 31 were:

                                                       1997     1996
                                                       ____     ____
<S>                                                  <C>      <C>
U.S. Treasury tax and loan accounts                   $2,065   $1,226
Repurchase agreements                                  4,761    3,838
                                                       _____    _____
  Total short-term borrowings                         $6,826   $5,064

                                                       =====    =====
</TABLE>

The  U. S. Treasury  tax and loan accounts averaged $997 and $1,052 in 1997 and
1996, respectively.  The  highest  month-end  balance of the U. S. Treasury tax
and  loan  accounts  in 1997 and 1996 was $2,215 and $1,300, respectively.  The
average  rate on U. S. Treasury tax and loan deposits in 1997 and 1996 was 5.85
and 5.09 percent, respectively.

The  repurchase  agreements  averaged  $4,819  and  $2,934  in  1997  and 1996,
respectively.  The  highest  month-end  balance of the repurchase agreements in
1997  and  1996  was  $5,929  and  $4,507, respectively.  The  average  rate on
repurchase agreements in 1997 and 1996 was 4.18 and 4.04 percent, respectively.
At  December  31, 1997  investment securities with a book value of $11,028 were
pledged   for   repurchase   agreements.  The  securities  collateralizing  the
repurchase  agreements have been delivered to a third party •custodian for
safekeeping.
                                     29
<PAGE>

Southern BancShares (N.C.), Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued) ________________________
(Dollars in thousands)

Note 8.          Short-Term Borrowings and Long-Term Obligations - continued

Long-Term Obligations

The  $4,750 note payable to a bank at December 31, 1997, was negotiated in 1997
by  BancShares  to provide additional capital to its subsidiary, and is secured
by  investment  securities.  Interest  is payable quarterly at the 90 day LIBOR
rate  plus 70 basis points.  Future principal payments as of December 31, 1997,
are as follows:

<TABLE>
<CAPTION>
<S>                                                 <C>            <C>
                                                     1998           $1,800
                                                     1999            1,800
                                                     2000            1,150
                                                                     _____
                                                                    $4,750
                                                                     =====
</TABLE>


Note 9.      Acquisitions

BancShares  has  consummated numerous acquisitions in recent years.  All of the
transactions  have  been  accounted  for  as  purchases, with  the  results  of
operations  not included in BancShares' consolidated statements of income until
after  the  transaction  date.  The  pro  forma  impact of the acquisitions, as
though  they  had  been  made at the beginning of the periods presented, is not
material to BancShares' consolidated financial statements.

The  following  table provides information regarding the acquisitions that have
been consummated during the three-year period ending December 31, 1997:

<TABLE>
<CAPTION>
                                                                 Deposit
                                                     Assets    Liabilities   Resulting
Date          Institution/Location                  Acquired     Assumed     Intangible
___________  ____________________________________   ________   ___________   __________
<S>         <C>                                     <C>         <C>            <C>
May 1997     Wachovia Bank of North Carolina, N.A.   $5,083      $5,117         $179
             Aulander, North Carolina

May 1997     Wachovia Bank of North Carolina, N.A.   11,803      11,838          947
             Aurora, North Carolina

May 1997     Wachovia Bank of North Carolina, N.A.    4,073       4,106          144
             Hamilton, North Carolina

August 1996  United Carolina Bank                     6,085       6,085          419
             Edenton, North Carolina

June 1996    First Citizens Bank                      7,352       7,348          539
             Windsor, North Carolina

June 1995    First Union National Bank               18,041      18,039          774
             Farmville, North Carolina

June 1995    First Union National Bank                9,299       9,297          399
             Garland, North Carolina

June 1995    First Union National Bank                8,057       8,057          345
             Kill Devil Hills, North Carolina

June 1995    First Union National Bank               12,427      12,425          533
             Salemburg, North Carolina

June 1995     First Citizens Bank                     3,109       3,107           62
              Kill Devil Hills, North Carolina

</TABLE>
                                     30
<PAGE>

Note 10.      Retirement Plans

Southern  has  a  noncontributory, defined  benefit  pension  plan which covers
substantially  all  full-time employees.  Employees who qualify under length of
service  and  other  requirements  participate  in  the noncontributory defined
benefit  pension  plan.  Under the plan, retirement benefits are based on years
of  service  and  average  earnings.  The  policy is to fund the maximum amount
allowable for federal income tax purposes.  The plan's assets consist primarily
of  investments  in  a  related bank's common trust funds, which include listed
common  stocks  and  fixed  income  securities (see Note 15).  It is Southern's
policy to determine the service cost and projected benefit obligation using the
Projected Unit Credit Cost method.

