SOUTHERN BANCSHARES (N.C.), INC.

                               1999 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,
            adequate  capital to maintain  soundness and provide for future
            growth 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 17, 2000

    For  Southern  BancShares,  1999 will be  remembered  as a year of continued
growth and substantial accomplishments. Your Company made significant strides in
technology,  customer service, deposit growth and lending growth. Total loans of
Southern  Bancshares  at December 31, 1999,  were $398 million  compared to $364
million at year-end 1998, a 9% increase.  Total deposits of Southern  BancShares
at December  31, 1999,  were $578  million  compared to $557 million at year-end
1998,  a 4%  increase.  Total  consolidated  assets of  Southern  BancShares  at
December 31, 1999, were $669 million  compared to $649 million at year-end 1998,
a 3% increase.

    Net interest income  increased 1% during 1999,  while  noninterest  expenses
increased 8%.  Balance sheet growth within your  Company's  existing  markets is
responsible,  to a large extent, for the increase in net interest income. During
1999,  personnel expenses increased,  as a result of a full year of expenses for
three  locations  acquired in May,  October and December 1998, a partial year of
expenses for a second Ahoskie branch  acquired in September 1999 and the opening
of a new branch in Clinton in November 1999.

    Net income for Southern BancShares decreased $1.9 million, or 34%, from $5.6
million in 1998 to $3.7  million in 1999.  This  decrease  was  principally  the
result of a $1.8 million  reduction in the gains on sales of  securities in 1999
as compared to 1998 and a $465,000 incremental provision for loan losses in 1999
for the overall impact of the September 1999 hurricanes and related  flooding in
eastern North Carolina.

    In 1999 your  Company  opened  its first  branch in  Clinton,  at 925 Sunset
Avenue,  acquired  a  second  branch  in  Ahoskie,  at 700 East  Church  Street,
consolidated  its two Kill Devil  Hills  offices  into a new office at 202 South
Croatan Highway,  successfully  prepared for the Year 2000 event, made important
progress in new customer  product  delivery systems and continued to improve its
in-house staff education programs.

    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.  During 1999 Southern  BancShares  significantly  expanded its
internet  web-site  containing  bank history,  product and service  information,
banking locations and E-mail capabilities at www.southernbanknc.com. Significant
progress was made in the development of Southern Bank Online Banking, the Bank's
internet banking product solution, which is scheduled for full implementation in
the 2nd quarter of 2000.

    During 1999, Southern Bank Automated Teller Machines (ATMs) provided 24 hour
banking services to 20 eastern North Carolina communities. At December 31, 1999,
Southern  Bank  provided   financial  services  to  44  eastern  North  Carolina
communities  through 46 branch locations.  A second  Robersonville  location was
merged in February  2000,  branch  acquisitions  in  Battleboro,  Nashville  and
Sharpsburg  are planned  for April,  2000,  a  significantly  enhanced  internet
banking  product is planned  to be offered in 2000 that will  include  automated
bill paying and on-line loan  applications  and the first full service branch in
Greenville is planned to open in 2000.
<PAGE>
    Your  management team fully  understands  that, in order to be the best bank
for the customers in its market service areas, customer needs must be considered
first in each of the products,  policies and procedures under which your Company
operates.

    Your  management  team  sincerely  believes that its  investments in quality
personnel,  modern technology,  extensive education,  continued expansion of its
financial  service market areas and  improvements in customer  product  delivery
systems  will enable it to realize its overall goal of being the first choice in
its eastern North Carolina  markets for all  individual  and business  financial
services.  Additional  opportunities  are  expected in 2000 that will allow your
Company to further  enhance its financial  services  market share within eastern
North Carolina.

    I am genuinely  pleased with the overall results  accomplished in 1999 and I
sincerely  thank  our  shareholders,  staff,  customers  and  friends  for their
confidence in, loyalty to and support of Southern Bank and Trust Company.

Sincerely,





/s/R. S. Williams
-----------------
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. In 1998 BancShares formed a wholly-owned subsidiary,  Southern Capital
Trust I, a statutory  business  trust that issued $23.0 million of 8.25% Capital
Securities  (the  "Capital  Securities")  in June  1998  maturing  in 2028.  All
significant  activities  of the  Registrant  and its  subsidiaries  are  banking
related so that the Registrant  operates  within one industry  segment.  Neither
BancShares nor its subsidiaries have any foreign operations.

    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
46 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 35 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-two  automatic  teller  machines:  one each in Ahoskie,
Ayden, Belhaven,  Bethel, Clinton,  Edenton,  Farmville,  LaGrange, Mount Olive,
Murfreesboro,  Nags Head,  Nashville,  Plymouth,  Red Springs,  Roanoke  Rapids,
Warsaw,  Whitakers and Windsor, North Carolina and two each in Kill Devil Hills,
North Carolina and Rocky Mount, 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
http://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 1999,  including Financial Statements
and Schedules thereto, will be provided without charge to the shareholder making
such request.



                                       3



<PAGE>
MANAGEMENT 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 1999,  1998 and 1997. 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.
<PAGE>
<TABLE>
<CAPTION>
Table 1
-------
Five-Year Financial Summary, Selected Balances and Ratios
---------------------------------------------------------
     (Dollars in thousands, except share data and ratios)
                                                                                    December 31,
--------------------------------------------------------------------------------------------------------------------------
                                                         1999           1998            1997           1996       1995
--------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>            <C>             <C>            <C>
Summary of Operations
Interest income                                       $ 42,134       $ 41,702        $ 39,055       $ 36,776     $ 32,894
Interest expense                                        19,967         20,328          18,827         17,450       16,055
--------------------------------------------------------------------------------------------------------------------------
Net interest income                                     22,167         21,374          20,228         19,326       16,839
Provision for loan losses                                  830            155              60            140          --
--------------------------------------------------------------------------------------------------------------------------
Net interest income
    after provision for loan losses                     21,337         21,219          20,168         19,186       16,839
Noninterest income                                       5,119          6,544           9,849          4,508        4,028
Noninterest expense                                     21,627         20,107          23,064         18,203       15,661
--------------------------------------------------------------------------------------------------------------------------
Income before income taxes                               4,829          7,656           6,953          5,491        5,206
Income taxes                                             1,150          2,060             340          1,127        1,293
--------------------------------------------------------------------------------------------------------------------------
Net income                                           $   3,679        $ 5,596         $ 6,613        $ 4,364      $ 3,913
==========================================================================================================================
Selected Year-End Balances
Total assets                                          $669,232       $649,425        $590,752       $540,758     $496,980
Investment securities and federal funds sold           214,583        221,102         190,373        179,709      164,526
Loans                                                  398,060        364,489         349,216        317,755      287,960
Interest-earning assets                                613,340        590,699         544,789        499,164      452,486
Deposits                                               578,250        556,752         513,328        480,566      449,002
Interest-bearing liabilities                           518,727        507,326         458,335        422,941      396,631
Shareholders' equity                                    54,944         56,033          54,984         44,778       37,163
Common shares outstanding                              118,912        119,266         119,918        119,918       19,918
---------------------------------------------------------------------------------------------------------------------------
Selected Average Balances
Total assets                                          $651,014       $615,828        $567,236       $519,541     $456,499
Investment securities and federal funds sold           215,935        182,356         162,936        157,779      145,417
Loans                                                  380,877        362,298         340,195        310,389      270,563
Interest-earning assets                                600,815        573,431         507,971        469,792      415,980
Deposits                                               558,386        526,555         498,303        459,552      407,252
Interest-bearing liabilities                           509,935        463,340         445,354        411,960      366,597
Shareholders' equity                                    55,474         56,423          45,703         40,234       34,657
Common shares outstanding                              119,137        119,685         119,918        119,918      121,226
---------------------------------------------------------------------------------------------------------------------------
Profitability Ratios (averages)
Return on average total assets                             .57%           .91%           1.17%          0.84%        0.86%
Return on average shareholders' equity                    6.63           9.92           14.47          10.85        11.29
Dividend payout ratio (1)                                15.57          10.38            8.85          13.45        13.57
--------------------------------------------------------------------------------------------------------------------------
Liquidity and Capital Ratios (averages)
Loans to deposits                                        68.21%         68.81%          68.27%         67.54%       66.44%
Shareholders' equity to total assets                      8.52           9.16            8.06           7.74         7.59
--------------------------------------------------------------------------------------------------------------------------
Per share of common stock
Net income (2)                                          $27.56         $43.40          $51.77         $33.00       $28.90
Cash dividends                                            1.50           1.50            1.50           1.50         1.00
Book value (3)                                          441.16         448.82          437.22         352.02       288.48
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(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 out- standing for the year
     ended December 31
(3)  Shareholders'  equity less  Preferred B and C at December 31 divided by the
     number of common shares outstanding at December 31



                                       4
<PAGE>

                          ACQUISITIONS AND DISPOSITIONS

    In September 1999 Southern  acquired the Ahoskie,  North Carolina  office of
First-Citizens  Bank & Trust Company. In May 1998 Southern acquired the Enfield,
North  Carolina  office of Enfield  Savings Bank and sold the  Littleton,  North
Carolina office of Enfield Savings Bank to First-Citizens  Bank & Trust Company.
In  October  1998  Southern  acquired  the  Gates,   North  Carolina  office  of
First-Citizens  Bank & Trust Company. In December 1998 Southern acquired the Red
Springs,  North Carolina office of First Union National Bank. 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 2
-------
<TABLE>
<CAPTION>

Branch Transactions
(dollars in thousands)
                                                                                          Loans          Deposits
                                                                Transaction              Acquired        Acquired
                                                                   Date                   (Sold)          (Sold)
-------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>                      <C>              <C>
First-Citizens Bank & Trust Company  - Ahoskie, NC              September 1999           $ 9,211          $14,835
    1999 acquisition totals                                                              $ 9,211          $14,835
===================================================================================================================

Enfield Savings Bank - Enfield, NC.                                   May 1998           $16,662          $18,041
Enfield Savings Bank - Littleton, NC.                                 May 1998                (3)          (2,420)
First-Citizens Bank & Trust Company  - Gates, NC.                 October 1998               226            5,302
First Union National Bank  - Red Springs, NC.                    December 1998                76           16,440
-------------------------------------------------------------------------------------------------------------------
     Net 1998 acquisition totals                                                         $16,961          $37,363
===================================================================================================================

</TABLE>


                              RESULTS OF OPERATIONS

Earnings
--------

    For 1999 net income of $3.7 million  represented a 34.26% decrease from 1998
net income of $5.6 million.  Net income for 1997 was $6.6  million.  Higher 1998
net income  was  principally  the result of gains on sale of  available-for-sale
securities. Excluding the impact of securities gains, income before income taxes
decreased by approximately  $1.0 million between 1998 and 1999,  principally due
to increased  provision for loan losses  associated with the estimated impact of
hurricanes  in September  1999 on eastern  North  Carolina and the  acquisitions
discussed above.

    For 1998 net income of $5.6 million  represented a 15.38% decrease from 1997
net income of $6.6 million.  Net income for 1996 was $4.4  million.  Higher 1997
<PAGE>
net income  was  principally  the result of gains on 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 increased by approximately
$407,000 between 1997 and 1998,  principally due to increased income  associated
with expansion in existing and new markets.

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 1999 net interest  income was $22.2  million as compared to $21.4 million
in 1998, an increase of $792,000 or 3.71%. In 1998 net interest income was $21.4
million as compared  to $20.2  million in 1997,  an increase of $1.1  million or
5.67%.  The 1999 increase was primarily  attributable  to increased loan revenue
from a 5.13% increase in average loan balances outstanding,  from $362.3 million
in 1998 to  $380.9  million  in 1999.  The  yields  received  on  average  loans
outstanding  for 1999  decreased to 8.22% from 8.56% for 1998. The rates paid on
interest-bearing  liabilities  decreased 33 basis points during 1999 and average
interest-bearing  liabilities  increased 10.06% between 1998 and 1999, resulting
in a 1.78% increase in total interest expense.

    In 1998 net interest  income was $21.4  million as compared to $20.2 million
in 1997, an increase of $1.1 million or 5.67%.  In 1997 net interest  income was
$20.2  million as compared to $19.3  million in 1996, an increase of $902,000 or
4.67%.  The 1998 increase was primarily  attributable  to increased loan revenue
from a 6.29% increase in average loan balances outstanding,  from $340.2 million
in 1997 to  $362.3  million  in 1998.  The  yields  received  on  average  loans
outstanding  for 1998  decreased to 8.56% from 8.59% for 1997. The rates paid on
interest-bearing  liabilities  increased 1 basis  point  during 1998 and average
interest-bearing liabilities increased 7.42% between 1997 and 1998, resulting in
a 7.97% increase in total interest expense.

     Loans produced the largest component of interest income, amounting to $31.3
million  in  1999,  $31.0  million  in 1998 and  $29.2  million  in  1997.  This
represented an increase in 1999 of 0.94%.  For the year ended December 31, 1998,
interest income on loans increased 6.07%.  During 1999 average loans outstanding
increased $18.6 million or 5.13%. This increase was primarily due to loan growth
in the existing branch network and the impact of the 1999 branch  acquisition as
set forth in Table 2, above.  The 1998 increase in interest income was primarily
due to loan  growth in the  existing  branch  network and the impact of the 1998
branch  acquisitions  discussed  above.  In  1999,  the  average  yield on loans
decreased to 8.22% from 8.56% in 1998. This decrease resulted from overall lower
market interest rates during most of 1999. The 1997 average yield was 8.59%.


                                       5


<PAGE>


    Earnings  from  investments  and federal  funds sold provided the balance of
interest income,  contributing $10.8 million in 1999, $10.7 million in 1998, and
$9.8 million in 1997. In 1999,  BancShares  realized  lower yields on investment
securities  and  federal  funds  sold  and  larger  average  balances.  In 1998,
BancShares realized lower yields on investment securities and federal funds sold
and larger average  balances.  Average  investment  securities and federal funds
sold were $215.9  million in 1999, an increase from $182.4  million in 1998. The
1999  average  increase  was  principally  the result of growth in the  existing
branch  network  and the impact of the 1999 branch  acquisition  as set forth in
table 2 above.

