<PAGE>


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

                                    FORM 10-K

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

For the fiscal year ended
   December 31, 2001                                 Commission File No. 0-10852

                        SOUTHERN BANCSHARES (N.C.), INC.
             (Exact name of registrant as specified in its charter)

           DELAWARE                                            56-1538087
(State or other jurisdiction of                              (I.R.S. Employer
 incorporation or organization)                           Identification Number)

                              116 East Main Street
                        Mount Olive, North Carolina 28365
               (Address of Principal Executive offices, Zip Code)

                                 (919) 658-7000

              (Registrant's Telephone Number, including Area Code)

Securities registered pursuant to:

     Section 12(b) of the Act:     8.25% Junior Subordinated Debentures
     Section 12(g) of the Act:     Series B non-cumulative preferred stock, no
                                   par value

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

Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of March 17, 2000: The Registrant's voting stock has no readily
ascertainable market value as of any date within the last sixty days or
otherwise for the reason that such stock is not regularly traded and has no
quoted prices. Therefore, the aggregate market value of the voting stock held by
non-affiliates is not determinable.

The number of shares outstanding of the Registrant's common stock as of February
28, 2002: Common Stock, $5.00 par value - 114,114 shares

<PAGE>

Portions of the Registrant's definitive Proxy Statement dated March 22, 2002 for
the 2001 Annual Meeting of Shareholders are incorporated by reference into Part
III.

<TABLE>
<CAPTION>
                                                       CROSS REFERENCE INDEX

                                                                                                                   Page Number
<S>                                                                                                                <C>
PART I      Item 1   Business .....................................................................................     3
            Item 2   Properties ...................................................................................     4
            Item 3   Legal Proceedings ............................................................................    26
            Item 4   Submission of Matters to a Vote of Security Holders ..........................................  None
PART II     Item 5   Market for the Registrant's Common Stock and Related Shareholder Matters .....................    25
            Item 6   Selected Financial Data ......................................................................     6
            Item 7   Management's Discussion and Analysis of Financial Condition and Results of Operations ........     4
            Item 7A  Quantitative and Qualitative Disclosures about Market Risk ................................... 15-17
            Item 8   Financial Statements and Supplementary Data

                     Quarterly Financial Summary for 2001 and 2000 ................................................ 24-25

                     Independent Auditors' Report .................................................................    29

                     Consolidated Balance Sheets as of December 31, 2001 and 2000 .................................    30

                     Consolidated Statements of Income and Comprehensive Income for the years ended
                     December 31, 2001, 2000 and 1999 .............................................................    31

                     Consolidated Statements of Shareholders' Equity for the years ended December 31, 2001,
                     2000 and 1999 ................................................................................    32

                     Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and
                     1999 .........................................................................................    33

                     Notes To Consolidated Financial Statements ................................................... 34-53

            Item 9   Changes in and Disagreements with Accountants on Accounting and Financial Disclosures ........  None

PART III    Item 10  Directors and Executive Officers of Registrant ...............................................     *
            Item 11  Executive Compensation .......................................................................     *
            Item 12  Security Ownership of Certain Beneficial Owners and Management ...............................     *
            Item 13  Certain Relationships and Related Transactions ...............................................     *
PART IV     Item 14  Exhibits, Financial Statement Schedules and Reports on Form 8-K

            (a)(1)   Financial Statements (see Item 8 for Reference)
               (2)   Financial Statement Schedules normally required on Form 10-K are omitted since they are
                     not applicable, except as referred to in Item 8.
               (3)   Exhibits have been filed separately with the Commission and are available upon written
                     request ......................................................................................    55
            (b)      During the quarter ended December 31, 2001, no reports on Form 8-K were filed
</TABLE>

* Information required by Item 10 is incorporated herein by reference to the
information that appears under the captions "PROPOSAL 1: ELECTION OF DIRECTORS",
"Section 16(a) Beneficial Ownership Reporting Compliance" and "Executive
Officers" on pages 4 through 5 and page 8 of Registrant's definitive Proxy
Statement dated March 22, 2002.

                                        2

<PAGE>

     Information required by Item 11 is incorporated herein by reference to the
information that appears under the captions "Compensation Committee Interlocks
and Insider Participation", "Director Compensation", "Executive Compensation"
and "Pension Plan" on pages 6 through 10 of the Registrant's definitive Proxy
Statement dated March 22, 2002.

     Information required by Item 12 is incorporated herein by reference to the
information that appears under the caption "Beneficial Ownership of Voting
Securities" on pages 2 through 4 of the Registrant's definitive Proxy Statement
dated March 22, 2002.

     Information required by Item 13 is incorporated herein by reference to the
information that appears under the caption "Transactions with Related Parties"
on page 11 of the Registrant's definitive Proxy Statement dated March 22, 2002.

                                    BUSINESS

     General. Southern BancShares (N.C.), Inc. (hereinafter, with all of its
subsidiaries, referred to as "BancShares" or "Registrant"), is a bank holding
company which was organized during 1986 as the successor to Southern BancShares
(N.C.), Inc., a North Carolina corporation ("SBS"). SBS was formed in 1982 as
the parent company of Southern Bank and Trust Company ("Southern"). During 1986,
SBS was merged into BancShares to effect the reincorporation of Southern's
parent company in Delaware.

     Southern is BancShares' principal operating subsidiary and is currently
engaged in commercial banking through 49 offices located primarily in eastern
North Carolina.

     BancShares also is the parent company of Southern Capital Trust I ("SCT"),
a Delaware business trust that was organized during 1998 for the sole purpose of
issuing and selling $23.0 million aggregate liquidation amount of 8.25% capital
securities (the "Capital Securities"). The net proceeds from that sale, together
with the proceeds from SCT's issuance of its common securities to BancShares,
were invested in a like aggregate face amount of BancShares' 8.25% junior
deferrable interest subordinated debentures which mature during 2028. The
capital securities and the junior subordinated debentures are subject to
optional redemption at any time on or after June 30, 2003. BancShares has
entered into a guaranty agreement which, when taken together with its
obligations under the trust agreement under which SCT exists, the junior
subordinated debentures, and the indenture under which the debentures were
issued, provides a full and unconditional guarantee on a subordinated basis by
BancShares of SCT's payment of distributions and other payments on the Capital
Securities.

     BancShares's executive offices are located at 116 East Main Street, Mount
Olive, North Carolina 28365, and its telephone number is (919) 658-7000.

     BancShares's principal assets are its investments in and receivables from
its bank subsidiary and its investment securities portfolio. Its primary sources
of income are dividends from its bank subsidiary and interest income on its
investment securities portfolio. Certain laws and regulations restrict the
ability of Southern to transfer funds to BancShares in the form of cash
dividends or loans. All significant activities of BancShares and its
subsidiaries are banking related so that BancShares operates within one industry
segment. Neither BancShares nor its subsidiaries has any foreign operations.

     Services. Southern provides a full range of banking and financial services
to individuals, small and medium-sized businesses and governmental units located
in its banking markets, including regular and interest checking accounts, money
market, savings and time deposit accounts, personal and business loans and a
variety of other services incidental to commercial banking. 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.

     Employees. At December 31, 2001, BancShares and its subsidiaries employed a
full-time staff of 361 and a part-time staff of 26 for a total of 387employees.

     Supervision and Regulation. BancShares is subject to the jurisdiction of
the Board of Governors of the Federal Reserve System (the "FRB") under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"). Under the BHC Act,

                                        3

<PAGE>

BancShares is subject to supervision and examination by, and the regulations and
reporting requirements of, the FRB, and its activities are limited to those
permitted to financial holding companies. BancShares is required to obtain the
prior approval of the FRB before it may acquire direct or indirect control of
more than 5% of the outstanding voting stock, or substantially all of the assets
of, any other bank or bank holding company. Additionally, the BHC Act prohibits
BancShares from acquiring ownership or control of more than 5% of the
outstanding voting stock of any company engaged in an activity that is not
permitted for bank holding companies.

     Bank holding companies are required to serve as a source of financial
strength for their depository institution subsidiaries, and, if their depository
institution subsidiaries become undercapitalized, bank holding companies may be
required, subject to certain limits, to guarantee compliance by those
subsidiaries with capital restoration plans filed with their regulators.

     The federal Gramm-Leach-Bliley Act enacted in 1999 (the "GLB Act")
dramatically changed various federal laws governing the banking, securities and
insurance industries. The economic effects of the GLB Act on the banking
industry, and competitive conditions in the financial services industry
generally, may be profound. The GLB Act may expand opportunities for BancShares
and Southern to provide other services and obtain other revenues in the future,
and also may present new competitive challenges.

     The internal affairs of BancShares, including the rights of its
shareholders, are governed by Delaware law and by its Articles of Incorporation
and Bylaws. BancShares files periodic reports under the Securities Exchange Act
of 1934 and is subject to the jurisdiction of the Securities and Exchange
Commission.

     As an insured, state-chartered bank that is not a member of the Federal
Reserve System, Southern is subject to supervision and examination by, and the
regulations and reporting requirements of, the North Carolina Commissioner of
Banks (the "Commissioner") and the Federal Deposit Insurance Corporation (the
"FDIC"). Absent approval of the FDIC, Southern is prohibited from engaging as
principal in activities that are not permitted for national banks and it is
prohibited from acquiring or retaining any equity investment of a type not
permitted for national banks.

     As a subsidiary of BancShares, Southern is subject to restrictions under
federal law on the amount of, and its ability to enter into, transactions with,
or investments in the securities of, BancShares and certain other affiliated
entities. Though it is not a member of the Federal Reserve System, Southern is
subject to the FRB's reserve requirements applicable to all banks and its
business is significantly influenced by the fiscal policies of the FRB. The
actions and policy directives of the FRB determine to a significant degree
Southern's cost and the availability of funds and the rates of interest charged
on its loans and paid on its deposits.

     The FDIC, Commissioner and FRB have broad powers to enforce laws and
regulations applicable to BancShares and Southern and to require corrective
action of conditions affecting the safety and soundness of Southern. Among
others, these powers include cease and desist orders, the imposition of civil
penalties and the removal of officers and directors.

     Statistical Data. Certain statistical disclosures for bank holding
companies required by Guide 3 are included in Item 7 of this report under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations."

                                   PROPERTIES

     BancShares does not own or lease any real property. Except for three tracts
of land that are leased and upon which are constructed leasehold improvements
for the conduct of its banking business, Southern owns all of the real property
utilized in its operations.

     Southern's home office is located at 116 East Main Street, Mount Olive,
North Carolina. At December 31, 2001 there were 48 Southern offices in North
Carolina. Southern opened its 49/th/ office on January 14, 2002.

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                                       4

<PAGE>

                                  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 2001, 2000 and 1999. 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.

                                     SUMMARY

     BancShares experienced a 120.70 percent increase in net income during 2001,
compared to 2000. Securities gains and gains on the sale of fixed assets are the
principal reasons for the 2001 increase. Consolidated net income was $8.2
million for 2001 compared to $3.7 million for 2000 and $3.7 million for 1999.
Net income per share for the year ended December 31, 2001 totaled $68.66
compared to $28.51 in 2000 and $27.56 in 1999. Return on average assets totaled
0.99 percent during 2001, 0.52 percent during 2000 and 0.57 percent during 1999.
Table 1 provides a five year summary of financial information for BancShares.

     An analysis of BancShares' financial condition and growth can be made by
examining the changes and trends in interest-earning assets and interest-bearing
liabilities. Such an analysis also requires an evaluation of noninterest income
and noninterest expenses. In recent years, increasing total noninterest income
has been a significant focus for BancShares. The introduction of new revenue
sources and modifications to existing products and services has allowed bank
service related noninterest income to grow. In recent years the recognition of
gains and losses on available-for-sale securities has also had a significant
impact on total noninterest income, although management does not consider these
sources of noninterest income to be a recurring source of revenues for
BancShares. Franchise expansion has contributed to the growth in noninterest
income, but has also resulted in large increases in noninterest expense,
especially personnel-related costs, occupancy expenses, equipment expenses and
intangible asset amortization expenses.

     Members of the Holding family, including Frank B. Holding who serves as a
director and Chairman of BancShares' Executive Committee, have been actively
involved in the management of BancShares. Currently, various members of the
Holding family control an aggregate of 69.78% of BancShares' common stock.
Southern is party to contracts with an affiliated financial institution,
First-Citizens Bank & Trust Company, Raleigh, North Carolina, pursuant to which
Southern is provided with various management consulting, support and data
processing services. See "Beneficial Ownership of Voting Securities" and
"Transactrions with Related Parties" in the preceding PROXY STATEMENT and Note
15, Related Parties in the following NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
As a result, Bancshares has been managed from a long-term perspective with
primary emphasis being placed on balance sheet liquidity, loan quality, and
earnings stability.

                          CRITICAL ACCOUNTING POLICIES

     BancShares' significant accounting policies are set forth in note 1 of the
consolidated financial statements. Of these significant accounting policies,
BancShares considers its policy regarding the allowance for loan losses to be
its single critical accounting policy, because it requires management's most
subjective and complex judgments. In addition, changes in economic conditions
can have a significant impact on the allowance for loan losses and therefore the
provision for loan losses and results of operations. Bancshares has developed
appropriate policies and procedures for assessing the adequacy of the allowance
for loan losses, recognizing that this process requires a number of assumptions
and estimates with respect to its loan portfolio. BancShares' assessments may be
impacted in future periods by changes in economic conditions, the impact of
regulatory examinations, and the discovery of information with respect to
borrowers which is not known to management at the time of the issuance of the
consolidated financial statements. For additional discussion concerning
BancShares' allowance for loan losses and related matters, see Allowance for
Loan Losses.

                                        5

<PAGE>

Table 1
-------

SELECTED FINANCIAL DATA
-----------------------

   (Dollars in thousands, except share data and ratios)

<TABLE>
<CAPTION>
                                                                                December 31,
--------------------------------------------------------------------------------------------------------------------
                                                            2001       2000        1999         1998       1997
--------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>         <C>         <C>         <C>         <C>
Summary of Operations

Interest income .....................................    $ 55,366    $ 49,909    $ 42,134    $ 41,702    $ 39,055
Interest expense ....................................      25,980      24,932      19,967      20,328      18,827
--------------------------------------------------------------------------------------------------------------------
Net interest income .................................      29,386      24,977      22,167      21,374      20,228
Provision for loan losses ...........................       1,000         475         830         155          60
--------------------------------------------------------------------------------------------------------------------
Net interest income
    after provision for loan losses .................      28,386      24,502      21,337      21,219      20,168
Noninterest income ..................................      12,656       5,260       4,946       6,553       9,849
Noninterest expense .................................      29,746      25,028      21,454      20,116      23,064
--------------------------------------------------------------------------------------------------------------------
Income before income taxes ..........................      11,296       4,734       4,829       7,656       6,953
Income taxes ........................................       3,055       1,000       1,150       2,060         340
--------------------------------------------------------------------------------------------------------------------

Net income ..........................................    $  8,241    $  3,734    $  3,679    $  5,596    $  6,613
--------------------------------------------------------------------------------------------------------------------
Selected Year-End Balances
Total assets ........................................    $855,228    $803,441    $669,232    $649,425    $590,752
Investment securities and overnight funds sold            226,648     219,958     214,583     221,102     190,373
Loans ...............................................     545,300     496,966     398,060     364,489     349,216
Interest-earning assets .............................     772,263     704,672     613,340     590,699     544,789
Deposits ............................................     738,659     698,485     578,250     556,752     513,328
Interest-bearing liabilities ........................     651,437     629,217     518,727     507,326     458,335
Shareholders' equity ................................      67,429      59,682      54,944      56,033      54,984
Common shares outstanding ...........................     114,208     115,209     118,912     119,266     119,918
--------------------------------------------------------------------------------------------------------------------

Selected Average Balances
Total assets ........................................    $833,716    $716,773    $651,014    $615,828    $567,236
Investment securities and overnight funds sold ......     232,317     230,927     215,935     182,356     162,936
Loans ...............................................     527,204     427,939     380,877     362,298     340,195
Interest-earning assets .............................     759,994     648,553     600,815     573,431     507,971
Deposits ............................................     720,958     624,173     558,386     526,555     498,303
Interest-bearing liabilities ........................     646,072     557,625     509,935     463,340     445,354
Shareholders' equity ................................      65,544      55,370      55,474      56,423      45,703
Common shares outstanding ...........................     114,717     117,743     119,137     119,685     119,918
--------------------------------------------------------------------------------------------------------------------
Profitability Ratios (averages)
Return on average total assets ......................        0.99%       0.52%       0.57%       0.91%       1.17%
Return on average shareholders' equity ..............       12.57        6.74        6.63        9.92       14.47
Dividend payout ratio (1) ...........................        6.52       14.84       15.57       10.38        8.85
--------------------------------------------------------------------------------------------------------------------
Liquidity and Capital Ratios (averages)
Loans to deposits ...................................       73.13%      68.56%      68.21%      68.81%      68.27%
Shareholders' equity to total assets ................        7.86        7.72        8.52        9.16        8.06
--------------------------------------------------------------------------------------------------------------------
Per share of common stock
Net income (2) ......................................    $  68.66    $  28.51    $  27.56    $  43.40      $51.77
Cash dividends ......................................        1.50        1.50        1.50        1.50        1.50
Book value (3) ......................................      570.07      497.68      441.16      448.82      437.22
--------------------------------------------------------------------------------------------------------------------
</TABLE>