Pension  expense  is  included  in personnel expense and includes the following
components:

<TABLE>
<CAPTION>

                                                   1997     1996     1995
                                                   ____     ____     ____
<S>                                               <C>      <C>      <C>
Service benefits earned during the period          $298     $255     $191
Interest cost on projected benefit obligation       418      373      338
Return on assets                                   (818)    (309)    (865)
Net amortization and deferral                       493        2      540
                                                    ___      ___      ___
Net periodic pension cost                          $391     $321     $204
                                                    ===      ===      ===
</TABLE>

<TABLE>
<CAPTION>
The funded status of the plan as of December 31 was as follows:

                                                                1997     1996
                                                                ____     ____
<S>                                                         <C>      <C>
Accumulated benefit obligation, including
   vested benefits of $4,508 and $3,873, respectively         $ 4,853  $ 4,031
                                                                =====    =====
Projected benefit obligation                                  $(6,598) $(5,417)
Plan assets, at fair value                                      5,943    4,936
Plan assets in excess of (less than) projected                  _____    _____
  benefit obligation                                             (655)    (481)
Unrecognized prior service cost                                    81       90
Unrecognized net loss                                             530      409
Unrecognized transition asset                                    (225)    (265)
                                                                _____    _____
Prepaid (accrued) pension expense                             $  (269) $  (247)
                                                                =====    =====
</TABLE>

The  projected benefit obligation was determined using an assumed discount rate
of  7.25  percent at December 31, 1997, 1996 and 1995, respectively, an assumed
long-term  rate of compensation increase of  4.25 percent at December 31, 1997,
1996  and  1995, respectively, and  an assumed long-term rate of return on plan
assets  of  8.25  percent, 8.25  percent and 8.50 percent at December 31, 1997,
1996 and 1995, respectively.

Employees are also eligible to participate in a matching savings plan after one
year of service.  During 1997 Southern made participating contributions to this
plan of $220 compared to $198 during 1996 and $173 during 1995.

Note 11.      Regulatory Requirements and Restrictions

BancShares  and  its  banking  subsidiary  are  subject to certain requirements
imposed   by   state  and  federal  banking  statutes  and  regulations.  These
regulations  establish  guidelines for minimum capital levels, restrict certain
dividend  payments  and  require the maintenance of noninterest-bearing reserve
balances  at  the  Federal  Reserve Bank.  Such reserves averaged $9,760 during
1997  of  which $8,489 was satisfied by vault cash and the remainder by amounts
held in the Federal Reserve Bank.

Various  regulatory  agencies have implemented guidelines that evaluate capital
based  on  risk  adjusted  assets.  An additional capital computation evaluates
tangible  capital  based  on  tangible assets. Minimum capital requirements set

                                     31
<PAGE>

Southern BancShares (N.C.), Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued) ________________________
(Dollars in thousands)

Note 11.          Regulatory Requirements and Restrictions - continued

forth  by  the  regulators  require  a  Tier  1 capital ratio of no less than 4
percent  of  risk-adjusted  assets, a  total  capital  ratio  of no less than 8
percent of risk-adjusted assets, and a leverage capital ratio of no less than 4
percent  of  average  tangible  assets.  To  meet the Federal Deposit Insurance
Corporation's  ("FDIC")  "well  capitalized"  standards, the  Tier  1 and total
capital  ratios  must  be  at  least  6  percent  and 10 percent, respectively.
Failure  to  meet minimum capital requirements may result in certain actions by
regulators  that  could  have  a  direct  material  effect  on the consolidated
financial  statements.  As  of December 31, 1997, Southern was considered to be
"well capitalized" by the FDIC.