    Total 1999 interest expense for BancShares  decreased 1.78% after increasing
in 1998 by 7.97%.  The  principal  component of  BancShares'  interest  expense,
interest paid on deposits,  totaled $17.7 million in 1999, $18.7 million in 1998
and $18.2 million in 1997.  BancShares'  deposit base  increased  6.05% in 1999,
primarily as a result of growth in the existing branch network and the impact of
the 1999 branch  acquisition  as set forth in table 2. The interest  expense for
interest-bearing  deposits  increased in 1998  primarily as a result of the 1998
acquisitions.  The average effective rate paid on  interest-bearing  liabilities
was 3.92% in 1999,  4.25% in 1998 and  4.23% in 1997.  During  1998,  BancShares
utilized  long-term  borrowings to provide a $12.0 million investment of capital
into its subsidiary and to refinance the remaining  balance of 1997  borrowings.
The 1998 long-term debt of $23.0 million of 8.25% Capital  Securities  issued in
June 1998 matures in 2028. Interest on long-term obligations was $1.9 million in
1999, $1.3 million in 1998 and $295,000 in 1997. The outstanding  long-term debt
at December 31, 1999 was $23.0 million.

    BancShares'  interest  rate  spread on a tax  equivalent  basis was 3.38% in
1999,  3.45%  in 1998 and  3.60% in 1997.  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, decreased $3.2 million
in 1998. Total noninterest  income was $5.1 million in 1999, as compared to $6.5
million in 1998 and $9.8  million  in 1997.  Total  noninterest  income for 1998
includes   securities   gains   of  $1.8   million   related   to  the  sale  of
available-for-sale  securities.  Total  noninterest  income  for  1997  includes
securities  gains of $5.6  million  related to ( i ) the funding of a charitable
foundation  by  the  contribution  of  appreciated   available-for-sale   equity
securities  and ( ii ) the sale of  appreciated  available-for-sale  securities.
Service charges on deposit  accounts  increased  $298,000,  or 9.32%, in 1999 to
$3.5  million,   from  $3.2  million  in  1998.   This  increase  was  primarily
attributable to the full year impact of the accounts  subject to service charges
acquired in 1998 and the partial  year impact of the 1999  acquisition.  Service
charges  on  deposit  accounts  increased  $281,000,  or 9.63%,  in 1998 to $3.2
million, from $2.9 million in 1997. This increase was primarily  attributable to
the full year impact of the accounts subject to service charges acquired in 1997
and the partial year impact of the 1998 acquisitions.

    BancShares  had an  increase  in 1999 in other  service  charges and fees of
$168,000 primarily  attributable to the full year impact of the accounts subject
to service  charges  acquired  in 1998 and the  partial  year impact of the 1999
acquisition.  BancShares' increase in 1998 in other service charges and fees was
$261,000.
<PAGE>
    During 1999,  the  remaining  noninterest  income  decreased  $104,000  from
$617,000 in 1998 to $513,000 in 1999.  This decrease was primarily  attributable
to $96,000 of increased  losses on the sale of mortgage loans.  During 1998, the
remaining noninterest income increased $38,000 from $496,000 in 1997 to $534,000
in 1998.  This  increase was  primarily  attributable  to increased  credit card
merchant discount income.

Noninterest Expense
-------------------

    The 1997,  1998 and 1999  acquisitions  should enhance the future  operating
results of BancShares.  However, for the following seven to ten years,  earnings
will be  reduced  as  BancShares  amortizes  intangibles  resulting  from  these
acquisitions.  Noninterest  expense also includes  personnel,  data  processing,
occupancy,  furniture  and  equipment,  Federal  Deposit  Insurance  Corporation
("FDIC") insurance assessments, printing, supplies, legal and professional fees,
postage and other  miscellaneous  operating  expenses.  Noninterest  expense was
$21.7  million in 1999  compared to $20.2  million in 1998 and $23.1  million in
1997.  In 1997  BancShares  recorded  $4.1 million of  charitable  contributions
expense related to the funding of a charitable foundation.

    The most significant element of BancShares' noninterest expense is personnel
costs. In 1999,  salaries and benefits  represented $10.8 million, or 49.69%, of
total noninterest  expense.  The personnel costs of 1999 include the impact of a
full year of the costs  related to the 1998  acquisitions  and a partial year of
costs for the  acquisition  made in 1999 and the new branch  opened in 1999.  In
1998,  salaries and  benefits  represented  $9.5  million,  or 47.00%,  of total
noninterest  expense.  The personnel  costs of 1998 include the impact of a full
year of the costs related to the 1997  acquisitions  and a partial year of costs
for the acquisitions  made in 1998. In 1997,  salaries and benefits  represented
$8.8 million,  or 37.99%, 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 1996 and a partial year of costs for the acquisitions made in 1997.

    The  1999   noninterest   expense,   other  than  personnel  and  charitable
contributions,  was $10.8 million, an increase of $207,000, or 1.95%, from $10.6
million in 1998.  Occupancy expenses increased from $1.4 million in 1997 to $1.6
million in 1998 and 1999.  These increases of 12.90% for 1998 and 4.21% for 1999
are  principally the result of additional  expenditures  incurred as a result of
the  1997,  1998  and  1999  acquisitions,  the  replacements  of  aging  branch
facilities,  the 1997 opening of a second branch in Rocky Mount,  North Carolina
and the 1999  opening of a branch in  Clinton,  North  Carolina.  Furniture  and
equipment  expenses  decreased from $1.6 million in 1997 to $1.5 million in 1998
and 1999. This decrease of 8.02% for 1998 and increase of 2.13% for 1999 reflect
the related equipment expenses incurred as a result of the acquisitions in 1997,
1998 and 1999, the opening of the second Rocky Mount branch in 1997, the opening
of the Clinton branch in 1999, the write-off of assets damaged by the hurricanes
of  September  1999 and the  write-off  of  existing  assets  disposed of in the
replacement  of  aging   facilities  in  1997  and  1999.  There  were  no  such
replacements of aging facilities in 1998.



                                       6
<PAGE>



    Data  processing  costs  represent  charges by  vendors  that  perform  data
processing services for Southern.  Data processing fees are primarily based upon
per  item or per  account  charges.  Data  processing  costs in 1999  were  $1.9
million, a decrease of 5.50% from 1998 data processing expenses of $2.0 million.
This decrease was  principally the result of decreased 1999  acquisitions.  Data
processing  costs in 1998 were $2.0  million,  an increase of 25.22%,  over 1997
data  processing  expenses of $1.6 million.  This increase was  principally  the
result of the 1997 and 1998 acquisitions.

    Intangibles  amortization  in 1999 was $1.9 million,  a 26.60% increase over
the 1998 intangibles amortization. Intangibles amoritization is calculated on an
accelerated  basis  beginning  in the first  full  month of  purchase.  The 1999
increase was primarily the result of the 1998 and 1999 acquisitions. Intangibles
amortization  in 1998  was  $1.5  million,  a  12.59%  decrease  from  the  1997
intangibles amortization. The 1998 decrease was primarily the result of the 1997
purchases  being  made  earlier  in the year,  than the 1998  purchases  and the
reduced 1998  amortization for prior period  acquisitions due to the accelerated
basis of amortization. The 1999 amortization included a full year's amortization
for the 1998  acquisitions  and partial year of amortization for the acquisition
made in 1999. The 1997 amortization  included a full year's amortization for the
1996  acquisitions and partial year of amortization for the acquisitions made in
1997.

    Southern has deposits  insured under both of the FDIC's insurance funds, the
Bank Insurance Fund ("BIF") and the Savings Association Insurance Fund ("SAIF").
BancShares expects that, under current FDIC assessment  guidelines,  it will not
incur any FDIC deposit  insurance  assessments for 2000.  However,  beginning in
1997 the FDIC  began  collecting  from all  banks an  assessment  for  Financing
Corporation ("FICO") funding requirements.  Accordingly,  BancShares expects its
2000 FDIC FICO assessment  expense to increase based on the FDIC FICO assessment
rates in effect for the last  quarter of 1999 and the  planned  acquisitions  in
2000 discussed below under Note 16, Subsequent Events.

    Charitable  contributions increased $7,000, to $9,000 in 1999 from $2,000 in
1998  after  decreasing  from $4.1  million  in 1997.  Charitable  contributions
expense for 1997 includes $4.1 million  related to the  additional  funding of a
charitable foundation through the contribution of appreciated available-for-sale
securities.

    Other  miscellaneous  noninterest  operating  expenses were $3.9 million for
both 1999 and 1998 and $3.7 million for 1997.

    BancShares  had taxable income for book purposes that resulted in income tax
expense for 1999 of $1.2  million,  $2.1 million for 1998 and $340,000 for 1997.
The 1999 decrease is principally due to the absence of the 1998 securities gains
discussed  above.  The lower 1997 income tax expense is  principally a result of
tax   deductions    related   to   the   1997    contribution   of   appreciated
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 1999 were $600.8
<PAGE>
million,  an increase  of 9.24% from the 1998  average of $550.0  million.  This
increase  was  due  primarily  to the  full  year  average  impact  of the  1998
acquisitions  and the  partial  year  impact of the 1999  acquisition  discussed
above. The cash received in the acquisitions was invested primarily in loans and
short-term investments including federal funds.

    Average earning assets during 1998 were $550.0 million, an increase of 8.28%
from the 1997 average of $508.0 million.  This increase was due primarily to the
full year impact of the 1997  acquisitions  and the  partial  year impact of the
1998 acquisitions. The cash received in the acquisitions was ultimately invested
primarily in loans and short-term investments including federal funds.

    Average  noninterest  earning  assets  during  1999 were $50.2  million,  an
increase of 18.40% from the 1998 average of $42.4 million. This increase was due
primarily to the 1999 full year impact of the 1998  acquisitions and the partial
year impact of the 1999 acquisition.  Average non-interest earning assets during
1998 were $65.8  million,  an increase of 11.04% from the 1997  average of $59.3
million.  The  principal  nonearning  asset for  BancShares is cash and due from
banks.  Cash and due from  banks  increased  in 1999 and 1998 as a result of the
acquisitions discussed above. In 1999 cash and due from banks also increased due
to preparations for the year 2000 event.  Cash and due from banks averaged $26.0
million in 1999, $19.3 million in 1998 and $17.7 million in 1997.

    Return on total average assets was 0.57% in 1999, 0.91% in 1998 and 1.17% in
1997.  The  higher  return  levels  of 1998 and 1997 as  compared  to 1999  were
principally the result of gains on the sales of  available-for-sale  securities.
Gains on sales of  available-for-sale  securities in 1998 were $1.8  million,  a
decrease  of  $3.8   million  from  the  $5.6  million  of  gains  on  sales  of
available-for-sale  securities  in 1997  and a $1.8  million  increase  over the
$1,000 of gains on sales of available-for-sale securities in 1999.

Interest-Bearing and Noninterest Bearing Liabilities
----------------------------------------------------

    Interest-bearing liabilities consist of deposits,  short-term borrowed funds
and long-term notes payable.  Average  interest-bearing  liabilities during 1999
were $509.9  million,  an  increase  of 10.06%  from the 1998  average of $463.3
million.  This  increase  was due  primarily to the 1999 full year impact of the
1998  acquisitions  and the  partial  year  impact of the 1999  acquisition.  In
addition, $23.0 million of 8.25% Capital Securities maturing in 2028 were issued
in 1998 as  discussed  above.  The  principal  interest-bearing  liabilities  of
BancShares   are   interest-bearing   deposits.   Average    noninterest-bearing
liabilities  during 1999 were $85.6 million,  an increase of 5.68% from the 1998
average of $81.0 million.  This increase was due primarily to the 1999 full year
impact  of the  1998  acquisitions  and the  partial  year  impact  of the  1999
acquisition.    Noninterest-bearing    demand   deposits   are   the   principal
noninterest-bearing  liability.  The cost of total interest-bearing  liabilities
was  3.92%  in 1999 as  compared  to 4.25% in  1998.  The  decrease  in 1999 was
principally the result of the overall lower market rates of 1999.



                                       7
<PAGE>



    Average  interest-bearing  liabilities  during 1998 were $463.3 million,  an
increase of 4.04% from the 1997 average of $445.4 million. This increase was due
primarily to the 1998 full year impact of the 1997  acquisitions and the partial
year  impact of the 1998  acquisitions.  In  addition,  $23.0  million  of 8.25%
Capital Securities  maturing in 2028 were issued in 1998 as discussed above. The
principal  interest-bearing   liabilities  of  BancShares  are  interest-bearing
deposits.  Average  noninterest-bearing   liabilities  during  1998  were  $80.3
million,  an  increase  of 5.38% from the 1997  average of $76.2  million.  This
increase was due primarily to the 1998 full year impact of the 1997 acquisitions
and the partial year impact of the 1998 acquisitions. Noninterest-bearing demand
deposits  are the  principal  noninterest-bearing  liability.  The cost of total
interest-bearing liabilities was 4.25% in 1998 as compared to 4.23% in 1997. The
increase in 1998 was  principally  the result of the 1998  issuance of the 8.25%
Capital Securities discussed above.

Loans
-----

    As of December 31, 1999,  loans,  net of allowance for loan losses,  totaled
$391.9  million  compared to $358.5  million at year-end  1998.  This growth was
related principally to the growth of the existing branch system and current year
acquisition discussed above.

    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 1999,  48.31% of the loan portfolio was due to mature or be available for
repricing of interest rates during 2000.

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  December  31,  1999 the  fair  value  of  available-for-sale  securities
exceeded the carrying  value by $11.0  million,  deferred taxes related to these
available-for-sale   securities  were  $3.7  million  and  shareholders'  equity
included   $7.3   million  for  the  net   unrealized   gain  related  to  these
available-for-sale   securities.   At  December  31,  1998  the  fair  value  of
available-for-sale  securities  exceeded  the carrying  value by $17.2  million,
deferred taxes related to these available-for-sale  securities were $5.8 million
and  shareholders'  equity  included $11.4 million for the net unrealized  gains
related to these available-for-sale securities. The decline in value during 1999
is principally due to a concentration  in financial  institution  stocks and the
overall decline in financial industry stock values. At December 31, 1999 none of
the equity securities with unrealized losses were deemed to have impairment that
was other than temporary.  Management will continue to assess the securities for
any such impairment in value, which may result in write-downs in future periods.
BancShares does not maintain a trading account.
<PAGE>
    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 $542,000  and, on February 5, 1997, a fair value of $4.1  million.
Southern  recorded  a 1997  securities  gain  of  $3.5  million  and  charitable
contribution expense of $4.1 million 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 1999, BancShares had net loan
charge-offs  of $604,000,  an increase of $171,000 over 1998 net  charge-offs of
$433,000.  This increase is primarily the result of a $204,000 increase in gross
charge-offs for 1999 compared to 1998. Loan recoveries increased $33,000 in 1999
compared to 1998. The  percentage of charge-offs  (net of recoveries) to average
outstanding loans was 0.16% in 1999 and 0.12% in 1998.