(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 stock at December 31 divided by
     the number of common shares outstanding at December 31

                          ACQUISITIONS AND DIVESTITURES

     In February 2000 Southern acquired the Robersonville, North Carolina office
of Cooperative Bank for Savings, Inc. In April 2000 Southern acquired the
Battleboro, Nashville and Sharpsburg, North Carolina offices of Centura Bank. In
November 2000 Southern acquired the Nashville and Rocky Mount, North Carolina
offices of First-Citizens Bank & Trust Company, a related party. In September
1999 Southern acquired the Ahoskie, North Carolina office of First-Citizens Bank
& Trust Company, a related party. 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
-------

BRANCH ACQUISITIONS AND DIVESTITURES

  (dollars in thousands)

<TABLE>
<CAPTION>
                                                                                 Loans       Deposits
          Acquisitions                                              Date        Acquired     Acquired
----------------------------------------------------------------------------------------------------------
<S>                                                             <C>             <C>          <C>
Cooperative Savings Bank  - Robersonville, NC ................  February 2000   $  1,335     $  7,117
</TABLE>



                                        6

<PAGE>

<TABLE>
<S>                                                           <C>             <C>        <C>
Centura Bank  - Battleboro, NC ..........................        April 2000      2,131     11,065
Centura Bank  - Nashville, NC ...........................        April 2000      2,345     10,322
Centura Bank  - Sharpsburg, NC ..........................        April 2000        660      8,003
First-Citizens Bank & Trust Company - Nashville, NC .....     November 2000      8,493     15,349
First-Citizens Bank & Trust Company - Rocky Mount, NC....     November 2000     67,308     50,764
                                                                              --------   --------
    2000 Acquisition Totals .............................                     $ 82,272   $102,620
====================================================================================================

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

 First-Citizens Bank & Trust Company  - Ahoskie, NC .....     September 1999  $  9,211   $ 14,835
                                                                              --------   --------
    1999 Acquisition Totals..............................                     $  9,211   $ 14,835
====================================================================================================
</TABLE>


                             INTEREST-EARNING ASSETS

     Interest-earning assets averaged $760.0 million during 2001, an increase of
$111.4 million or 17.18 percent over 2000 levels, compared to a $47.7 million or
7.95 percent increase in 2000 over 1999 levels. Growth among average
interest-earning assets during 2001 was primarily due to internal loan growth
and the acquisitions discussed above.

     Loans. As of December 31, 2001, gross loans outstanding were $545.3
milliom, a 9.73 percent increase over the December 31, 1999 balance of $497.0
million, which was a 24.85 percent increase over the December 31, 1999 balance
of $398.1 million. Loan growth during 2001 resulted principally from internal
loan growth. Loan growth during 2000 resulted principally from the acquisitions
discussed in Table 2 above. Loan balances for the last five years are provided
in Table 3.


Table 3
-------

LOANS

(Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                   December 31,
                                                                  2001        2000      1999       1998       1997
                                                                  ----        ----      ----       ----       ----
<S>                                                             <C>        <C>        <C>        <C>        <C>
Commercial, financial and agricultural.......................   $ 92,293   $ 91,936   $ 77,169   $ 56,195   $ 45,947
Real estate:
      Construction ................... ......................     52,414     14,621        647      5,276      5,209
      Mortgage:
       One to four family residential .......................    132,513    115,473    111,793    113,984    106,444
       Commercial ...........................................    134,562    126,472     74,873     62,446     58,056
       Equityline ...........................................     42,504     40,468     30,152     28,698     27,759
       Other ................................................     24,823     39,069     32,851     26,846     27,868
Consumer ....................................................     39,581     38,795     34,309     36,775     35,643
Lease financing .............................................     26,610     30,132     36,266     34,269     42,290
                                                                --------   --------   --------   --------   --------
                  Total loans ...............................   $545,300   $496,966   $398,060   $364,489   $349,216
                                                                ========   ========   ========   ========   ========
</TABLE>

                                        7

<PAGE>

All information presented in this table relates to domestic loans as BancShares
makes no foreign loans.

     Loans secured by real estate averaged $405.5 million during 2001, compared
to $289.6 million during 2000, an increase of 40.02 percent. Much of the $115.9
million increase in real estate secured loans during 2001 was among
construction, commercial real estate and retail home equity loans. Commercial
and industrial loans averaged $115.7 million during 2001 compared to $107.5
million during 2000, an increase of 7.63 percent. Commercial and industrial loan
growth during 2001 resulted from BancShares' continued focus on small and
mid-size commercial customers.

     Consumer loans averaged $36.9 million during 2001 compared to $36.3 during
2000. The $0.6 million increase during 2001 was primarily due to the
acquisitions discussed above. Demand for direct installment lending was sluggish
during 2001, as customers who have traditionally favored closed-end installment
lending continue to migrate to revolving lines of credit secured by home equity.

     During 2002, management anticipates continued loan growth among loans to
commercial borrowers. Loan demand among small and mid-size businesses remains
relatively strong due to continuing economic growth in BancShares' market areas.
Recent downward trends in interest rates will likely contribute to loan growth
at rates similar to 2001 and 2000. Demand among retail customers continues to
shift to open-end credit products such as EquityLine. Growth in this area is
also expected during 2002.

     To minimize the potential adverse impact of interest rate fluctuations,
management monitors the maturity and repricing distribution of the loan
portfolio. BancShares offers variable rate loan products and fixed rate callable
loans to reduce interest rate risk. Table 4 details the maturity and repricing
distribution as of December 31, 2001. Of the gross loans outstanding on December
31, 2001, 21.95 percent have scheduled maturities or repricing dates that extend
beyond five years.


Table 4
-------
LOAN MATURITY DISTRIBUTION AND INTEREST RATE SENSITIVITY

<TABLE>
<CAPTION>
 (Dollars in thousands)                                   Within       After One Year But     After
                                                         One Year      Within Five Years    Five Years     Total
                                                         --------      -----------------    ----------    --------
<S>                                                      <C>              <C>               <C>           <C>
Commercial and Financial .......................          $ 6,482          $83,337          $ 2,474       $ 92,293
Real Estate:
  Construction .................................           52,414               --               --         52,414
  One to four family residential ...............           25,989           54,494           52,030        132,513
  Commercial ...................................           43,429           59,782           31,351        134,562
  Equityline ...................................           42,504               --               --         42,504
</TABLE>

                                       8

<PAGE>

<TABLE>
<S>                                                         <C>             <C>             <C>             <C>
  Other ............................................              --              --          24,823          24,823
Consumer ...........................................          19,970          19,611              --          39,581
Lease Financing ....................................           9,593          12,455           4,562          26,610
                                                            --------        --------        --------        --------
     Total .........................................        $200,381        $229,679        $115,240        $545,300
                                                            ========        ========        ========        ========

Fixed Rate .........................................        $ 83,769        $168,704        $ 83,550        $336,023
Variable Rate ......................................         116,612          60,975          31,690         209,277
                                                            --------        --------        --------        --------
     Total .........................................        $200,381        $229,679        $115,240        $545,300
                                                            ========        ========        ========        ========
</TABLE>


     Investment Securities. At December 31, 2001 the investment portfolio
totaled $204.3 million and at December 31, 2000 the investment portfolio totaled
$207.1 million resulting in a decrease of $2.8 million or 1.37 percent.
Investment securities averaged $199.2 million during 2001, $207.1 million during
2000 and $194.2 million during 1999. In each period U. S. Treasury and
government agency securities represented substantially all of the portfolio. The
decrease in the average securities portfolio during 2001 resulted primarily from
growth in loans. The increase in the average securities portfolio during 2000
and 1999 resulted primarily from growth in deposits.

     The weighted-average maturity of the investment securities portfolio was 32
months at December 31, 2001 and 19 months at December 31, 2000. Management
continues to maintain a portfolio of securities with short maturities and call
dates, consistent with BancShares' focus on liquidity. Investment securities
available for sale include marketable equity securities that are recorded at
their fair value, with the unrealized gain included as a component of
shareholders' equity, net of deferred taxes. Table 5 presents detailed
information relating to the investment securities portfolio.

Table 5
-------

<TABLE>
<CAPTION>
INVESTMENT SECURITIES
(Dollars in thousands)                                                      December 31,
                                                                  2001         2000          1999
                                                                  ----         ----          ----
<S>                                                            <C>           <C>           <C>
U.S. Treasury .............................................    $ 74,032      $126,969      $139,359
U.S. Government agencies ..................................      62,865        20,244           300
States and political subdivisions .........................      24,210        34,975        33,203
Other .....................................................      43,176        24,930        21,359
                                                               --------      --------      --------
          Total investment securities .....................    $204,283      $207,118      $194,221
                                                               ========      ========      ========
</TABLE>

<TABLE>
<CAPTION>
                                                             Investment Securities At December 31, 2001 Maturing

                                                                   After One But      After Five But
                                               Within One Year   Within Five Years   Within Ten Years   After Ten Years
                                                Amount Yield       Amount Yield        Amount Yield       Amount Yield
                                                ------------       ------------        ------------       ------------
<S>                                           <C>        <C>     <C>       <C>       <C>       <C>      <C>        <C>
U.S. Treasury ..............................  $74,032    6.05%         -   $   -           -   $   -          -
U.S. Government agencies ...................        -       -     62,865    3.96%          -       -          -       -
States and political subdivisions ..........    6,411    2.79%     6,618    6.22%      7,554    7.41%     3,627    7.46%
Other ......................................      117    6.00%     3,040    5.07%          -       -     40,019    5.62%
                                              -------   -----    -------   -----      ------    ----    -------    ----
     Total investment securities ...........  $80,560    5.89%   $72,523    4.21%     $7,554    7.41%   $43,646    5.97%
                                              =======            =======              ======            =======
</TABLE>

     Income on Interest-Earning Assets. Table 6 analyzes the interest-earning
assets and interest-bearing liabilities for the three years ended December 31,
2001. Table 9 identifies the causes for changes in interest income and interest
expense for 2001 and 2000. Interest income amounted to $56.0 million during
2001, a $5.2 million increase from 2000 levels, compared to a $7.9 increase from
1999 to 2000. During 2001, loan growth was the primary factor for the increase
in interest income over

                                       9

<PAGE>

2000 as interest rates decreased. Interest income growth during 2000 resulted
from both increased rates and an increased volume of earning assets.

     Total interest-earning assets yielded 7.34 percent during 2001, a 48 basis
point decrease from the 7.85 percent reported in 2000. The average
taxable-equivalent yield on the loan portfolio decreased from 8.73 percent in
2000 to 8.26 percent in 2001. The lower loan yield during 2001 reflects general
market conditions throughout the year, consisting primarily of a declining
interest rate environment. Loan interest income increased $6.2 million or 16.48
percent from 2000. This followed an increase of 19.45 percent in loan interest
income in 2000 over 1999. During 2000, the increase in loan interest income was
the result of both loan growth and higher loan yields. During 2001, the increase
in loan interest income was solely due to growth in loan volume as the average
yield on loans declined from 8.73 percent in 2000 to 8.26 percent in 2001.

     Interest income earned on the investment portfolio amounted to $11.3
million for the year ended December 31, 2001, $12.2 million for the year ended
December 31, 2000 and $10.5 million for the year ended December 31, 1999. The
average taxable-equivalent yield on the portfolio for 2001 was 5.67 percent. The
average taxable-equivalent yield on the portfolio for 2000 was 6.11 percent The
average taxable-equivalent yield on the portfolio for 1999 was 5.33 percent. The
$1.7 million increase in investment interest income during 2000 results from the
combined effect of an increase in average yields and an increase in average
volume. The $944,000 decrease in 2001 investment interest income compared to
2000 investment interest income was due to decreased average volume and a
decrease in the tax-equivalent yield on investments from 6.11 percent in 2000 to
5.67 percent for 2001.

                          INTEREST-BEARING LIABILITIES

     At December 31, 2001 interest-bearing liabilities totaled $651.4 million,
an increase of $22.2 million or 3.53 percent over December 31, 2000.
Interest-bearing liabilities averaged $646.1 million during 2001, an increase of
$88.4 million or 15.86 percent over 2000 levels. Interest-bearing deposits
contributed $80.6 million to the 2001 increase in interest-bearing liabilities.
During 2000, interest-bearing liabilities averaged $557.6 million, an increase
of $47.7 million or 9.35 percent over 1999. The growth during 2000 resulted
primarily from a $45.7 million increase in average interest-bearing deposits.

     Deposits. Total deposits averaged $721.0 million in 2001, an increase of
$96.8 million or 15.51 percent over the 2000 average balance. Average
interest-bearing deposits were $607.0 million during 2001, an increase of $80.6
million or 15.32 percent compared to 2000. Money market accounts averaged $73.8
million during 2001, an increase of $12.9 million or 21.18 percent over the 2000
average balance. Checking with interest balances averaged $83.5 million during
2001, an increase of $6.2 million or 8.02 percent over the 2000 average balance.
Time deposit balances averaged $391.4 million during 2001, an increase of $61.5
million or 18.64 percent over the 2000 average balance. The overall growth in
average deposits during 2001 resulted primarily from internal growth and the
full-year impact of the acquisitions listed in Table 2.

     Total deposits averaged $624.2 million in 2000, an increase of $65.8
million or 11.78 percent increase over the 1999 average balance. Average
interest-bearing deposits were $526.4 million during 2000, an increase of $45.7
million or 9.50 percent compared to 1999. Money market accounts averaged $60.9
million during 2000, an increase of $7.7 million or 14.45 percent over the 1999
average balance. Checking with interest balances averaged $77.3 million during
2000, an increase of $5.9 million or 8.25 percent over the 1999 average balance.
Time deposit balances averaged $329.9 million during 2000, an increase of $31.1
million or 10.43 percent over the 1999 average balance. The overall growth in
average deposits during 2000 resulted primarily from the acquisitions listed in
Table 2.

     BancShares has historically avoided excessive reliance on high-dollar time
deposits, which are generally defined as time deposit accounts with balances in
excess of $100,000. At December 31, 2001, these funds were 14.23 percent of
total deposits, compared to 11.69 percent of December 31, 2000 total deposits.
Table 7 provides a maturity distribution for these deposits, which totaled
$105.1 million at December 31, 2001.

                                       10

<PAGE>

Table 6
-------

   AVERAGE BALANCE SHEET ITEMS, NET INTEREST DIFFERENTIAL AVERAGE BALANCES AND
      AVERAGE RATES EARNED AND PAID

<TABLE>
<CAPTION>
                                                                          Year ended December 31,

(Dollars in thousands)                                2001                           2000                           1999

                                           AVERAGE            AVERAGE     AVERAGE             AVERAGE    AVERAGE             AVERAGE
ASSETS                                     BALANCE  INTEREST    RATE      BALANCE   INTEREST   RATE      BALANCE   INTEREST    RATE
                                           -------------------------      ---------------------------   ---------------------------
<S>                                      <C>        <C>       <C>         <C>       <C>      <C>     <C>          <C>         <C>
Interest earning assets:
Loans (1) (2)...........................  $527,204    43,535    8.26%   $ 427,939   $ 37,377  8.73%   $ 380,877   $ 31,292     8.22%
Taxable investment securities...........   178,750     9,518    5.32%     170,223      9,695  5.70%     172,106      8,345     4.85%
Nontaxable investment
     securities (3).....................    20,437     1,769    8.66%      29,882      2,536  8.49%      24,748      2,155     8.71%
Federal funds sold......................    33,130     1,190    3.54%      19,882      1,237  6.22%      19,081        968     5.07%
Other interest earning assets...........       474        36    7.51%         627         42  6.70%       4,003        204     5.10%
                                          --------   -------    -----   ---------   --------  -----   ---------   --------     -----
        Total interest earning assets      759,995    56,048    7.37%     648,553     50,887  7.85%     600,815     42,964     7.15%
                                          --------                                  --------                      --------
Non-interest earning assets:
Cash and due from banks.................    14,948                         23,384                        22,012
Premises and equipment, net.............    31,112                         23,732                        19,781
Other...................................    27,661                         21,104                         8,406
                                          --------                      ---------                     ---------
     Total assets.......................  $833,716                      $ 716,773                     $ 651,014
                                          ========                      =========                     =========

LIABILITIES & EQUITY
Interest bearing liabilities:
   Demand deposits......................  $100,334       716    0.71%   $  91,941   $  1,019  1.11%   $  83,823   $    799     0.95%
   Savings deposits.....................   115,259     2,141    1.86%     104,503      2,586  2.47%      98,137      2,170     2.21%
   Time deposits........................   391,398    20,634    5.27%     329,910     18,783  5.69%     298,744     14,686     4.92%
   Short-term borrowed funds............    16,081       419    2.61%       8,271        474  5.73%       6,231        228     3.68%
   Long-term obligations................    23,000     2,070    9.00%      23,000      2,070  9.00%      23,000      2,084     9.06%
                                          --------   -------    -----   ---------   --------  -----   ---------   --------     -----
     Total interest bearing liabilities    646,072    25,980    4.02%     557,625     24,932  4.47%     509,935     19,967     3.92%
                                                     -------                        --------                      --------
Non-interest bearing liabilities:
   Demand deposits......................   113,967                         97,820                        77,682
   Other................................     8,133                          5,958                         7,923
   Shareholders' equity.................    65,544                         55,370                        55,474
                                          --------                      ---------                     ---------
        Total liabilities and equity ...  $833,716                      $ 716,773                     $ 651,014
                                          ========                      =========                     =========

Interest rate spread (4)                                        3.35%                         3.38%                            3.23%
Net interest income and
        net interest margin (5).........             $30,068    3.96%               $ 25,955  4.00%               $ 22,997     3.83%
                                                     =======                        ========                      ========
</TABLE>


(1)  Average balances include non-accrual loans.
(2)  Interest income includes amortization of loan fees.
(3)  The average rate on nontaxable investment securities has been adjusted to a
     tax equivalent yield using a combined federal and state tax rate of 38.55%.
     The taxable equivalent adjustment was $682 in 2001, $978 in 2000 and $830
     in 1999.
(4)  Interest rate spread is the difference between interest earning asset yield
     and interest bearing liability rate.
(5)  Net interest margin is net interest income divided by average earning
     assets.