<TABLE>
<CAPTION>

Southern's capital ratios as of December 31, 1997 and 1996 are set forth below:

                                                  1997          1996
                                                  ____          ____
<S>                                            <C>           <C>
Risk-based capital:
Tier 1 capital                                  $ 33,999      $ 27,891
Total capital                                     37,876        31,861
Risk-adjusted assets                             295,654       298,862
Average tangible assets                          564,633       510,574

Tier 1 capital ratio                               11.50%         9.33%
Total capital ratio                                12.81%        10.66%
Leverage capital ratio                              6.02%         5.46%

</TABLE>

The  primary  source  of  funds  for  the  dividends  paid by BancShares to its
shareholders  is  dividends  received from its banking subsidiary.  Southern is
restricted  as to dividend payout by state laws applicable to banks and may pay
dividends only out of retained earnings.  Should at anytime its surplus be less
than  50%  of  its  paid-in  capital stock, Southern may not declare a dividend
until it has transferred from retained earnings to surplus 25% of its undivided
profits or any lesser percentage that may be required to restore its surplus to
an  amount  equal to 50% of its paid-in capital stock.  Additionally, dividends
paid  by  Southern  may be limited by the need to retain sufficient earnings to
satisfy  minimum  capital  requirements  imposed  by  the  FDIC.  Dividends  on
BancShares' common  shares may be paid only after dividends on preferred Series
"B" and "C" shares  have  been  paid.  Common  share  dividends  are based upon
BancShares' profitability and paid at the discretion of the Board of Directors.
Management  does  not  expect  any  of the foregoing restrictions to materially
limit  its  ability  to pay dividends comparable to those paid in the past.  At
December  31,  1997, Southern  had  available  for  the  payment  of  dividends
undivided   profits  of  approximately  $8.8  million,  unless  declaration  of
dividends for such amount would reduce the regulatory capital of Southern below
the  minimum levels discussed above.  At December 31, 1997, approximately $39.4
million  of BancShares' investment in Southern was restricted as to transfer to
BancShares without obtaining prior regulatory approval.

Common  shareholders  are  entitled  to  one vote per share and both classes of
preferred  shareholders  are entitled to one vote for each 38 shares owned of a
class.

Note 12.      Commitments, Contingencies and Concentration of Credit Risk

In  the  normal course of business there are various commitments and contingent
liabilities  outstanding, such  as  guarantees, commitments  to  extend credit,
etc., which are not reflected in the accompanying financial statements.

Southern  is  party to financial instruments with off-balance-sheet risk in the
normal  course  of business to meet the financing needs of its customers and to
reduce  its  own  exposure  to fluctuations in interest rates.  These financial
instruments include commitments to extend credit, standby letters of credit and
undisbursed  advances  on customer lines of credit.  These instruments involve,
to  varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the consolidated balance sheet.

                                     32
<PAGE>

Southern is exposed to credit loss, in the event of nonperformance by the other
party to the financial instrument, for commitments to extend credit and standby
letters  of  credit  which is represented by the contractual notional amount of
those  instruments.  Southern  uses  the  same  credit policies in making these
commitments  and  conditional  obligations  as  it  does  for  on-balance-sheet
instruments.

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

Standby  letters  of credit are commitments issued by Southern to guarantee the
performance  of  a  customer  to  a  third  party.  The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending
loans to customers.

Outstanding standby letters of credit as of December 31, 1997 and 1996 amounted
to  $1,324  and  $1,260, respectively. Outstanding commitments were $53,763 and
$48,878  at  December 31, 1997 and 1996, respectively.  Undisbursed advances on
customer  lines  of  credit  were  $29,602 and $22,084 at December 31, 1997 and
1996, respectively.  Southern  does  not  anticipate  any losses as a result of
these transactions.

Southern  grants  agribusiness, commercial  and  consumer  loans  to  customers
primarily  in eastern North Carolina.  Although Southern has a diversified loan
portfolio, a  substantial  portion  of  its  debtors' ability  to  honor  their
contracts  is  dependent  upon  the agricultural industry and in particular the
tobacco segment thereof.  For several decades tobacco has come under increasing
criticism  for  potential  health  risks.  Management  is unable to predict the
impact  of  the  contingencies inherent in this market segment as it relates to
Southern.

BancShares  is  also  involved  in  various legal actions arising in the normal
course  of  business.  Management  is  of  the opinion that the outcome of such
actions  will  not have a material adverse effect on the consolidated financial
condition of BancShares.

BancShares  has  deposits  insured  under both of the FDIC insurance funds, the
Bank  Insurance  Fund  ("BIF")  and  the  Savings  Association  Insurance  Fund
("SAIF").  In July 1995, the FDIC and other regulatory agencies proposed a plan
to  recapitalize  the SAIF, and Congress mandated a one-time assessment for all
SAIF-insured  deposits  on  September 30, 1996.  BancShares  had  approximately
$87,000  of  SAIF-insured  deposits  subject  to  the  one-time  assessment and
recorded $569 on September 30, 1996 as a one-time FDIC insurance expense.