    The decrease in the ratio of total non-performing loans to total loans, from
0.28% at December 31, 1998 to 0.18% at December 31, 1999, was principally due to
decreases in non-performing loans (nonaccrual,  restructured, and accruing loans
greater  than 90 days past due) to $702,000 at December  31,  1999,  compared to
$1.0 million at December 31, 1998. The ratio of non-performing  loans and assets
to total assets was 0.17% at both  December  31, 1998 and December 31, 1999.  At
December 31, 1999  BancShares  had $414,000 of assets  classified  as other real
estate.  At December 31, 1998  BancShares  had $84,000 of 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 a normal  accrual  status when the factors
indicating that collectibility is doubtful, 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 the  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.



                                       8
<PAGE>


    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.

    In assessing the allowance for loan losses, management considers current and
historical   net   charge-offs   by  loan   category,   current  and  historical
nonperforming loans by loan category, the relative concentration levels of total
loans by loan  category and credit grade and current  economic  conditions.  The
allowance  for  loan  losses  represented  881.48%  of  non-performing  loans at
December 31, 1999.  This was an increase of 293.48 basis points from the 588.00%
ratio at December 31, 1998. The allowance for loan losses  represented  1.55% of
loans  outstanding at year end 1999.  The allowance for loan losses  represented
1.64% of loans  outstanding  at year end  1998.  Southern's  provision  for loan
losses  charged  against  earnings  was  $830,000 in 1999,  $155,000 in 1998 and
$60,000 in 1997. The increase in 1999 charges  against  earnings was principally
due to expected losses  resulting from the eastern North Carolina  hurricanes of
September 1999. Management does not expect to be able to determine the extent of
losses  related to the  hurricanes  until late 2000 when the final  benefits  of
government assistance programs to the Bank's customers is determined.

    Management  considers  the  December  31,  1999  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  help  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.
<PAGE>
    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  24.93% of total  deposits at December  31,  1999,  a decrease  from
29.85% at December 31, 1998.

    Southern's liquidity ratio, which is defined as net cash plus short-term and
available-for-sale   securities   divided  by  net   deposits   and   short-term
liabilities,  was 29.34% at December  31,  1999,  compared to 30.78% at year-end
1998 and 33.98% at year-end 1997.

    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.  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  46.40% of the
total investment  securities  portfolio at December 31, 1999, 43.23% at December
31, 1998 and 29.00% at December 31, 1997.

    Included  in  investments  maturing  within  one  year  are  investments  in
marketable  equity  securities  held by  BancShares  with  fair  values of $21.9
million at December 31,  1999,  $27.1  million at December  31, 1998,  and $30.3
million at December 31, 1997.  Although these investments do not "mature" in the
next  twelve  months,  they  are   available-for-sale   and  could  be  sold  at
management's discretion.

    The consolidated statements of cash flows disclose the principal sources and
uses of cash from operating,  investing and financing activities for 1999, 1998,
and 1997. In 1999,  operating  activities  of BancShares  provided cash flows of
$6.0  million.  Net income of $3.7  million,  adjusted  for  non-cash  operating
activities,  provided the majority of cash generated from operations.  Decreases
in other  liabilities of $2.1 million reduced the  contribution of net income to
BancShares' cash flow. Investing activities,  including lending,  utilized $21.6
million of BancShares' cash flow. Loans originated,  net of principal collected,
used $25.2 million.  BancShares received $4.0 million in cash in connection with
the branch purchased from another financial institution in 1999.

    Net  additional  cash  inflows  of  $7.5  million  resulted  from  financing
activities.  Net deposit  inflows of $6.7 million were  increased by  short-term
borrowed  funds  proceeds  of $1.5  million  and  reduced by  payments  for cash
dividends and retirements of stock totaling $658,000.



                                       9
<PAGE>


    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, 1999 Jumbo CD's represented  10.44% of total deposits.  At December 31, 1998
Jumbo CD's represented 10.79%, 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  increase in the prime rate may
adversely  impact 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 loan 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,  1999.  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, 1999. 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 2000 since they are subject to immediate repricing. Weighted average
variable rates in future  periods are based on the implied  forward rates in the
yield curve as of December 31, 1999.
<PAGE>
<TABLE>
<CAPTION>
                                                            Maturing in Years ended December 31
------------------------------------------------------------------------------------------------------------------------------------
                               2000         2001        2002          2003        2004     Thereafter         Total      Fair Value
------------------------------------------------------------------------------------------------------------------------------------
<S>                         <C>           <C>         <C>          <C>          <C>         <C>            <C>             <C>
Assets
   Loans
     Fixed rate             $  54,279     $ 23,973    $ 37,584     $  35,344    $ 19,350    $  70,307      $   240,837     $243,429
     Average rate (%)            8.26%        8.90%       8.26%         8.38%       8.47%        6.66%            7.89%

     Variable rate          $  85,800     $ 14,154    $  6,510     $   5,883    $  4,474    $  40,402      $   157,223     $157,223
     Average rate (%)            9.28%        8.95%       8.90%         8.89%       8.96%        8.25%            8.95%

   Investment Securities
     Fixed rate             $  80,476     $ 70,020    $  1,073     $   1,702    $  1,792    $  27,043      $   182,106     $192,995
     Average rate (%)            5.06%        5.59%       8.40%         8.31%       8.32%        6.70%            5.60%

     Variable rate               --           --          --            --          --      $   1,118      $     1,118     $  1,118
     Average rate (%)            --           --          --            --          --           6.52%            6.52%

Liabilities
   Savings and interest
     bearing checking
     Fixed rate             $ 189,068         --          --            --          --            --       $   189,068     $189,068
     Average rate (%)            1.63%        --          --            --          --            --              1.63%

   Certificates of deposit
     Fixed rate             $ 268,934     $ 11,917    $  5,808     $   4,928        --            --       $   291,587     $306,835
     Average rate (%)            5.09%        5.11%       4.95%         5.08%       --            --              5.09%

     Variable rate          $   5,768     $  2,646        --            --          --            --       $     8,414     $  8,414
     Average rate (%)            4.62%        4.80%       --            --          --            --              4.68%

  Long-term debt
     Fixed rate                  --           --          --            --          --      $  23,000      $    23,000     $ 19,838
     Average rate (%)            --           --          --            --          --           8.25%            8.25%
</TABLE>


                                       10
<PAGE>



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).  While there are
limitations  of gap analysis,  it is considered  indicative of potential  market
exposures  over the  relatively  short  term as a  result  of  significant  rate
changes.

    As of December 31, 1999,  BancShares had a negative one year  cumulative gap
position of 29.44%.  BancShares  has interest  earning  assets of $280.6 million
maturing or repricing within one year and interest bearing liabilities of $474.1
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,
in a falling rate  environment,  interest  bearing  liabilities  (deposits) will
reprice at a faster rate than interest  earning assets (loans and  investments).
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'  core  deposits  of  $428.7  million  include  interest  bearing
checking  accounts of $76.0 million.  These deposits are considered as repricing
in the earliest period because the rate can be changed daily.  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 could be considered as Non-Rate Sensitive.

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.
<PAGE>
                                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, have established Risk Based
Capital ratio ("RBC")  requirements.  The FDIC also requires  Southern to meet a
leverage capital  requirement.  These requirements  relate to a company's Tier 1
RBC and Total RBC. In 1999, BancShares and Southern experienced increases in all
of their capital ratios.

    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. Tier 1 RBC
also is comprised of total  equity and the balance of Capital  Securities,  less
intangible assets and unrealized gains on AFS securities. BancShares' Tier 1 RBC
as of  December  31, 1999 was 14.32%  which is,  along with a ratio of 16.01% at
December  31,  1998  and  11.43%  at  December  31,  1997,  representative  of a
well-capitalized  institution.  The  calculation  of the Total RBC is similar to
that for Tier 1 RBC,  except that it also allows the  inclusion  of  BancShares'
allowance  for loan  losses in  capital,  but only to a maximum of 1.25% of risk
weighted assets. As of December 31, 1999 BancShares' Total RBC was 16.28%, which
is representative of a well-capitalized  institution. The Total RBC for 1998 was
20.52%  and  the  Total  RBC  for  1997  was  12.78%  both of  which  were  also
representative  of a well capitalized  financial  institution.  The increases in
1998  were  primarily  the  result of the  issuance  of the  Capital  Securities
discussed above.

    These ratios will only improve if  BancShares'  capital  increases at a rate
proportionately  faster than its  liabilities.  Management  is aware that growth
must be controlled.  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  in 1999 was  earnings,  net of
dividends,  of $3.0  million.  In 1998,  equity  capital  increased  through the
issuance of the Capital Securities discussed above and also through retention of
earnings of $4.8 million. Retention of earnings increased equity capital by $6.0
million in 1997. BancShares' internal capital generation rate was 5.60% in 1999,
8.89% in 1998, and 13.19% in 1997. As of December 31, 1999, shareholders' equity
totaled  $54.9  million  compared to $56.0  million in 1998.  The  shareholders'
equity,  as discussed above,  included $7.3 million in 1999 and $11.4 million in
1998 of net unrealized securities gains. As previously  discussed,  such amounts
of unrealized gains are excluded from regulatory capital.

     The ratio of average shareholders' equity to average total assets was 8.52%
in 1999 and  9.16% in 1998.  The 1999  decrease  was  primarily  the  result  of
decreased  average retained  earnings and decreased average net unrealized gains
on available-for-sale securities.



                                       11
<PAGE>



    Retention of sufficient  earnings to maintain an adequate  capital  position
that provides  BancShares with expansion  capabilities is an important factor in
determining  dividends.  During 1999,  BancShares  paid  $573,000 in  dividends,
versus  $581,000 in 1998 and $585,000 in 1997.  As a  percentage  of net income,
dividends  were  15.57%  in 1999,  10.38%  in 1998 and  8.85% in 1997.  The 1999
percentage  increase was  principally  the result of decreased  earnings in 1999
compared  to  the  1998  earnings   resulting   principally  from  the  sale  of
available-for-sale securities in 1998.

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  eighteen  counties  served by  Southern  lag the  median  figures  of North
Carolina in the areas of per capita income, family income, and population growth
rates.

    Management of BancShares  recognizes  that future growth in BancShares  will
not come from people moving into the markets served by BancShares. Southern must
win customers from other  institutions or purchase customers in existing markets
or expand into new  markets as it did in 1997,  1998 and 1999.  BancShares  does
anticipate  some offices of other  institutions  becoming  available in the near
future.

Dependence on Local Agriculture and Tobacco Industry
----------------------------------------------------

    The tobacco  industry  contributes  significantly  to the economy of eastern
North  Carolina,  especially in the 18 eastern North Carolina  counties in which
Southern operates. For several decades, the tobacco industry, both in the United
States and abroad, has faced, and continues to face, a number of issues that may
adversely affect the volume,  operating revenues,  cash flows,  operating income
and financial position of businesses operating in eastern North Carolina and, by
consequence, BancShares.

     In the United States,  these issues  include  proposed  federal  regulatory
controls  (including,  as discussed below, the issuance of final  regulations by
the  United  States  Food and Drug  Administration  (the  "FDA")  that  regulate
cigarettes  as "drugs" or "medical  devices");  actual and  proposed  excise tax
increases; actual and proposed federal, state and local governmental and private
bans and  restrictions  on smoking  (including  in  workplaces  and in buildings
permitting  public  access);   actual  and  proposed   restrictions  on  tobacco
manufacturing,  marketing, advertising (including decisions by certain companies
to limit or not accept tobacco advertising) and sales;  proposed legislation and
regulations to require  additional health warnings on cigarette  packages and in
advertising,  and to eliminate the tax deductibility of tobacco  advertising and
promotional  costs;  actual and proposed  requirements  regarding  disclosure of
cigarette  ingredients and other  proprietary  information;  actual and proposed
requirements  regarding  disclosure  of the yields of "tar,"  nicotine and other
constituents  found in cigarette smoke;  increased  assertions of adverse health
effects associated with both smoking and exposure to environmental tobacco smoke
("ETS");  legislation  or other  governmental  action  seeking to ascribe to the
industry  responsibility  and liability for the purported adverse health effects

<PAGE>
associated  with both  smoking  and  exposure  to ETS;  the  diminishing  social
acceptance of smoking;  increased pressure from anti-smoking groups; unfavorable
press reports; governmental and grand jury investigations; and increased smoking
and health  litigation,  including private plaintiff class action litigation and
health care cost recovery actions brought by state and local governments, unions
and  others  seeking   reimbursement  for  Medicaid  and/or  other  health  care
expenditures allegedly caused by cigarette smoking.

                          ACCOUNTING AND OTHER MATTERS

    In June 1998,  the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement 133,  "Accounting for Derivative  Instruments and Hedging Activities."
This statement  establishes  accounting  and reporting  standards for derivative
instruments,   including  certain  derivative   instruments  embedded  in  other
contracts, and for hedging activities.  It requires that an entity recognize all
derivatives  as either  assets or  liabilities  in the balance sheet and measure
those instruments at fair value. The accounting for changes in the fair value of
a derivative  depends on the intended use of the  derivative  and the  resulting
designation.  This statement,  as amended by Statement 137, is effective for all
fiscal  quarters  of  fiscal  years  beginning  after  June  15,  2000.  Earlier
application of all provisions of this statement is encouraged.  BancShares plans
to adopt this  statement on January 1, 2001 and does not anticipate any material
effect on its consolidated financial statements.