<PAGE>


(Dollars in thousands)

Three months or less ...................................    $ 52,054
Over three through six months...........................      28,989
Over six months through twelve months...................      12,480
Over one year through five years .......................      11,588
Over five years.........................................           -
                                                            --------
                                                            $105,111
                                                            ========

     Short-Term Borrowings. BancShares has access to various short-term
borrowings, including the purchase of federal funds, overnight repurchase
obligations and credit lines with various correspondent banks. At December 31,
2001, short-term borrowings totaled $18.1 million, compared to $15.4 million at
December 31, 2000. For the year ended December 31, 2001, short-term borrowings
averaged $16.1 million, compared to $8.3 million during 2000 and $6.2 million
during 1999. Table 8 provides additional information regarding short-term
borrowed funds.

Table 8
-------

<TABLE>
<CAPTION>
SHORT-TERM BORROWINGS                                                    2001                 2000                  1999
                                                                         ----                 ----                  ----

 (Dollars in thousands)                                           Amount      Rate     Amount      Rate     Amount        Rate
                                                                 ------------------   -------------------  ----------------------
<S>                                                              <C>          <C>     <C>          <C>     <C>            <C>
Repurchase agreements:

      At December 31.........................................    $17,683      0.62%   $14,068      5.23%   $ 5,223        3.72%
      Average during year....................................     14,681      2.55%     7,124      5.03%     5,240        3.58%
      Maximum month-end balance during year..................     17,969               14,068                6,313

U. S. Treasury tax and loan accounts:

      At December 31.........................................    $   463      0.52%   $ 1,359      6.29%   $ 1,435        4.78%
      Average during year....................................      1,400      3.17%     1,147      5.95%       991        4.15
      Maximum month-end balance during year..................      2,366                2,150                2,035
</TABLE>

     Long-Term Obligations. At December 31, 2001 and December 31, 2000,
long-term obligations totaled $23.0 million. For the year ended December 31,
2001, December 31, 2000 and December 31, 1999 long-term borrowings averaged
$23.0 million. In June 1998 $23.0 million in long-term obligations were issued
by 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. BancShares issued these
long-term obligations to provide capital to support continued growth. Management
views these securities as an effective way to provide capital resources without
diluting current ownership.

     Expense of Interest-Bearing Liabilities. Interest expense amounted to $26.0
million in 2001, a $1.0 million or 4.20 percent increase from 2000. Interest
expense amounted to $24.9 million in 2000, a $5.0 million or 24.87 percent
increase from 1999. The increased interest expense during 2001and 2000 was
primarily the result of the growth in volume due to the acquisitions listed in
Table 2.

     As a result of overall market interest rate declines the average cost of
interest-bearing deposits decreased to 3.87 percent during 2001, compared to
4.25 percent in 2000 and 3.67 percent in 1999. Interest expense on total
interest-bearing deposits amounted to $22.4 million during 2000, an increase
from $17.7 million recorded during 1999. Interest expense on total
interest-bearing deposits amounted to $23.5 million during 2001, an increase
from $22.4 million recorded during 2000. The

                                       12

<PAGE>

increased interest expense on deposits during 2000 was primarily the result of
higher interest rates and growth in volume due to acquisitions listed in Table
2. The increased interest expense on deposits during 2001 was primarily the
result of acquisitions listed in Table 2. The average rate on time deposits
increased from 4.92 percent in 1999 to 5.69 in 2000 and decreased to 5.27
percent in 2001.

     Interest expense on short-term borrowings amounted to $474,000 during 2000,
an increase from $228,000 or 107.89 percent from 1999. Interest expense on
short-term borrowings amounted to $419,000 during 2001, a decrease from $474,000
recorded during 2000. The decreased interest expense during 2001 was primarily
the result of overall lower 2001 market interest rates. The average rate on
short-term borrowings increased from 3.68 percent in 1999 to 5.73 in 2000 and
decreased to 2.61 percent in 2001.

     Interest expense on long-term obligations amounted to $2.1 million for
2001, 2000 and 1999. The average rate on long-term borrowings decreased from
9.06 percent in 1999 to 9.00 percent in 2000 and 2001.

Table 9
-------

AVERAGE BALANCE SHEET ITEMS AND NET INTEREST DIFFERENTIAL ANALYSIS OF CHANGES IN
INTEREST DIFFERENTIAL

<TABLE>
<CAPTION>
(Dollars in thousands)                                           December 31, 2001 Increase (Decrease)

                                                                       AMOUNT            AMOUNT            AMOUNT
                                                       TOTAL        ATTRIBUTABLE      ATTRIBUTABLE      ATTRIBUTABLE
                                                      CHANGE         TO CHANGE          TO CHANGE        TO CHANGE IN
                                                     2000-2001       IN VOLUME          IN RATE          RATE/VOLUME
<S>                                                  <C>            <C>               <C>               <C>
ASSETS
Interest earning assets:
  Loans ..........................................   $ 6,158          $ 8,606           $(2,011)          $  (437)
  Taxable investment securities ..................      (177)             486              (647)              (16)
  Non-taxable investment securities ..............      (767)            (802)               51               (16)
  Federal funds sold .............................       (53)             814              (528)             (339)

                                                     -------        ---------         ---------         ---------
       Total interest income .....................     5,161            9,104            (3,135)             (808)
                                                     -------        ---------         ---------         ---------

LIABILITIES & EQUITY

Interest bearing liabilities:
  Demand deposits ................................      (303)              93              (368)              (28)
  Savings deposits ...............................      (445)             266              (637)              (74)
  Time deposits ..................................     1,851            3,499            (1,386)
  Short-term borrowings ..........................       (55)             448              (258)             (245)
                                                     -------        ---------         ---------         ---------
       Total interest expense ....................     1,048            4,306            (2,649)             (609)
                                                     -------        ---------         ---------         ---------
Net interest income ..............................   $ 4,113          $ 4,798           $  (486)          $  (199)
                                                     =======        =========         =========         =========
</TABLE>


<TABLE>
<CAPTION>
(Dollars in thousands)                                           December 31, 2001 Increase (Decrease)

                                                                       AMOUNT            AMOUNT            AMOUNT
                                                       TOTAL        ATTRIBUTABLE      ATTRIBUTABLE      ATTRIBUTABLE
                                                      CHANGE         TO CHANGE          TO CHANGE        TO CHANGE IN
                                                     1999-2000       IN VOLUME          IN RATE          RATE/VOLUME
<S>                                                  <C>            <C>               <C>               <C>
ASSETS

Interest earning assets:
  Loans...........................................   $  6,085        $  3,868         $  1,714          $    503
</TABLE>

                                       13

<PAGE>

<TABLE>
<S>                                                    <C>        <C>       <C>        <C>
  Taxable investment securities ....................     1,188        642       664       (118)
  Non-taxable investment securities ................       381        447       (54)       (12)
  Federal funds sold ...............................       269         41       219          9
                                                       -------    -------   -------    -------
       Total interest income .......................     7,923      4,998     2,543        382
                                                       -------    -------   -------    -------
LIABILITIES & EQUITY

Interest bearing liabilities:
  Demand deposits ..................................       220         77       134          9
  Savings deposits .................................       416        141       255         20
  Time deposits ....................................     4,097      1,533     2,301        263
  Short-term borrowings ............................       246         75       128         43
  Long-term obligations ............................       (14)        --       (14)         -
                                                       -------    -------    -------   -------
       Total interest expense ......................     4,965      1,826     2,804        335
                                                       -------    -------   -------    -------
Net interest income ................................   $ 2,958    $ 3,172   $  (261)   $    47
                                                       =======    =======   =======    =======
</TABLE>

     Average loan balances include nonaccrual loans. BancShares earns tax-exempt
interest on certain loans and investment securities due to the borrower or
issuer being either a governmental agency or a quasi-governmental agency. Yields
related to loans and securities exempt from federal income taxes are stated on a
taxable-equivalent basis assuming a statutory federal income tax rate of 38.55%
for all periods. The taxable equivalent adjustment was $682 in 2001, $978 in
2000 and $830 in 1999.

                               NET INTEREST INCOME

     Net interest income totaled $29.4 million during 2001, an increase of $4.4
million or 17.70 percent from 2000. Net interest income amounted to $25.0
million during 2000, an increase from $22.2 million recorded during 1999. Table
9 presents the annual changes in net interest income by components due to
changes in volume, yields and rates. Table 9 is presented on a
taxable-equivalent basis to adjust for the tax-exempt status of income earned on
certain loans, leases and municipal securities.

     The average yield on interest-earning assets was 7.37 percent in 2001, 7.85
percent in 2000 and 7.15 percent in 1999. The lower average yield in 2001 was
the result of decreased market rates. The combined increase in loans and
decrease in investment securities and overall market rates created a
lower-yielding earning asset mix for 2001 compared to 2000, resulting in a
decrease in the net interest margin from 4.00 percent in 2000 to 3.96 percent in
2001. The higher net yields realized in 2000 compared to 1999 resulted from
overall higher market rates for earning assets.

     Rate Sensitivity. A principal objective of BancShares' asset/liability
function is to manage interest rate risk or the exposure to changes in interest
rates. Management maintains portfolios of interest-earning assets and
interest-bearing liabilities with maturities or repricing opportunities that
will protect against wide interest rate fluctuations, thereby limiting, to the
extent possible, the ultimate interest rate exposure. Table 10 provides
BancShares' interest-sensitivity position as of December 31, 2001, which
reflected a one year negative interest-sensitivity gap of $256.0 million. As a
result of this one year negative gap, increases in interest rates could have an
unfavorable impact on net interest income. It should be noted that this analysis
reflects BancShares' interest sensitivity as of a single point in time and may
not reflect the effects of repricings of assets and liabilities in various
interest rate environments.

Table 10
--------
INTEREST-SENSITIVITY ANALYSIS

<TABLE>
<CAPTION>
(Dollars in thousands)                                           December 31, 2001
                                                                                                              Non-Rate
                                                 1-30             31-90         91-180          181-365      Sensitive
                                                 Days             Days           Days            Days         & Over
                                               Sensitive        Sensitive      Sensitive       Sensitive      1 Year      Total
Interest Earning Assets:
<S>                                           <C>              <C>             <C>            <C>            <C>        <C>
Loans.......................................  $   13,291       $  122,897      $  18,377      $  45,816      $344,919   $545,300
</TABLE>

                                       14

<PAGE>

<TABLE>
<S>                                       <C>            <C>           <C>              <C>                <C>           <C>
Investment securities.............             10,698       10,848          20,784         59,014           102,939        204,283
Temporary investments.............             22,365            -               -              -                 -         22,365
                                           ----------    ---------      ----------      ---------         ---------      ---------
      Total earning assets........         $   46,354    $ 133,745      $   39,161      $ 104,830         $ 431,345      $ 755,435
                                           ==========    =========      ==========      =========         =========      =========


Interest-Bearing Liabilities:



Savings and core time deposits....         $  263,126    $  89,958      $  111,470      $   3,910         $  36,716      $ 505,180
Time deposits of $100,000
    and more......................             25,806       26,248          28,989         12,480            11,588        105,111
Short-term borrowings.............             18,146            -               -              -                 -         18,146
Long-term obligations.............                  -            -               -              -            23,000         23,000
                                           ----------    ---------      ----------      ---------         ---------      ---------
      Total interest bearing
        liabilities...............         $  307,078    $ 116,206      $  140,459      $  16,390         $  71,304      $ 651,437
                                           ==========    =========      ==========      =========         =========      =========

Interest sensitivity gap..........         $ (260,724)   $  17,539      $ (101,298)     $  88,440         $ 360,041      $ 103,998
                                           ==========    =========      ==========      =========         =========      =========

Cumulative interest
sensitivity gap...................         $ (260,724)   $(243,185)     $ (344,483)     $(256,043)        $ 103,998      $ 103,998
                                           ==========    =========      ==========      =========         =========      =========
</TABLE>



                                   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, since its interest bearing liabilities
generally mature or reprice faster than its interest earning assets. Management
seeks to manage this risk through the use of shorter term maturities where
possible. 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, 2001. 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, 2001. 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 2001 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, 2001.

                                       15

<PAGE>

Table 11
--------

MARKET RISK

<TABLE>
<CAPTION>
(Dollars in thousands)                               Maturing in Years ended December 31

                                      2002        2003       2004        2005       2006   Thereafter    Total      Fair Value
------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>          <C>        <C>         <C>        <C>        <C>       <C>         <C>
Assets

  Loans:
    Fixed rate................     $  83,769    $ 39,875   $ 53,196    $ 29,583   $ 41,279   $ 88,321  $ 336,023   $ 362,514
    Average rate (%)..........          8.25%       8.45%      8.07%       8.04%      7.80%      6.95%      7.83%

    Variable rate.............     $ 116,612    $ 17,793   $ 15,071    $ 14,582   $ 13,529   $ 31,690  $ 209,277   $ 209,277
    Average rate (%)..........          7.96%       6.26%      6.58%       6.41%      6.31%      6.96%      7.35%

Investment Securities
    Fixed rate................     $  80,560    $ 56,252   $ 10,254    $  1,592   $  1,629   $ 53,284  $ 203,571   $ 205,074
    Average rate (%)..........          5.89%       4.15%      4.35%       8.44%      8.28%      6.13%      5.38%

    Variable rate.............            --          --         --          --         --   $    712  $     712   $     712
    Average rate (%)..........            --          --         --          --         --       6.90%      6.90%
</TABLE>


                                       16

<PAGE>

<TABLE>
<S>                                              <C>           <C>        <C>        <C>      <C>   <C>       <C>          <C>
Liabilities

Savings and interest
    bearing checking
    Fixed rate.............................      $229,619            --        --         --    --        --    $229,619   $229,619
    Average rate (%).......................          1.33%           --        --         --    --        --        1.33%

Certificates of deposit
    Fixed rate.............................      $330,357      $ 25,699   $ 9,503    $ 8,581    --        --    $374,140   $401,670
    Average rate (%).......................          3.72%         5.71%     4.38%      5.37%   --        --        3.91%

    Variable rate..........................      $  4,603      $  1,929        --         --    --        --    $  6,532   $  6,532
    Average rate (%).......................          1.69%         1.73%       --         --    --        --        1.70%

Short-term borrowings
    Variable rate..........................      $ 18,146            --        --         --    --        --    $ 18,146   $ 18,146
    Average rate (%).......................          2.61%           --        --         --    --        --        2.61%

Long-term debt
    Fixed rate.............................            --            --        --         --    --  $ 23,000    $ 23,000   $ 23,230
    Average rate (%).......................            --            --        --         --    --      8.25%       8.25%
</TABLE>


              COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET 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, 2001 and December
31, 2000 amounted to $2,125 and $3,008. Outstanding commitments to lend at
December 31, 2001 and December 31, 2000 were $154,636 and $136,950. Undisbursed
advances on customer lines of credit at December 31, 2001 and December 31, 2000
were $45,940 and $48,506. Outstanding standby letters of credit and commitments
to lend at December 31, 2001 generally expire within one year, whereas
commitments associated with undisbursed advances on customer lines of credit at
December 31, 2001 generally expire within

                                       17

<PAGE>

one to five years.

At December 31, 2001, commitments to sell loans amounted to $3,718. At December
31, 2000 there were no commitments to sell loans.

BancShares does not have any special purpose entities or other similar forms of
off-balance sheet financing arrangements.

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 been under criticism
for potential health risks.

     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.