                                     33
<PAGE>

Southern BancShares (N.C.), Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued) ________________________
(Dollars in thousands)

Note 13.      Parent Company Financial Statements

Presented  below  are  the  condensed  balance  sheets (parent company only) of
Southern BancShares (N.C.), Inc. as of December 31, 1997 and 1996 and condensed
statements  of income and cash flows for each of the three years ended December
31, 1997, 1996 and 1995.

<TABLE>
<CAPTION>

                                                             December 31,
CONDENSED BALANCE SHEETS                                  _________________
                                                          1997         1996
                                                          ____         ____
<S>                                                  <C>          <C>
ASSETS

Cash                                                  $     33      $     46
Investment securities available-for-sale                15,572         6,188
Investment in subsidiary                                47,700        41,322
                                                        ______        ______
   Total assets                                        $63,305       $47,556
                                                        ======        ======
Liabilities and Shareholders' Equity

Accrued liabilities                                   $  3,562      $  1,378
Accrued interest payable                                     9           -
Note payable                                             4,750         1,400
                                                        ______        ______
   Total liabilities                                     8,321         2,778
Shareholders' equity                                    54,984        44,778
                                                        ______        ______
   Total liabilities and shareholders' equity          $63,305       $47,556
                                                        ======        ======

</TABLE>
<TABLE>
<CAPTION>

CONDENSED STATEMENTS OF INCOME                         Year ended December 31,
                                                      _________________________
                                                       1997      1996     1995
                                                       ____      ____     ____
<S>                                                  <C>       <C>      <C>
Dividends from bank subsidiary                        $5,458    $2,637   $2,507
Other dividends                                           80        78       44
                                                       _____     _____    _____
   Total income                                        5,538     2,715    2,551

Interest expense                                        (295)     (117)    (309)
Miscellaneous income (expense)                           (49)      (42)       6
   Income before equity in undistributed income        _____     _____    _____
        of subsidiary                                  5,194     2,556    2,248
Equity in undistributed income of subsidiary           1,419     1,808    1,665
                                                       _____     _____    _____
   Net income                                         $6,613    $4,364   $3,913
                                                       =====     =====    =====
</TABLE>
                                     34
<PAGE>

<TABLE>
<CAPTION>

CONDENSED STATEMENTS OF CASH FLOWS

                                                               Year ended December 31,
                                                               _______________________
                                                               1997     1996     1995
                                                               ____     ____     ____
<S>                                                           <C>     <C>      <C>
OPERATING ACTIVITIES:

  Net income                                                  $6,613   $4,364   $3,913
  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Equity in undistributed net income of subsidiary        (1,419)  (1,808)  (1,665)
      Increase in accrued liabilities                            -        642      153
      Dividend income in the form of investment securities    (2,753)     -        -
      Increase (decrease) in interest payable                      9      (39)       9
                                                               _____    _____    _____
NET CASH PROVIDED BY OPERATING ACTIVITIES                      2,450    3,159    2,410
                                                               _____    _____    _____
INVESTING ACTIVITIES:

  Purchase of  investments                                      (205)  (1,318)    (444)
  Investments in subsidiaries                                 (5,000)     -        -
                                                               _____    _____     _____
NET CASH USED IN  INVESTING ACTIVITIES                        (5,205)  (1,318)    (444)
                                                               _____    _____     _____
FINANCING ACTIVITIES:

  Dividends paid                                                (585)    (587)    (531)
  Purchase and retirement or redemption of stock                 (23)     (12)    (253)
  Principal additions (payments) on note payable               3,350   (1,200)  (1,200)
                                                               _____    _____    _____
NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES               2,742   (1,799)  (1,984)
                                                               _____    _____    _____
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS             (13)      42      (18)

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF YEAR                46        4       22
                                                               _____    _____    _____

CASH AND CASH EQUIVALENTS AT THE END OF YEAR                $     33   $   46    $   4
                                                               =====    =====    =====

</TABLE>

Note 14.      Fair Value of Financial Instruments

The  following  methods and assumptions were used to estimate the fair value of
each class of financial instrument:

Cash and due from banks, federal funds sold, and accrued interest receivable

The  carrying  amounts  for  cash  and  due  from banks, federal funds sold and
accrued  interest  receivable  are  equal to their fair values due to the short
term nature of these financial instruments.