    In  October  1998,   the  FASB  issued   Statement  134,   "Accounting   for
Mortgage-Backed  Securities  Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking  Enterprise." This statement allows mortgage
banking firms to account for certain  securities  and other  interests  retained
after  securitizing  mortgage  loans that were held for sale based on the intent
and ability to hold or sell such  investments.  This statement was effective for
the first fiscal quarter beginning after December 15, 1998.  BancShares  adopted
this  statement  effective  January  1,  1999,  resulting  in no  impact  on its
financial statements.

    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.

    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.



                                       12
<PAGE>



Year 2000 Issue

Introduction
------------

    The year 2000 issue that confronted BancShares and its suppliers, customers,
customers'  suppliers  and  competitors  centered on the  inability  of computer
systems to recognize the year 2000. Many existing  computer programs and systems
originally were programmed with six digit dates that provided only two digits to
identify  the  calendar  year in the date field.  At the new  millennium,  these
programs and  computers  would  recognize  "00" as the year 1900 rather than the
year 2000.  These  problems  could have also arisen from other  sources as well,
such as the use of special  codes and  conventions  in software that made use of
the date field.

Awareness
---------

    Financial institution  regulators focused on year 2000 compliance issues and
issued  guidance  concerning  the  responsibilities  of  Senior  Management  and
Directors.  The Federal  Financial  Institutions  Examination  Council ("FFIEC")
issued several interagency statements on the year 2000 issue.

     These statements  required  financial  institutions to, among other things,
examine the year 2000  implications of their reliance on vendors,  data exchange
and the  potential  impact of the year 2000 issue on  customers,  suppliers  and
borrowers.  These  statements also required each federally  regulated  financial
institution to survey its exposure, to measure its risk and to prepare a plan to
address the year 2000 issue.  In addition,  the federal  banking  regulators had
issued  safety and  soundness  guidelines  to be followed by insured  depository
institutions,  such as Southern, to assure resolution of any year 2000 problems.
The  federal   banking   agencies  had  asserted  that  year  2000  testing  and
certification  was  a  key  safety  and  soundness  issue  in  conjunction  with
regulatory  exams. An institution's  failure to address  appropriately  the year
2000 issue could have resulted in supervisory action, including the reduction of
the institution's  supervisory  ratings, the denial of applications for approval
of  mergers  or  acquisitions  or  the  imposition  of  civil  money  penalties.
BancShares addressed each of these areas as discussed below.

Risks
-----

    Like most financial service  providers,  BancShares and its operations could
have been significantly affected by the year 2000 issue due to its dependence on
information  technology and date-sensitive  data.  Computer hardware,  software,
other equipment,  both within and outside BancShares' direct control,  and third
parties  with  whom  BancShares   electronically  or  operationally   interfaced
(including  without limitation its customers and third party vendors) could have
been  affected.  If computer  systems had not been modified to identify the year
2000, many computer applications could have failed or created erroneous results.
Many  calculations that relied on the date field  information,  such as interest
payments, due dates and other operating functions,  could have generated results
which were significantly misstated.

    BancShares  could have  experienced  an inability  to process  transactions,
prepare  statements or engage in similar normal business  activities.  Likewise,

<PAGE>
under certain circumstances, a failure to adequately address the year 2000 issue
could have adversely affected the viability of BancShares' suppliers,  creditors
and the  creditworthiness of its borrowers.  Thus, if not adequately  addressed,
the year 2000 issue  could have  resulted  in a  significant  adverse  impact on
BancShares' operations, financial condition and results of operations.

State of Readiness
------------------

    During October 1997,  BancShares developed its plan to address the year 2000
issue. A substantial portion of BancShares' data processing  functions were, and
continue to be, performed by First-Citizens  Bank & Trust Company ("FCB") on its
mainframe  systems and/or on systems supported by FCB. FCB also provides similar
services to several other financial institutions.  Accordingly, BancShares' plan
for addressing the year 2000 issue divided  information  technology systems ("IT
Systems")  into groups  which  included  (i) FCB's  mainframe  systems  used for
processing BancShares' data ("Group A Systems"),  (ii) BancShares' non-mainframe
systems  which are supported by FCB ("Group B Systems"),  and (iii)  BancShares'
separate  non-mainframe systems ("Group C Systems").  BancShares' year 2000 plan
also addressed  non-information  technology  systems ("Non-IT  Systems").  As to
Group A Systems and Group B Systems,  BancShares' year 2000 plan necessarily was
designed to be implemented  jointly with FCB. FCB retained an outside consultant
to plan and direct its year 2000 compliance efforts.  BancShares participated in
a committee made up of  representatives  of the consultant,  FCB and each of the
financial  institutions  for which FCB provides data processing  services.  This
committee met  periodically to monitor the status of FCB's  compliance  efforts.
Periodic progress reports were made to BancShares' Board of Directors.



                                       13
<PAGE>


The following paragraphs summarize the phases of BancShares' year 2000 plan:

Assessment Phase
----------------

    During the assessment  phase,  a year 2000 corporate  inventory and business
risk  assessment  was made  (jointly with FCB in the case of Group A Systems and
Group B  Systems,  and  separately  in the case of Group C  Systems  and  Non-IT
Systems) to quantify the extent of  BancShares'  year 2000 exposure and identify
systems that required remediation.  Each Group B and C application or system was
given two separate  codes:  a Priority Code and a Status Code. The Priority Code
quantified  the importance of each asset to BancShares'  daily  operations.  The
Status Code represented the claims of compliance by the asset's vendor.  Used in
concert,  these codes  prioritized  the  remediation,  testing  and  contingency
planning processes.

Remediation and Testing Phase
-----------------------------

    With respect to IT Systems,  this phase  contemplated the  implementation of
modifications,  upgrades or system  replacements  determined  to be necessary to
achieve year 2000 compliance and the testing of modified or upgraded  systems to
determine their  functionality and operating  capability.  As to Group A Systems
and Group B Systems,  FCB's outside  consultant was responsible for coordinating
necessary  modifications,  upgrades  or  replacements.  As to  Group C  Systems,
BancShares' staff coordinated  remediation  (which, in most cases,  entailed the
installation  of  upgrades  provided  by outside  vendors)  and  testing,  where
necessary.

Validation Phase
----------------

     The validation phase contemplated testing, in an isolated  environment,  of
the  ability  of new and  modified  systems,  which  had been  determined  to be
functional, to accurately process date sensitive data beginning January 1, 2000.
Validation testing on Group A Systems and Group B Systems was completed by FCB's
outside  consultant and the BancShares'  staff completed  validation  testing on
Group C Systems.

Implementation Phase
--------------------

    Under  BancShares' plan, once new and modified systems that required testing
had been tested for functionality, they were put into production.

Non-IT Systems, Third Party Service Providers and Loan Customers
----------------------------------------------------------------

    Activities under BancShares' plan with respect to Non-IT Systems  (including
security  systems,  office  equipment,   etc.)  primarily  involved  identifying
potential  year  2000  problems  and  insuring  that  outside  vendors  provided
necessary  upgrades or  replacements.  Each system was assigned to an officer of
BancShares  whose  responsibility  was to  communicate  with the  vendor of that
system and coordinate remediation.

    During early 1998,  BancShares  identified  those borrowing  customers whose
existing  aggregate  borrowings  from  BancShares met certain  criteria based on
aggregate credit exposure, loan collateral and whose businesses were of a nature

<PAGE>
that they could be adversely affected by the year 2000 issue. A meeting was held
individually  with each such borrowing  customer to assess the  customer's  plan
for, and progress  toward,  addressing the year 2000 issue.  Follow-up  meetings
were held with each customer  whose  assessment  indicated a higher than typical
level of risk. With respect to new and renewed loans, an assessment of year 2000
risk and steps being  taken by the  customer to address the year 2000 issue were
made a part of the credit approval process.

Costs
-----

    BancShares  expensed all costs  associated  with required  system changes as
those costs were  incurred,  and such costs were funded  through  operating cash
flows.  Because a substantial  portion of BancShares' data processing  functions
are performed by FCB on its  mainframe  systems  and/or on systems  supported by
FCB,  FCB  incurred  a  substantial  portion  of  the  expenses  related  to the
remediation and testing of systems that affected  BancShares.  Expenses actually
incurred by BancShares  through December 31, 1999 were not material.  BancShares
does not expect  significant  increases in future data processing costs relating
to year 2000 compliance.



                                       14
<PAGE>


Contingency Plans
-----------------

    During  the  assessment  phase,  BancShares  began to  identify a back-up or
contingency  plan for systems or non-IT  assets  which might be affected by year
2000.  Virtually  all of  BancShares'  systems  are  dependent  upon third party
vendors or service providers; therefore,  contingency plans included selecting a
new  vendor or service  provider  and  converting  to their  system.  BancShares
believed its most  reasonably  likely worst case scenario  would be a failure by
certain  customers and vendors to achieve year 2000  readiness.  For BancShares'
most reasonably likely worst case sceniaro,  contingency plans were active prior
to December 31, 1999.  Contingency plans for system failures on or after January
1,  2000  had  been  accepted  by the  Bank's  regulators.  Validation  of these
contingency plans was completed prior to December 31, 1999.

Significant Year 2000 Events
----------------------------

    BancShares did not have any significant  events as a result of the year 2000
issue.  BancShares  will  continue  to monitor  this issue  during 2000 as other
significant year 2000 dates pass.

    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  following  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, 1999 was 343. 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% of its paid-in capital stock, Southern may not declare a dividend until
it has  transferred  from  undivided  profits  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 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

<PAGE>
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
qualifiers such as "expect,"  "believe,"  "estimate," "plan," "project" or other
statements  concerning  opinions or judgments 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>

                                                         1999                                         1998
------------------------------------------------------------------------------------------------------------------------------
                                        Fourth      Third    Second     First        Fourth      Third     Second       First
------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>
SUMMARY OF OPERATIONS
Interest income                    $11,096     $10,533     $10,277     $10,227     $10,593     $10,515     $10,501     $10,093
Interest expense                     5,188       4,946       4,890       4,943       5,271       5,086       5,169       4,802
------------------------------------------------------------------------------------------------------------------------------
Net interest income                  5,908       5,587       5,387       5,284       5,322       5,429       5,332       5,291
Provision for loan losses              245         465          60          60          15          20          60          60
------------------------------------------------------------------------------------------------------------------------------
Net income after provision for
     loan losses                     5,663       5,122       5,327       5,224       5,307       5,409       5,272       5,231
Noninterest income                   1,261       1,480       1,239       1,138       1,000       1,392       1,219       2,933
Noninterest expense                  5,455       5,401       5,339       5,430       5,088       5,118       5,113       4,788
------------------------------------------------------------------------------------------------------------------------------
Income before income taxes           1,469       1,201       1,227         932       1,219       1,683       1,378       3,376
Income taxes                           350         290         270         240         330         470         451         809
------------------------------------------------------------------------------------------------------------------------------
Net income                         $ 1,119     $   911     $   957     $   692     $   889     $ 1,213     $   927     $ 2,567
==============================================================================================================================
Net income applicable to
    common shares                  $ 1,017     $   811     $   861     $   595     $   788     $ 1,110     $   828     $ 2,468
==============================================================================================================================
PER SHARE OF STOCK

Net income per share of common
    stock                             8.54       6.81       7.22       4.99       6.64       9.27       6.91      20.58
Cash dividends - common               0.38       0.37       0.37       0.38       0.38       0.38       0.37       0.37
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                            185.00     185.00     185.00     175.00     175.00     175.00     175.00     175.00
     Low                            185.00     185.00     185.00     175.00     175.00     175.00     175.00     175.00
Preferred B sales price
    High                             11.25      11.25      11.25      11.25      11.25      11.25      11.25      11.25
    Low                              11.25      11.25      11.25      11.25      11.25      11.25      11.25      11.25
Preferred C sales price
    High                             11.25      11.25      11.25      11.25      11.25      11.25      11.25      11.25
    Low                              11.25      11.25      11.25      11.25      11.25      11.25      11.25      11.25

</TABLE>


                                       16
<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 subsidiaries (the "Company") as of December 31, 1999
and 1998, and the related  consolidated  statements of income and  comprehensive
income,  cash  flows  and  shareholders'  equity  for  each of the  years in the
three-year  period  ended  December  31,  1999.  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 subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with generally accepted accounting
principles.