                                 ASSET QUALITY

     Nonperforming Assets. Nonperforming asset balances for the past five years
are presented in Table 12. BancShares' nonperforming assets of $2.1 million at
December 31, 2001 included nonaccrual loans totaling $407,000, accruing loans
past due 90 days or more totaling $1.6 million and $64,000 of foreclosed
property. Nonperforming assets as of December 31, 2001 represented 0.38 percent
of loans outstanding. Nonperforming assets totaled $2.1 million at December 31,
2001, $1.6 million at December 31, 2000 and $1.2 million at December 31, 1999.
Of the $407,000 in nonaccrual loans at December 31, 2001, $197,203 were
considered to be impaired. Of the $478,000 in nonaccrual loans at December 31,
2000, none were considered to be impaired.


Table 12
--------

RISK ELEMENTS

<TABLE>
<CAPTION>
                                                                         Year ended December 31,

(Dollars in thousands)                                       2001     2000      1999      1998      1997
<S>                                                         <C>      <C>       <C>       <C>
Nonaccrual loans ......................................     $  407   $  478    $  243    $   166    $230
Restructured loans ....................................         28        -        42         42       -
Accruing loans past due 90 days or more ...............      1,565    1,081       460        805     466
                                                            ------   ------    ------    -------    ----
       Total nonperforming loans ......................      2,000    1,559       745      1,013     696
                                                            ------   ------    ------    -------    ----
Other real estate owned ...............................         64        -       414         84      48
                                                            ------   ------    ------    -------    ----
             Total nonperforming loans and assets .....     $2,064   $1,559    $1,159    $ 1,097    $744
                                                            ======   ======    ======    =======    ====
</TABLE>

                                       18

<PAGE>

     Management continually monitors the loan portfolio to ensure that problem
loans have been identified as nonperforming. Should economic conditions
deteriorate, the inability of distressed customers to service their existing
debt could cause higher levels of nonperforming assets.

     Allowance for Loan Losses. Management evaluates the risk characteristics of
the loan portfolio under current economic conditions, reviews the financial
condition of the borrower, estimates the fair market value of the loan
collateral and considers any other pertinent factors to estimate current credit
losses. 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 borrowers 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 accounting principles generally accepted in the United States of
America and in consideration of the current economic environment. While
management uses the best information available to make evaluations, future
adjustments may be necessary.

     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.

     At December 31, 2000, BancShares' allowance for loan losses was $7.3
million or 1.47 percent of loans outstanding. At December 31, 2001, BancShares'
allowance for loan losses was $7.6 million or 1.40 percent of loans outstanding.
The reduction in the allowance-to-loan ratios since 2000 is primarily
attributable to continued growth in real estate secured lending. Commercial
loans generally have a higher level of credit risk than commercial real estate
loans; as a result, the commercial real estate loans generally have a lower
level of allowance for loan losses when compared to traditional commercial
loans. As a percentage of total loans, traditional commercial loans declined
from 22.98 percent of total loans at December 31, 2000 to 21.48 percent of total
loans at December 31, 2001.

                                       19

<PAGE>

Table 13
--------

SUMMARY OF LOAN LOSS EXPERIENCE

<TABLE>
<CAPTION>
                                                                                     Year ended December 31,
(Dollars in thousands)                                               2001        2000        1999        1998        1997
<S>                                                                <C>         <C>         <C>         <C>         <C>
Allowance for loan losses - beginning of year ..................   $  7,284    $  6,188    $  5,962    $  5,971    $  6,163
Charge - offs:
   Commercial, financial and agricultural ......................        269          84         183         158          47
   Real estate:
            Mortgage:
               One to four family residential ..................          -          67          77          41          86
               Commercial ......................................         46          11         121          15           -
               Equityline ......................................          -          11          10          32           -
               Other ...........................................        133           -           -           -          23
   Lease financing .............................................          -           -          16           -           -
   Consumer ....................................................        354         361         341         298         307
                                                                   --------    --------    --------    --------    --------
                          Total charge-offs ....................        802         534         748         544         463
Recoveries:
   Commercial, financial and agricultural ......................         46          56          11          11          13
   Real estate:
       Construction ............................................          -           -           -           -           -
       Mortgage:
           One to four family residential ......................          -          13          25          20          59
           Commercial ..........................................          -          99           3           -           -
           Equityline ..........................................          -          19           -           8           -
           Other ...............................................        120          16           -           5           -
   Consumer ....................................................         83         152         105          67         139
                                                                   --------    --------    --------    --------    --------
                          Total recoveries .....................        249         355         144         111         211
                                                                   --------    --------    --------    --------    --------
Net charge-offs ................................................        553         179         604         433         252
Provision for loan losses ......................................      1,000         475         830         155          60
Reduction for sale of credit card portfolio ....................         95           -           -           -           -
Additions from  bank acquisitions ..............................          -         800           -         269           -
                                                                   --------    --------    --------    --------    --------
Allowance for loan losses - end of year ........................   $  7,636    $  7,284    $  6,188    $  5,962    $  5,971
                                                                   ========    ========    ========    ========    ========


Average loans outstanding during the year ......................   $527,204    $427,939    $380,877    $362,298    $340,195
                                                                   ========    ========    ========    ========    ========
Ratio of net charge-offs to average loans
     outstanding ...............................................       0.10%       0.04%       0.16%       0.12%       0.07%
                                                                   ========    ========    ========    ========    ========
</TABLE>

     The provision for loan losses charged to operations was $1.0 million during
2001 compared to $475,000 during 2000 and $830,000 in 1999. The provision for
loan losses in 2001 was primarily a result of the $48.3 million in loan growth
and the impact of the slowing economy. Loans charged off were also impacted by
the slowing economy in eastern North Carolina. The provision for loan losses was
significantly impacted in 1999 by the effects of the September 1999 hurricanes
on BancShares' borrowers. Provision for loan losses for 2000 continued to be
impacted by unresolved concerns of Southern's hurricane-impacted borrowers in
addition to significant growth in the loan portfolio during 2000.

     Net charge-offs during 2001 increased by $374,000 from 2000 net charge-offs
of $179,000. Net charge-offs during 2000 decreased by $425,000 from 1999 net
charge-offs of $604,000. The percentage of charge-offs, net of recoveries, to
average outstanding loans was 0.10 percent in 2001, 0.04 percent in 2000 and
0.16 percent in 1999. These loss percentages reflect the quality of BancShares'
loan portfolio, as these ratios remain low by industry standards. Table 13
provides details concerning the allowance and provision for loan losses for the
past five years.

     Management considers the established allowance adequate to absorb probable
losses in the December 31, 2001 loan portfolio, although future additions to the
allowance may be necessary based on changes in economic conditions and other
factors. In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the allowance for loan losses. Such
agencies may require the recognition of additions to the allowance based on
their judgments of information available to them at the time of their
examinations.

     Table 14 details management's allocation of the allowance among the various
loan types. The process to allocate the allowance for loan losses considers,
among other factors, whether the borrower is a retail or commercial customer,
whether the loan is secured or unsecured, and whether the loan is an open or
closed-end agreement. Generally, loans to commercial

                                       20

<PAGE>

customers are evaluated individually and assigned a credit grade using such
factors as the borrower's cash flow, the value of any underlying collateral and
the value of any guarantees, while loans to retail customers are evaluated among
groups of loans with similar characteristics. These ratings, prior loss
experience and current economic conditions become the basis for the allowance
allocation shown in Table 14.

Table 14
--------

ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
(Dollars in thousands)
                                                                                  December 31,
                                 ---------------------------------------------------------------------------------------------------
                                         % of loans          % of loans          % of loans          % of loans          % of loans
                                           in each             in each             in each             in each             in each
                                         category to         category to         category to         category to         category to
                                  2001   total loans  2000   total loans  1999   total loans  1998   total loans  1997   total loans
                                  ----                ----                ----                ----                ----
<S>                              <C>     <C>         <C>     <C>         <C>     <C>         <C>     <C>         <C>     <C>
     Commercial,
     financial and
     agricultural ............    2,800       17%    $3,000       19%    $2,450       19%    $2,200       16%    $2,149        13%
      Real estate:
        Construction .........      300       10%       100        3%       100        1%       100        2%        60         2%
          Mortgage:
            One to four family
             residential .....    1,200       24%     1,100       23%     1,100       28%     1,100       31%     1,194        30%
            Commercial .......      550       25%       550       25%       550       19%       550       17%       537        17%
            Equityline .......      200        8%       200        8%       200        8%       200        8%       239         8%
            Other ............      186        5%       184        8%       188        8%       212        7%       239         8%
      Consumer ...............    2,000        6%     2,050        8%     1,500        8%     1,500       10%     1,493        10%
      Lease financing ........      400        5%       100        6%       100        9%       100        9%        60        12%
                                 ------   ------     ------   ------     ------   ------     ------   ------     ------    ------
     Total ...................   $7,636      100%    $7,284      100%    $6,188      100%    $5,962      100%    $5,971       100%
                                 ======   ======     ======   ======     ======   ======     ======   ======     ======    ======
</TABLE>

                               NONINTEREST INCOME

     Total noninterest income was $12.7 million for the year ended December 31,
2001, an increase of $7.4 million or 140.61 percent. This compares to $5.3
million for the year ended December 31, 2000 and $4.9 million for the year ended
December 31, 1999. Net securities gains of $4.6 million were realized in the
year ended December 31, 2001. Net securities losses of $746,000 were realized in
the year ended December 31, 2000. In 1999, $1,000 of investment securities gains
were realized.

     Table 15 presents the components of noninterest income for the last five
years. In recent years management has searched for various opportunities to
enhance noninterest income through new products, new services, new fees and
marketing changes to existing products. Excluding securities gains and losses,
noninterest income, as a percentage of net interest income, has increased from
21.17 percent for 1997 to 27.33 percent for 2001.

Table 15
--------

NONINTEREST INCOME

<TABLE>
<CAPTION>
     (Dollars in thousands)                                                             Year Ended December 31,

                                                                      2001        2000         1999          1998        1997
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>          <C>          <C>           <C>         <C>
     Service charges on deposit accounts .....................     $  5,080     $ 3,942      $ 3,497       $ 3,199     $ 2,918
     Other service charges and fees ..........................        1,482       1,275        1,192         1,025         868
     Investment securities (losses) gains, net ...............        4,625        (746)           1         1,789       5,567
     Gain (loss) on sale of loans ............................          402          38         (272)         (112)         52
     Other ...................................................        1,067         751          528           652         444
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       21

<PAGE>
7
<TABLE>
<S>                                                                     <C>         <C>           <C>           <C>        <C>
              Total noninterest income ............................     $12,656     $5,260        $4,946        $6,553     $9,849
===================================================================================================================================
</TABLE>

     Income from service charges on deposit accounts was $5.1 million for the
year ended December 31, 2001, an increase of 28.87 percent. Service charge
income was $3.9 million for the year ended December 31, 2000 compared to $3.5
million for the year ended December 31, 1999.

     Income from other service charges and fees was $1.5 million for the year
ended December 31, 2001, an increase of 16.24 percent. Other service charges and
fee income was $1.3 million for the year ended December 31, 2000 and $1.2
million for the year ended December 31, 1999.

     Gains and losses resulting from sales of available-for-sale securities was
a net gain of $4.6 million for the year ended December 31, 2001, compared to
losses of $746,000 for 2000 and a gain of $1,000 for the year ended December 31,
1999.

     Gain on sale of loans increased $364,000 from $38,000 in 2000 to $402,000
in 2001 as a result of the lower overall interest rate market in 2001 which
resulted in both increased mortgage loan production and increased sales of
mortgage loans into the secondary market.

     Other noninterest income increased $316,000 from $751,000 in 2000 to $1.1
million in 2001 as a result of the gain realized on the sale of a vacant banking
facility.

                               NONINTEREST EXPENSE

     Total noninterest expense for the year ended December 31, 2001 of $29.7
million was an 18.85 percent increase over the year ended December 31, 2000
compared to a 16.66 percent increase for the year ended December 31, 2000 over
the year ended December 31, 1999. Table 16 presents the components of
noninterest expense for the last five years.

     Personnel expense was $14.0 million for the year ended December 31, 2001,
an increase of $2.2 million or 18.95 percent over the year ended December 31,
2000 compared to a $946,000 or 8.76 percent increase for the year ended December
31, 2000 over the year ended December 31, 1999. Increases in each period
resulted primarily from merit increases, growth in incentive-based compensation
and additional personnel due to the acquisitions discussed in Table 2.
BancShares had 378 full time equivalent employees at December 31, 2001, compared
to 365 at December 31, 2000 and 327 at December 31, 1999. The increases during
2001, 2000 and 1999 were primarily due to the acquisitions discussed in Table 2
and the opening of a new office in Greenville, North Carolina in September 2000
and Clinton, North Carolina in November 1999.

Table 16
--------

NONINTEREST EXPENSE

<TABLE>
<CAPTION>
                                                                                           Year Ended December 31,
(Dollars in thousands)
                                                                          2001         2000         1999         1998          1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>          <C>          <C>          <C>          <C>
  Personnel .....................................................      $ 13,978     $ 11,751     $ 10,805     $  9,501     $  8,763
  Intangibles amortization ......................................         3,852        2,603        1,942        1,534        1,755
  Data processing ...............................................         2,461        2,224        1,852        1,829        1,598
  Furniture and equipment .......................................         1,874        1,650        1,534        1,502        1,633
  Occupancy .....................................................         2,624        2,106        1,633        1,567        1,388
  Professional fees .............................................           600          705          286          715          649
  FDIC insurance assessment .....................................           127          122          114          115          112
  Charitable contributions ......................................             -            -            9            2        4,076
  Other .........................................................         4,230        3,867        3,279        3,351        3,090
------------------------------------------------------------------------------------------------------------------------------------
         Total noninterest expense ..............................      $ 29,746     $ 25,028     $ 21,454     $ 20,116     $ 23,064
====================================================================================================================================
</TABLE>

     Intangibles amortization was $3.9 million for the year ended December 31,
2001, an increase of $1.2 million or 47.98 percent over the year ended December
31, 2000 compared to a $661,000 or 34.04 percent increase for the year ended
December 31, 2000 over the year ended December 31, 1999. Increases in each
period resulted from the acquisitions listed in Table 2.

                                       22

<PAGE>

     Data processing expense was $2.5 million for the year ended December 31,
2001, an increase of $237,000 or 10.66 percent over the year ended December 31,
2000 compared to a $372,000 or 20.09 percent increase for the year ended
December 31, 2000 from the year ended December 31, 1999. In the year
acquisitions are made, substantial one time data processing costs are incurred
to convert customer account information files from the selling institution's
data processing files to BancShares' data processing files. Increases and
decreases in each period resulted primarily from the acquisitions listed in
Table 2 and the opening of new offices in Greenville, North Carolina in
September 2000 and Clinton, North Carolina in November 1999.

     Furniture and equipment expense was $1.9 million for the year ended
December 31, 2001, an increase of $224,000 or 13.58 percent over the year ended
December 31, 2000 compared to a $116,000 or 7.56 percent increase for the year
ended December 31, 2000 over the year ended December 31, 1999. Increases in each
period resulted primarily from the acquisitions listed in Table 2, the opening
of new administrative offices in Mount Olive, North Carolina in 2001 and the
opening of new branches in Greenville, North Carolina in 2000 and Clinton, North
Carolina in 1999.

     Occupancy expense was $2.6 million for the year ended December 31, 2001, an
increase of $518,000 or 24.60 percent over the year ended December 31, 2000
compared to a $473,000 or 28.97 percent increase for the year ended December 31,
2000 over the year ended December 31, 1999. Increases in each period resulted
primarily from the acquisitions listed in Table 2, the opening of new
administrative offices in Mount Olive, North Carolina in 2001 and the opening of
new branches in Greenville, North Carolina in 2000 and Clinton, North Carolina
in 1999.

                                  INCOME TAXES

     For the year ended December 31, 2001, BancShares recorded total income tax
expense of $3.1 million, compared to $1.0 million of income tax expense for the
year ended December 31, 2000 and $1.2 million for the year ended December 31,
1999. BancShares' effective tax rate declined from 23.81 percent for the year
ended December 31, 1999 to 21.12 percent for the year ended December 31, 2000
and increased to 27.04 percent for the year ended December 31, 2001. The
decrease in the effective tax rate from 1999 to 2000 primarily resulted from an
increase in the proportion of non-taxable investments. The increase in the
effective tax rate from 2000 to 2001 primarily resulted from the securities
gains realized in 2001 and a resulting lower proportion of non-taxable
investments.

                           RELATED PARTY TRANSACTIONS

     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, 2001 beneficially owned 32,856 shares, or 28.77%, of BancShares' outstanding
common stock and 4,966 shares, or 1.37%, of BancShares' outstanding Series B
preferred stock. At the same date, the second significant shareholder
beneficially owned 27,522 shares, or 24.10%, of BancShares' outstanding common
stock.