Investment securities

Fair  values  of investment securities are based on quoted market prices.  If a
quoted  market  price  is  not  available, fair value is estimated using quoted
market prices for similar securities.

Loans receivable

For  variable-rate loans that are performing, fair values are based on carrying
values.  The  fair values of fixed rate loans that are performing are estimated
by  discounting  the future cash flows using the current rates at which similar
loans  would  be made to borrowers with similar credit ratings and for the same
remaining  maturities.  The  fair  value of nonperforming loans is based on the
book  value  of  each loan, less an applicable reserve for credit losses.  This

                                     35
<PAGE>

Southern BancShares (N.C.), Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued) ________________________
(Dollars in thousands)

Note 14.          Fair Value of Financial Instruments - continued

reserve  for  credit  losses  is  determined  on  a  loan  by  loan  basis  for
nonperforming  assets  based on one or a combination of the following: external
appraisals,  internal   assessments  using  available  market  information  and
specific borrower information, or discounted cash flow analysis.

Deposits

The  fair  value of demand deposits, savings accounts and money market deposits
is the amount payable on demand at year end.  The fair value of certificates of
deposit  is  estimated  by  discounting the future cash flows using the current
rates paid for similar deposits.

Short-term borrowings and accrued interest payable

The carrying amounts for short-term borrowings and accrued interest payable are
equal  to  the  fair  values  due  to  the short term nature of these financial
instruments.

Long-term obligations

The  carrying  amount for the long-term obligation is considered to be equal to
its fair value since the underlying note bears interest at a variable rate.

Commitments

Southern's  commitments  to  extend  credit  have  no  carrying  value  and are
generally  at  variable rates and/or have relatively short terms to expiration.
Accordingly, these  financial  instruments  are deemed to have no material fair
value.

Fair value estimates are made by management at specific points in time based on
relevant  information  about  the  financial  instrument and the market.  These
estimates  do  not  reflect  any  premium  or  discount  that could result from
offering  for  sale  at  one  time  BancShares' entire holdings of a particular
financial  instrument  nor are potential taxes and other expenses that would be
incurred  in  an  actual  sale  considered.  Because  no  market  exists  for a
significant  portion of BancShares' financial instruments, fair value estimates
are  based  on  judgments  regarding  future  expected loss experience, current
economic  conditions, risk characteristics of various financial instruments and
other   factors.  These   estimates   are  subjective  in  nature  and  involve
uncertainties  and  matters  of  significant  judgment  and therefore cannot be
determined  with precision.  Changes in assumptions and/or the methodology used
could significantly affect the estimates disclosed.  Similarly, the fair values
disclosed   could   vary   significantly   from   amounts  realized  in  actual
transactions.

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, BancShares  has  premises  and equipment
which  are  not  considered  financial  instruments.  Accordingly, the value of
these  assets  has  not  been  incorporated  into the fair value estimates.  In
addition, 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 the estimates.

                                     36
<PAGE>

<TABLE>
<CAPTION>

The  estimated  fair values of BancShares' financial instruments at December 31
are as follows:


                                          1997                     1996
                                   ____________________     ____________________
                                   Carrying   Estimated     Carrying   Estimated
                                    Amount    Fair Value     Amount   Fair Value
                                   ________   __________    ________  __________
<S>                              <C>         <C>          <C>          <C>
Financial assets:
  Cash and due from banks         $ 28,381    $ 28,381     $ 21,445     $ 21,445
  Federal funds sold                10,240      10,240       11,020       11,020
  Investment securities:
    Held-to-maturity                56,281      57,294       63,676       64,559
    Available-for-sale             123,852     123,852      105,013      105,013
  Loans                            343,382     349,805      311,592      322,746
  Accrued interest receivable        4,205       4,205        3,999        3,999

Financial liabilities:
  Deposits                        $513,328    $514,095     $480,566     $481,091
  Short-term borrowings              6,826       6,826        5,064        5,064
  Long-term obligations              4,750       4,750        1,400        1,400
  Accrued interest payable           4,394       4,394        3,204        3,204