                                                                   /s/KPMG LLP
                                                                   -------------
                                                                   KPMG LLP



Raleigh, North Carolina
February 11, 2000




                                       17
<PAGE>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except for per share data)
<TABLE>
<CAPTION>
                                                                                                      December 31
                                                                                                 1999             1998
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                          <C>              <C>
ASSETS
Cash and due from banks                                                                      $    28,524       $   37,419
Federal funds sold                                                                                20,370           19,535
Investment securities:
    Held-to-maturity, at amortized cost (fair value of $99,979 and $93,511, respectively)        100,129           92,340
    Available-for-sale, at fair value (amortized cost of $83,095 and $92,012, respectively)       94,084          109,227
Loans                                                                                            398,060          364,489
    Less allowance for loan losses                                                                (6,188)          (5,962)
---------------------------------------------------------------------------------------------------------------------------
Net loans                                                                                        391,872          358,527
Premises and equipment                                                                            21,257           18,902
Accrued interest receivable                                                                        4,730            4,571
Intangible assets                                                                                  6,411            6,972
Other assets                                                                                       1,855            1,932
---------------------------------------------------------------------------------------------------------------------------
      Total assets                                                                           $   669,232       $  649,425
===========================================================================================================================

LIABILITIES
Deposits:
    Noninterest-bearing                                                                      $    89,181       $   77,550
    Interest-bearing                                                                             489,069          479,202
---------------------------------------------------------------------------------------------------------------------------
Total deposits                                                                                   578,250          556,752
Short-term borrowings                                                                              6,658            5,124
Long-term obligations                                                                             23,000           23,000
Accrued interest payable                                                                           4,471            4,505
Other liabilities                                                                                  1,909            4,011
---------------------------------------------------------------------------------------------------------------------------
      Total liabilities                                                                          614,288          593,392
---------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY

Series  B  non-cumulative   preferred  stock,  no  par  value;   408,728  shares
    authorized;  397,370 and 398,653  shares issued and  outstanding at December
    31, 1999 and December 31, 1998, respectively                                                   1,936            1,942
Series C non-cumulative preferred stock, no par value; 43,631 shares authorized;
    39,825 and 40,373 shares issued and outstanding at December 31, 1999 and
    December 31, 1998, respectively                                                                  555              562
Common  stock, $5 par value; 158,485 shares authorized; 118,912 and 119,266 shares
    issued and outstanding at December 31, 1999 and December 31, 1998, respectively                  595              596
Surplus                                                                                           10,000           10,000
Retained earnings                                                                                 34,606           31,571
Accumulated other comprehensive income                                                             7,252           11,362
---------------------------------------------------------------------------------------------------------------------------
      Total shareholders' equity                                                                  54,944           56,033
---------------------------------------------------------------------------------------------------------------------------
      Total liabilities and shareholders' equity                                             $   669,232      $   649,425
===========================================================================================================================
</TABLE>
The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
                                       18
<PAGE>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Dollars in thousands except for per share data)
<TABLE>
<CAPTION>
                                                                                   Year ended December 31,
                                                                                    1999              1998           1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>               <C>            <C>
Interest income:
    Loans                                                                       $ 31,292          $ 31,000       $ 29,225
    Investment securities:
      U. S. Government.                                                            7,454             7,149          6,353
      State, county and municipal                                                  1,728             1,792          2,057
      Other                                                                          692               789            797
---------------------------------------------------------------------------------------------------------------------------
         Total investment securities interest income                               9,874             9,730          9,207
    Federal funds sold                                                               968               972            623
---------------------------------------------------------------------------------------------------------------------------
         Total interest income                                                    42,134            41,702         39,055

Interest expense:
    Deposits                                                                      17,655            18,716         18,229
    Short-term borrowings                                                            228               292            303
    Long-term obligations                                                          2,084             1,320            295
---------------------------------------------------------------------------------------------------------------------------
      Total interest expense                                                      19,967            20,328         18,827
---------------------------------------------------------------------------------------------------------------------------
      Net interest income                                                         22,167            21,374         20,228
    Provision for loan losses                                                        830               155             60
---------------------------------------------------------------------------------------------------------------------------
      Net interest income after provision for loan losses                         21,337            21,219         20,168

Noninterest income:
    Service charges on deposit accounts                                            3,497             3,199          2,918
    Other service charges and fees                                                 1,107             1,129            868
    Investment securities gains, net                                                   1             1,789          5,567
    Insurance commissions                                                             67                72             90
    (Loss) gain on sale of loans                                                    (125)             (112)            52
    Other.                                                                           572               574            354
---------------------------------------------------------------------------------------------------------------------------
      Total noninterest income                                                     5,119             6,651          9,849

Noninterest expense:
    Personnel                                                                     10,805             9,501          8,763
    Intangibles amortization                                                       1,942             1,534          1,755
    Data processing                                                                1,891             2,001          1,598
    Furniture and equipment                                                        1,534             1,502          1,633
    Occupancy                                                                      1,633             1,567          1,388
    FDIC insurance assessment                                                        114               115            112
    Charitable contributions                                                           9                 2          4,076
    Other                                                                          3,699             3,992          3,739
---------------------------------------------------------------------------------------------------------------------------
      Total noninterest expense                                                   21,627            20,214         23,064
---------------------------------------------------------------------------------------------------------------------------
Income before income taxes                                                         4,829             7,656          6,953
Income taxes                                                                       1,150             2,060            340
---------------------------------------------------------------------------------------------------------------------------
      Net income                                                                   3,679             5,596          6,613
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                             <C>               <C>            <C>
Other comprehensive income (loss), net of tax:

    Unrealized gains (losses) arising during period                               (4,109)           (2,554)         7,875
    Less: reclassification adjustment for gains included
      in net income                                                                    1             1,181          3,674
---------------------------------------------------------------------------------------------------------------------------
    Other comprehensive income (loss)                                             (4,110)           (3,735)         4,201
---------------------------------------------------------------------------------------------------------------------------
      Comprehensive income (loss)                                               $   (431)         $  1,861       $ 10,814
===========================================================================================================================
Per share information:
    Net income per common share                                                 $  27.56          $   43.40      $   51.77
    Cash dividends declared on common shares                                        1.50               1.50           1.50
    Weighted average common shares outstanding                                   119,137            119,685        119,918
===========================================================================================================================
</TABLE>

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


                                       19
<PAGE>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
                                                                                          Year ended December 31,
                                                                                     1999           1998            1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>              <C>            <C>
OPERATING ACTIVITIES:
    Net income                                                                    $   3,679        $ 5,596        $ 6,613
    Adjustments to reconcile net income to net cash
       provided by operating activities:
       Provision for loan losses                                                        830            155             60
       Contribution expense for donation of marketable equity securities                --              --          4,071
       Gain on contribution of marketable equity securities                             --              --         (3,529)
       Gains on sales and issuer calls of securities                                     (1)        (1,789)        (2,038)
       Loss on sale and abandonment of premises and equipment                           119            116            317
       Loss (gain) on sale of loans                                                     125            112            (52)
       Net amortization of premiums (accretion of discounts) on investments              50            (54)           (88)
       Amortization of intangibles                                                    1,942          1,534          1,755
       Depreciation                                                                   1,482          1,394          1,139
       Net increase in accrued interest receivable                                     (159)          (366)          (206)
       Net increase (decrease) in accrued interest payable                              (34)           111          1,190
       Net (increase) decrease in other assets                                          113         (1,006)         1,754
       Net decrease in other liabilities                                             (2,102)         ( 674)        (1,339)
---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                             6,044          5,129          9,647
---------------------------------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES:
    Proceeds from maturities and issuer calls of
       investment securities available-for-sale                                      44,734         46,625         25,798
    Proceeds from maturities and issuer calls of
       investment securities held-to-maturity                                        43,889          5,569         43,856
    Proceeds from sales of investment securities available-for-sale                      30          1,976          2,246
    Purchases of investment securities held-to-maturity                             (57,458)       (42,786)       (37,261)
    Purchases of investment securities available-for-sale                           (28,000)       (32,046)       (38,134)
    Net decrease (increase) in loans                                                (25,174)         1,392        (30,269)
    Purchases of fixed assets                                                        (3,655)        (1,653)        (4,084)
    Sales of fixed assets                                                                --             48            185
    Net cash received for bank and branches acquired                                  3,991         13,144         17,966
---------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN  INVESTING ACTIVITIES                                              (21,643)        (7,731)       (19,697)
---------------------------------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES:
    Net increase (decrease) in demand and interest-bearing demand deposits            9,426         14,592         (4,658)
    Net (decrease) increase in time deposits                                         (2,763)        (8,531)        16,360
    Proceeds from issuance of long-term obligations                                      --         23,000          5,000
    Debt issuance costs                                                                  --           (862)            --
    Payments of long-term obligations                                                    --         (4,750)        (1,650)
    Net (repayments) proceeds of short-term borrowed funds                            1,534         (1,702)         1,762
    Cash dividends paid                                                                (573)          (581)          (585)
    Purchase and retirement of stock                                                    (85)          (231)           (23)
---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                             7,539         20,935         16,206
---------------------------------------------------------------------------------------------------------------------------

NET INCREASE (DECREASE) IN CASH AND
    CASH EQUIVALENTS                                                                 (8,060)        18,333          6,156
CASH AND CASH EQUIVALENTS AT
    THE BEGINNING OF YEAR                                                            56,954         38,621         32,465
---------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT THE END OF YEAR                                       $ 48,894       $ 56,954       $ 38,621
===========================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                               <C>              <C>            <C>
SUPPLEMENTAL DISCLOSURES OF CASH PAID DURING
    THE YEAR FOR:
     Interest                                                                      $ 20,001       $ 20,217       $ 17,637
     Income taxes                                                                  $    894        $ 2,977        $ 1,776
===========================================================================================================================
</TABLE>

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


                                       20
<PAGE>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(Dollars in thousands except per share data)

<TABLE>
<CAPTION>

                                                    Preferred Stock
                                           ---------------------------------                                 Accumulated
                                                                              Common                            Other
                                            Series B             Series C      Stock                           Compre-    Total
                                           ----------------  ---------------   ---------------------- Retained hensive Shareholders'
                                           Shares    Amount  Shares   Amount   Shares  Amount Surplus Earnings Income    Equity
                                           ------    ------  ------   ------   ------  ----------------------- ------    ------
<S>                                       <C>       <C>      <C>       <C>    <C>       <C>   <C>     <C>      <C>      <C>
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
Retirement of stock                        (2,107)     (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)
Unrealized gain on securities available-
    for-sale, net of tax                       --       --       --      --        --     --       --      --    4,201    4,201
--------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997                405,645   $1,976   43,631    $578   119,918   $600  $10,000 $26,733  $15,097  $54,984

Net income                                     --       --       --      --        --     --       --   5,596       --    5,596
Retirement of stock                        (6,992)     (34)  (3,258)    (16)     (652)    (4)      --    (177)      --     (231)
Cash dividends:
    Common stock ($1.50 per share)             --       --       --      --        --     --       --    (179)      --     (179)
    Preferred B ($.90 per share)               --       --       --      --        --     --       --    (363)      --     (363)
    Preferred C ($.90 per share)               --       --       --      --        --    --       (39)     --      (39)
Unrealized loss on securities available-
    for-sale, net of tax                       --       --       --      --        --     --       --      --   (3,735)  (3,735)
--------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998                398,653   $1,942   40,373    $562   119,266   $596  $10,000 $31,571  $11,362  $56,033

Net income                                     --       --       --      --        --     --       --   3,679       --    3,679
Retirement of stock                        (1,283)      (6)    (548)     (7)     (354)    (1)      --     (71)      --      (85)
Cash dividends:
    Common stock ($1.50 per share)             --       --       --      --        --     --       --    (178)      --     (178)
    Preferred B ($.90 per share)               --       --       --      --        --     --       --    (359)      --     (359)
    Preferred C ($.90 per share)               --       --       --      --        --     --       --     (36)      --      (36)
Unrealized loss on securities available-
    for-sale, net of tax                       --       --       --      --        --     --       --      --   (4,110)  (4,110)
-------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999                397,370   $1,936   39,825    $555   118,912   $595  $10,000 $34,606  $ 7,252  $54,944
===============================================================================================================================
</TABLE>

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


                                       21
<PAGE>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
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 46 banking  offices in eastern North  Carolina,
                  and Southern Capital Trust I, a statutory  business trust that
                  issued $23.0 million of 8.25% Capital Securities (the "Capital
                  Securities")  in June 1998 maturing in 2028.  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.  BancShares has
                  no  foreign   operations   and   BancShares'   customers   are
                  principally located in eastern North Carolina.

                  Principles of Consolidation

                  The consolidated  financial statements include the accounts of
                  BancShares  and its  wholly-owned  subsidiaries,  Southern and
                  Southern  Capital  Trust I. 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.   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 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.
<PAGE>
                  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).
                  Unrealized losses on securities  available for sale reflecting
                  a decline  in value  judged  to be other  than  temporary  are
                  charged  to income in the  consolidated  statement  of income.
                  There were no such changes in any of the periods presented.

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

                  -   Securities  held-to-maturity:  Securities held-to-maturity
                      consist of debt instruments for which Banc- Shares has the
                      positive intent and ability to hold to maturity.

                  -   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 require- ments
                      and liquidity needs.



                                       22
<PAGE>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)


                  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 the
                  contractual  terms of the loan  agreement.  Impaired loans are
                  valued using either the  discounted  expected cash flow method
                  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-offs   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. 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.
<PAGE>
                  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.

                  Mortgage Servicing Rights

                  The estimated value of the right to service mortgage loans for
                  others  ("MSRs")  is included  in other  assets on  BancShares
                  consolidated balance sheet. Capitalization of MSRs occurs when
                  the underlying loans are sold.  Capitalized MSRs are amortized
                  into  income  over  the  projected   servicing   life  of  the
                  underlying loans.  Capitalized MSRs are periodically  reviewed
                  for impairment.

                  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,  ranging  from  15 to  31.5  years  for
                  buildings and improvements and 3 to 10 years for furniture and
                  equipment.

                  Intangible Assets

                  Intangible  assets,  primarily  core deposit  intangibles  and
                  goodwill, are generally amortized on an accelerated basis over
                  a period of 5 to 10 years.  Intangible  assets are  subject to
                  periodic review and are adjusted for any impairment of value.

                  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.


                                       23
<PAGE>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)


Note 1.           Summary of Significant Accounting Policies - continued

                  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   will  be
                  realized.  A valuation  allowance is recorded for deferred tax
                  assets when the "more likely than not" standard is not met.

                  Shareholders' Equity

                  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.  Dividends  on
                  BancShares'  common  stock  may  be  paid  only  after  annual
                  dividends of $.90 per share on both  preferred  series "B" and
                  "C" shares have been paid.

                  Earnings  per common  share is  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.  BancShares has no potentially
                  dilutive securities.

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

<TABLE>
<CAPTION>

                                                                                       1999          1998           1997
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>            <C>            <C>

                  Net income                                                         $3,679         $5,596         $6,613
                  Less: Preferred dividends                                            (395)          (402)          (405)
-------------------------------------------------------------------------------------------------------------------------
                  Net income applicable to common  shares                            $3,284         $5,194         $6,208
=========================================================================================================================

                  Weighted average common shares
                      outstanding during the period                                 119,137        119,685        119,918
=========================================================================================================================
</TABLE>
                  Comprehensive Income

                  In  June  1997,  the  Financial   Accounting  Standards  Board
                  ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income"
                  ("Statement  130").  Statement 130  establishes  standards for
                  reporting  and  displaying  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.
                  BancShares  adopted this  statement  for its annual  financial
                  statements  in  1998,  reclassifying  prior  period  financial
                  statements  for  comparative   purposes.   Accumulated   other
                  comprehensive  income  consists  entirely of unrealized  gains
                  (losses) on securities available for sale.
<PAGE>
                  The tax effects of other  comprehensive  income  components as
                  displayed  in the  consolidated  statements  of income  are as
                  follows for the years ended December 31:
<TABLE>
<CAPTION>

                                                                                       1999           1998           1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>            <C>             <C>
                  Unrealized (losses) gains arising during period                   $(2,116)       $(1,316)        $4,057
                  Less: Reclassification adjustment for gains
                      included in net income                                            --             608          1,893
---------------------------------------------------------------------------------------------------------------------------
                  Total tax effect                                                  $(2,116)       $(1,924)        $2,164
===========================================================================================================================
</TABLE>


                                       24
<PAGE>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)


                  Segment Reporting

                  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 were effective for
                  fiscal years  beginning  after December 31, 1997.  Adoption of
                  this   pronouncement   did  not  have  a  material  effect  on
                  BancShares'  consolidated  financial  statements as banking is
                  considered to be BancShares only segment.