     These two significant shareholders are directors and executive officers of
the Corporation and at December 31, 2001, beneficially owned 2,524,210 shares,
or 28.67%, and 1,446,621 shares, or 16.43%, of the Corporation's outstanding
Class A common stock, and 649,188 shares, or 38.35%, and 199,052 shares, or
11.76%, of the Corporation's outstanding Class B common stock. The above totals
include 472,855 Class A common shares, or 5.37%, and 104,644 Class B common
shares, or 6.18%, 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 2000 and 1999. Southern incurred expenses for
various contractual services provided by First Citizens. Data and item
processing expenses were incurred for courier services, proof and encoding,
microfilming, check storage, statement rendering and item processing forms.
Management has researched

                                       23

<PAGE>

alternative, non-related, providers for such services and believes that it pays
fair value for these services. BancShares also has a correspondent relationship
with the Corporation. Correspondent account balances with the Corporation
included in cash and due from banks totaled $23,974 at December 31, 2001 and
$26,205 at December 31, 2000. Southern's wholly-owned subsidiary, Goshen, Inc.
paid $87 and $99 to an Insurance Company owned by the Corporation for the sale
of insurance written in connection with loans made by Southern in 2001 and 2000,
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 $465,000, respectively, at both
December 31, 2001 and 2000. The Class A common stock had a fair value of $12.2
million and $10.0 million at December 31, 2001 and 2000, respectively. The Class
B common stock had a fair value of $2.2 million and $1.6 million at December 31,
2001 and 2000, respectively.


                                    LIQUIDITY

     Management places great importance on maintaining a highly liquid
investment portfolio with maturities structured to meet liquidity requirements.
The ability to generate deposits is the primary source of liquidity. The average
deposit growth rate was 15.51 percent for the year ended December 31, 2001,
11.78 percent for the year ended December 31, 2000 and 6.05 percent for the year
ended December 31, 1999.

     At December 31, 2001 the investment portfolio totaled $204.3 million or
23.89 percent of total assets. At December 31, 2000 the investment portfolio
totaled $207.1 million or 25.78 percent of total assets. Management expects
maturing securities combined with other traditional sources of liquidity to
provide BancShares liquidity requirements.

     The above liquidity sources have traditionally enabled BancShares to place
minimal dependence on borrowed funds to meet liquidity needs, however BancShares
has readily available sources for borrowed funds through various correspondent
banks.

     BancShares has obligations under existing contractual obligations that will
require payments in future periods. The following table presents aggregated
information about such payments to be made in future periods. Transaction
deposit accounts with indeterminate maturities have been classified as having
payments due in less than one year.

Table 17
--------


CONTRACTURAL OBLIGATIONS

<TABLE>
<CAPTION>
As of December 31, 2001
(In thousands)
                                                                Payments due by period
                                                                ----------------------

                                              Less than 1 year    1-3 years    4-5 years   Over 5 years      Total
<S>                                           <C>                 <C>          <C>         <C>             <C>
Deposits ................................        $692,947          $37,131       $8,581            -       $738,659
Short-term borrowings ...................          18,146                -            -            -         18,146
Long-term obligations ...................               -                -            -       23,000         23,000
Lease obligations .......................              58               92            -            -            150
---------------------------------------------------------------------------------------------------------------------
     Total contractural cash obligations ....    $711,151          $37,223       $8,581      $23,000       $779,955
=====================================================================================================================
</TABLE>

                                       24

<PAGE>

                    SHAREHOLDER'S EQUITY AND CAPITAL ADEQUACY

     BancShares maintains adequate capital balances and exceeds all minimum
regulatory capital requirements. Table 18 provides additional information on the
regulatory capital of BancShares. Failure to meet certain capital requirements
as defined by BancShares regulatory agencies could result in specific regulatory
actions that could have a material effect on BancShares financial statements.




Table 18
--------

ANALYSIS OF SOUTHERN'S CAPITAL ADEQUACY

<TABLE>
<CAPTION>
             Southern's capital ratios as of December 31 are set forth below:

                                                        2001           2000       1999
             <S>                                     <C>            <C>        <C>
             Tier 1 capital(1) ....................  $  60,458      $  51,865  $  55,398
             Total capital ........................     70,916         61,630     62,967
             Risk-adjusted assets .................    548,884        489,540    386,761
             Average tangible assets ..............    820,605        744,328    654,268

             Tier 1 capital ratio (1) .............      11.01%         10.59%     14.32%
             Total capital ........................      12.92%         12.59%     16.28%
             Leverage capital ratio ...............       7.37%          6.97%      8.47%
</TABLE>


(1)  The Capital Securities issued in 1998 are considered part of Tier I
Capital. The minimum ratio of qualifying total capital to risk weighted assets
is 8%, of which 4% must be Tier 1 capital, which is common equity, retained
earnings, and a limited amount of perpetual preferred stock, less certain
intangibles.

     The increase in capital ratios during 2001 reflects the impact of the 2001
gains on sale of available-for-sale securities. The rate of return on average
shareholders' equity for the year ended December 31, 2001 was 12.57 percent
compared to 6.74 percent for the year ended December 31, 2000 and 6.63 percent
for the year ended December 31, 1999. The increased return recorded during 2001
resulted principally from gains on sale of available-for-sale securities. The
increased return recorded during 2000 resulted principally from the growth in
earnings.

     The Board of Directors of BancShares has authorized the purchase of up to
15,849 shares of Common and 40,873 of Preferred B and 4,363 shares of Preferred
C stock. Management will continue to consider the purchase of outstanding shares
when market conditions are favorable and excess capital is available for such
purchases.

                             FOURTH QUARTER ANALYSIS

     BancShares' net income for the fourth quarter of 2001 totaled $1.6 million,
an increase of $899,000 or 127.34 percent from the fourth quarter of 2000.
Average interest-earning assets for the fourth quarter of 2001 increased $67.0
million or 9.64

                                       25

<PAGE>

percent over the fourth quarter of 2000. Average loans for the fourth quarter of
2001 increased $70.5 million or 15.07 percent over the fourth quarter of 2000.
Average investment securities for the fourth quarter of 2001 decreased $22.7
million or 11.28 percent over the fourth quarter of 2000. Average earning assets
and average loans increased both as a result of the acquisitions listed in Table
2 and internal growth of existing branches. Average investment securities
decreased as a result of internal loan growth and growth in overnight funds
sold.

     Interest income for the fourth quarter of 2001 decreased $288,000 or 2.09
percent from the fourth quarter of 2000 primarily as a result of lower overall
interest rates.

     Average interest-bearing liabilities increased $57.5 million from the
fourth quarter of 2000 to the fourth quarter of 2001 primarily as a result of
the acquisitions discussed in Table 2. The rate on total interest-bearing
liabilities decreased from 4.75 percent for the fourth quarter of 2000 to 3.22
percent for the fourth quarter of 2001.

     Net interest income increased $1.6 million from the fourth quarter of 2000
to the fourth quarter of 2001 primarily as a result of the acquisitions listed
in Table 2.

     Non-interest income for the fourth quarter of 2001 increased $948,000 or
64.18 percent over the fourth quarter of 2000 primarily as a result of a gain on
sale of fixed assets of $461,000. Non-interest expense for the fourth quarter of
2001 increased $943,000 or 13.64 percent over the fourth quarter of 2000
primarily as a result of the acquisitions listed in Table 2.


Table 19
--------

SELECTED QUARTERLY DATA

<TABLE>
<CAPTION>
                                                        2001                                    2000
                                         Fourth    Third     Second    First     Fourth    Third     Second    First
-----------------------------------------------------------------------------------------------------------------------
<S>                                     <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
SUMMARY OF OPERATIONS

Interest income ......................  $13,482   $13,794   $14,022   $14,068   $13,770   $12,610   $12,193   $11,336
Interest expense .....................    5,368     6,422     6,831     7,359     7,250     6,422     5,942     5,318
-----------------------------------------------------------------------------------------------------------------------
Net interest income ..................    8,114     7,372     7,191     6,709     6,520     6,188     6,251     6,018
Provision for loan losses ............      350       250       250       150       175       150        75        75
-----------------------------------------------------------------------------------------------------------------------
Net income after provision for loan
    losses ...........................    7,764     7,122     6,941     6,559     6,345     6,038     6,176     5,943
Noninterest income ...................    2,425     1,969     2,261     6,001     1,477     1,809     1,490       484
Noninterest expense ..................    7,859     7,153     7,427     7,307     6,916     6,191     6,129     5,792
-----------------------------------------------------------------------------------------------------------------------
Income before income taxes ...........    2,330     1,938     1,775     5,253       906     1,656     1,537       635
Income taxes .........................      725       690       590     1,050       200       340       330       130
-----------------------------------------------------------------------------------------------------------------------
Net income ...........................  $ 1,605   $ 1,248   $ 1,185   $ 4,203   $   706   $ 1,316   $ 1,207   $   505
=======================================================================================================================
Net income applicable to common
    shares ...........................  $ 1,513   $ 1,156   $ 1,095   $ 4,113   $   613   $ 1,223   $ 1,112   $   409
=======================================================================================================================
</TABLE>

                                       26

<PAGE>

PER SHARE OF STOCK

<TABLE>
<S>                                                <C>       <C>        <C>       <C>       <C>       <C>      <C>     <C>
Net income per share of common
    stock........................................   13.33     10.07       9.53      35.73      5.26    10.41     9.40    3.44
Cash dividends - common..........................    0.38      0.37       0.37       0.38      0.38     0.37     0.37    0.38
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.........................................  195.00    195.00     195.00     195.00    195.00   195.00   185.00  185.00
    Low..........................................  195.00    195.00     195.00     195.00    195.00   185.00   185.00  185.00
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>

    MARKET FOR THE REGISTRANT'S COMMON EQUITY 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, 2001 was 323. 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.

                                LEGAL PROCEEDINGS

     There are no material legal proceedings to which BancShares or its
subsidiaries are a party or to which any of their property is subject, other
than ordinary, routine litigation incidental to the business of commercial
banking.

                          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
adopted this statement on January 1, 2001 with no material impact to the
Company's consolidated financial statements.

     The FASB has also issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, a replacement
of FASB Statement No. 125." It revises the standards for accounting for
securitizations and other transfers of financial assets and collateral, and
requires certain disclosures, but it carries over most of SFAS No. 125's
provisions without reconsideration. This statement is effective for transfers
and servicing of financial assets

                                       27

<PAGE>

and extinguishments of liabilities occurring after March 31, 2001. This
statement is effective for recognition and reclassification of collateral and
disclosures relating to securitization transactions and collateral for fiscal
years ending after December 15, 2000. The adoption of this statement did not
materially impact the Company.

     In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 141 (Statement 141), "Business Combinations", and Statement of Financial
Accounting Standards No. 142 (Statement 142), "Goodwill and Other Intangible
Assets". Statement 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001. Statement 141 also
specifies criteria which must be met for intangible assets acquired in a
purchase method business combination to be recognized and reported apart from
goodwill. Statement 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 will also require that identifiable intangible assets with
definite useful lives be amortized over their respective estimated useful lives
to their estimated residual values, and reviewed for impairment in accordance
with Statement 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of".

     BancShares was required to adopt the provisions of Statement 141 as of June
30, 2001 and will adopt Statement 142 effective January 1, 2002. Furthermore,
any goodwill and any intangible asset determined to have an indefinite useful
life that are acquired in a purchase business combination completed after June
30, 2001 will not be amortized, but will continue to be evaluated for impairment
in accordance with the appropriate accounting literature issued prior to
Statement 142. Goodwill and intangible assets acquired in business combinations
completed before July 1, 2001 continued to be amortized in 2001 prior to the
adoption of Statement 142 on January 1, 2002.




     Statement 141 requires, upon adoption of Statement 142, that BancShares
evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and to make any necessary reclassifications
in order to conform with the new criteria in Statement 141 for recognition apart
from goodwill. Upon adoption of Statement 142, BancShares will be required to
reassess the useful lives and residual values of all identifiable intangible
assets acquired in purchase business combinations, and make any necessary
amortization period adjustments by the end of the first interim period after
adoption. In addition, any intangible asset classified as goodwill under
Statement 142 will be subjected to a transitional impairment test during the
first six months of 2002 based on the level of goodwill as of January 1, 2002.
Any impairment losses identified as a result of this transitional impairment
test will be recognized in the 2002 statement of income as the effect of a
change in accounting principle.

     As of December 31, 2001, BancShares had intangible assets totaling $9.9
million. Management has evaluated BancShares's existing intangible assets and
goodwill as of January 1, 2002 and will make appropriate reclassifications in
future periods in order to conform to the new criteria in Statement 141 for
recognition apart from goodwill, as further described below.

     BancShares has determined that upon adoption of Statement 142 on January 1,
2002, BancShares had $229,000 of goodwill that will no longer be amortized
beginning in 2002. The amortization expense associated with this goodwill during
the years ended December 31, 2001, 2000 and 1999 was $415,000, $674,000 and $1.0
million, respectively. In accordance with Statement 142, BancShares will perform
a transitional impairment test of this goodwill in the first six months of 2002,
and will perform an annual impairment test of the goodwill in 2002 and
thereafter.

     The remaining intangible assets, totaling $9.7 million at December 31,
2001, relate to acquisitions of branches that are being accounted for in
accordance with Statement of Financial Accounting Standards No. 72 (Statement
72), "Accounting for Certain Acquisitions of Banking and Thrift Institutions."
Statement 72, which was not amended by Statement 142, requires that identified
intangible assets and unidentified intangible assets associated with certain
acquisitions of branches be amortized into expense. Accordingly, these
intangible assets will continue to be amortized over their useful lives
(generally 7 years). Management periodically reviews the useful lives of these
assets and adjusts them downward where appropriate. The amortization expense
associated with these branches was $3.4 million, $1.9 million, and $687,000 for
the years ended December 31, 2001, 2000 and 1999, respectively, and is expected
to be $3.1 million for the year ending December 31, 2002.

                                       28

<PAGE>

     In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 143 (Statement 143), "Accounting for Asset Retirement Obligations", which
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
cost. This standard requires BancShares to record the fair value of an asset
retirement obligation as a liability in the period in which it incurs a legal
obligation associated with the retirement of tangible long-lived assets that
result from the acquisition, construction, development and or normal use of the
assets. BancShares also is to record a corresponding increase to the carrying
amount of the related long-lived asset and to depreciate that cost over the life
of the asset. The liability is changed at the end of each period to reflect the
passage of time and changes in the estimated future cash flows underlying the
initial fair value measurement. This statement is effective for fiscal years
beginning after June 15, 2002. At this time, BancShares is assessing the impact
of Statement 143 on its financial condition and results of operations.

     In October 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 144 (Statement 144), "Accounting
for the Impairment or Disposal of Long-Lived Assets", which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This standard provides guidance on differentiating between long-lived assets to
be held and used, long-lived assets to be disposed of other than by sale and
long-lived assets to be disposed of by sale. Statement 144 supersedes FASB
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
Statement 144 also supersedes Accounting Principals Board Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions". This statement is effective for fiscal years beginning
after December 15, 2001. BancShares does not expect adoption of this statement
to have a material effect on its consolidated 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.

                           FORWARD-LOOKING STATEMENTS

     The foregoing discussion may contain statements that could be deemed
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934 and the Private Securities Litigation Reform Act, which
statements are inherently subject to risks and uncertainties. Forward-looking
statements are statements that include projections, predictions, expectations or
beliefs about future events or results or otherwise are not statements of
historical fact. Such statements are often characterized by the use of
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.

                                       29

<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, 2001
and 2000, and the related consolidated statements of income and comprehensive
income, shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 2001. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the 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, 2001 and 2000, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.