</TABLE>

Note  15.      Related Parties

BancShares has entered into various service contracts with another bank holding
company  and  its  subsidiary  (the "Corporation").  The  Corporation  ha s two
significant   shareholders,  which   are   also   significant  shareholders  of
BancShares.  The  first significant shareholder is a director of BancShares and
at  December  31, 1997  beneficially  owned 32,284 shares, or 26.92 percent, of
BancShares' outstanding  common  stock  and  22,171 shares, or 5.47 percent, of
BancShares' outstanding Series B preferred stock.  At the same date, the second
significant  shareholder beneficially owned 27,577 shares, or 23.00 percent, of
BancShares'  outstanding  common  stock, and 17,205 shares, or 4.24 percent, of
BancShares' Series B preferred stock.  The above totals include 17,205 Series B
preferred shares, or 4.24 percent, that are considered to be beneficially owned
by  both  of  the  shareholders  and, therefore, are  included in each of their
totals.

These  two significant shareholders are directors and executive officers of the
Corporation  and  at December 31, 1997, beneficially owned 2,548,519 shares, or
26.46  percent, and  1,157,052  shares, or  12.01 percent, respectively, of the
Corporation's  outstanding  Class  A common stock, and 632,146 shares, or 36.04
percent,   and   190,191   shares,  or  10.84  percent,  respectively,  of  the
Corporation' s  outstanding  Class B  common  stock.  The  above totals include
258,136  Class  A  common  shares, or  2.68  percent, and 41,825 Class B Common
shares, or  2.38  percent, that are considered to be beneficially owned by both
of  the  shareholders  and, therefore, are included in each of their totals.  A
subsidiary  of  the  Corporation is First-Citizens Bank & Trust Company ("First
Citizens").   As  more  fully  discussed  elsewhere  herein, Southern  acquired
branches from First Citizens in 1996 and 1995.

<TABLE>
<CAPTION>

The  following  table  lists the various charges paid to the Corporation during
the  years ended December 31,

                                                     1997     1996     1995
                                                    ______   ______   ______
<S>                                                <C>      <C>      <C>
Data and item processing                            $1,840   $1,828   $1,477
Forms, supplies and equipment                          220      300      180
Trustee for employee benefit plans                      66       62       57
Consulting fees                                         79       79       69
Trust investment services                               22       24       24
Internal auditing services                              41      165      132
Other services                                          94      143       64
                                                     _____    _____    _____
                                                    $2,362   $2,601   $2,003
                                                     =====    =====    =====
</TABLE>

Data and item processing expenses include courier services, proof and encoding,
microfilming, check  storage, statement  rendering  and  item processing forms.
BancShares   also  has  a  correspondent  relationship  with  the  Corporation.
Correspondent  account  balances  with the Corporation included in cash and due
from  banks  totaled $10,071, $8,673 and $16,167 at December 31, 1997, 1996 and
1995, respectively.
                                     37
<PAGE>

Southern BancShares (N.C.), Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued) ________________________
(Dollars in thousands)


Note 16.     Subsequent Events

Southern  has entered into an agreement, subject to regulatory approval, to buy
a  branch  from  another bank.  The effect on BancShares will be an increase of
approximately  $21  million  in  deposits.  This transaction is scheduled to be
completed in the second quarter of 1998.

Southern  has received approval from the regulatory authorities to open de novo
branches in two new eastern North Carolina markets.  These branches are planned
to open in 1999.

                                     38
<PAGE>

Directors_____________________________________________________________________

Bynum R. Brown
Murfreesboro, NC
President and Owner,Bynum R. Brown Agency, Inc.
(Real Estate and Insurance)
Secretary-Treasurer, RoanokeValley Nursing Home, Inc.

William H. Bryan
Mt. Olive, NC
President, Director and Treasurer Mount Olive Pickle Company, Inc.
(Manufacturer of Pickle and Pepper Products)

D. Hugh Carlton
Warsaw, NC
President, Carlton Insurance Agency, Inc.
(Insurance)

Robert J. Carroll
Gates, NC
President and Owner, Carroll's Garage, Inc.
(Truck and Farm Equipment Dealer)

Hope H. Connell
Raleigh, NC
Senior Vice President, First-Citizens Bank & Trust Company

J. Edwin Drew
Macclesfield, NC
Retired Physician
Former President, J. Edwin Drew, M.D., P.A.

Moses B. Gillam, Jr.
Windsor, NC
Partner, Gillam and Gillam, Attorneys

LeRoy C. Hand
Camden, NC
Retired Physician, former President, Albemarle Emergency Associates, P.A.