                  New Accounting Standards

                  In June 1998, the FASB issued  Statement 133,  "Accounting for
                  Derivative Instruments and Hedging Activities." This statement
                  establishes  accounting and reporting standards for derivative
                  instruments, including certain derivative instruments embedded
                  in other contracts,  and for hedging  activities.  It requires
                  that an entity  recognize all  derivatives as either assets or
                  liabilities in the balance sheet and measure those instruments
                  at fair value. The accounting for changes in the fair value of
                  a derivative depends on the intended use of the derivative and
                  the  resulting  designation.  This  statement,  as  amended by
                  Statement 137, is effective for all fiscal  quarters of fiscal
                  years  beginning after June 15, 2000.  Earlier  application of
                  all  provisions of this  statement is  encouraged.  BancShares
                  plans to adopt this  statement on January 1, 2001 and does not
                  anticipate any material effect on its  consolidated  financial
                  statements.

                  In October 1998, the FASB issued  Statement  134,  "Accounting
                  for    Mortgage-Backed    Securities    Retained   after   the
                  Securitization  of Mortgage  Loans Held for Sale by a Mortgage
                  Banking  Enterprise."  This statement  allows mortgage banking
                  firms to account for certain  securities  and other  interests
                  retained after securitizing  mortgage loans that were held for
                  sale  based on the  intent  and  ability  to hold or sell such
                  investments. This statement was effective for the first fiscal
                  quarter beginning after December 15, 1998.  BancShares adopted
                  this  statement  effective  January 1, 1999,  resulting  in no
                  impact on its consolidated financial statements.

Note 2.           Investment Securities

                  The  amortized  cost and  estimated  fair values of investment
                  securities at December 31 were as follows:
<PAGE>
<TABLE>
<CAPTION>
                                                 December 31, 1999                              December 31, 1998
                                  -------------------------------------------- ---------------------------------------------

                                               Gross        Gross    Estimated               Gross       Gross    Estimated
                                  Amortized  Unrealized  Unrealized    Fair    Amortized  Unrealized  Unrealized     Fair
                                     Cost      Gains       Losses      Value      Cost        Gains      Losses      Value
---------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>           <C>      <C>        <C>       <C>            <C>       <C>        <C>
  SECURITIES
  HELD-TO-MATURITY:
     U. S. Government               $ 80,298      12       (499)      79,811    $ 72,070       360       (41)       72,389
     Obligations of states and
       political subdivisions         19,731     347         (6)      20,072      20,170       850        --        21,020
     Corporate debenture                 100      --         (4)          96         100         2        --           102
--------------------------------------------------------------------------------------------------------------------------
                                     100,129     359       (509)      99,979      92,340     1,212       (41)       93,511
--------------------------------------------------------------------------------------------------------------------------
  SECURITIES
  AVAILABLE-FOR-SALE:
     U. S. Government                 57,968      --       (551)      57,417      71,046       369      (135)       71,280
     Marketable equity securities     10,262  12,559     (1,112)      21,709      10,747    16,867      (487)       27,127
     Obligations of states and
        political subdivisions        13,472     178        (72)      13,578       8,539       573        (1)        9,111
     Mortgage-backed securities        1,393      14        (27)       1,380       1,680        38        (9)        1,709
--------------------------------------------------------------------------------------------------------------------------
                                      83,095  12,751     (1,762)      94,084      92,012    17,847      (632)      109,227
--------------------------------------------------------------------------------------------------------------------------
     TOTALS                         $183,224  13,110     (2,271)     194,063    $184,352    19,059      (673)      202,738
==========================================================================================================================
</TABLE>
                  Securities  with  a par  value  of  $59,912  were  pledged  at
                  December  31,  1999 to secure  public  deposits  and for other
                  purposes as required by law and contractual arrangement.



                                       25
<PAGE>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)


Note 2.           Investment Securities - continued

                  The amortized cost and estimated fair value of debt securities
                  at December  31,  1999,  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
------------------------------------------------------------------------------------------------------------------------
<S>                                                                                               <C>           <C>
                  Securities held-to-maturity:
                      Due in one year or less                                                     $ 50,315      $ 50,101
                      Due after one year through five years                                         45,239        45,090
                      Due after five years through ten years                                         3,690         3,811
                      Due after ten years                                                              885           977
------------------------------------------------------------------------------------------------------------------------
                                                                                                  $100,129      $ 99,979
========================================================================================================================
                  Available-for-sale securities:
                      Due in one year or less                                                     $ 30,161      $ 29,901
                      Due after one year through five years                                         29,348        29,085
                      Due after five years through ten years                                         2,595         2,662
                      Due after ten years                                                            9,336         9,347
                      Mortgage-backed securities                                                     1,393         1,380
                      Marketable equity securities                                                  10,262        21,709
------------------------------------------------------------------------------------------------------------------------
                                                                                                  $ 83,095      $ 94,084
========================================================================================================================
</TABLE>

                  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
                  $55 in 1999 and $187 in 1998 resulted in gross  realized gains
                  of $1 for 1999, $1,789 for 1998 and $2,030 in 1997.  Excluding
                  the  gains   discussed   above,   other  gains  on  investment
                  securities in 1998 and 1997 were  attributable to issuer calls
                  of debt securities.
<PAGE>
Note 3.           Loans

                  Loans by type were as follows:
<TABLE>
<CAPTION>
                                                                                                        December 31,
                                                                                                     1999          1998
------------------------------------------------------------------------------------------------------------------------
<S>                                                                                               <C>          <C>
                  Commercial, financial and agricultural                                          $101,128     $  86,980
                  Real estate:
                      Construction                                                                   8,647         5,276
                  Mortgage:
                      One to four family residential                                               111,793       113,984
                      Commercial                                                                    74,873        62,446
                      Equityline                                                                    30,152        28,698
                      Other                                                                         32,851        26,846
                  Consumer                                                                          34,309        36,775
                  Lease financing                                                                    4,307         3,484
------------------------------------------------------------------------------------------------------------------------
                       Total loans                                                                $398,060     $ 364,489

========================================================================================================================

                  Loans held for sale                                                            $   3,508     $   6,858
                  Loans serviced for others                                                      $ 180,345     $ 163,455

</TABLE>


                                       26
<PAGE>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)



                  On  December  31,  1999 total  loans to  directors,  executive
                  officers  and  related   individuals  and  organizations  were
                  $1,108.  On  December  31,  1998  total  loans  to  directors,
                  executive  officers and related  individuals and organizations
                  were $1,227.  During 1999, $104 of new loans were made to this
                  group and repayments  totaled $223. 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 as follows:
<TABLE>
<CAPTION>
                                                                                    1999              1998          1997
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>               <C>           <C>
                  Balance at beginning of year                                    $5,962            $5,971        $6,163
                  Allowance from bank acquisition                                    --                269            --
                  Provision for loan losses                                          830               155            60
                  Loans charged off                                                 (748)             (544)         (463)
                  Loan recoveries                                                    144               111           211
-------------------------------------------------------------------------------------------------------------------------
                  Balance at end of the year                                      $6,188            $5,962        $5,971
=========================================================================================================================
</TABLE>
                  At December 31, 1999 and 1998,  Southern had nonaccrual  loans
                  of $243 and $166, respectively.  At December 31, 1999 and 1998
                  Southern had  restructured  loans of $42. At December 31, 1999
                  and 1998 Southern had accruing  loans past due 90 days or more
                  totaling $460 and $805,  respectively.  The amount of foregone
                  interest on nonaccrual and restructured  loans at December 31,
                  1999,  1998  and  1997,  was  not  material  for  the  periods
                  presented.  At December 31, 1999 and 1998, Southern's impaired
                  loans  were less than the  nonaccrual  and  restructured  loan
                  amounts presented above and no additional  allowances for loan
                  losses were required for these impaired loans.

Note 5.           Premises and Equipment

                  The components of premises and equipment were as follows:
<PAGE>
<TABLE>
<CAPTION>
                                                                                                        December 31,
                                                                                                      1999          1998
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                <C>          <C>
                  Land                                                                             $ 4,822      $  3,763
                  Buildings and improvements                                                        17,254        15,333
                  Furniture and equipment                                                            7,407         6,816
                  Construction-in-progress                                                              12           103
---------------------------------------------------------------------------------------------------------------------------
                                                                                                    29,495        26,015
                  Less: accumulated depreciation                                                    (8,238)       (7,113)
---------------------------------------------------------------------------------------------------------------------------
                                                                                                   $21,257       $18,902
===========================================================================================================================
</TABLE>

Note 6.           Income Taxes

                  The  components of income tax expense  (benefit) for the years
                  ended December 31 were as follows:
<TABLE>
<CAPTION>
                                                                                   1999              1998          1997
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>               <C>           <C>
                  Current:
                      Federal                                                     $1,568            $2,221        $1,737
                      State                                                            5                 6             8
-------------------------------------------------------------------------------------------------------------------------
                                                                                   1,573             2,227         1,745
-------------------------------------------------------------------------------------------------------------------------
                  Deferred:
                      Federal                                                       (423)             (167)       (1,405)
-------------------------------------------------------------------------------------------------------------------------
                                                                                  $1,150            $2,060        $  340
=========================================================================================================================
</TABLE>


                                       27
<PAGE>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)


Note 6.           Income Taxes - continued

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

                                                                                    1999              1998          1997
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>               <C>           <C>
                  Expected income tax expense at stated rate (34%)                $1,642            $2,603        $2,364
                  Increase (decrease) in income tax expense
                        resulting from:
                      Tax exempt income                                             (911)             (908)         (943)
                      Amortization of intangible assets                              126               143           172
                      Nontaxable gain on securities donated                           --                --        (1,200)
                      State income tax (net of federal benefit)                        4                 2             5
                      Other, net                                                     289               220           (58)
-------------------------------------------------------------------------------------------------------------------------
                                                                                  $1,150            $2,060        $  340
=========================================================================================================================

                  Effective tax rate                                                  24%               27%            5%
=========================================================================================================================
</TABLE>

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

                                                                                                          December 31,
                                                                                                      1999          1998
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                                               <C>          <C>
                  Deferred tax liabilities:
                      Depreciation                                                                $    554     $     639
                      Leased assets                                                                    178           178
                      Investment securities                                                          3,737         5,853
                      Other                                                                            392           249
-------------------------------------------------------------------------------------------------------------------------
                        Gross deferred tax liabilities                                               4,861         6,919
-------------------------------------------------------------------------------------------------------------------------
                  Deferred tax assets:
                      Allowance for loan losses                                                     (2,104)       (1,778)
                      Intangible assets                                                             (1,082)         (861)
                      Other                                                                           (912)         (978)
-------------------------------------------------------------------------------------------------------------------------
                        Gross deferred tax assets                                                   (4,098)       (3,617)
-------------------------------------------------------------------------------------------------------------------------
                  Net deferred tax liability                                                      $    763     $   3,302
=========================================================================================================================
</TABLE>
                  No valuation allowance for deferred tax assets was required at
                  December 31, 1999 or 1998.  Management has determined  that it
                  is more likely than not that the net deferred tax asset can be
<PAGE>
                  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  and  losses on
                  securities   available-for-sale.   The  related  deferred  tax
                  benefit of  approximately  $2,116 for the year ended  December
                  31, 1999 has been recorded  directly to shareholders'  equity.
                  The related  deferred tax charge of  approximately  $1,924 for
                  the year ended  December  31,  1998 was  recorded  directly to
                  shareholders' equity.



                                       28
<PAGE>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)


Note 7.           Deposits

                  Deposits at December 31 are summarized as follows:
<TABLE>
<CAPTION>

                                                                                                    1999           1998
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                                              <C>            <C>
                  Demand                                                                         $  89,181      $  77,550
                  Checking with interest                                                            75,969         75,270
                  Savings                                                                           57,398         56,499
                  Money market accounts                                                             55,701         53,449
                  Time                                                                             300,001        293,984
-------------------------------------------------------------------------------------------------------------------------
                     Total deposits                                                               $578,250       $556,752
=========================================================================================================================
</TABLE>

                  Total time deposits with a  denomination  of $100 or more were
                  $60,384   and   $60,063  at   December   31,  1999  and  1998,
                  respectively.

                  At  December  31,  1999,  the  scheduled  maturities  of  time
                  deposits were:

                                    2000                             $ 248,959
                                    2001                                 8,033
                                    2002                                 2,046
                                    2003                                   987
                                    2004 and thereafter                 39,976
------------------------------------------------------------------------------
                                       Total time deposits           $ 300,001
==============================================================================


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

                  Short-term Borrowings

                  Short-term borrowings at December 31 were:

<TABLE>
<CAPTION>
                                                                                                      1999           1998
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                <C>            <C>
                  U.S. Treasury tax and loan accounts                                              $ 1,435        $   171
                  Repurchase agreements                                                              5,223          4,953
-------------------------------------------------------------------------------------------------------------------------
                     Total short-term borrowings                                                   $ 6,658         $5,124
=========================================================================================================================
</TABLE>
<PAGE>
                  The U. S. Treasury tax and loan accounts averaged $991 in 1999
                  and $861 in 1998. The highest  month-end  balance of the U. S.
                  Treasury  tax and loan  accounts was $2,035 in 1999 and $2,206
                  in  1998.  The  average  rate on U. S.  Treasury  tax and loan
                  accounts was 4.15% in 1999 and 5.97% in 1998.