                                       30

<PAGE>

                                                                    /s/ KPMG LLP

Raleigh, North Carolina
February 8, 2002



SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except for per share data)


<TABLE>
<CAPTION>
                                                                                                        December 31,
                                                                                                     2001         2000
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                <C>          <C>
ASSETS
Cash and due from banks .........................................................................  $  40,811    $ 42,944
Overnight funds sold ............................................................................     22,365      12,840
Investment securities ($87,105 and $78,155 pledged for repurchase agreements, respectively):
    Held-to-maturity, at amortized cost (fair value of $50,142 and $96,416, respectively) .......     49,351      95,545
    Available-for-sale, at fair value (amortized cost of $138,419 and $96,633, respectively) ....    154,932     111,573
Loans ...........................................................................................    545,300     496,966
    Less allowance for loan losses ..............................................................     (7,636)     (7,284)
-----------------------------------------------------------------------------------------------------------------------------------
Net loans .......................................................................................    537,664     489,682
Premises and equipment ..........................................................................     32,683      29,313
Accrued interest receivable .....................................................................      6,097       6,482
Intangible assets ...............................................................................      9,916      13,789
Other assets ....................................................................................      1,409       1,273
------------------------------------------------------------------------------------------------------------------------------------
      Total assets ..............................................................................  $ 855,228    $803,441
====================================================================================================================================

LIABILITIES
Deposits:
    Noninterest-bearing .........................................................................  $ 128,368    $107,695
    Interest-bearing ............................................................................    610,291     590,790
------------------------------------------------------------------------------------------------------------------------------------
Total deposits ..................................................................................    738,659     698,485
Short-term borrowings ...........................................................................     18,146      15,427
Long-term obligations ...........................................................................     23,000      23,000
Accrued interest payable ........................................................................      3,228       4,117
Other liabilities ...............................................................................      4,766       2,730
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       31

<PAGE>

<TABLE>
<S>                                                                           <C>         <C>
      Total liabilities ....................................................   787,799     743,759
--------------------------------------------------------------------------------------------------------

SHAREHOLDERS' EQUITY
Series B non-cumulative preferred stock, no par value; 408,728 shares
    authorized; 363,373 and 367,524 shares issued and outstanding at
    December 31, 2001 and December 31, 2000, respectively ..................     1,770       1,790
Series C non-cumulative preferred stock, no par value; 43,631 shares
    authorized; 39,716 and 39,825 shares issued and outstanding at
    December 31, 2001 and December 31, 2000, respectively ..................       553         555
Common stock, $5 par value; 158,485 shares authorized; 114,208 and
    115,209 shares issued and outstanding at December 31, 2001 and
    December 31, 2000, respectively ........................................       571         576
Surplus ....................................................................    10,000      10,000
Retained earnings ..........................................................    44,388      36,901
Accumulated other comprehensive income .....................................    10,147       9,860
--------------------------------------------------------------------------------------------------------
     Total shareholders' equity ............................................    67,429      59,682
--------------------------------------------------------------------------------------------------------
     Total liabilities and shareholders' equity ............................  $855,228    $803,441
========================================================================================================
</TABLE>

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



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,
                                                                  2001         2000        1999
-----------------------------------------------------------------------------------------------------
<S>                                                             <C>          <C>         <C>
Interest income:
    Loans ...................................................   $ 43,535     $ 37,377    $ 31,292
    Investment securities:
     U. S. Government .......................................      8,488        8,753       7,454
     State, county and municipal ............................      1,431        1,966       1,728
     Other ..................................................        722          576         692
-----------------------------------------------------------------------------------------------------
       Total investment securities interest income ..........     10,641       11,295       9,874
    Overnight funds sold ....................................      1,190        1,237         968
-----------------------------------------------------------------------------------------------------
       Total interest income ................................     55,366       49,909      42,134

Interest expense:
    Deposits ................................................     23,491       22,388      17,655
    Short-term borrowings ...................................        419          474         228
    Long-term obligations ...................................      2,070        2,070       2,084
-----------------------------------------------------------------------------------------------------
     Total interest expense .................................     25,980       24,932      19,967
-----------------------------------------------------------------------------------------------------
     Net interest income ....................................     29,386       24,977      22,167
    Provision for loan losses ...............................      1,000          475         830
-----------------------------------------------------------------------------------------------------
     Net interest income after provision for loan losses ....     28,386       24,502      21,337

Noninterest income:
    Service charges on deposit accounts .....................      5,080        3,942       3,497
    Other service charges and fees ..........................      1,482        1,275       1,192
    Investment securities gain (loss), net ..................      4,625         (746)          1
    Gain (loss) on sale of loans ............................        402           38        (272)
    Other ...................................................      1,067          751         528
-----------------------------------------------------------------------------------------------------
    Total noninterest income ................................     12,656        5,260       4,946
</TABLE>

                                       32

<PAGE>

<TABLE>
<S>                                                                            <C>           <C>          <C>
Noninterest expense:
 Personnel .................................................................      13,978        11,751       10,805
 Intangibles amortization ..................................................       3,852         2,603        1,722
 Data processing ...........................................................       2,461         2,224        1,852
 Furniture and equipment ...................................................       1,874         1,650        1,534
 Occupancy .................................................................       2,624         2,106        1,633
 Professional fees .........................................................         600           705          286
 Other .....................................................................       4,357         3,989        3,622
-------------------------------------------------------------------------------------------------------------------------

  Total noninterest expense ................................................      29,746        25,028       21,454
-------------------------------------------------------------------------------------------------------------------------
Income before income taxes .................................................      11,296         4,734        4,829
Income taxes ...............................................................       3,055         1,000        1,150
-------------------------------------------------------------------------------------------------------------------------
  Net income ...............................................................       8,241         3,734        3,679
-------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss), net of tax:
 Unrealized gains (losses) arising during period ...........................       3,129         2,116       (4,109)
 Reclassification adjustment for (gains) losses included in net income .....      (2,842)          492           (1)
-------------------------------------------------------------------------------------------------------------------------
 Other comprehensive income (loss) .........................................         287         2,608       (4,110)
-------------------------------------------------------------------------------------------------------------------------
  Comprehensive income (loss) ..............................................   $   8,528     $   6,342    $    (431)
=========================================================================================================================
Per share information:
 Net income per common share ...............................................   $   68.66     $   28.51    $   27.56
 Cash dividends declared on common shares ..................................        1.50          1.50         1.50
 Weighted average common shares outstanding ................................     114,717       117,743      119,137
=========================================================================================================================
</TABLE>

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

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands except for per share data)


<TABLE>
<CAPTION>
                                                                                                            Accumulated
                                                                                                               Other
                                                Preferred Stock                Common                         Compre-     Total
                                       ---------------------------------
                                           Series B          Series C          Stock                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, 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
Purchase and 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
------------------------------------------------------------------------------------------------------------------------------------

Net income ..........................       --       --       --     --        --     --        --    3,734        --      3,734
Purchase and retirement of stock ....  (29,846)    (146)      --     --    (3,703)   (19)       --     (885)       --     (1,050)
Cash dividends:
   Common stock ($1.50 per share) ...       --       --       --     --        --     --        --     (177)       --       (177)
   Preferred B ($.90 per share) .....       --       --       --     --        --     --        --     (341)       --       (341)
   Preferred C ($.90 per share) .....       --       --       --     --        --     --        --      (36)       --        (36)
Unrealized gain on securities
   available-for-sale, net of tax ...       --       --       --     --        --     --        --       --     2,608      2,608
------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000 ..........  367,524   $1,790   39,825   $555   115,209   $576   $10,000  $36,901   $ 9,860    $59,682
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       33

<PAGE>

<TABLE>
<S>                                       <C>      <C>      <C>      <C>    <C>       <C>    <C>        <C>       <C>       <C>
Net income ...............................       --       --      --    --        --      --       --     8,241         --    8,241
Purchase and retirement of stock .........   (4,151)     (20)   (109)   (2)   (1,001)     (5)      --      (217)        --     (244)
Cash dividends:
    Common stock ($1.50 per share) .......       --       --      --    --        --      --       --      (173)        --     (173)
    Preferred B ($.90 per share) .........       --       --      --    --        --      --       --      (328)        --     (328)
    Preferred C ($.90 per share) .........       --       --      --    --        --      --       --       (36)        --      (36)
Unrealized gain on securities available-
    for-sale, net of tax .................       --       --      --    --        --      --       --        --        287      287
------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2001 ...............  363,373  $ 1,770  39,716  $553   114,208   $ 571  $10,000   $44,388   $ 10,147  $67,429
====================================================================================================================================
</TABLE>

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


<TABLE>
<CAPTION>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES                                                       Year ended December 31,
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)                                                                                      2001        2000         1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>            <C>         <C>
OPERATING ACTIVITIES:
  Net income ...............................................................................    $    8,241    $  3,734    $   3,679
  Adjustments to reconcile net income to net cash provided by operating activities:
    Provision for loan losses ..............................................................         1,000         475          830
    Deferred income taxes ..................................................................          (682)       (230)        (423)
    Loss on impairment of available-for-sale securities ....................................             -         855            -
    Gains on sales and issuer calls of securities ..........................................        (4,625)       (109)          (1)
    (Gain) loss on sale and abandonment of premises and equipment ..........................          (682)          8          119
    (Gain) loss on sale of loans ...........................................................          (652)        (38)         272
    Net amortization (accretion of discounts) of premiums on investments ...................             8        (114)          50
    Amortization of intangibles and mortgage servicing rights ..............................         3,873       2,708        1,942
    Depreciation ...........................................................................         2,134       1,713        1,482
    Proceeds from loans held for sale ......................................................        43,793      10,244       31,600
    Origination of loans held for sale .....................................................       (73,806)    (14,092)     (30,052)
    Proceeds from sale of credit card portfolio ............................................         3,200           -            -
    Net decrease (increase) in accrued interest receivable .................................           385      (1,752)        (159)
    Net decrease in accrued interest payable ...............................................          (889)       (354)         (34)
    Net decrease in other assets ...........................................................            79         627          113
    Net increase (decrease) in other liabilities ...........................................         1,514        (303)      (1,679)
------------------------------------------------------------------------------------------------------------------------------------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES ...........................................       (17,109)      3,372        7,739
------------------------------------------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES:
  Proceeds from maturities and issuer calls of investment securities available-for-sale ....        33,260      30,165       44,734
  Proceeds from maturities and issuer calls of investment securities held-to-maturity ......        68,642      58,324       43,889
  Proceeds from sales of investment securities available-for-sale ..........................         2,796       1,604           30
  Purchases of investment securities held-to-maturity ......................................       (18,085)    (58,679)     (57,458)
  Purchases of investment securities available-for-sale ....................................       (83,786)    (41,000)     (28,000)
</TABLE>

                                       34

<PAGE>

<TABLE>
<S>                                                                                          <C>         <C>    <C>    <C>
   Net increase in loans ...............................................................       (15,408)     (12,927)   (26,869)
   Proceeds from sale of fixed assets ..................................................         1,034            0          0
   Purchases of fixed assets ...........................................................        (6,064)      (6,304)    (3,655)
   Net cash received for bank and branches acquired ....................................             -        7,555      3,991
--------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES ..................................................       (17,611)     (21,262)   (23,338)
--------------------------------------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES:
   Net increase (decrease) in demand and interest-bearing demand deposits ..............        36,519      (11,721)     9,426
   Net increase (decrease) in time deposits ............................................         3,655       29,336     (2,763)
   Net proceeds of short-term borrowed funds ...........................................         2,719        8,769      1,534
   Cash dividends paid .................................................................          (537)        (554)      (573)
   Purchase and retirement of stock ....................................................          (244)      (1,050)       (85)
--------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ..............................................        42,112       24,780      7,539
--------------------------------------------------------------------------------------------------------------------------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...................................         7,392        6,890     (8,060)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF YEAR .....................................        55,784       48,894     56,954
--------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT THE END OF YEAR ...........................................     $  63,176  $    55,784  $  48,894
================================================================================================================================

SUPPLEMENTAL DISCLOSURES OF CASH PAID DURING THE YEAR FOR:
   Interest ............................................................................     $  26,869  $    25,286  $  20,001
   Income taxes ........................................................................     $   3,259  $     1,224  $     894
================================================================================================================================

SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING AND INVESTING ACTIVITIES:
   Unrealized gains (losses) on available-for-sale securities, net of tax ..............     $     287  $     2,608    ($4,110)
   Foreclosed loans transferred to other real estate ...................................     $     207  $       503  $     818
</TABLE>


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

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 currently
          operates 49 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 accounting
          principles generally accepted in the United States of America requires
          management to make estimates and assumptions that affect the reported
          amounts of assets and liabilities and disclosure of contingent
          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

                                       35

<PAGE>

          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 overnight funds sold. Overnight
          and federal funds are purchased and sold for one day periods.

          Investment Securities

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

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In thousands)

  Note 1. Summary of Significant Accounting Policies - continued

          Investment Securities - continued

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

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

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

          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. BancShares does not hold trading securities.

          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.

                                       36

<PAGE>

          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 and the loan has performed in accordance with its terms
          for a demonstrated period of time.

          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 borrowers 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 accounting principles generally accepted in the United
          States of America and in consideration of the current economic
          environment. While management uses the best information available to
          make evaluations, future adjustments may be necessary.

          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.

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In thousands)

  Note 1. Summary of Significant Accounting Policies - continued

          Other Real Estate

          Other real estate, which is included in other assets on the
          consolidated balance sheet, represents properties acquired through
          foreclosure or deed in lieu thereof and is carried at the lower of
          cost or estimated fair value, less estimated costs to sell. Declines
          in fair value of properties included in other real estate below
          carrying value are recognized by a charge to income.

          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. The balance of MSRs were $608
          and $629 at December 31, 2001 and 2000 respectively. No valuation
          allowance for impairment was required at either date.

          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.

                                       37

<PAGE>

                  Intangible Assets

                  Intangible assets, primarily core deposit intangibles arising
                  from branch acquisitions 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. In addition the useful
                  lives and core deposit intangible asset are periodically
                  reviewed for reasonableness.

                  In July 2001, the FASB issued Statement of Financial
                  Accounting Standards No. 141 (Statement 141), "Business
                  Combinations", and Statement of Financial Accounting Standards
                  No. 142 (Statement 142), "Goodwill and Other Intangible
                  Assets". Statement 141 requires that the purchase method of
                  accounting be used for all business combinations initiated
                  after June 30, 2001. Statement 141 also specifies criteria
                  which must be met for intangible assets acquired in a purchase
                  method business combination to be recognized and reported
                  apart from goodwill. Statement 142 will require that goodwill
                  and intangible assets with indefinite useful lives no longer
                  be amortized, but instead tested for impairment at least
                  annually in accordance with the provisions of Statement 142.
                  Statement 142 will also require that identifiable intangible
                  assets with definite useful lives be amortized over their
                  respective estimated useful lives to their estimated residual
                  values, and reviewed for impairment in accordance with
                  Statement 121, "Accounting for the Impairment of Long-Lived
                  Assets and for Long-Lived Assets to Be Disposed Of".

                  BancShares was required to adopt the provisions of Statement
                  141 as of June 30, 2001 and will adopt Statement 142 effective
                  January 1, 2002. Furthermore, any goodwill and any intangible
                  asset determined to have an indefinite useful life that are
                  acquired in a purchase business combination completed after
                  June 30, 2001 will not be amortized, but will continue to be
                  evaluated for impairment in accordance with the appropriate
                  accounting literature issued prior to Statement 142. Goodwill
                  and intangible assets acquired in business combinations
                  completed before July 1, 2001 continued to be amortized in
                  2001 prior to the adoption of Statement 142 on January 1,
                  2002.


SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In thousands)

    Note 1.       Summary of Significant Accounting Policies - continued

                  Statement 141 requires, upon adoption of Statement 142, that
                  BancShares evaluate its existing intangible assets and
                  goodwill that were acquired in a prior purchase business
                  combination, and to make any necessary reclassifications in
                  order to conform with the new criteria in Statement 141 for
                  recognition apart from goodwill. Upon adoption of Statement
                  142, BancShares will be required to reassess the useful lives
                  and residual values of all identifiable intangible assets
                  acquired in purchase business combinations, and make any
                  necessary amortization period adjustments by the end of the
                  first interim period after adoption. In addition, any
                  intangible asset classified as goodwill under Statement 142
                  will be subjected to a transitional impairment test during the
                  first six months of 2002 based on the level of goodwill as of
                  January 1, 2002. Any impairment losses identified as a result
                  of this transitional impairment test will be recognized in the
                  2002 statement of income as the effect of a change in
                  accounting principle.

                  As of December 31, 2001, BancShares had intangible assets
                  totaling $9.9 million. Management has evaluated BancShares's
                  existing intangible assets and goodwill as of January 1, 2002
                  and will make appropriate reclassifications in future periods
                  in order to conform to the new criteria in Statement 141 for
                  recognition apart from goodwill, as further described below.

                  BancShares has determined that upon adoption of Statement 142
                  on January 1, 2002, BancShares had $229,000 of goodwill that
                  will no longer be amortized beginning in 2002. The
                  amortization expense associated with this goodwill during the
                  years ended December 31, 2001, 2000 and 1999 was $415,000,
                  $674,000 and $1.0 million, respectively. In accordance with
                  Statement 142, BancShares will perform a transitional
                  impairment test of this goodwill in the first six months of
                  2002, and will perform an annual impairment test of the
                  goodwill in 2002 and thereafter.

                                       38

<PAGE>

                  The remaining intangible assets, totaling $9.7 million at
                  December 31, 2001, relate to acquisitions of branches that are
                  being accounted for in accordance with Statement of Financial
                  Accounting Standards No. 72 (Statement 72), "Accounting for
                  Certain Acquisitions of Banking and Thrift Institutions."
                  Statement 72, which was not amended by Statement 142, requires
                  that identified intangible assets and unidentified intangible
                  assets associated with certain acquisitions of branches be
                  amortized into expense. Accordingly, these intangible assets
                  will continue to be amortized over their useful lives
                  (generally 7 years). Management periodically reviews the
                  useful lives of these assets and adjusts them downward where
                  appropriate. The amortization expense associated with these
                  branches was $3.4 million, $1.9 million, and $687 for the
                  years ended December 31, 2001, 2000 and 1999, respectively.

                  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.

                  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.