Frank B. Holding
Smithfield, NC
Executive Vice Chairman of the Board, First-Citizens Bank  &  Trust Company and
  First Citizens BancShares

M. J. McSorley
Mount Olive, NC
Vice  Chairman,  Southern  Bank  and  Trust  Company; Vice  President, Southern
  BancShares (N.C.), Inc.

W. B. Midyette, Jr.
Bath, NC
Retired Farmer

W. Hunter Morgan
Sunbury, NC
President, Kellogg-Morgan Agency, Inc.
(Insurance)

Charles I. Pierce, Sr.
Ahoskie, NC
President, Pierce Printing Co., Inc.
(Commercial Printers)

W. A. Potts
Mount Olive, NC
Vice Chairman, Southern BancShares (N.C.), Inc.
(Retired Veterinarian)
Former President, W. A. Potts, DVM, P.A.

Charles L. Revelle, Jr.
Murfreesboro, NC
Chairman  of  the Board and former President, Revelle Agri-Products, Inc.; Vice
  President, Revelle Builders of N. C., Inc.; President, Revelle Equipment Co.,
  Inc. (Agribusiness)

Charles O. Sykes
Mount Olive, NC
President, Mount Olive Livestock Market, Inc.
(Livestock Auction Market and Dealer)

John N. Walker
Mount Olive, NC
President Emeritus, Mount Olive Pickle Company, Inc.

R. S. Williams
Mount Olive, NC
Chairman  of  the  Board  and  Consultant, Southern BancShares (N.C.), Inc. and
  Southern Bank and Trust Company

                                     39
<PAGE>

Officers_______________________________________________________________________


Officers of Southern BancShares (N.C.), Inc.

   R. S. Williams, Chairman of the Board

   John C. Pegram, Jr., President

   M. J. McSorley, Vice President

   David A. Bean, Secretary and Treasurer

   Paul A. Brewer, Assistant Secretary

   R.D. Ray, Assistant Treasurer


Executive Officers of Southern Bank and Trust Company

   R. S. Williams, Chairman of the Board

   M. J. McSorley,  Vice Chairman

   John C. Pegram, Jr., President and Chief Executive Officer

   Paul A. Brewer, Senior Vice President

   R. D. Ray, Senior Vice President

   David A. Bean, Vice President, Controller and Secretary

                                     40
<PAGE>
<TABLE>
<CAPTION>

Southern Bank Offices____________________________________________________________________________________________________________
<S>                         <C>            <C>                               <C>        <C>                           <C>
Branch                       County         Branch                            County     Branch                        County

Ahoskie                      Hertford       Farmville                         Pitt       Plymouth                      Washington
507 E. Main St.                             107 E. Church St.                            612 Washington  St.
Ahoskie, NC 27910-0825                      Farmville, NC 27828-0146                     Plymouth, NC 27962-1023
(252) 332-5149                              (252) 753-2161                               (252) 793-1115

Askewville                   Bertie         Garland                           Sampson    Pollocksville                 Jones
104 W. Askewville St.                       96 South Ingold Ave.                         214 Main St.
Windsor, NC 27983-0529                      Garland, NC 28441-0397                       Pollocksville, NC 28573-0171
(252) 794-3029                              (910) 529-3651                               (252) 224-5191

Aulander                     Bertie         Gatesville                        Gates      Roanoke Rapids                Halifax
119 S. Commerce St.                         203 Main St.                                 1580 E. 10th St.
Aulander, NC 27805-0129                     Gatesville, NC 27938-0203                    Roanoke Rapids, NC 27870-4109
(252) 345-4061                              (252) 357-0190                               (252) 535-3043

Aurora                       Beaufort       Grantham                          Wayne      Robersonville                 Martin
298 North Fifth St.                         3382 U.S. 13 South                           111 N. Main St.
Aurora, NC 27806-0427                       Goldsboro, NC 27530-0729                     Robersonville, NC 27871-0369
(252) 322-4161                              (919) 689-2300                               (252) 795-3041

Ayden                        Pitt           Hamilton                          Martin     Rocky Mount                   Nash
1107 W. 3rd St.                             100 S. Front Street                          230 Sunset Ave.
Ayden, NC 28513-0368                        Hamilton, NC 27840-0425                      Rocky Mount, NC 27802-0428
(252) 736-6138                              (252) 798-6971                               (252) 977-2825