                  The repurchase  agreements  averaged $5,240 in 1999 and $5,655
                  in 1998.  The  highest  month-end  balance  of the  repurchase
                  agreements  was $6,313 in 1999 and $6,459 in 1998. The average
                  rate on  repurchase  agreements in 1999 and 1998 was 3.58% and
                  4.09%. At December 31, 1999, $13,000 of investment  securities
                  were  pledged  for  repurchase   agreements.   The  securities
                  collateralizing the repurchase  agreements have been delivered
                  to a third party custodian for safekeeping.

                  Long-term Obligations

                  The $23.0  million  long-term  obligations  are Capital  Trust
                  Securities  of  Southern  Capital  Trust I,  ("the  Trust")  a
                  wholly-owned  statutory  business trust of  BancShares.  These
                  long-term  obligations,  which  qualify as Tier 1 Capital  for
                  BancShares,  bear  interest  at  8.25%  and  mature  in  2028.
                  BancShares may redeem the long-term obligations in whole or in
                  part on or after June 30, 2003. The sole asset of the Trust is
                  $23.0  million  of 8.25%  Junior  Subordinated  Debentures  of
                  BancShares due 2028.  Considered  together,  the  undertakings
                  constitute a full and unconditional guarantee by BancShares of
                  the Trust's obligations under the Capital Trust Securities.


                                       29
<PAGE>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)


Note 9.           Acquisitions and dispositions

                  BancShares   has   consummated   numerous   acquisitions   and
                  dispositions  in recent years.  All of the  acquisitions  have
                  been  accounted for under the purchase  method of  accounting,
                  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   and
                  dispositions  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  and  dispositions  that  have  been  consummated
                  during the three-year period ending December 31, 1999:

<TABLE>
<CAPTION>
                                                                                      Deposit
                                                                         Assets    Liabilities
                                                                        Acquired      Assumed      Resulting
   Date                Institution/Location                              (Sold)       (Sold)      Intangible
------------------------------------------------------------------------------------------------------------
<S>                    <C>                                               <C>          <C>           <C>
   September 1999      First-Citizens Bank & Trust Company               $14,837      $14,835       $1,335
                       Ahoskie, North Carolina

   December 1998       First Union National Bank                          16,440       16,440        1,685
                       Red Springs, North Carolina

   October 1998        First-Citizens Bank & Trust Company                 5,309        5,302          186
                       Gates, North Carolina

   May 1998            Enfield Savings Bank                               18,174       18,041          448
                       Enfield, North Carolina

   May 1998            Enfield Savings Bank (1)                           (2,420)      (2,420)         (85)
                       Littleton, North Carolina

   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
</TABLE>
                  (1) Represents the sale of this branch to First-Citizens  Bank
                  & Trust Company.



                                       30
<PAGE>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)


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
                  First-Citizens  Bank & Trust Company 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.

                  The following sets forth pertinent  information  regarding the
                  pension plan for the periods indicated:
<PAGE>
<TABLE>
<CAPTION>
                                                                                    1999              1998           1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>               <C>            <C>
                  Change in benefit obligation
                  Net benefit obligation at beginning of year                     $7,647            $6,598         $5,417
                  Service cost                                                       413               356            298
                  Interest cost                                                      533               489            418
                  Actuarial (gain) loss                                             (898)              414            645
                  Gross benefits paid                                               (281)             (210)          (180)
---------------------------------------------------------------------------------------------------------------------------
                  Net benefit obligation at end of year                           $7,414            $7,647         $6,598
===========================================================================================================================

                  Change in plan assets
                  Fair value of plan assets at beginning of year                  $6,936            $5,943         $4,936
                  Actual return on plan assets                                       351               920            817
                  Employer contributions                                             476               283            370
                  Gross benefits paid                                               (280)             (210)          (180)
---------------------------------------------------------------------------------------------------------------------------
                  Fair value of plan assets at end of year                        $7,483            $6,936         $5,943
===========================================================================================================================

                  Funded status at end of year                                  $     69           $  (711)       $  (655)
                  Unrecognized net actuarial loss.                                  (511)              352            530
                  Unrecognized prior service cost                                     64                73             81
                  Unrecognized net transition asset.                                (143)             (184)          (225)
---------------------------------------------------------------------------------------------------------------------------
                  Net amount recognized as a liability in the consolidated
                    balance sheets at end of year                                $  (521)          $  (470)       $  (269)
===========================================================================================================================

                  Assumptions as of December 31
                  Discount rate                                                     7.50%             6.75%          7.25%
                  Expected return on plan assets                                    8.50%             8.00%          8.25%
                  Rate of compensation increase                                     4.75%             4.50%          4.50%

                  Components of net periodic benefit cost
                  Service cost                                                   $   413            $  356         $  298
                  Interest cost                                                      533               489            418
                  Expected return on assets                                         (464)             (395)          (345)
                  Amortization of:
                    Transition asset                                                 (40)              (41)           (41)
                    Prior service cost                                                 8                 8              8
                    Actuarial loss                                                    77                67             53
---------------------------------------------------------------------------------------------------------------------------
                  Total net periodic benefit cost                                $   527            $  484        $   391
===========================================================================================================================
</TABLE>
<PAGE>
                  Employees  are also  eligible  to  participate  in a  matching
                  savings plan after one year of service.  During 1999  Southern
                  made participating contributions to this plan of $263 compared
                  to $245 during 1998 and $220 during 1997.



                                       31
<PAGE>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)


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
                  $12,232  during 1999 of which  $8,720 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 forth by the
                  regulators  require a Tier 1 capital  ratio of no less than 4%
                  of risk-adjusted assets, a total capital ratio of no less than
                  8% of risk-adjusted assets, and a leverage capital ratio of no
                  less than 4% of average tangible  assets.  To meet the Federal
                  Deposit Insurance  Corporation's  ("FDIC") "well  capitalized"
                  standards,  the  Tier 1  ratios  must be at  least  6%,  total
                  capital  ratios  must be at  least  10% and  leverage  capital
                  ratios must be at least 5%.  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, 1999,  Southern was
                  considered to be "well capitalized" by the FDIC.

                  Southern's  capital  ratios  as of  December  31 are set forth
                  below:


                                                       1999           1998
------------------------------------------------------------------------------

                  Tier 1 capital                    $  55,398      $  49,198
                  Total capital                        62,967         53,234
                  Risk-adjusted assets                386,761        311,341
                  Average tangible assets             654,268        582,955

                  Tier 1 capital ratio                  14.32%         15.80%
                  Total capital ratio                   16.28%         17.10%
                  Leverage capital ratio                 8.47%          8.44%


                  The  primary  source  of  funds  for  the  dividends  paid  by
                  BancShares to its shareholders is dividends  received from its
                  Banking subsidiary. Southern Bank 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 Bank
                  may not  declare  a  dividend  until it has  transferred  from
                  retained  earnings to surplus 25% of its undivided  profits or

<PAGE>
                  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 Bank 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
                  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.  At December  31,  1999,  Southern had
                  available  for the payment of dividends  undivided  profits of
                  approximately  $19.6 million,  unless declaration of dividends
                  for  such  amount  would  reduce  the  regulatory  capital  of
                  Southern below the minimum levels discussed above. At December
                  31,  1999,   approximately   $35.8   million  of   BancShares'
                  investment  in  Southern  was  restricted  as to  transfer  to
                  BancShares without obtaining prior regulatory approval.



                                       32
<PAGE>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)


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.

                  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, 1999
                  and  December   31,  1998   amounted  to  $3,060  and  $1,625.
                  Outstanding  commitments at December 31, 1999 and December 31,
                  1998  were  $111,988  and  $51,466.  Undisbursed  advances  on
                  customer lines of credit at December 31, 1999 and December 31,
                  1998 were $51,782 and $47,639.  Southern  does not  anticipate
                  any losses as a result of these transactions.
<PAGE>
                  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.



                                       33
<PAGE>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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, 1999 and 1998 and condensed  statements of income
                  for the three years ended December 31, 1999.
<TABLE>
<CAPTION>
                                                                                                       December 31,
-------------------------------------------------------------------------------------------------------------------------
                  CONDENSED BALANCE SHEETS                                                          1999           1998
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                                               <C>            <C>
                  ASSETS
                  Cash                                                                            $  1,862       $  3,802
                  Investment securities available-for-sale                                          12,002         14,659
                  Other assets                                                                       1,147          1,333
                  Investment in subsidiaries                                                        65,474         62,553
-------------------------------------------------------------------------------------------------------------------------
                    Total assets                                                                   $80,485        $82,347
=========================================================================================================================

                  LIABILITIES AND SHAREHOLDERS' EQUITY
                  Accrued liabilities                                                             $  1,830       $  2,603
                  Notes payable                                                                     23,711         23,711
-------------------------------------------------------------------------------------------------------------------------
                    Total liabilities                                                               25,541         26,314
                  Shareholders' equity                                                              54,944         56,033
-------------------------------------------------------------------------------------------------------------------------
                    Total liabilities and shareholders' equity                                     $80,485        $82,347
=========================================================================================================================

<CAPTION>
                  CONDENSED STATEMENTS OF INCOME
                                                                                           Year ended December 31,
--------------------------------------------------------------------------------------------------------------------------
                                                                                    1999              1998           1997
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>               <C>            <C>
                  Dividends from bank subsidiary                                  $   --            $3,090         $5,458
                  Other dividends                                                    192               152             80
--------------------------------------------------------------------------------------------------------------------------
                    Total income                                                     192             3,242          5,538

                  Interest expense                                                (2,142)           (1,320)          (295)
                  Other expense                                                      (65)             (293)           (49)
--------------------------------------------------------------------------------------------------------------------------
                  (Loss) income before equity in undistributed
                    income of subsidiary                                          (2,015)            1,629          5,194
                  Equity in undistributed income of subsidiary                     5,694             3,967          1,419
--------------------------------------------------------------------------------------------------------------------------
                    Net income                                                    $3,679            $5,596         $6,613
==========================================================================================================================
</TABLE>
                                       34
<PAGE>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)


Note 13.          Parent Company Financial Statements (continued)
<TABLE>
<CAPTION>

                  CONDENSED STATEMENTS OF CASH FLOWS
                                                                                         Year ended December 31,
--------------------------------------------------------------------------------------------------------------------------
                                                                                   1999              1998           1997
<S>                                                                               <C>               <C>            <C>
                  OPERATING ACTIVITIES:
                     Net income                                                   $3,679            $5,596         $6,613
                     Adjustments to reconcile net income to net cash
                       provided by operating activities:
                     Equity in undistributed net income of subsidiary             (5,694)           (3,967)        (1,419)
                     Decrease (increase) in other assets                             186              (543)           --
                     Decrease in accrued liabilities                                (773)             (959)           --
                     Dividend income in the form of investment securities             --                --         (2,753)
                     Increase (decrease) in accrued interest payable                  --                (9)             9
--------------------------------------------------------------------------------------------------------------------------
                  NET CASH (USED) PROVIDED BY
                     OPERATING ACTIVITIES                                         (2,602)              118          2,450
--------------------------------------------------------------------------------------------------------------------------

                  INVESTING ACTIVITIES:
                     Sale (purchase) of  investments                               4,241            (1,787)          (205)
                     Investments in subsidiaries                                  (2,921)          (12,711)        (5,000)
--------------------------------------------------------------------------------------------------------------------------
                  NET CASH PROVIDED (USED) BY
                     INVESTING ACTIVITIES                                          1,320           (14,498)        (5,205)
--------------------------------------------------------------------------------------------------------------------------

                  FINANCING ACTIVITIES:
                     Dividends paid                                                 (573)             (581)          (585)
                     Purchase and retirement or redemption of stock                  (85)             (231)           (23)
                     Change in notes payable, net                                     --            18,961          3,350
--------------------------------------------------------------------------------------------------------------------------
                  NET CASH PROVIDED (USED) BY
                     FINANCING ACTIVITIES                                           (658)           18,149          2,742
--------------------------------------------------------------------------------------------------------------------------
                  NET INCREASE (DECREASE) IN CASH AND
                     CASH EQUIVALENTS                                             (1,940)            3,769            (13)
                  CASH AND CASH EQUIVALENTS AT
                     THE BEGINNING OF YEAR                                         3,802                33             46
--------------------------------------------------------------------------------------------------------------------------

                  CASH AND CASH EQUIVALENTS
                  AT THE END OF YEAR                                              $1,862            $3,802        $    33
==========================================================================================================================

                  SUPPLEMENTAL DISCLOSURES OF CASH
                     PAID DURING THE YEAR FOR:
                     Interest                                                     $2,142            $1,329         $  286
                     Income taxes                                                 $    4            $   11         $    7
==========================================================================================================================
</TABLE>
<PAGE>
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.



                                       35
<PAGE>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)


Note 14.          Fair Value of Financial Instruments - continued

                  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 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 borrowed funds and accrued interest payable

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

                  Long-term obligations

                  The fair value of the long-term obligation is the market value
                  at the last trade date in 1999 and 1998.

                  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.

                  Limitations on Fair Value Assumptions

                  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
<PAGE>
                  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>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)


                 The estimated fair values of BancShares' financial instruments
                 at December 31 are as follows:
<TABLE>
<CAPTION>
                                                                              1999                          1998
---------------------------------------------------------------------------------------------------------------------------
                                                                     Carrying    Estimated          Carrying    Estimated
                                                                       Amount   Fair Value            Amount    Fair Value
---------------------------------------------------------------------------------------------------------------------------
 <S>                                                                  <C>          <C>              <C>          <C>
                 Financial assets:
                     Cash and due from banks                         $ 28,524     $ 28,524          $ 37,419     $ 37,419
                     Federal funds sold                                20,370       20,370            19,535       19,535
                     Investment securities:
                       Held-to-maturity                               100,129       99,979            92,340       93,511
                       Available-for-sale                              94,084       94,084           109,227      109,227
                     Loans                                            391,872      390,034           358,527      362,264
                     Accrued interest receivable                        4,730        4,730             4,571        4,571

                  Financial liabilities:
                     Deposits                                        $578,250     $593,498          $556,752     $558,544
                     Short-term borrowings                              6,658        6,658             5,124        5,124
                     Long-term obligations                             23,000       19,838            23,000       23,288
                     Accrued interest payable                           4,471        4,471             4,505        4,505

</TABLE>

Note 15.          Related Parties

                  BancShares  has entered into various  service  contracts  with
                  another  bank  holding   company  and  its   subsidiary   (the
                  "Corporation").    The   Corporation   has   two   significant
                  shareholders,  which  are  also  significant  shareholders  of
                  BancShares. The first significant shareholder is a director of
                  BancShares and at December 31, 1999 beneficially  owned 32,294
                  shares, or 27.16%, of BancShares' outstanding common stock and
                  22,171 shares, or 5.58%, of BancShares'  outstanding  Series B
                  preferred  stock.  At the same date,  the  second  significant
                  shareholder  beneficially  owned 27,577 shares,  or 23.19%, of
                  BancShares'  outstanding  common stock, and 17,205 shares,  or
                  4.33%,  of  BancShares'  Series B preferred  stock.  The above
                  totals  include  17,205 Series B preferred  shares,  or 4.33%,
                  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,  1999,
                  beneficially  owned 2,522,615 shares, or 28.33%, and 1,492,974
                  shares, or 16.77%,  of the  Corporation's  outstanding Class A
                  common  stock,  and  643,818  shares,  or 37.42%,  and 193,685
                  shares, or 11.26%,  of the  Corporation's  outstanding Class B
                  common stock.  The above totals include 487,557 Class A common
                  shares, or 5.48%, and 104,644 Class B common shares, or 6.08%,
                  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 in
                  note 9, Southern acquired branches from First Citizens in 1999
                  and 1998 and sold a branch to First Citizens in 1998.