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In thousands)

Note 1.           Summary of Significant Accounting Policies - continued


                  Earnings per common share are computed by dividing income
                  applicable to common shares by the weighted average number of
                  common shares outstanding during the period. Income applicable
                  to common shares represents net income reduced by dividends
                  paid to preferred shareholders. 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>
                                                                          2000            1999           2001
<S>                                                                   <C>              <C>             <C>
------------------------------------------------------------------------------------------------------------------
                  Net income ......................................   $    8,241       $   3,734       $  3,679
                  Less: Preferred dividends .......................         (364)           (377)          (395)
------------------------------------------------------------------------------------------------------------------
                  Net income applicable to common shares ..........   $    7,877       $   3,357       $  3,284
==================================================================================================================

                  Weighted average common shares
                    outstanding during the period .................      114,717         117,743        119,137
==================================================================================================================
</TABLE>

                  Comprehensive Income

                  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:

                                       39

<PAGE>

<TABLE>
<CAPTION>
                                                                                     2001          2000         1999
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>            <C>          <C>
                  Unrealized gains (losses) arising during period..............    $ 3,069        $1,089       $(2,116)
                  Reclassification adjustment for (gains) losses
                    included in net income.....................................     (1,783)          254             -
--------------------------------------------------------------------------------------------------------------------------

                  Total tax effect.............................................    $ 1,286        $1,343       $(2,116)
==========================================================================================================================
</TABLE>

                  Segment Reporting

                  SFAS No. 131, "Disclosures about Segments of an Enterprise and
                  Related Information" ("Statement 131") requires that public
                  business enterprises report certain information about
                  operating segments in complete sets of financial statements
                  issued to shareholders. It also requires that public business
                  enterprises report certain information about their products
                  and services, the geographic areas in which they operate and
                  their major customers. This pronouncement does not have an
                  effect on BancShares' consolidated financial statements as
                  banking is considered to be BancShares only segment.

                  Derivatives

                  The Financial Accounting Standards Board ("FASB") has issued
                  Statement of Financial Accounting Standards ("SFAS") No. 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,
                  (collectively referred to as derivatives) and for hedging
                  activities. This statement, as amended, is effective for all
                  fiscal quarters of fiscal years beginning after June 15, 2000
                  and was adopted by the Company on January 1, 2001 with no
                  material impact to the Company's consolidated financial
                  statements.


SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In thousands)

Note 1.           Summary of Significant Accounting Policies - continued

                  New Accounting Standards

                  The FASB has also issued SFAS No. 140, "Accounting for
                  Transfers and Servicing of Financial Assets and
                  Extinguishments of Liabilities, a replacement of FASB
                  Statement No. 125." It revises the standards for accounting
                  for securitizations and other transfers of financial assets
                  and collateral and requires certain disclosures, but it
                  carries over most of SFAS No. 125's provisions without
                  reconsideration. This statement is effective for transfers and
                  servicing of financial assets and extinguishments of
                  liabilities occurring after March 31, 2001. This statement is
                  effective for recognition and reclassification of collateral
                  and disclosures relating to securitization transactions and
                  collateral for fiscal years ending after December 15, 2000.
                  This Statement was adopted by the Company on April 1, 2001
                  with no material impact to the Company's consolidated
                  statements.

Note 2.           Investment Securities

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

<TABLE>
<CAPTION>
                                                         December 31, 2001                            December 31, 2000
                                           -------------------------------------------   -------------------------------------------
                                                        Gross        Gross                            Gross        Gross
                                           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:
</TABLE>

                                       40

<PAGE>

<TABLE>
<S>                                                    <C>       <C>        <C>        <C>       <C>       <C>       <C>    <C>
                    U. S. Government................   $ 33,057  $   468    $     -    $ 33,525  $ 73,215  $   433   $( 24) $ 73,624
                    Obligations of states and
                      political subdivisions........     16,294      335        (12)     16,617    22,230      464      (1)   22,693
                    Corporate debenture.............          -        -          -           -       100        -      (1)       99
------------------------------------------------------------------------------------------------------------------------------------
                                                         49,351      803        (12)     50,142    95,545      897     (26)   96,416
------------------------------------------------------------------------------------------------------------------------------------

                  SECURITIES
                  AVAILABLE-FOR-SALE:
                    U. S. Government................    103,840    1,712        (14)    105,538    73,997      509     (31)   74,475
                    Marketable equity securities ...     11,044   14,880        (41)     25,883    13,324   14,232    (157)   27,399
                    Obligations of states and
                      political subdivisions........      7,916      243        (76)      8,083     8,177      387       -     8,564
                    Mortgage-backed securities......     15,619       59       (250)     15,428     1,135       11     (11)    1,135
------------------------------------------------------------------------------------------------------------------------------------
                                                        138,419   16,894       (381)    154,932    96,633   15,139    (199)  111,573
------------------------------------------------------------------------------------------------------------------------------------
                     TOTALS.........................   $187,770  $17,697    $  (393)   $205,074  $192,178  $16,036   $(225) $207,989
====================================================================================================================================
</TABLE>

                  Securities with a par value of $87,105 were pledged at
                  December 31, 2001 to secure public deposits and for other
                  purposes as required by law and contractual arrangement.





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, 2001, 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 ...................................   $ 33,198        $ 33,593
                      Due after one year through five years .....................     10,628          10,873
                      Due after five years through ten years ....................      4,762           4,800
                      Due  after ten years ......................................        763             876
----------------------------------------------------------------------------------------------------------------
                                                                                    $ 49,351        $ 50,142
================================================================================================================

                  Available-for-sale securities:
                      Due in one year or less ...................................   $ 47,306        $ 48,338
                      Due after one year through five years .....................     58,796          59,528
                      Due after five years through ten years ....................      2,793           2,889
                      Due after ten years .......................................      2,861           2,866
                      Mortgage-backed securities ................................     15,619          15,428
                      Marketable equity securities ..............................     11,044          25,883
----------------------------------------------------------------------------------------------------------------
                                                                                    $138,419        $154,932
================================================================================================================
</TABLE>

                                       41

<PAGE>

                  Sales of securities available-for-sale having a cost basis of
                  $2,796 in 2001, $593 in 2000 and $55 in 1999 resulted in gross
                  realized gains of $4,625 for 2001, $98 for 2000 and $1 for
                  1999. Other gross realized gains on investment securities in
                  2000 and 1999 were attributable to issuer calls of debt
                  securities.

                  During 2000, management determined that certain marketable
                  equity securities had declines in their fair value that were
                  deemed to be other than temporary. Accordingly, a loss of $855
                  was recorded and the carrying amount of the investment was
                  reduced.

Note 3.           Loans

<TABLE>
<CAPTION>
                  Loans by type were as follows:                                                              December 31,
                                                                                                          2001            2000
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                    <C>            <C>
                  Commercial, financial and agricultural ...........................................   $  92,293      $  91,936
                  Real estate:
                      Construction .................................................................      52,414         14,621
                  Mortgage:
                      One to four family residential ...............................................     132,513        115,473
                      Commercial ...................................................................     134,562        126,472
                      Equityline ...................................................................      42,504         40,468
                      Other ........................................................................      24,823         39,069
                  Consumer .........................................................................      39,581         38,795
                  Lease financing ..................................................................      26,610         30,132
-----------------------------------------------------------------------------------------------------------------------------------
                      Total loans ..................................................................   $ 545,300      $ 496,966
===================================================================================================================================

                  Loans held for sale (included in one-to-four family residential loans) ...........   $  11,092      $   1,807
                  Loans serviced for others (excluded from total loans) ............................   $ 179,567      $ 177,093
</TABLE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In thousands)

Note 3.           Loans - continued

                  On December 31, 2001 total loans to directors, executive
                  officers and related individuals and organizations were
                  $1,123. On December 31, 2000 total loans to directors,
                  executive officers and related individuals and organizations
                  were $933. During 2001, $415 of new loans were made to this
                  group and repayments totaled $225. 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>
                                                                  2001        2000    1999
------------------------------------------------------------------------------------------------
<S>                                                              <C>         <C>     <C>
                  Balance at beginning of year ................  $7,284      $6,188  $5,962
                  Sale of credit card portfolio ...............     (95)         --      --
                  Allowance from branch acquisitions ..........      --         800      --
                  Provision for loan losses ...................   1,000         475     830
                  Loans charged off ...........................    (802)       (534)   (748)
                  Loan recoveries .............................     249         355     144
------------------------------------------------------------------------------------------------
                  Balance at end of the year ..................  $7,636      $7,284  $6,188
================================================================================================
</TABLE>

                  At December 31, 2001 and 2000, Southern had nonaccrual loans
                  of $407 and $478, respectively. At December 31, 2001 Southern
                  had $28 of restructured loans and at December 31, 2000
                  Southern had no

                                       42

<PAGE>

          restructured loans. At December 31, 2001 and 2000 Southern had
          accruing loans past due 90 days or more totaling $1,565 and $1,081,
          respectively. The amount of foregone interest on nonaccrual and
          restructured loans at December 31, 2001, 2000 and 1999, was not
          material for the periods presented. On December 31, 2001 Southern had
          loans considered to be impaired of $197. On December 31, 2000 Southern
          had no loans considered to be impaired.

Note 5.   Premises and Equipment

          The components of premises and equipment were as follows:

                                                              December 31,
                                                            2001        2000
--------------------------------------------------------------------------------
          Land .......................................    $  6,677    $  6,248
          Buildings and improvements .................      25,738      22,825
          Furniture and equipment ....................       9,895       8,575
          Construction-in-progress ...................       2,204       1,515
--------------------------------------------------------------------------------
                                                            44,514      39,163
          Less: accumulated depreciation .............     (11,831)     (9,850)
--------------------------------------------------------------------------------
                                                          $ 32,683    $ 29,313
================================================================================



SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In thousands)

Note 6.   Income Taxes

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

<TABLE>
<CAPTION>
                                                                   2001        2000        1999
--------------------------------------------------------------------------------------------------
          <S>                                                    <C>         <C>         <C>
          Current:
            Federal .........................................    $ 3,551     $ 1,224     $ 1,568
            State ...........................................        186           6           5
--------------------------------------------------------------------------------------------------
                                                                 $ 3,737       1,230       1,573
--------------------------------------------------------------------------------------------------

          Deferred:
            Federal .........................................       (682)       (230)       (423)
--------------------------------------------------------------------------------------------------
                                                                 $ 3,055     $ 1,000     $ 1,150
--------------------------------------------------------------------------------------------------
</TABLE>

          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>
                                                                   2001        2000        1999
--------------------------------------------------------------------------------------------------
          <S>                                                    <C>         <C>         <C>
          Expected income tax expense at stated rate (34%) ..    $ 3,840     $ 1,609     $ 1,642
          Increase (decrease) in income tax expense
              resulting from:
          Tax exempt income .................................       (773)     (1,009)       (911)
          Amortization of intangible assets .................         63          88         126
          State income tax (net of federal benefit) .........        123           4           4
          Change in federal valuation allowance .............       (225)        320          --
          Other, net ........................................         27         (12)        289
--------------------------------------------------------------------------------------------------
</TABLE>

                                       43

<PAGE>

                                             $  3,055   $  1,000   $  1,150
================================================================================
   Effective tax rate ....................         27%        21%        24%
================================================================================

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

                                                             December 31,
                                                            2001       2000
--------------------------------------------------------------------------------
          Deferred tax liabilities:
          Depreciation .............................    $    888   $    845
          Leased assets ............................         267        336
          Investment securities ....................       6,365      5,080
          Other ....................................         382        303
                                                        --------   --------
           Gross deferred tax liabilities ..........       7,902      6,564
--------------------------------------------------------------------------------

          Deferred tax assets:
          Allowance for loan losses ................      (2,944)    (2,808)
          Intangible assets ........................      (2,649)    (1,788)
          Other ....................................        (710)    (1,133)
--------------------------------------------------------------------------------
           Gross deferred tax assets ...............      (6,303)    (5,729)
                                                        --------   --------
          Valuation allowance ......................        (658)      (819)
                                                        --------   --------
          Net deferred tax liability ...............    $  2,257   $  1,654
================================================================================

          A valuation allowance for deferred tax assets of $658 was required at
          December 31, 2001 for certain deferred state tax benefits and for
          certain charitable contribution carry forwards. A valuation allowance
          for deferred tax assets of $819 was required at December 31, 2000 for
          similar reasons. Management has determined that it is more likely than
          not that the net deferred tax asset can be supported

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In thousands)


Note 6.   Income Taxes - continued

          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 charges of approximately $1,286 and $1,343 for
          the years ended December 31, 2001 and 2000, respectively, have been
          recorded directly to shareholders' equity.

Note 7.   Deposits

          Deposits at December 31 are summarized as follows:

                                                            2001       2000
--------------------------------------------------------------------------------
          Demand ...................................    $128,368   $107,695
          Checking with interest ...................      88,748     83,964
          Savings ..................................      58,272     58,419
          Money market accounts ....................      82,599     71,390
          Time .....................................     380,672    377,017
--------------------------------------------------------------------------------
           Total deposits ..........................    $738,659   $698,485
================================================================================

          Total time deposits with a denomination of $100 or more were $105,111
          and $81,656 at December 31, 2001 and 2000, respectively.

          At December 31, 2001, the scheduled maturities of all time deposits
          were:

          2002............................ $ 334,960

                                       44

<PAGE>

         2003 ...............................     27,628
         2004 ...............................      9,503
         2005 ...............................      8,581
         2006 and thereafter ................          -
-------------------------------------------------------------------------------
           Total time deposits...............  $ 380,672
===============================================================================

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

         Short-term Borrowings

         Short-term borrowings at December 31, were:
                                                             2001         2000
------------------------------------------------------------------------------
         U.S. Treasury tax and loan accounts ........... $    463     $  1,359
         Repurchase agreements .........................   17,683       14,068
------------------------------------------------------------------------------
           Total short-term borrowings ................. $ 18,146     $ 15,427
==============================================================================

         The U. S. Treasury tax and loan accounts averaged $1,400 in 2001 and
         $1,126 in 2000. The highest month-end balance of the U. S. Treasury
         tax and loan accounts was $2,366 in 2001 and $2,150 in 2000. The
         average rate on U. S. Treasury tax and loan accounts was 3.17% in 2001
         and 5.95% in 2000. The repurchase agreements averaged $14,681 in 2001
         and $7,124 in 2000. The highest month-end balance of the repurchase
         agreements was $17,969 in 2001 and $14,068 in 2000. The average rate
         on repurchase agreements in 2001 and 2000 was 2.55% and 5.03%. At
         December 31, 2001, $87,105 of investment securities were pledged for
         repurchase agreements. The securities collateralizing the repurchase
         agreements have been delivered to a third party custodian for
         safekeeping.

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In thousands)

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

         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.

Note 9.  Acquisitions and dispositions

         BancShares has consummated numerous bank branch 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 considered
         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, 2001:

                                                                       Deposit

                                      45

<PAGE>

<TABLE>
<CAPTION>
                                                                               Assets   Liabilities   Resulting
           Date         Institution/Location                                  Acquired    Assumed     Intangible
       ---------------------------------------------------------------------------------------------------------
       <S>              <C>                                                    <C>      <C>           <C>
        November 2000   First-Citizens Bank & Trust Company (1) .............  $15,349      $15,349       $1,428
                        Nashville, North Carolina

        November 2000   First-Citizens Bank & Trust Company (1) .............   50,764       50,764        5,261
                        Rocky Mount, North Carolina

           April 2000   Centura Bank ........................................   10,322       10,322        1,136
                        Nashville, North Carolina

           April 2000   Centura Bank ........................................    8,003        8,003          622
                        Battleboro, North Carolina

           April 2000   Centura Bank ........................................   11,068       11,065        1,107
                        Sharpsburg, North Carolina

        February 2000   Cooperative Bank for Savings, SSB ...................    7,124        7,117          532
                        Robersonville, North Carolina

       September 1999   First-Citizens Bank & Trust Company (1) .............   14,837       14,835        1,335
                        Ahoskie, North Carolina
</TABLE>

           (1) See Note 15.
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.

                                       46

<PAGE>

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In thousands)

Note 10.  Retirement Plans - continued

          The following sets forth pertinent information regarding the pension
          plan for the periods indicated:

<TABLE>
<CAPTION>
                                                                   2001      2000     1999
------------------------------------------------------------------------------------------
<S>                                                             <C>      <C>       <C>
          Change in benefit obligation
          Net benefit obligation at beginning of year ......... $ 8,331  $  7,414  $ 7,647
          Service cost ........................................     549       422      413
          Interest cost .......................................     703       576      533
          Actuarial (gain) loss ...............................   1,331       257     (898)
          Gross benefits paid .................................    (292)     (338)    (281)
------------------------------------------------------------------------------------------
          Net benefit obligation at end of year ............... $10,622  $  8,331  $ 7,414
==========================================================================================

          Change in plan assets
          Fair value of plan assets at beginning of year ...... $ 7,743  $  7,483  $ 6,936
          Actual return on plan assets ........................     186       183      351
          Employer contributions ..............................     124       415      476
          Gross benefits paid .................................    (292)     (338)    (280)
------------------------------------------------------------------------------------------
          Fair value of plan assets at end of year ............ $ 7,761  $  7,743  $ 7,483
==========================================================================================

          Funded status at end of year ........................ $(2,860) $   (588) $    69
          Unrecognized net actuarial loss (gain) ..............   1,749        97     (511)
          Unrecognized prior service cost .....................      48        56       64
          Unrecognized net transition asset ...................     (63)     (103)    (143)
------------------------------------------------------------------------------------------
          Net amount recognized as a liability in the consolidated
</TABLE>

                                       47

<PAGE>

<TABLE>
<S>                                                        <C>        <C>       <C>
             balance sheets at end of year ............... $(1,126)   $ (538)   $(521)
=====================================================================================
             Assumptions as of December 31:
             Discount rate ...............................    7.00%     7.25%    7.50%
             Expected return on plan assets ..............    8.50%     8.50%    8.50%
             Rate of compensation increase ...............    4.75%     4.75%    4.75%

             Components of net periodic benefit cost:
             Service cost ................................ $   549    $  422    $ 413
             Interest cost ...............................     703       576      533
             Expected return on assets ...................    (584)     (535)    (464)
             Amortization of:
               Transition asset ..........................     (40)      (40)     (40)
               Prior service cost ........................       9         9        8
               Actuarial loss ............................      76         -       77
--------------------------------------------------------------------------------------
             Total net periodic benefit cost               $   713    $  432    $ 527
======================================================================================
</TABLE>

             Employees are also eligible to participate in a matching
             savings plan after one year of service. During 2001 Southern
             made participating contributions to this plan of $342 compared
             to $286 during 2000 and $263 during 1999.