Bath                         Beaufort       Kill Devil Hills North            Dare       Rocky Mount                   Nash
Highway 92                                  3105 N. Croatan Highway                      3690 Sunset Ave.
Bath, NC 27808-0217                         Kill Devil Hills, NC 27948-2036              Rocky Mount, NC 27802-0428
(252) 923-8381                              (252) 441-2871                               (252) 443-7800

Belhaven                     Beaufort       Kill Devil Hills South            Dare       Roxobel                       Bertie
106 E. Main St.                             1906 S. Croatan Highway                      113 South Main St.
Belhaven, NC 27810-0087                     Kill Devil Hills, NC 27948-0329              Roxobel, NC 27872-0159
(252) 943-2184                              (252) 441-6355                               (252) 344-5641

Bethel                       Pitt           LaGrange                          Lenoir     Salemburg                     Sampson
124 N. Main St.                             208 S. Caswell St.                           102 South Main St.
Bethel, NC 27812-0819                       LaGrange, NC 28551-0248                      Salemburg, NC 28385-0160
(252) 825-0031                              (252) 566-4020                               (910) 525-4149

Calypso                      Duplin         Lewiston                          Bertie     Seven Springs                 Wayne
104 West Trade St.                          127 Main St.                                 Main St.
Calypso, NC 28325-0729                      Lewiston-Woodville, NC 27849-0190            Seven Springs, NC 28578-0060
(919) 658-7070                              (252) 348-2561                               (919) 569-3161

Deep Run                     Lenoir         Macclesfield                      Edgecombe  Turkey                        Sampson
Highway 11 & SR 1144                        105 N. Railroad St.                          45 Union Rd.
Deep Run, NC 28525-0126                     Macclesfield, NC 27852-0339                  Turkey, NC 28393-0375
(252) 568-4141                              (252) 827-2111                               (910) 592-7321

Dudley                       Wayne          Mount Olive                       Wayne      Warsaw                        Duplin
Highway 117 Alternate South                 100 North Center St.                         114 N. Pine St.
Dudley, NC 28333-0729                       Mount Olive, NC 28365-0729                   Warsaw, NC 28398-0896
(919) 734-5375                              (919) 658-7000                               (910) 293-7176

Edenton                      Chowan         Mount Olive                       Wayne      Whitakers                     Nash
1207 N. Broad St                            800 North Breazeale Ave.                     101 N. White St.
Edenton, NC 27932-0546                      Mount Olive, NC 28365-0729                   Whitakers, NC 27891-0130
(252) 482-7466                             (919) 658-7100                                (252) 437-0611

Edenton                      Chowan         Murfreesboro                      Hertford   Windsor                       Bertie
101 W. Queen St                             336 East Main St                             101 N. King St.
Edenton, NC 27932-0868                      Murfreesboro, NC 27855-0277                  Windsor, NC 27983-0529
(252) 482-8466                              (252) 398-4174                               (252) 794-3011

Faison                       Duplin         Nashville                         Nash       Winton                        Hertford
110 W. Center St South                      209 Barnes St.                               301 N. Main St.
Faison, NC 28341-0628                       Nashville, NC 27856-0758                     Winton, NC 27986-0278
(910) 267-4351                              (252) 459-2117                               (252) 358-3111

</TABLE>
                                     41
<PAGE>

General Information____________________________________________________________


Shareholders' Meeting

The Annual Meeting of Shareholders will be held on Wednesday, April 15, 1998 at
3:00 P. M. at the Goldsboro Country Club, 1500 South Slocumb Street, Goldsboro,
North Carolina.

Stock Transfer Agent and Registrar

Southern Bank and Trust Company
121 East Main Street
Mount Olive, North Carolina 28365-0729

General Counsel

Ward and Smith, P.A.
New Bern, North Carolina  28563-0867

Auditors

KPMG Peat Marwick LLP
Raleigh, North Carolina 27601

Form 10-K

Copies of Southern BancShares' Annual Reports on Form 10-K are available on the
internet  at  http://www.sec.gov/cgi-bin/srch-edgar  or upon written request to
Secretary, Southern  BancShares (N.C.), Inc. Post  Office Box 729, Mount Olive,
North Carolina 28365-0729. A copy of Southern BancShares' Annual Report on Form
10-K  for  1997, including  Financial Statements and Schedules thereto, will be
provided without charge to any shareholder making such request.

Equal Opportunity Employer

Southern Bank and Trust Company is an equal opportunity employer

Member FDIC

                                     42

<PAGE>