                                       37
<PAGE>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)


Note 15.          Related Parties - continued

                  The  following  table  lists the various  charges  paid to the
                  Corporation during the years ended December 31:
<TABLE>
<CAPTION>
                                                                                    1999              1998           1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>               <C>            <C>
                  Data and item processing                                        $2,156            $2,345         $1,840
                  Forms, supplies and equipment                                      281               231            220
                  Trustee for employee benefit plans                                  89                79             66
                  Consulting fees                                                     86                78             79
                  Trust investment services                                           19                20             22
                  Internal auditing services                                           1                 1             41
                  Other services                                                     116               114             94
---------------------------------------------------------------------------------------------------------------------------
                                                                                  $2,748            $2,868         $2,362
===========================================================================================================================
</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  $8,583 at December 31, 1999 and $15,988 at
                  December 31, 1998. Southern's wholly-owned subsidiary, Goshen,
                  Inc.  paid $94 and $98 to an  Insurance  Company  owned by the
                  Corporation  for the sale of insurance  written in  connection
                  with loans made by  Southern  in 1999 and 1998,  respectively.
                  BancShares  also owns 124,584 and 22,219 shares of Class A and
                  Class B common stock of the Corporation. The Class A and Class
                  B common stock had an amortized cost of $2.6 million and $465,
                  respectively,  at  December  31,  1999 and  1998.  The Class A
                  common  stock  had a fair  value  of $8.7  million  and  $11.2
                  million at December 31, 1999 and 1998, respectively. The Class
                  B  common  stock  had a fair  value of $1.6  million  and $2.0
                  million at December 31, 1999 and 1998, respectively.

Note 16.          Subsequent Events

                  Southern has received approval from the regulatory authorities
                  to  purchase  the  Robersonville,  North  Carolina  office  of
                  Cooperative Bank for Savings,  Inc., SSB ("Cooperative").  The
                  acquisition is planned for February 18, 2000. Southern expects
                  to   purchase   approximately   $7.1   million  of   deposits,
                  approximately   $1.3   million   of   loans   and  to   record
                  approximately   $532,000   of   intangible   assets   for  the
                  Cooperative  acquisition.  Southern plans to consolidate  this
                  acquisition  into its existing  Robersonville  facility and to
                  sell the existing Cooperative facility.

                  Southern  has  also  received  approval  from  the  regulatory
                  authorities  to open de novo  branches  in three  new  eastern
                  North Carolina markets.  These branches are planned to open in
                  2000.
<PAGE>

                  Subject to regulatory approval, Southern plans to purchase the
                  Battleboro,  North  Carolina,  Nashville,  North  Carolina and
                  Sharpsburg,   North   Carolina   offices  of   Triangle   Bank
                  ("Triangle") on April 14, 2000.  Southern  expects to purchase
                  approximately  $30.5 million of deposits,  approximately  $8.2
                  million of loans and to record  approximately  $3.0 million of
                  intangible  assets  for the  Triangle  acquisitions.  Southern
                  plans  to  consolidate  the  Nashville  acquisition  into  its
                  existing  Nashville facility and to sell the existing Triangle
                  Nashville facility.


                                       38
<PAGE>



DIRECTORS
Bynum R. Brown
Murfreesboro, NC
President and Owner,
Bynum R. Brown Agency, Inc.
(Real Estate)
President and Owner, Brown Manor, Inc.
(Family Care Home)
Secretary-Treasurer, Roanoke
Valley 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 and Owner, 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.

Sam E. Ewell, Jr.
Wendell, NC
President and Owner, Ewell Ford Sales, Inc.

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

<PAGE>
George A. Hux
Rocky Mount, NC
Retired Attorney
Former Partner, Hux, Livermon & Armstrong, LLP


M.J. McSorley
Rocky Mount, NC
Vice Chairman, Southern Bank and Trust Company;
Vice President, Southern BancShares (N.C.), Inc
Former President and CEO, Southern Bank and Trust Co.
 .
W. B. Midyette, Jr.
Bath, N.C.
Retired Farmer

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

John C. Pegram, Jr.
Mount Olive, NC
President and Chief Executive Officer,
Southern BancShares (N.C.), Inc.
President and Chief Executive Officer,
Southern Bank and Trust Company.

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


W.A. Potts
Mount Olive, NC
Retired Veterinarian and former President
W.A. Potts DVM, P.A.

Charles L. Revelle, Jr.
Murfreesboro, NC
Chairman of the Board, Revelle Agri-Products, Inc.;
President, Revelle Equipment Co., Inc.
Vice President, Revelle Builders of NC, Inc.;
(Agribusiness)
<PAGE>
LeRoy C. Hand
Camden, NC
Retired Physician, former President,
Albermarle Emergency Associates, P.A.
Savings Bank, Inc. SSB

J. D. Hines
Rocky Mount, NC
President and Owner, Hines Equipment Company
President and Owner, Enfield Tractor and Equipment Company
(Farm and industrial equipment sales)

Frank B. Holding
Smithfield, NC
Executive Vice Chairman of the Board,
First Citizens BancShares, Inc. and
First-Citizens Bank & Trust Company
Vice Chairman of the Board
First Citizens Bancorporation of S. C., Inc. and
First-Citizens Bank and Trust Company of South Carolina


<PAGE>
Watson N. Sherrod, Jr.
Enfield, NC
Senior Vice President, Southern Bank and Trust Company,
Former President and CEO, ESB Bancorp, Inc. and Enfield Savings Bank, Inc.SSB

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

Raymond M. Sykes
Whitakers, NC
Retired Farmer

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
Executive Officers of Southern Bank and Trust Company

R. S. Williams, Chairman of the Board
M. J. McSorley, Vice Chairman of the Board
John C. Pegram, Jr., President and Chief Executive Officer
Paul A. Brewer, Executive Vice President
R. D. Ray, Executive Vice President
David A. Bean, Senior Vice President, Chief Financial Officer
and Secretary


EXECUTIVE OFFICERS OF SOUTHERN BANCSHARES (N.C.), INC.

R. S. Williams, Chairman of the Board
W. A. Potts, Vice Chairman of the Board
John C. Pegram, Jr., President And Chief Executive Officer
M. J. McSorley, Vice President
David A. Bean, Secretary, Treasurer and Chief Financial Officer
Paul A. Brewer, Assistant Secretary
R. D. Ray, Assistant Treasurer


                                       40
<PAGE>



SOUTHERN BANK OFFICES


  Branch                               County
----------------------------------------------
Ahoskie                               Hertford
700 East Church St.
Ahoskie, NC 27910-0825
(252) 332-6191

Ahoskie                               Hertford
507 East Main St.
Ahoskie, NC 27910-0825
(252) 332-5149

Askewville                              Bertie
Halifax
104 W. Askewville St.
Windor, NC 27983-0529
(252) 794-3029

Aulander                                Bertie
119 S. Commerce St
Aulander, NC 27805-0129
(252) 345-4061

Aurora                                Beaufort
298 North Fifth St.
Aurora, NC 27806-0427
(252) 322-4161

Ayden                                     Pitt
1107 W. 3rd St.
Ayden, NC 28513-0368
(252) 746-6138

Bath                                  Beaufort
419 Carteret St.
Bath, NC 27808-0217
(252) 923-8381

Belhaven                              Beaufort
148 E. Main St.
Belhaven, NC 27810-0087
(252) 943-2184

Bethel                                   Pitt
Main St.
Bethel, NC 27812-0819
(252) 825-0031

Calypso                                Duplin
102 West Trade St.
Calypso, NC 28325-0729
(919) 658-7070

Clinton                                Duplin
925 Sunset Avenue
Clinton, NC 28329-0929
(910) 592-9005
<PAGE>
Deep Run                               Lenoir
1916 Tulls Mill Rd.
Deep Run, NC 28525-0126
(252) 568-4141

Dudley                                 Wayne
Highway 117 Alternate South
Dudley, NC 28333-0729
(919) 734-5375

Edenton                               Chowan
1300 N. Broad St
Edenton, NC 27932-0546
(252) 482-7466

Edenton                               Chowan
101 W. Queen St
Edenton, NC 27932-0868
(252) 482-8466

Enfield                              Halifax
201Batchelor Avenue
Enfield, NC 27823-0368
(252) 445-2016

<PAGE>
  Branch                                County
----------------------------------------------
  Faison                                Duplin
  110 W. Center St South
  Faison, NC 28341-0628
  (910) 267-4351

  Farmville                               Pitt
  107 E. Church St.
  Farmville, NC 27828-0146
  (252) 753-2161

  Garland                              Sampson
  96 South Ingold Ave.
  Garland, NC 28441-0397
  (910) 529-3651

  Gates                                  Gates
  Gates Bank Road
  Gates NC 27937-0064
  (252) 357-1250

  Gatesville                             Gates
  203 Main St.
  Gatesville NC 27938-0203
  (252) 357-0190

  Grantham                               Wayne
  3382 U.S. 13 South
  Goldsboro, NC 27530-0729
  (919) 689-2300

  Hamilton                              Martin
  109 N. Front Street
  Hamilton, NC 27840-0425
  (252) 798-6971

  Kill Devil Hills                        Dare
  202 S. Croatan Highway
  Kill Devil Hills, NC 27948-2037
  (252) 449-4499

  LaGrange                              Lenoir
  208 S. Caswell St.
  LaGrange, NC 28551-0248
  (252) 566-4020

  Lewiston                              Bertie
  127 Main St.
  Lewiston-Woodville, NC 27849-0190
  (252) 348-2561

  Macclesfield                       Edgecombe
  105 N. Railroad St.
  Macclesfield, NC 27852-0339
  (252) 827-2111
<PAGE>
  Mount Olive                            Wayne
  100 North Center St.
  Mount Olive, NC 28365-0729
  (919) 658-7000

  Mount Olive                            Wayne
  800 North Breazeale Ave.
  Mount Olive, NC 28365-0729
  (919) 658-7100

  Murfreesboro                         Hertford
  336 East Main St
  Murfreesboro, NC 27855-0277
  (252) 398-4174

  Nashville                                Nash
  209 Barnes St.
  Nashville, NC 27856-0758
  (252) 459-2117

  Plymouth                           Washington
   612 Washington St.
  Plymouth, NC 27962-1023
  (252) 793-1115
<PAGE>
  Branch                                County
----------------------------------------------
 Pollocksville                           Jones
  214 Main St.
 Pollocksville, NC 28573-0171
 (252) 224-5191

 Red Springs                           Robeson
 300 South Main St.
 Red Springs, NC 28377-1624
 (910) 843-4135

 Roanoke Rapids                        Halifax
 1580 E. 10th St.
 Roanoke Rapids, NC 27870-4109
 (252) 535-3043

 Robersonville                          Martin
 111 N. Main St.
 Robersonville, NC 27871-0369
 (252) 795-3041

 Rocky Mount                              Nash
 230 Sunset Ave.
 Rocky Mount, NC 27802-0428
 (252) 977-2825

 Rocky Mount                              Nash
 3690 Sunset Ave.
 Rocky Mount, NC 27802-0428
 (252)-443-7800

 Roxobel                               Bertie
 113 South Main St.
 Roxobel, NC 27872-0159
 (252) 344-5641

 Salemburg                             Sampson
 102 South Main St.
 Salemburg, NC 28385-0160
 (910) 525-4149

 Seven Springs                           Wayne
 306 Main St.
 Seven Springs, NC 28578-0060
 (252) 569-3161

 Turkey                                Sampson
 45 Union Rd.
 Turkey, NC 28393-0375
 (910) 592-7321

 Warsaw                                 Duplin
 114 N. Pine St.
 Warsaw, NC 28398-0896
 (910) 293-7176
<PAGE>
 Whitakers                                Nash
 101 N. White St.
 Whitakers, NC 27891-0130
 (252) 437-0611

 Windsor                                Bertie
 101 N. King St.
 Windsor, NC 27983-0529
 (252) 794-3011

 Winton                               Hertford
 301 N. Main St.
 Winton, NC 27986-0278
 (252) 358-3111



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<PAGE>



GENERAL INFORMATION

Shareholders' Meeting

The Annual Meeting of Shareholders will be held on Wednesday,  April 19, 2000 at
3:00 P. M. at the Goldsboro Country Club, 1500 South Slocumb Street,  Goldsboro,
North Carolina.

Stock Transfer Agent and Registrar

First-Citizens Bank & Trust Company
100 E. Tryon Road
Raleigh, North Carolina 27603

General Counsel

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

Auditors

KPMG  LLP
Raleigh, North Carolina 27601

Form 10-K

Copies of Southern  BancShares' Annual Reports on Form 10-K are available on the
internet at 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 1999, including Financial Statements and Schedules thereto, will be provided
without charge to the shareholder making such request.

Equal Opportunity Employer

Southern Bank and Trust Company is an equal opportunity employer

Member FDIC

This report has not been reviewed or confirmed for accuracy by the FDIC.


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