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
             $10,812 during 2001 of which $10,550 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, 2001, Southern was
             considered to be "well capitalized" by the FDIC.  There are no
             conditions or events since December 31, 2001 that management
             believes have changed the category of Southern.

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

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

             Tier 1 capital ....................... $ 60,458     $ 51,865
             Total capital ........................   70,916       61,630
             Risk-adjusted assets .................  548,884      489,540

                                       48

<PAGE>

<TABLE>
          <S>                                                            <C>              <C>
          Average tangible assets ................................       820,605       744,328

          Tier 1 capital ratio ...................................         11.01%        10.59%
          Total capital ratio ....................................         12.92%        12.59%
          Leverage capital ratio .................................          7.37%         6.97%
</TABLE>


          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 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, 2001 BancShares'
          investment in Southern was restricted as to transfer to BancShares an
          amount equal to the level of regulatory capital, approximately $71
          million, without obtaining prior regulatory approval.

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.

                                       49

<PAGE>

          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, 2001 and
          December 31, 2000 amounted to $2,125 and $3,008. Outstanding
          commitments to lend at December 31, 2001 and December 31, 2000 were
          $154,636 and $136,950. Undisbursed advances on customer lines of
          credit at December 31, 2001 and December 31, 2000 were $45,940 and
          $48,506. Outstanding standby letters of credit and commitments to lend
          at December 31, 2001 generally expire within one year, wheras
          commitments associated with undisbursed advances on customer lines of
          credit at December 31, 2001 generally expire within one to five years.

          At December 31, 2001, commitments to sell loans amounted to $3,718. At
          December 31, 2000 there were no commitments to sell loans.

          BancShares does not have any special purpose entities or other similar
          forms of off-balance sheet financing arrangements.

          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 been under criticism for potential health risks.

          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.


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, 2001 and 2000
          and condensed statements of income and cash flows for the three years
          ended December 31, 2001.

<TABLE>
<CAPTION>
                                                                                December 31,
          CONDENSED BALANCE SHEETS                                             2001      2000
----------------------------------------------------------------------------------------------------
          <S>                                                                <C>       <C>
          ASSETS
          Cash ...........................................................   $ 1,545   $ 1,108
          Investment securities available-for-sale .......................    15,361    11,694
          Other assets ...................................................       470       989
          Investment in subsidiaries .....................................    76,620    71,790
----------------------------------------------------------------------------------------------------
              Total assets ...............................................   $93,996   $85,581
====================================================================================================


          LIABILITIES AND SHAREHOLDERS' EQUITY
          Accrued liabilities ............................................   $ 2,856   $ 2,188
          Notes payable ..................................................    23,711    23,711
----------------------------------------------------------------------------------------------------
              Total liabilities ..........................................    26,567    25,899
          Shareholders' equity ...........................................    67,429    59,682
----------------------------------------------------------------------------------------------------
              Total liabilities and shareholders' equity .................   $93,996   $85,581
====================================================================================================
</TABLE>


          CONDENSED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                          Year ended December 31,
                                                                        2001        2000      1999
-----------------------------------------------------------------------------------------------------
<S>                                                                     <C>         <C>       <C>
</TABLE>

<PAGE>

<TABLE>
<S>                                                                                   <C>          <C>          <C>
          Dividends from bank subsidiary .........................................      2,359      $ 2,376      $    --
              Securities (losses) gains ..........................................      2,856         (727)          --
          Other ..................................................................        437          264          192
----------------------------------------------------------------------------------------------------------------------------
           Total income ..........................................................      5,652        1,913          192

                            Interest expense .....................................     (2,129)      (2,129)      (2,142)
          Other expense ..........................................................        (83)         (65)         (65)
----------------------------------------------------------------------------------------------------------------------------
          (Loss) income before equity in undistributed
                              income of subsidiaries .............................      3,440         (281)      (2,015)
          Equity in undistributed income of subsidiaries .........................      4,801        4,015        5,694
----------------------------------------------------------------------------------------------------------------------------
           Net income ............................................................    $ 8,241      $ 3,734      $ 3,679
============================================================================================================================
</TABLE>





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,
                                                                                       2001         2000         1999
----------------------------------------------------------------------------------------------------------------------------
          <S>                                                                         <C>          <C>          <C>
          OPERATING ACTIVITIES:
             Net income .........................................................     $ 8,241      $ 3,734      $ 3,679
             Adjustments to reconcile net income to net cash (used)
               provided by operating activities:
             Equity in undistributed net income of subsidiary ...................      (4,801)      (4,015)      (5,694)
             Loss on impairment of available for sale securities ................          --          855           --
             Gains on sales and issuer calls of securities ......................      (2,856)        (128)          --
             Decrease in other assets ...........................................         519          158          186
             Increase (decrease) in accrued liabilities .........................         668          262         (678)
----------------------------------------------------------------------------------------------------------------------------
          NET CASH PROVIDED (USED) BY
              OPERATING ACTIVITIES ..............................................       1,771          866       (2,507)
----------------------------------------------------------------------------------------------------------------------------
          INVESTING ACTIVITIES:
              Sale (purchase) of  investments ...................................        (553)         (16)       1,225
----------------------------------------------------------------------------------------------------------------------------
          NET CASH (USED) PROVIDED BY
             INVESTING ACTIVITIES ...............................................        (553)         (16)       1,225
----------------------------------------------------------------------------------------------------------------------------
          FINANCING ACTIVITIES:
             Dividends paid .....................................................        (537)        (554)        (573)
             Purchase and retirement or redemption of stock .....................        (244)      (1,050)         (85)
----------------------------------------------------------------------------------------------------------------------------
          NET CASH USED BY FINANCING ACT.........................................        (781)      (1,604)        (658)
----------------------------------------------------------------------------------------------------------------------------
          NET INCREASE (DECREASE) IN CASH AND
             CASH EQUIVALENTS ...................................................         437         (754)      (1,940)
          CASH AND CASH EQUIVALENTS AT
</TABLE>

                                       51

<PAGE>

<TABLE>
          <S>                                                                          <C>        <C>        <C>
             THE BEGINNING OF YEAR ...............................................      1,108      1,862      3,802
--------------------------------------------------------------------------------------------------------------------------

          CASH AND CASH EQUIVALENTS
          AT THE END OF YEAR .....................................................     $1,545     $1,108     $1,862
==========================================================================================================================

          SUPPLEMENTAL DISCLOSURES OF CASH
             PAID DURING THE YEAR FOR:
             Interest ............................................................     $2,129     $2,129     $2,142
             Income taxes ........................................................     $   --     $   --     $    4
==========================================================================================================================
</TABLE>


Note 14.  Fair Value of Financial Instruments

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

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

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






SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In thousands)

Note 14.  Fair Value of Financial Instruments (continued)

          Investment securities

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

          Loans

          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 borrowings and accrued interest payable

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

                                       52

<PAGE>

               Long-term obligations

               The fair value of long-term obligations is the market value at
               the last trade date in 2001 and 2000.

               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 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.

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In thousands)

Note 14.       Fair Value of Financial Instruments  (continued)

               Limitations on Fair Value Assumptions - continued

               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.

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

<TABLE>
<CAPTION>
                                                                              2001                         2000
--------------------------------------------------------------------------------------------------------------------------
                                                                     Carrying      Estimated      Carrying     Estimated
                                                                      Amount       Fair Value      Amount      Fair Value
--------------------------------------------------------------------------------------------------------------------------
               <S>                                                  <C>            <C>           <C>          <C>
               Financial assets:
                     Cash and due from banks......................   $  40,811      $ 40,811      $ 42,944      $ 42,944
                     Overnight funds sold.........................      22,365        22,365        12,840        12,840
                     Investment securities:
                       Held-to-maturity...........................      49,351        50,142        95,545        96,416
                       Available-for-sale.........................     154,932       154,932       111,573       111,573
                     Loans........................................     537,664       564,762       489,682       486,480
                     Accrued interest receivable..................       6,097         6,097         6,482         6,482

               Financial liabilities:
                     Deposits.....................................   $ 738,659       742,862      $698,485      $700,313
</TABLE>
                                       53

<PAGE>

<TABLE>
                    <S>                                                    <C>              <C>          <C>        <C>
                     Short-term borrowings........................           18,146          18,146        15,427   15,427
                     Long-term obligations........................           23,000          23,230        23,000   20,125
                     Accrued interest payable.....................            3,228           3,228         4,117    4,117
</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, 2001 beneficially owned 32,856
                  shares, or 28.77%, of BancShares' outstanding common stock and
                  4,966 shares, or 1.37%, of BancShares' outstanding Series B
                  preferred stock. At the same date, the second significant
                  shareholder beneficially owned 27,522 shares, or 24.10%, of
                  BancShares' outstanding common stock.

                  These two significant shareholders are directors and executive
                  officers of the Corporation and at December 31, 2001,
                  beneficially owned 2,524,210 shares, or 28.67%, and 1,421,621
                  shares, or 16.15%, of the Corporation's outstanding Class A
                  common stock, and 649,188 shares, or 38.35%, and 199,052
                  shares, or 11.76%, of the Corporation's outstanding Class B
                  common stock. The above totals include 472,855 Class A common
                  shares, or 5.37%, and 104,644 Class B common shares, or 6.18%,
                  that are considered to be beneficially owned by both of the
                  shareholders and, therefore, are included in each of their
                  totals.

SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In thousands)

Note 15.          Related Parties - continued

                  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 2000 and
                  1999.

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

<TABLE>
<CAPTION>
                                                                   2001      2000       1999
--------------------------------------------------------------------------------------------
                  <S>                                          <C>        <C>       <C>
                  Data and item processing...................   $ 2,821   $ 2,461    $ 2,156
                  Forms, supplies and equipment..............       476       302        281
                  Trustee for employee benefit plans.........        64        88         89
                  Consulting fees............................       102        83         86
                  Other services.............................        52        80        136
--------------------------------------------------------------------------------------------
                                                                $ 3,515   $ 3,014    $ 2,748
============================================================================================
</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 $23,974 at December 31, 2001 and $26,205 at
                  December 31, 2000. Southern's wholly-owned subsidiary, Goshen,
                  Inc. paid $87 and $99 to an Insurance Company owned by the
                  Corporation for the sale of insurance written in connection
                  with loans made by Southern in 2001 and 2000, 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 a cost basis of $2.6 million and $465,
                  respectively, at both December 31, 2001 and 2000. The Class A
                  common stock had a fair value of $12.2 million and $10.0
                  million at December 31, 2001 and 2000, respectively. The Class
                  B common stock had a fair value of $2.2 million and $1.6
                  million at December 31, 2001 and 2000, respectively.


                                       54

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

DATED: March 13, 2002              SOUTHERN BANCSHARES (N.C.), INC.

                                         /s/ R. S. Williams
                                    By: --------------------------------------
                                         R. S. Williams, Chairman of the Board

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

<TABLE>
<CAPTION>
Signature                                                   Title                                           Date
<S>                                        <C>                                                         <C>
/s/ R. S. Williams                         Chairman of the Board of Directors                          March 13, 2002
-----------------------------------
R. S. Williams

/s/ John C. Pegram, Jr.                    President, Chief Executive Officer and Director             March 5, 2002
-----------------------------------         (principal executive officer)
John C. Pegram, Jr.

/s/ David A. Bean                          Treasurer (principal financial and accounting officer)      March 5, 2002
-----------------------------------
David A. Bean

/s/ Bynum R. Brown                         Director                                                    March 11, 2002
-----------------------------------
Bynum R. Brown

/s/ William H. Bryan                       Director                                                    March 5, 2002
-----------------------------------
William H. Bryan
</TABLE>

                                       55

<PAGE>

/s/ Robert J. Carroll                  Director                  March 7, 2002
------------------------------
Robert J. Carroll

/s/ Hope H. Connell                    Director                  March 8, 2002
------------------------------
Hope H. Connell

/s/ J. Edwin Drew                      Director                  March 8, 2002
------------------------------
J. Edwin Drew

/s/ Moses B. Gillam, Jr.               Director                  March 7, 2002
------------------------------
Moses B. Gillam, Jr.

/s/ Leroy C. Hand, Jr.                 Director                  March 12, 2002
------------------------------
LeRoy C. Hand, Jr.

/s/ Frank B. Holding                   Director                  March 8, 2002
------------------------------
Frank B. Holding

/s/ M. J. McSorley                     Director                  March 8, 2002
------------------------------
M. J. McSorley

/s/ W. Hunter Morgan                   Director                  March 7, 2002
------------------------------
W. Hunter Morgan

/s/ Charles I. Pierce                  Director                  March 5, 2002
------------------------------
Charles I. Pierce, Sr.

/s/ W. A. Potts                        Director                  March 5, 2002
------------------------------
W. A. Potts

/s/ Charles L. Revelle, Jr.            Director                  March 11, 2002
------------------------------
Charles L. Revelle, Jr.

/s/ Charles O. Sykes                   Director                  March 5, 2002
------------------------------
Charles O. Sykes

/s/ John N. Walker                     Director                  March 5, 2002
------------------------------
John N. Walker

                                  EXHIBIT INDEX

     Exhibit                         Exhibit
     Number

       3.1  Certificate of Incorporation and Certificate of Amendment to the
            Certificate of Incorporation of the Registrant (filed as exhibit 3.1
            to the Registrant's Registration Statement on Form S-1 (No.
            33-52107) filed May 7, 1998 and incorporated herein by reference)

       3.2  Registrant's Bylaws (filed as exhibit 3.2 to the Registrant's
            Registration Statement on FormS-1 (No.33- 52107) filed May 7, 1998
            and incorporated herein by reference)

       4    Southern Bank and Trust Company Indenture dated February 27, 1971
            (filed as exhibit 4 to the Registrant's Registration Statement on
            Form S-14 (No. 2-78327) filed July 7, 1982 and incorporated herein
            by reference)

                                       56

<PAGE>

     10.1  Non-Competition and Consulting Agreement between R. S. Williams and
           Southern Bank and Trust Company (filed as exhibit 10.1 to the
           Registrant's 1989 Annual Report on Form 10-K and incorporated herein
           by reference)

     10.2  Assignment and Assumption Agreement and First Amendment of
           Noncompetition and Consultation Agreement between First-Citizens Bank
           & Trust Company, Southern Bank and Trust Company and M. J. McSorley
           (filed as exhibit 10.3 to the Registrant's 1989 Annual Report on Form
           10-K and incorporated herein by reference)

     10.3  Amended and Restated Trust Agreement of Southern Capital Trust I
           (filed as Exhibit 4.3 to Amendment No. 1 to Registrant's Registration
           Statement on Form S-1 (No. 333-52107) filed June .3, 1998 and
           incorporated herein by reference.)

     10.4  Form of Guarantee Agreement (filed as Exhibit 4.5 to Amendment No. 1
           to Registrant's Registration Statement on Form S-4 (No. 333-52107)
           filed June 3, 1998 and incorporated herein by reference).

     10.5  Junior Subordinated Indenture between Registrant and Bankers Trust
           Company, as Debenture Trustee (filed as Exhibit 4.6 to Amendment No.
           1 to Registrant's Registration Statement on Form S-4 (No. 333- 52107)
           filed June 3, 1998 and incorporated herein by reference).

     22    Subsidiaries of the Registrant (filed as exhibit 22 to the
           Registrant's 1999 Annual Report on Form 10-K and incorporated herein
           by reference)

     99    Registrant's definitive Proxy Statement dated March 22, 2002 for the
           2001 Annual Shareholders' Meeting (previously filed)


COPIES OF EXHIBITS ARE AVAILABLE UPON WRITTEN REQUEST TO DAVID A. BEAN,
SECRETARY, TREASURER AND CHIEF FINANCIAL OFFICER OF SOUTHERN BANCSHARES (N.C.),
INC.

                                       57